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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1996
REGISTRATION NO. 333-10407
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ON COMMAND CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 4841 77-0435194
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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ARTHUR M. AARON, VICE PRESIDENT
BUSINESS AND LEGAL AFFAIRS
3301 OLCOTT STREET ASCENT ENTERTAINMENT GROUP, INC.
SANTA CLARA, CALIFORNIA 95054 ONE TABOR CENTER
(408) 496-1800 1200 SEVENTEENTH STREET, SUITE 2800
(Address, including Zip Code, and Telephone DENVER, COLORADO 80202
Number, including Area Code, of Registrant's (303) 626-7000
Principal Executive Offices) (Name, Address, including Zip Code, and Telephone
Number, including Area Code, of Agent for Service)
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Copy to:
ROGER H. KIMMEL
CHRISTINE FOURNIER
LATHAM & WATKINS
885 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 906-1200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and upon
consummation of the transactions described in the enclosed Information
Statement/Prospectus.
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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ON COMMAND VIDEO CORPORATION
3301 Olcott Street
Santa Clara, California 95054
(408) 496-1800
NOTICE OF CONSENT OF STOCKHOLDERS IN LIEU OF MEETING
PURSUANT TO SECTION 228 OF THE DELAWARE GENERAL CORPORATION LAW
On August 12, 1996, the Board of Directors of On Command Video
Corporation ("OCV") approved an Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger (the "Merger") of On Command Merger
Corporation, a newly formed Delaware corporation ("Merger Sub"), with and into
OCV. Merger Sub is a wholly owned subsidiary of On Command Corporation ("On
Command Corporation"), a newly formed Delaware corporation. On Command
Corporation has entered into an acquisition agreement (the "Acquisition
Agreement") to acquire (the "Acquisition") all of the outstanding capital stock
of Spectradyne, Inc. ("Spectradyne"), a wholly owned subsidiary of
SpectraVision, Inc. ("SpectraVision"). SpectraVision and its domestic
subsidiaries, including Spectradyne, have filed a petition for relief under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code").
In the Merger, it is currently expected that each issued and
outstanding share of OCV Common Stock will be converted into the right to
receive the following: (i) approximately 2.84 shares (the "Initial Shares") of
On Command Corporation Common Stock ("OCC Common Stock"), (ii) such additional
number of shares of OCC Common Stock, if any, to which holders of OCV Common
Stock may be entitled pursuant to a formula based upon the working capital of
Spectradyne at the time of the consummation of the Acquisition (the "Reserved
Stock") and (iii) warrants to purchase, on a cashless basis, 18.61% of a
share of OCC Common Stock (the "Series A Warrants"). Pursuant to the Acquisition
Agreement, as consideration for the acquisition of the capital stock of
Spectradyne, upon the consummation of the Acquisition On Command Corporation
will issue to the creditors of SpectraVision pursuant to a distribution plan to
be adopted by the Bankruptcy Court (i) an aggregate of 8,250,000 shares of OCC
Common Stock, less the aggregate amount of Reserved Stock and (ii) warrants to
purchase for cash an aggregate of 2,625,000 shares of OCC Common Stock for cash,
at the same exercise price applicable to the Series A Warrants. The Initial
Shares to be issued to holders of OCV Common Stock will represent, in the
aggregate, 72.5%, and the shares of OCC Common Stock to be issued to creditors
of SpectraVision will represent, in the aggregate, 27.5%, of the total number of
shares of OCC Common Stock to be issued pursuant to the Merger Agreement and the
Acquisition Agreement, assuming no holder of OCV Common Stock exercises its
appraisal rights and before giving effect to any Reserved Stock and the exercise
of any warrants.
The Board of Directors of OCV has determined that the Merger is in
the best interests of OCV and its stockholders. Accordingly, the Board of
Directors has unanimously approved the Merger Agreement and the transactions
contemplated thereby. Certain stockholders of OCV who own, in the aggregate,
approximately 78.9% of the outstanding shares of OCV Common Stock, acting
pursuant to Section 228 of the Delaware General Corporation Law, have consented
in writing to the adoption of the Merger Agreement and to the consummation of
the Merger. Holders of OCV Common Stock who have not consented to the adoption
of the Merger Agreement and who (a) deliver to OCV a written demand for
appraisal of their shares of OCV Common Stock and (b) meet certain other
statutory requirements, will be entitled to have the value of their shares
appraised in accordance with Section 262 of the Delaware General Corporation
Law.
The Merger Agreement and the Acquisition Agreement are described in
detail in the accompanying Information Statement/Prospectus and its annexes. You
are urged to read all of these important materials carefully.
By order of the Board of Directors
Santa Clara, California
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September ___, 1996 Secretary
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
SUBJECT TO COMPLETION, DATED AUGUST 16, 1996
ON COMMAND VIDEO CORPORATION
INFORMATION STATEMENT
ON COMMAND CORPORATION
PROSPECTUS
This Information Statement/Prospectus relates to the proposed merger
(the "Merger") of On Command Merger Corporation ("Merger Sub"), a wholly owned
subsidiary of On Command Corporation ("On Command Corporation"), with and into
On Command Video Corporation ("OCV") pursuant to an Agreement and Plan of
Merger, dated August 13, 1996 (the "Merger Agreement"), among On Command
Corporation, Merger Sub and OCV.
Simultaneously with the Merger, On Command Corporation will acquire
(the "Acquisition") all of the outstanding capital stock of Spectradyne, Inc.
("Spectradyne"), a wholly owned subsidiary of SpectraVision, Inc.
("SpectraVision"). The Acquisition will be effected pursuant to an Acquisition
Agreement, dated August 13, 1996 (the "Acquisition Agreement"), among On Command
Corporation, Ascent Entertainment Group, Inc. ("Ascent"), SpectraVision, the
Official Creditors' Committee for SpectraVision, Spectradyne and the other
domestic subsidiaries of SpectraVision. See "The Transactions."
This Information Statement/Prospectus also constitutes a prospectus
of On Command Corporation with respect to (a) 21,750,000 shares of common stock,
$.01 par value per share, of On Command Corporation ("OCC Common Stock"), (b)
such additional number of shares of OCC Common Stock, if any, to which holders
of OCV Common Stock may be entitled pursuant to a formula based upon the working
capital of Spectradyne at the time of the consummation of the Acquisition (the
"Reserved Stock") and (c) warrants to purchase, on a cashless basis,
1,425,000 shares of OCC Common Stock (the "Series A Warrants"). In the Merger,
each issued and outstanding share of OCV Common Stock will be converted into the
right to receive (i) approximately 2.84 shares of OCC Common Stock, (ii) such
additional number of shares of Reserved Stock, if any, to which holders of OCV
Common Stock may be entitled and (iii) Series A Warrants to purchase, on a
cashless basis, 18.61% of a share of OCC Common Stock. See "The
Transactions."
In connection with the Merger and the Acquisition, application will
be made to list the OCC Common Stock and the Warrants on the Nasdaq National
Market System under the symbol "______." This Information Statement/Prospectus
is first being mailed to holders of OCV Common Stock on or about September ___,
1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Information
Statement/Prospectus is September ___, 1996.
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TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION........................................................................................... 6
SUMMARY......................................................................................................... 7
The Companies............................................................................................... 7
The Transactions............................................................................................ 8
Stockholders' Consent....................................................................................... 10
Exchange of Certificates.................................................................................... 10
Interests of Certain Persons in the Merger.................................................................. 10
Appraisal Rights............................................................................................ 10
Anticipated Accounting Treatment............................................................................ 11
Opinion of Allen & Company.................................................................................. 11
Listing of OCC Common Stock................................................................................. 11
Certain Federal Income Tax Consequences..................................................................... 11
Risk Factors................................................................................................ 11
Summary Pro Forma Financial Information..................................................................... 13
Historical Summary Selected Financial Information........................................................... 14
RISK FACTORS.................................................................................................... 16
Control by Ascent........................................................................................... 16
Restrictions on Debt Financings............................................................................. 16
Dependence on Additional Capital for Growth................................................................. 17
Integration of OCV and Spectradyne Businesses............................................................... 17
No Prior Public Market and Possible Volatility of Stock Price............................................... 17
Highly Competitive In-Room Entertainment Industry........................................................... 18
Dependence on Significant Customers......................................................................... 18
Dependence on Performance of Lodging Industry............................................................... 18
Risk of Technological Obsolescence.......................................................................... 18
Dependence on Key Personnel................................................................................. 19
Seasonality................................................................................................. 19
Anti-Takeover Protections................................................................................... 19
STOCKHOLDERS' CONSENT........................................................................................... 20
THE TRANSACTIONS................................................................................................ 21
General..................................................................................................... 21
Background of the Transactions.............................................................................. 21
The Merger.................................................................................................. 22
Merger Consideration................................................................................... 22
Effective Time......................................................................................... 23
Directors and Officers of the Surviving Corporation.................................................... 23
Conversion of OCV Common Stock; Procedures for Exchange of OCV Stock Certificates;
Fractional Shares.................................................................................. 23
Treatment of OCV Employee Stock Options................................................................ 25
Representations and Warranties......................................................................... 25
Pre- and Post-Closing Obligations...................................................................... 26
Conditions to the Consummation of the Merger........................................................... 26
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Termination of the Merger Agreement.................................................................... 27
Bankruptcy Court Approval.............................................................................. 27
Fees and Expenses...................................................................................... 27
Amendment and Waiver................................................................................... 28
Interests of Certain Persons in the Merger............................................................. 28
Resale of OCC Common Stock and Warrants................................................................ 29
Appraisal Rights....................................................................................... 30
The Acquisition............................................................................................. 32
The Acquisition Agreement.............................................................................. 32
Assets Acquired........................................................................................ 32
Liabilities Assumed.................................................................................... 33
Acquisition Consideration.............................................................................. 35
Certain Definitions.................................................................................... 35
Closing Conditions and Other Pre-Closing Matters....................................................... 38
Representations and Warranties......................................................................... 40
The Warrants................................................................................................ 40
Exercisability; Expiration............................................................................. 40
Adjustments............................................................................................ 41
Registration; Exemption..................................................................................... 42
Registration Rights......................................................................................... 42
Anticipated Accounting Treatment............................................................................ 43
Reasons for the Transactions; Determination of the Board of Directors of OCV................................ 43
Opinion of Allen & Company.................................................................................. 44
SELECTED PRO FORMA FINANCIAL INFORMATION........................................................................ 47
HISTORICAL SELECTED FINANCIAL INFORMATION....................................................................... 48
OCV ....................................................................................................... 48
SpectraVision............................................................................................... 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................... 50
Overview.................................................................................................... 50
Results of Operations....................................................................................... 50
OCV ................................................................................................... 50
SpectraVision.......................................................................................... 54
Liquidity and Capital Resources............................................................................. 60
BUSINESS........................................................................................................ 62
General..................................................................................................... 62
Industry Overview........................................................................................... 63
Operating and Growth Strategies............................................................................. 63
On Command Video Corporation................................................................................ 64
Services and Products.................................................................................. 65
Sales and Marketing.................................................................................... 66
Installation and Service Operations.................................................................... 67
Technology............................................................................................. 67
Manufacturing and Suppliers............................................................................ 67
Spectradyne, Inc............................................................................................ 68
Pay-Per-View Services.................................................................................. 68
Free-To-Guest Services................................................................................. 69
Interactive and Other Services......................................................................... 69
Programming............................................................................................ 70
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The EDS Servicing and Technology Agreement............................................................. 70
Hotel Contracts........................................................................................ 71
Manufacturing.......................................................................................... 71
Competition............................................................................................ 71
Regulation.................................................................................................. 72
Patents, Trademarks and Copyrights.......................................................................... 73
Employees................................................................................................... 73
Properties.................................................................................................. 73
Legal Proceedings........................................................................................... 73
MANAGEMENT...................................................................................................... 74
Directors and the Executive Officers........................................................................ 74
Committees of the Board of Directors........................................................................ 75
Directors' Compensation..................................................................................... 75
Executive Compensation...................................................................................... 75
BENEFICIAL OWNERSHIP OF OCV AND OCC COMMON STOCK................................................................ 79
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES.................................................................... 81
DESCRIPTION OF ON COMMAND CORPORATION CAPITAL STOCK............................................................. 85
General..................................................................................................... 85
OCC Common Stock............................................................................................ 85
On Command Corporation Preferred Stock...................................................................... 86
COMPARISON OF STOCKHOLDER RIGHTS................................................................................ 86
General..................................................................................................... 86
Voting Rights............................................................................................... 86
Dividends................................................................................................... 87
Board of Directors.......................................................................................... 88
Reports to Stockholders; Other Public Information........................................................... 88
Rights of Inspection........................................................................................ 89
Stockholder Meeting Procedures.............................................................................. 89
Stockholder Vote Required for Certain Actions............................................................... 90
Indemnification for Securities Act Liabilities.............................................................. 92
Stockholder Suits........................................................................................... 92
Appraisal Rights............................................................................................ 92
EXPERTS......................................................................................................... 94
LEGAL MATTERS................................................................................................... 94
INDEX TO PRO FORMA FINANCIAL STATEMENTS OF ON COMMAND CORPORATION.............................................. P-1
INDEX TO FINANCIAL STATEMENTS OF ON COMMAND VIDEO CORPORATION...................................................F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF SPECTRAVISION, INC. ..............................................F-20
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ANNEXES
Annex I Agreement and Plan of Merger
Annex II Acquisition Agreement
Annex III Warrant Agreement
Annex IV Registration Rights Agreement
Annex V Opinion of Allen & Company
Annex VI Delaware General Corporation Law Section 262
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
INFORMATION STATEMENT/PROSPECTUS IN CONNECTION WITH 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 ON COMMAND CORPORATION OR OCV. THIS
INFORMATION STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES IN ANY JURISDICTION IN WHICH IT
IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION OR TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS INFORMATION STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF ON COMMAND CORPORATION OR OCV SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
AVAILABLE INFORMATION
OCV currently is not subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
On Command Corporation currently is not subject to the periodic
reporting and other informational requirements of the Exchange Act. In
connection with the Merger and the issuance of the OCC Common Stock and the
Series A Warrants, On Command Corporation will become subject to the
informational requirements of the Exchange Act and in accordance therewith will
file reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Following the Merger, On Command
Corporation will furnish to holders of OCC Common Stock annual reports
containing audited consolidated financial statements prepared in accordance with
generally accepted accounting principles ("GAAP"), with an opinion thereon by On
Command Corporation's independent auditors, and will make available upon request
all quarterly reports containing unaudited consolidated financial information
prepared in accordance with GAAP.
On Command Corporation has filed with the Commission a Registration
Statement on Form S-4 (together with all amendments, exhibits and schedules
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the shares of OCC Common Stock
and the Series A Warrants to purchase OCC Common Stock to be issued to holders
of OCV Common Stock pursuant to the Merger Agreement. This Information
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, a portion of which has been omitted in accordance with
the rules and regulations of the Commission. Such additional information may be
obtained from the Commission's principal office at Room 1024, 450 Fifth Street,
N.W., Washington, D.C.
20549.
SpectraVision is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Commission. The reports, proxy statements and other
information filed by SpectraVision with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's
Regional Offices at Suite 1300, Seven World Trade Center, New York, New York
10048, and The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
Information contained in this Information Statement/Prospectus relating
to SpectraVision and its subsidiaries has been obtained from publicly available
documents.
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SUMMARY
The following is a summary of certain information contained elsewhere
in this Information Statement/Prospectus. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained
elsewhere in this Information Statement/Prospectus and the annexes hereto. OCV
stockholders are urged to read this Information Statement/Prospectus and the
annexes hereto carefully and in their entirety.
THE COMPANIES
On Command Corporation. On Command Corporation is a newly formed
Delaware corporation and is currently a wholly owned subsidiary of Ascent.
COMSAT Corporation ("COMSAT") owns 80.7% of the outstanding common stock of
Ascent. From and after the closing date of the transactions contemplated by the
Merger Agreement and the Acquisition Agreement (the "Closing Date"), and after
giving effect to the Merger and the Acquisition (collectively, the
"Transactions"), On Command Corporation will be a holding company the principal
assets of which will be OCV, Spectradyne and On Command Development Corporation
("On Command Development"), each of which will operate as a separate, wholly
owned subsidiary of On Command Corporation. The address of On Command
Corporation's principal executive offices is 3301 Olcott Street, Santa Clara,
California 95054 (telephone (408) 496-1800).
OCV. OCV is the leading provider (by number of hotel rooms served) of
on-demand in-room entertainment for the United States lodging industry. The OCV
system is a patented video selection and distribution system that allows guests
to select from up to 50 motion pictures on computer controlled television sets
located in their rooms at any time. OCV also provides in-room viewing of
free-to-guest programming of select cable channels (such as HBO, the Disney
Channel, Showtime, ESPN and CNN) and other interactive services under long-term
contracts primarily to business and luxury hotel chains such as Marriott,
Hilton, Wyndham, Doubletree, Fairmont, Embassy Suites and Holiday Inn, and to
other select hotels. OCV has experienced rapid growth in the past three years,
increasing its base of installed on- demand rooms from approximately 37,000
rooms at the end of 1992 to approximately 419,000 rooms at June 30, 1996. The
address of OCV's principal executive offices is 3301 Olcott Street, Santa Clara,
California 95054 (telephone: (408) 496-1800).
Spectradyne. Spectradyne, a subsidiary of SpectraVision, is a leading
provider of interactive in- room video entertainment services to the lodging
industry. Founded in 1971, SpectraVision originally developed and patented a
system which provides in-room television viewing of recently released major and
other motion pictures on a pay-per-view ("PPV") basis. SpectraVision, through
Spectradyne, subsequently expanded its services to include providing PPV movies
in an on-demand format, delivering free-to-guest programming and providing
interactive services that capitalize on Spectradyne's proprietary two-way
communications equipment. Spectradyne has been a major provider of these
services to the lodging industry since 1971 and, at June 30, 1996, provided PPV
services to approximately 495,000 rooms in approximately 1,600 hotels.
Spectradyne provides its services under contracts to hotel chains, hotel
management companies and individually owned and franchised hotel properties.
In June 1993, SpectraVision entered into a ten-year exclusive contract
with Electronic Data Systems Corporation ("EDS") to install and maintain a
digital satellite delivered hotel PPV system. By late 1994, the costs associated
with the EDS contract combined with SpectraVision's high debt levels created
financial difficulties for SpectraVision. In early 1995, SpectraVision
determined that a financial restructuring would be required to ensure
SpectraVision's long-term survival. SpectraVision conducted
7
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restructuring negotiations with representatives of its secured and unsecured
creditors during April and May 1995, working toward the development of an
overall restructuring plan. In June 1995, SpectraVision concluded that a filing
for reorganization under Chapter 11 of the Bankruptcy Code should be made in
order to preserve the value of its assets and to ensure that the business had
sufficient cash resources to continue operations while it completed the
financial restructuring process. On June 8, 1995, SpectraVision and its domestic
subsidiaries, including Spectradyne (collectively with SpectraVision, the
"Debtors"), filed a petition for relief under the Bankruptcy Code in the
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), which
cases were procedurally consolidated for joint administration as Case No. 95-
659 (collectively, the "Bankruptcy Case").
On Command Development. On Command Development, a newly formed
subsidiary of On Command Corporation, has been formed to develop new
technologies to be used by OCV and Spectradyne in order to support and improve
OCV's and Spectradyne's operations and to develop new applications to be
marketed by On Command Corporation, OCV and Spectradyne.
THE TRANSACTIONS
On April 19, 1996, SpectraVision, Ascent, OCV and an unsecured
creditors' committee (the "Creditors' Committee"), which was appointed by the
United States Trustee for the District of Delaware pursuant to Section 1102 of
the Bankruptcy Code, entered into an agreement (the "Plan Sponsor Agreement")
pursuant to which it was agreed that Ascent would be plan sponsor for the
SpectraVision plan of reorganization (the "Plan") and that On Command
Corporation, directly or indirectly, would acquire the assets or the capital
stock and certain liabilities of OCV and Spectradyne, subject to the terms and
conditions of the Plan Sponsor Agreement. The Merger Agreement, the Acquisition
Agreement, the Warrant Agreement (as defined below) and the Registration Rights
Agreement (as defined below) were or will be entered into to implement the Plan
Sponsor Agreement.
The Plan Sponsor Agreement. The Plan Sponsor Agreement provides that
Ascent and the other stockholders of OCV will contribute all of the assets,
leases, operations and businesses of OCV (and certain liabilities) in
consideration for 72.5% of the OCC Common Stock. The Debtors will contribute
substantially all of their assets and certain liabilities to On Command
Corporation in consideration for 27.5% of the OCC Common Stock, subject to
adjustment downward to the extent that the Debtors' net working capital has a
negative balance at the closing of the Acquisition. The Plan Sponsor Agreement
also provides that On Command Corporation will issue Warrants to purchase 20% of
the OCC Common Stock on a fully diluted basis, of which warrants to purchase 13%
of the OCC Common Stock will be distributed at the direction of Ascent and
warrants to purchase 7% of the OCV Common Stock will be distributed to the
Debtors. Of the Warrants distributable at the direction of Ascent, Warrants to
purchase 9.2% of the OCC Common Stock will be issued to Gary Wilson Partners,
financial advisors to Ascent and OCV, as partial consideration for services
rendered pursuant to a letter agreement dated April 19, 1996.
The Merger Agreement. At the Effective Time (as defined below),
pursuant to the terms of the Merger Agreement, Merger Sub will merge with and
into OCV, with OCV as the surviving corporation (the "Surviving
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Corporation"). After giving effect to the Merger, the separate corporate
existence of Merger Sub will cease. The Merger Agreement provides that the
Certificate of Incorporation and Bylaws of OCV, as in effect immediately prior
to the Effective Time, will be the Certificate of Incorporation and Bylaws of
the Surviving Corporation.
Upon consummation of the Merger, each share of OCV Common Stock that is
issued and outstanding immediately prior to the Effective Time (other than
shares of OCV Common Stock held by OCV or by its direct or indirect subsidiaries
and Dissenting Shares (as defined below)), will be converted into the right to
receive the following (the "Merger Consideration"): (i) approximately 2.84
shares of OCC Common Stock (the "Initial Shares"), (ii) such additional number
of shares of Reserved Stock, if any, to which holders of OCV Common Stock may be
entitled and (iii) Series A Warrants to purchase, on a cashless basis, 18.61% of
a share of OCC Common Stock. See "The Transactions--The Merger--Merger
Consideration." The Initial Shares to be issued to holders of OCV Common Stock
will represent, in the aggregate, 72.5% of the total number of shares of OCC
Common Stock to be issued pursuant to the Merger Agreement and the Acquisition
Agreement, assuming no holder of OCV Common Stock exercises its appraisal rights
and before giving effect to any Reserved Stock and the exercise of any warrants.
Cash will be paid in lieu of the issuance of fractional OCC Common Stock as
described below under "The Transactions--The Merger--Conversion of OCV Common
Stock; Procedures for Exchange of OCV Stock Certificates; Fractional Shares."
The Acquisition Agreement. The Acquisition Agreement provides that On
Command Corporation will purchase all of the capital stock of Spectradyne. It
also provides that certain assets held by affiliates of Spectradyne and the
other Debtors will be transferred to Spectradyne prior to the acquisition of the
Spectradyne capital stock by On Command Corporation. As consideration for the
capital stock of Spectradyne, in accordance with the provisions of the
Acquisition Agreement, On Command Corporation will issue to the creditors of the
Debtors (collectively, the "Creditors"), or an agent on their behalf: (i) an
aggregate of 8,250,000 shares of OCC Common Stock, less the aggregate amount of
Reserved Stock and (ii) warrants to purchase for cash an aggregate of 2,625,000
shares of OCC Common Stock for cash, at the same exercise price applicable to
the Series A Warrants. The shares of OCC Common Stock to be issued to the
Creditors will represent, in the aggregate, 27.5% of the total number of shares
of OCC Common Stock to be issued pursuant to the Merger Agreement and the
Acquisition Agreement, assuming no holder of OCV Common Stock exercises its
appraisal rights and before giving effect to any Reserved Stock and the exercise
of any warrants. See "The Transactions--The Acquisition."
The manner in which the number of shares of OCC Common Stock that
constitutes Reserved Stock, if any, will be determined, and its allocation among
the OCV stockholders and the Creditors, are described below under "The
Transactions--The Acquisition."
The Warrants. On the Closing Date, On Command Corporation and The Bank
of New York, as warrant agent (the "Warrant Agent"), will enter into a warrant
agreement (the "Warrant Agreement") pursuant to which On Command Corporation
will issue (i) the Series A Warrants to purchase an aggregate of 1,425,000
shares of OCC Common Stock on a cashless basis to the stockholders of OCV, (ii)
warrants to purchase for cash an aggregate of 2,625,000 shares of OCC Common
Stock (the "Series B Warrants") to the Creditors and (iii) a warrant to purchase
for cash an aggregate of 3,450,000 shares of OCC Common Stock (the "Series C
Warrant") to Gary Wilson Partners in consideration for certain investment
banking and advisory services provided in connection with the Transactions and
for future advisory and other services to be rendered to On Command Corporation.
9
<PAGE> 12
The exercise price for the shares of OCC Common Stock (the "Warrant
Shares") purchasable upon exercise of the Series A Warrants, the Series B
Warrants and the Series C Warrant (collectively, the "Warrants") will be
determined as of the Closing Date, as described under the caption "The
Transactions--The Warrants--Exercisability; Expiration." The exercise price for
each Warrant and the number of Warrant Shares issuable per Warrant are subject
to adjustment as described under the caption "The Transactions--The
Warrants--Adjustments." The Warrants will be exercisable from and after the
Closing Date (other than the Series C Warrant, which will not be exercisable
until two years after the Closing Date) and, unless exercised prior to 5:00
p.m., New York City time, on the seventh anniversary of their issuance, will
expire at that time.
Registration Rights. Any OCV stockholder that owns 10% or more of the
OCV Common Stock prior to the Effective Time (including, but not limited to,
Ascent) and any Creditor who receives 10% or more of the OCC Common Stock upon
initial issuance thereof in connection with the Transactions will be entitled to
certain registration rights set forth in the Registration Rights Agreement (the
"Registration Rights Agreement") described under the caption "The
Transactions--Registration Rights." The holder of the Series C Warrant will also
be entitled to certain registration rights under the Registration Rights
Agreement. See "The Transactions--Registration Rights."
STOCKHOLDERS' CONSENT
Certain stockholders of OCV who own, in the aggregate, approximately
78.9% of the outstanding shares of OCV Common Stock, acting pursuant to Section
228 of the Delaware General Corporation Law (the "DGCL"), have consented in
writing to the adoption of the Merger Agreement and to the consummation of the
Merger. As a result, pursuant to Section 228 of the DGCL, no special meeting of
the stockholders of OCV is required to approve the Merger Agreement.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Merger, holders of certificates that
formerly represented shares of OCV Common Stock will receive a letter of
transmittal containing instructions for the surrender of such certificates in
exchange for certificates representing shares of OCC Common Stock and
certificates representing Series A Warrants and, if the holder is entitled to a
fractional share of OCC Common Stock, a check representing such cash payable in
lieu of any fractional share of OCC Common Stock. See "The Transactions--The
Merger--Conversion of OCV Common Stock; Procedures for Exchange of OCV Stock
Certificates; Fractional Shares."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain stockholders, members of the Board of Directors and management
of OCV may be deemed to have certain interests in the Merger, in addition to
their interests generally as stockholders of OCV. The OCV Board of Directors was
aware of these interests of its directors and officers and considered them,
among other matters, in approving the Merger Agreement and the transactions
contemplated thereby. See "The Transactions--The Merger--Interests of Certain
Persons in the Merger."
APPRAISAL RIGHTS
Holders of OCV Common Stock who have not consented to the adoption of
the Merger Agreement and who (a) deliver to OCV a written demand for appraisal
of their shares of OCV Common
10
<PAGE> 13
Stock and (b) meet certain other statutory requirements, will be entitled to
have the value of their shares appraised in accordance with Section 262 of the
DGCL, a copy of which is included as Annex V to this Information
Statement/Prospectus. See "The Transactions--The Merger--Appraisal Rights."
ANTICIPATED ACCOUNTING TREATMENT
The Transactions will be accounted for using the historical book value
of the assets, liabilities and stockholders equity acquired from OCV by On
Command Corporation and On Command Corporation's management's estimate of the
fair value of Spectradyne's assets to be acquired and liabilities to be assumed
by On Command Corporation. The final purchase price allocation for the Debtors'
assets will be determined at a future date (no later than one year from the
Closing Date), which may result in adjustments to the preliminary allocation.
However, in the opinion of On Command Corporation's management, the preliminary
allocation of the purchase price reflects On Command Corporation's best estimate
and all adjustments necessary to fairly state the pro forma financial
information presented in this Information Statement/Prospectus.
OPINION OF ALLEN & COMPANY
Allen & Company, financial advisor to Ascent and OCV, has rendered a
written opinion, dated April 18, 1996, that, subject to certain assumptions, as
of such date, the consideration to be received by the holders of Ascent common
stock and OCV Common Stock pursuant to the transactions contemplated by the Plan
Sponsor Agreement was fair, from a financial point of view, to the holders of
Ascent common stock and OCV Common Stock. See "The Transactions--Opinion of
Allen & Company."
LISTING OF OCC COMMON STOCK
The OCV Common Stock currently is not listed on any national securities
exchange or quoted on any automated quotation system. Upon consummation of the
Merger, the OCC Common Stock and the Warrants are expected to be listed on the
Nasdaq National Market under the symbol "____."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
On Command Corporation has received an opinion of Latham & Watkins,
counsel to OCV, to the effect that, based upon certain representations of On
Command Corporation, Merger Sub, Ascent and OCV, among others, the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and as a result, holders of OCV
Common Stock will recognize no gain or loss upon the conversion of shares of OCV
Common Stock into shares of OCC Common Stock and Series A Warrants, except for
gain or loss for federal income tax purposes recognized on receipt of cash in
lieu of any fractional share interest in OCC Common Stock. All holders of OCV
Common Stock should read carefully the detailed discussion under the caption
"Certain Federal Income Tax Consequences."
RISK FACTORS
Holders of OCV Common Stock should take into account the specific
considerations set forth under "Risk Factors" as well as the other information
set forth in this Information Statement/Prospectus. In particular, OCV
stockholders should take into account the following risk factors: (i) following
the Transactions, Ascent will have the ability to control On Command
Corporation; (ii) due to restrictions on
11
<PAGE> 14
Ascent and its principal stockholder, COMSAT, On Command Corporation will be
subject to certain restrictions on its ability to raise capital through debt
financing; (iii) On Command Corporation may be dependent on additional capital
to implement its strategy; (iv) there can be no assurance that On Command
Corporation can successfully integrate the businesses of OCV and Spectradyne;
(v) there is no prior public market for the OCC Common Stock and the price of
the OCC Common Stock is subject to possible volatility; (vi) the in-room
entertainment industry is highly competitive; (vii) the loss of certain
significant customers would have a material adverse effect on On Command
Corporation's business; (viii) On Command Corporation's business will be
dependent on the performance of the lodging industry; (ix) On Command
Corporation's assets are subject to the risk of technological obsolescence; (x)
On Command Corporation may be dependent on certain key personnel of OCV and
Ascent with respect to the operations at On Command Corporation after the
closing of the Transactions; (xi) On Command Corporation's business may be
subject to seasonality; and (xii) certain anti-takeover provisions in On Command
Corporation's Certificate of Incorporation and Bylaws, as well as certain
provisions of the DGCL, could increase the difficulty of effecting a change of
control of On Command Corporation, thereby potentially depriving stockholders
from realizing a premium over the prevailing market price of the Common Stock.
FOR A MORE DETAILED DISCUSSION OF THESE AND OTHER RISK FACTORS IN
CONNECTION WITH THE MERGER AND ACQUISITION, SEE "RISK FACTORS."
12
<PAGE> 15
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following summary pro forma financial information of On Command
Corporation is derived from the financial statements of OCV and the consolidated
financial statements of SpectraVision included elsewhere herein and give pro
forma effect to the Transactions as if they had occurred on January 1, 1995 with
respect to the statement of operations data, and on June 30, 1996 with respect
to the balance sheet data. The summary pro forma financial information is not
necessarily indicative of what the results of operations or the financial
position of On Command Corporation would have been had the Transactions occurred
on such dates, nor is such data necessarily indicative of the results of
operations or financial position of On Command Corporation that can be expected
for any future periods or at any future date. The following summary pro forma
financial information should be read together with the Financial Statements of
OCV, the Consolidated Financial Statements of SpectraVision and the Pro Forma
Financial Statements of On Command Corporation included elsewhere in this
Information Statement/Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED Six Months Ended
DECEMBER 31, 1995 June 30, 1996
----------------- ----------------
(Unaudited)
(Dollars in thousands, except per share data)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................................... $226,045 $120,502
Total costs and expenses........................................... 243,011 126,706
Loss from operations............................................... (16,966) (6,204)
Net loss........................................................... (23,638) (8,839)
Net loss per common and equivalent share........................... (0.79) (0.29)
Shares used in per share calculations.............................. 30,000 30,000
OTHER DATA:
EBITDA(1).......................................................... $ 44,599 $ 31,503
Rooms served at end of period...................................... 911,406 915,218
Hotels served at end of period..................................... 3,109 3,141
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------
(Unaudited)
(In thousands)
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................................ $391,339
Total debt.................................................................................. 70,568
Total stockholders' equity.................................................................. 271,877
</TABLE>
(1) Earnings before interest expense, income taxes, depreciation and
amortization and excluding certain extraordinary or nonrecurring events
("EBITDA") is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating performance
and should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted accounting
principles.
13
<PAGE> 16
HISTORICAL SUMMARY SELECTED FINANCIAL INFORMATION
The historical summary selected financial information of OCV and the
historical summary selected consolidated financial information of SpectraVision
have been derived from their respective historical financial statements and
should be read in conjunction with such financial statements and notes thereto,
included elsewhere in this Information Statement/Prospectus, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Interim financial information as of and for the six months ended June 30, 1996
and June 30, 1995 reflect, in the opinion of the managements of OCV and
SpectraVision, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such information. Results for interim
periods are not necessarily indicative of results which may be expected for any
other interim period or for the fiscal year as a whole.
OCV
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ------------------
1995 1994 1993 1996 1995
-------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total net revenues ....................... $102,059 $ 81,609 $ 30,204 $ 62,490 $ 51,331
Total direct costs of revenues ........... 48,817 47,786 12,912 27,940 27,531
Total operating expenses ................. 45,091 27,976 14,955 30,674 19,524
Income from operations ................... 8,551 5,847 2,337 3,876 4,276
Net income ............................... 4,902 3,456 1,358 1,624 2,508
Net income per common and equivalent share 0.72 0.62 0.35 0.21 0.42
Shares used in per share calculations .... 6,833 5,571 3,896 7,903 6,015
OTHER DATA:
EBITDA(1) ................................ $ 37,288 $ 23,381 $ 10,157 $ 25,169 $ 15,772
Rooms served at end of period ............ 361,000 248,000 124,000 419,000 307,000
Hotels served at end of period ........... 1,221 751 272 1,500 996
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets ............................. $211,005 $138,884 $ 92,363 $232,915 --
Total debt ............................... 15,942 1,025 1,842 29,270 --
Redeemable common stock .................. 10,264 10,264 10,264 10,264 --
Total stockholders' equity ............... 171,224 109,728 67,997 174,957 --
</TABLE>
(1) EBITDA is presented because it is a widely accepted financial indicator used
by certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
14
<PAGE> 17
SPECTRAVISION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ -------------------------
1995 1994 1993 1996 1995
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ......................... $ 123,986 $ 142,384 $ 162,993 $ 58,012 $ 65,208
Total direct costs ..................... 52,813 58,015 58,834 27,088 25,884
Write-down of hotel contracts .......... -- 196,256 -- -- --
Loss before extraordinary items ........ (73,645) (254,284) (43,057) (22,786) (38,729)
Extraordinary loss ..................... (915) -- (2,699) -- (915)
Net loss ............................... (74,560) (254,284) (45,756) (22,786) (39,644)
Net loss per common and equivalent
share................................... (3.11) (10.60) (2.52) (0.95) (1.65)
Shares used in per share
calculation............................. 23,974 23,989 18,157 23,985 24,022
OTHER DATA:
EBITDA(1) .............................. $ 866 $ 19,148 $ 55,790 $ 2,734 $ 8,756
Rooms served at end of period .......... 550,406 635,378 684,399 496,218 608,146
Hotels served at end of period ......... 1,888 2,308 2,442 1,641 2,148
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets ........................... $ 205,622 $ 242,822 $ 409,478 $ 194,637 --
Total debt ............................. 28,667 510,563 436,557 41,298 --
Liabilities subject to settlement under
reorganization ....................... 579,587 -- -- 576,040 --
Stockholders' deficit .................. (447,608) (373,025) (118,614) (472,165) --
</TABLE>
(1) EBITDA is presented because it is a widely accepted financial indicator used
by certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
15
<PAGE> 18
RISK FACTORS
OCV stockholders should be aware that the distribution and ownership of
OCC Common Stock in exchange for OCV Common Stock involves certain risk factors,
including those which could adversely affect the value of their holdings
described below and elsewhere in this Information Statement/Prospectus. Because
in the Merger the OCV Common Stock will be converted into the right to receive
OCC Common Stock and Series A Warrants, OCV stockholders should consider
carefully the information set forth under the captions "Description of On
Command Corporation Capital Stock" and "Comparison of Stockholder Rights" in
addition to the following factors.
CONTROL BY ASCENT
Following the consummation of the Transactions, Ascent will own
approximately 57.2% of the OCC Common Stock, assuming no holder of OCV Common
Stock exercises its appraisal rights and before giving effect to any Reserved
Stock and the exercise of any Warrants. See "Beneficial Ownership of OCV and OCC
Common Stock." Accordingly, Ascent will have the ability to control the
management and policies of On Command Corporation and the outcome of matters
submitted to the stockholders for approval, including the election of directors.
See "The Transactions--The Merger--Interests of Certain Parties in the Merger."
In turn, COMSAT owns 80.7% of Ascent outstanding common stock.
RESTRICTIONS ON DEBT FINANCINGS
Pursuant to an agreement to be entered into between Ascent and On
Command Corporation (the "Corporate Agreement"), On Command Corporation will
agree not to incur any indebtedness without Ascent's prior consent, other than
the indebtedness contemplated by the Acquisition Agreement. See "The
Transactions-The Merger--Interests of Certain Persons in the Merger."
Restrictions on On Command Corporation's ability to incur additional debt could
adversely affect On Command Corporation's plans for growth, its ability to
develop new products and technologies and its ability to meet its liquidity
needs. See "--Dependence on Additional Capital for Growth" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." In addition, pursuant to a
corporate agreement between Ascent and COMSAT (the "COMSAT Agreement"), Ascent
has agreed not to incur any indebtedness, other than under Ascent's existing
credit facility (and refinancings thereof) and indebtedness incurred in the
ordinary course of business which together shall not exceed $175 million in the
aggregate, which amount Ascent management believes COMSAT will consent to
increase as is reasonably required by Ascent in order to secure adequate
financing to consummate the Transactions. A primary purpose of the COMSAT
Agreement is to require Ascent to coordinate its capital requirements with
COMSAT so that COMSAT can monitor its compliance with the regulations of the
Federal Communications Commission (the "FCC") applicable to the capital
structure and debt financing activities of COMSAT and its consolidated
subsidiaries. COMSAT is required to submit a financial plan to the FCC for
review annually. Under existing FCC guidelines, COMSAT is subject to a maximum
long-term debt to total capital ratio of 45%, a limit of $200 million in
short-term debt and interest coverage ratio of 2.3 to 1. In April 1996, COMSAT
submitted its current plan, which seeks a temporary decrease in the interest
coverage ratio to a minimum of 1.9 to 1 for the 1996 plan year and an increase
in the short-term debt limit to $275 million as long as the financial statements
of Ascent are consolidated with those of COMSAT. COMSAT has informed Ascent that
COMSAT was in compliance with both the long-term debt to total capital ratio and
the short-term debt limit at June 30, 1996 and expects to be in compliance with
those guidelines at December 31, 1996 if the short-term limit is modified as
requested. If the FCC approves COMSAT's request, COMSAT has further informed
Ascent that it expects that the cash flows from operations and COMSAT's
consolidated short-term borrowing capacity, including under Ascent's credit
facility or a
16
<PAGE> 19
refinancing thereof in connection with the Transactions, will be sufficient to
fund COMSAT's aggregate cash requirements for the balance of 1996. However,
COMSAT has further informed Ascent that COMSAT expects to seek a further
modification of the interest coverage ratio in order to satisfy that guideline
at the annual December 31, 1996 measurement date, primarily due to Ascent's
operations. Accordingly, COMSAT has advised Ascent that COMSAT will need to
apply for a further modification of the interest coverage ratio and, in order to
meet its funding requirements beyond 1996, may seek a further modification of
the short-term debt limit. Finally, COMSAT has informed Ascent that if COMSAT
were to fail to satisfy one or more of the FCC guidelines as of an applicable
measurement date, COMSAT and its consolidated subsidiaries, including Ascent,
would be required to seek advance FCC approval of future financing activities on
a case by case basis. If such approval were not granted for any financing
activities sought by On Command Corporation, it could be required to reduce or
reschedule planned capital investments, reduce cash outlays, reduce debt or sell
assets.
DEPENDENCE ON ADDITIONAL CAPITAL FOR GROWTH
The growth of On Command Corporation's business requires substantial
investment on a continuing basis to finance capital expenditures and related
expenses. Historically, OCV has relied on capital provided by Ascent to finance
its growth. However, Ascent is not obligated to provide any additional capital
to OCV or On Command Corporation. On Command Corporation intends to use cash
flow from operations and additional borrowings (subject to the limitations
discussed under "--Restrictions on Debt Financings") to support its growth.
Whether or when On Command Corporation can achieve cash flow levels sufficient
to support its anticipated growth cannot be accurately predicted. Unless such
cash flow levels are achieved, On Command Corporation may require additional
borrowings or the sale of debt or equity securities (subject to the limitations
described under "--Restrictions on Debt Financings"), or some combination
thereof, to provide funding for growth or, alternatively, may have to reduce
growth to a level that can be supported by internally generated cash flow. On
Command Corporation can give no assurances with respect to the impact on the
results of operations and financial condition if On Command Corporation is
required to reduce growth to a level that can be supported by internally
generated cash flow. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
INTEGRATION OF OCV AND SPECTRADYNE BUSINESSES
Although OCV and Spectradyne will remain distinct entities, the full
benefits of On Command Corporation serving as a holding company for each of OCV
and Spectradyne will require the coordination of operating systems, financial
reporting, sales, marketing and management. This will require substantial
attention from the management of On Command Corporation. In addition,
successfully integrating the businesses of OCV and Spectradyne may require
additional capital. See "--Dependence on Additional Capital for Growth." There
can be no assurance that the businesses of OCV and Spectradyne can be
successfully integrated. The inability to successfully integrate the businesses
of OCV and Spectradyne could have a material adverse effect on the financial
condition or results of operations of On Command Corporation.
NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Closing Date, there has been no public market for OCC
Common Stock or the Warrants. Although application will be made to list the OCC
Common Stock and Warrants on the Nasdaq National Market, there can be no
assurance that an active public market will develop or be sustained or as to the
prices at which the OCC Common Stock and Warrants will trade following the
Closing Date. Further, the stock markets may experience volatility that affects
the market prices of
17
<PAGE> 20
companies in ways unrelated to the operating performance of such companies.
These market fluctuations may adversely affect the market price of the OCC
Common Stock or Warrants.
HIGHLY COMPETITIVE IN-ROOM ENTERTAINMENT INDUSTRY
The hotel in-room entertainment industry is highly competitive. Due to
the high level of penetration in the United States lodging industry already
achieved by participants in the in-room entertainment industry and the low rate
of construction and expansion of hotel properties in the United States, most of
the growth opportunities in the in-room entertainment industry currently involve
securing contracts to serve hotels that are already being served by a competing
vendor, expanding internationally and broadening the range of services provided.
These circumstances have led to increasing competition for contract renewals,
particularly at hotels operated by major hotel chains. There can be no assurance
that On Command Corporation will obtain new contracts with hotels currently
served by other vendors or that On Command Corporation will be able to retain
contracts with the hotels served by OCV and Spectradyne when those contracts
expire. The loss by On Command Corporation of one or more of the major hotel
chain customers, such as Marriott, Hyatt or Hilton, could have a material
adverse impact on On Command Corporation's results of operations. See
"--Dependence on Significant Customers." In addition, there are a number of
potential competitors that could utilize their existing infrastructure to
provide in-room entertainment to the lodging industry, including cable companies
(including wireless cable), telecommunications companies and direct-to-home and
direct broadcast satellite companies. Some of these potential competitors
already are providing free-to-guest services to hotels and testing video-on-
demand. Some of these potential competitors have substantially greater resources
than On Command Corporation will have after consummation of the Transactions.
See "Business--On Command Video Corporation."
DEPENDENCE ON SIGNIFICANT CUSTOMERS
Marriott, Hilton and Hyatt accounted for approximately 16.0%, 6.7% and
5.4%, respectively, of On Command Corporation's pro forma revenues for the year
ended December 31, 1995. The loss of any of these customers, or the loss of a
significant number of other hotel chain customers, could have a material adverse
effect on On Command Corporation's results of operations or financial condition.
See "Business--OCV" and "--Spectradyne."
DEPENDENCE ON PERFORMANCE OF LODGING INDUSTRY
The business of each of OCV and Spectradyne is, and the business of On
Command Corporation will be, closely linked to the performance of the hotel
industry. Declines in hotel occupancy as a result of general business, economic,
seasonal and other factors can have a significant adverse impact on On Command
Corporation's results of operations. See "Business--On Command Video
Corporation" and "--Spectradyne, Inc."
RISK OF TECHNOLOGICAL OBSOLESCENCE
Technology in the entertainment and communications industry is
continuously changing as new technologies and developments continue to be
introduced. There can be no assurance that future technological advances will
not result in improved equipment or software systems that could adversely affect
On Command Corporation's competitive position. In order to remain competitive,
On Command Corporation must maintain the programming enhancements, engineering
and technical capability and flexibility to respond to customer demands for new
or improved versions of its systems and new
18
<PAGE> 21
technological developments, and there can be no assurance that On Command
Corporation will have the financial or technological resources to be successful
in doing so.
DEPENDENCE ON KEY PERSONNEL
On Command Corporation's success will be dependent upon the
contributions of its executive officers, who initially will be selected by
Ascent and OCV. The loss of the services of such executive officers could have a
material adverse effect on On Command Corporation. On Command Corporation's
success also depends on its continued ability to attract and retain highly
skilled and qualified personnel. There can be no assurance that On Command
Corporation or its subsidiaries will be successful in attracting and retaining
such personnel. See "Management."
SEASONALITY
The business of each of OCV and Spectradyne is, and the business of On
Command Corporation will be, seasonal, with higher revenues realized during the
summer months and lower revenues realized during the winter months due to
business and vacation travel patterns. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition--Seasonality."
ANTI-TAKEOVER PROTECTIONS
Following the consummation of the Transactions, Ascent will own
approximately 57.2% of the OCC Common Stock, assuming no holder of OCV Common
Stock exercises its appraisal rights and before giving effect to any Reserved
Stock and the exercise of any Warrants. See "Beneficial Ownership of OCV and OCC
Common Stock." Accordingly, On Command Corporation will not be able to engage in
any strategic transactions without the approval of Ascent. Even if Ascent's
interest in On Command Corporation were reduced below such level, On Command
Corporation's Certificate of Incorporation contains certain provisions that
could make it more difficult for a third party to acquire, or discourage a third
party from attempting to acquire, control of On Command Corporation. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of OCC Common Stock. Certain of such provisions allow
On Command Corporation to issue preferred stock with rights senior to those of
the OCC Common Stock and impose various procedural and other requirements which
could make it more difficult for stockholders to effect certain corporate
actions. See "Description of On Command Corporation Capital Stock" and
"Comparison of Stockholder Rights."
19
<PAGE> 22
STOCKHOLDERS' CONSENT
Pursuant to the Certificate of Incorporation of OCV, the approval and
adoption of the Merger Agreement requires the affirmative vote of the holders of
record of two-thirds of the shares of OCV Common Stock. Section 228 of the DGCL
provides that any action which may be taken at any annual or special meeting of
stockholders of a Delaware corporation may be taken without a meeting, without
prior notice and without a vote if a consent or consents in writing, setting
forth the action to be taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action. Effective as of September 11, 1996, subject to
confirmation of the Plan by the Bankruptcy Court, stockholders of OCV who own,
in the aggregate, approximately 78.9% of the outstanding shares of OCV Common
Stock, acting pursuant to Section 228 of the DGCL, have consented in writing to
the adoption of the Merger Agreement and to the consummation of the Merger. As a
result, pursuant to Section 228 of the DGCL, no special meeting of the
stockholders of OCV is required to approve the Merger Agreement.
Holders of OCV Common Stock who have not consented to the adoption of
the Merger Agreement and who (a) deliver to OCV a written demand for appraisal
of their shares of OCV Common Stock and (b) meet certain other statutory
requirements, will be entitled to have the value of their shares appraised in
accordance with Section 262 of the DGCL, a copy of which is included as Annex V
to this Information Statement/Prospectus. See "The Transactions--The
Merger--Appraisal Rights."
20
<PAGE> 23
THE TRANSACTIONS
GENERAL
This section of the Information Statement/Prospectus describes certain
aspects of the proposed Transactions, including the principal terms of the
Merger Agreement, the Acquisition Agreement, the Warrant Agreement and the
Registration Rights Agreement. A copy of the Merger Agreement is attached to
this Information Statement/Prospectus as Annex I and is incorporated herein by
reference; a copy of the Acquisition Agreement is attached to this Information
Statement/Prospectus as Annex II and is incorporated herein by reference; a copy
of the Warrant Agreement is attached to this Information Statement/Prospectus as
Annex III and is incorporated herein by reference; and a copy of the
Registration Rights Agreement is attached to this Information
Statement/Prospectus as Annex IV and is incorporated herein by reference. The
descriptions set forth below of the terms of the Merger Agreement, the
Acquisition Agreement, the Warrant Agreement and the Registration Rights
Agreement are qualified in their entirety by reference to such Annexes. All
stockholders of OCV are urged to read each of the Merger Agreement, the
Acquisition Agreement, the Warrant Agreement and the Registration Rights
Agreement in its entirety.
BACKGROUND OF THE TRANSACTIONS
In June 1993, SpectraVision entered into a ten-year exclusive contract
with EDS to install and maintain a digital satellite delivered hotel PPV system.
By late 1994, the costs associated with the EDS contract combined with
SpectraVision's high debt levels created financial difficulties for
SpectraVision. In early 1995, SpectraVision determined that a financial
restructuring would be required to ensure SpectraVision's long-term survival.
SpectraVision conducted restructuring negotiations with representatives of its
secured and unsecured creditors during April and May 1995, working toward the
development of an overall restructuring plan. In June 1995, SpectraVision
concluded that a filing for reorganization under Chapter 11 of the Bankruptcy
Code should be made in order to preserve the value of its assets and to ensure
that the business had sufficient cash resources to continue operations while it
completed the financial restructuring process. On June 8, 1995, the Debtors
filed the Bankruptcy Case in the Bankruptcy Court.
In April 1995, Gary Wilson Partners approached Ascent to discuss
methods for Ascent to capitalize on SpectraVision's financial difficulties.
Ascent retained Gary Wilson Partners to assist and advise Ascent and OCV as to a
potential transaction involving SpectraVision.
On June 23, 1995, the Creditors' Committee was appointed by the United
States Trustee for the District of Delaware pursuant to Section 1102 of the
Bankruptcy Code. The Creditors' Committee has the right to review and object to
certain business transactions and to participate in the negotiation of
SpectraVision's plan of reorganization. In November 1995, the Bankruptcy Court
authorized SpectraVision to retain Salomon Brothers Inc to assist SpectraVision
in maximizing the value of the SpectraVision estate by conducting a bidding
process. The objective of the bidding process was to select a plan sponsor to
reorganize SpectraVision. The plan sponsor's incentives were: (i) to include
protection for the plan sponsor by requiring any new bid to be at least $4.0
million higher than the plan sponsor's bid; (ii) a breakup fee of $2.0 million;
and (iii) expense reimbursement of up to $400,000. The proposed schedule for the
bidding process was for bids to be submitted by January 5, 1996. Based on
earlier communications with SpectraVision and the apparent inability of
SpectraVision to obtain a settlement with EDS, in November 1995 Ascent
determined that it would not participate in the bidding process.
On December 20, 1995, the Bankruptcy Court approved the proposed
bidding process (the "Procedures Order"), but moved the date for submitting bids
to January 29, 1996. In January 1996, pursuant to the Procedures Order, the
Debtors solicited bids from third parties for financial restructuring
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proposals that would allow the Debtors to emerge from bankruptcy pursuant to a
business combination with a third party.
During December 1995 and January 1996, SpectraVision and EDS filed
motions in Bankruptcy Court relating to whether the EDS contract would be
accepted or rejected on an ongoing basis.
On January 18, 1996, SpectraVision and EDS entered into an interim
agreement that was filed with the Bankruptcy Court for approval. The agreement
resolved certain issues regarding field service amounts owed to EDS in a way
that Ascent management believed signalled EDS's willingness to accept a plan of
reorganization that may drastically reduce SpectraVision's obligations to EDS.
In subsequent conversations with EDS personnel, Ascent management determined
that EDS would be open to negotiating an agreement with Ascent and OCV for the
provision of service to On Command Corporation on an interim basis, on terms
that could make the transaction attractive. In consideration of the EDS
position, on January 29, 1996, representatives of Ascent submitted a proposal to
acquire substantially all of SpectraVision's assets. On February 1, 1996, the
Bankruptcy Court approved the interim agreement between SpectraVision and EDS.
On April 19, 1996, SpectraVision, Ascent, OCV and the Creditors'
Committee entered into the Plan Sponsor Agreement pursuant to which it was
agreed that Ascent would be plan sponsor for the SpectraVision plan of
reorganization and that On Command Corporation, directly or indirectly, would
acquire the assets or the capital stock and certain liabilities of OCV and
Spectradyne, subject to the terms and conditions of the Plan Sponsor Agreement.
The Merger Agreement, the Acquisition Agreement, the Warrant Agreement and the
Registration Rights Agreement were or will be entered into to implement the Plan
Sponsor Agreement.
THE MERGER
Upon the terms and subject to the conditions of the Merger Agreement
and in accordance with the DGCL, at the Effective Time, Merger Sub will merge
with and into OCV. OCV will be the Surviving Corporation in the Merger, and will
continue its corporate existence under Delaware law under the name On Command
Video Corporation. At the Effective Time, the separate corporate existence of
Merger Sub will cease. The Certificate of Incorporation and Bylaws of OCV, as in
effect immediately prior to the Effective Time, will be the Certificate of
Incorporation and Bylaws of the Surviving Corporation, until thereafter amended
or repealed in accordance with their terms and as provided by law.
Merger Consideration
Upon consummation of the Merger, each share of OCV Common Stock that is
issued and outstanding immediately prior to the Effective Time (other than
shares of OCV Common Stock held by OCV or by its direct or indirect subsidiaries
and Dissenting Shares), will be converted into the right to receive the Merger
Consideration, which shall include the following: (i) approximately 2.84 shares
of OCC Common Stock, (ii) such additional number of shares of Reserved Stock, if
any, to which holders of OCV Common Stock may be entitled as described below
under "--The Acquisition," and (iii) Series A Warrants to purchase, on a
cashless basis, 18.61% of a share of OCC Common Stock. The Initial Shares to be
issued to holders of OCV Common Stock will represent, in the aggregate, 72.5% of
the total number of shares of OCC Common Stock to be issued pursuant to the
Merger Agreement and the Acquisition Agreement, assuming no holder of OCV Common
Stock exercises its appraisal rights and before giving effect to any Reserved
Stock and the exercise of any Warrants. Cash will be paid in lieu of the
issuance of fractional OCC Common Stock as described below under "--Conversion
of OCV Common Stock; Procedures for Exchange of OCV Stock Certificates;
Fractional Shares."
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Holders of OCV Common Stock who (i) have not consented to the adoption
of the Merger Agreement, (ii) have demanded appraisal rights with respect to
their OCV Common Stock in accordance with Section 262 of the DGCL and (iii) have
perfected (or who have not effectively withdrawn or lost) their rights to
appraisal and payment under Section 262 of the DGCL, will be required to
exchange their shares of OCV Common Stock (the "Dissenting Shares") for a cash
payment in the amount of the appraised value of such shares. Such holders will
not be entitled to receive any of the Merger Consideration. See "--Appraisal
Rights." All holders of OCV Common Stock who do not satisfy all of the
requirements to perfect appraisal rights described in this paragraph will be
required to exchange their shares of OCV Common Stock for the Merger
Consideration.
None of the shares of OCC Common Stock or Series A Warrants that would
have been issued pursuant to the Merger Agreement in exchange for Dissenting
Shares if such Dissenting Shares had been converted into the Merger
Consideration will be issued to any holder of OCV Common Stock or any other
person or entity in connection with the Transactions.
The Merger Consideration (other than the Series C Warrant) was
determined through arms'-length negotiations between Ascent and OCV on the one
hand and the Debtors and the Creditor's Committee on the other hand.
In consideration for certain investment banking and advisory services
provided to Ascent and OCV in connection with the Transactions and for future
advisory and other services to be rendered to On Command Corporation, Ascent
agreed with Gary Wilson Partners to direct On Command Corporation to issue the
Series C Warrant, which represents the ability to purchase approximately 9.2% of
the OCC Common Stock that would be issued and outstanding (after exercise of all
of the Warrants) at the Warrant Exercise Price (as defined below) to Gary Wilson
Partners. As described further below, Ascent and Gary Wilson Partners have
agreed to certain limitations and rights related to the Series C Warrant.
Effective Time
The effective time of the Merger (the "Effective Time") will be the
time of the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware or such later time as is specified in such Certificate of
Merger. The Closing of the Merger (the "Closing") will take place as promptly as
practicable following satisfaction or waiver of the conditions set forth in the
Merger Agreement (other than those conditions which, by their terms, are to be
satisfied at the Closing) unless another date is agreed to in writing by On
Command Corporation, Merger Sub and OCV. Subject to certain limitations, the
Merger Agreement may be terminated by either On Command Corporation or OCV if,
among other reasons, the Transactions have not been consummated on or prior to
October 30, 1996. See "--Conditions to the Consummation of the Merger" and
"--Termination."
Directors and Officers of the Surviving Corporation
Following the Merger, Messrs. James A. Cronin, III, Robert M. Kavner
and Charles Lyons will be the directors of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified, and the
officers of OCV immediately prior to the Effective Time will be the officers of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation.
Conversion of OCV Common Stock; Procedures for Exchange of OCV Stock
Certificates; Fractional Shares
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The conversion of shares of OCV Common Stock (other than shares of OCV
Common Stock held by OCV or by any direct or indirect subsidiary of OCV, which
shares of OCV Common Stock will be cancelled in the Merger, and other than
Dissenting Shares) into the right to receive the Merger Consideration will occur
at the Effective Time.
As soon as practicable after the Effective Time, OCV will send a letter
of transmittal form to each holder of OCV Common Stock. The letter of
transmittal form will contain instructions with respect to the surrender of
certificates representing shares of OCV Common Stock in exchange for
certificates representing shares of OCC Common Stock and certificates
representing the Series A Warrants for which the shares represented by the
certificates so surrendered are exchangeable pursuant to the Merger Agreement.
OCV STOCKHOLDERS SHOULD NOT FORWARD OCV STOCK CERTIFICATES FOR
EXCHANGE UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS INSTRUCTING THEM
WHERE TO SEND SUCH CERTIFICATES.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates that prior thereto represented shares of
OCV Common Stock shall, upon surrender to OCV of such certificate or
certificates and acceptance thereof by OCV, be entitled to a certificate or
certificates representing the whole number of shares of OCC Common Stock and the
number of Series A Warrants into which the aggregate number of shares of OCV
Common Stock previously represented by such certificate or certificates
surrendered shall have been converted pursuant to the Merger Agreement, plus any
cash payable in lieu of any fractional share of OCC Common Stock. OCV shall
accept such certificates upon compliance with such reasonable terms and
conditions as it may impose in order to effect an orderly exchange thereof in
accordance with normal exchange practices. After the Effective Time, there shall
be no further transfer on the records of OCV of certificates representing shares
of OCV Common Stock, and if such certificates are presented to OCV for transfer,
they shall be cancelled against delivery of certificates for shares of OCC
Common Stock and certificates for Series A Warrants pursuant to the Merger
Agreement. Until surrendered in accordance with the Merger Agreement, each
certificate for shares of OCV Common Stock will be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
Merger Consideration as contemplated by the Merger Agreement. No interest will
be paid or will accrue on any cash payable in lieu of any fractional share of
OCC Common Stock.
On the Final Distribution Date (as defined below), each holder of an
outstanding certificate representing OCV Common Stock that has been surrendered
to, and accepted by, On Command Corporation shall be entitled to receive one or
more certificates representing the whole number of shares of Reserved Stock, if
any, into which such certificate representing OCV Common Stock has been
converted pursuant to the Merger Agreement, plus any cash payable in lieu of any
fractional share of Reserved Stock.
No certificates representing fractional shares of OCC Common Stock
shall be issued upon the surrender of certificates representing OCV Common
Stock. With respect to each holder of OCV Common Stock that would have been
entitled to receive a fractional share of OCC Common Stock, such holder shall be
entitled to receive in lieu of such fractional share an amount of cash equal to
the product of the average of the high and low trading price for the OCC Common
Stock for the five trading days immediately following the Effective Time and the
fractional share of OCC Common Stock that such holder would have been entitled
to receive.
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No dividends or other distributions with respect to OCC Common Stock
with a record date after the Effective Time will be paid to the holder of any
unsurrendered certificate for shares of OCV Common Stock with respect to the OCC
Common Stock issuable in respect thereof, and no cash payment in lieu of
fractional shares will be paid to any such holder, until the surrender of such
certificate in accordance with the Merger Agreement. Subject to the effect of
applicable laws, following surrender of any such certificate, On Command
Corporation will pay to the holder of the certificate representing whole shares
of OCC Common Stock issued in exchange therefor, without interest, to the holder
of such certificate all of the dividends and distributions that would have been
paid to such holder if its certificate representing OCV Common Stock had been
exchanged for OCC Common Stock immediately after the Effective Time.
No Warrant shall provide any holder with the right to purchase a
fractional share of OCC Common Stock. In the event that any holder of OCV Common
Stock would be entitled to receive a Warrant to purchase a fractional share of
OCC Common Stock, the number of shares of OCC Common Stock that such holder will
have the right to purchase pursuant to such Warrant shall be rounded to the
nearest whole number.
Treatment of OCV Employee Stock Options
The Merger Agreement provides that, prior to the Effective Time, the
Board of Directors of OCV will adopt appropriate resolutions and take all other
actions necessary to provide for the cancellation, as of the Effective Time, of
all the outstanding stock options (the "Employee Stock Options") previously
granted under the On Command Video Corporation 1987 Stock Option Plan (the "OCV
Stock Option Plan"), whether or not then vested or exercisable. As of the
Effective Time, or as soon as practicable thereafter, there will be substituted
for each outstanding Employee Stock Option an equivalent option (each, a "New
Employee Stock Option") to purchase shares of OCC Common Stock pursuant to the
On Command Corporation Stock Option Plan. The number of shares of OCC Common
Stock that a holder of any New Employee Stock Option will be entitled to
purchase, the price at which shares of OCC Common Stock will be purchasable upon
the exercise of any New Employee Stock Option, and the dates on which any New
Employee Stock Option will vest and become exercisable will be determined by On
Command Corporation's Board of Directors based upon the conversion ratio for OCV
Common Stock. As of the Effective Time, (i) the On Command Corporation Stock
Option Plan will become effective, and (ii) the OCV Stock Option Plan will
terminate and OCV will ensure that following the Effective Time, subject to
receipt of New Employee Stock Options, no holder of an Employee Stock Option or
any participant in the OCV Stock Option Plan will have any right thereunder to
acquire capital stock of OCV or the Surviving Corporation. See
"Management--Stock Incentive Plans."
Representations and Warranties
The Merger Agreement contains representations and warranties of OCV
that the financial statements of OCV that were supplied to the Debtors and the
Creditors' Committee present fairly in accordance with GAAP (except as otherwise
set forth in the notes thereto) the financial condition and results of
operations at and for the period reported on therein; that there has been no
material adverse change in such financial condition or results of operations of
OCV prior to the Effective Time, and that no grounds exist that would allow any
of OCV's five largest (by number of rooms served by OCV) hotel customers, or any
of OCV's major studio suppliers or free-to-guest programming suppliers, to
terminate their existing service contracts with OCV.
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Pre- and Post-Closing Obligations
In the Merger Agreement, OCV, On Command Corporation and Merger Sub
agree that (i) prior to the Closing Date OCV shall operate its business in the
ordinary course as conducted on April 19, 1996 and will use its best efforts to
maintain favorable relationships with its major hotel customers; (ii) except as
otherwise provided for in the Merger Agreement, OCV shall not incur any
indebtedness other than OCV Debt (as defined below) prior to the Effective Time;
(iii) if the Debtors desire to lease OCV equipment pursuant to one or more
equipment leases and (a) such equipment is compatible with the Debtors' existing
technology or OCV provides support services to the Debtors on terms similar to
those it previously provided to COMSAT Video Enterprises, Inc. and (b)
installation of such equipment will not breach any of the Debtors' contracts
with the hotels it serves, then OCV shall have the right but not the obligation
to lease such OCV equipment to the Debtors pursuant to one or more equipment
leases; (iv) none of OCV, On Command Corporation and Merger Sub shall enter into
any agreement that would adversely affect (a) its ability to perform its
obligations under the Merger Agreement or (b) the rights of any other person or
entity under the Merger Agreement, the Acquisition Agreement or the Procedures
Order (as defined below); (v) On Command Corporation and OCV shall (a) cause any
necessary filings with any governmental agency to be made expeditiously and (b)
use their reasonable best efforts to obtain any necessary government or
third-party approvals (including, without limitation, any filings or
registrations with the Commission or state securities regulatory authorities);
(vi) OCV shall use its reasonable best efforts to estimate the aggregate amount
of OCV Debt that will be outstanding as of the Effective Time, which amount
shall be used to calculate the Warrant Exercise Price; (vii) promptly after the
date of the Merger Agreement, (a) On Command Corporation and OCV shall prepare
and file with the Commission this Information Statement/Prospectus and On
Command Corporation shall prepare and file with the Commission a Registration
Statement on Form S-4, in which this Information Statement/Prospectus will be
included as a prospectus, (b) each of On Command Corporation and OCV shall use
its reasonable best efforts to have the Registration Statement declared
effective under the Securities Act as soon as practicable after such filing and
(c) OCV will use its reasonable best efforts to cause this Information
Statement/Prospectus to be mailed to OCV's stockholders as soon as practicable
after the Registration Statement has been declared effective under the
Securities Act; (viii) On Command Corporation shall use its reasonable best
efforts to cause the OCC Common Stock and Warrants to be issued to the holders
of OCV Common Stock and the Creditors pursuant to the Merger Agreement and the
Acquisition Agreement to be approved for listing on a securities exchange,
subject to official notice of issuance, prior to the Closing Date, or at On
Command Corporation's election, to be listed on the Nasdaq National Market; and
(ix) OCV shall cooperate with On Command Corporation in connection with On
Command Corporation obtaining the financing required to pay up to $40,000,000 of
the DIP Loan (as defined below).
The parties to the Merger Agreement further agree that after the
Closing, OCV and On Command Corporation shall take such additional actions, and
execute and deliver such additional documents and instruments, as may be
reasonably necessary or appropriate to effect the transactions contemplated by,
and to carry out the intent of, the Merger Agreement.
The Merger Agreement also provides that, prior to the Effective Time,
Ascent and its affiliates may enter into agreements with On Command Corporation
with respect to the provision of management services, matters of corporate
governance, technology licensing, tax sharing and other operating matters,
subject to the approval of On Command Corporation's Board of Directors and on
terms at least as favorable as may be available to On Command Corporation in
comparable third-party transactions. See "--Interests of Certain Persons in the
Merger."
Conditions to the Consummation of the Merger
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The obligation of OCV to consummate the Merger is subject to the
satisfaction of each of the following conditions: (a) all consents and approvals
required to consummate the Merger shall have been obtained; (b) as of the
Closing Date, no court has entered an order that enjoins, restrains or prohibits
the consummation of the Merger; (c) a registration statement covering both the
OCC Common Stock and the Series A Warrants to be issued to OCV's stockholders as
part of the Merger Consideration pursuant to the Merger Agreement shall have
been filed with, and declared effective by (and no stop order or other action
has been taken, and no proceeding has been commenced, to enjoin distribution of
such shares) the Commission, and such OCC Common Stock and Series A Warrants
shall have been qualified under all applicable state securities laws; and (d)
prior to or contemporaneously with the consummation of the Merger, On Command
Corporation (or, at the election of On Command Corporation, a wholly owned
subsidiary of On Command Corporation) shall have acquired all of the capital
stock of Spectradyne pursuant to and in accordance with the terms of the
Acquisition Agreement.
Termination of the Merger Agreement
The Merger Agreement may be terminated by OCV prior to the Effective
Time upon the occurrence of either of the following events (each, a "Termination
Event"): (i) On Command Corporation has not acquired all of the capital stock of
Spectradyne on or before October 30, 1996 or (ii) the Acquisition Agreement has
been terminated for any reason. OCV may elect to exercise its right to terminate
the Merger Agreement by sending a written notice (a "Termination Notice") to the
other parties in the manner provided in the Merger Agreement. In the event of
the termination of the Merger Agreement, the Merger Agreement will become void
and there will be no liability on the part of any party thereto to any other
party thereto.
Bankruptcy Court Approval
The consummation of the Acquisition is conditioned upon, and the Merger
Agreement is accordingly also conditioned upon (unless such condition is waived
in writing by On Command Corporation), among other things, the issuance of an
order by the Bankruptcy Court that confirms the Plan and as to which (i) both
(a) the time to seek reconsideration, rehearing, or new trial by the rendering
court (a "Post-Trial Motion"), and (b) the time (including time resulting from a
timely filed motion under Rule 8002(c) under the Federal Rules of Bankruptcy
Procedure) to appeal or to seek a petition for review or certiorari
(hereinafter, an "Appellate Court Review"), has expired (without regard to
whether time to seek relief of a judgment under Rule 60(b) of the Federal Rules
of Civil Procedure or Rule 9024 of the Federal Rules of Bankruptcy Procedure has
expired); and (ii) either (a) no Post-Trial Motion or request for Appellate
Court Review is pending, or (b) a Post-Trial Motion or a request for Appellate
Court Review is pending but the subject order of judgment has not been stayed,
amended, modified or reversed by a court of competent jurisdiction or, if
stayed, such stay has been vacated or is no longer in effect. Without limiting
the foregoing, the pendency of, or request for, a Post-Trial Motion or an
Appellate Court Review will not prevent an order from becoming final and being
implemented, absent the entry of a stay by a court of competent jurisdiction and
the continuation thereof.
The waiting period under the Hart-Scott-Rodino Antitrust Improvement
Act of 1976 with respect to the Acquisition has expired.
Fees and Expenses
Except as described below, each party to the Merger Agreement shall
bear its own expenses in connection with the Merger Agreement and the
transactions contemplated thereby, regardless of whether the transactions
contemplated by the Merger Agreement and the Acquisition Agreement are
consummated.
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The costs of registering the OCC Common Stock and the Series A Warrants
and the costs of preparing and filing the Form S-4 Registration Statement
containing this Information Statement/Prospectus will be paid by On Command
Corporation. In the event that any OCC Common Stock and/or Warrants being issued
to the Creditors are required to be registered under the Securities Act, all of
the fees and expenses incurred in connection with such registration shall be
paid by On Command Corporation.
Amendment and Waiver
The Merger Agreement may be altered or amended only by an instrument in
writing by all the parties thereto. Except as otherwise contemplated by the
Merger Agreement, neither On Command Corporation nor OCV may assign its rights
or delegate its obligations under the Merger Agreement without the prior written
consent of the other. The representations and warranties of OCV in the Merger
Agreement shall expire on the Closing Date and neither OCV nor On Command
Corporation shall have any liability after the Closing Date for any breach of
any of its representations, warranties, covenants or agreements under the Merger
Agreement; provided, however, that notwithstanding anything to the contrary in
the Merger Agreement, following consummation of the Merger, the respective
obligations of On Command Corporation and OCV (i) relating to the payment of the
Merger Consideration and (ii) to take such additional actions, and execute and
deliver such additional documents and instruments, as may be reasonably
necessary or appropriate to effect the transactions contemplated by, and to
carry out the intent of, the Merger Agreement, shall, in each case, survive the
consummation of the Merger.
Interests of Certain Persons in the Merger
Certain stockholders, members of the Board of Directors and management
of OCV may be deemed to have certain interests in the Merger, in addition to
their interests generally as stockholders of OCV. All of such additional
interests are described below, to the extent material, and except as described
below such persons have, to the best knowledge of On Command Corporation and
OCV, no material interests in the Merger apart from those of stockholders
generally. The OCV Board of Directors was aware of these interests of its
directors and officers and considered them, among other matters, in approving
the Merger Agreement and the transactions contemplated thereby.
As of August 1, 1996, Ascent beneficially owned and was entitled to
vote 6,038,650 shares of OCV Common Stock, representing approximately 78.9% of
the shares of OCV Common Stock outstanding as of August 1, 1996 (after giving
effect to the exercise by Hilton of its option to purchase OCV Common Stock).
See "Beneficial Ownership of OCV and OCC Common Stock." Upon consummation of the
Transactions, Ascent will beneficially own at least 17,154,572 shares of OCC
Common Stock, or 57.2% of the total number of shares of OCC Common Stock
(assuming no holder of OCV Common Stock exercises its appraisal rights and
before giving effect to any Reserved Stock and the exercise of any warrants),
and will be able, among other things, to approve any corporate action requiring
majority stockholder approval, including the election of directors, amendments
to On Command Corporation's Certificate of Incorporation and Bylaws and any
other matter submitted to a vote of On Command Corporation stockholders, without
the consent of the other stockholders of On Command Corporation. In addition,
through its control of the Board of Directors of On Command Corporation, Ascent
will be able to influence certain decisions, including decisions with respect to
On Command Corporation's dividend policy, On Command Corporation's access to
capital (including the decision to incur additional indebtedness or issue
additional shares of OCC Common Stock), mergers or other business combinations
involving On Command Corporation, the acquisition or disposition of assets by On
Command Corporation and any change in control of On Command Corporation.
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On Command Corporation and Ascent will enter into a management services
agreement (the "Services Agreement") pursuant to which Ascent will provide
certain strategic planning, administrative, financial, legal and other services
to On Command Corporation. Pursuant to the Services Agreement, On Command
Corporation will pay to Ascent (i) an annual fee of $1.2 million and (ii)
certain of Ascent's actual out-of-pocket expenses in connection with the
Services Agreement (not including overhead and the cost of its personnel).
Further, On Command Corporation will indemnify Ascent from (i) all damages from
Ascent's performance of services under the Services Agreement unless such
damages are caused by willful breach by Ascent or willful misconduct or gross
negligence by Ascent's employees and (ii) On Command Corporation's failure to
fulfill its obligations under the Services Agreement. Ascent will indemnify On
Command Corporation from damages arising from willful breach by Ascent or gross
negligence or willful misconduct by Ascent's employees in the performance of the
Services Agreement. The initial term of the Services Agreement will expire
December 31, 1997, subject to renewal by On Command Corporation for one
additional one-year term.
On Command Corporation and Ascent will also enter into the Corporate
Agreement that will govern certain other relationships and arrangements between
On Command Corporation and Ascent. Pursuant to the Corporate Agreement, for so
long as Ascent owns at least 50% of the outstanding OCC Common Stock, the board
of directors will consist of at least a majority of members designated by Ascent
and two independent directs who are neither employees nor directors of Ascent
nor employees of On Command Corporation. In addition, for so long as Ascent owns
at least 50% of the outstanding OCC Common Stock, On Command Corporation will
agree not to incur any indebtedness, other than that existing at the Effective
Time (and refinancings thereof) and indebtedness incurred in the ordinary course
of business, which together shall not exceed an amount to be agreed upon prior
to the Merger, or issue any equity securities or any securities convertible into
equity securities without Ascent's prior consent. On Command Corporation will
agree in the Corporate Agreement, for so long as Ascent owns at least 50% of the
outstanding OCC Common Stock, to utilize reasonable cash management procedures
and to use its reasonable best efforts to minimize On Command Corporation's
excess cash holdings.
Certain members of the Board of Directors and management of OCV may be
deemed to have certain interests in the Merger in addition to their interests
generally as OCV stockholders. In particular, Messrs. Cronin, Kavner and Lyons,
each a director of OCV, will become directors of On Command Corporation upon
completion of the Merger. Messrs. Cronin, Kavner and Lyons, however, will not be
receiving any special compensation in connection with their services as
directors of On Command Corporation and will receive only such compensation as
is provided by On Command Corporation to its other directors.
Resale of OCC Common Stock and Warrants
The shares of OCC Common Stock and Series A Warrants issued to OCV
stockholders as Merger Consideration pursuant to the Merger will not be subject
to any restrictions on transfer arising under the Securities Act, except for
shares or Warrants issued to any OCV stockholder who may be deemed to be an
"affiliate" of On Command Corporation or OCV for purposes of Rule 145 under the
Securities Act. It is expected that each such affiliate will enter into an
agreement with On Command Corporation providing that such affiliate will not
transfer any OCC Common Stock received in the Merger except in compliance with
the Securities Act. This Information Statement/Prospectus does not cover resales
of OCC Common Stock received by any person who may be deemed to be such an
affiliate of On Command Corporation or OCV. The shares of OCC Common Stock
issuable upon exercise of the Series A Warrants will be exempt from registration
requirements pursuant to Section 3(a)(9) of the Securities Act.
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The shares of OCC Common Stock and Series B Warrants issued as
consideration pursuant to the Acquisition Agreement are expected to qualify for
an exemption from the registration requirements of the Securities Act and the
Exchange Act pursuant to Section 1145 of the Bankruptcy Code and, therefore,
will not be subject to any restrictions on transfer arising under the
Securities Act.
Appraisal Rights
Holders of OCV Common Stock are entitled to appraisal rights under
Section 262 of the DGCL, the text of which is attached as Annex V hereto. The
description of appraisal rights contained in this Information
Statement/Prospectus is qualified in its entirety by reference to Section 262 of
the DGCL.
If the Merger is completed, holders of OCV Common Stock who did not
consent to the Merger and who have fully complied with the provisions of Section
262 of the DGCL may have the right to require OCV to pay them the appraised
value of their OCV Common Stock in cash. Shares of OCV Common Stock that are
outstanding immediately prior to the Effective Time and that are held by OCV
stockholders who (a) have not consented to the Merger, (b) have delivered to OCV
a written demand for appraisal of such OCV Common Stock prior to __________,
1996 (20 days from the date of notice hereunder) in the manner provided in
Section 262 of the DGCL and (c) have held continuously such OCV Common Stock
from the date of the written demand for appraisal through the Effective Time
("Dissenting Shares"), shall not be converted into or represent the right to
receive the Merger Consideration, but instead the holders thereof shall be
entitled to payment of the appraised value of such Dissenting Shares in
accordance with Section 262 of the DGCL. If, however, any holder of Dissenting
Shares (i) subsequently delivers a written withdrawal of such holder's demand
for appraisal of such Dissenting Shares within 60 days after the Effective Time
(or thereafter with the written approval of OCV), (ii) any holder fails to
perfect such holder's entitlement to appraisal rights as provided in such
Section 262, or (iii) if neither any holder of Dissenting Shares nor OCV has
filed a petition with the Delaware Court of Chancery demanding a determination
of the value of all Dissenting Shares within 120 days after the Effective Time,
such holder or holders shall forfeit the right to appraisal of such Dissenting
Shares and such Dissenting Shares may thereupon be deemed to have been converted
into the right to receive, and to have become exchangeable for, as of the
Effective Time, the Merger Consideration.
FAILURE TO TAKE ANY NECESSARY STEPS WILL RESULT IN A TERMINATION OR
WAIVER OF THE RIGHTS OF THE HOLDER UNDER SECTION 262 OF THE DGCL. A PERSON
HAVING A BENEFICIAL INTEREST IN OCV COMMON STOCK THAT IS HELD OF RECORD IN THE
NAME OF ANOTHER PERSON, SUCH AS A TRUSTEE OR NOMINEE, MUST ACT PROMPTLY TO CAUSE
THE RECORD HOLDER TO FOLLOW THE REQUIREMENTS OF SECTION 262 IN A TIMELY MANNER
IF SUCH PERSON ELECTS TO DEMAND APPRAISAL OF SUCH SHARES.
Any holder of record of OCV Common Stock electing to demand the
appraisal of such shares of OCV Common Stock under Section 262 of the DGCL must
(a) deliver to OCV, prior to __________, 1996 (20 days from the date of notice
hereunder), a written demand for appraisal of such shares and (b) not consent to
the adoption of the Merger Agreement. Failure to consent to the Merger Agreement
does not constitute such a demand. A holder of record of OCV Common Stock
electing to take such action must do so by a separate written demand that
reasonably informs OCV of such holder's identity and of such holder's intention
thereby to demand the appraisal of such holder's shares of OCV Common Stock.
Only the holder of record of OCV Common Stock is entitled to assert
appraisal rights for the OCV Common Stock registered in that holder's name. The
demand should be executed by or for the holder of record, fully and correctly,
as the holder's name appears on the holder's stock certificates. If
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the OCV Common Stock is owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the OCV Common Stock is owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or for all owners. An authorized agent, including one of two or more
joint owners, may execute the demand for appraisal for a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is acting as agent
for the record owner or owners. A record holder, such as a broker, who holds OCV
Common Stock as nominee for the beneficial owners may exercise the holder's
right of appraisal with respect to the OCV Common Stock held for all or less
than all of such beneficial owners. In such case, the written demand should set
forth the number of shares of OCV Common Stock covered by the written demand.
Where no number of shares of OCV Common Stock is expressly mentioned, the demand
will be presumed to cover all shares of OCV Common Stock standing in the name of
the record owner.
Within 120 days after the Effective Time, OCV or any holder of OCV
Common Stock who has satisfied the foregoing conditions and is otherwise
entitled to appraisal rights under Section 262 of the DGCL, may file a petition
in the Delaware Court of Chancery demanding a determination of the value of the
stock of all such holders. Holders of OCV Common Stock seeking to exercise
appraisal rights should not assume that OCV will file a petition with respect to
the appraisal of the value of their Dissenting Shares or that OCV or On Command
Corporation will initiate any negotiations with respect to the "fair value" of
such Dissenting Shares. Accordingly, holders of OCV Common Stock seeking to
assert appraisal rights should regard it as their obligation to initiate all
necessary action with respect to the perfection of their appraisal rights within
the time periods prescribed in Section 262. At any time within 60 days after the
Effective Time, any OCV stockholder who has demanded appraisal of his OCV Common
Stock shall have the right to withdraw his demand for appraisal and to accept
the Merger Consideration.
Within 120 days after the Effective Time, any holder of OCV Common
Stock who has complied with the requirements for the exercise of appraisal
rights, as discussed above, is entitled, upon written request, to receive from
OCV a statement setting forth the aggregate number of shares of OCV Common Stock
the holders of which did not consent to the approval of the Merger and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such OCV Common Stock. OCV is required to mail such
statement within 10 days after it receives a written request therefor.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine which holders of OCV
Common Stock are entitled to appraisal rights and will appraise the Dissenting
Shares owned by such holders, determining their "fair value" exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the "fair value." Any such judicial determination of the "fair
value" of the Dissenting Shares could be based upon considerations other than or
in addition to the price paid in the Merger and the market value of the
Dissenting Shares, including asset values, earnings value and any other
valuation considerations generally accepted in the investment community
including, if appropriate, factors such as dividends, earnings prospects, the
nature of the enterprise and any other facts which could be ascertained as of
the date of the Merger which throw any light on future prospects of On Command
Corporation. The value so determined for Dissenting Shares could be more or less
than the Merger Consideration to be paid pursuant to the Merger. The costs of
the appraisal proceeding may be determined by the Delaware Court of Chancery and
taxed upon the parties as the Delaware Court of Chancery deems equitable in the
circumstances. Upon application of a holder of OCV Common Stock, the Delaware
Court of Chancery may order all or a portion of the expenses incurred by any
such holder in connection with the appraisal proceeding, including, without
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limitation, reasonable attorney's fees and the fees and expenses of experts, to
be charged pro rata against the value of the shares entitled to an appraisal.
Any holder of OCV Common Stock who has duly demanded an appraisal in
compliance with Section 262 will not be entitled to vote the Dissenting Shares
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those Dissenting Shares (other than those
payable or deemed to be payable to OCV stockholders of record as of a date prior
to the Effective Time).
A holder of OCV Common Stock will fail to perfect, or effectively lose,
such holder's right to appraisal if no petition for appraisal is filed with the
Delaware Court of Chancery within 120 days after the Effective Time, or if after
the Effective Time such holder delivers to OCV a written withdrawal of such
holder's demand for an appraisal and an acceptance of the Merger, except that
any such attempt to withdraw made more than 60 days after the Effective Time
will require the written approval of OCV.
In the event an appraisal proceeding is instituted in a timely manner,
such proceeding may not be dismissed as to any holder of OCV Common Stock who
has perfected such stockholder's right of appraisal without the approval of the
Delaware Court of Chancery.
Any demands, notices, certificates or other documents to be delivered
to OCV prior to the Merger or to the Surviving Corporation after the Merger may
be sent to: On Command Video Corporation, 3301 Olcott Street, Santa Clara,
California 95054, attention: Secretary.
THE ACQUISITION
The Acquisition Agreement
The Acquisition Agreement provides that On Command Corporation will
purchase all of the capital stock of Spectradyne. It also provides that certain
assets held by affiliates of Spectradyne will be transferred to Spectradyne
prior to the acquisition of the Spectradyne capital stock by On Command
Corporation.
Assets Acquired
The assets to be owned by Spectradyne on the Closing Date will include
all of the Debtors' assets and properties (including, without limitation, all
tangible, intangible, real and personal assets and properties of the Debtors,
wherever located, other than the Excluded Assets (as defined below) (the
"Assets"). The Assets include all rights of the Debtors under the following: (i)
all contracts, leases and licenses assumed by the Debtors at the written
direction of On Command Corporation or Ascent under the Acquisition Agreement
and (ii) all other contracts, leases and licenses that both (a) have been
entered into by the Debtors since the commencement of the Bankruptcy Case in the
ordinary course of business or that have been assumed by the Debtors pursuant to
an order of the Bankruptcy Court and (b) are identified on a schedule to the
Acquisition Agreement.
The Assets also include: (i) all copyrights, patents, trademarks,
tradenames, slogans, logos, service marks, computer software, data processing
files, systems and programs, business lists, trade secrets, sales and operating
plans and other similar intangible property owned by the Debtors; (ii) all
permits, permissions, consents and other authorizations issued for the operation
of the Debtors' businesses by any governmental agency; (iii) all personal
property and equipment owned by the Debtors; (iv) all real property owned by the
Debtors identified on a schedule to the Acquisition Agreement; (v) all of the
capital stock and other equity interests owned by any of the Debtors in each
corporation, limited liability
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company, foreign company, limited partnership, general partnership and other
entity (other than another Debtor), each of which is identified on a schedule to
the Acquisition Agreement; (vi) all current assets, including cash and cash
equivalents, as well as all claims of the Debtors against all persons and
entities (other than another Debtor) other than (a) certain claims retained by
the Debtors and (b) the cash retained by the Debtors in accordance with the
Acquisition Agreement to make administrative and priority payments under the
Plan, which amount shall have been approved by the Bankruptcy Court; and (vii)
all records relating to the Debtors' businesses and the Assets (including but
not limited to all books of account, customer lists, supplier lists, employee
personnel files, tax records and information, local public records file
materials, engineering data, logs, programming records, consultants' reports,
budgets, financial reports and projections, and sales, operating and business
plans, that relate to or are used in the operation of any Debtor's business or
necessary or desirable to show compliance with any law or regulation applicable
to any Debtor's business).
Notwithstanding the foregoing, the Assets shall not include any of the
following (collectively, the "Excluded Assets"): (i) the contracts, leases,
licenses, assets and properties of Spectradyne identified as Excluded Assets on
a schedule to the Acquisition Agreement; (ii) the assets and properties, if any,
of the Non-Spectradyne Debtors identified on a schedule to the Acquisition
Agreement; (iii) all contracts, leases and licenses of the Non-Spectradyne
Debtors other than those identified on a schedule to the Acquisition Agreement;
(iv) the claims of each Non-Spectradyne Debtor against any other Non-Spectradyne
Debtor; (v) all causes of action and avoidance powers of the Debtors other than
the causes of action and avoidance powers related to, or derived from, the
leases and executory contracts assumed by and/or assigned to Spectradyne; (vi)
any real estate owned by the Non-Spectradyne Debtors that is not identified on a
schedule to the Acquisition Agreement; and (vii) to the extent necessary, a
reasonable amount of funds to be retained by the Debtors to make administrative
and priority payments under the Plan, which amount shall have been approved by
the Bankruptcy Court. "Non-Spectradyne Debtors" means the Debtors other than
Spectradyne.
Liabilities Assumed
On Command Corporation shall not assume any responsibility for any of
the Debtors' liabilities or obligations other than as expressly set forth in the
Acquisition Agreement. Specifically, On Command Corporation shall assume and pay
all of the Debtors' liabilities under the DIP Loan (as defined below) on the
Closing Date up to a maximum amount of $40,000,000 with proceeds under a
financing facility to be entered into by On Command Corporation and/or its
subsidiaries on such terms and conditions as shall be satisfactory to On Command
Corporation in its sole discretion after consultation with the Debtors and the
Creditors' Committee; provided, however, that so long as On Command Corporation
is a consolidated subsidiary of COMSAT under GAAP, On Command Corporation shall
be subject to Ascent's intercompany agreements with COMSAT.
In addition, subject to certain limitations, On Command Corporation
shall be responsible for paying the allowed administrative expenses (the
"Allowed Administrative Expenses") and all amounts payable by the Debtors (the
"Cure Payments") to cure any defaults under the contracts and leases that were
(i) assumed by the Debtors pursuant to an order of the Bankruptcy Court
(exclusive of certain contracts and leases assumed at the direction of Ascent or
On Command Corporation pursuant to the Acquisition Agreement), or (ii) entered
into by the Debtors in the ordinary course of their businesses since the
commencement of the Bankruptcy Case; provided, that the amounts payable by On
Command Corporation with respect to such Allowed Administrative Payments and
Cure Payments shall only be for certain liabilities previously identified and
shall not exceed the amounts specified in the addendum to the Plan Sponsor
Agreement.
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On Command Corporation also shall be responsible for paying all of the
Cure Payments payable by the Debtors with respect to, and On Command Corporation
shall assume all of the Debtors' other obligations under, the contracts and
leases assumed by the Debtors at the written direction of Ascent or On Command
Corporation pursuant to the Acquisition Agreement. On Command Corporation also
shall assume all of the Debtors' obligations under any equipment leases with
OCV.
On the Closing Date, subject to certain conditions discussed below,
Spectradyne will assume the Current Liabilities identified on the Pre-Closing
Balance Sheet (exclusive of the current liabilities of the foreign subsidiaries
of Debtors, which shall remain the obligations of such foreign subsidiaries) up
to a maximum amount not to exceed the Current Liabilities specified in the
Pre-Closing Balance Sheet; provided, however, that if the Adjusted Current
Liabilities set forth on the Pre-Closing Balance Sheet exceed the Maximum
Assumable Amount, the Current Liabilities to be assumed by Spectradyne will be
reduced until the Adjusted Current Liabilities equals the Maximum Assumable
Amount, in which case On Command Corporation will designate the Current
Liabilities that will not be assumed by Spectradyne and the Debtors' Estates
shall remain liable for all Current Liabilities not assumed by Spectradyne. The
Current Liabilities assumed by Spectradyne described in this paragraph
(collectively, the "Assumed Liabilities") shall be paid by Spectradyne in
accordance with the terms of such liabilities.
Subject to certain limitations set forth below, from and after the
Closing Date until the Adjustment Date (as defined below), to the extent that
the Debtors after the Closing Date (the "Debtors' Estates") have inadequate
funds to pay the Allowed Administrative Expenses and the Current Liabilities (as
defined below), if any, that are not set forth on the Pre-Closing Balance Sheet
(as defined below), On Command Corporation and/or its subsidiaries shall provide
the Debtors' Estates with sufficient funds to pay such expenses, and Spectradyne
shall assume such liabilities, up to an aggregate amount not to exceed the sum
of the Estimated Net Working Capital (as defined below) and the Reserved Stock
Value, if any. After the Adjustment Date, to the extent that the Debtor's
Estates have inadequate funds to pay the Allowed Administrative Expenses and the
Current Liabilities, if any, that are not set forth on the Pre- Closing Balance
Sheet, On Command Corporation and/or its subsidiaries shall provide the Debtors'
Estates with sufficient funds to pay such expenses, and Spectradyne shall assume
such liabilities, up to an aggregate amount not to exceed the Maximum Remaining
Payment Amount (as defined below).
Notwithstanding the foregoing, the Plan will discharge all liabilities
of, and claims against, the Debtors as of the Closing Date other than (i)
Assumed Liabilities, and (ii) any indebtedness of Spectradyne that is owed by
Spectradyne or any of its subsidiaries to SPI Newco, Inc. (a wholly-owned
subsidiary of SpectraVision that, prior to the Transactions, will own all of the
capital stock of Spectradyne) or SpectraVision, which indebtedness will be
contributed to the capital of Spectradyne pursuant to the Acquisition Agreement;
provided, however, that unless otherwise agreed to by Ascent in writing, none of
such indebtedness will be discharged pursuant to the Plan or otherwise; provided
further, however, that neither Ascent nor On Command Corporation shall be
entitled to receive any distribution under the Plan on account of such
indebtedness. Except for the Assumed Liabilities and the other liabilities for
which On Command Corporation and/or its subsidiaries are expressly responsible
for paying pursuant to the Acquisition, none of On Command Corporation,
Spectradyne or any of their post-closing affiliates shall have any
responsibility or liability for any expenses or liabilities of, or any claims
(whether matured, contingent or otherwise) against, the Debtors, all of which
shall be the responsibility and liability of the Debtors' Estates. In the event
that there is any Excess Payment (as defined below) as of the Adjustment Date,
the Debtors' Estates shall promptly pay On Command Corporation an amount equal
to such Excess Payment, which at the option of the Creditors' Committee may be
paid with either cash or a number of shares of OCC Common Stock equal to the
Excess Stock Payment. Notwithstanding the foregoing, none of On Command
Corporation, Spectradyne or any of their post-closing affiliates shall
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have any liability or responsibility for any amounts due under or with respect
to the DIP Loan Agreement in excess of $40,000,0000.
Acquisition Consideration
As consideration for the capital stock of Spectradyne, on the Closing
Date, On Command Corporation shall: (i) issue to the Creditors, or to an agent
on their behalf, an aggregate number of shares of OCC Common Stock that
represents the Initial Percentage (as defined below) of the Total On Command
Corporation Initial Shares (as defined below) and (ii) shall reserve the
Reserved Stock for issuance to the Creditors and/or OCV's stockholders at the
time and in the manner prescribed below.
The number of shares of Reserved Stock to be issued to the stockholders
of OCV shall equal the product of (i) the amount, if any, by which the aggregate
amount of Current Liabilities that were assumed, and the aggregate amount of the
Allowed Administrative Expenses that were paid, by On Command Corporation
pursuant to the Acquisition Agreement exceeds the Adjusted Current Assets (as
defined below) and (ii) a fraction, the numerator of which shall be equal to the
Total On Command Corporation Initial Shares (as defined below) and the
denominator of which shall be equal to the Warrant Exercise Price (as defined
below); provided, however, that notwithstanding the foregoing, the stockholders
of OCV shall not be entitled to receive any shares of the Reserved Stock unless
the Adjusted Current Liabilities exceed the Adjusted Current Assets by more than
$250,000. Any Reserved Stock that is not issuable to the OCV stockholders
pursuant to the Merger Consideration will be issued to the Creditors. The
Reserved Stock will be distributed as promptly as practical after the Final
Distribution Date.
Certain Definitions
For the definitions of capitalized terms used herein and not otherwise
defined herein, reference is made to the Acquisition Agreement, a copy of which
is attached hereto as Annex II. The following terms used in the Acquisition
Agreement have the following meanings:
"Additional OCV Debt" means the following: (i) $22,000,000 of
intercompany debt owed by OCV to Ascent as of March 1, 1996, plus any additional
debt incurred by OCV in connection with its buildout of hotel rooms and
transition costs associated with the Transactions from March 1, 1996 to the
Closing Date; provided, however, that (a) prior to May 18, 1996, the rate of
additional debt incurred by OCV in connection with buildouts and transition
costs shall not exceed $3,000,000 per month and shall be consistent with, and on
the same terms as, the intercompany debt outstanding on March 1, 1996, and (b)
on and after May 18, 1996, the amount of additional debt incurred by OCV may
exceed $3,000,000 per month (but shall be consistent with, and on the same
terms, as the intercompany debt outstanding on March 1, 1996) in order to
accelerate the buildout of room backlog after consultation with SpectraVision
and the Creditors' Committee; (ii) all of the debt incurred by OCV in connection
with leasing OCV equipment to Spectradyne and all of the rental charges to be
assumed or paid by On Command Corporation; and (iii) all of the debt incurred by
OCV, directly or on behalf of On Command Corporation, in arranging for
alternative service to replace the network, transponder and similar services
currently provided to the Debtors by EDS.
"Adjusted Current Assets" means the aggregate dollar amount of the
Current Assets less the sum of the following assets if, and only to the extent
that, such assets constitute Current Assets: (i) the aggregate outstanding
balance of the Accounts Receivable that are more than 90 days past due, and (ii)
the aggregate amount of cash and other assets, if any, transferred by
Spectradyne to the Debtors' Estates pursuant to the Acquisition Agreement.
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"Adjusted Current Liabilities" means the aggregate dollar amount of the
Current Liabilities less the sum of the following liabilities if, and only to
the extent that, such liabilities constitute Current Liabilities: (i) the Rental
Charges, (ii) the aggregate amount of liabilities to be paid by On Command
Corporation pursuant to the Acquisition Agreement, and (iii) the deferred
obligations set forth on Schedule A to the Plan Sponsor Agreement; provided,
however, that the amount of each such deferred obligation that is excluded from
Current Liabilities shall not exceed the amount of such obligation as set forth
on such Schedule A.
"Adjustment Date" means (i) the date on which the disagreements, if
any, that On Command Corporation has with the Closing Balance Sheet as set forth
in On Command Corporation's Statement have been resolved in accordance with the
Acquisition Agreement, or (ii) if On Command Corporation does not have any
disagreements with the Closing Balance Sheet or if all such disagreements have
been resolved by On Command Corporation, SpectraVision and the Creditors'
Committee prior to the expiration of the Resolution Period, the last day of the
Resolution Period or such earlier date as is agreed to by On Command
Corporation, SpectraVision and the Creditors' Committee.
"Confirmation Order" means a Bankruptcy Court Order that confirms the
Plan and satisfies the conditions set forth in the Acquisition Agreement.
"Current Liabilities" means the aggregate dollar amount of the
consolidated liabilities of Spectradyne and the Foreign Subsidiaries as of the
Closing Date that are properly classified as "current liabilities" under GAAP
(in calculating such dollar amount, if the current liabilities of any Foreign
Subsidiary are not denominated in U.S. Dollars, such current liabilities shall
be converted into their U.S.
dollar equivalent as of the Closing Date in accordance with GAAP).
"DIP Loan" means all amounts (including, without limitation, principal,
interest and fees) due and owing to the Foothill Capital Corporation as of the
Closing Date under the loan and security agreement, dated as of June 9, 1995, by
and between Spectradyne and the Foothill Capital Corporation.
"Estimated Net Working Capital" means the positive or negative amount
obtained by subtracting (i) the Adjusted Current Liabilities as reflected in the
Spectradyne's Pre-Closing Balance Sheet, from (ii) 95% of the Adjusted Current
Assets as reflected in Spectradyne's Pre-Closing Balance Sheet;
"Excess Payment" means the dollar amount, if any, by which the
Non-Specified Payment Obligations as of the Adjustment Date exceeds the sum of
the Adjusted Current Assets as reflected in the Adjusted Balance Sheet and the
Reserved Stock Value, if any; provided, however, that the Excess Payment shall
be equal to zero unless the Non-Specified Payment Obligations as of the
Adjustment Date exceed the Adjusted Current Assets as reflected in the Adjusted
Balance Sheet by at least $250,000.
"Final Distribution Date" means the first business day practicable
after the Adjustment Date; provided, however, that if the Estimated Net Working
Capital exceeds $1,000,000, then such date shall be the Closing Date,
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"Final Order" means an order or judgment rendered by the Bankruptcy
Court or other court of competent jurisdiction that has been entered on the
docket and (unless otherwise ordered by such court) as to which (i) both (a) the
time to seek reconsideration, rehearing, or new trial by the rendering court
(hereinafter, a ("Post-Trial Motion"), and (b) the time (including time
resulting from a timely filed motion under Rule 8002(c) under the Federal Rules
of Bankruptcy Procedure) to appeal or to seek a petition for review or
certiorari (hereinafter, an "Appellate Court Review"), has expired (without
regard to whether time to seek relief of a judgment under Rule 60(b) of the
Federal Rules of Civil Procedure or Rule 9024 of the Federal Rules of Bankruptcy
Procedure has expired); and (ii) either (a) no Post-Trial Motion or request for
Appellate Court Review is pending, or (b) a Post-Trial Motion or a request for
Appellate Court Review is pending but the subject order of judgment has not been
stayed, amended, modified or reversed by a court of competent jurisdiction or,
if stayed, such stay has been vacated or is no longer in effect. Without
limiting the foregoing, the pendency of, or request for, a Post-Trial Motion or
an Appellate Court Review shall not prevent an order from becoming final and
being implemented, absent the entry of a stay by a court of competent
jurisdiction and the continuation thereof.
"Initial Percentage" means the percentage equal to the difference
between 27.5% and the Potential Additional Percentage.
"Maximum Assumable Amount" means the sum of 95% of the Adjusted Current
Assets as reflected in the Pre-Closing Balance Sheet and the Reserved Stock
Value, if any.
"Maximum Remaining Payment Amount" means the difference between (i) the
Adjusted Current Assets as reflected in the Adjusted Balance Sheet, and (ii) the
Non-Specified Payment Obligations as of the Adjustment Date; provided, however,
that if Non-Specified Payment Obligations as of the Adjustment Date equal or
exceed the Adjusted Current Assets as reflected in the Adjusted Balance Sheet,
the Maximum Remaining Payment Amount shall be equal to zero.
"Non-Specified Payment Obligations" means (A) as of the Final
Distribution Date, an amount equal to the sum of (i) the aggregate amount of the
Adjusted Current Liabilities that have been assumed by Spectradyne pursuant to
the Acquisition Agreement, (ii) the aggregate amount of the Allowed
Administrative Expenses that have been paid by On Command Corporation and/or it
subsidiaries pursuant to the Acquisition Agreement as of the Final Distribution
Date, and (iii) the aggregate amount of the Current Liabilities, if any, that
have been assumed by Spectradyne pursuant to the Acquisition Agreement as of the
Final Distribution Date, and (B) as of the Adjustment Date, an amount equal to
the sum of (i) the aggregate amount of the Adjusted Current Liabilities that
have been assumed by Spectradyne pursuant to the Acquisition Agreement, (ii) the
aggregate amount of the Allowed Administrative Expenses that have been paid by
On Command Corporation and/or its subsidiaries pursuant to the Acquisition
Agreement as of the Adjustment Date, and (iii) the aggregate amount of the
Current Liabilities, if any, that have been assumed by Spectradyne pursuant to
the Acquisition Agreement as of the Adjustment Date.
"OCV Debt" means the current liabilities of OCV and the Additional OCV
Debt.
"Pre-Closing Balance Sheet" means the balance sheet that SpectraVision
will deliver to Ascent a pro forma balance sheet for Spectradyne at least five
(5) business days prior to the Closing Date, which shall set forth
SpectraVision's best estimate of the Current Assets, Current Liabilities,
Adjusted Current Assets and Adjusted Current Liabilities as of the Closing Date
after giving effect to the Acquisition Agreement.
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"Potential Additional Percentage" means the percentage (rounded to the
nearest one-thousandth) calculated by dividing the number of shares of Reserved
Stock by the number of Total On Command Corporation Initial Shares.
"Reserved Amount" means (i) if the Estimated Net Working Capital is
positive but less than $1,000,000, the difference between $1,000,000 and the
Estimated Net Working Capital, (ii) if the Estimated Net Working Capital is
negative, the sum of $1,000,000 and the absolute value of the Estimated Net
Working Capital; provided, however, that Reserved Amount shall not exceed
$10,000,000 under any circumstances, and (iii) if the Estimated Net Working
Capital is equal to or greater than $1,000,000, then the Reserved Amount shall
be zero.
"Reserved Stock" means a number of authorized but unissued shares of
OCC Common Stock (rounded to the nearest whole number) that is determined as
follows: (i) if the Estimated Net Working Capital is less than $1,000,000, a
number of shares of OCC Common Stock equal to the product of On Command
Corporation Initial Shares and a fraction, the numerator of which shall be equal
to the Reserved Amount and the denominator of which shall be equal to the
Warrant Exercise Price, and (ii) if the Estimated Net Working Capital is greater
than or equal to $1,000,000, there shall be no shares of Reserved Stock.
"Reserved Stock Value" means an amount equal to the product of the
number of shares of Reserved Stock and a fraction, the numerator of which shall
be equal to the Warrant Exercise Price and the denominator of which shall be
equal to the number of Total On Command Corporation Initial Shares.
"Resolution Period" means the twenty (20) day period following delivery
of the Closing Balance Sheet to On Command Corporation pursuant to the
Acquisition Agreement.
"Termination Event" means (i) with respect to On Command Corporation
(a) a trustee is appointed in the Bankruptcy Case; (b) the Bankruptcy Case is
converted to a case under Chapter 7 of the Bankruptcy Code; or (c) the Closing
Date has not occurred on or before October 30, 1996 or such later date as is
acceptable to On Command Corporation and Ascent, and (ii) with respect to
Debtors (a) the Closing Date has not occurred on or before October 30, 1996 or
such later date as is acceptable to SpectraVision and the Creditors' Committee;
or (b) the Debtors receive a higher and better offer for their assets that
complies with the terms and conditions of the Procedures Order and the
Disclosure Statement and Ascent or On Command Corporation has not matched such
offer in accordance with the terms and conditions of the Procedures Order and
the Disclosure Statement.
"Total On Command Corporation Initial Shares" means 30,000,000 shares
of OCC Common Stock.
"Warrant Exercise Price" means the amount by which $550,000,000 exceeds
the aggregate amount of debt of On Command Corporation and its subsidiaries that
is outstanding as of the Closing Date after giving effect to the Transactions
(including, but not limited to, the aggregate amount of debt incurred by On
Command Corporation to perform all of its obligations under the Acquisition
Agreement and the OCV Debt) divided by the Total On Command Corporation Initial
Shares.
Closing Conditions and Other Pre-Closing Matters
The obligation of each party to the Acquisition Agreement to consummate
the Acquisition is subject to the satisfaction of certain conditions, including
the following conditions: (i) all authorizations required to consummate the
Transactions shall have been obtained; (ii) as of the Closing Date, no court
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<PAGE> 41
shall have entered an order that enjoins, restrains, or prohibits the
consummation of the Transactions; (iii) the Plan shall (a) incorporate the terms
of the Acquisition Agreement, (b) have been confirmed pursuant to an order of
the Bankruptcy Court, and (c) have become effective in accordance with the
provisions of Chapter 11 of the Bankruptcy Code; and (iv) if the Common Stock is
listed on a national securities exchange or the Nasdaq National Market, On
Command Corporation's board of directors shall satisfy the applicable
requirements, if any, for independent directors.
The obligations of On Command Corporation under the Acquisition
Agreement are conditioned upon: (i) the representations and warranties of the
Debtors being true and correct as of the Closing Date; (ii) compliance by the
Debtors and the Creditors Committee with all conditions under the Acquisition
Agreement; (iii) the Bankruptcy Court's confirmation order shall have become a
Final Order; (iv) On Command Corporation shall have received the Confirmation
Letter from counsel to the Debtors; (v) no material adverse change shall have
occurred since December 31, 1995; (vi) the Disclosure Statement, the Plan and
the Confirmation Order shall (a) incorporate, and otherwise be consistent with,
the terms of the Acquisition Agreement and the Merger Agreement, and (b) be in
form and substance reasonably satisfactory to On Command Corporation; (vii) the
Debtors shall deliver to On Command Corporation all the required closing
documents; (viii) no Termination Event shall have occurred (other than any that
have been waived by On Command Corporation in writing); (ix) On Command
Corporation has not sent (a) any uncured default notice to SpectraVision (other
than any that have been rescinded or waived by On Command Corporation in
writing), or (b) a termination notice to SpectraVision; (x) the Bankruptcy Court
shall have approved Ascent's director nominees; (xi) Ascent shall have approved
the Creditors Committee's director nominees; (xii) a registration statement
covering both the Common Stock and the Series A Warrants to be issued to OCV's
stockholders shall have been filed with, and declared effective by the
Commission; and (xiii) On Command Corporation shall have received the
Pre-Closing Balance Sheet at least five (5) business days prior to the Closing
Date, which shall be in form and substance reasonably satisfactory to On Command
Corporation.
The obligations of Debtors are conditioned upon: (i) the
representations and warranties of On Command Corporation being true and correct
as of the Closing Date; (ii) compliance by On Command Corporation or Ascent with
all applicable conditions under the Acquisition Agreement; (iii) the Merger
shall have been consummated; (iv) On Command Corporation shall deliver to
SpectraVision all the required closing documents; (v) On Command Corporation has
not sent (a) any default notice to SpectraVision (other than any that have been
rescinded or waived by On Command Corporation in writing), or (b) a termination
notice to SpectraVision; (vi) the Bankruptcy Court and Ascent shall have
approved the Creditors' Committee director nominees; (vii) the Warrant Agreement
and Registration Rights Agreement shall be in full force and effect; (viii) On
Command Corporation shall have made arrangements to repay the DIP Loan up to a
maximum amount of $40 million; (ix) OCV shall not have incurred indebtedness not
permitted under the Acquisition Agreement; (x) the Transactions shall be in
compliance with any applicable United States securities laws; (xi) the
Disclosure Statement, the Plan and the Confirmation Order shall (a) incorporate,
and otherwise be consistent with, the terms of the Acquisition Agreement and the
Merger Agreement, and (b) be in form and substance reasonably satisfactory to
Debtors and the Creditors' Committee; (xii) no Termination Event shall have
occurred (other than any that have been waived by SpectraVision and the
Creditors' Committee in writing); and (xiii) the capital structure of On Command
Corporation shall be as contemplated by the Acquisition Agreement and the Merger
Agreement.
Pursuant to the Acquisition Agreement, immediately preceding the
Closing Date, Spectradyne will terminate the employment of all of its officers
and other employees. Neither On Command Corporation nor any of its affiliates
shall have any liability on account of the Debtors' employees (including without
limitation any liability arising in connection with or with respect to any of
the following: unemployment
39
<PAGE> 42
insurance contributions, termination payments, severance payments, retirement,
pension, profit-sharing, bonus, severance pay, disability, health, accrued
vacation, accrued sick leave or other employee benefit plans, agreements or
understandings). If On Command Corporation or any of its subsidiaries elect to
hire any employee of Debtors, the terms and conditions (including the scope and
amount of all benefits) under which any such employment will be offered will be
determined by On Command Corporation in its sole discretion. The Acquisition
Agreement does not provide that any employees of any Debtor must be employed
after the Closing Date by On Command Corporation, Spectradyne or any of their
subsidiaries or post-closing affiliates, and any offers of employment may be
made by On Command Corporation in its sole discretion. However, the Acquisition
Agreement does not prevent the Debtors from taking actions that seek to minimize
the expenses incurred by the Debtors' Estates in connection with the termination
of the Debtors' employees.
Representations and Warranties
The Acquisition Agreement contains representations and warranties of
the Debtors relating to: (i) their title to certain real property, free and
clear of liens or encumbrances; (ii) the absence of certain changes or events
since the date of the most recent audited financial statements filed with the
Commission, including material adverse changes with respect to the Debtors;
(iii) the absence of grounds for termination of the Debtors' five largest hotel
customers or any of the Debtors' major studio movie suppliers or free-to-guest
programming suppliers; (iv) the absence of any material environmental liability
(other than as disclosed in the Environmental Assessment Report, dated July
1995, which was prepared by ENTRIX, Inc., as to which the Debtors do not concede
any material liability); and (v) the absence of any material federal, state or
foreign tax liability that may be assessed against or collected from On Command
Corporation as a successor of the Debtors or otherwise.
THE WARRANTS
On Command Corporation will enter into the Warrant Agreement with The
Bank of New York, as warrant agent. The Warrants will be governed by the Warrant
Agreement, which is included as Annex III to this Information
Statement/Prospectus and is incorporated by reference herein, and the following
description of the Warrants and the Warrant Agreement and their respective terms
is qualified in its entirety by reference thereto.
Exercisability; Expiration
Each holder of Series A Warrants will have the right, which may be
exercised at any time prior to and until 5:00 P.M., New York City Time, on the
seventh anniversary of the Effective Time, to receive from On Command
Corporation, on a net basis and without the exchange of any funds, that number
of fully paid and nonassessable Warrant Shares which is equal to the number of
Warrant Shares specified in such holder's Series A Warrants less a number of
Warrant Shares having an aggregate fair market value at the time of exercise
(determined in accordance with the provisions of the Warrant Agreement) equal to
the then Warrant Price multiplied by the number of Warrant Shares specified in
such holder's Series A Warrants. Each holder of Series B Warrants will have the
right, which may be exercised at any time prior to 5:00 P.M., New York City
Time, on the seventh anniversary of the Effective Time, to purchase from On
Command Corporation for cash the number of fully paid and nonassessable Warrant
Shares which each such holder may at the time be entitled to purchase on
exercise of such Warrants. The holder of the Series C Warrant will have the
right, which may be exercised at any time prior to and until 5:00 P.M., New York
City Time, on the seventh anniversary of the Effective Time, to purchase from On
Command Corporation for cash the number of fully paid and nonassessable
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<PAGE> 43
Warrant Shares which each such holder may at the time be entitled to purchase on
exercise of such Warrants.
Each Warrant not exercised prior to 5:00 P.M., New York City Time, on
the seventh anniversary of the Effective Time will become void and all rights
thereunder and all rights in respect thereof under the Warrant Agreement will
cease as of such time.
Warrants may be exercised upon (i) surrender to On Command Corporation
at the principal office of the Warrant Agent in New York, New York of the
certificate or certificates evidencing the Warrants to be exercised, together
with the form of election to purchase, duly completed and signed, with the
signature thereon guaranteed by a bank or trust company having an office or
correspondent in the United States or a broker or dealer which is a member of a
registered securities exchange or the National Association of Securities
Dealers, Inc. (the "NASD"), and (ii) payment to the Warrant Agent for the
account of On Command Corporation of the Warrant Price for the number of Warrant
Shares in respect of which such Warrant is then exercised, such payment to be
made by surrendering additional Warrants, in the case of the Series A Warrants,
and in cash, in the case of the Series B Warrants and the Series C Warrant.
No adjustment will be made in respect of any accrued and unpaid
dividends on any Warrant Shares issued upon exercise of Warrants.
Adjustments
The number of Warrant Shares purchasable upon the exercise of each
Warrant and the Warrant Price will be subject to adjustment in the event On
Command Corporation (a) pays a dividend on the OCC Common Stock in shares of OCC
Common Stock, (b) subdivides its outstanding shares of OCC Common Stock into a
greater number of shares, (c) combines its outstanding shares of OCC Common
Stock into a smaller number of shares, (d) distributes to all holders of OCC
Common Stock shares of its capital stock other than OCC Common Stock, (e) issues
by reclassification of its OCC Common Stock any shares of its capital stock, (f)
distributes any rights, options or warrants to all holders of its Common Stock
or to any affiliate (as such term is defined in the Securities Act of 1933) of
the Company entitling such holders or such affiliate to purchase shares of
Common Stock at a price per share less than the current market price per share
on that record date, (g) sells to any affiliate (as defined above) of the
Company any shares of Common Stock at a price per share less than the current
market price per share on the date of distribution, or (h) distributes, by
dividend or otherwise, to all holders of its Common Stock cash or assets in an
aggregate amount that, together with any other distributions to all holders of
its Common Stock within the 12 months preceding the date of payment of such
distribution and in respect of which no adjustment pursuant to this clause (h)
has been made, exceeds the lesser of (1) 5% of the product of the current market
price per share of the Common Stock on the record date for stockholders to
receive such distribution times the number of shares of Common Stock outstanding
on such date and (2) an amount equal to any regularly quarterly dividend
declared from time to time by the Board of Directors of On Command Corporation.
No adjustment in the Warrant Price will be made unless the adjustment
would require an increase or decrease of at least 1% in the Warrant Price. Any
adjustments which are not made will be carried forward and taken into account in
any subsequent adjustment. Except as described above, no adjustment in the
Warrant Price will be made because On Command Corporation issues, in exchange
for cash, property or services, shares of OCC Common Stock, or any securities
convertible into or exchangeable for shares of OCC Common Stock, or securities
carrying the right to purchase shares of OCC Common Stock or such convertible or
exchangeable securities. Furthermore, no adjustment in the Warrant Price
41
<PAGE> 44
need be made under the Warrant Agreement for sales of shares of OCC Common Stock
pursuant to a plan providing for reinvestment of dividends or interest or in the
event the par value of the OCC Common Stock is changed or in the event the par
value of the OCC Common Stock is eliminated.
On Command Corporation has reserved, or will have reserved as of the
Effective Time, and will keep reserved at all times, a sufficient number of
shares out of the authorized OCC Common Stock to provide for the exercise of the
rights to purchase Warrant Shares represented by all outstanding Warrants. On
Command Corporation will pay cash in lieu of fractional shares of OCC Common
Stock that would otherwise be issuable upon exercise of a Warrant.
Registration; Exemption
The Series A Warrants are being registered under the Securities Act
pursuant to the registration statement of which this Information
Statement/Prospectus is a part. The Warrant Shares issuable upon exercise of the
Series A Warrants will be exempt from registration under the Securities Act
pursuant to Section 3(a)(9) thereof and not subject to any transfer restrictions
under the Securities Act, except for Warrant Shares issued to any holder of
Series A Warrants who may be deemed to be an "affiliate" of On Command
Corporation or OCV for purposes of Rule 145 under the Securities Act. See
"--Resale of OCC Common Stock and Warrants."
REGISTRATION RIGHTS
Any person owning 10% or more of the OCV Common Stock prior to the
Effective Time, Gary Wilson Partners and any other person that receives 10% or
more of the OCC Common Stock issuable upon consummation of the Transactions,
including Warrant Shares issuable upon exercise of the Warrants (each a "Holder"
and, collectively, the "Holders"), will be entitled to certain registration
rights with respect to the shares of OCC Common Stock and/or Warrants received
by such Holders pursuant to the Merger Agreement or the Acquisition Agreement
and the Warrant Shares issuable to such Holders upon the exercise of the
applicable Warrants, all as set forth in the Registration Rights Agreement, a
copy of which is included as Annex IV to this Information Statement/Prospectus.
The Registration Rights Agreement provides that any Holder (a
"Demanding Party") shall have the right once during any twelve-month period to
make a written request of On Command Corporation for a registration with the
Commission under the Act of all or part of its Registrable Securities (a "Demand
Registration"); provided, that (a) On Command Corporation need not effect a
Demand Registration if (1) such Demand Registration fails to include at least
$10,000,000 in aggregate fair market value of the Registrable Securities (as
defined in the Registration Rights Agreement) or (2) such Demand Registration
would require an audit of On Command Corporation's financial statements for a
period as of a date other than its fiscal year end and the Demanding Party fails
to agree to bear responsibility for the expenses of such an audit, (b) On
Command Corporation may, if a majority of the On Command Corporation Board of
Directors determines in the exercise of their good faith judgment that
compliance with the disclosure obligations necessary to effect such Demand
Registration at such time would have an adverse effect on On Command
Corporation, defer such Demand Registration for a single period not to exceed
180 days, and (c) if On Command Corporation has undertaken a Registration within
the six months preceding the receipt by On Command Corporation of the request
for the Demand Registration, commencement of such Demand Registration shall be
delayed until at least six months have elapsed from the date of effectiveness of
such Registration. The Registration Rights Agreement also provides piggyback
registration rights, which may be exercised in connection with a Demand
Registration or any other registration by On Command Corporation.
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<PAGE> 45
Pursuant to a letter agreement, dated April 19, 1996, between Gary
Wilson Partners and Ascent, and as consideration for the registration rights
granted to Gary Wilson pursuant to the Registration Rights Agreement, Gary
Wilson Partners has agreed that, so long as it owns any Warrant Shares, it will
vote such shares in accordance with the instructions of Ascent for so long as
Ascent continues to own 20% of the outstanding shares of OCC Common Stock.
Additionally, Gary Wilson Partners has agreed that without prior written consent
of Ascent, Gary Wilson Partners will not sell, assign, or otherwise transfer any
interest in the Warrants, or any Warrant Shares, prior to the second anniversary
of the Effective Date for so long as Ascent holds at least 20% of the
outstanding shares of OCC Common Stock.
ANTICIPATED ACCOUNTING TREATMENT
The Transactions will be accounted for using the historical book value
of the assets, liabilities and stockholders equity acquired from OCV by On
Command Corporation and On Command Corporation's management's estimate of the
fair value of Spectradyne's assets to be acquired and liabilities to be assumed
by On Command Corporation. The final purchase price allocation for the Debtors'
assets will be determined at a future date (no later than one year after the
Closing Date), which may result in adjustments to the preliminary allocation.
However, in the opinion of management, the preliminary allocation of the
purchase price reflects On Command Corporation's best estimate and all
adjustments necessary to fairly state the pro forma financial information
presented in this Information Statement/Prospectus.
REASONS FOR THE TRANSACTIONS; DETERMINATION OF THE BOARD OF DIRECTORS OF OCV
The OCV Board of Directors has determined that the Transactions are in
the best interests of OCV and its stockholders. In reaching its determination to
approve the Merger Agreement, the OCV Board of Directors considered a number of
factors, including, without limitation, those listed below. In view of the wide
variety of factors considered in connection with its evaluation of the Merger,
the OCV Board of Directors did not consider it practicable to, nor did it
attempt to, quantify or otherwise assign relative weights to the specific
factors it considered in reaching its determination. In addition, individual
members of the OCV Board of Directors may have given different weights to
different factors.
1. The potential appreciation in value of the OCC Common Stock to be
held by the OCV stockholders as compared to the value of OCV Common Stock
expected to result from the synergies between OCV's and Spectradyne's
distribution systems of in-room entertainment in the lodging industry and OCV's
and Spectradyne's contracts with hotel chains and hotel management companies.
Upon consummation of the Transactions, On Command Corporation will be the
leading multimedia distribution in-room entertainment provider in the U.S.
lodging industry.
2. The fact that, upon the consummation of the Transactions, the OCC
Common Stock will be registered under the Securities Act and eligible for
listing on the Nasdaq National Market. The OCV Board of Directors viewed these
factors as favorable to the OCV stockholders for the long term, as well as in
the short term in the case of those OCV stockholders seeking to liquidate their
OCC Common Stock received in the Merger.
3. The opportunity for OCV stockholders to participate in the growth of
the business to be conducted by On Command Corporation after the Transactions.
OCV's Board of Directors believes that SpectraVision's bankruptcy proceedings
present a unique strategic opportunity for expansion.
4. The OCV Board of Directors considered the dilutive effect of the
Acquisition on the holders of OCV Common Stock. In this regard, the OCV Board of
Directors reviewed the opinion of Allen &
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<PAGE> 46
Company dated April 18, 1996 delivered to the OCV Board of Directors to
the effect that, as of such date, the consideration to be received by the
holders of OCV Common Stock pursuant to the Plan Sponsor Agreement was fair from
a financial point of view to the holders of OCV common stock. A copy of Allen &
Company's written opinion to the OCV Board of Directors is attached hereto as
Annex V and is incorporated herein by reference. See "--Opinion of Allen &
Company."
For the reasons stated above, management of OCV and of On Command
Corporation believe that the Transactions provide On Command Corporation with an
opportunity to significantly expand the business of OCV and Spectradyne by
capitalizing on the synergies between OCV and Spectradyne. On Command
Corporation believes that the increased number of rooms under contract and
serviced by its subsidiaries' distribution systems will enhance On Command
Corporation's ability to compete and expand in the highly competitive market for
in-room entertainment viewing distribution systems servicing the worldwide
lodging industry.
OPINION OF ALLEN & COMPANY
By engagement letter, dated April 18, 1996, Ascent, on behalf of itself
and OCV, retained Allen & Company to act as financial advisor in connection with
any acquisition by On Command Corporation of the assets of SpectraVision and its
subsidiaries and of OCV (the "Combination Transaction"), and to render its
opinion as to the fairness of such a transaction, from a financial point of
view, to the stockholders of each of OCV and Ascent. Allen & Company was
selected by Ascent because of Allen & Company's experience and expertise in
mergers and acquisitions and its knowledge of the entertainment and multimedia
distribution industries, and because of Allen & Company's familiarity with OCV's
business arising out of its prior role as investment banker to OCV, Ascent and
COMSAT.
Allen & Company delivered its written opinions, dated April 18, 1996,
to the Ascent Board of Directors and the OCV Board of Directors (the "Opinion"),
to the effect that, as of such date, the consideration to be received by the
holders of Ascent common stock and OCV Common Stock pursuant to the terms of the
Combination Transaction set forth in the Plan Sponsor Agreement was fair from a
financial point of view to the holders of Ascent common stock and OCV Common
Stock. A copy of the Opinion of Allen & Company to the OCV Board of Directors is
attached hereto as Annex V. THE OCV STOCKHOLDERS ARE URGED TO READ SUCH OPINION
CAREFULLY FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW
UNDERTAKEN BY ALLEN & COMPANY.
The Allen & Company Opinion addresses only the fairness of the
consideration to be received by the holders of Ascent common stock and OCV
Common Stock from a financial point of view and does not constitute a
recommendation that the stockholders of OCV should approve the Merger Agreement.
The summary of Allen & Company's Opinion set forth herein is qualified in its
entirety by reference to the full text of the Opinion.
Although Allen & Company evaluated the financial terms of the
Combination Transaction, Allen & Company did not recommend the specific
consideration to be paid to the OCV stockholders. The consideration to be
received by the OCV stockholders was determined by negotiations between Ascent,
OCV, the Debtors, the Creditors' Committee and their respective representatives.
In connection with its rendering of the Opinion, Allen & Company, among
other things: (i) reviewed the terms and conditions of the Plan Sponsor
Agreement and related documentation (excluding exhibits and schedules, which
were not provided to it as of the date of its Opinion); (ii) reviewed certain
reports prepared by management and Gary Wilson Partners ("GWP"), financial
advisor to Ascent and OCV, regarding the projected financial performance and
budgetary information for OCV and the
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<PAGE> 47
combined entity; (iii) analyzed certain historical business and financial
information relating to Ascent and OCV including non-public financial and
operating results of OCV and Ascent made available by management; (iv)
considered trends in the in-room entertainment, pay-per-view, programming and
satellite communications industries, and the business prospects of OCV and
SpectraVision; (v) conducted discussions with members of the senior management
of Ascent and OCV with respect to the financial condition, business, operations,
strategic objectives and prospects of Ascent and OCV, as well as discussions
with GWP with respect to the newly created entity to result from the Combination
Transaction; (vi) conducted discussions with, and reviewed information obtained
from, management of Ascent, OCV and GWP; (vii) reviewed information regarding
SpectraVision's relationship with EDS, including certain financial and operating
assumptions supplied to it by management and GWP, and as to which it was
informed by management and GWP that they believed such arrangements are
achievable; (viii) reviewed financial information relating to SpectraVision,
including forecasts prepared by Salomon Brothers Inc on behalf of SpectraVision;
(ix) reviewed and analyzed publicly available financial and transaction
information of selected comparable companies in the in-room entertainment,
pay-per-view, programming, and satellite communications industries; (x) reviewed
the pro forma impact of the Combination Transaction from financial and equity
ownership perspectives; (xi) analyzed discounted cash flows of OCV and
SpectraVision based on management's forecasts; and (xii) conducted such other
financial analyses and investigations as it deemed necessary or appropriate for
the purposes of the Opinion.
In connection with its review, Allen & Company assumed and relied upon,
without independent verification, (i) the accuracy and completeness of all the
financial and other information provided to it by Ascent, OCV, GWP and
SpectraVision for purposes of its Opinion and the representations contained in
the Plan Sponsor Agreement, as well as certain information relating to the
strategic objectives of Ascent, OCV and SpectraVision, as well as their existing
business relationships, prospects and opportunities, including without
limitation SpectraVision's relationship with EDS and (ii) the reasonableness of
the assumptions made by the management of Ascent, OCV, GWP, and SpectraVision
with respect to their financial forecasts and budgetary information. In
addition, Allen & Company did not make or seek to obtain appraisals of OCV's or
SpectraVision's assets and liabilities, nor of creditors' claims in the
reorganization of SpectraVision, in rendering its Opinion. Allen & Company
further relied upon the assurances of the managements of OCV, Ascent and
SpectraVision that they were unaware of any facts that would make the
information or any projections provided by them, respectively, to Allen &
Company incomplete or misleading. The Opinion is also necessarily based upon the
economic, market and other conditions as in effect on, and the information made
available to Allen & Company as of, the date of its Opinion.
Allen & Company's Opinion was based solely upon the information
available to it and economic, monetary, market and other conditions as they
existed as of the date of such Opinion; events occurring thereafter could
materially affect the assumptions used in preparing the Opinion. As of the date
of this Information Statement/Prospectus, Allen & Company has not been asked to
update its Opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
evaluation of the fairness of a transaction, from a financial point of view, is
a subjective one based on the experience and judgment of Allen & Company, and
not merely the result of mathematical analysis of financial data. In its
analyses, Allen & Company made numerous assumptions with respect to business,
market, monetary and economic conditions, industry performance, business and
economic conditions and other matters, many of which are beyond Allen &
Company's, Ascent's, OCV's, On Command Corporation's and SpectraVision's
control.
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Pursuant to the engagement letter, Allen & Company will be paid for its
services as financial advisor to Ascent and OCV in connection with the
Combination Transaction, and in connection with Allen & Company's rendering of
its Opinion, a cash fee of $600,000. Pursuant to the engagement letter, Allen &
Company was entitled to an initial fee of $50,000 and the balance of $550,000 is
payable immediately upon consummation of the Combination Transaction. Ascent
also agreed to reimburse Allen & Company for its reasonable out-of-pocket
expenses incurred in connection with the services rendered to Ascent pursuant to
the engagement letter (including the reasonable fees and disbursements of its
legal counsel, and of other consultants and advisors retained with Ascent's
consent). Ascent also agreed, pursuant to the engagement letter, to indemnify
Allen & Company's officers, agents, employees, affiliates, and controlling
persons against certain expenses and liabilities, including liabilities under
the federal securities laws.
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SELECTED PRO FORMA FINANCIAL INFORMATION
The following selected pro forma financial information of On Command
Corporation is derived from the financial statements of OCV and the consolidated
financial statements of SpectraVision included elsewhere herein and give pro
forma effect to the Transactions as if they had occurred on January 1, 1995 with
respect to the statement of operations data, and on June 30, 1996 with respect
to the balance sheet data. The selected pro forma financial information is not
necessarily indicative of what the results of operations or the financial
position of On Command Corporation would have been had the Transactions occurred
on such dates, nor is such data necessarily indicative of the results of
operations or financial position of On Command Corporation that can be expected
for any future periods or at any future date. The following selected pro forma
financial information should be read together with the Financial Statements of
OCV, the Consolidated Financial Statements of SpectraVision and the Pro Forma
Financial Statements of On Command Corporation included elsewhere in this
Information Statement/Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(Dollars in thousands, except per share data)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ........................................ $226,045 $120,502
Total costs and expenses ........................ 243,011 126,706
Loss from operations ............................ (16,966) (6,204)
Net loss ........................................ (23,638) 8,839
Net loss per common and equivalent share......... (0.79) (0.29)
Shares used in per share calculations ........... 30,000 30,000
OTHER DATA:
EBITDA (1) ...................................... $ 44,599 $ 31,503
Rooms served at end of period ................... 911,406 915,218
Hotels served at end of period .................. 3,109 3,141
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------
(In thousands)
BALANCE SHEET DATA:
<S> <C>
Total assets................................................................................ $391,339
Total debt.................................................................................. 70,568
Total stockholders' equity.................................................................. 271,877
</TABLE>
(1) EBITDA is presented because it is a widely accepted financial indicator used
by certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
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<PAGE> 50
HISTORICAL SELECTED FINANCIAL INFORMATION
The historical selected financial information of OCV and the historical
selected consolidated financial information of SpectraVision have been derived
from their respective historical financial statements and should be read in
conjunction with such financial statements and notes thereto, included elsewhere
in this Information Statement/Prospectus, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Interim financial
information at and for the six months ended June 30, 1996 and June 30, 1995
reflect, in the opinion of the managements of OCV and SpectraVision, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such information. Results for interim periods are not
necessarily indicative of results which may be expected for any other interim
period or for the fiscal year as a whole.
OCV
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- -----------------------
1995 1994 1993 1992 1991 1996 1995
-------- -------- -------- ------- -------- -------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total net revenues ............. $102,059 $ 81,609 $ 30,204 $ 8,595 $ 2,431 $ 62,490 $ 51,331
Total direct costs of revenues . 48,817 47,786 12,912 5,461 1,304 27,940 27,531
Total operating expenses ....... 45,091 27,976 14,955 2,780 2,427 30,674 19,524
Income (loss) from operations .. 8,551 5,847 2,337 354 (1,300) 3,876 4,276
Net income (loss) .............. 4,902 3,456 1,358 168 (1,875) 1,624 2,508
Net income (loss) per common
and equivalent share ......... 0.72 0.62 0.35 0.07 (1.65) 0.21 0.42
Shares used in per share
calculations ................. 6,833 5,571 3,896 2,353 1,135 7,903 6,015
OTHER DATA:
EBITDA(1) ...................... $ 37,288 $ 23,381 $ 10,157 $ 2,257 $ (581) $ 25,169 $ 15,772
Rooms served at end of period .. 361,000 248,000 124,000 37,000 11,000 419,000 307,000
Hotels served at end of period . 1,221 751 272 89 38 1,500 996
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets ................... $211,005 $138,884 $ 92,363 $48,646 $ 12,570 $232,915 --
Total debt ..................... 15,942 1,025 1,842 2,634 3,385 29,270 --
Redeemable common stock ........ 10,264 10,264 10,264 -- -- 10,264 --
Total stockholders' equity ..... 171,224 109,728 67,997 40,675 7,605 174,957 --
</TABLE>
(1) EBITDA is presented because it is a widely accepted financial indicator used
by certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
48
<PAGE> 51
SPECTRAVISION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------- ---------------------
1995 1994 1993 1992 1991 1996 1995
--------- --------- --------- --------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues .................... $ 123,986 $ 142,384 $ 162,993 $ 168,621 $ 173,093 $ 58,012 $ 65,208
Total direct costs ................ 52,813 58,015 58,834 56,528 58,597 27,088 25,884
Write-off of goodwill ............. -- -- -- 218,453 -- -- --
Write-down of hotel contracts ..... -- 196,256 -- -- -- -- --
Loss before extraordinary items and
cumulative effect of change
in accounting principle ......... (73,645) (254,284) (43,057) (270,242) (60,003) (22,786) (38,729)
Extraordinary gain (loss) ......... (915) -- (2,699) 23,378 -- -- (915)
Cumulative effect of change in
accounting principle ............ -- -- -- (28,498) -- -- --
Net loss .......................... (74,560) (254,284) (45,756) (275,362) (60,003) (22,786) (39,644)
Net loss per common and equivalent
shares........................... (3.11) (10.60) (2.52) (166.31) (655.88) (0.95) (1.65)
Shares used in per share
calculation...................... 23,974 23,989 18,157 1,656 91 23,985 24,022
OTHER DATA:
EBITDA(1) ......................... $ 866 $ 19,148 $ 55,790 $ 65,303 $ 69,877 $ 2,734 $ 8,756
Rooms served at end of period ..... 550,406 635,378 684,599 722,571 758,710 496,218 608,146
Hotels served at end of period .... 1,888 2,308 2,442 2,543 2,554 1,641 2,184
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets ...................... $ 205,622 $ 242,822 $ 409,478 $ 401,493 $ 619,518 $ 194,637 $ --
Total debt ........................ 28,667 510,563 436,557 458,900 514,782 41,298 --
Liabilities subject to settlement
under reorganization ............ 579,587 -- -- -- -- 576,040 --
Stockholders' equity (deficit) .... (447,608) (373,025) (118,614) (150,923) 59,899 (472,165) --
</TABLE>
(1) EBITDA is presented because it is a widely accepted financial indicator used
by certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
49
<PAGE> 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements of OCV and of SpectraVision included elsewhere in
this Information Statement/Prospectus.
OVERVIEW
On Command Corporation was formed in July 1996 as a holding company for
the acquisition of OCV and Spectradyne. Prior to the consummation of the
Transactions, On Command Corporation has had no operations and has conducted no
business other than those activities related to the Transactions. Set forth
below is a discussion of the results of operations of OCV and of SpectraVision.
Following the Transactions, OCV and Spectradyne, which comprises substantially
all of the operations of SpectraVision, will comprise the principal operations
of On Command Corporation.
RESULTS OF OPERATIONS
OCV
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Total net revenues increased by $11.2 million or 21.7% to $62.5 million
for the six months ended June 30, 1996 as compared to total net revenues of
$51.3 million for the six months ended June 30, 1995, primarily as a result of
net movie revenues from 419,000 installed on-demand rooms as of June 30, 1996
compared to 307,000 such rooms as of June 30, 1995, and, to a lesser extent, as
a result of selected price increases. OCV's movie prices are now generally $8.95
for the first buy, and when applicable, $4.95 for the second and subsequent
buys. The decrease in video system sales and the absence of video management
services revenue for the six months ended June 30, 1996 is primarily
attributable to the contribution by Ascent of certain assets included in its
Satellite Cinema division to OCV in exchange for OCV Common Stock pursuant to a
contribution agreement effective August 1, 1995. During the six month period
ending June 30, 1995, video system sales and management services to Ascent
totaled approximately $16.2 million.
Total direct cost of revenues was $27.9 million or 44.7% of total net
revenues, for the six months ended June 30, 1996, compared to $27.5 million, or
53.6% of total net revenues, for the six months ended June 30, 1995. This
percentage decrease resulted from the elimination of low margin video system
sales and video management services to Ascent, offset by increased free-to-guest
direct costs due to price reductions granted in connection with certain hotel
contracts without a corresponding decrease in programming fees paid to
suppliers.
Field service costs, which consist primarily of labor and material
expense required to maintain the existing on-demand equipment, were $5.2 million
for the six months ended June 30, 1996, or 9.4% of net movie revenue compared to
$4.3 million or 13.8% of net movie revenue for the same period in 1995. This
percentage decrease is the result of operating efficiencies due to the increase
in installed on-demand rooms and increased management focus.
Depreciation and amortization was $21.3 million or 38% of net movie
revenues, for the six months ended June 30, 1996, compared to depreciation and
amortization of $11.5 million, or 36.6% of net movie revenues, for the
comparable period in 1995. This increase in depreciation and amortization
50
<PAGE> 53
is attributable to the capital investment associated with installing on-demand
service in hotel rooms, coupled with the depreciation and amortization resulting
from the acquisition of the assets from Ascent.
Marketing, general and administrative expense increased $1.2 million
for the six months ended June 30, 1996 compared to the same period in 1995 due
to higher levels of business activities, and costs associated with the
SpectraVision acquisition.
Research and development expense increased to $1.9 million for the six
months ended June 30, 1996, compared to $1.1 million for the six months ended
June 30, 1995. The increase of $.8 million is primarily attributable to
continued investment in the development of new products by OCV, including the
prototype work being done in 1996 on a new remote control.
In 1995, OCV recorded a charge of $1.5 million related to the
settlement of a lawsuit with a former employee of OCV.
Income from operations decreased to $3.9 million for the six months
ended June 30, 1996 from $4.3 million in 1995, a decrease of 9.4%. This decrease
is primarily attributable to the decreased level of video system sales, higher
free to guest programming costs and an increase in depreciation and amortization
expenses.
Net interest expense was $1.0 million for the six month period ended
June 30, 1996 as compared to $.1 million for the comparable 1995 period. This is
the result of OCV utilizing debt financing from Ascent during 1996 to finance
OCV's continuing expansion of its installed customer base, in contrast to the
comparable period in 1995 when equity financing was used in lieu of debt.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total net revenues increased by $20.5 million or 25.1% to $102.1
million for the year ended December 31, 1995 as compared to total net revenues
of $81.6 million for the year ended December 31, 1994 primarily as a result of
net movie revenues from 361,000 installed on-demand rooms as of December 31,
1995 compared to 248,000 such rooms as of December 31, 1994. This increase in
net movie revenues was partially offset by the elimination of video systems
sales and video management services to Ascent in the August through December,
1995 period. Video system sales and video management services to Ascent totaled
approximately $18.9 million and $28.1 million in 1995 and 1994, respectively.
Total direct cost of revenues was $48.4 million or 47.4% of total net
revenues, for the year ended December 31, 1995, compared to $47.8 million, or
58.6% of total net revenues, for the year ended December 31, 1994. This
percentage decrease resulted from a reduction in film share expense from 13.7%
of net movie revenues in 1994 to 11.7% in 1995 and from the elimination of low
margin video system sales and video management services to Ascent in the August
through December, 1995 period.
Field service costs, which consist primarily of labor and material
expense required to maintain the existing on-demand equipment, were $9.1 million
for the year ended December 31, 1995, or 12.1% of net movie revenue compared to
$5.3 million or 11.5% of net movie revenue for the same period in 1994. This
increase in field service expense was broad based and included increase in
personnel, travel, facility and spare equipment purchase and repair costs.
Depreciation and amortization was $28.7 million or 38.3% of net movie
revenues, for the year ended December 31, 1995, compared to depreciation and
amortization of $17.5 million, or 38.2% of net movie revenues, for the
comparable period in 1994. This increase in depreciation and amortization is
51
<PAGE> 54
attributable to the capital investment associated with installing on-demand
service in additional hotel rooms combined with the depreciation and
amortization resulting from the acquisition from Ascent.
Research and development expense for the year ended December 31, 1995
was $2.6 million as compared to $1.8 million for the 1994 period, as OCV
continued its efforts to be competitive through continued investment in the
development of new products, as well as new features for existing products. The
increase across the periods were attributable to an increase in the costs
associated with executing these efforts, primarily an increase in personnel
costs of $.7 million.
Marketing, general and administrative expense decreased to $3.1 million
in the year ended December 31, 1995 as compared to $3.4 million in 1994,
primarily due to reduced legal expenses in 1995.
In 1995 OCV recorded a charge of $1.5 million related to the settlement
of a lawsuit with a former employee of OCV.
Income from operations increased to $8.6 million for the year ended
December 31, 1995 from $5.9 million in 1994, an increase of 46.3%. This increase
is attributable to increased movie revenues and a lower film share cost, offset
by increased field service costs and settlement of litigation expenses.
Net interest expense increased to $.4 million during the year ended
December 31, 1995 as compared to $.1 million for the comparable 1994 period.
This is the result of OCV obtaining debt financing from Ascent in the latter
half of 1995 to finance OCV's continuing expansion of its installed customer
base, in contrast to the comparable period in 1994 when equity financing was
used in lieu of debt.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Total net revenues increased by $51.4 million or 170.1% to $81.6
million for the year ended December 31, 1994 as compared to net revenues of
$30.2 million for the year ended December 31, 1993 primarily as the result of a
100% increase in installed on-demand rooms and from video system sales and video
management services to Ascent. Video system sales and video management services
to Ascent totaled approximately $28.1 million and $4.2 million in 1994 and 1993,
respectively.
Total direct cost of revenues was $47.8 million or 58.6% of total net
revenues, for the year ended December 31, 1994, compared to $12.9 million, or
42.7% of total net revenues, for the year ended December 31, 1993. This
percentage decrease resulted from an increase in lower margin video system sales
and video management services to Ascent and an increase in free-to-guest direct
costs due to price reductions granted in connection with certain hotel contracts
without a corresponding decrease in programming fees paid to suppliers.
Field services costs, which consist primarily of labor and material
expense required to maintain the existing on-demand equipment, were $5.3 million
for the year ended December 31, 1994, or 11.5% of net movie revenue compared to
$3.3 million or 14.1% of net movie revenue for the same period in 1993. This
percentage decrease was primarily attributable to the increase in OCV's
installed base with a lower increase in fixed costs associated with providing
customer support.
Depreciation and amortization was $17.5 million or 38.2% of net movie
revenues, for the year ended December 31, 1994, compared to depreciation and
amortization of $7.8 million, or 33.4% of net movie revenues, for the comparable
period in 1993. This percentage increase is attributable to the increased
capital investment required to obtain and install new hotel contracts.
52
<PAGE> 55
Research and development expense for the year ended December 31, 1994
was $1.8 million as compared to $1.2 million for the 1993 period. Increased
costs in 1994 included personnel, occupancy and consultants.
Marketing, general and administrative expense increased to $3.4 million
in the year ended December 31, 1994 as compared to $2.6 million in 1993.
Income from operations increased to $5.8 million and 7.2% of total net
revenues for the year ended December 31, 1994 from $2.3 million and 7.7% of
total net revenues in 1993. This increase is attributable to increased revenues
with a lower fixed cost in operating expenses.
Net interest expense increased to $78,000 during the year ended
December 31, 1994 as compared to $17,000 for the comparable 1993 period.
This was a combination of having lower interest earning, and lower investor loan
balances in 1994 as compared to 1993.
53
<PAGE> 56
SpectraVision
Information contained in this Information Statement/Prospectus relating
to SpectraVision and its subsidiaries has been obtained from publicly available
documents, including the most recent Form 10-Q and Form 10-K of SpectraVision
filed with the Commission. See "Available Information."
The following discussion of SpectraVision's results of operations has
been obtained from publicly available documents filed by SpectraVision with the
Commission. See "Available Information."
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Total revenues decreased to $58.0 million in the six months ended June
30, 1996 from $65.2 million in the six months ended June 30, 1995, a decrease of
$7.2 million or 11.0%. Of the total revenues reported in the six months ended
June 30, 1996, 86.9% were revenues from pay-per-view, 9.5% were from
free-to-guest, and 3.6% were from other sources.
Pay-per-view revenues decreased to $50.4 million in the six months
ended June 30, 1996 from $55.1 million in the six months ended June 30, 1995, a
decrease of $4.7 million or 8.5%. This decrease in pay-per-view revenues
primarily reflects the decline in the number of rooms served, which resulted in
a decrease in revenues of approximately $8.7 million. The decline in the number
of revenue producing rooms during the quarter is due to the loss of rooms from
non-renewal of certain hotel PPV contracts as a result of the intense
competition in the hotel pay-per-view industry and SpectraVision's voluntary
termination of certain unprofitable hotel contracts. These decreases were
somewhat offset by an increase in average price per view from $7.75 during the
six months ended June 30, 1995 to $8.32 for the six months ended June 30, 1996
contributing approximately $4.0 million to pay-per-view revenue. This increase
in average price per view revenue is primarily due to the $1.00 price increase
SpectraVision implemented on March 1, 1996 for substantially all of the hotels
it services located in the United States.
Free-to-guest revenues decreased to $5.5 million in the six months
ended June 30, 1996 from $6.9 million in the six months ended June 30, 1995, a
decrease of $1.4 million or 20.3%. This decrease primarily reflects the decline
in the number of hotels served as well as negotiated price reductions in
connection with certain PPV contract renewals.
Pay-per-view direct costs increased to $20.2 million in the six months
ended June 30, 1996 from $19.2 million in the six months ended June 30, 1995, an
increase of $1.0 million or 5.2%. As a percentage of pay-per-view revenues,
pay-per-view direct costs increased to 40.0% in the six months ended June 30,
1996 from 34.8% in the six months ended June 30, 1995. This percentage increase
is primarily due to increased film licensing fees and in room collateral costs.
Film licensing costs were 16.0% of pay-per-view revenues in the six months ended
June 30, 1995 as compared to 19.0% in the six months ended June 30, 1996. The
film license costs increased due to higher costs from vendors. The in room
collateral costs, which increased $.6 million or 59.2% increased due to the
introduction of the Entertainment Guide.
Free-to-guest direct costs increased to $5.9 million in the six months
ended June 30, 1996 from $5.7 million in the six months ended June 30, 1995, an
increase of $.2 million or 3.5%. As a percentage of free-to-guest revenues,
free-to-guest direct costs increased to 107.2% in the six months ended June 30,
1996 from 82.5% in the six months ended June 30, 1995. The increase in
free-to-guest direct costs as a percentage of free-to-guest revenues reflects
the price reductions in free-to-guest revenues in connection with certain PPV
contract renewals and increases in certain free-to-guest programming costs.
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Operating expenses decreased to $20.0 million in the six months ended
June 30, 1996 from $21.0 million in the six months ended June 30, 1995, a
decrease of approximately $1.0 million or 4.8%. Operating expenses consist
primarily of maintenance of hotel systems including contractual services
performed by EDS, pay-per-view equipment rental expense (primarily integrated
receiver decoders and file servers for the digital guest choice system) and
pay-per-view equipment repairs performed by a third party. Operating expenses
declined due to the reduction in the number of hotel rooms served and due to the
term of the EDS contract.
Selling, general and administrative expenses decreased to $7.2 million
in the six months ended June 30, 1996 from $10.2 million in the six months ended
June 30, 1995, a decrease of $3.0 million or 29.4%. Decreases in salaries and
benefits as a result of the reduction in workforce, along with decreases in
marketing and public relations expenditures, account for the decrease.
Interest expense (net) decreased to $3.1 million in the six months
ended June 30, 1996 from $26.9 million in the six months ended June 30, 1995, a
decrease of $23.8 million or 88.5%. The decrease is primarily due to the
non-accrual of interest on debt instruments subject to settlement under
reorganization. SpectraVision also capitalized interest in the amount of $.2
million for the six months ended June 30, 1996 as compared to $1.8 million in
the six months ended June 30, 1995. SpectraVision's cash interest for the six
months ended June 30, 1996 was $3.2 million compared to $.6 million for the six
months ended June 30, 1995.
Reorganization items were $1.8 million in the six months ended June 30,
1996 and consisted of normal bankruptcy, professional and other miscellaneous
charges.
Net loss was $22.8 million for six months ended June 30, 1996 and $39.6
million for the six months ended June 30, 1995. The decrease in the net loss for
the six months ended June 30, 1996 compared to June 30, 1995 was primarily due
to the decreased interest and expenses offset by declining revenues and
increases in direct costs, depreciation and amortization and reorganization
costs.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenues decreased to $124.0 million in 1995 from $142.4 million
in 1994, a decrease of $18.4 million or 12.9% primarily due to the decline in
pay-per-view revenues as a result of the reduction of installed hotel rooms. Of
the total revenues reported in 1995, 84.6% were revenues from pay-per-view,
11.0% were from free-to-guest, 4.4% were from interactive services and other
revenue sources.
Pay-per-view revenues decreased to $104.9 million in 1995 from $119.5
million in 1994, a decrease of $14.6 million or 12.2%. This decrease in
pay-per-view revenues reflects the decline in the number of rooms served, which
resulted in an approximate $11.1 million decrease in revenues. The remainder of
the decrease in pay-per-view revenues is attributed to a decline in revenues per
equipped room ("RER") reflecting lower viewing levels. SpectraVision believes
the lower RER in 1995 can also be attributed to an increased number of
non-operating hotel systems due to poor service and poorly performing movie
product.
Free-to-guest revenues decreased to $13.6 million in 1995 from $14.8
million in 1994, a decrease of $1.2 million or 8.1%. This decrease primarily
reflects negotiated price reductions in connection with certain PPV hotel
contract renewals and the decline in the number of hotels with free-to-guest
services.
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Other revenues decreased to $5.5 million in 1995 from $8.1 million in
1994, a decrease of $2.6 million or 32.1%. This decrease is primarily due to the
fact that equipment sales in 1994 did not recur in 1995.
Pay-per-view direct costs decreased to $39.9 million in 1995 from $41.8
million in 1994, a decrease of $1.9 million or 4.5%. As a percentage of PPV
revenues, pay-per-view direct costs increased to 38.1% in 1995 from 35.0% in
1994 for a number of reasons. Film share expense increased from 16.2% of PPV
revenues in 1994 to 17.1% of PPV revenues in 1995 because of higher film share
percentages being charged to SpectraVision from the various film studios for the
major studio film product shown by SpectraVision. Although transmission costs
remained the same, they increased to 3.1% of PPV revenues in 1995 from 2.3% in
1994 because PPV revenues declined. The video tape costs increased to 3.4% of
PPV revenues in 1995 compared to 2.6% in 1994 due to increased tape encoding and
duplicating costs established by SpectraVision's vendors during bankruptcy.
Movie card costs rose from 2.9% of PPV revenues in 1994 to 3.8% of PPV revenues
in 1995 due primarily to the introduction of an Entertainment Guide magazine.
Free-to-guest direct costs decreased to $11.4 million in 1995 from
$11.8 million in 1994, a decrease of $.4 million or 3.4%. As a percentage of
free-to-guest revenues, free-to-guest direct costs increased to 84.4% in 1995
from 79.6% in 1994 as a result of the lower revenues due to price reductions
granted in connection with certain PPV contract renewals without a corresponding
decrease in programming fees paid to suppliers.
Other direct costs decreased to $1.4 million in 1995 from $4.4 million
in 1994, a decrease of $3.0 million or 68.2%. As a percentage of other revenues,
other direct costs decreased to 26.0% in 1995 from 54.8% in 1994 principally due
to a one time $1.5 million charge for prior period licensing fees in 1994.
Depreciation and amortization expense decreased to $39.4 million in
1995 from $50.5 million in 1994, a decline of $11.1 million or 22.0%. The
decline is due to the write-down of hotel contracts at the end of 1994 and
assets becoming fully depreciated.
Operating expenses increased to $17.6 million in 1995 from $13.2
million in 1994, a net increase of $4.4 million or 33.3%. Operating expenses for
periods prior to April 1994 included costs of SpectraVision's U.S. field service
organization as well as field service operations in its foreign subsidiaries,
and labor costs of repairs and maintenance of hotel system components (including
TV's). Subsequent to March 1994, operating expenses are comprised of field
service operations of the foreign subsidiaries and repairs and maintenance
costs. In 1995, these costs also included technicians who were hired to improve
customer service in the field. Approximately $2.0 million represented duplicated
costs during 1995 when SpectraVision employed its own field service organization
and also paid contract fees under the EDS Service and Technology Agreement. In
addition, the cost of repairs to system components increased $1.6 million due to
both the cost of shipping and the increased quantity of room units and videotape
players repaired. The increased number of repairs, primarily to room unit
channel selectors, is partially due to the omission of on-site repairs
previously performed by SpectraVision field service personnel in prior years.
Contracted service costs increased to $29.3 million in 1995 from $21.0
million in 1994, an increase of $8.3 million or 39.5%. The remaining increases
include the costs from the EDS Service and Technology Agreement, which was in
effect for the last three quarters of 1994 and the entire year of 1995. The
increase is due primarily to the recording of $6.0 million of operating leases
for equipment previously owned by SpectraVision and sold in a sale leaseback
arrangement.
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Selling and marketing expenses decreased to $4.9 million in 1995 from
$8.7 million in 1994, a decrease of $3.8 million or 43.7% due to the elimination
of the marketing department during the year and reductions in activities
associated with public relations and promotion of new products.
General and administrative expenses decreased to $17.3 million in 1995
from $19.6 million in 1994, a net decrease of $2.3 million or 11.7%. Expenses in
1994 included severance costs of $2.1 million due to changes in executive
management. Additionally, 1994 included increases in legal fees, outside
management fees for warehouse management and shipping services provided by
Certech.
Research and development expenses decreased to $1.8 million in 1995
from $3.8 million in 1994, a decrease of $2.0 million due to various cost
reductions implemented.
Non-operating income for 1995 was $.5 million. This amount includes
adjustments to certain prior obligations which were settled for less than
anticipated. Non-operating income for 1994 was $1.2 million and is comprised of
business interruption insurance proceeds from hurricanes in 1993 and certain
non-operating payments received in-lieu of performance under purchase orders for
equipment by a customer.
Interest expense (net) decreased to $28.2 million in 1995 from $55.0
million in 1994, a decrease of $26.8 million or 48.7%. Cash interest expense
decreased from $4.0 million in 1994 to $3.2 million in 1995, a decrease of $.8
million. Non-cash interest expense decreased from $51.2 million in 1994 to $25.0
million in 1995, a decrease of $26.2 million. These decreases in interest
expense were the result of the non-accrual of interest on debt instruments
subject to settlement under reorganization for the period from June 8, 1995, the
date of the Chapter 11 filing, to December 31, 1995. This decrease was partially
offset by an increase in interest expense due to the increased outstanding
balance of the 11.65% Senior Subordinated Reset Notes during 1995 (prior to June
8, 1995) as compared to 1994.
Reorganization items of $7.6 million ($0 in 1994) for the twelve months
ended December 31, 1995 include normal bankruptcy, professional and
miscellaneous charges of $1.6 million and restructure charges of $6.0 million,
which includes discontinuing service to a number of unprofitable hotels and the
elimination of certain positions within SpectraVision. Of the total $6.0 million
restructuring charge, $.9 million relates to the cost of deinstalling certain
hotels and $1.7 million was recorded for estimated losses on the disposal of
deinstalled equipment. SpectraVision also recorded $.1 million in employee
severance costs which will be incurred in the restructure process. SpectraVision
recorded an additional charge of $2.3 million which represented the write-off or
abandonment of other fixed assets and $1.0 million for other costs associated
with the restructure process.
Deferred income tax benefits decreased to $1.0 million in 1995 from
$28.5 million in 1994, a decrease of $27.5 million or 96.5%. The 1994 deferred
tax benefit includes the tax effects related to the write-down of hotel
contracts. SpectraVision has recognized deferred tax assets only to the extent
such assets can be realized through future reversals of existing taxable timing
differences. As of December 31, 1995, the net operating loss carryforwards for
federal income tax purposes were $328 million.
Extraordinary item of $.9 million in 1995 represents the write-off of
unamortized debt issuance costs in connection with the extinguishment of
SpectraVision's Revolving and Canadian Bank Credit Facilities.
Net loss decreased to $74.6 million in 1995 from $254.3 million in
1994, a decrease of $179.7 million. The net loss for 1994 included a one-time
charge of $196.3 million for the revaluation of hotel
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contracts and patent costs. Ignoring this one time charge in 1994, 1995 net loss
increased by $16.6 over the 1994 net loss.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Total revenues decreased to $142.4 million in 1994 from $163.0 million
in 1993, a decrease of $20.6 million or 12.6% primarily due to the decline in
pay-per-view revenues as a result of the reduction of installed hotel rooms. Of
the total revenues reported in 1994, 83.9% were revenues from pay-per-view,
10.4% were from free-to-guest, 5.7% were from interactive services and other
revenue sources.
Pay-per-view revenues decreased to $119.5 million in 1994 from $134.8
million in 1993, a decrease of $15.3 million or 11.4%. This decrease in
pay-per-view revenues reflects the decrease in the number of rooms served, which
resulted in an approximate $11.3 million decrease in revenue. The remainder of
the decrease in pay-per-view revenues is attributed to a decline in RER
reflecting lower viewing levels. SpectraVision believes the lower RER in 1994
can also be attributed to an increased number of non-operating hotel systems
during the transition. The transition of SpectraVision's field service to EDS
involved numerous difficulties for field service personnel in maintaining the
normal level of repairs and maintenance of existing PPV rooms (particularly
those with tape-based PPV systems) concurrent with the installation of the
compressed digital video sites.
Free-to-guest revenues decreased to $14.8 million in 1994 from $17.9
million in 1993, a decrease of $3.1 million or 17.3%. This decrease primarily
reflects negotiated price reductions in connection with certain PPV hotel
contract renewals and the decline in the number of hotels with free-to-guest
services.
Other revenues decreased to $8.1 million in 1994 from $10.3 million in
1993, a decrease of $2.2 million or 21.4%. This decrease is primarily due to
reduced equipment sales and a $1.0 million decrease in interactive revenues due
to price reductions granted in connection with certain PPV contract renewals.
Pay-per-view direct costs decreased to $41.8 million in 1994 from $42.2
million in 1993, a decrease of $429,000 or 1.0%. As a percentage of pay-per-view
revenues, pay-per-view direct costs increased to 35.0% in 1994 from 31.3% in
1993. The increase resulted primarily from costs of the transponder lease
required for the implementation of the compressed digital video Satellite
Network beginning in the last quarter of 1993. The costs of videotapes and
in-room schedule cards increased to 5.4% of PPV revenues in 1994 from 4% in
1993. Due to the delay of deployment of the satellite-delivered compressed
digital video technology including SPEXIS and the electronic on-screen movie
card, reduction of videotapes and in-room cards were not realized as
anticipated.
Free-to-guest direct costs decreased to $11.8 million in 1994 from
$12.8 million in 1993, a decrease of $1.0 million or 7.8%. As a percentage of
free-to-guest revenues, free-to-guest direct costs increased to 79.0% in 1994
from 71.6% in 1993. The increase in free-to-guest direct costs as a percentage
of free-to-guest revenues is a result of the lower revenues due to price
reductions granted in connection with certain PPV contract renewals without a
corresponding decrease in programming fees paid to suppliers.
Other direct costs increased to $4.4 million in 1994 from $3.8 million
in 1993, an increase of $.6 million or 15.8%. As a percentage of other revenues,
other direct costs increased to 54.8% in 1994 from 50.2% in 1993 principally due
to a $1.5 million charge for prior period licensing fees.
Depreciation and amortization expense increased to $50.5 million in
1994 from $44.1 million in 1993, an increase of $6.4 million or 14.5%. The
increase in depreciation is due to the increase in video
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systems capitalized during 1994 due to the installation of the new
satellite-delivered compressed digital video technology.
Technology and field service charge for 1993 reflects the one-time
costs due to changes in technology and field service operations in connection
with the EDS Service and Technology Agreement. SpectraVision recorded costs in
the amount of $7.0 million for the write-off of obsolete equipment (primarily
videotape players and obsolete microprocessing equipment) and personnel related
costs associated with the reorganization of SpectraVision's field service
operations. Approximately $3.9 million was attributable to the write-off of
obsolete equipment and $3.1 million was due to costs of severance and incentives
to field operation personnel and costs related to the closing of field service
offices. The EDS Service and Technology Agreement was executed in July 1993 and
SpectraVision's management determined the impact on operations including
obsolete equipment and personnel reductions at that time and accordingly
recorded the estimation of these costs in the results of operations for 1993.
Loss on sale of manufacturing assets and inventory is a result of the
sale of SpectraVision's manufacturing operations to The Cerplex Group in
December 1993. Certech Technology, Inc., a wholly-owned subsidiary of The
Cerplex Group, manufactures and sells to SpectraVision a portion of the hotel
PPV system components. Certech has leased the manufacturing space at
SpectraVision's corporate headquarters. The cash proceeds to SpectraVision
resulting from the sale of assets and inventory were $5.2 million. The net loss
on the transaction of $0.7 million is comprised of a gain on the sale of assets
net of inventory write-downs and accrued severance costs.
Operating expenses combined with contracted service costs increased to
$34.2 million in 1994 from $26.3 million in 1993, a net increase of $7.9 million
or 30.0%. Operating expenses for periods prior to April 1994 include costs of
SpectraVision's U.S. field service organization as well as field service
operations in its foreign subsidiaries, and labor costs of repairs and
maintenance of hotel system components (including TV's). Subsequent to March
1994, operating expenses are comprised of field service operations of the
foreign subsidiaries and repairs and maintenance costs. The combined expenses
for 1994 includes a decrease of approximately $2.2 million due to personnel
transferred from operations to SpectraVision's sales organization which costs
are included in selling and marketing expenses for 1994. Approximately $5.3
million represents duplicated costs during the first quarter of 1994 when
SpectraVision employed its own field service organization and also paid contract
fees under the EDS Service and Technology Agreement. The cost of repairs to
system components also increased. This increase is attributable to both the cost
of shipping and the increased quantity of room units and videotape players
repaired. The increased number of repairs, primarily to room unit channel
selectors, is partially due to the omission of on-site repairs previously
performed by SpectraVision field service personnel.
Selling and marketing expenses increased to $8.7 million in 1994 from
$5.1 million in 1993, an increase of $3.6 million or 70.6%. Sales costs
increased approximately $2.2 million due to transfers of personnel previously
utilized in the field operations group as described above. Marketing costs
increased approximately $1.2 million due to activities associated with public
relations and promotion of new products.
General and administrative expenses increased to $19.6 million in 1994
from $15.4 million in 1993, a net increase of $4.2 million or 27.3%. Expenses in
1994 included severance costs of $2.1 million due to changes in executive
management. Additionally there were increases in legal fees and increases in
outside management fees for warehouse management and shipping services provided
by Certech. Directors' and officers' liability insurance costs and bad debt
expense decreased in 1994 as compared to 1993.
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Non-operating income for 1994 was $1.2 million and is comprised of
business interruption insurance proceeds from hurricanes in 1993 and certain
non-operating payments received in-lieu of performance under purchase orders for
equipment by a customer. Non-operating income was zero in 1993.
Research and development expenses increased to $3.8 million in 1994
from $1.6 million in 1993, an increase of $2.2 million due to increased
development and support of the satellite-delivered compressed digital video
technology.
Interest expense (net) increased to $55.0 million in 1994 from $49.0
million in 1993, an increase of $6.0 million or 12.2%. Cash interest expense
decreased from $43.2 million in 1993 to $4.0 million in 1994, a decrease of
$39.2 million. Non-cash interest expense increased from $6.1 million in 1993 to
$51.2 million in 1994, an increase of $45.1 million. The decrease in cash
interest expense and the increase in non-cash interest expense is due to
SpectraVision's issuance of additional Reset Notes in payment of the interest
obligation on June 1 and December 1, 1994 on the Reset Notes resulting in $34.0
million of non-cash interest expense. Additionally, 1994 includes a full year of
discount accretion on the Senior Notes (issued in October 1993) compared to only
3 months of discount accretion during 1993.
State and foreign income tax benefit was $448,888 in 1994 as compared
to $1.7 million of state and foreign income tax expense in 1993, a decrease of
$2.2 million. The benefit in 1994 is primarily attributed to operating losses on
the state level resulting in loss carrybacks.
Deferred tax benefits increased to $28.5 million in 1994 from $4.5
million in 1993, as a result of a reduction in SpectraVision's net deferred tax
liabilities. The increase in the tax benefit for 1994 as compared to 1993
primarily relates to the write-down of hotel contracts. SpectraVision has
recognized deferred tax assets only to the extent such assets can be realized
through future reversals of existing taxable temporary differences. As of
December 31, 1994 the net operating loss carryforwards for federal income tax
purposes were $285 million.
Loss before extraordinary items increased to $254.3 million in 1994
from $43.1 million in 1993, an increase of $211.2 million. The net loss for 1994
includes a one-time charge of $196.3 million for the revaluation of hotel
contracts and patent costs.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the consummation of the Transactions, On Command
Corporation will require approximately $90 million to refinance the
SpectraVision DIP Loan, to repay the OCV Debt, to pay closing and exit costs
related to consummating the Plan and to provide initial working capital.
Management of Ascent and On Command Corporation are in discussions with several
lending institutions, each of which has expressed its willingness to underwrite
a revolving credit facility for On Command Corporation of at least $125 million.
On Command Corporation's principal cash requirements are expected to
include continued installation by OCV and Spectradyne of on-demand systems,
including installations for new customers and the conversion of hotels currently
under contract and receiving only scheduled service. On Command Corporation
expects to have access to short-term and long-term financing at favorable rates
under the credit facility currently being negotiated. Management of On Command
Corporation believes that funds generated by operations and funds available
under the new credit facility will be sufficient for On Command Corporation to
satisfy its growth and finance working capital requirements through 1997.
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Furthermore, On Command Corporation and Ascent will enter into the
Corporate Agreement, pursuant to which On Command Corporation will agree with
Ascent not to incur any indebtedness without Ascent's prior consent, other than
the indebtedness contemplated by the Acquisition Agreement. In addition,
pursuant to the COMSAT Agreement, Ascent has agreed not to incur any
indebtedness, other than under Ascent's existing credit facility (and
refinancings thereof) and indebtedness incurred in the ordinary course of
business which together shall not exceed $175 million in the aggregate, which
amount Ascent management believes COMSAT will consent to increase as is
reasonably required by Ascent in order to secure adequate financing to
consummate the Transactions. A primary purpose of the COMSAT Agreement is to
require Ascent to coordinate its capital requirements with COMSAT so that COMSAT
can monitor its compliance with the regulations of the FCC applicable to the
capital structure and debt financing activities of COMSAT and its consolidated
subsidiaries. COMSAT is required to submit a financial plan to the FCC for
review annually. Under existing FCC guidelines, COMSAT is subject to a maximum
long-term debt to total capital ratio of 45%, a limit of $200 million in
short-term debt and interest coverage ratio of 2.3 to 1. In April 1996, COMSAT
submitted its current plan, which seeks a temporary decrease in the interest
coverage ratio to a minimum of 1.9 to 1 for the 1996 plan year and an increase
in the short-term debt limit to $275 million as long as the financial statements
of Ascent are consolidated with those of COMSAT. COMSAT has informed Ascent that
COMSAT was in compliance with both the long-term debt to total capital ratio and
the short-term debt limit at June 30, 1996 and expects to be in compliance with
those guidelines at December 31, 1996 if the short-term limit is modified as
requested. If the FCC approves COMSAT's request, COMSAT has further informed
Ascent that it expects that the cash flows from operations and COMSAT's
consolidated short-term borrowing capacity, including under Ascent's credit
facility or a refinancing thereof in connection with the Transactions, will be
sufficient to fund COMSAT's aggregate cash requirements for the balance of 1996.
However, COMSAT has further informed Ascent that COMSAT expects to seek a
further modification of the interest coverage ratio in order to be in compliance
with that guideline at the annual December 31, 1996 measurement date, primarily
due to Ascent's operations. Accordingly, COMSAT has advised Ascent that COMSAT
will need to apply for a further modification of the interest coverage ratio
and, in order to meet its funding requirements beyond 1996, may seek a further
modification of the short-term debt limit. Finally, COMSAT has informed Ascent
that if COMSAT were to fail to satisfy one or more of the FCC guidelines as of
an applicable measurement date, COMSAT and its consolidated subsidiaries,
including Ascent, would be required to seek advance FCC approval of future
financing activities on a case by case basis. If such approval were not granted
for any financing activities sought by On Command Corporation, it could be
required to reduce or reschedule planned capital investments, reduce cash
outlays, reduce debt or sell assets.
SEASONALITY
The business of each of OCV and Spectradyne is, and the business of On
Command Corporation is expected to be, seasonal, with higher revenues realized
during the summer months and lower revenues realized during the winter months
due to business and vacation travel patterns.
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BUSINESS
GENERAL
On Command Corporation is a newly formed Delaware corporation. From and
after the Closing Date, and after giving effect to the Transactions, On Command
Corporation will be a holding company the principal assets of which will be OCV,
Spectradyne and On Command Development, each of which will operate as a
separate, wholly owned subsidiary of On Command Corporation.
OCV is the leading provider (by number of hotel rooms served) of
on-demand in-room entertainment for the United States lodging industry. The OCV
system is a patented video selection and distribution system that allows guests
to select from up to 50 motion pictures on computer controlled television sets
located in their rooms at any time. OCV also provides in-room viewing of
free-to-guest programming of select cable channels (such as HBO, the Disney
Channel, Showtime, ESPN and CNN) and other interactive services under long-term
contracts primarily to business and luxury hotel chains such as Marriott,
Hilton, Wyndham, Doubletree, Fairmont, Embassy Suites and Holiday Inn, and to
other select hotels. OCV has experienced rapid growth in the past three years,
increasing its base of installed on- demand rooms from approximately 37,000
rooms at the end of 1992 to approximately 419,000 rooms at June 30, 1996. See
"--On Command Video Corporation."
Spectradyne, a subsidiary of SpectraVision, is a leading provider of
interactive in-room video entertainment services to the lodging industry.
Founded in 1971, SpectraVision originally developed and patented a system which
provides in-room television viewing of recently released major and other motion
pictures on a PPV basis. SpectraVision, through Spectradyne, subsequently
expanded its services to include providing PPV movies in an on-demand format,
delivering free-to-guest programming and providing interactive services that
capitalize on Spectradyne's proprietary two-way communications equipment.
Spectradyne has been a major provider of these services to the lodging industry
since 1971 and, at June 30, 1996, provided PPV services to approximately 495,000
rooms in approximately 1,600 hotels. Spectradyne provides its services under
contracts to hotel chains, hotel management companies and individually owned and
franchised hotel properties.
In June 1993, SpectraVision entered into a ten-year exclusive contract
with EDS to install and maintain a digital satellite delivered hotel PPV system.
By late 1994, the costs associated with the EDS contract combined with
SpectraVision's high debt levels created financial difficulties for
SpectraVision. In early 1995, SpectraVision determined that a financial
restructuring would be required to ensure SpectraVision's long-term survival.
SpectraVision conducted restructuring negotiations with representatives of its
secured and unsecured creditors during April and May 1995, working toward the
development of an overall restructuring plan. In June 1995, SpectraVision
concluded that a filing for reorganization under Chapter 11 of the Bankruptcy
Code should be made in order to preserve the value of its assets and to ensure
that the business had sufficient cash resources to continue operations while it
completed the financial restructuring process. On June 8, 1995, the Debtors,
filed a petition for relief under the Bankruptcy Code in the Bankruptcy Court.
On Command Development, a newly formed subsidiary of On Command
Corporation, has been formed to develop new technologies to be used by OCV and
Spectradyne in order to support and improve OCV's and Spectradyne's operations
and to develop new applications to be marketed by OCV and Spectradyne. See "--On
Command Development."
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INDUSTRY OVERVIEW
Providing in-room video entertainment and information services to the
lodging industry includes offering pay-per-view major motion pictures,
free-to-guest programming of select pay cable channels and an increasing array
of interactive services. Pay-per-view services were introduced in the early
1970's and have since become a standard amenity offered by many hotels to their
guests. Historically, providers of programming to hotels delivered their content
on a fixed time schedule that did not provide the end- consumer flexibility in
choosing when to watch a movie. Typically, a hotel guest would be offered four
to eight movies, each of which would be shown once every two to four hours. The
development of video switches (including OCV's patented video switch) has
enabled providers of pay-per-view services to offer scheduling flexibility to
the end-consumer. It has been OCV's experience that rooms having the on- demand
format generate significantly greater movie revenues than comparable rooms
having only the scheduled movie format. Changes in technology have also led to
the ability to provide a number of on- demand interactive services such as folio
review, automatic checkout, survey completion, guest messaging and video games.
OPERATING AND GROWTH STRATEGIES
OCV's operating and growth strategy has been to (i) increase its
installed hotel customer base by obtaining contracts with business and luxury
hotels, and select mid-priced hotels, not presently under contract with existing
vendors or presently served by other vendors as the contracts covering such
hotels expire or may be acquired, (ii) create new revenue sources through an
expanding range of interactive and information services offered to the lodging
industry and (iii) expand into foreign markets and alternative markets,
including the corporate, educational, health care and residential markets.
Following the Transactions, it is anticipated that On Command
Corporation will follow a similar operating and growth strategy. On Command
Corporation expects to direct the Debtors to assume substantially all of the
Spectradyne hotel contracts in connection with the Plan. In certain
circumstances, however, On Command Corporation may negotiate modifications to
certain of such contracts either as a condition to their assumption or because
such modifications may be desirable to both On Command Corporation and to the
hotel customer. On Command Corporation intends to operate OCV and Spectradyne as
separate operating entities, at least in the short term, until On Command
Corporation finalizes plans for integrating operations. As a result, in the
short term, On Command Corporation intends to service the Spectradyne hotel
contracts on a substantially similar basis as they were serviced by Spectradyne
prior to the Acquisition. However, On Command Corporation intends to pursue
quickly and diligently renewing or extending many of the contracts with existing
Spectradyne hotel customers by offering these customers the opportunity to enter
into contracts with OCV for the installation of OCV on- demand PPV movie service
and related services in place of the existing Spectradyne service. On Command
Corporation management believes that offering Spectradyne's customers the
opportunity to receive OCV products and services will result in the retention of
a majority of the Spectradyne hotel customers.
On Command Corporation has directed Spectradyne to assume the contract
with Hyatt Corporation ("Hyatt"), which is currently served by Spectradyne's
Digital Guest Choice system and to continue to provide equivalent services to
Hyatt under such contract.
Certain of Spectradyne's customers will not be offered the opportunity
to receive OCV equipment. These customers are located in Hong Kong, Australia,
Singapore and Thailand. OCV is currently a party to an agreement with MagiNet
Corporation ("MagiNet") to provide OCV systems and technology to MagiNet in the
Asia Pacific region. See "--On Command Video Corporation." Because of the
existence
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of this agreement, OCV does not currently intend to allow any other parties to
use the OCV system to service customers in those countries.
In order to continue to provide the Guest Theater and Digital Guest
Choice services to Spectradyne customers, On Command Corporation has entered
into an agreement with EDS pursuant to which Spectradyne will continue to lease
certain equipment from EDS, and EDS will provide network services and
transponder support for these services for up to 45 months after closing. The
cost to Spectradyne of this new agreement will be substantially less than
SpectraVision had been committed to pay.
With respect to all of the other suppliers necessary or appropriate to
provide PPV and free-to-guest services to Spectradyne's hotel customers, On
Command Corporation is currently in negotiations with all of these parties and
expects to have agreements in place to provide uninterrupted service. In some
cases this will require the assumption of pre-petition Spectradyne agreements,
certain of which are expected to be amended in connection with such assumption.
In other cases, On Command Corporation anticipates that suppliers will agree to
a master agreement with On Command Corporation under which both OCV and
Spectradyne would receive products or services from the relevant suppliers.
Historically, substantially all of OCV's growth has derived from
obtaining contracts with hotels in the United States not presently under
contract with existing vendors or presently served by other vendors as the
contracts covering such hotels expired. On Command Corporation believes that,
following the consummation of the Transactions, opportunities for additional
growth in the United States will be more limited than in the past. As a result,
On Command Corporation intends to focus its strategy for obtaining new hotel
customers on international markets. On Command Corporation believes that,
relative to the United States, many international markets are underserved by the
hotel in-room entertainment industry.
ON COMMAND VIDEO CORPORATION
OCV is the leading provider (by number of hotel rooms served) of
on-demand in-room video entertainment for the United States lodging industry,
according to a report published by Paul Kagan Associates, Inc., an industry
analyst. The OCV system is a patented video selection and distribution system
that allows guests to select from up to 50 motion pictures on computer
controlled television sets located in their rooms at any time. OCV has
experienced rapid growth in the past three years, increasing its base of
installed on-demand rooms from approximately 37,000 rooms at the end of 1992 to
approximately 419,000 rooms at June 30, 1996. OCV also provides in-room viewing
of free-to-guest programming of select cable channels (such as HBO, the Disney
Channel, Showtime, ESPN and CNN) and other interactive services under long-term
contracts primarily to business and luxury hotel chains such as Marriott,
Hilton, Wyndham, Doubletree, Fairmont, Embassy Suites and Holiday Inn, and to
other select hotels.
In addition to the on-demand in-room entertainment services offered by
OCV, since August 1, 1995, OCV also provided lower margin, satellite-delivered
pay-per-view movies on a scheduled basis to the lodging industry through its
Satellite Cinema division. By June 1996, OCV had converted select Satellite
Cinema hotel properties to higher margin OCV services and had sold or
discontinued Satellite Cinema services at the remaining hotel properties.
At June 30, 1996, approximately 97% of OCV's installed on-demand rooms
were located in the United States, with the balance located in Canada, the
Caribbean and Europe. In addition to installing OCV systems in hotels served by
OCV, OCV sells its systems to certain other providers of in-room entertainment,
including MagiNet (formerly Pacific Pay Video Limited), which is licensed to use
OCV's
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system to provide on-demand in-room entertainment in the Asia Pacific region.
Services and Products
OCV provides on-demand in-room television viewing of major motion
pictures (including new releases) and independent non-rated motion pictures for
mature audiences for which a hotel guest pays on a per-view basis. Guests can
choose among 20 to 50 different video programs on demand, depending upon the
size of the hotel, with larger hotels offering a wider selection. The hardware
installed in OCV's systems consists of a microprocessor controlling the
television in each room, a handheld remote control and a central "head-end"
video rack and system computer located elsewhere in the hotel. The in-room
terminal unit may be integrated within, or located behind, the television. OCV
emphasizes sales and installations of full-scale OCV video on-demand systems to
business and luxury hotels. OCV is also marketing lower cost Video NOW(TM)
systems to select mid-priced hotels. The Video NOW(TM) system works with the
hotel's existing televisions and telephones, allowing guests to use their
touch-tone telephones to access on-demand movies and other programming.
OCV provides service under contracts with hotels that generally run for
a term of seven years. Under these contracts, OCV installs its system into the
hotel at OCV's cost and OCV retains ownership of all equipment utilized in
providing the service. Traditionally, the hotel provides and owns the
televisions; however, on occasion, OCV provides televisions to hotels that meet
certain economic criteria. OCV undertakes a significant investment when it
installs its system in a property, sometimes rewiring the entire hotel.
Depending on the size of the hotel property and the configuration of the system
installed, the installed cost of a new on-demand system with interactive and
video game services capabilities, including the head-end equipment, ranges from
$400 to $700 per room, or approximately $300 per room if the Video NOW(TM)
system is used. OCV's contracts with hotels provide that OCV will be the
exclusive provider of in-room, pay-per-view television entertainment services to
the hotel and generally permit OCV to set the movie price. The hotels collect
movie viewing charges from their guests and retain a commission equal to a
percentage of the total pay-per-view revenue that varies depending upon the size
and profitability of the system. Some contracts also require OCV to upgrade its
system to the extent that new technologies and features are introduced during
the term of the contract. At the scheduled expiration of a contract, OCV
generally seeks to extend the contract on terms substantially similar to the
current terms. Because of the capital investment that OCV has made in installing
its system in a particular hotel, OCV believes it will have a significant
competitive advantage over any other provider attempting to displace OCV as
provider to that hotel.
Programming signals originate from video cassette players located
within the head-end rack and are transmitted to individual rooms by way of OCV's
proprietary video switching technology. Movie starts are controlled
automatically by the system computer. The system computer also records the
purchase by a guest of any title and reports billing data to the hotel's
accounting system, which posts the charge to the guest's bill. Manual functions
of the OCV equipment and system are limited to changing video cassettes once a
month, which is handled by OCV's field operations personnel. OCV's information
system is capable of generating regular reports of guests' entertainment
selections, permitting OCV to adjust its programming to respond to viewing
patterns. The number of guests that can view a particular movie at the same time
varies from hotel to hotel depending upon the popularity of the movie. OCV
provides more copies of the most popular programming to hotels. In a typical
hotel with 300 rooms, for example, the central "head-end" video rack would
consist of approximately 120 video cassette recorders containing up to ten
copies of the most popular movies and a total of up to 50 different titles. The
OCV system includes a computerized in-room on-screen menu that offers to guests
a list of only those movie selections available to the guest at that time. As a
result, even though the on-screen menu may not
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include a list of all titles available in the particular hotel, the list
includes all movies available to the guest at that particular time, eliminating
the possibility of a guest being disappointed when the guest's selection is not
available.
The revenue generated from OCV's pay-per-view service is dependent upon
the occupancy rate at the property, the "buy rate" or percentage of occupied
rooms that buy movies or other services at the property and the price of the
movie or service. Occupancy rates vary by property based on the property's
location and competitive position within its marketplace and over time based on
seasonal factors and general economic conditions. Buy rates generally reflect
the hotel's guest mix profile, the popularity of the motion pictures or services
available at the hotel and the guests' other entertainment alternatives. Buy
rates also vary over time with general economic conditions. Movie price levels
are established by OCV and are set based on the guest mix profile at each
property and overall economic conditions. Currently, OCV's movie prices
typically are $8.95 for the first purchase by an end-consumer and $4.95 for each
subsequent buy by the same end-consumer on the same day.
OCV obtains non-exclusive rights to show motion pictures from motion
picture studios pursuant to a master agreement with each studio. The license
period and percentage fee for each motion picture are negotiated separately,
with the studio receiving a percentage generally ranging from 30% to 50% of
OCV's gross revenue from a major motion picture. For recently released motion
pictures, OCV typically obtains rights to exhibit the picture after the motion
picture has been released in theaters, but prior to its release to the home
video market or exhibition on cable television. OCV also obtains independent
motion pictures, most of which are non-rated and are intended for mature
audiences, for a one-time flat fee that is nominal in relation to the licensing
fees paid for major motion pictures.
In addition to pay-per-view services, OCV provides television
programming for which the hotel, rather than its guests, pays the charges.
Free-to-guest services allow a hotel to receive one or more
satellite-distributed programming channels, which are delivered to the rooms via
a satellite earth station over the hotel's existing master antenna system. This
service requires much less significant capital expenditures by OCV because the
earth station equipment generally either is provided independently by the hotel
or is purchased or leased from OCV. OCV also provides certain interactive
services such as video check-out, room service ordering and guest satisfaction
surveys. The OCV system also enables hotel owners to broadcast informational and
promotional messages and to monitor room availability.
For free-to-guest services, the hotel typically pays OCV a monthly
charge per room for each programming channel selected and provides these
channels to its guests free-of-charge. Premium channels, such as HBO, Showtime
and The Disney Channel, broadcast major motion pictures and specialty
programming, while non-premium channels, such as CNN and ESPN, broadcast news,
sports and informational programs. OCV believes premium programming suppliers
typically contract only with cable companies and other large volume subscribers,
such as OCV, and generally will not provide programming directly to individual
hotel properties. OCV successfully competes with local cable television
operators by customizing packages of programming to provide only those channels
desired by the hotel subscriber, which typically reduces the overall cost of the
services provided. See "--Competition." OCV obtains its free-to-guest
programming pursuant to multi-year license agreements and pays its programming
suppliers a monthly fee for each room offering the service.
Sales and Marketing
On Command Corporation believes that, along with its technological
leadership, OCV sales and marketing strategy is key to OCV maintaining its high
revenues per room relative to its major competitors. OCV's marketing efforts are
focused on business and luxury hotels with at least 150 rooms, as OCV
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believes that such hotels consistently generate the highest revenues per room in
the lodging industry. OCV also targets smaller business and luxury hotels and
select mid-priced hotels that meet OCV's profitability criteria. On Command
Corporation intends to continue targeting established hotel chains and certain
luxury independent hotels. OCV markets its services to hotel guests by means of
on-screen advertising that highlights the services and motion picture selections
of the month.
Installation and Service Operations
At June 30, 1996, OCV's installation and service organization consisted
of approximately 212 installation and service personnel in the United States and
Canada. Unlike a number of its competitors, OCV-employed installation and
service personnel are responsible for all of the on-demand hotel rooms served by
OCV. Installation and service personnel are responsible for system maintenance
and distribution of video cassettes. OCV's installation personnel prepare site
surveys to determine the type of equipment to be installed at each particular
hotel, install OCV's systems, train the hotel staff to operate the systems and
perform quality control tests. OCV also utilizes local installation
subcontractors supervised by full-time OCV personnel to install its backlog.
OCV maintains a toll-free technical support hot line that is monitored
24 hours a day by trained support technicians. The on-line diagnostic capability
of OCV's system enables OCV to identify and resolve a majority of the reported
system malfunctions from OCV's service control center without visiting the hotel
property. When a service visit is required, the modular design of OCV's systems
generally permits installation and service personnel to replace defective
components at the hotel site.
Technology
OCV's system incorporates OCV's proprietary communications system
design with commercially manufactured components and hardware such as video
cassette players, amplifiers and computers. Because OCV's systems utilize
industry standard interfaces, OCV can integrate new technologies as they become
economically viable. Such technologies might include digital compression and
store-and-forward, which would permit multiple users to access the same stored
movie at varying start times. OCV has chosen not to use a satellite-based movie
transmission system at the present time, primarily because of the inability of
such a system to provide on-demand services on a cost-effective basis. However,
OCV believes that it can integrate satellite transmission technology and other
technology into its systems when the economic viability of such technology is
established.
Manufacturing and Suppliers
OCV contracts directly with various electronics firms for the
manufacture and assembly of its systems hardware, the design of which is
controlled by OCV. Historically, OCV has found these suppliers to be dependable
and able to meet delivery schedules on time. OCV believes that, in the event of
a termination of any of its sources, alternate suppliers could be located
without incurring significant costs or delays. However, certain electronic
component parts used with OCV's products are available from a limited number of
suppliers and can be subject to temporary shortages because of general economic
conditions and the demand and supply for such component parts. If OCV were to
experience a shortage of any given electronic part, OCV believes that
alternative parts could be obtained or system design changes implemented. In
such event, OCV could experience a temporary reduction in the rate of new room
installations and/or an increase in the cost of such installation.
The head-end electronics are assembled at OCV's facilities for testing
prior to shipping. Following assembly and testing of equipment designed
specifically for a particular hotel, the system is
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shipped to each location, where it is installed by OCV-employed and trained
technicians, typically assisted by independent contractors.
OCV also maintains direct contractual relations with various suppliers
of pay-per-view and free-to- guest programming, including the motion picture
studios and programming networks. OCV believes its relationships with all
suppliers are good, except for Showtime Networks Inc., ("Showtime") which is
disputing OCV's performance of the contract with Showtime in connection with
OCV's termination of scheduled satellite pay-per-view service.
SPECTRADYNE, INC.
Spectradyne is the principal operating subsidiary of SpectraVision,
which is a leading provider of interactive in-room video entertainment services
to the lodging industry. Founded in 1971, SpectraVision originally developed and
patented a system, known as "SpectraVision(TM)," which provides in-room
television viewing of recently released major and other motion pictures on a PPV
basis. Spectradyne subsequently expanded its services to include providing PPV
movies in an on-demand format, delivering free-to-guest programming and
providing interactive services that capitalize on SpectraVision's proprietary
two-way communications equipment. Spectradyne has been a major provider of these
services to the lodging industry since 1971 and at June 30, 1996, provided PPV
services to approximately 495,000 rooms in approximately 1,600 hotels.
Spectradyne provides its services under contracts to hotel chains, hotel
management companies and individually owned and franchised hotel properties.
Pay-Per-View Services
Spectradyne's primary source of revenue is providing in-room television
viewing of recently released major movies and independently produced motion
pictures for mature audiences to hotel guests on a pay-per-view basis. This
service is attractive to hotel operators because it provides a service desired
by the guests at no or minimal cost to the hotel. The movie price is
automatically charged to the guest room in which the movie was viewed. At June
30, 1996, Spectradyne provided PPV service to approximately 495,000 rooms in
approximately 1,600 hotels. Spectradyne provides its PPV service through several
products including: (i) SpectraVision(TM), a scheduled tape-based play system;
(ii) SpectraVision Guest Theater(TM), a scheduled play system utilizing
satellite delivery; (iii) Guest Choice(TM), an analog tape system which provides
on-demand viewing of up to 200 videotapes; and (iv) Digital Guest Choice, the
industry's only digital video on-demand service.
SpectraVision(TM). Spectradyne's tape-based SpectraVision(TM) system
typically offers a hotel guest eight movies per day at predetermined times. The
movie schedule typically consists of a mix of major motion pictures available
after commencing first-run theatrical exhibition and before release on cable or
home video, and independently produced movies for mature audiences. On the first
day of each month, Spectradyne typically replaces a majority of the movies on
each schedule with new features. At June 30, 1996 Spectradyne had
SpectraVision(TM) installed in 581 hotels with a total of 152,123 rooms.
Guest Theater(TM). Spectradyne's Guest Theater(TM) system utilizing
digital satellite delivery technology was introduced in the fourth quarter of
1993. Guest Theater(TM) increases the number of movies available in a
SpectraVision(TM) system from eight to 20 by varying movie selections on a
nightly basis. At June 30, 1996, Spectradyne had Guest Theater installed in
1,099 hotels with a total of 352,612 rooms.
Guest Choice(TM). In 1991, Spectradyne introduced Guest Choice(TM) to
provide hotel guests with on-demand viewing from a library of up to 200
videotapes per hotel. At June 30, 1996, Guest Choice(TM) was installed in
229,618 rooms in 508 hotels, substantially all of which also offer either
SpectraVision(TM)
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or Guest Theater(TM) services. The on-demand capability significantly increases
usage of the PPV service by the hotel guests, and Spectradyne experienced
increases in viewership on average of approximately 40% in the hotels in which
Guest Choice(TM) systems have been installed. Through Guest Choice(TM),
Spectradyne provides on-demand viewing of major motion pictures, independently
produced movies for mature audiences, and a variety of other topics, such as
exercise programs, business information, children's programming and other
special interest tapes. The Guest Choice(TM) system includes SpectraVision's
proprietary equipment and software, and utilizes a patented video rack designed
and manufactured by a third party.
Digital Guest Choice(TM). During 1994, Spectradyne introduced its new
digital video on-demand service, Digital Guest Choice, that provides on-demand
viewing of digitally stored movies. Digital Guest Choice(TM) utilizes satellite
technology to deliver digitized movies to high capacity disk arrays. The
digitized movies are stored at the hotel site and then decoded and forwarded to
the guest instantaneously and on-demand. Digital Guest Choice allows multiple
users to access the same digitally stored movie image at the same time. This
on-demand system virtually eliminates lost views due to another guest already
viewing a particular videotape or if all tape players are in use. At June 30,
1996, Spectradyne had installed Digital Guest Choice(TM) in 105 hotels with a
total of approximately 57,615 rooms.
In addition to its operations in the United States, SpectraVision
offers its services in Canada, Mexico, Puerto Rico, the U.S. Virgin Islands,
Hong Kong, Singapore, Thailand, Australia and the Bahamas. The legal entities
located in Canada, Puerto Rico, the U.S. Virgin Islands, Hong Kong, Singapore,
Thailand, and Australia are not part of the Bankruptcy Case. These entities will
be acquired by On Command Corporation as part of the Acquisition, and On Command
Corporation intends to continue to expand Spectradyne's international
operations. Spectradyne is a leading provider of in-room video entertainment in
the Asia-Pacific region and in Australia. Spectradyne serves its international
hotel customers primarily with its tape-based systems, but generally experiences
higher revenues and operating cash flow per room than in the United States
because of higher prices, higher usage and the lack of programming alternatives.
Free-To-Guest Services
Spectradyne also markets a free-to-guest service pursuant to which a
hotel may elect to receive one or more satellite programming channels, such as
HBO, CNN, ESPN, WTBS and other cable networks. The hotel typically pays
Spectradyne a fixed monthly fee per room for each programming channel selected.
At June 30, 1996, Spectradyne provided free-to-guest services to 739 hotels
serving 262,371 guest rooms. Approximately 94% of these rooms also offer
Spectradyne's PPV services.
Spectradyne provides its free-to-guest programming pursuant to
affiliation license agreements. The free-to-guest programming agreements
typically are multi-year contracts under which SpectraVision pays the supplier a
fee for each room offering this programming. License agreements for HBO, ESPN
and CNN expire on December 31, 1997, July 31, 1996 and December 31, 2000,
respectively.
Interactive And Other Services
In addition to entertainment services, Spectradyne provides interactive
services to the lodging industry. These services generate revenues and cash
flows for Spectradyne which are independent of viewing levels. These services
utilize the two-way interactive communications capability of the PPV equipment
and include Video Checkout(TM), Video Messaging(TM), Video Breakfast Menu(TM),
Video Bellman(TM), Smart Survey(TM) and room availability monitoring. The hotel
typically pays a fixed monthly fee for each service selected. Interactive
services are also currently available in Spanish, French, and certain other
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foreign languages. Spectradyne offers its interactive services only to hotels
that have PPV systems. In most cases, the interactive services are made a part
of the contract for pay-per-view services and the service term is concurrent
with the term of the pay-per-view contract, which is typically five years. At
June 30, 1996, Spectradyne provided one or more interactive services to 234,481
rooms in 508 hotels, all of which also offer Spectradyne's PPV service.
Other revenue sources include the sale and license of Spectradyne's
proprietary equipment, the installation, design and maintenance of hotel Master
Antenna Television ("MATV") systems, sales of satellite dishes, sales of
miscellaneous parts and supplies (including television remote controls) and
advertising revenues.
Programming
Spectradyne obtains the nonexclusive rights to show recently released
motion pictures from major motion picture studios generally pursuant to a master
agreement with each studio. The license period and fee for each motion picture
are negotiated individually with each studio, which typically receives a
percentage of that picture's gross revenues generated in Spectradyne's PPV
system. Negotiated fees are related to the popularity of a given movie and the
volume of pictures licensed by SpectraVision from a given studio. Those license
fees typically decline over the time the movie is played in Spectradyne's PPV
systems. Typically, Spectradyne obtains rights to exhibit major motion pictures
during the "Hotel/Motel PPV Window," which is the time period after initial
theatrical release and before release for home video distribution or cable
television exhibition. Spectradyne attempts to license pictures as close as
possible to a motion picture's theatrical release date to benefit from the
studios' advertising and promotional efforts.
With respect to most independently produced features, Spectradyne
obtains non-exclusive rights from the producers for a flat fee for an extended
period of time.
The EDS Service And Technology Agreement
In 1993, SpectraVision entered into a ten-year agreement with EDS to
install a satellite-based digital movie delivery system to replace its existing
tape-based delivery systems. In conjunction with the installation of this
system, SpectraVision introduced its new SPEXIS computer system which allows
SpectraVision to provide new and improved interactive services. SpectraVision
and EDS first installed equipment to enable SpectraVision to provide its
scheduled play movies in a compressed digital video format on a real time basis
via satellite (Guest Theater). In late 1994, SpectraVision and EDS began the
second phase of the technology conversion and initiated the installation of a
digital video on-demand system (Digital Guest Choice) in selected hotels. This
system consists of high capacity disk arrays, which are used to store digitized
movies, delivered to a hotel via satellite, for instantaneous on-demand viewing
by hotel guests.
SpectraVision also entered into a contract with EDS whereby EDS assumed
SpectraVision's field service and Management Information Services ("MIS")
functions. The transition of SpectraVision's field service to EDS involved
numerous difficulties for field service personnel in maintaining the normal
level of repairs and maintenance required. On February 1, 1996, the Bankruptcy
Court approved a modification to the EDS Service and Technology Agreement
whereby the field service and the MIS services operations would transition back
to SpectraVision. SpectraVision is currently in the process of implementing this
agreement.
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In accordance with the terms of SpectraVision's ten-year exclusive
contract, EDS has granted SpectraVision exclusive rights during the term of the
EDS contract with regard to the use, installation and operation of compressed
digital video technology within the U.S. hotel market as well as in hospitals,
nursing homes, supervised retirement facilities and military installations.
SpectraVision has the right, in its sole discretion, to approve any venture by
EDS, whether on its own or with a third party, to install, operate or manage any
compressed digital video network in the U.S. market.
Hotel Contracts
Spectradyne typically enters into a separate contract with each hotel
for the services provided. Contracts with the corporate-managed hotels in any
one chain generally are negotiated by that chain's corporate management, and the
hotels subscribe at the direction of corporate management. In the case of
franchised or independently owned hotels, the contracts are generally negotiated
separately with each hotel. Existing contracts generally have a term of five or
seven years from the date the system becomes operational. At the scheduled
expiration of a contract, Spectradyne typically seeks to extend the term of a
hotel's contract with market competitive terms. At June 30, 1996, approximately
19.4% of the pay-per-view hotels have contracts that have expired and are on a
month-to-month basis. Approximately 27.1% of the pay-per-view hotels served by
SpectraVision have contracts that expired or have contract expiration dates
during 1996.
Spectradyne currently provides PPV services to hotels that are part of
chains including Hyatt, Loew's, Four Seasons, Stouffer and Harvey Hotels.
Spectradyne offers its free-to-guest services to the same type of hotels to
which it markets its pay-per-view services. The service is provided to hotels
pursuant to contracts similar to the pay-per-view contracts, although in certain
cases, the contracts are terminable after three years, at the option of the
hotel, upon payment of a fee to Spectradyne.
Manufacturing
Prior to 1994, SpectraVision manufactured substantially all of the
equipment used in its tape-based PPV and interactive hotel systems. In December
1993, Spectradyne manufacturing capability was sold to The Cerplex Group. In
connection with this sale, Spectradyne entered into a five year contract with
Certech Technology, Inc. ("Certech"), a wholly owned subsidiary of The Cerplex
Group, to provide manufacturing and repair services of certain equipment for use
in hotel PPV and interactive systems.
COMPETITION
There are several providers of in-room on-demand video entertainment to
the lodging industry, at least three of which (including OCV and Spectradyne)
provide pay-per-view and free-to-guest programming and other interactive
services over the hotel television. Pay-per-view, the most profitable component
of the services offered, competes for a guest's entertainment resources with
broadcast television, free-to-guest programming and cable television services.
In addition, there are a number of potential competitors that could utilize
their existing infrastructure to provide in-room entertainment to the lodging
industry, including cable companies (including wireless cable),
telecommunications companies and direct-to-home and direct broadcast satellite
companies. Some of these potential competitors are already providing
free-to-guest services to hotels and testing video-on-demand.
On Command Corporation, through OCV and Spectradyne, will be the
leading provider (by number of hotel rooms served) of in-room television
entertainment services and the leading provider (by number of hotel rooms
served) of in-room on-demand television entertainment services to the United
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States lodging industry. On Command Corporation, through OCV and Spectradyne,
will compete on a national scale primarily with LodgeNet Entertainment
Corporation ("LodgeNet"), and on a regional basis with certain other smaller
entities. Based on publicly filed information, On Command Corporation estimates
that, at June 30, 1996, LodgeNet served approximately 335,623 pay-per-view rooms
(of which approximately 284,102 are equipped with on-demand services), compared
to OCV's approximately 419,000 on-demand rooms and SpectraVision's approximately
495,000 pay-per-view rooms (of which approximately 287,233 are on-demand rooms).
Competition with respect to new guest pay contracts centers on a
variety of factors, depending upon the circumstances important to a particular
hotel. Among the more important factors are (i) the features and benefits of the
entertainment systems, (ii) the quality of the vendor's technical support and
maintenance services and (iii) the financial terms and conditions of the
proposed contract. With respect to hotel properties already receiving in-room
entertainment services, the current provider may have certain informational and
installation cost advantages as compared to outside competitors.
On Command Corporation anticipates substantial competition in obtaining
new contracts with major hotel chains. On Command Corporation believes that
hotels view the provision of in-room on- demand entertainment both as a revenue
source and as a source of competitive advantage in that sophisticated hotel
guests are increasingly demanding a greater range of quality entertainment and
informational alternatives. At the same time, On Command Corporation believes
that certain major hotel chains have awarded contracts based primarily on the
level and nature of financial and other incentives offered by the pay-per-view
service provider. While On Command Corporation believes OCV's high revenue per
room will enable On Command Corporation to continue to offer hotels attractive
economics, its competitors may attempt to gain or maintain market share at the
expense of profitability. Even if it were able to do so, On Command Corporation
may not always be willing to match the incentives provided by its competitors.
On Command Corporation believes that its other competitive advantages, together
with its long-term contracts, will substantially offset the potentially negative
effect of any incentive-based pricing by its competitors.
REGULATION
The Federal Communications Commission (the "FCC") has broad
jurisdiction over electronic communications. The FCC does not directly regulate
OCV's or Spectradyne's pay-per-view or free-to- guest services. The FCC's
jurisdiction does, however, encompass certain aspects of OCV's and Spectradyne's
operations as they relate to the offering of satellite-delivered pay-per-view
movies.
The FCC's jurisdiction also encompasses certain aspects of
Spectradyne's operations as they relate to Spectradyne's use of the radio
frequency spectrum in certain hotels served by Spectradyne. Spectradyne has, as
a matter of practice, obtained optional licenses from the FCC for a number of
its downlink, television receive-only earth stations, which are used to receive
transmissions from communications satellites in connection with Spectradyne's
free-to-guest services and obtained the required licenses for the microwave
point-to-point relay facilities.
On February 1, 1996, Congress passed The Telecommunications Act of 1996
(the "Telecommunications Act"), which was signed into law on February 8, 1996.
The Telecommunications Act will alter federal, state and local laws and
regulations for telecommunications providers and services, and may affect OCV
and Spectradyne. There are numerous rulemakings to be undertaken by the FCC that
will interpret and implement the Telecommunications Act. It is not possible at
this time to predict the outcome of such rulemakings.
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PATENTS, TRADEMARKS AND COPYRIGHTS
OCV and Spectradyne own a number of patents and patent licenses.
Although OCV and Spectradyne maintain patents for some of their products, On
Command Corporation believes that the design, innovation and quality of OCV's
and Spectradyne's products and their relations with their customers are
substantially more important to the maintenance and growth of On Command
Corporation's business. Accordingly, On Command Corporation does not believe
that it is dependent to any material extent upon any single patent or group of
patents. OCV and Spectradyne also own various tradenames, trademarks and logos
used in their businesses, which On Command Corporation intends to actively
protect.
EMPLOYEES
Pursuant to the Acquisition Agreement, On Command Corporation may
extend offers of employment to those employees of the Debtors that On Command
Corporation desires to hire. The Debtors have agreed to waive any claims against
On Command Corporation or the Debtors' employees arising from such employment.
As of June 30, 1996, OCV had 391 employees worldwide and Spectradyne
had 374 employees worldwide. OCV and SpectraVision believe that their
relationship with their employees is good.
PROPERTIES
OCV currently leases its headquarters located in Santa Clara,
California. The headquarters contain approximately 67,000 square feet of office,
light manufacturing and storage space. OCV has entered into a new lease and will
relocate its headquarters, office, light manufacturing and storage space to a
131,000 square foot facility in San Jose, California in the fourth quarter of
1996. In connection with the Acquisition, On Command Corporation will acquire,
through Spectradyne, the SpectraVision headquarters building, which contains
approximately 84,000 square feet of manufacturing and office space, of which
45,000 square feet are currently leased to Certech, which lease will not be
assumed. SpectraVision also leases office space throughout the United States,
Canada, Mexico, Puerto Rico, Hong Kong and Australia for its customer support
operations. On Command Corporation will also direct the Debtors to assume
certain other SpectraVision leases to ensure that after the Acquisition,
SpectraVision's properties are suitable and adequate for SpectraVision's
business operations.
LEGAL PROCEEDINGS
OCV is a defendant, and may be potential defendant, in lawsuits and
claims arising in the ordinary course of its business. While the outcomes of
such claims, lawsuits, or other proceedings cannot be predicted with certainty,
management expects that such liability, to the extent not provided for by
insurance or otherwise, will not have a material adverse effect on the financial
condition of OCV.
Proceedings in connection with any lawsuit against Spectradyne have
been stayed as a result of the Bankruptcy Case. None of Spectradyne's
liabilities, actual or contingent, under any lawsuit to which it is a party will
be assumed by On Command Corporation in the Acquisition.
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MANAGEMENT
On Command Corporation will initially have a Board of Directors
consisting of seven directors, five of whom initially will be selected by Ascent
and two of whom initially will be selected by the Creditors' Committee (subject
to the approval of Ascent, such approval not to be unreasonably withheld). All
such directors will be subject to approval by the Bankruptcy Court and to
requirements as to independent directors if the OCC Common Stock is listed on
the Nasdaq National Market or on another securities exchange. The initial
officers of On Command Corporation will be selected by Ascent.
DIRECTORS AND THE EXECUTIVE OFFICERS
The following table sets forth the information concerning the
individuals who are the directors and officers of On Command Corporation as of
August 1, 1996. On Command Corporation will name those persons who are expected
to be the directors and executive officers of On Command Corporation immediately
following consummation of the Transactions in an amendment to the registration
statement of which this Information Statement/Prospectus is a part.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert Snyder.................................. 60 President and Chief Executive Officer
James A. Cronin, III........................... 41 Executive Vice President--Finance, Chief
Operating Officer and Director
Charles Lyons.................................. 42 Chairman of the Board
Robert M. Kavner............................... 52 Director
</TABLE>
Robert Snyder has been President and Chief Executive Officer of On
Command Corporation since its formation in July 1996. Mr. Snyder has been
President of OCV since 1987 and Chief Executive Officer of OCV since July 1995.
James A. Cronin, III has been Executive Vice President--Finance and
Chief Operating Officer and Director of On Command Corporation since its
formation in July 1996. Mr. Cronin has been chief operating officer and
executive vice president of finance for Ascent since June 21, 1996. Prior to
joining Ascent, Mr. Cronin served as a financial and management consultant from
1992 through June 1996 and as a partner in Alfred Checchi Associates, a merchant
bank, from 1990 through 1991. Mr. Cronin is also a director of Landair Services,
Inc. and Eastbay, Inc.
Charles Lyons has been Chairman of the Board of On Command Corporation
since its formation in July 1996. Mr. Lyons has been President, Chief Executive
Office and a director of Ascent Entertainment Group, Inc. since October 1995,
and prior to that he was President and a director of Ascent's predecessors since
February 1992. He was Vice President and General Manager, COMSAT Video
Enterprises, now Ascent Network Services, Inc., from October 1990 to January
1992. Prior to joining COMSAT, Mr. Lyons was with Marriott Corporation from 1982
to October 1990 in various executive positions.
Robert M. Kavner is a principal in Kavner & Associates, a consulting
firm for media and communication companies. From June 1994 through September
1995, Mr. Kavner was an Executive Vice President of Creative Artists Agency,
Inc. Prior to joining Creative Artists Agency, Mr. Kavner was Executive Vice
President of AT&T Corp. ("AT&T") and Chief Executive Office of AT&T's Multimedia
Products and Services Group. He was also a member of AT&T's Management Executive
Committee.
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From 1992 to 1994, Mr. Kavner was Group Executive for Communications Products
Group of AT&T. From 1988 to 1991, Mr. Kavner was President of AT&T's Data
Systems Group. Mr. Kavner is also a director of the Fleet Financial Corp.
COMMITTEES OF THE BOARD OF DIRECTORS
On Command Corporation intends to create an Audit and Finance
Committee, which will include independent directors and will review the results
and scope of the audit and other services provided by On Command Corporation's
independent auditors. The On Command Corporation Board of Directors also intends
to create a Nominating and Compensation Committee. The On Command Corporation
Board of Directors will appoint members to these committees prior to the
completion of the Transactions.
DIRECTORS' COMPENSATION
On Command Corporation intends to pay directors who are not employees
of On Command Corporation, its subsidiaries or, for so long as Ascent owns 50%
of the outstanding OCC Common Stock, Ascent or Ascent's subsidiaries or
affiliates, $_______ for each attended meeting of the On Command Corporation
Board of Directors or committee thereof and each meeting held pursuant to a
special assignment. On Command Corporation also intends to reimburse directors
for ordinary and necessary out-of-pocket expenses incurred in connection with
attending meetings of the Board of Directors or its committees.
EXECUTIVE COMPENSATION
The following table shows the compensation received by the President
and Chief Executive Officer of On Command Corporation in his capacity as
President and Chief Executive of OCV for the three fiscal years ended December
31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
NAME AND POSITION YEAR ($) ($) ($)(1) ($)(2) (#)(2) ($)(3)
- ------------------------- ---- -------- -------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Snyder 1995 $285,779 $150,000 -- $ -- 100,000* $4,260
President and Chief 5,000**
Executive Officer, OCV 1994 199,273 100,000 -- 137,500 10,000 4,260
1993 168,840 50,000 -- 508,126 -- --
</TABLE>
(1) Other Annual Compensation shown for 1993, 1994 and 1995 does not include
perquisites and other personal benefits because the aggregate amount of such
compensation does not exceed the lesser of (i) $50,000 or (ii) 10% of
individual combined salary and bonus for Mr. Snyder in each year.
(2) Restricted stock awards include COMSAT restricted stock awards ("RSAs"),
COMSAT restricted stock units ("RSUs") and COMSAT phantom stock units
("PSUs"). Dividends are paid on RSAs granted in 1993 and 1995. For
performance-based RSAs granted in 1994, dividend equivalents are paid with
respect to the performance period, and dividends will be paid during the
subsequent vesting period on shares earned under the applicable performance
measures. Half of the RSAs granted to Mr. Snyder in 1994 will be forfeited
in 1996 based on the non-satisfaction of certain required performance
measures during 1994 and 1995. Dividend equivalents are paid on RSUs and
PSUs. The number and value of the aggregate restricted stock holdings of
each of the Named Executive Officers as of December 31, 1995, are as
follows:
(footnotes continued on next page)
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<TABLE>
<CAPTION>
NUMBER OF RSAs/RSUs/PSUs VALUE AS OF 12/31/95
------------------------ ---------------------
<S> <C> <C>
Mr. Snyder............................. 25,000 476,563
</TABLE>
All options marked with a single asterisk (*) are options to purchase Ascent
Common Stock, and options marked with a double asterisk (**) are options to
purchase COMSAT Common Stock.
(3) All other compensation for Mr. Snyder consisted of contributions by OCV to
OCV's 401(k) Savings Plan on behalf of Mr. Snyder.
OPTION GRANTS
The following table sets forth information on options granted to Robert
Snyder in 1995.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES EXERCISE PRICE PRESENT VALUE
GRANTED (#)(1) IN FY (2) ($/SH) EXPIRATION DATE (3)
NAME
<S> <C> <C> <C> <C> <C>
ASCENT COMMON
STOCK
Robert Snyder 100,000 10.83 $15.0000 12/18/05 $711,000
COMSAT COMMON
STOCK
Robert Snyder 5,000 0.57 $19.3125 01/20/05 $26,700
</TABLE>
(1) The Ascent option grants were made effective December 18, 1995 and vest as
follows: 10% on December 18, 1996; 15% on December 18, 1997; 25% on December
18, 1998; another 25% on December 18,1999; and the remaining 25% on December
18, 2000; provided that these options will not vest to any extent prior to
December 18, 1998, if COMSAT continues to own at least 80% of Ascent. The
COMSAT options shown were granted on January 20, 1995, to acquire COMSAT's
Common Stock and vest as follows: 25% on January 20, 1996; another 25% on
January 20, 1997; and the remaining 50% on January 20, 1998.
(2) The total number of Ascent options granted to Ascent employees in 1995 was
923,000; the total number of COMSAT options granted to key employees of
COMSAT and its subsidiaries in 1995 was 877,650.
(3) Ascent and COMSAT used the Black-Scholes option pricing model to determine
grant date present values using the following assumptions; a dividend yield
of 0.0% for Ascent and 3.38% for COMSAT; stock price volatility of 0.28%; a
10-year option term; a risk-free rate of return of 5.71% for Ascent and
5.84% for COMSAT; a retention discount of 3.0%; and the vesting schedule
described in footnote 1 above for Ascent and COMSAT. The use of this model
is in accordance with SEC rules; however, the actual value of an option
realized will be measured by the difference between the stock price and the
exercise price on the date the option is exercised.
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<PAGE> 79
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information on (1) options exercised by
Mr. Snyder in 1995, and (2) the number and value of his unexercised options
as of December 31, 1995
AGGREGATED OPTION EXERCISES IN 1995, AND 12/31/95 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF THE UN-
UNDERLYING UNEXERCISED EXERCISED IN-THE-MONEY
OPTIONS AT 12/31/95 OPTIONS AT 12/31/95
---------------------- ----------------------
SHARES
UNDERLYING UN- UN-
OPTIONS VALUE EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
EXERCISED REALIZED (#) (#) ($) ($)
----------------- ------------- --------------- --------------- ---------------- ------------
NAME
<S> <C> <C> <C> <C> <C> <C>
ASCENT OPTIONS
Robert Snyder* -0- -0- -0- 100,000 -0- $25,000
COMSAT OPTIONS
Robert Snyder* -0- -0- 2,500 12,500 -0- -0-
</TABLE>
* Mr. Snyder also holds options to purchase 40,000 shares of the Common Stock
of OCV, of which 14,000 were exercisable at December 31, 1995. The value of
these options is not reported because OCV Common Stock is not publicly
traded and the fair market value at December 31,1995 is not readily
determinable.
Employment Agreements
Ascent and Mr. Snyder have entered into an employment agreement that
expires in 1999. Pursuant to the agreement, Mr. Snyder's salary for 1996 was set
by the board of directors of OCV at $300,000, and Mr Snyder is eligible for
incentive bonus compensation to be established by mutual consent of Mr. Snyder
and the board of directors of OCV. The agreement also provides that, upon
termination of his employment with OCV, Mr. Snyder will provide exclusive
consulting services to OCV for a period of seven years, for which OCV will pay
Mr. Snyder $20,000 per year.
ON COMMAND CORPORATION STOCK OPTION PLAN
OCV adopted a stock option plan (the "OCV Stock Option Plan"), expiring
in June 1999, under which employees, directors and consultants of OCV may be
granted incentive or nonstatutory stock options for the purchase of OCV Common
Stock. Incentive stock options are granted at fair value on the date of grant as
determined by the OCV Board of Directors and nonstatutory stock options are
granted at a price per share fixed by the OCV Board of Directors, but not less
than 85% of the fair value on the date of grant. Options granted under the OCV
Stock Option Plan generally vest over a five-year period and are exercisable in
installments of 20% one year from the date of grant and ratably per month
thereafter. Unvested options are cancelled upon termination of employment.
Certain OCV employees have also received options to purchase shares of
common stock of Ascent pursuant to the 1995 Ascent Key Employee Stock Plan (the
"Ascent Stock Plan"). It is currently
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<PAGE> 80
anticipated that such employees shall retain these options at least so long as
Ascent retains a beneficial ownership of at least 50% of the outstanding shares
of OCC Common Stock.
Effective upon consummation of the Transactions, On Command Corporation
will adopt a stock option plan substantially similar to the Ascent Stock Plan
(the "On Command Corporation Stock Plan"). See "The Transactions--The
Merger--Treatment of OCV Employee Stock Options."
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<PAGE> 81
BENEFICIAL OWNERSHIP OF OCV AND OCC COMMON STOCK
The following table sets forth, as of August 1, 1996, (i) the number of
shares and percentage of OCV Common Stock beneficially owned by each person
known to OCV who may be deemed to be the beneficial owner of more than 5% of the
outstanding OCV Common Stock, each director of OCV, each executive officer of
OCV and all directors and executive officers of OCV as a group and (ii) the
number of shares and percentage of OCC Common Stock that would have been owned
by each such person had the Transactions occurred on such date (assuming no
holder of OCV Common Stock exercises its appraisal rights and before giving
effect to any Reserved Stock and the exercise of any Warrants):
<TABLE>
<CAPTION>
OCV On Command Corporation
------------------------------ -------------------------------
Number of Number of
Name and Address Shares Percentage Shares Percentage
---------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Ascent Entertainment Group, Inc. (1).............. 6,038,650 79.1% 17,149,766 57.2%
One Tabor Center
1200 Seventeenth Street
Denver, Colorado 80202
Hilton Hotels Corporation......................... 821,122 10.8 2,331,986 7.8
9336 Civic Center Drive
Beverly Hills, California 90210
Richard C. Fenwick, Sr............................ 175,000 2.3 497,000 1.7
2 Arrowhead Way
Westin, Connecticut 06883
Robert Snyder (2)................................. 54,000 * 153,360 *
Edward B. Neumann (2)............................. 2,000 * 5,680 *
All officers and directors........................ 231,000 3.0 656,040 2.2
as a group (3 persons)
</TABLE>
* Less than 1%.
(1) COMSAT owns 80.7% of the outstanding common stock of Ascent. COMSAT and
Ascent have entered into agreements governing certain relationships between
the companies.
(2) The address of each such person is c/o On Command Video Corporation, 3301
Olcott Street, Santa Clara, California 95054.
In July 1993, OCV sold 410,561 shares of OCV Common Stock then
representing a 10% ownership interest to Hilton Hotels Corporation ("Hilton")
for $10.3 million pursuant to a stock purchase agreement, dated July 7, 1993
(the "Stock Purchase Agreement"). The Stock Purchase Agreement provided that,
until May 1998, Hilton may sell the shares back to OCV after the earlier of (i)
June 1, 1995 or (ii) the date Hilton determines that ownership of such shares
may directly or indirectly jeopardize its ability to retain material licenses in
connection with its business, at a price equal to the original purchase price
plus interest from the date the shares were initially purchased, at an interest
rate equal to the average of the one-year U.S. Treasury Bill rate compounded
annually.
In conjunction with the Stock Purchase Agreement, Hilton received an
option (the "Hilton Option") to purchase an additional 410,561 shares of OCV
Common Stock at the initial price of the OCV
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<PAGE> 82
Common Stock sold to Hilton under the Stock Purchase Agreement, escalating 10%
per year. The Hilton Option is currently exercisable at $27.50 per share.
The Stock Purchase Agreement was amended by a letter agreement dated
December 8, 1995 in response to certain concerns of Hilton with respect to the
valuation of the consideration received by OCV in connection with the
contribution by Ascent of certain assets included in its Satellite Cinema
division for OCV Common Stock (the "Contribution"). The December 8, 1995 letter
agreement provided that: (a) an independent investment banking firm would be
engaged to review, by February 10, 1996, the Contribution with respect to the
value of the consideration received by OCV and the value of the OCV shares
issued in such transaction (the "Valuation"); (b) the parties agreed to be bound
by the recommendation of such investment banking firm, including, if necessary,
at Ascent's option, paying cash to OCV or the minority stockholders of OCV; (c)
an investment banking firm selected by Hilton will, if Hilton requests and at
its expense, be engaged to attempt to locate a buyer for its equity interests in
OCV at fair market value; and (d) if Ascent disposes of any or all of its
interests in OCV to any person that is not an affiliate of OCV, the minority
stockholder will be afforded an opportunity to dispose of a pro rata portion of
its position in OCV on the same terms. In the COMSAT Agreement, COMSAT agreed to
indemnify Ascent for the cost to Ascent of any adjustments to its interest in
OCV as a result of the Valuation.
In early 1996, Ascent, OCV and Hilton agreed that Hilton would engage a
valuation consultant, and, based on the results of that consultant's work,
Ascent, OCV and Hilton negotiated a resolution of the concerns raised by Hilton.
As a result, the parties entered into a letter agreement in August 1996,
providing for the cancellation of 470,588 shares of OCV Common Stock issued to
Ascent pursuant to the Contribution. Pursuant to the COMSAT indemnity set forth
in the COMSAT Agreement, this adjustment will result in a payable from COMSAT to
Ascent of approximately $1.8 million. The August 1996 letter agreement also
provided for the extension of the date on which the exercise price of the Hilton
Option would increase from June 1, 1996 to the later of (i) 90 days after the
closing or the abandonment of the Transactions or (ii) December 1, 1996. The
August 1996 letter agreement also provides that if in connection with the
Transactions, OCV Common Stock or On Command Corporation securities into which
it is converted are registered under the Exchange Act and Hilton's shares of OCV
Common Stock (or On Command Corporation securities into which they are
converted) are freely tradeable, (a) all of OCV's obligations under Section 6 of
the Stock Purchase Agreement (including Hilton's right to sell the shares back
to OCV described above) will terminate and (b) the Hilton Option will terminate
as of the closing of the Transactions, unless exercised before such closing.
In addition, the August 1996 letter agreement provides that if Hilton
exercises the Hilton Option by reason of the closing of the Transactions, Hilton
will have the right to put to Ascent all, but not less than all, of those Hilton
Option shares of OCV Common Stock (or OCC Common Stock or Warrants into which
they are converted) Hilton still owns on the date 90 days after the closing of
the Transactions at the same exercise price in the Hilton Option.
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<PAGE> 83
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following describes the principal federal income tax consequences
of the Merger and of the ownership of OCC Common Stock and Series A Warrants,
assuming that the Merger is consummated as contemplated herein. This discussion
is based on current laws and interpretations thereof, and there can be no
assurance that future legislation, regulations, administrative rulings or court
decisions will not adversely affect the accuracy of the statements contained
herein. The discussion assumes that the OCV Common Stock exchanged by each
holder in the Merger is held as a capital asset and does not take account of
rules that may apply to holders of OCV Common Stock that are subject to special
treatment under the Code (including, without limitation, insurance companies,
dealers in securities, certain retirement plans, financial institutions,
tax-exempt organizations, holders who are not U.S. Holders (as defined below)
and OCV stockholders who acquired OCV Common Stock pursuant to the exercise of
an employee stock option or otherwise as compensation). Also, the discussion
does not address state, local or foreign tax consequences. Consequently, each
OCV stockholder should consult its own tax advisor as to the specific tax
consequences of the Merger and ownership of OCC Common Stock and Series A
Warrants to that stockholder.
As used in this section, a "U.S. Holder" of a share of OCC Common
Stock means a holder that is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate or
trust the income of which is subject to federal income taxation regardless of
its source.
The Merger
Tax Opinions. The obligations of OCC and of OCV to consummate the
Merger are subject to the receipt of the opinion of tax counsel outlined below,
unless waived. Neither OCC nor OCV has requested or will request an advance
ruling from the Internal Revenue Service (the "IRS") as to the tax consequences
of the Merger.
As of the date of this Information Statement/Prospectus, Latham &
Watkins, counsel to OCV, has advised OCV that, in their opinion, based on
certain customary representations and assumptions referred to in such opinions,
(i) the Merger will be treated for federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the Code and (ii) On
Command Corporation, Merger Sub, and OCV will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
Tax Treatment of Holders of OCV Common Stock. Exchanges of OCV Common
Stock pursuant to the Merger will have the federal income tax consequences
described below. In considering the following discussion, a holder should be
aware that (under Section 318 of the Code) the holder may be considered to own,
after the Merger, OCC Common Stock owned (and in some cases constructively
owned) by certain related individuals and entities and NEWCO Common Stock which
the holder (or such individuals and entities) has the right to acquire upon the
exercise of options.
Exchange of OCV Common Stock for a Combination of OCC Common Stock
and Series A Warrants. A holder of OCV Common Stock who, pursuant to the Merger,
exchanges all of the OCV Common Stock actually owned by him for a combination of
OCC Common Stock and Series A Warrants will not recognize any loss on such
exchange. Such holder will realize gain equal to the excess, if any, of (i) the
sum of the fair market value of the Series A Warrants and the aggregate fair
market value of the OCC Common Stock received in the Merger over (ii) such
holder's tax basis in the OCV Common Stock exchanged therefor. However, any such
gain will be recognized (and thus subject to tax)
81
<PAGE> 84
only to the extent of the fair market value of the Series A Warrants received.
In addition, such holder may recognize additional gain if cash is received in
lieu of a fractional share of OCC Common Stock, as discussed below.
The gain recognized by a holder of OCV Common Stock who receives a
combination of OCC Common Stock and Series A Warrants pursuant to the Merger
will be treated as long- or short-term capital gain (depending on whether such
holder held the OCV Common Stock for more than one year) unless the receipt of
the Series A Warrants has the effect of a distribution of a dividend as provided
in Section 356(a)(2) of the Code, in which case such recognized gain would be
treated as dividend income to the extent of such holder's ratable share of the
accumulated earnings and profits of OCV (or possibly the total earnings and
profits of OCV and On Command Corporation).
The principles applicable under Section 302 of the Code are used to
determine dividend equivalency under Section 356(a)(2). Section 302 determines
whether a stockholder who received a distribution in redemption of stock of a
corporation will be treated as having received a dividend or as recognizing a
capital gain or loss. In applying the principles of Section 302, a holder of OCV
Common Stock will be treated as if he first exchanged all his shares of OCV
Common Stock solely for OCC Common Stock and then On Command Corporation
immediately redeemed a portion of such OCC Common Stock in exchange for the
Series A Warrants such stockholder actually received in the Merger.
Under the principles of Section 302, gain recognized by a holder on the
exchange that is attributable to the Series A Warrants will be taxed as capital
gain if the deemed redemption from such holder (i) is a "substantially
disproportionate redemption" of stock or (ii) is "not essentially equivalent to
a dividend" with respect to such holder (taking into account, in either case,
the constructive ownership rules of Section 318 of the Code and all other actual
and deemed redemptions from such holder and other holders of OCC Common Stock
and other transactions undertaken as part of the plan or reorganization).
The deemed redemption of a holder's OCC Common Stock will be a
"substantially disproportionate redemption" if, as a result of the deemed
redemption, there is a greater than 20% reduction in (1) the percentage of all
shares of OCC Common Stock owned by the holder measured immediately after the
redemption as compared to such percentage measured immediately before the
redemption and (2) the percentage of the voting power of all OCC Common Stock
represented by all OCC Common Stock owned by the holder measured immediately
after the redemption as compared to such percentage measured immediately before
the redemption.
Whether the deemed exchange and subsequent redemption transaction would
be "not essentially equivalent to a dividend" with respect to a holder of OCV
Common Stock will depend upon the holder's particular circumstances. If the
deemed redemption is to qualify as "not essentially equivalent to a dividend,"
however, it must, in any event, result in a "meaningful reduction" in such
holder's deemed percentage stock ownership of On Command Corporation. In
determining whether a reduction in such holder's percentage ownership has
occurred, (i) the percentage of the outstanding stock of On Command Corporation
that such OCV stockholder is deemed actually and constructively to have owned
immediately before the deemed redemption by On Command Corporation is compared
to (ii) the percentage of the outstanding stock of On Command Corporation
actually and constructively owned by such holder immediately after the deemed
redemption by On Command Corporation. Based upon a published ruling of the IRS,
the receipt of Series A Warrants in the Merger would not be characterized as a
dividend if a holder's percentage stock ownership interest in On Command
Corporation and OCV prior to the Merger is minimal, such holder exercises no
control over the affairs of On Command Corporation or OCV and the holder's
percentage equity interest in On Command Corporation is reduced in the deemed
redemption to any extent.
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<PAGE> 85
The aggregate tax basis of OCC Common Stock received by an OCV
stockholder who, pursuant to the Merger, exchanges his OCV Common Stock for a
combination of OCC Common Stock and Series A Warrants will be the same as the
aggregate tax basis of the OCV Common Stock surrendered therefor (except to the
extent cash is received for fractional shares), decreased by the fair market
value of Series A Warrants received and increased by the amount of gain
recognized, if any (including any portion of such gain that is treated as a
dividend). The holding period of the OCC Common Stock will include the holding
period of the OCV Common Stock surrendered therefor. The aggregate tax basis of
the Series A Warrants received by such holder will be the fair market value of
such Series A Warrants at the Effective Time. The holding period of the Series A
Warrants received will commence on the date of the Effective Time.
Cash Received in Lieu of Fractional Shares of OCC Common Stock. No
fractional shares of OCC Common Stock will be issued in the Merger. Cash
received in lieu of a fractional share of OCC Common Stock will be treated as
received in redemption of such fractional share, and gain or loss will be
recognized, measured by the difference between the amount of cash received and
the portion of the basis of the OCV Common Stock allocable to such fractional
share. If such redemption meets the "not essentially equivalent to a dividend"
test discussed above, such gain or loss would be capital gain or loss and should
be long-term capital gain or loss if the holding period for such OCV Common
Stock was greater than one year at the Effective Time.
Tax Consequences of Ownership of OCC Common Stock
Taxation of Dividends. The gross amount of dividends paid to holders of
OCC Common Stock will be treated as dividend income to such holders, to the
extent paid out of current or accumulated earnings and profits, as determined
under federal income tax principles. Such income will be includable in the gross
income of a holder as ordinary income on the day received by the holder.
To the extent that the amount of any distribution is not paid out of On
Command Corporation's current or accumulated earnings and profits for a taxable
year, the distribution will first be treated as a tax-free return of capital,
causing a reduction in the adjusted basis of the OCC Common Stock (thereby
increasing the amount of gain, or decreasing the amount of loss, to be
recognized by a holder on a subsequent disposition of the OCC Common Stock), and
the balance in excess of adjusted basis will be taxed as capital gain.
Sale or other Taxable Disposition. A holder will recognize taxable gain
or loss on any sale or other taxable disposition of a share of OCC Common
Stock in an amount equal to the difference between the amount realized for the
share of OCC Common Stock and the holder's basis in such share of OCC Common
Stock. Such gain or loss will be capital gain or loss and will be long-term
capital gain or loss if the share of OCC Common Stock has been held for more
than one year on the date of the sale or exchange.
Tax Consequences of Ownership of Series A Warrants
Sale or other Taxable Disposition. The sale or other taxable
disposition of a Series A Warrant will result in the recognition of gain or loss
to the holder in an amount equal to the difference between the amount realized
and the holder's tax basis therein. Such a sale or other taxable disposition
(other than a redemption by OCC) will result in capital gain or loss. Such
capital gain or loss will be long-term gain or loss if the Series A Warrants
have been held for more than one year.
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<PAGE> 86
If the redemption of a Series A Warrant by On Command Corporation
is treated as a sale or other taxable exchange of a capital asset, any gain
or loss recognized on the transaction will be capital gain or loss. However,
it is unclear whether the redemption of Series A Warrants by On Command
Corporation will be treated as the sale or other taxable exchange of a
capital asset, and if such redemption is not so treated, the holder of a
Series A Warrant would recognize ordinary income or loss on such redemption.
Adjustments. Under Section 305 of the Code, certain actual or
constructive distributions of stock (including warrants to purchase stock) may
be taxable to a holder of On Command Corporation. Adjustments (or a lack
thereof) in the exercise price of the Series A Warrants or the number of
shares of OCC Common Stock purchasable upon exercise of the Series A Warrants
may result in a taxable constructive distribution which is taxable as a dividend
under the Code to the holders of the Series A Warrants to the extent of current
or accumulated earnings and profits of On Command Corporation.
Exercise. No gain or loss will be recognized to a holder of Series A
Warrants on the purchase of OCC Common Stock for cash upon exercise of the
Series A Warrants (except to the extent of cash, if any, received in lieu of
fractional shares). The adjusted initial basis of the Common Stock so acquired
would be equal to the adjusted basis of the exercised Series A Warrants plus the
exercise price. For tax purposes, the holding period of the OCC Common Stock
acquired upon the exercise of the Series A Warrants will not include the holding
period of the Series A Warrants exercised.
Lapse. If the Series A Warrants are not exercised and are allowed to
expire, the Series A Warrants will be deemed to have been sold or exchanged on
the expiration date. Any loss to the holder will be a capital loss, and the
classification of the loss as long-term or short-term will depend upon the date
the Series A Warrants were acquired and the length of time the Series A Warrants
were held.
Backup Withholding and Information Reporting.
The receipt of dividends with respect to OCC Common Stock by a holder
made by a paying agent, broker or other intermediary in the United States may be
subject to U.S. information reporting requirements.
The payment of the proceeds from the disposition of OCC Common Stock
or Series A Warrant by a U.S. broker generally will be subject to information
reporting. Backup withholding of 31% also will be required with respect to such
payments unless such holder (i) is a corporation or other exempt recipient and,
when required, demonstrates that fact, or (ii) provides a correct taxpayer
identification number, certifies, when required, that such holder is not subject
to backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. Backup withholding is not an additional tax; any
amounts so withheld are creditable against the holder's federal income tax,
provided the required information is provided to the IRS.
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<PAGE> 87
DESCRIPTION OF ON COMMAND CORPORATION CAPITAL STOCK
The following summary does not purport to be complete and is subject in
all respects to the applicable provisions of the Certificate of Incorporation
and the Bylaws of On Command Corporation. The Certificate of Incorporation and
the Bylaws of On Command Corporation are included as exhibits to the
Registration Statement of which this Information Statement/Prospectus forms a
part.
THE FOLLOWING DESCRIPTIONS OF THE ON COMMAND CORPORATION CAPITAL STOCK
SHOULD BE READ CAREFULLY BY OCV STOCKHOLDERS SINCE, AT THE EFFECTIVE TIME, EACH
ISSUED AND OUTSTANDING SHARE OF OCV COMMON STOCK, OTHER THAN DISSENTING SHARES
AND SHARES HELD BY OCV OR BY ITS DIRECT OR INDIRECT SUBSIDIARIES, WILL BE
CONVERTED INTO THE RIGHT TO RECEIVE OCC COMMON STOCK.
GENERAL
The authorized capital of On Command Corporation consists of 50,000,000
shares of OCC Common Stock, par value $.01 per share, and 10,000,000 shares of
preferred stock, par value $.01 per share (the "On Command Corporation Preferred
Stock"). The Bank of New York will act as transfer agent and registrar for the
OCC Common Stock.
OCC COMMON STOCK
Dividend Rights. Holders of OCC Common Stock are entitled to receive
dividends declared on each share of OCC Common Stock held.
Voting Rights. Holders of OCC Common Stock are entitled to one vote per
share on all matters to be voted on by holders of OCC Common Stock. Any matter
to be voted on by holders of OCC Common Stock shall be decided by a majority of
the votes cast on the matter, except with respect to certain business
combinations, which will require an affirmative vote of at least two-thirds of
the shares eligible to vote, and except with respect to certain amendments to
the Certificate of Incorporation of On Command Corporation, which will require
an affirmative vote of at least 80% of the shares eligible to vote. Action by
written consent of stockholders in lieu of a meeting will not be effective until
On Command Corporation or any stockholder provides all other stockholders with
20-days' prior written notice thereof. See "Comparison of Stockholder
Rights--Stockholder Vote Required for Certain Actions."
Board of Directors. Upon the consummation of the Transactions, the
Board of Directors of On Command Corporation will be fixed by, or in the manner
provided in, the On Command Corporation Bylaws; provided, however, that so long
as there is cumulative voting On Command Corporation will maintain a board of
not less than seven directors.
Preemptive, Subscription, Redemption and Conversion Rights. Holders of
OCC Common Stock have no preemptive, subscription, redemption or conversion
rights.
Liquidation Rights. Subject to the rights and preferences of any holder
of On Command Corporation Preferred Stock, upon the liquidation, dissolution or
winding up of On Command Corporation, whether voluntary or involuntary, the
holders of OCC Common Stock are entitled to receive ratably the net assets of On
Command Corporation.
Assessment. The outstanding shares of OCC Common Stock to be issued in
the Transactions will be fully paid and nonassessable.
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<PAGE> 88
ON COMMAND CORPORATION PREFERRED STOCK
The Board of Directors of On Command Corporation is authorized, subject
to limitations prescribed by law and the provisions of the Certificate of
Incorporation of On Command Corporation, to provide for the issuance of shares
of On Command Corporation Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
COMPARISON OF STOCKHOLDER RIGHTS
OCV and On Command Corporation are both corporations organized under
the laws of the State of Delaware and subject to the DGCL. However, certain
differences, including but not limited to those described below, exist between
the rights of OCV stockholders and the rights of holders of OCC Common Stock.
The following summary does not purport to be complete and is subject in
all respects to the applicable provisions of the DGCL, the Certificate of
Incorporation and Bylaws of On Command Corporation and the Certificate of
Incorporation and Bylaws of OCV, which are included as exhibits to the
Registration Statement of which this Information Statement/Prospectus forms a
part.
GENERAL
The authorized capital stock of OCV consists of 9,000,000 shares of OCV
Common Stock, par value of $.01 per share. As of the date of this Information
Statement/Prospectus, there were 7,219,768 shares of OCV Common Stock and
Redeemable Common Stock outstanding, excluding any shares issuable upon
exercise of outstanding warrants or options to purchase OCV Common Stock.
The authorized capital stock of On Command Corporation consists of a
total of 60,000,000 shares, divided into (i) 50,000,000 shares of OCC Common
Stock, par value of $.01 per share, and (ii) 10,000,000 shares of On Command
Corporation Preferred Stock, par value of $.01 per share.
Subject to the rights and preferences of any holder of On Command
Corporation Preferred Stock issuable from time to time under On Command
Corporation's Certificate of Incorporation, upon the liquidation, dissolution or
winding up of On Command Corporation, whether voluntary or involuntary, the
holders of OCC Common Stock are entitled to receive ratably the net assets of On
Command Corporation. The rights, preferences and privileges of holders of OCC
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of On Command Corporation Preferred Stock which
On Command Corporation may designate and issue from time to time in the future.
Following the Transactions, and assuming there are no Dissenting
Shares, there will be 30,000,000 shares of OCC Common Stock outstanding and no
shares of On Command Corporation Preferred Stock outstanding. In addition,
Warrants to purchase 7,500,000 additional shares of OCC Common Stock will have
been issued, as well as options for the purchase of ______ shares of OCC Common
Stock to be issued under the On Command Corporation Stock Option Plan.
VOTING RIGHTS
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Holders of OCV Common Stock are entitled to one vote per share on all
matters to be voted on by OCV stockholders, except that there is cumulative
voting in all elections of directors if the candidates' names have been placed
in nomination prior to the commencement of the voting and a stockholder has
given notice prior to commencement of the voting of such stockholder's intention
to cumulate votes. If such conditions are met, each stockholder entitled to vote
at the election of directors may cast a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which that
stockholder's shares are entitled. Cumulative votes may be cast for one
candidate or distributed among any or all of the candidates as the stockholder
chooses. OCV stockholders are not entitled to any preemptive or subscription
rights.
Subject to the voting rights provided by law or granted to any series
of On Command Corporation Preferred Stock, all voting power is exclusively
vested in the OCC Common Stock. Holders of OCC Common Stock are entitled to one
vote per share on all matters to be voted on by holders of OCC Common Stock,
except that there will be cumulative voting in all elections of directors under
the circumstances described below.
Until the Termination Date (as defined below), each holder of shares of
OCC Common Stock will be entitled at all elections of directors to as many votes
as shall equal the number of votes which (except for this provision as to
cumulative voting) he would be entitled to cast for the election of directors
with respect to his shares of OCC Common Stock multiplied by the number of
directors to be elected, and such holder may cast all of such votes for a single
director or may distribute them among the number to be voted for, or for any two
or more of them as he may see fit. Upon the occurrence of the Termination Date,
the holders of OCC Common Stock no longer will be entitled to cumulative voting
rights with respect to the election of directors and, from and after the
Termination Date, all directors will be elected by straight voting.
As used herein, the term "Termination Date" means the first date on
which any "person" or related group (within the meaning of Rule 13d-3 or Rule
14d-2 promulgated under the Exchange Act), including any "group" acting for the
purpose of acquiring or disposing of securities (within the meaning of Rule
13d-5(b)(1) promulgated under the Exchange Act), other than the Excluded Persons
(as defined below), holds, directly or indirectly, more than 15% of the
outstanding shares of capital stock of On Command Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class), and, for the purpose of this provision, all shares of OCC Common Stock
issuable upon the exercise or conversion of all currently exercisable or
convertible warrants, options or other securities held by such person or related
group shall be deemed to be outstanding and held by such person or related
group.
"Excluded Person" means each person holding OCV Common Stock
immediately prior to the Merger which is converted into OCC Common Stock, and
any other person who, individually or collectively with its affiliates, receives
upon original issuance thereof shares of OCC Common Stock and Warrants that
represent more than 5% of the Applicable Securities. "Applicable Securities"
means all shares of OCC Common Stock (including shares of OCC Common Stock
purchasable upon exercise of the Warrants) to be issued and outstanding
immediately upon consummation of the Transactions.
On Command Corporation stockholders are not entitled to any preemptive
or subscription rights.
DIVIDENDS
Holders of OCV Common Stock are entitled to receive dividends declared
on each share of OCV Common Stock held.
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<PAGE> 90
Subject to the preferential rights of any series of On Command
Corporation Preferred Stock, holders of OCC Common Stock are entitled to receive
dividends declared on each share of OCC Common Stock held.
BOARD OF DIRECTORS
Each director of OCV is elected at the annual meeting of stockholders
of OCV and serves a one-year term until the next annual meeting of stockholders.
Director nominees receiving a plurality of the votes cast by the holders of
outstanding shares of OCV represented at the annual meeting of stockholders, in
person or by proxy, will be elected as directors of OCV. The number of directors
constituting the Board of Directors of OCV is currently set at eight.
Vacancies in the OCV Board of Directors may be filled by the remaining
directors, except that a vacancy created by the removal of a director by the
vote or written consent of the stockholders or by court order may be filled only
by the vote of a majority of the shares entitled to vote for that director's
position represented at a duly held meeting at which a quorum is present or by
the written consent of holders of a majority of the outstanding shares entitled
to vote. Each director so elected shall hold office until the next annual
meeting of stockholders and until a successor has been elected and qualified. A
majority of directors shall constitute a quorum at any meeting of the Board of
Directors.
Following the Transactions, the On Command Corporation Board of
Directors will consist of seven directors and each director of On Command
Corporation will be elected at the annual meeting of stockholders of On Command
Corporation and will serve a one-year term until the next annual meeting of
stockholders. Director nominees receiving a plurality of the votes cast by the
holders of outstanding shares of On Command Corporation represented at the
annual meeting of stockholders, in person or by proxy, will be elected as
directors of On Command Corporation. Any vacancies in the Board of Directors of
On Command Corporation for any reason, and any directorships resulting from any
increase in the number of directors, may be filled by the On Command Corporation
Board of Directors, acting by a majority of the directors then in office,
although less than a quorum, and any directors so chosen will hold office until
the next election such directors successors have been elected and qualified.
Notwithstanding the foregoing, and except as otherwise required by law, whenever
the holders of any one or more series of On Command Corporation Preferred Stock
have the right, voting separately as a class, to elect one or more directors of
the corporation, the terms of the director or directors elected by such holders
will expire at the next succeeding annual meeting of stockholders.
Notwithstanding any other provisions of the Certificate of
Incorporation Bylaws of On Command Corporation, any director or the entire Board
of Directors may be or removed at any time, with or without cause, by the
holders of a majority of the outstanding shares of On Command Corporation
capital stock entitled to vote generally in the election of directors, except
that, prior to the Termination Date, if less than the entire Board of Directors
is to be removed, no director may be removed without cause if the votes cast
against his removal would be sufficient to elect him if then cumulatively voted
at an election of the entire Board of Directors or at an election of the class
of directors of which he is a part. Notwithstanding the foregoing, and except as
otherwise required by law, whenever the holders of any one or more series of On
Command Corporation Preferred Stock have the right, voting separately as a
class, to elect one or more directors of On Command Corporation, the preceding
sentence will not apply with respect to the director or directors elected by
such holders of Preferred Stock.
REPORTS TO STOCKHOLDERS; OTHER PUBLIC INFORMATION
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OCV is not subject to the periodic reporting or other informational
requirements of the Exchange Act. Stockholders of OCV are entitled to receive a
copy of the latest annual, semi-annual and quarterly income statement which OCV
has prepared and a balance sheet as of the end of that period. The reports,
statements and other information sent by OCV to its stockholders can be
inspected and copied at OCV's principal executive offices.
On Command Corporation currently is not subject to the informational
requirements of the Exchange Act. As a result of the registration of OCC Common
Stock and Series A Warrants to be issued as part of the Merger Consideration in
the Merger, On Command Corporation will become subject to the periodic reporting
and other informational requirements of the Exchange Act and in accordance
therewith will file reports and other information with the Commission. Following
the Merger, On Command Corporation will furnish to the holders of OCC Common
Stock annual reports containing audited consolidated financial statements
prepared in accordance with GAAP, with an opinion thereon by On Command
Corporation's external auditors, and quarterly reports containing unaudited
consolidated financial information prepared in accordance with GAAP. See
"Available Information."
RIGHTS OF INSPECTION
The DGCL allows any stockholder of a Delaware corporation to inspect,
upon written demand, the stockholder list for such corporation and such
corporation's other books and records for a purpose reasonably related to such
person's interest as a stockholder.
STOCKHOLDER MEETING PROCEDURES
Calling of Special Meeting
A special meeting of OCV stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the OCV Certificate of
Incorporation, may be called at any time by (i) the Board of Directors, (ii) the
Chairman of the Board, (iii) the president of OCV or (iv) one or more
stockholders holding shares in the aggregate entitled to cast not less than 10%
of the votes at that meeting. If a special meeting is called by any of the
persons listed above other than the OCV Board of Directors, then such person
shall provide written notice specifying the time of the meeting and the general
nature of the business proposed to be transacted at the meeting to the Chairman
of the Board, the president of OCV, any vice-president of OCV or the secretary
of OCV, and the recipient will cause the notice to be sent to the stockholders.
A special meeting of On Command Corporation stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the On Command
Corporation Certificate of Incorporation, may be called by the chief executive
officer, by a majority of the entire Board of Directors, or at the written
request of stockholders owning at least a majority of the outstanding shares of
capital stock entitled to vote in an election of directors (the "On Command
Corporation Voting Stock"). Such request must state the purpose or purposes of
the proposed meeting. Business transacted at the special meeting will be limited
to the purposes stated in the notice.
Written Action in Lieu of Meeting
Any action that may be taken at any annual or special meeting of OCV
stockholders may be taken without a meeting and without prior notice if a
consent in writing setting forth the action so taken is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take that action at a meeting at which all shares
entitled to vote on that action
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were present and voted. In the election of directors, such a consent is
effective only if it is signed by the holders of all outstanding shares entitled
to vote in the election (except that only a majority of the stockholders is
required to fill a vacancy on the OCV Board of Directors not otherwise filled by
the directors).
Any action required or permitted to be taken at any annual or special
meeting of On Command Corporation stockholders may be taken without a meeting,
without prior notice and without a vote if a consent in writing setting forth
the action so taken is signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take that action at a meeting at which all shares entitled to vote on that
action were present and voted, provided that such action shall not become
effective until 20 days after notice to all stockholders.
Quorum Requirements
The holders of stock having a majority of the votes attributable to the
capital stock of OCV issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the OCV stockholders for the transaction of business except as
otherwise provided by statute or by the OCV Certificate of Incorporation or
Bylaws.
The holders of a majority of the capital stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the On Command Corporation stockholders
for the transaction of business except as otherwise provided by statute or by
the On Command Corporation Certificate of Incorporation or Bylaws.
STOCKHOLDER VOTE REQUIRED FOR CERTAIN ACTIONS
The OCV Certificate of Incorporation requires the affirmative vote of
the holders of at least two-thirds of the voting power of the then outstanding
shares of capital stock ("OCV Voting Stock") (i) to change the number of
directors on the Board of Directors, (ii) to create any securities of the
corporation, (iii) to increase the authorized number of shares of stock, (iv) to
approve the conveyance of all or substantially all of the assets of the
corporation or any of its subsidiaries, to approve the reorganization,
consolidation or merger of the corporation or any of its subsidiaries, to
approve any reclassification or other change in any stock, or to approve any
recapitalization of the corporation or (v) to amend the OCV Certificate of
Incorporation or the OCV Bylaws.
The Certificate of Incorporation of On Command Corporation reserves to
On Command Corporation the right at any time, and from time to time, to amend,
alter, change or repeal any provision contained in the Certificate of
Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner prescribed
by law; provided, however, that any amendment, alteration, change or repeal of
the provisions (i) limiting the effectiveness of action by written consent in
lieu of meeting until 20 days after delivery of the notice to stockholders
required by Section 228(d) of the DGCL, (ii) requiring at least seven director
on the On Command Corporation Board of Directors for so long as cumulative
voting is in effect and (iii) amendments to the Certificate of Incorporation of
On Command Corporation, shall require the affirmative vote of the holders of at
least 80% of the outstanding shares of capital stock of the corporation entitled
to vote thereon.
Under the DGCL, any other amendment, alteration or repeal of any
article of the OCV Certificate of Incorporation or On Command Corporation
Certificate of Incorporation requires the affirmative vote of a majority of the
outstanding stock entitled to vote thereon and of a majority of the outstanding
stock of each class entitled to vote thereon, voting as a class. Even if not
otherwise entitled to vote upon a
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proposed amendment, the holders of the outstanding shares of any class (or
series of any class) are entitled under the DGCL to vote as a class upon such
proposed amendment if it would alter the number of authorized shares or par
value of the shares of such class (or series) or adversely affect the powers,
preferences or special rights of the shares of such class (or series). The On
Command Corporation Certificate of Incorporation permits the Board of Directors
to amend the On Command Corporation Bylaws without stockholder action, but
subject to the stockholders' power to alter or repeal any bylaw made by the
Board of Directors.
Furthermore, the On Command Corporation Bylaws provide that only
business properly brought before an annual meeting of On Command Corporation
stockholders can be acted upon at such meeting. To be properly brought before an
annual meeting business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the On Command Corporation
Board of Directors, (b) otherwise properly brought before the meeting by or at
the direction of the On Command Corporation Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of On Command
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the corporation, not less
than 60 days nor more than 90 days prior to the meeting; provided, however, that
in the event that less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
10th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in the On Command Corporation Bylaws to the contrary,
no business shall be conducted at any annual meeting except in accordance with
the procedures set forth above. The chairman of the annual meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of the
On Command Corporation Bylaws, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
The On Command Corporation Bylaws also provide that only persons who
are nominated in accordance with the procedures set forth in the On Command
Corporation Bylaws shall be eligible for election as directors. Section 8 of the
On Command Corporation Bylaws provides that nominations of persons for election
to the On Command Corporation Board of Directors may be made at a meeting of
stockholders by or at the direction of the On Command Corporation Board of
Directors or by any stockholder entitled to vote for the election of directors
at the meeting who complies with the following procedures described below. Such
nominations, other than those made by or at the direction of the On Command
Corporation Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of On Command Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at On Command
Corporation's principal executive offices not less than 60 days nor more than 90
days prior to the meting; provided, however, that in the event that less than 70
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the 10th day following the day on which
such notice of the date of the meting was mailed or such public disclosure was
made. Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of such
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person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of On Command Corporation capital stock which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such persons' written consent to be named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the stockholder giving the notice (i) the name and address, as they appear on
the corporation's books, of such stockholder and (ii) the class and number of
shares of the corporation which are beneficially owned by such stockholder. At
the request of the On Command Corporation Board of Directors any person
nominated by the On Command Corporation Board of Directors for election as a
director shall furnish to the Secretary of On Command Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director unless nominated in accordance with the procedures set forth in Section
8 of the On Command Corporation Bylaws. The chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the Bylaws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
A provision in OCV's Certificate of Incorporation limits the liability
of the OCV Board of Directors for monetary damages to OCV and to OCV
stockholders that may result from a breach of fiduciary duty by a director. The
provision does not, however, limit the liability of a director (a) for any
breach of the director's duty of loyalty to OCV or OCV stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) to the extent the director is liable under Section
174 of the DGCL for unlawful payment of dividends or (d) for any transaction
from which the director derived an improper personal benefit.
A provision in On Command Corporation's Certificate of Incorporation
limits the liability of the On Command Corporation Board of Directors for
monetary damages to On Command Corporation and to On Command Corporation
stockholders that may result from a breach of fiduciary duty by a director,
except to the extent such exemption from liability would not be permitted under
the DGCL.
STOCKHOLDER SUITS
Under the DGCL, a stockholder of a Delaware corporation may institute a
lawsuit in the name and on behalf of such corporation. An individual stockholder
also may commence a lawsuit on behalf of himself and other similarly situated
stockholders where the requirements for maintaining a class action under
Delaware law have been met. Neither the Certificate of Incorporation nor the
Bylaws of either OCV or On Command Corporation prescribe any procedure for the
exercise of these rights.
APPRAISAL RIGHTS
Under the DGCL, stockholders of a Delaware corporation who follow
prescribed statutory procedures are entitled, in the event of certain mergers or
consolidations, to surrender their shares to the corporation in exchange for the
judicially determined "fair value" of such shares. See "The
Transactions--Appraisal Rights." Such a stockholder, however, is not entitled to
such appraisal rights if (a) at the record date fixed to determine the
stockholders entitled to receive notice and to vote at the meeting of
stockholders, the shares held by the stockholder are part of a class of shares
which is listed on a national securities exchange or designated as a national
market system security on an interdealer
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quotation system by the NASD or held of record by more than 2,000 holders at
such record date and (b) the stockholder is not required by the terms of the
plan of merger to accept for his shares anything except (i) shares of stock of
the corporation surviving or resulting from such merger or consolidation, (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation will either be listed on a national securities exchange
or designated as a national market system security on an interdealer quotation
system by the NASD or held of record by more than 2,000 stockholders, (iii) cash
in lieu of fractional shares of the corporations described in (i) or (ii) above
or (iv) any combination of the shares of stock and cash in lieu of fractional
shares described in (i), (ii) and (iii) above.
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EXPERTS
The financial statements of On Command Video Corporation as of December
31, 1995 and 1994 and for each of the two years in the period ended December 31,
1995 included in this Information Statement/Prospectus and the related financial
statement schedule as of December 31, 1995 and 1994 and for each of the two
years in the period ended December 31, 1995 included elsewhere in the
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
registration statement, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The statement of operations, stockholders' equity, and cash flows for
the year ended December 31, 1993, included in this Information
Statement/Prospectus, which is referred to and made part of this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements and schedule of SpectraVision and
subsidiaries as of December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995, have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and in the
registration statement, and upon the authority of said firm as experts in
accounting and auditing.
The reports of KPMG Peat Marwick LLP covering the December 31, 1995
consolidated financial statements and schedule of SpectraVision contain an
explanatory paragraph that states that SpectraVision's filing under Chapter 11
of the Bankruptcy Code in the Bankruptcy Court on June 8, 1995 and its expected
noncompliance with certain covenants related to its debtor-in-possession
financing raises substantial doubt about SpectraVision's ability to continue as
a going concern. The consolidated financial statements and schedule of
SpectraVision do not include any adjustments that might result from the outcome
of this uncertainty.
LEGAL MATTERS
Latham & Watkins, New York, New York, has rendered an opinion with
respect to the validity of the OCC Common Stock and the Series A Warrants to be
issued in connection with the Merger and will pass upon certain United States
federal income tax matters related to the Merger.
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INDEX TO PRO FORMA FINANCIAL STATEMENTS OF ON COMMAND CORPORATION
Unaudited Pro Forma Combined Balance Sheet at June 30, 1996................ P-3
Unaudited Pro Forma Combined Statement of Operations for the
Six Months Ended June 30, 1996......................................... P-4
Unaudited Pro Forma Combined Statement of Operations for the
Year Ended December 31, 1995 .......................................... P-5
Notes to Unaudited Pro Forma Combined Financial Statements................. P-6
P-1
<PAGE> 98
The following unaudited pro forma combined financial information for On
Command Corporation ("OCC") consists of the Unaudited Pro Forma combined
statements of operations for the six months ended June 30, 1996 and for the year
ended December 31, 1995 and the Unaudited Pro Forma consolidated balance sheet
as of June 30, 1996 (collectively, the "Pro Forma Statements"). The Pro Forma
Statements give effect to the formation of OCC and the acquisition of the
assets by OCC of OCV and Spectradyne, the principal operating subsidiary of
SpectraVision. The unaudited pro forma combined statement of operations for the
year ended December 31, 1995 and the six months ended June 30, 1996 reflects the
transaction as if it had taken place on January 1, 1995. The unaudited pro forma
combined balance sheet gives effect to the formation and acquisitions
as if they had taken place on June 30, 1996. The SpectraVision financial
information included in the Pro Forma Statements was previously reported in
SpectraVision's Form 10-Q for the period ended June 30, 1996 and Form 10-K for
the year ended December 31, 1995. Adjustments have been made to the
SpectraVision financial information to eliminate the net assets of SpectraVision
and SPI Newco, Inc., the principal holding companies of Spectradyne, as their
assets are not being acquired.
The pro forma financial information reflects the historical book value
of the assets, liabilities, and stockholders equity acquired from OCV by OCC and
management's estimate of the fair value of the SpectraVision assets to be
acquired and liabilities to be assumed by OCC. The final purchase price
allocation for the SpectraVision assets will be determined at a future date (no
later than one year from the Closing Date), which may result in adjustments to
the preliminary allocation. However, in the opinion of management, the
preliminary allocation of the purchase price reflects OCC's best estimate and
all adjustments necessary to state fairly such pro forma financial information
have been made.
The Pro Forma Statements should be read in conjunction with the notes
included in this document. The pro forma financial information is not
necessarily indicative of what the actual financial results would have been had
the transaction taken place on June 30, 1996 or what the future financial
results will be.
As a result of the transaction, OCC expects its subsidiaries to achieve
substantial operating cost savings through the consolidation of certain
operations and the elimination of redundant costs. These operating cost savings
are expected primarily through reductions in personnel and related benefit costs
and consolidation and elimination of support operations, including
administration, marketing, data processing, and centralized support functions.
There can be no assurance that the operating cost savings will be realized. The
extent to which the operating cost savings will be achieved depends, among other
things, on the regulatory environment and economic conditions and may be
affected by unanticipated changes in business activities, inflation, and
operating costs. No adjustment has been included in the unaudited Pro Forma
Statements for the possible operating cost savings, except for the expected
reduction in payments due to EDS (in the approximate amount of $700,000 monthly)
that would result from amended agreements with EDS.
P-2
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ON COMMAND CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT JUNE 30, 1996
(In thousands)
<TABLE>
<CAPTION>
OCV SPECTRAVISION PRO FORMA OCC
ACTUAL ACTUAL ADJUSTMENTS NOTE COMBINED
------ ------ ----------- ---- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 145 $ 4,918 $ (1) (1) $ 5,062
Accounts receivable, net ....................... 13,819 13,763 95 (2) 27,677
Other current assets ........................... 2,165 6,323 (246) (1) 6,414
(1,250) (5)
(578) (2)
-------- --------- --------- --------
Total current assets ......................... 16,129 25,004 (1,980) 39,153
-------- --------- --------- --------
Video Systems, net ............................... 207,504 98,581 (11,581) (5) 294,504
Land ............................................. -- 2,559 (559) (5) 2,000
Property and equipment, net ...................... 3,263 6,301 (2,051) (5) 7,513
Hotel contracts, net ............................. -- 46,104 (39,354) (5) 6,750
Debt issuance costs .............................. -- 5,662 (5,344) (1) --
(318) (4)
Other assets, net ................................ 6,019 10,426 (10,426) (5) 6,019
Other intangibles ................................ -- -- 10,000 (5) 10,000
Goodwill ......................................... -- -- 25,400 (5) 25,400
-------- --------- --------- --------
Total assets ................................... $232,915 $ 194,637 $ (36,213) $391,339
======== ========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 8,761 $ 12,289 $ 6,000 (5) $ 27,050
Accrued compensation and (74) (1)
other liabilities ............................ 6,835 12,255 (1,749) (2) 17,267
Notes payable .................................. 29,270 37,919 -- 67,189
Capitalized lease obligations .................. -- 3,379 (3,379) (3) --
-------- --------- --------- --------
Total current liabilities .................... 44,866 65,842 798 111,506
-------- --------- --------- --------
Other liabilities ................................ 1,816 -- 5,128 (3) 6,944
Liabilities subject to settlement under -- 576,040 (494,875) (1) --
reorganization (81,165) (6)
Deferred income taxes ............................ 1,012 4,920 (4,920) (8) 1,012
-------- --------- --------- --------
Total liabilities .............................. 47,694 646,802 (575,034) 119,462
-------- --------- --------- --------
Contingent value rights .......................... -- 20,000 (20,000) (1) --
Redeemable common stock .......................... 10,264 -- (10,264) (7) --
Stockholders' equity:
Common stock ................................... 73 24 203 (7) 300
Additional paid-in capital ..................... 168,604 392,185 96,693 (7) 265,297
(392,185) (1)
Retained earnings (deficit) .................... 6,280 (863,075) 901,567 (1) 6,280
(38,492) (7)
Foreign currency translation ................... -- (1,299) 1,299 (7) --
-------- --------- --------- --------
Total stockholders' equity ................... 174,957 (472,165) 569,085 271,877
-------- --------- --------- --------
Total liabilities & stockholders' equity ... $232,915 $ 194,637 $ (36,213) $391,339
======== ========= ========= ========
</TABLE>
See Notes to Pro Forma Financial Statements.
P-3
<PAGE> 100
ON COMMAND CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(In thousands)
<TABLE>
<CAPTION>
OCV SPECTRAVISION PRO FORMA PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS NOTE OCC
------ ------ ----------- ---- ---
<S> <C> <C> <C> <C> <C>
Revenues ................................ $62,490 $ 58,012 $ -- $120,502
Costs and expenses:
Direct Cost of revenues ............... 27,940 27,088 -- 55,028
Operating expenses .................... 5,240 20,016 (4,200) (12) 21,056
Depreciation and amortization ......... 21,293 20,519 (4,105) (9) 37,707
Marketing, general and administrative . 2,212 7,186 600 (13) 9,998
Research and development .............. 1,929 988 -- 2,917
------- -------- ------- --------
Total costs and expenses .......... 58,614 75,797 (7,705) 126,706
------- -------- ------- --------
Income (loss) from operations ........... 3,876 (17,785) 7,705 (6,204)
------- -------- ------- --------
Interest and other income (loss) ........ 19 (234) -- (215)
Interest expense ........................ (1,008) (3,062) 1,528 (11) (2,542)
Reorganization items .................... -- (1,827) 1,827 (10) --
------- -------- ------- --------
Income (loss) before taxes .............. 2,887 (22,908) 11,060 (8,961)
Provision (benefit) for income taxes .... 1,263 (122) (1,263) (14) (122)
------- -------- ------- --------
Net Income (loss) ....................... $ 1,624 $(22,786) $12,323 $ (8,839)
======= ======== ======= ========
Net income (loss) per common and
equivalent share ...................... $ 0.21 $ (0.95) $ (0.29)
======= ======== ========
Shares used in per share calculation .... 7,903 23,984 30,000
======= ======== ========
EBITDA(1) ............................... $25,169 $ 2,734 $ 31,503
======= ======== ========
</TABLE>
(1) EBITDA is presented because it is a widely accepted financial indicator
used by certain investors and analysts to analyze and compare companies
on the basis of operating performance. EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
See Notes to Pro Forma Financial Statements.
P-4
<PAGE> 101
ON COMMAND CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands)
<TABLE>
<CAPTION>
OCV SPECTRAVISION PRO FORMA PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS NOTE OCC
------ ------ ----------- ---- ---
<S> <C> <C> <C> <C> <C>
Revenues .................................. $ 102,059 $ 123,986 $ -- $ 226,045
Costs and expenses:
Direct cost of revenues ................. 48,417 52,813 -- 101,230
Operating expenses ...................... 9,054 46,843 (8,400) (20) 47,497
Depreciation and amortization ........... 28,737 39,364 (6,536) (15) 61,565
Marketing, general and administrative ... 3,118 22,203 1,200 (19) 26,521
Research and development ................ 2,642 1,769 -- 4,411
Other ................................... 1,540 247 -- 1,787
--------- --------- --------- ---------
Total costs and expenses ............ 93,508 163,239 (13,736) 243,011
--------- --------- --------- ---------
Income (loss) from operations ............. 8,551 (39,253) 13,736 (16,966)
--------- --------- --------- ---------
Interest and other income (loss) .......... 61 508 -- 569
Interest expense .......................... (413) (28,177) 1,406 (17) (1,155)
26,029 (18)
Reorganization items ...................... -- (7,563) 1,552 (16) (6,011)
--------- --------- --------- ------
Income (loss) before taxes ................ 8,199 (74,485) 42,723 (23,563)
Provision (benefit) for income taxes ...... 3,297 (840) (3,297) (21) (840)
--------- --------- --------- ---------
Income (loss) before extraordinary item ... 4,902 (73,645) 46,020 (22,723)
Extraordinary loss from debt extinguishment -- (915) -- (915)
--------- --------- --------- ---------
Net income (loss) ......................... $ 4,902 $ (74,560) $ 46,020 $ (23,638)
========= ========= ========= =========
Net income (loss) per common and common
equivalent share ........................ $ 0.72 $ (3.11) $ (0.79)
========= ========= =========
Shares used in per share calculations ..... 6,833 23,984 30,000
========= ========= =========
EBITDA(1) ................................. $ 37,288 $ 866 $ 44,599
========= ========= =========
</TABLE>
(1) EBITDA is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA is not intended
to represent cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
See Notes to Pro Forma Financial Statements.
P-5
<PAGE> 102
ON COMMAND CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
AT AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1996:
1. To eliminate the net assets and liabilities of SpectraVision and
SPI NEWCO, Inc. ("SPI NEWCO") which are not being acquired as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Other liabilities........................ $ 74
Liabilities subject to settlement
under reorganization................. 494,875
Contingent value rights.................. 20,000
Common stock............................. 24
Paid-in capital.......................... 392,185
Deficit.................................. $901,567
Cash..................................... 1
Debt issuance costs...................... 5,344
Pre-paids and other assets............... 246
</TABLE>
2. To adjust selected current assets and liabilities as contemplated
by the Acquisition Agreement.
3. To reclassify certain liabilities to other long-term
liabilities.
4. To write-off debt issuance costs incurred by and capitalized by
Spectradyne.
5. To adjust SpectraVision assets to their estimated fair
value. The fair value of the acquired assets and liabilities has
been determined based on management's preliminary estimate of
their fair value based on an independent appraisal which results
in the following adjustments: (a) a decrease in other current
assets of $1.2 million; (b) a decrease in video equipment of
$11.6 million; (c) a decrease in land of $0.6 million; (d) a
decrease in building and office equipment and computers of $2.1
million; (e) a decrease in hotel contracts of $39.4 million; (f)
to record goodwill relating to the acquisition of $25.4 million;
(g) a write-down of deferred contract concession costs of $10.4
million; (h) to record other intangible assets, including
technology, software, patents and trademarks, of $10.0 million;
and (i) to record direct acquisition costs.
6. To eliminate pre-petition liabilities on Spectradyne's balance
sheet that will not be assumed by OCC.
7. To reflect the capitalization of OCC as follows: (a) the issuance
of 30,000,000 shares of OCC Common Stock at the closing; (b)
the issuance of warrants to purchase OCC Common Stock at the
closing; (c) the retained earnings of OCV as the ongoing
entity and (d) to allocate the net assets acquired of
SpectraVision.
8. To reduce SpectraVision's net deferred tax liability to reflect
the new tax basis established in OCC. Fair value adjustments
result in a net deferred asset balance for OCC that is
anticipated to be fully reserved due to uncertainties regarding
the recoverability of the net deferred tax assets.
P-6
<PAGE> 103
Unaudited Pro Forma Combined Statement of Operations for the Six months ended
June 30, 1996:
<TABLE>
<S> <C>
9. To adjust depreciation and amortization expense
as follows:
Amortization of goodwill............................ $ 620
Reduction in depreciation and other amortization.... (4,725)
----------
Total............................................... $ (4,105)
==========
</TABLE>
Amortization of goodwill is based on amortization over 20 years
and other identifiable intangibles are amortized over 10
years. The change in depreciation and other amoritization
expense results from the decrease in depreciable basis in
connection with the allocation of purchase price offset by
revisions to the estimated useful lives of the purchased assets.
10. To reduce restructuring costs for non-recurring bankruptcy costs
incurred by SpectraVision as a result of its bankruptcy filing.
11. To reflect the terms of the anticipated bank credit agreement
and the pro forma borrowings based on (i) average total
borrowings of $20.0 million outstanding throughout the period at
an average interest rate of 8.5% and (ii) the amortization of
deferred financing cost incurred in connection with the
transaction.
12. To reduce operating expenses for the anticipated cost savings
attributed to the EDS contract (estimated at $700,000 per month)
being renegotiated.
13. To adjust general and administrative expenses to reflect the
anticipated management fee payable to Ascent, estimated at $1.2
million per year.
14. No adjustment is made to reflect the income tax effects of the
foregoing adjustments as the net operating losses incurred are
still significant to shelter any taxable earnings of OCV.
However, OCV's tax provision has been eliminated as it is
anticipated that OCC would not record tax expense on a combined
basis.
Unaudited Pro Forma Combined Statement of Operations for the Year ended December
31, 1995:
15. To adjust depreciation and amortization expense
as follows:
<TABLE>
<S> <C>
Amortization of goodwill.............................. $ 1,238
Reduction in depreciation and other amortization...... (7,774)
--------
Total................................................. $ (6,536)
========
</TABLE>
Amortization of goodwill is based on amortization over 20 years
and other identifiable intangibles are amortized over 10 years.
The change in depreciation and other amortization expense
results from the decrease in depreciable basis in connection
with the allocation of purchase price offset by revisions to the
estimated useful lives of the purchased assets.
16. To reduce restructuring costs for non-recurring bankruptcy costs
incurred by SpectraVision as a result of its bankruptcy filing.
17. To reflect the terms of the anticipated bank credit agreement
and the pro forma borrowings, based on (i) average total
borrowings of $59.1 million and an average
P-7
<PAGE> 104
interest rate of 8.5% for the year ended December 31, 1995 and
(ii) amortization of deferred financing costs incurred in
connection with the transaction.
18. To eliminate non-recurring interest expense incurred by
SpectraVision and SPI NEWCO. This interest expense relates to
the reorganization indebtedness that is not being assumed by
OCC.
19. To adjust general and administrative expenses to reflect
anticipated management fee payable to Ascent, estimated at $1.2
million per year.
20. To reduce operating expenses for the anticipated costs savings
attributed to the new EDS contract at $700,000 per month.
21. No adjustment is made for the income tax effects of the
foregoing adjustments (an income tax benefit) as the
recoverability of a net deferred asset would be uncertain.
However, OCV's tax provision is eliminated as it is anticipated
that OCC would not record tax expense on a combined basis.
P-8
<PAGE> 105
INDEX TO FINANCIAL STATEMENTS OF ON COMMAND VIDEO CORPORATION
Page
Audited Financial Statements for the Years Ended December 31, 1995,
1994 and 1993:
Report of Deloitte & Touche LLP................................ F-2
Report of Ernst & Young LLP,
Independent Auditors...................................... F-3
Balance Sheets at December 31, 1995 and 1994................... F-4
Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993.......................... F-5
Statements of Stockholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993.................... F-6
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993.......................... F-7
Notes to Financial Statements.................................. F-8
Unaudited Condensed Financial Statements for the Six Months
Ended June 30, 1996 and 1995:
Condensed Balance Sheets at June 30, 1996 and
December 31, 1995........................................ F-16
Condensed Statements of Income for the Six
Months Ended June 30, 1996 and 1995...................... F-17
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995.................. F-18
Notes to Condensed Financial Statements....................... F-19
F-1
<PAGE> 106
REPORT OF DELOITTE & TOUCHE LLP
The Board of Directors and Stockholders of
On Command Video Corporation:
We have audited the accompanying balance sheets of On Command Video
Corporation (a majority owned subsidiary of Ascent Entertainment Group, Inc.) as
of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such 1995 and 1994 financial statements present fairly,
in all material respects, the financial position of On Command Video Corporation
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
San Jose, California
January 19, 1996
(March 27, 1996 as to the first paragraph of Note 13
and August 16, 1996 as to the second, third and
fourth paragraphs of Note 13).
F-2
<PAGE> 107
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
On Command Video Corporation:
We have audited the accompanying statement of operations, stockholders'
equity, and cash flows of On Command Video Corporation (a majority owned
subsidiary of Comsat Video Enterprises, Inc.) for the year ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of On
Command Video Corporation for the year ended December 31, 1993, in conforming
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
San Jose, California
January 26, 1994
F-3
<PAGE> 108
ON COMMAND VIDEO CORPORATION
BALANCE SHEETS
AT DECEMBER 31, 1995 AND 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 956 $ 8,323
Accounts receivable (less allowance for doubtful
accounts of $100 in 1995 and 1994) ............ 9,853 12,382
Other current assets ............................. 831 312
Deferred income taxes ............................ 1,163 1,290
-------- --------
Total current assets ........................... 12,803 22,307
Video Systems, net ................................. 188,910 113,588
Property and equipment, net ........................ 2,971 2,339
Other assets, net .................................. 6,321 650
-------- --------
Total assets ................................... $211,005 $138,884
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 6,210 $ 12,345
Accrued compensation ............................. 1,715 2,070
Taxes payable .................................... 1,813 67
Other accrued liabilities ........................ 934 1,148
Deferred revenue ................................. 803 1,181
Current portion of stockholders' notes payable ... 15,942 817
-------- --------
Total current liabilities ...................... 27,417 17,628
Other accrued liabilities ........................ 1,841 719
Long-term portion of stockholders' note payable .. -- 208
Deferred income taxes ............................ 259 337
-------- --------
Total liabilities .............................. 29,517 18,892
Commitments and contingencies ...................... -- --
Redeemable common stock ............................ 10,264 10,264
Stockholders' equity:
Common stock, $.01 par value: shares authorized--
9,000 in 1995 and 7,000 in 1994; shares issued
and outstanding--7,277 in 1995 and 5,396 in 1994 73 54
Additional paid-in capital ....................... 166,495 109,920
Retained earnings (deficit) ...................... 4,656 (246)
-------- --------
Total stockholders' equity ..................... 171,224 109,728
-------- --------
Total ........................................ $211,005 $138,884
======== ========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 109
ON COMMAND VIDEO CORPORATION
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
Revenues:
Movie revenues ......................... $ 75,009 $45,931 $23,415
Video systems sales .................... 22,852 31,698 6,009
Video management services .............. 4,198 3,980 780
-------- ------- -------
Total revenues ....................... 102,059 81,609 30,204
-------- ------- -------
Direct costs of revenues:
Movie revenues ......................... 24,052 16,593 7,213
Video systems sales .................... 20,015 27,600 4,936
Video management services .............. 4,350 3,593 763
-------- ------- -------
Total direct costs of revenues ....... 48,417 47,786 12,912
-------- ------- -------
Operating expenses:
Depreciation and amortization .......... 28,737 17,534 7,820
Field service .......................... 9,054 5,274 3,300
Research and development ............... 2,642 1,771 1,216
Marketing, general and administrative .. 3,118 3,397 2,619
Settlement of litigation ............... 1,540 -- --
-------- ------- -------
Total operating expenses ............. 45,091 27,976 14,955
-------- ------- -------
Income from operations ................... 8,551 5,847 2,337
Interest income .......................... 61 178 300
Interest expense ......................... (413) (256) (317)
-------- ------- -------
Income before income taxes ............... 8,199 5,769 2,320
Provision for income taxes ............... 3,297 2,313 962
-------- ------- -------
Net income ............................... $ 4,902 $ 3,456 $ 1,358
======== ======= =======
Net income per common and equivalent share $ 0.72 $ 0.62 $ 0.35
======== ======= =======
Shares used in per share computations .... 6,833 5,571 3,896
======== ======= =======
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 110
ON COMMAND VIDEO CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
--------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ ------- --------- ------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1993 ........ 3,243 $ 33 $ 45,702 $ (5,060) $ 40,675
Sale of common stock to investors 881 9 24,191 -- 24,200
Exercise of stock options ........ 136 1 868 -- 869
Income tax benefit of stock option
transactions ................... -- -- 390 -- 390
Issuance of warrants ............. -- -- 504 -- 504
Net income ....................... -- -- -- 1,358 1,358
-------- -------- -------- -------- --------
Balances, December 31, 1993 ...... 4,260 43 71,655 (3,702) 67,996
Sale of common stock to investors 1,075 10 37,490 -- 37,500
Exercise of stock options ........ 61 1 601 -- 602
Income tax benefit of stock option -- -- 174 -- 174
transactions
Net income ....................... -- -- -- 3,456 3,456
-------- -------- -------- -------- --------
Balances, December 31, 1994 ...... 5,396 54 109,920 (246) 109,728
Common stock issued in connection 1,879 19 56,520 -- 56,539
with contribution agreement with
COMSAT (Note 9)
Exercise of stock options ........ 2 -- 35 -- 35
Income tax benefit of stock option
transactions ................... -- -- 20 -- 20
Net income ....................... -- -- -- 4,902 4,902
-------- -------- -------- -------- --------
Balances, December 31, 1995 ...... 7,277 $ 73 $166,495 $ 4,656 $171,224
======== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 111
ON COMMAND VIDEO CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................................. $ 4,902 $ 3,456 $ 1,358
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................................ 28,737 17,534 7,820
Deferred income taxes, net ............................................... 4,506 (383) (1,013)
Loss on disposal of fixed assets ......................................... 232 -- 56
Changes in assets and liabilities net of effects from acquired operations:
Pledged cash ........................................................... -- -- 436
Accounts receivable .................................................... 8,459 (5,811) (5,043)
Other current assets ................................................... (499) (192) (55)
Note receivable from employee .......................................... -- -- 150
Accounts payable ....................................................... (6,135) 4,482 4,893
Accrued compensation ................................................... (355) 838 880
Income taxes payable ................................................... 1,746 (1,120) 1,685
Other accrued liabilities .............................................. 159 1,054 605
Deferred revenue ....................................................... (378) 193 (12)
-------- -------- --------
Net cash provided by operating activities ............................ 41,374 20,051 11,760
-------- -------- --------
Cash flow from investing activities:
Capital expenditures ....................................................... (63,693) (64,110) (56,153)
Proceeds from sale of property and equipment ............................... -- -- 30
-------- -------- --------
Net cash provided by investing activities ............................ (63,693) (64,110) (56,123)
-------- -------- --------
Cash flows from financing activities:
Proceeds from stockholders' notes payable .................................. 15,734 -- --
Principal payments on stockholders' notes payable .......................... (817) (817) (792)
Net proceeds from issuance of redeemable common stock ...................... -- -- 10,264
Net proceeds from issuance of common stock ................................. 35 38,102 15,069
Collection of note receivable from stockholder ............................. -- 10,000 23,000
-------- -------- --------
Net cash provided by financing activities ............................ 14,952 47,285 47,541
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ......................... (7,367) 3,226 3,178
Cash and cash equivalents, beginning of year ................................. 8,323 5,097 1,919
-------- -------- --------
Cash and cash equivalents, end of year ....................................... $ 956 $ 8,323 $ 5,097
======== ======== ========
Supplemental information:
Cash paid for income taxes ................................................. $ 1,426 $ 3,762 $ 349
======== ======== ========
Cash paid for interest ..................................................... $ 413 $ 256 $ 317
======== ======== ========
Common stock issued in connection with contribution agreement
with Comsat .............................................................. $ 56,539 $ -- $ --
======== ======== ========
Common stock issued for notes receivable ................................... $ -- $ -- $ 10,000
======== ======== ========
Ascribed value for issuance of warrants to purchase common
stock .................................................................... $ -- $ -- $ 840
======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE> 112
ON COMMAND VIDEO CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
ORGANIZATION AND NATURE OF BUSINESS -- On Command Video Corporation
(the Company) designs, develops, manufacturers and installs proprietary
video systems. The Company's video system is a patented video selection
and distribution system that allows guests to select motion pictures on
computer controlled television sets located in their rooms at any time.
The Company also provides in-room viewing of free-to-guest programming
of select cable channels and other interactive services under long-term
contracts to hotels and businesses. The Company is a majority owned
subsidiary of Ascent Entertainment Group, Inc. (Ascent). Ascent is a
majority owned subsidiary of COMSAT Corporation (Comsat).
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
debt instruments, with insignificant interest rate risk, acquired
with an original maturity of less than three months to be cash
equivalents. Cash equivalents, consisting primarily of municipal
obligations, money market funds, certificates of deposit and bank
savings accounts, are stated at amortized cost which approximates
market.
The Company adopted Statement of Financial Accounting Standards No. 115
(SFAS No. 115), "Accounting for Certain Investments in Debt and Equity
Securities," effective January 1, 1994. There was no cumulative effect
of adopting SFAS No. 115 on the Company's financial position or results
of operations.
VIDEO SYSTEMS, PROPERTY AND EQUIPMENT -- Video systems and property and
equipment are stated at cost less accumulated depreciation and
amortization. Installed video systems consist of equipment and related
costs of installation at hotel locations. Construction in progress
consists of purchased and manufactured parts of partially constructed
video systems. Depreciation and amortization are provided using the
straight-line method over the shorter of the estimated useful lives,
generally five to seven years, or lease terms.
Effective October 1, 1994, the Company changed the estimated useful
life of installed video systems from five years to the following:
Video systems.............. Five years
All other costs............ Term of the contract, five to seven years
The effect in 1994 from this change in estimate was to increase net
income and net income per common and equivalent share by approximately
$420,000 and $.07, respectively.
OTHER ASSETS -- Other assets consist of the warrants referred to in
Note 7 plus payments made to customers as inducements for them to enter
into contracts with the Company for the installation of pay-per-view
video systems. These assets are amortized on a straight-line basis over
the term of the contracts, five to seven years. Additionally, other
assets at December 31, 1995 include an investment of $1,265,000 in
MagiNet Corporation accounted for at cost.
F-8
<PAGE> 113
REVENUE RECOGNITION -- The Company installs pay-per-view video systems
in hotels, generally under five- to seven-year agreements, whereby it
recognizes revenues at the time of viewing. Revenue from the sale of
video systems is recognized when the equipment is shipped, except for
systems requiring installation by the Company, which is recognized upon
completion of the installation. Revenues from video management services
and royalties are recognized when earned.
NET INCOME PER SHARE -- Net income per share is based on the weighted
average number of common and dilutive common equivalent shares
outstanding during the periods. Common equivalent shares include
redeemable common stock and common stock options and warrants.
INCOME TAXES -- The Company accounts for income taxes under Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" which requires an asset and liability approach to account for
income taxes.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES -- The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such management estimates include the allowance for
doubtful accounts receivable, the estimated useful lives of video
systems and property and equipment, reducing construction in progress
to its net realizable value and the amounts of certain accrued
liabilities.
The Company participates in the highly competitive in-room
entertainment industry and believes that changes in any of the
following areas could have a material adverse affect on the Company's
future financial position or results of operations: decline in hotel
occupancy as a result of general business, economic, seasonal or other
factors; loss of one or more of the major hotel chain customers;
ability to obtain additional capital to finance capital expenditures;
ability to retain senior management and key employees; and risks of
technological obsolescence.
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified
to conform to the current year presentation.
2. VIDEO SYSTEMS
Video systems at December 31, consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Installed video systems .... $ 210,335 $ 110,180
Construction in progress ... 31,805 30,381
--------- ---------
242,140 140,561
Accumulated depreciation ... (53,230) (26,973)
--------- ---------
Video systems, net ......... $ 188,910 $ 113,588
========= =========
</TABLE>
F-9
<PAGE> 114
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, consist of the following (in
thousands):
<TABLE>
1995 1994
------- -------
<S> <C> <C>
Machinery and equipment ...................... $ 3,767 $ 2,485
Furniture, fixtures and leasehold improvements 914 785
------- -------
4,681 3,270
Accumulated depreciation and amortization .... (1,710) (931)
------- -------
Property and equipment, net .................. $ 2,971 $ 2,339
======= =======
</TABLE>
4. STOCKHOLDERS' NOTES PAYABLE
Stockholders' notes payable at December 31 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Ascent.............................. $ 15,734 $ --
Other stockholders.................. 208 1,025
--------- --------
15,942 1,025
Less current portion................ (15,942) (817)
-------- --------
Long-term........................... $ -- $ 208
======== ========
</TABLE>
In 1995, the Company entered into a promissory note agreement with
Ascent which is payable upon demand. Interest on principal up to
$12,500,000 bears interest at the prime rate (8.5% at December 31,
1995), and principal in excess of $12,500,000 bears interest at the
prime rate plus 0.5% per annum.
In 1990 and 1991, the Company entered into promissory note agreements
with certain of its stockholders. The notes are payable to the
stockholders in sixty equal monthly installments with interest at 14%
per annum.
5. COMMITMENTS
FACILITY LEASES
The Company leases its principal facilities from a stockholder under
a noncancelable operating lease which expires in December 1999. In
addition to lease payments, the Company is responsible for taxes,
insurance and maintenance of the leased premises.
Rental payments to the stockholder were approximately $538,000,
$538,000 and $255,000 for the years ended December 31, 1995, 1994 and
1993, respectively. Rental expense under all operating leases was
approximately $616,000, $572,000 and $284,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
Future minimum annual payments under noncancelable operating leases
at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996...................................... $ 627,000
1997...................................... 669,000
1998...................................... 699,000
1999...................................... 653,000
----------
$2,648,000
==========
</TABLE>
F-10
<PAGE> 115
PURCHASE COMMITMENTS
Noncancelable commitments for the purchase of video systems amounted to
approximately $7,500,000 at December 31, 1995.
6. REDEEMABLE COMMON STOCK
In July 1993, pursuant to a stock purchase agreement the Company sold
410,561 shares of common stock at $25.00 per share, subject to a put
option. The stock purchase agreement provides that, until May 1998, the
stockholder may elect to sell the shares back to the Company upon the
earlier of (i) June 1, 1995 or (ii) the date the stockholder determines
that ownership of such shares may directly or indirectly jeopardize its
ability to retain material licenses in connection with its business.
The put price is equal to the original purchase price plus interest
from the date the shares were initially purchased, at an interest rate
equal to the average of the one-year U.S. Treasury Bill rate compounded
annually.
7. STOCKHOLDERS' EQUITY
STOCK OPTION PLAN
The Company has adopted a stock option plan (the Plan), expiring in
June 1999, under which employees, directors and consultants may be
granted incentive or nonstatutory stock options for the purchase of
common stock of the Company. Incentive stock options are granted at
fair value on the date of grant as determined by the Board of Directors
and nonstatutory stock options are granted at a price per share fixed
by the Board of Directors of the Company but not less than 85% of the
fair value of the date of grant. Options generally vest over a
five-year period and are exercisable in installments of 20% one year
from the date of grant and ratably per month thereafter. Unvested
options are canceled upon termination of employment.
<TABLE>
<CAPTION>
Options Options Outstanding
------- -------------------
Available Number of Price
for Grant Shares Per Share
--------- ------ ---------
<S> <C> <C> <C>
Balance at January 1, 1993 . 169,800 281,607 $ 1.25 - $20.00
Granted .................... (60,000) 60,000 25.00
Exercised .................. -- (135,656) 1.25 - 16.84
------- -------
Balance at December 31, 1993 109,800 205,951 5.00 - 25.00
Granted .................... (20,000) 20,000 32.50
Exercised .................. -- (60,965) 5.00 - 20.00
Canceled ................... 3,085 (3,085) 20.00
-------- -------
Balance at December 31, 1994 92,885 161,901 7.50 - 32.50
Exercised .................. -- (2,250) 13.41 - 16.84
-------- -------
Balance at December 31, 1995 92,885 159,651 $ 7.50 - $32.50
======== =======
</TABLE>
At December 31, 1995, options to purchase 100,154 shares of common
stock were exercisable.
F-11
<PAGE> 116
WARRANTS
In August 1991, the Company issued warrants to two stockholders to
purchase 27,964 shares of common stock at $20.12 per share. The
warrants are currently exercisable and expire in July 1996.
In July 1993, in connection with the sale of common stock, the Company
issued warrants to a related party to purchase 410,561 shares of common
stock at $27.50 per share through May 1996, increasing to $30.25 per
share in June 1996 and $33.28 per share in June 1997. The original
value ascribed to the warrants of $840,000 is included in other assets
and is being amortized over the estimated period of benefit of seven
years. Amortization expense was $120,000 in both 1995 and 1994. The
warrants are currently exercisable and expire in May 1998.
SHARES RESERVED FOR FUTURE ISSUANCE
Common stock reserved for future issuance at December 31, 1995 as
follows:
<TABLE>
<S> <C>
Redeemable common stock.......... 410,561
Option plan...................... 252,536
Warrants......................... 438,525
---------
1,101,622
=========
</TABLE>
RECENTLY ISSUED ACCOUNTING STANDARD
The Company is required to adopt Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" in
fiscal year 1996. SFAS No. 123 establishes accounting and disclosure
requirements using a fair value based method of accounting for
stock-based employee compensation plans. Under SFAS No. 123, the
Company may either adopt the new fair value based accounting method or
continue the intrinsic value based method and provide pro forma
disclosures of net income and earnings per share as if the accounting
provisions of SFAS No. 123 has been adopted. The Company plans to adopt
only the disclosure requirements of SFAS No. 123; therefore, for
options issued to employees, such adoption will have no effect on the
Company's net income or cash flows.
8. INCOME TAXES
In August 1995, Comsat's ownership interest in the Company exceeded 80%
and the Company became a member of Comsat's consolidated tax group for
income tax purposes. The Company has prepared its tax provision for
1995 based on inclusion in Comsat's consolidated return. However, the
provision as calculated would approximate the provision if prepared on
a separate return basis. The current and deferred tax expense represent
the Company's separately computed tax liability.
F-12
<PAGE> 117
The provision for income taxes at December 31 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
Current:
<S> <C> <C> <C>
Federal $ (714) $ 2,525 $ 1,579
State ........... 48 171 396
------- ------- -------
(666) 2,696 1,975
------- ------- -------
Deferred:
Federal 3,572 (508) (847)
State ........... 391 125 (166)
------- ------- -------
3,963 (383) (1,013)
------- ------- -------
Total ............... $ 3,297 $ 2,313 $ 962
======= ======= =======
</TABLE>
The provision for income taxes differs from the amount obtained by
applying the federal statutory rate (35%) to income before income taxes
at December 31 as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Tax computed at federal statutory rate $ 2,870 $ 2,019 $ 812
State taxes, net of federal benefit .. 439 296 103
Other ................................ (12) (2) 47
------- ------- -------
Provision for income taxes ........... $ 3,297 $ 2,313 $ 962
======= ======= =======
</TABLE>
Deferred income taxes, which result from the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes, at December 31 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Tax net operating loss and credit carryforwards $ 1,856 $ 3,165
Accruals not recognized for tax purposes ...... 839 823
Deferred revenue .............................. 322 467
Other ......................................... 120 155
------- -------
Total deferred tax assets .......................... 3,137 4,610
Deferred tax liabilities:
Depreciation and amortization ................. (2,233) (3,657)
------- -------
Net deferred tax assets ............................ $ 904 $ 953
======= =======
</TABLE>
Alternative minimum tax credit carryforwards of approximately
$1,512,000 and $270,000 are available to offset future regular federal
and state tax liabilities, respectively. Research and development tax
credit carryforwards of approximately $32,000 and $80,000 are available
to offset future federal and state tax liabilities, respectively. The
federal research and development credit carryforwards begin expiring in
2006. Additionally, the Company has state net operating loss
carryforwards of approximately $1,500,000 which expire beginning in
2000 and may be subject to limitation in the event of certain defined
changes in stock ownership.
F-13
<PAGE> 118
9. RELATED PARTY TRANSACTIONS
On August 1, 1995, the Company entered into a Contribution Agreement
with Ascent, whereby the Company acquired various assets and
liabilities (primarily installed video systems and related construction
in progress, accounts receivable, deferred income taxes and other
assets) from Ascent with a net book value of approximately $56,539,000
in exchange for 1,878,624 shares of common stock of the Company. This
transfer of net assets and shares between companies under common
control has been accounted for at historical cost.
The Company sold video systems and provided video management services
to Ascent totaling approximately $18,900,000, $28,100,000 and
$4,200,000 in 1995, 1994 and 1993, respectively. The Company had
approximately $2,300,000 in payables to Ascent at December 31, 1995.
The Company had approximately $4,500,000 in accounts receivable from,
and $5,200,000 in payables to, Ascent at December 31, 1994. Marketing,
general and administrative expenses in the accompanying financial
statements are net of $732,000, $1,316,000 and $226,000 in 1995, 1994
and 1993, respectively, paid by Ascent based on a percentage of video
system sales to Ascent. Research and development expenses in the
accompanying financial statements are net of $436,000, $742,000 and
$224,000 in 1995, 1994 and 1993, respectively, paid by Ascent based on
a percentage of video system sales to Ascent.
The Company earned revenues of approximately $15,000,000, $12,400,000
and $4,900,000 in 1995, 1994 and 1993, respectively, from another
company and its affiliates, which is a related party by virtue of its
ownership of the Company's common stock. The Company also earned video
system sales of approximately $3,000,000 and movie revenues of
approximately $362,000 in 1995 from a company which is a related party
by virtue of the Company's preferred stock investment in this company.
Interest expense to related parties was approximately $413,000,
$243,000 and $315,000 in 1995, 1994 and 1993, respectively.
10. CONCENTRATION OF CREDIT RISK
The Company generates the majority of its revenues from the guest usage
of proprietary video systems located in various hotels primarily
throughout the United States and Canada. The Company performs periodic
credit evaluations of its installed hotel locations and generally
requires no collateral. While the Company does maintain allowances for
potential credit losses, actual bad debt losses have not been
significant. The Company invests its cash in high-credit quality
institutions. These instruments are short-term in nature and,
therefore, bear minimal risk.
Three customers and their affiliates accounted for 35%, 18% (related
party), and 15% (related party) of revenues in 1995 (29%, 34% and
15%, respectively, in 1994; and 39%, 14% and 16%, respectively, in
1993).
F-14
<PAGE> 119
11. EMPLOYEE BENEFIT PLAN
Qualified employees are eligible to participate in the Company's 401(k)
tax-deferred savings plan. Participants may contribute up to 20% of
their eligible earnings (to a maximum of approximately $9,000 per year)
to this plan, for which the Company, at the discretion of the Board or
Directors, may make matching contributions. Contributions made by the
Company were approximately $351,000 and $227,000 in 1995 and 1994,
respectively (none in 1993).
12. LEGAL MATTERS
In 1995, the Company recorded a charge of $1,540,000 related to the
settlement with a former employee who alleged wrongful termination and
breach of contract.
Additionally, in 1995 the Company settled a lawsuit in which it claimed
a competitor had infringed certain of the Company's patents. The
settlement had no significant impact on the Company's financial
position or results of operations or cash flows.
13. SUBSEQUENT EVENTS
In March 1996, a competitor filed suit against the Company alleging
patent infringement and seeking unspecified damages. The Company
intends to contest the suit vigorously and believes the claim is
without merit and will not result in a material adverse effect to the
Company's financial position or results of operations or cash flows.
On April 19, 1996 Ascent, On Command Video and SpectraVision, Inc
(SpectraVision) entered into an agreement (the agreement) which
provides that all of On Command Video's assets and liabilities will be
combined with certain assets and liabilities of SpectraVision to form a
new company (On Command Corporation ("OCC")). The agreement provides
that the stockholders of On Command Video will receive 72.5% of the OCC
common stock and SpectraVision's bankruptcy estate will receive 27.5%
of the OCC common stock, subject to certain adjustments as defined in
the agreement. The agreement also provides that OCC will issue warrants
to purchase 20% of OCC's common stock, 65% of which are to be issued to
the stockholders of On Command Video and 35% of which are to issued to
SpectraVision's bankruptcy estate. The proposed business combination
will be accounted for as a purchase.
Ascent, On Command Video and Hilton Hotels (Hilton) entered into a
letter agreement in August 1996, providing for the cancellation of
470,588 shares of On Command Video common stock issued to Ascent
pursuant to the Contribution Agreement more fully described in Note 9.
The letter agreement also provided for the extension of the date on
which the exercise price of the 410,561 warrants issued to Hilton would
increase from June 1, 1996 to the later of (i) 90 days after the
closing or the abandonment of the proposed transaction with
SpectraVision described above or (ii) December 1, 1996. The letter
agreement also provides that if in connection with the proposed
transaction with SpectraVision, On Command Video common stock or OCC
securities into which it is converted are registered under the
Securities Exchange Act of 1933 and Hilton's shares of On Command
Video's common stock (or OCC common stock into which they are
converted) are freely tradeable, both the Hilton put option with
respect to the redeemable common stock and the Hilton warrants, unless
exercised before such closing, will terminate as of the closing of the
proposed transaction with SpectraVision.
F-15
<PAGE> 120
In addition, the letter agreement provides that if Hilton exercises its
warrants by reason of the closing of the proposed transaction with
SpectraVision, Hilton will have the right to put to Ascent all, but not
less than all, of those Hilton warrant shares of On Command Video
common stock (or OCC common stock into which they are converted)
Hilton still owns on the date 90 days after the closing of the proposed
transaction with SpectraVision at the same exercise price in the Hilton
warrant.
F-16
<PAGE> 121
ON COMMAND VIDEO CORPORATION
CONDENSED BALANCE SHEETS
AT JUNE 30, 1996 AND DECEMBER 31, 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 145 $ 956
Accounts receivable ................................................. 13,819 9,853
Other current assets ................................................ 922 831
Deferred income taxes ............................................... 1,243 1,163
-------- --------
Total current assets .............................................. 16,129 12,803
Video Systems, net .................................................... 207,504 188,910
Property and equipment, net ........................................... 3,263 2,971
Other assets, net ..................................................... 6,019 6,321
-------- --------
Total assets ...................................................... $232,915 $211,005
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 8,761 $ 6,210
Accrued compensation ................................................ 1,610 1,715
Taxes payable ....................................................... 3,298 1,813
Other accrued liabilities ........................................... 1,456 934
Deferred revenue .................................................... 471 803
Current portion of stockholders' notes payable ...................... 29,270 15,942
-------- --------
Total current liabilities ......................................... 44,866 27,417
Other accrued liabilities ........................................... 1,816 1,841
Deferred income taxes ............................................... 1,012 259
-------- --------
Total liabilities ................................................. 47,694 29,517
Commitments and contingencies ......................................... -- --
Redeemable Common Stock ............................................... 10,264 10,264
Stockholders' equity:
Common stock, $.01 par value: shares authorized--9,000; shares issued
and outstanding--7,279 in 1996 and 7,277 in 1995 .................. 73 73
Additional paid-in capital .......................................... 168,604 166,495
Retained earnings ................................................... 6,280 4,656
-------- --------
Total stockholders' equity ........................................ 174,957 171,224
-------- --------
Total ........................................................... $232,915 $211,005
======== ========
</TABLE>
See Notes to Condensed Financial Statements.
F-17
<PAGE> 122
ON COMMAND VIDEO CORPORATION
CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Revenues:
Movie revenues.................................. $ 55,999 $ 31,431
Video systems sales............................. 6,491 16,372
Video management services....................... -- 3,528
-------- --------
Total revenues................................ 62,490 51,331
-------- --------
Direct costs of revenues:
Movie revenues.................................. 22,931 9,472
Video systems sales............................. 5,009 14,405
Video management services....................... -- 3,654
-------- --------
Total direct costs of revenues................ 27,940 27,531
-------- --------
Operating expenses:
Depreciation and amortization................... 21,293 11,496
Field service................................... 5,240 4,341
Research and development........................ 1,929 1,131
Marketing, general and administrative........... 2,212 1,016
Settlement of litigation........................ -- 1,540
-------- --------
Total operating expenses...................... 30,674 19,524
-------- --------
Income from operations............................ 3,876 4,276
Interest income................................... 19 46
Interest expense.................................. (1,008) (99)
-------- --------
Income before income taxes........................ 2,887 4,223
Provision for income taxes........................ 1,263 1,715
-------- --------
Net income........................................ $ 1,624 $ 2,508
======== ========
Net income per common and equivalent share........ $ 0.21 $ 0.42
======== ========
Shares used in per share computations............. 7,903 6,015
======== ========
</TABLE>
See Notes to Condensed Financial Statements.
F-18
<PAGE> 123
ON COMMAND VIDEO CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 1,624 $ 2,508
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................................. 21,293 11,496
Deferred income taxes, net................................................. 673 --
Loss on disposal of fixed assets........................................... 4 231
Changes in assets and liabilities net of effects from acquired operations:
Accounts receivable...................................................... (3,966) (821)
Other current assets..................................................... (91) (82)
Accounts payable......................................................... 2,551 709
Accrued compensation..................................................... (105) (71)
Income taxes payable..................................................... 1,485 839
Other accrued liabilities................................................ 497 13
Deferred revenue......................................................... (332) (58)
--------- ---------
Net cash provided by (used in) operating activities.................... 23,633 14,764
--------- ---------
Cash flow from investing activities:
Capital expenditures......................................................... (37,717) (24,718)
Other assets................................................................. (70) --
--------- ---------
Net cash used in investing activities.................................. (37,787) (24,718)
--------- ---------
Cash flows from financing activities:
Proceeds from stockholders' notes payable.................................... 13,500 5,000
Principal payments on stockholders' notes payable............................ (172) (454)
Net proceeds from issuance of common stock................................... 15 35
--------- ---------
Net cash provided by financing activities.............................. 13,343 4,581
--------- ---------
Net decrease in cash and cash equivalents...................................... (811) (5,373)
Cash and cash equivalents, beginning of period................................. 956 8,323
--------- ---------
Cash and cash equivalents, end of period....................................... $ 145 $ 2,950
========= =========
Supplemental information:
Cash paid for income taxes................................................... $ 224 $ 1,180
========= =========
Cash paid for interest....................................................... $ 260 $ 99
========= =========
Common stock issued in connection with contribution agreement
with Ascent................................................................ $ 2,094 $ --
========= =========
</TABLE>
See Notes to Condensed Financial Statements.
F-19
<PAGE> 124
ON COMMAND VIDEO CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1. In the opinion of management, these unaudited condensed financial
statements include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's
financial position as of June 30, 1996 and the results of operations
and cash flows for the six months ended June 30, 1996 and 1995.
The results of operations for the six months ended June 30, 1996 may
not necessarily be indicative of the results of operations for the
fiscal year ending December 31, 1996.
These condensed financial statements should be read in conjunction with
the financial statements and related notes for the years ended December
31, 1995, 1994 and 1993, included elsewhere herein.
2. NET INCOME PER SHARE
Net income per share is based on the weighted average number of common
and dilutive common equivalent shares outstanding during the periods.
Common equivalent shares include redeemable common stock and common
stock options and warrants.
3. RELATED PARTY TRANSACTION
On August 1, 1995, the Company entered into a Contribution Agreement
with Ascent, whereby the Company acquired various assets and
liabilities (primarily installed video systems and related construction
in progress, accounts receivable, deferred income taxes and other
assets) from Comsat with a net book value of approximately $56,539,000
in exchange for 1,878,624 shares of common stock of the Company. The
transfer of net assets and shares between companies under common
control has been accounted for at historical cost.
4. LITIGATION
In March 1996, a competitor filed suit against the Company alleging
patent infringement and seeking unspecified damages. The Company
intends to contest the suit vigorously and believes the claim is
without merit and will not result in a material adverse effect to the
Company's financial position or results of operations.
5. PROPOSED BUSINESS COMBINATION
On April 19, 1996 Ascent, On Command Video and SpectraVision entered
into an agreement (the "agreement") which provides that all of On
Command Video's assets and liabilities will be combined with certain
assets and liabilities of SpectraVision to form a new company (On
Command Corporation ("OCC")). The agreement provides that the
stockholders of On Command Video will receive 72.5% of the OCC common
stock and SpectraVisions' bankruptcy estate will receive 27.5% of the
OCC common stock, subject to certain adjustments as defined in the
agreement. The agreement also provides that OCC will issue warrants to
purchase 20% of OCC's
F-20
<PAGE> 125
common stock, 65% of which are to be issued to the stockholders of On
Command Video and 35% of which are to be issued to SpectraVision's
bankruptcy estate. The proposed business combination will be accounted
for as a purchase.
6. SUBSEQUENT EVENTS
Ascent, On Command Video and Hilton Hotels (Hilton) entered into a
letter agreement in August 1996, providing for the cancellation of
470,588 shares of On Command Video common stock issued to Ascent
pursuant to the Contribution Agreement more fully described in Note 3.
The letter agreement also provided for the extension of the date on
which the exercise price of 410,561 warrants issued to Hilton would
increase from June 1, 1996 to the later of (i) 90 days after the
closing or the abandonment of the proposed transaction with
SpectraVision described above or (ii) December 1, 1996. The letter
agreement also provides that if in connection with the proposed
transaction with SpectraVision, On Command Video common stock or OCC
securities into which it is converted are registered under the
Securities Exchange Act of 1933 and Hilton's shares of On Command
Video's common stock (or OCC common stock into which they are
converted) are freely tradeable, both the Hilton put option with
respect to the redeemable common stock and the Hilton warrants, unless
exercised before such closing, will terminate as of the closing of the
proposed transaction with SpectraVision.
In addition, the letter agreement provides that if Hilton exercises its
warrants by reason of the closing of the proposed transaction with
SpectraVision, Hilton will have the right to put to Ascent all, but not
less than all, of those Hilton warrant shares of On Command Video
common sock (or OCC common stock into which they are converted)
Hilton still owns on the date 90 days after the closing of the proposed
transaction with SpectraVision at the same exercise price in the Hilton
warrant.
F-21
<PAGE> 126
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF SPECTRAVISION
Audited Financial Statements for the Years Ended December 31, 1995, 1994 and
1993:
Independent Auditors' Report.............................. F-23
Consolidated Statements of Financial Position
at December 31, 1995 and 1994........................... F-24
Consolidated Statements of Operations for the
Years Ended December 31, 1995, 1994 and 1993............ F-25
Consolidated Statements of Stockholders'
Deficit for the Years Ended December 31, 1995,
1994 and 1993........................................... F-26
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and 1993............ F-27
Notes to Consolidated Financial Statements................ F-28
Unaudited Interim Financial Statements for the Six Months
ended June 30, 1996 and 1995:
Condensed Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995..................... F-59
Condensed Consolidated Statements of Operations
for the Six Months Ended June 30, 1996 and 1995......... F-60
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995......... F-61
Notes to Condensed Consolidated Financial Statements...... F-62
F-22
<PAGE> 127
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SpectraVision, Inc.:
We have audited the accompanying balance sheets of SpectraVision, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SpectraVision, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
notes 1 and 3 to the consolidated financial statements, the Company, together
with four of its subsidiaries, filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court on June 8, 1995. Although the Company and the subsidiaries are
currently operating their businesses as debtors-in-possession under the
jurisdiction of the Bankruptcy Court, the continuation of their businesses as
going concerns is contingent upon, among other things, the ability to formulate
a plan of reorganization which will gain approval of the creditors and
confirmation by the Bankruptcy Court and the ability to generate sufficient cash
from operations and financing sources to meet obligations as they come due. In
addition, as discussed in Note 7, the Company does not expect that it will be in
compliance in 1996 with certain financial covenants related to its
debtor-in-possession financing, which could permit its lenders to accelerate the
due date of such financing. The Company's filing under Chapter 11 and its
expected noncompliance with certain covenants related to its
debtor-in-possession financing raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are discussed in Note 3 to the consolidated financial statements. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
March 1, 1996, except as to the second paragraph
of Note 7, which is as of March 22, 1996
F-23
<PAGE> 128
SPECTRAVISION, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents ............................................ $ 3,438 $ 1,317
Accounts Receivable (net of allowance for doubtful accounts of $1,812
and $1,072 in 1995 and 1994, respectively) ......................... 16,428 20,417
Debt Issuance Costs (net) ............................................ 5,827 6,797
Prepaids and Other Assets ............................................ 8,125 8,108
Video Systems:
In Process Video Systems ........................................... 11,329 38,144
Installed Video Systems ............................................ 247,987 242,003
--------- ---------
Subtotal ......................................................... 259,316 280,147
Less Accumulated Depreciation and Amortization ....................... (155,604) (148,290)
--------- ---------
Total Video Systems .................................................. 103,712 131,857
Building and Equipment Building ...................................... 4,300 4,294
Furniture, Fixtures and Other Equipment .............................. 8,002 6,887
--------- ---------
Subtotal ........................................................... 12,302 11,181
Less Accumulated Depreciation ........................................ (5,921) (4,965)
--------- ---------
Total Building and Equipment ......................................... 6,381 6,216
Land ................................................................. 2,559 2,559
Hotel Contracts (net) ................................................ 47,403 50,000
Deferred Contract Concession Costs (net) ............................. 11,749 15,551
--------- ---------
TOTAL ASSETS ........................................................... $ 205,622 $ 242,822
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Accounts Payable ..................................................... $ 8,128 $ 48,807
Accrued Liabilities
Interest ........................................................... -- 3,413
Compensation ....................................................... 2,112 4,495
Other .............................................................. 9,086 21,522
Income Taxes ......................................................... 183 290
Deferred Income Taxes ................................................ 5,467 6,757
Debt
Revolving Credit Facility .......................................... -- 12,500
Canadian Bank Credit Facility ...................................... -- 7,350
Foothill Revolving Credit Facility ................................. 26,703 --
11.5% Senior Discount Notes ........................................ -- 172,295
11.65% Senior Subordinated Reset Notes ............................. -- 294,768
Capitalized Lease Obligations ...................................... 1,964 23,492
Other Debt ......................................................... -- 158
--------- ---------
Total Debt ........................................................... 28,667 510,563
Liabilities Subject to Settlement Under Reorganization ................. 579,587 --
--------- ---------
Total Liabilities ...................................................... 633,230 595,847
Contingent Value Rights Subject to Settlement Under Reorganization ..... 20,000 20,000
Stockholders' Deficit
Class A Common Stock--$0.001 par value, authorized 6,000,000 shares,
issued and outstanding, 4,593,526 shares in 1995 and 1994 .......... 5 5
Class B Common Stock--$0.001 par value, authorized 144,000,000 shares,
issued and outstanding, 19,390,379 shares in 1995 and 1994 ......... 19 19
Additional Paid in Capital ........................................... 392,185 392,185
Retained Deficit ..................................................... (840,289) (765,729)
Foreign Currency Translation Adjustment .............................. 472 495
--------- ---------
Total Stockholders' Deficit ............................................ (447,608) (373,025)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ............................ $ 205,622 $ 242,822
========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-24
<PAGE> 129
SPECTRAVISION, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Revenues ........................................... $123,986 $ 142,384 $162,993
Costs and Expenses:
Total direct costs ............................... 52,813 58,015 58,834
Depreciation and amortization .................... 39,364 50,534 44,103
Write-down of hotel contracts .................... -- 196,256 --
Technology and field service charge .............. -- -- 7,000
Loss on sale of manufacturing assets and inventory -- -- 649
Operating expenses ............................... 17,563 13,205 24,583
Contracted service costs ......................... 29,280 21,029 1,716
Selling and marketing expenses ................... 4,883 8,741 5,054
General and administrative expenses .............. 17,320 19,595 15,431
Research and development (net) ................... 1,769 3,814 1,585
Exchange loss .................................... 247 581 833
-------- --------- --------
Total costs and expenses ....................... 163,239 371,770 159,788
-------- --------- --------
Operating Income (Loss) ............................ (39,253) (229,386) 3,205
Non-operating Income ............................... (508) (1,163) --
Interest expense, net (Contractual interest expense
of $67,959 in 1995) .............................. 28,177 54,981 48,990
-------- --------- --------
Loss before Reorganization Items, Income Taxes
and Extraordinary Item ........................... (66,922) (283,204) (45,785)
Reorganization items ............................... 7,563 -- --
-------- --------- --------
Loss before Income Taxes and Extraordinary Item .... (74,485) (283,204) (45,785)
Income Taxes:
State and foreign provision (benefit) ............ 126 (448) 1,739
Deferred benefit ................................. (966) (28,472) (4,467)
-------- --------- --------
Total Income Tax Benefit ....................... (840) (28,920) 2,728
-------- --------- --------
Loss Before Extraordinary Item ..................... (73,645) (254,284) (43,057)
Extraordinary Item--loss from debt extinguishment .. 915 -- 2,699
-------- --------- --------
Net Loss ........................................... $(74,560) $(254,284) $(45,756)
======== ========= ========
Loss Per Common Share:
Before extraordinary item ........................ $ (3.07) $ (10.60) $ (2.37)
Extraordinary item ............................... (0.04) -- (0.15)
-------- --------- --------
Net Loss ......................................... $ (3.11) $ (10.60) $ (2.52)
======== ========= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-25
<PAGE> 130
SPECTRAVISION, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Class A Common Stock
Beginning balance ....... $ 5 $ 5 $ 5
--------- --------- ---------
Ending balance .......... 5 5 5
--------- --------- ---------
Class B Common Stock
Beginning balance ....... 19 19 11
Issued in public offering -- -- 8
--------- --------- ---------
Ending balance .......... 19 19 19
--------- --------- ---------
Additional Paid in Capital
Beginning balance ....... 392,185 392,185 314,544
Issued in public offering -- -- 77,641
--------- --------- ---------
Ending balance .......... 392,185 392,185 392,185
--------- --------- ---------
Retained Deficit
Beginning balance ....... (765,729) (511,445) (465,689)
Net loss ................ (74,560) (254,284) (45,756)
--------- --------- ---------
Ending balance .......... (840,289) (765,729) (511,445)
--------- --------- ---------
Translation Adjustment
Beginning balance ....... 495 622 206
Translation adjustment .. (23) (127) 416
--------- --------- ---------
Ending balance .......... 472 495 622
--------- --------- ---------
Total Stockholders' Deficit $(447,608) $(373,025) $(118,614)
========= ========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-26
<PAGE> 131
SPECTRAVISION, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
------------- ----------- ----------
<S> <C> <C> <C>
Operating Activities:
Net loss......................................................$ (74,560) $ (254,284) $ (45,756)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization............................... 39,364 50,534 44,103
Loss on sale of manufacturing assets and inventory.......... -- -- 649
Payment of 1992 Restructuring costs......................... -- -- (9,236)
Other non-cash items:
Write-down of hotel contracts............................. -- 196,256 --
Technology and field service charge....................... -- -- 7,000
Deferred income tax benefit............................... (966) (28,472) (4,467)
Extraordinary loss from debt extinguishment............... 915 -- 2,699
Conversion of non-cash interest to secondary notes........ 18,494 33,973 --
Accretion of discount on senior notes..................... 8,609 18,240 4,074
Amortization and write-off of debt issuance costs......... 1,148 1,261 1,055
Loss on disposal of assets................................ 1,344 -- --
Exchange loss............................................. 247 581 833
Other items (net)......................................... (777) (948) 86
Increase (decrease) in:
Accounts Payable.......................................... 30,367 27,463 1,377
Accrued interest.......................................... (1,004) 816 (1,248)
Other accrued liabilities................................. (9,383) (2,138) 2,374
Income taxes payable...................................... (107) (370) (124)
Decrease (increase) in:
Accounts receivable....................................... 3,989 (2,504) 559
Prepaids and other assets................................. 1,024 (4,243) 2,282
------------- ------------ ----------
Total adjustments............................................. 93,264 290,449 52,016
------------- ------------ ----------
Net cash provided by operating activities............... 18,704 36,165 6,260
------------- ------------ ----------
Investing Activities:
Proceeds from sale of manufacturing assets and inventory.... -- -- 5,201
Decrease (increase) in raw materials........................ -- -- (313)
Cost of in-process systems, deferred contract concession
costs and capital expenditures............................ (16,131) (57,362) (36,097)
-------------- ----------- ----------
Net cash used in investing activities..................... (16,131) (57,362) (31,209)
-------------- ----------- ----------
Financing Activities:
Borrowings under Revolving Credit Facility.................. 7,396 12,500 --
Borrowings under Supplemental Bank Credit Facility.......... -- -- 23,000
Repayment of Supplemental Bank Credit Facility.............. -- -- (31,000)
Repayment of Bank Credit Facility........................... -- -- (180,120)
Repayment of other debt and capitalized leases.............. (6,366) (4,187) (1,432)
Borrowing under Foothill Revolving Credit Facility.......... 88,618 -- --
Repayment of Foothill Revolving Credit Facility............. (61,915) -- --
Repayment of Revolving Credit Facility...................... (20,811) -- --
Repayment of Canadian Bank Credit Facility.................. (7,350) -- --
Issuance of class B common stock............................ -- -- 84,150
Stock issuance costs........................................ -- -- (6,501)
Issuance of senior discount notes........................... -- -- 149,981
Payment of debt issuance costs.............................. -- -- (8,417)
------------- ------------ -----------
Net cash provided by financing activities................. (428) 8,313 29,661
-------------- ------------ -----------
Effect of exchange rate changes on cash....................... (24) (84) (20)
-------------- ------------ -----------
Net Increase (Decrease) in cash and cash equivalents.......... 2,121 (12,968) 4,692
Cash and cash equivalents at beginning of period.............. 1,317 14,285 9,593
-------------- ------------ -----------
Cash and cash equivalents at end of period....................$ 3,438 $ 1,317 $ 14,285
============== ============ ===========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-27
<PAGE> 132
SPECTRAVISION, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
SpectraVision, Inc., (the "Company" or "SpectraVision"), previously
known as SPI Holding, Inc., is a leading provider of in-room entertainment
services to the lodging industry and conducts all operations through
Spectradyne, Inc., and Spectradyne's wholly-owned foreign subsidiaries. Founded
in 1971, the Company originally developed and patented a system, known as
"SpectraVision," which provides in-room television viewing of recently released
major and other motion pictures on a pay-per-view ("PPV") basis.
From September 1979 until October 1987, Spectradyne, Inc.
("Spectradyne"), a Texas corporation, was a public company whose common stock
was traded on the NASDAQ over-the-counter market. In October 1987,
SpectraVision, Inc. acquired all of the outstanding stock of Spectradyne in a
highly leveraged transaction following which Spectradyne remained the surviving
entity and a wholly owned subsidiary of the Company (the "1987 Acquisition"). On
April 12, 1989, DP Acquisition Corp., ("DP"), a company controlled by Mr. Marvin
Davis, acquired all of the outstanding common stock of SpectraVision (the "1989
Acquisition"). In December, 1990, DP was dissolved into its parent, Rainbow
Company ("Rainbow"), a partnership controlled by Mr. Marvin Davis. On September
17, 1992, after obtaining the necessary votes on a prepackaged joint plan of
reorganization, the Company and certain of its subsidiaries, including SPI
Newco, Inc. ("SPI Newco") and Spectradyne filed a voluntary petition for
bankruptcy in the United States Bankruptcy Court for the District of Delaware.
On October 29, 1992, the Bankruptcy Court issued an order confirming
the plan of reorganization (the "Reorganization Plan"). On November 23, 1992,
the Reorganization Plan became effective, and the Company completed a
restructuring of its debt and capital structure (the "1992 Restructuring"). The
1992 Restructuring included, among other things, (i) the purchase by Rainbow of
4,995,864 shares of Class A Common Stock, (ii) the exchange of previously
outstanding 14.875% reset notes for $260.8 million of 11.5% Senior Subordinated
Reset Notes, due 2002 ("Reset Notes"), (iii) the exchange of previously
outstanding 14.75% debentures for newly issued Class B Common Stock and (iv) the
exchange of previously outstanding preferred stock for shares of Class B Common
Stock and Contingent Value Rights ("CVRs").
On October 5, 1993 the Company issued 7,650,000 shares (including
650,000 shares exercised under an over-allotment option) of its Class B Common
Stock and $209.5 million aggregate principal amount of 11.5% Senior Discount
Notes, due 2001 (the "Senior Notes") through a public offering, (the debt and
equity offerings referred to herein as the "1993 Offerings") resulting in net
proceeds to the Company of $223.8 million. The net proceeds from the 1993
Offerings were used to refinance an aggregate principal amount of $182.6 million
of outstanding obligations under the Company's previous senior bank loan (the
"Bank Credit Facility") and previous revolving credit loan (the "Supplemental
Credit Facility") and were used for general corporate purposes, including
funding capital expenditures required for the implementation of the EDS Service
and Technology Agreement and the Company's expansion plans. See Note 4, "EDS
Service and Technology Agreement". In connection with the common stock offering,
the underwriters exercised an over-allotment option and purchased 400,000 shares
of Class B Common Stock from Rainbow upon Rainbow's conversion of 400,000 shares
of Class A Common Stock. The Company did not receive any of the proceeds from
the shares sold by Rainbow.
F-28
<PAGE> 133
In early 1995, the Company determined that a financial restructuring
would be required to ensure the Company's long-term survival. The Company
conducted restructuring negotiations with representatives of its secured and
unsecured creditors during April and May 1995, working toward the development of
an overall restructuring plan. In June 1995, the Company concluded that a filing
under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") should be
made in order to preserve the value of its assets and to ensure that the
business had sufficient cash resources to continue operations while it completed
the financial restructuring process.
On June 8, 1995 (the "Petition Date"), SpectraVision, Inc., together
with SPI Newco, Inc., Spectradyne, Inc., Spectradyne International, Inc., and
Kalevision Systems, Inc.--USA, filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") and are
currently operating their respective businesses as debtors-in-possession
pursuant to sections 1107 and 1108 of the Bankruptcy Code. On June 23, 1995, a
single unsecured creditors' committee (the "Creditors' Committee") was appointed
by the U.S. Trustee for the District of Delaware pursuant to Section 1102 of the
Bankruptcy Code. The Creditors' Committee has the right to review and object to
certain business transactions and is expected to participate in the negotiation
of the Company's plan of reorganization. See Note 3, "Bankruptcy".
Unless the context otherwise requires, all references herein to the
Company are not intended to imply exact corporate relationships and include
SpectraVision, Inc. and its subsidiaries, including SPI Newco, Inc., its direct
subsidiary, and Spectradyne, Inc., the direct subsidiary of SPI Newco, Inc., as
well as, Spectradyne's foreign operating subsidiaries.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Business and consolidation. The Company owns and operates pay-per-view
movie systems and provides satellite delivered free-to-guest sports, news and
entertainment to the hotel industry. The Company has operating subsidiaries in
the United States, Canada, Mexico, Hong Kong, Singapore, Thailand and Australia.
The consolidated financial statements include the accounts of SpectraVision and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain prior year amounts have been
reclassified to conform with the current year presentation.
Cash Flows. For purposes of the Statements of Cash Flows, the Company
considers all certificates of deposit and debt instruments with original
maturities of three months or less to be cash equivalents.
Video systems, building and equipment. Video systems, building and
equipment are stated at cost. Capital leases are recorded at the inception of
the lease at the lower of the discounted present value of future minimum lease
payments or the fair value of the property. Installed video systems include
$44.0 million and $28.2 million of equipment, primarily televisions, under
capital leases at December 31, 1995 and 1994, respectively. Accumulated
amortization of such leased equipment was $12.6 million and $4.5 million
(ranging from 4 to 5 years) at December 31, 1995 and 1994, respectively.
Depreciation and amortization, which includes the amortization of assets
recorded under capital leases, is computed by the straight-line method over the
lesser of the estimated useful lives of the assets or the initial terms of the
leases. Depreciation and amortization expense related to video systems, building
and equipment, was $32.3 million for 1995, $36.0 million for 1994 and $31.2
million for 1993. Prior to installation, in-process video systems are stated at
cost, and depreciation of video systems begins when the system is
F-29
<PAGE> 134
installed and activated. The Company capitalized interest related to the
installation of video systems and related equipment of $3.0 million and $2.9
million for the years ended December 31, 1995 and 1994, respectively.
Intangible assets. In connection with the 1989 Acquisition, hotel
contracts were recorded at fair value and amortized on a straight-line basis
over 25 years. Accumulated amortization related to the hotel contracts was $2.6
million and zero at December 31, 1995 and 1994, respectively. As of December 31,
1995, the Company has separately classified certain contract costs related
primarily to the purchase of televisions as deferred contract concession costs.
Such costs are amortized on a straight-line basis over the anticipated period of
benefit, which is generally five to seven years. As of December 31, 1994, such
contract costs were included in Video Systems and have been reclassified to
conform to the current year presentation. Accumulated amortization related to
deferred contract concession costs was $2.6 million and $1.2 million at December
31, 1995 and 1994, respectively. Amortization expense related to hotel contracts
and deferred contract concession costs was $7.1 million for 1995, $13.7 million
for 1994 and $12.5 million for 1993. The Company routinely assesses the
propriety of the carrying amount of hotel contracts and deferred contract
concession costs through a future cash flows method as well as the amortization
periods to determine whether circumstances warrant adjustments to the carrying
amounts or estimated useful lives. At December 31, 1994 the carrying amount of
hotel contracts was decreased. See Note 18, "Intangible Assets." The assessment
of the recoverability of intangible assets will be adversely impacted if
estimated future operating cash flows are not achieved.
Maintenance and repairs. Maintenance and repairs are charged to expense
as incurred. Renewals and betterments are capitalized. When assets are sold,
retired or otherwise disposed of, the applicable costs and accumulated
depreciation are removed from the accounts, and the resulting gains or losses
are included in results of operations.
Income taxes. Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Foreign currency translation. For translation of its international
currencies, the Company has determined that the local currencies of its
international subsidiaries are the functional currencies. Assets and liabilities
of the international subsidiaries are translated at the rate of exchange in
effect at period end. Results of operations are translated at the approximate
rate of exchange in effect during the period. The translation adjustment is
shown as a separate component of stockholders' deficit. The US dollar
denominated balances of the international subsidiaries are restated at the rate
of exchange at year end and any resulting gains or losses, other than
gains/losses on intercompany balances, are included in the results of
operations.
Fair value of financial instruments. The following table presents the
carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994. Cash and cash equivalents, accounts
receivable and accounts payable (post-petition) have been excluded since the
carrying amounts reported in the accompanying consolidated statements of
financial position approximate fair values.
F-30
<PAGE> 135
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Financial liabilities:
Revolving Credit Facility (Note 7)............................ $ -- $ -- $ 12,500 $ 12,500
Canadian Bank Credit Facility (Note 7)........................ -- -- 7,350 7,350
Senior Discount Notes (Note 7)................................ 180,904 N/A 172,295 75,800
Senior Subordinated Reset Notes (Note 7)...................... 313,262 N/A 294,768 29,500
Contingent Value Rights (Note 10)............................. 20,000 N/A 20,000 800
Foothill Revolving Credit Facility (Note 7)................... 26,703 26,703 -- --
</TABLE>
The fair value of the Foothill Revolving Credit Facility at December
31, 1995 approximated the carrying amount as the facility bears interest at a
current market rate. Due to the extenuating circumstances involving the Senior
Discount Notes, Senior Subordinated Reset Notes, the Contingent Value Rights,
other pre-petition liabilities as a result of the Chapter 11 filings and the
anticipated reorganization, it is not practicable to estimate the fair value of
these debts as of December 31, 1995.
The fair value of the Revolving Credit Facility and the Canadian Credit
Facility at December 31, 1994 approximated the carrying amount because the
facilities bore interest at current market rates. The fair value of the Senior
Discount Notes and Reset Notes at December 31, 1994 was estimated using market
transaction information. The fair value of the Contingent Value Rights at
December 31, 1994 was based upon quoted market prices.
New Accounting Standards. The Financial Accounting Standards Board
(FASB) has issued SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, which will become effective
for fiscal years beginning in 1996. The effect of this Statement, if implemented
currently, would not be material to the Company's financial statements.
Use of Estimates. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Because of the use of
estimates inherent in the financial reporting process, actual results could
differ from those estimates.
NOTE 3 - BANKRUPTCY
In early 1995, the Company determined that a financial restructuring
would be required to ensure the Company's long-term survival. The Company
conducted restructuring negotiations with representatives of its secured and
unsecured creditors during April and May 1995, working toward the development of
an overall restructuring plan. In June 1995, the Company concluded that the
Chapter 11 filing should be made in order to preserve the value of its assets
and to ensure that the business had sufficient cash resources to continue
operations while it completed the financial restructuring process.
On the Petition Date, SpectraVision, Inc., together with SPI Newco,
Inc., Spectradyne, Inc., Spectradyne International, Inc., and Kalevision
Systems, Inc.--USA, filed voluntary petitions for reorganization under Chapter
11 in the Bankruptcy Court and are currently operating their respective
businesses as debtors-in-possession pursuant to sections 1107 and 1108 of the
Bankruptcy Code. On June
F-31
<PAGE> 136
23, 1995, the Creditors' Committee was appointed by the U.S. Trustee for the
District of Delaware pursuant to Section 1102 of the Bankruptcy Code. The
Creditors' Committee has the right to review and object to certain business
transactions and is expected to participate in the negotiation of the Company's
plan of reorganization.
As of the Petition Date, actions to collect pre-petition indebtedness
have been automatically stayed pursuant to Section 362 of the Bankruptcy Code
(subject to order of the Bankruptcy Court) and, in certain circumstances, other
pre-petition contractual obligations may not be enforced against the Company. In
addition, the Company may reject pre-petition executory contracts and lease
obligations, and parties affected by these rejections may file claims with the
Bankruptcy Court in accordance with the reorganization process. Substantially
all liabilities as of the Petition Date are subject to being paid or compromised
under a plan of reorganization to be voted upon by all impaired classes of
creditors and equity security holders and approved by the Bankruptcy Court.
In March 1996, the Company employed Salomon Brothers Inc. as investment
bankers and financial advisors. The agreement with Salomon Brothers Inc. calls
for a monthly advisory fee and an additional fee ("Transaction Fee") upon the
consummation of a transaction resulting in the sale of the Company. The
Transaction Fee will be a percentage of the total purchase price.
The Company has been actively pursuing several avenues of restructuring
its financial position to achieve the maximum return for all parties involved.
In January 1996 the Company solicited bids from third parties for financial
restructuring proposals which would allow the Company to emerge from bankruptcy.
The Company received five bids and intends to select one or more such proposals
and, with the Bankruptcy Court's approval, emerge from bankruptcy in 1996.
However, there can be no assurance that any agreement for a business combination
will be reached or that any agreement will be approved by the creditors or the
Bankruptcy Court.
The accompanying consolidated financial statements have been prepared
on a going concern basis, which assumes continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Chapter 11 filings and circumstances relating to
these events, such realization of assets and liquidation of liabilities is
subject to significant uncertainty. In addition, the Company's independent
public accountants included in their report on the Company's consolidated
financial statements, an explanatory paragraph that describes the uncertainty
about the Company's ability to continue as a going concern.
As a Chapter 11 debtor, the Company may sell (subject, in certain
circumstances, to Bankruptcy Court approval) or otherwise dispose of assets, and
liquidate or settle liabilities for amounts other than those reflected in the
consolidated financial statements. The amounts reported in the consolidated
financial statements do not give effect to any adjustments to the carrying value
of assets or amounts of liabilities that might result as a consequence of
actions taken pursuant to a plan of reorganization. If the Company is unable to
obtain confirmation of a plan of reorganization, its creditors, equity security
holders or the United States Trustee may seek a liquidation of the Company by
conversion to a Chapter 7 bankruptcy proceeding. In that event, it is likely
that additional liabilities and claims would be asserted which are not presently
reflected in the consolidated financial statements. In the event of a
liquidation, the amounts reflected in the consolidated financial statements
would be subject to adverse adjustments in amounts which, while not presently
determinable, could be material.
Financial accounting and reporting during a Chapter 11 proceeding is
prescribed in Statement of Position No. 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Accordingly, certain
pre-petition obligations, which may be impaired, have been classified
F-32
<PAGE> 137
as obligations subject to Chapter 11 reorganization proceedings and include the
following estimated amounts at December 31, 1995 (dollars in thousands):
<TABLE>
<S> <C>
Debt instruments:
11.5% Senior Discount Notes Due 2000....................................$ 180,904
11.65% Senior Subordinated Reset Notes due 2001......................... 313,262
-----------
Total debt insturments................................................ 494,166
Accrued expenses:
Interest................................................................ 2,411
Liabilities............................................................. 4,549
Compensation............................................................ 885
-----------
Subtotal.............................................................. 7,845
Capital lease obligations................................................. 22,587
Accounts payable.......................................................... 10,918
EDS and EDS affiliates (Note 4)........................................... 49,071
-----------
Total liabilities subject to settlement under reorganization............$ 579,587
===========
Contingent value rights subject to settlement under reorganization........$ 20,000
===========
</TABLE>
Pursuant to SOP 90-7, the Company has discontinued, effective June 8,
1995, the accrual of interest on pre-petition debt that is unsecured or
estimated to be undersecured.
In September 1995, in connection with the Company's bankruptcy,
management approved a company restructuring that it believes is required to
maintain the viability of the business. This restructure will result in, among
other things, discontinuing service to a number of unprofitable hotels with
monthly revenues of approximately $256,000 and $289,000 for 1995 and 1994,
respectively, and will further result in the elimination of certain positions
within the Company. It is currently anticipated such actions will be completed
in 1996. As a result, the Company recorded a restructure charge of $6.0 million
in 1995. Of this total, $.9 million relates to the cost of de-installing certain
hotels and $1.7 million was recorded for estimated losses on the disposal of
de-installed equipment. The Company also recorded $.1 million in employee
severance costs which will be incurred in the restructure process. The Company
recorded an additional charge of $2.3 million which represents the write-off or
abandonment of other fixed assets and $1.0 million for other costs associated
with the restructure process.
Total bankruptcy reorganization items of $7.6 million for the twelve
months ended December 31, 1995 include normal bankruptcy, professional and
miscellaneous charges of $1.6 million and the restructure charges discussed
above.
In addition, as a result of a review during the third quarter of 1995,
the Company recorded several adjustments to reflect the impact of certain
changes in estimates that are not related to operations in 1995. These changes
in estimates totalled $2.6 million. Such adjustments related primarily to
revisions in the Company's prior estimates of amounts due Electronic Data
Systems Corporation ("EDS") and chargebacks to EDS under the EDS Services and
Technology Agreement of $1.7 million and a $.9 million reduction for ASCAP fees.
The $1.7 million included additional provisions for doubtful accounts of $.2
million, a reserve of $.8 million of obsolete inventory held by a third party
and an increase related to certain liabilities of $.7 million. The $.7 million
in increased liabilities included $.4 million for prior years' employee related
sick pay liability and other miscellaneous adjustments of $.3 million.
F-33
<PAGE> 138
The total effect of the bankruptcy reorganization items and changes in
estimates was to increase net loss for the twelve months ended December 31, 1995
by approximately $10.2 million or $.43 per common share.
NOTE 4 - EDS SERVICE AND TECHNOLOGY AGREEMENT
On July 28, 1993, the Company entered into a ten year exclusive
agreement with EDS to install the first digital video system in the hotel PPV
industry. Under this agreement, EDS and the Company began installing a
Compressed Digital Video ("CDV") satellite movie transmission system, STARPATH,
throughout most of the Company's current and future U.S. hotel sites. STARPATH
replaces the Company's existing analog technology, which relies exclusively on
videotape players located at each hotel or studio location and which technology
has been used since the Company's inception in 1971. EDS and the Company have
also installed a new digital video on-demand movie system utilizing video file
servers, "Digital Guest Choice" in select hotels. Also, included in the STARPATH
technology is the Company's development of a UNIX based integrated computer
system ("SPEXIS") which is installed in conjunction with the Company's PPV
systems and will enable the Company to provide enhanced interactive services. In
connection with the installation of the STARPATH system, EDS and the Company
entered into a contract for EDS to perform all of the field service functions
beginning in April 1994. The transition of the Company's field service to EDS
involved numerous difficulties for field service personnel in maintaining the
normal level of repairs and maintenance of existing PPV rooms concurrent with
rapid installation of the CDV sites.
The Company pays EDS (i) a fixed fee for network services which
includes satellite uplink, customer assistance service and management
information services; (ii) a fixed fee (which fee increases and decreases as the
number of the Company's hotels served increases and decreases) for field
services and maintenance of the Company's hotel systems; and (iii) a fixed
monthly fee for transponder access, time and related services for transmission
of movies. On February 1, 1996, the Bankruptcy Court approved a modification to
the EDS Service and Technology Agreement whereby the field service and the MIS
services operations would transition back to the Company. In addition, this
modification continues certain other lease agreements and allows for the
deferral of certain payments to EDS. Assuming a fixed number of hotels served of
1,750 sites, the contracted service fees for the modified service agreement
would be approximately $22.0 million, $17.6 million, and $9.9 million for the
years ended December 31, 1996, 1997, 1998, respectively, and $39.2 million
thereafter through September 30, 2003. The Company also has committed to
purchase certain system components, such as personal computers, integrated
receiver/decoders ("IRDs") and antennae from EDS or its affiliate in connection
with deployment of the CDV Satellite Network and digital file servers in
connection with Digital Guest Choice. The Company has purchased components of
this type from EDS, in the amount of approximately $3.4 million, $22.6 million,
and $2.5 million for the years ended 1995, 1994 and 1993, respectively.
At December 31, 1994 the Company had amounts payable to EDS for
equipment purchased during 1994 in connection with the technology change,
primarily IRDs, antenna and Digital Guest Choice file servers in the amount of
$16.0 million. On January 1, 1995 the Company entered into a special provisions
agreement (the "Special Provisions Agreement") with regards to $16 million of
outstanding payables for purchases of components ("EDS Equipment Lease") and
$24.6 million due for services rendered under the EDS Service and Technology
Agreement ("EDS Services Note"). The EDS Services Note accrued interest at 11.5%
per annum with payment due in full on or before August 31, 1995. Additionally,
the Company was required to make minimum payments of $500,000 for each of
January, February and March 1995 for current (1995) service fees. To the extent
these current fees exceeded the payments made during this period, the excess was
due and payable on August 31, 1995. Notwithstanding
F-34
<PAGE> 139
the above, 10% of the proceeds from the sale of any of the Company's significant
assets, as defined, must be applied to the EDS Services Note. As a result of the
Company's Chapter 11 filing, payment of the EDS Services Notes has been stayed
and such amount has been classified as a pre-petition liability. As a result of
the EDS Equipment Lease, $16.0 million of system components classified in video
systems at December 31, 1994, have been accounted for as an operating lease
effective January 1, 1995.
As a result of the changes in technology and field service operations,
the Company accrued charges in the amount of $6.8 million in its results of
operations for the year ended December 31, 1993 for the write-off of obsolete
equipment (primarily videotape players and obsolete microprocessing equipment),
and personnel related costs associated with the transition of the Company's
field service operations. Approximately $3.9 million were non-cash charges
attributable to the write-down of obsolete equipment and $2.9 million was due to
costs of severance and incentives to field operation personnel and costs related
to the closing of field service offices. Upon execution of the EDS Service and
Technology Agreement, the Company's management determined the impact on
operations including obsolete equipment and personnel reductions and accordingly
recorded the estimation of these costs in the results of operations for 1993.
The cash charges were paid during 1994.
NOTE 5 - STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Cash interest paid..........................................$ 3,513 $ 3,643 $ 43,854
State and foreign income taxes paid......................... 126 612 2,191
Non-cash investing and financing activities:
Capital lease obligation incurred on lease of equipment... 6,757 13,484 12,915
EDS equipment lease (Note 4).............................. 16,000 16,000 --
</TABLE>
NOTE 6 - LOSS PER COMMON SHARE
The loss per common share is calculated on the weighted average number
of common shares outstanding for the period. Common stock warrants and stock
options are not included in the computation as their effect is anti-dilutive.
See Note 11, Part II, Item 8, "Stockholders' Deficit". The weighted average
number of common shares outstanding for each period are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR AVERAGE SHARES
------------------------- --------------------
<S> <C>
1995..................... 23,983,905
1994..................... 23,983,905
1993..................... 18,178,289
</TABLE>
NOTE 7 - DEBT
Foothill Revolving Facility: On June 9, 1995, Spectradyne entered into
a loan and security agreement with Foothill Capital Corporation to provide
debtor- in-possession financing (the "Foothill
F-35
<PAGE> 140
Loan"). The Foothill Loan allows for revolving advances up to a maximum amount
of $40 million and bears interest payable monthly at prime plus 1.75% with a
floor of 8.5%. Proceeds from initial advances under the Foothill Loan were used
to repay outstanding balances and accrued interest under the Company's revolving
credit facility and the Canadian Bank Credit Facility (referred to herein as the
"Old Credit Facilities"). The Foothill Loan matures June 15, 1997. At December
31, 1995 there was $26.7 million outstanding under the Foothill Loan.
The Foothill Loan is secured by all of the assets of Spectradyne and
certain subsidiaries, all of the outstanding stock of the Company's subsidiaries
and the guarantees of SpectraVision and certain subsidiaries. The Foothill Loan
contains various and customary financial and operating covenants including
limitations on additional indebtedness and limitations on capital expenditures.
At December 31, 1995 the Company was not in compliance with the financial
covenants relating to its operating cash flow and its fixed charges to cash flow
ratio requirements. On March 22, 1996, the Company obtained a waiver from
Foothill Capital Corporation for the December 31, 1995 covenant violations.
However, the Company does not expect that it will be in compliance with the
financial covenants relating to its operating cash flow and its fixed charges to
cash flow ratios in 1996. Accordingly, in April 1996, Foothill Capital
Corporation could elect to terminate the revolving line of credit, demand
immediate payment of all outstanding balances and foreclose on the Company's
assets securing the revolving line of credit if payment is not made. In this
event, if the Company cannot obtain alternative financing, it may be forced to
liquidate in a Chapter 7 bankruptcy proceeding.
Revolving Credit Facility: Concurrent with the 1993 Offerings, the
Company obtained a revolving credit facility with borrowing availability of $20
million with two financial institutions (the "Revolving Credit Facility"). The
Revolving Credit Facility includes a letter of credit sub-facility of up to $10
million including a letter of credit in the amount of $7.5 million (the "Standby
Letter of Credit") supporting the Canadian Bank Credit Facility, described
below. The Revolving Credit Facility matured on October 5, 1997. All outstanding
loans bore interest at the Company's option at either (i) the highest of prime
rate plus 1.25%, CD rate plus 2.25% and federal funds rate plus 1.75% or (ii)
Eurodollar rate plus 3.75%. Interest on loans bearing interest at the rate set
forth in clause (i) above were payable quarterly in arrears and interest on
Eurodollar loans were payable at the earliest of either three months or the end
of the applicable interest period. At December 31, 1994 there was $12.5 million
outstanding under the Revolving Credit Facility at 10.75%.
The Revolving Credit Facility was secured by a pledge of the
outstanding stock of Spectradyne and SPI Newco and assets of the Company and all
of its direct and indirect subsidiaries. The Revolving Credit Facility was
senior to the Reset Notes and CVRs and pari passu in right of payment with the
Senior Notes.
The Revolving Credit Facility contained various customary covenants
including the maintenance of certain financial ratios, limitation on capital
expenditures and capital leases, limitations on dividends or distributions on
equity and other junior securities of the Company and prohibited the Company
from making any cash payments with respect to the CVRs.
Outstanding borrowings under the Revolving Credit Facility were repaid
in June 1995 with initial proceeds from the Foothill Loan.
Canadian Bank Credit Facility. The Canadian Bank Credit Facility
provided borrowings up to US$7.35 million. The loan allowed for Eurodollar Rate
loans, as selected by the Company, in denominations of not less than $1 million
for a period of not less than one month and not more than five years. The loans
bore interest at the Eurodollar rate plus .75%, payable as the Eurodollar loans
matured
F-36
<PAGE> 141
or quarterly, whichever occurred earlier. At December 31, 1994, the Company had
$7.35 million in Eurodollar loans at 6.75%. The loan was secured by the $7.5
million Standby Letter of Credit provided by the Revolving Credit Facility. In
May 1995, the outstanding balance and accrued interest were repaid.
Senior Discount Notes. At October 5, 1993 the Senior Notes were issued
at a substantial discount from their $209.5 million principal amount generating
gross proceeds to the Company of $150.0 million. The Senior Notes mature October
1, 2001 and accrue interest at 11.5% commencing on October 1, 1996 and are
payable semi-annually on April 1 and October 1, beginning April 1, 1997.
On or after October 1, 1997, the Company, at its option, may redeem the
Senior Notes in whole or in part at the following redemption prices (expressed
as a percentage of principal amount) together with accrued and unpaid interest
to the redemption date, if redeemed during the twelve-month period beginning
October 1 of the years indicated below:
<TABLE>
REDEMPTION
YEAR PRICE
------------------ --------------
<S> <C>
1997.............. 104.929%
1998.............. 103.286%
1999.............. 101.643%
2000.............. 100.000%
</TABLE>
The Senior Notes contain certain covenants which, among other things,
(a) limit the payment of dividends and certain other restricted payments by both
the Company and its subsidiaries, (b) require the purchase by the Company of the
Senior Notes at the option of the holder upon a change of control, as defined,
(c) limit additional indebtedness and (d) limit transactions with certain
affiliates. The Senior Notes are guaranteed by SPI Newco and Spectradyne and are
secured on a subordinated basis to the Revolving Credit Facility by a pledge of
all of the outstanding stock of SPI Newco and Spectradyne and certain other
assets.
The Senior Notes are senior to the Reset Notes and CVRs and pari passu
in right of payment to the Revolving Credit Facility.
In accordance with SOP 90-7, the accruing of interest on the Senior
Notes was suspended on June 8, 1995 when the Company filed for protection under
Chapter 11 of the Federal Bankruptcy Act. The unrecorded accrued interest since
June 8, 1995 is $12.2 million.
Other Debt. Other debt consists of a series of collateralized bank
loans and other installment debt with fixed and variable interest rates to be
repaid in monthly installments of principal and interest over a period ending
September 1997.
Senior Subordinated Reset Notes. The Reset Notes, issued in November
1992, initially carried an interest rate of 11.50% per annum payable
semi-annually in cash on June 1 and December 1. On November 23, 1993 (the "Reset
Date"), the interest rate was reset, in accordance with the Reset Note
indenture, to an interest rate determined to cause the market value of the Reset
Notes to equal 101.7% of the principal amount. On the Reset Date, the interest
rate was reset to 11.65% per annum.
In accordance with the Reset Note indenture, the Company elected to pay
interest on the Reset Notes on June 1, 1994, December 1, 1994 and June 1, 1995
through the issuance of additional Reset Notes in the amount of $34.0 million in
1994 and $18.5 million in 1995 (the "PIK Option"). The annual
F-37
<PAGE> 142
interest rate on the Reset Notes for the interest period for which such option
was exercised was increased to 12.65%. On December 1, 1995 and each interest
payment thereafter, the Reset Note indenture requires interest to be paid in
cash.
In accordance with SOP 90-7, the accruing of interest on the Reset
Notes was suspended on June 8, 1995 when the Company filed for protection under
Chapter 11 of the Federal Bankruptcy Act. The unrecorded accrued interest since
June 8, 1995 is $21.3 million.
The Reset Notes are redeemable at the following redemption prices
(expressed as percentages of principal amount) plus accrued interest to the
redemption date, if redeemed during the 12-month period beginning December 1 of
the years indicated below:
<TABLE>
REDEMPTION
YEAR PRICE
------------------ --------------
<S> <C>
1997.............. 105.00%
1998.............. 103.75%
1999.............. 102.50%
2000.............. 101.00%
2001.............. 100.00%
</TABLE>
The Reset Notes contain certain covenants which, among other things,
(a) limit the payment of dividends and certain other restricted payments by both
the Company and its subsidiaries, (b) require the purchase by the Company of the
Reset Notes at the option of the holder upon a change of control, (c) limit
additional indebtedness and (d) limit transactions with certain affiliates. The
Reset Notes are senior in right of payment to the CVRs and junior in right of
payment to the Revolving Credit Facility, the Canadian Bank Credit Facility and
the Senior Notes. The Reset Notes are secured on a subordinated basis, by a
pledge of the capital stock of both Spectradyne and SPI Newco and subordinated
guarantees of Spectradyne and SPI Newco.
Interest Rate Protection Agreement. The Company entered into an
interest rate protection agreement with Wells Fargo Bank on June 30, 1993, the
lender under the Bank Credit Facility, for a period of one year on a principal
amount up to the lesser of $75 million or 50% of the outstanding balance under
the Bank Credit Facility. Under the terms of the agreement, the Company would
have received compensation when the 90 day LIBOR (London Interbank Offered Rate)
exceeded 6.00% (ceiling) and the Company paid compensation when LIBOR is less
than 3.31% (floor). Compensation paid or received was recognized as interest
rates deviate beyond the stated rates. The Interest Rate Protection Agreement
expired June 30, 1994. For the twelve months ended December 31, 1994 and 1993,
additional interest expense under this agreement and a previous similar
agreement was $23,000, and $1.7 million, respectively. The Company currently has
no financial derivatives.
In connection with the Foothill Loan in 1995, a portion of the proceeds
was used to extinguish the Revolving Credit Facility originally due in 1997. The
unamortized debt issuance cost of $.9 million was expensed resulting in an
extraordinary loss on extinguishment of debt. In connection with the 1993
Offerings, a portion of the proceeds was used to extinguish the Bank Credit
Facility and Supplemental Credit Facility originally due in 1998. The
unamortized debt issuance cost of $2.7 million was expensed resulting in an
extraordinary loss on extinguishment of debt.
F-38
<PAGE> 143
The following table indicates future maturities of all debt, excluding
liabilities subject to settlement under reorganization and minimum annual
rentals under capital lease obligations:
<TABLE>
<S> <C>
1996................... $ --
1997................... 26,703
1998................... --
1999................... --
2000................... --
After 2000............. --
-------------
$ 26,703
=============
</TABLE>
F-39
<PAGE> 144
NOTE 8 - INCOME TAXES
The income tax benefit attributable to continuing operations for the
years ended December 31, 1995, 1994 and 1993 consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
CURRENT:
U.S. Federal........... $ -- $ -- $ --
State and local........ 41 (812) 1,275
Foreign................ 85 364 464
---------- ----------- -----------
$ 126 $ (448) $ 1,739
========== =========== ===========
DEFERRED:
U.S. Federal........... (693) $ (18,519) $ (3,325)
State and local........ (273) (9,946) (1,044)
Foreign................ -- (7) (98)
---------- ----------- -----------
$ (966) $ (28,472) $ (4,467)
========== =========== ===========
</TABLE>
Income tax benefit for the years ended December 31, 1995, 1994, and
1993 differed from the amount computed by applying the U.S. Federal income tax
rate of 35 percent in 1995, 1994 and 1993 to the loss before income taxes and
extraordinary item as a result of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------- ----------- ----------
<S> <C> <C> <C>
Computed "expected" tax benefit $ (26,070) $ (99,122) $ (16,025)
Change in income tax benefit resulting from:
State income taxes..................................... (341) (6,993) 150
Current year loss for which no benefit is recognized... 25,737 76,963 10,112
Other, net............................................. (166) 232 3,035
------------- ----------- ----------
Total................................................ $ 840 $ (28,920) $ (2,728)
============== =========== ==========
</TABLE>
F-40
<PAGE> 145
At December 31, 1995 and 1994 the tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and deferred
tax liabilities are presented below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
------------ ---
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 114,836 $ 99,764
Tax benefit of deferred state taxes........................... 865 1,063
Original issue discount....................................... 33,485 25,034
Other......................................................... 9,454 9,226
------------ -----------
Total gross deferred tax assets............................... 158,640 135,087
Less valuation allowance.................................... (139,432) (113,375)
------------ -----------
Net deferred tax assets..................................... 19,208 21,712
Deferred tax liabilities:
Intangible assets, principally due to differences in basis.... 18,961 20,000
Video systems and fixed assets, principally due 3,222 6,569
to differences in depreciation..............................
Other......................................................... 2,492 1,900
------------ -----------
Total gross deferred tax liabilities.......................... 24,675 28,469
------------ -----------
Net deferred tax liability.................................... $ 5,467 $ 6,757
============ ===========
</TABLE>
At January 1, 1995 the valuation allowance for deferred tax assets was
$113.4 million. The net change in the total valuation allowance for the years
ended December 31, 1995 and 1994 were increases of $26.1 million and $75.1
million, respectively. The Company has recognized deferred tax assets to the
extent such assets can be realized through future reversals of existing taxable
temporary differences. At December 31, 1995, subsequently recognized tax
benefits relating to the valuation allowance for deferred tax assets will be
reported in the consolidated statement of operations.
At December 31, 1995, SpectraVision had an unused net operating loss
("NOL") carryforward for federal income tax purposes of $328 million which will
expire in years 2002 through 2010. However, because the consummation of the 1992
Restructuring triggered an ownership change of the Company on November 23, 1992
(the "Effective Date"), the Company's pre-ownership change NOL carryforwards are
subject to certain limitations under Section 382 of the Internal Revenue Code of
1986, as amended (the "Code"). The Company has applied Section 382(l)(6) of the
Code which will limit the Company's use of its pre-ownership change NOLs
(approximately $220 million) in each taxable year following the 1992
Restructuring. The Company has calculated the annual limitation by taking the
product of (i) the long-term tax-exempt rate prevailing on the Effective Date
and (ii) the value of the Company's stock immediately after the Effective Date.
The Company also has available any NOLs not utilized from post-ownership change
taxable years. The Company currently estimates the annual amount available under
this limitation to be approximately $14 million.
NOTE 9 - STOCK OPTIONS
F-41
<PAGE> 146
The 1994 Management Incentive Equity Plan (the "1994 Option Plan") was
approved by stockholders on May 25, 1994. The 1994 Option Plan provides that
officers and key employees may be granted either nonqualified stock options or
incentive stock options for the purchase of the Company's Class B Common Stock,
and also authorized the issuance of stock appreciation rights, either coupled
with or independent of outstanding or concurrently granted stock options. Up to
1,800,000 shares of the Company's common stock may be issued upon exercise of
options and rights granted under this plan. The compensation committee of the
board of directors administers the plan.
Stock options vest at the rate of 25 percent per year commencing on the
first anniversary of the date of grant, except for the initial options granted,
and expire ten years from the date of grant. On February 2, 1994, subject to
stockholder approval of the 1994 Option Plan, options with respect to 359,756
shares were granted (the "Initial Options"). The Initial Options vested on the
date of stockholder approval and 25 percent per year on each subsequent
anniversary date of grant. In connection with certain employment contracts,
options with respect to 460,000 shares were granted during 1994.
All outstanding options for 3,060 shares under the 1988 stock option
plan became fully vested upon the change of control of the Company as a result
of the 1989 Acquisition on April 12, 1989. Pursuant to the terms of the purchase
agreement dated April 12, 1989, DP purchased options with respect to 3,010
shares from several employees of the Company in 1989, for a price of $402.70 per
option. Options were granted at an exercise price of $37.30, (restated for the
effects of the 1-for-20 reverse stock splits on September 13, 1991 and June 30,
1992) which was the fair market value of the Company's common stock on the date
of grant. The options for 3,010 shares of Class B Common Stock held by DP were
transferred to Rainbow on December 20, 1990, and are outstanding and unexercised
at December 31, 1995.
The following table summarizes transactions under the Company's 1988
and 1994 stock option plans:
<TABLE>
<CAPTION>
SHARES UNDER EXERCISE PRICE
OPTION PER OPTION
------------ --------------
<S> <C> <C>
Outstanding at December 31, 1992....................................... 3,010 $ 37.30
Granted.............................................................. -- --
Exercised............................................................ -- --
Canceled............................................................. -- --
Outstanding at December 31, 1993....................................... 3,010 $ 37.30
Granted.............................................................. 819,756 $7.875 - $0.375
Exercised............................................................ -- --
Canceled............................................................. (151,100) $ 7.875
--------
Outstanding at December 31, 1994....................................... 671,666 $37.30 - $0.375
Granted.............................................................. -- --
Exercised............................................................ -- --
Canceled............................................................. -- --
--------
Outstanding at December 31, 1995....................................... 671,666 $37.60 - $0.375
--------
Exercisable at December 31, 1995....................................... 671,666 $37.50 - $0.375
========
</TABLE>
F-42
<PAGE> 147
NOTE 10 - CONTINGENT VALUE RIGHTS
In November 1992, the Company issued 3,269,544 CVRs. Holders of the
CVRs were entitled to a payment (the "Mandatory Redemption Payment") on November
23, 1995 (the "Mandatory Redemption Date"). For each CVR, the holder was to have
received a payment equal to the lesser of $6.12 (the "Ceiling Price") or the
amount, if any, by which $30.59 (the "Target Price") exceeded the current market
value per share of Class B Common Stock, subject to certain adjustments. The
Mandatory Redemption Payment was to be made in cash, except where agreements
under senior obligation of the Company prohibited cash payments. The Company has
recorded the maximum obligations as temporary equity. These payments have been
stayed as a result of the Chapter 11 filings.
NOTE 11 - STOCKHOLDERS' DEFICIT
Class A and Class B Common Stock. The Company has authorized 6,000,000
shares of Class A Common Stock and 144,000,000 shares of Class B Common Stock.
Holders of Class A Common Stock are entitled to ten votes for each share and
holders of Class B Common Stock are entitled to one vote for each share. Holders
of Class A Common Stock have the right to elect nine members of the Company's
Board of Directors and holders of Class B Common Stock have the right to elect
five members of the Company's Board of Directors. Except as described above, the
Class A Common Stock and the Class B Common Stock have equal rights and
privileges and rank equally, share ratably, and are identical in all respects as
to all matters.
Each share of Class A Common Stock is convertible into one fully paid
and nonassessable share of Class B Common Stock at the option of the holder
thereof. Upon transfer by the holder of Class A Common Stock, other than to a
permitted transferee (as defined), each share of Class A Common Stock shall
automatically be converted into one share of Class B Common Stock. In the event
of a stock split, reverse stock split or stock dividend, the holders of Class A
Common Stock will receive in exchange thereof the number of shares of Class B
Common Stock which such holder would have been entitled to receive had the
conversion occurred prior to such subdivision, combination or distribution.
The indentures governing the Reset Notes, the Senior Notes and the
Foothill Loan limit payment of cash dividends on both Class A and Class B Common
Stock.
The following table shows capital stock transactions in share amounts
during 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
Class A Common Stock:
Beginning of the year................................... 4,593,526 4,745,526 5,145,526
Converted to Class B Common Stock....................... -- (152,000) (400,000)
-------------- ------------- -------------
End of year............................................. 4,593,526 4,593,526 4,745,526
============== ============= =============
Class B Common Stock:
Beginning of the year................................... 19,390,379 19,238,379 11,188,379
Issued in 1993 Offering................................. -- -- 7,650,000
Converted to Class B Common Stock....................... -- 152,000 400,000
-------------- ------------- -------------
End of year............................................. 19,390,379 19,390,379 19,238,379
============== ============= =============
</TABLE>
F-43
<PAGE> 148
Warrants. A total of 4,322,260 warrants were issued to former holders
of Spectradyne Common Stock who affirmatively elected to receive such warrants
in lieu of cash at the 1987 Acquisition. The warrants became exercisable on
October 8, 1992 and expire on October 8, 1997. Due to the 1-for-20 reverse stock
splits on September 13, 1991 and June 30, 1992, the tender of 400 warrants at a
stated exercise price of $0.13 per warrant or an aggregate exercise price of
$52.00 are required to purchase one share of Class B Common Stock. At December
31, 1995 there were 4,322,260 warrants outstanding.
NOTE 12 - COMMITMENTS
Capital and Operating Leases: SpectraVision leases certain office space
and equipment used in operations under operating lease agreements. The Company
finances certain equipment used in its PPV systems, primarily televisions and
video racks, under capital leases. Rental expense for operating leases totaled
$7.0 million, $5.1 million, and $4.0 million in 1995, 1994 and 1993,
respectively. Future minimum annual rentals under lease arrangements are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR CAPITAL LEASES OPERATING LEASES
- -------------- --------------- ----------------
<C> <C> <C>
1996.......... $ 9,148 $ 7,557
1997.......... 7,190 7,083
1998.......... 7,383 828
1999.......... 4,455 270
2000.......... 911 133
Thereafter.... -- 366
--------------- ----------------
$ 29,087 $ 16,237
================
Less imputed interest... (4,536)
---------------
Total...............$ 24,551
===============
</TABLE>
In connection with the EDS Service and Technology Agreement, certain
operating lease payments are reimbursable to the Company by EDS. As a result of
the modification of this agreement on February 1, 1996, the reimbursed rents
portion of the agreement will be terminated. The amount of reimbursed rents
included in Operating Leases above will be $1,565 for the year ended December
31, 1996. See Note 4, "EDS Service and Technology Agreement" for additional
description of other commitments.
NOTE 13 - CONTINGENCIES
On October 20, 1994, a purported class action complaint was filed in
the United States District Court alleging misrepresentations and omissions
concurrent and following the 1993 Offerings. The plaintiffs seek unspecified
damages, prejudgment interest, and fees and costs of the plaintiffs. While the
Company believes that it has meritorious defenses to the claims and intends to
vigorously defend itself, an unfavorable resolution could have a material
adverse effect on the Company. In addition, the Company is presently unable to
estimate the amount, if any, of such loss. Proceedings in this lawsuit with
respect to the Company have been stayed as a result of the Chapter 11 filings.
F-44
<PAGE> 149
The Company and its subsidiaries and related companies are potential
and named defendants in several other lawsuits and claims arising in the
ordinary course of business. While the outcome of such claims, lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
expects that such liability, to the extent not provided for through insurance or
otherwise, will not have a material adverse effect on the operating results or
financial condition of the Company. Proceedings in connection with any lawsuit
against the Company have been stayed as a result of the Chapter 11 filings.
NOTE 14 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for 1995 and 1994 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1995(a)
Revenues........................................ $ 33,135 $ 32,073 $ 30,599 $ 28,179
Operating loss.................................. (5,365) (6,871) (14,786) (12,231)
Income taxes (benefit).......................... (241) (223) (141) (235)
Net loss........................................ (19,954) (19,690) (22,455) (12,461)
Loss per common share
before extraordinary item..................... $ (0.83) $ (0.82) $ (0.94) $ (0.52)
1994(b)
Revenues........................................ $ 37,100 $ 37,700 $ 34,602 $ 32,982
Operating loss.................................. (3,392) (2,163) (7,873) (215,958)
Income taxes (benefit).......................... (1,821) (1,782) 61 (25,378)
Net loss........................................ (15,218) (14,094) (22,631) (202,341)
Loss per common share
before extraordinary item..................... $ (0.63) $ (0.59) $ (0.95) $ (8.43)
</TABLE>
(a) The second quarter of 1995 includes an extraordinary item for the
write-off of unamortized debt issuance costs in the amount of $915,000.
(b) The fourth quarter of 1994 includes the revaluation of hotel contracts
and write-off of patent costs in the amount of $196.3 million.
F-45
<PAGE> 150
NOTE 15 - OPERATIONS BY GEOGRAPHIC AREA
The following table presents the Company's revenues and operating loss
before income taxes for the years ended December 31, 1995, 1994 and 1993 and
identifiable assets net of accumulated depreciation and amortization as of
December 31, 1995, 1994 and 1993 by geographic area. The United States includes
branch operations in Puerto Rico and the U.S. Virgin Islands and Other includes
operations in Hong Kong, Australia, Thailand, Singapore and Mexico (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
Revenues:
United States.......................................$ 100,667 $ 119,869 $ 140,457
Canada.............................................. 12,115 12,879 12,867
Other............................................... 11,204 9,636 9,669
------------ ---------- ----------
Total Revenues....................................$ 123,986 $ 142,384 $ 162,993
============ ========== ==========
Operating Income (Loss) Before Corporate
Expense:
United States.......................................$ (39,015) $ (22,870) $ 13,562
Canada.............................................. 4,107 2,035 1,518
Other............................................... 4,255 2,944 3,113
------------ ---------- ----------
(30,653) (17,891) 18,193
Less corporate expenses and non-operating (income):
Parent company expenses............................. 1,606 1,993 2,105
Amortization of corporate intangibles............... 6,994 13,246 12,883
Write-down of hotel contracts....................... -- 196,256 --
Non-operating income................................ (508) (1,163) --
Interest expense.................................... 28,177 54,981 48,990
Reorganization items................................ 7,563 -- --
------------ ---------- ----------
Loss Before Income Taxes and
Extraordinary item..................................$ (74,485) $ (283,204) $ (45,785)
============ ========== ==========
Identifiable assets, net:
United States.......................................$ 129,719 $ 166,782 $ 137,151
Canada.............................................. 11,749 9,276 10,958
Other............................................... 10,710 9,819 7,650
Total identifiable assets, net.................... 152,178 185,877 155,759
Hotel Contracts, net.................................. 47,403 50,000 253,508
Corporate Assets...................................... 6,041 6,945 211
------------ ---------- ----------
Total Assets, net...................................$ 205,652 $ 242,822 $ 409,478
============ ========== ==========
PPV Rooms: (unaudited)
United States....................................... 441,672 527,608 584,354
Canada.............................................. 71,600 73,987 74,777
Other............................................... 37,134 33,783 25,468
------------ ---------- ----------
550,406 635,378 684,599
============ ========== ==========
</TABLE>
F-46
<PAGE> 151
NOTE 16 - RELATED PARTIES
The Company entered into a new management agreement (the "Management
Agreement") effective November 23, 1992 with Rainbow to provide continuation of
the services provided in the Old Management Agreement as well as the
continuation of Mr. Davis's guarantee of the Company's then outstanding
supplemental credit facility. In consideration for these services, the Company
paid Rainbow a monthly fee equal to 1.2% of the maximum available commitment
under the supplemental credit facility. Fees paid under this agreement were
$182,189 in 1993. Upon closing of the 1993 Offerings and Revolving Credit
Facility, the Management Agreement was terminated.
In connection with the 1993 Offerings and Revolving Credit Facility,
the Board of Directors approved payment of an advisory fee of $1.0 million to
Davis Capital Advisors, an entity controlled by Mr. Marvin Davis. Additionally,
the Company reimbursed Rainbow for out-of-pocket expenses in connection with
advisory services provided in 1993 of $56,000. The Company believes the Advisory
Fee and the fees under the Management Agreement are at least as favorable as
could be obtained from an unrelated third party.
NOTE 17 - SAVINGS FOR RETIREMENT PLAN
The Company provides a Savings for Retirement Plan under Section
401(k) of the Internal Revenue Code. The plan allows participation by all
employees of Spectradyne and United States based employees of Spectradyne
International, Inc., who are not covered by a collective bargaining agreement,
after three months of employment. Eligible employees are allowed to contribute
up to 15% of their compensation, subject to other limitations of the plan and
the Internal Revenue Code; the Company's discretionary matching contribution is
limited to 100% of the first 3% of a participant's 401(k) contribution and 50%
of the next 2% of a participant's contribution. Employee contributions in excess
of 5% of their annual compensation are not matched by the Company. In March
1995, the Company suspended its matching contribution. The Company contributions
vest to the employee ratably to 100% after the third year of service. The
Company's matching contribution to the 401(k) plan was $47,000, $425,000, and
$564,000 for 1995, 1994, and 1993, respectively.
NOTE 18 - INTANGIBLE ASSETS
The hotel contracts were recorded at fair value as a result of the
1989 Acquisition and amortized on a straight-line basis over 25 years. Fair
value of hotel contracts was calculated utilizing the future cash flows to be
produced by the Company's existing hotel contracts discounted at the then
prevailing interest rate and further discounted at the historical contract
renewal rate.
During 1994, the Company experienced a significant reduction of cash
flows from existing hotel contracts, an increase in capital expenditures in
support of contract renewals and significant capital expenditures for the
deployment of the new STARPATH technology without any immediate cash flow
improvement. The Company continually assesses the carrying amount of hotel
contracts by determining whether its balance can be recovered over its remaining
life. The Company's analysis of undiscounted future cash flows indicated that a
substantial portion of the carrying amount of hotel contracts would not be
recoverable. Accordingly, based on the Company's estimate of discounted future
cash flows from existing hotel contracts, the Company wrote off $191.0 million
of the carrying amount of hotel contracts at December 31, 1994 which resulted in
a remaining balance of hotel contracts of $50.0 million as of
F-47
<PAGE> 152
December 31, 1994. Additionally, the Company wrote-off $5.2 million in patent
costs at December 31, 1994.
As of December 31, 1995, the Company has separately classified
certain contract costs related primarily to the purchase of televisions as
Deferred Contract Concession Costs. Such costs were previously included in Video
Systems as of December 31, 1994 and have been reclassified to conform to the
current year presentation.
NOTE 19 - GUARANTOR SUBSIDIARIES
The Company's obligations under the Reset Notes and Senior Notes are
guaranteed on a subordinated basis by the Company's direct subsidiary, SPI Newco
and by SPI Newco's direct subsidiary, Spectradyne (the "Subordinated
Guarantees"). Such guarantee is full, unconditional and joint and several.
The following supplemental combining financial information presents:
(1) Statements of Financial Position as of December 31, 1995 and 1994
and Statements of Operations and Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 of (a) SpectraVision, the parent, (b) SPI Newco
and Spectradyne, the Guarantors, (c) combined nonguarantor subsidiaries and (d)
the consolidated Company.
(2) Elimination entries required to consolidate SpectraVision, SPI
Newco and Spectradyne and the combined nonguarantor subsidiaries.
F-48
<PAGE> 153
SPECTRAVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL COMBINING STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995
(in thousands)
Guarantor Subsidiaries
<TABLE>
<CAPTION>
Parent NONGUARANTOR SPECTRAVISION
Company NEWCO SPECTRADYNE SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ----- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents .......... $ -- $ 2 $ 2 $ 3,434 $ -- $ 3,438
Accounts receivable, less .........
allowance for doubtful accounts .. -- -- 13,050 3,378 -- 16,428
Prepaids and other assets ......... 5,604 -- 7,318 1,030 -- 13,952
Intercompany receivables .......... 188,105 37,332 20,660 782 (346,879) --
Intercompany note receivable ...... 350,000 -- -- -- (350,000) --
Intercompany investments .......... (476,381) 477,150 3,072 2 (3,843) --
Video systems ..................... -- -- 220,198 39,118 -- 259,316
Less accumulated depreciation .....
and amortization ................ -- -- (130,921) (24,683) -- (155,604)
--------- --------- --------- --------- --------- ---------
Total video systems ............. -- -- 89,277 14,435 -- 103,712
Land, building and equipment ...... -- -- 13,449 1,412 -- 14,861
Less accumulated depreciation ..... -- -- (4,720) (1,201) -- (5,921)
--------- --------- --------- --------- --------- ---------
Total land, building and
equipment ..................... -- -- 8,729 211 -- 8,940
Hotel contracts (net).............. -- -- 47,403 -- -- 47,403
Deferred contract concession
costs (net) ..................... -- -- 11,749 -- -- 11,749
--------- --------- --------- --------- --------- ---------
Total assets .................... $ 67,328 $ 614,484 $ 201,260 $ 23,272 $(700,722) $ 205,622
========= ========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Liabilities
Accounts payable ................ $ -- $ -- $ 7,691 $ 437 $ -- $ 8,128
Other accrued liabilities ....... 61 1 10,689 447 -- 11,198
Income taxes .................... -- -- 5,583 67 -- 11,198
Intercompany payables ........... -- 177,553 138,142 31,184 (346,879) --
Intercompany note payable ....... -- 350,000 -- -- (350,000) --
Debt
Foothill Revolving Credit
Facility ...................... -- -- 26,703 -- -- 26,703
Capitalized lease obligations ... -- -- 1,618 346 -- 1,964
--------- --------- --------- --------- --------- ---------
Total debt ........................ -- -- 28,321 346 -- 28,667
Liabilities subject to settlement
under reorganization............. 494,875 -- 84,712 -- -- 579,587
Contingent value rights subject to
settlement under reorganization . 20,000 -- -- -- -- 20,000
Stockholders' equity (deficit)
Class A common stock ............ 5 -- -- -- -- 5
Class B common stock ............ 19 -- -- -- -- 19
Common stock--subsidiaries ...... -- -- -- 420 (420) --
Additional paid-in capital ...... 392,185 127,150 477,149 2,655 (606,954) 392,185
Retained deficit ................ (840,289) (40,220) (551,027) (14,511) 605,758) (840,289)
Foreign currency translation ....
adjustment .................... 472 -- -- 2,227 (2,227) 472
--------- --------- --------- --------- --------- ---------
Total stockholders' equity
(deficit) ................... (447,608) 86,930 (73,878) (9,209) (3,843) (447,608)
--------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) ................... $ 67,328 $ 614,484 $ 201,260 $ 23,272 $(700,772) $ 205,622
========= ========= ========= ========= ========= =========
</TABLE>
F-49
<PAGE> 154
SPECTRAVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL COMBINING STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1994
(in thousands)
GUARANTOR SUBSIDIARIES
<TABLE>
<CAPTION>
Parent NONGUARANTOR SPECTRAVISION
Company NEWCO SPECTRADYNE SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ----- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................... $ 2 $ -- $ 260 $ 1,055 $ -- $ 1,317
Accounts receivable, less allowance
for doubtful accounts..................... -- -- 16,646 3,771 -- 20,417
Prepaids and other assets................... 6,942 1 6,674 1,288 -- 14,905
Intercompany receivables.................... 163,604 160,096 16,547 100 (340,347) --
Intercompany note receivable................ 350,000 -- -- -- (350,000) --
Intercompany investments.................... (390,484) 477,150 3,072 -- (89,738) --
Video systems............................... -- -- 245,510 34,637 -- 280,147
Less accumulated depreciation
and amortization.......................... -- -- 127,391 (20,899) -- 148,290
--------- -------- --------- -------- ---------- ---------
Total video systems......................... -- -- 118,119 13,738 -- 131,857
Land, building and equipment................ -- -- 12,536 1,204 -- 13,740
Less accumulated depreciation............... -- -- (3,911) (1,054) -- (4,965)
--------- -------- --------- -------- ---------- ---------
Total land, building and equipment........ -- -- 8,625 150 -- 8,775
Hotel contracts, net........................ -- -- 50,000 -- -- 50,000
Deferred contract concession costs (net).... -- -- 15,551 -- -- 15,551
--------- -------- --------- -------- ---------- ---------
Total assets.............................. $ 130,064 $637,247 $ 235,494 $ 20,102 $(780,085) $ 242,822
========= ======== ========= ======== ========== =========
Liabilities and stockholders' equity (deficit)
Liabilities
Accounts payable.......................... $ -- $ -- $ 48,404 $ 403 $ -- $ 48,807
Other accrued liabilities................. 3,526 -- 25,406 498 -- 29,430
Income taxes.............................. -- -- 6,563 484 -- 7,047
Intercompany payables..................... -- 160,448 160,196 19,703 (340,347) --
Intercompany note payable................. -- 350,000 -- -- (350,000) --
Debt
Revolving Credit Facility................. 12,500 -- -- -- -- 12,500
Canadian Bank Credit Facility............. -- -- -- 7,350 -- 7,350
11.5% Senior Discount Notes............... 172,295 -- -- -- -- 172,295
11.65% Senior Reset Notes................. 294,768 -- -- -- -- 294,768
Capitalized lease obligations............. -- -- 23,036 456 -- 23,492
Other debt................................ -- -- 150 8 -- 158
--------- -------- --------- -------- ---------- ---------
Total debt................................ 479,563 -- 23,186 7,814 -- 510,563
Contingent value rights subject to -- -- -- -- 20,000
settlement under reorganization........... 20,000
Stockholders' equity (deficit)
Class A common stock...................... 5 -- -- -- -- 5
Class B common stock...................... 19 -- -- -- -- 19
Common stock--subsidiaries................. -- -- -- 420 (420) --
Additional paid-in capital................ 392,185 127,150 477,150 2,652 (606,952) 392,185
Retained deficit.......................... (765,729) (351) (505,411) (13,540) 519,302 (765,729)
Foreign currency translation adjustment... 495 -- -- 1,668 (1,668) 495
--------- -------- --------- -------- ---------- ---------
Total stockholders' equity (deficit)........ (373,025) 126,799 (28,261) (8,800) (89,738) (373,025)
--------- -------- --------- -------- ---------- ---------
TOTAL LIABILITIES AND STOCK HOLDERS' EQUITY
(DEFICIT)................................... $ 130,064 $637,247 $ 235,494 $ 20,102 $(780,085) $ 242,822
========= ======== ========= ======== ========== =========
</TABLE>
F-50
<PAGE> 155
SPECTRAVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES
----------------------
PARENT SPECTRAVISION
COMPANY NEWCO SPECTRADYNE SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ----- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................... $ -- $ -- $ 102,436 $25,731 $ (4,181) $ 123,986
Costs and Expenses:
Direct Costs............................. -- -- 44,007 8,806 -- 52,813
Depreciation and amortization............ -- -- 34,272 5,092 -- 39,364
Operating expenses....................... -- -- 12,771 4,792 -- 17,563
Contracted service costs................. -- -- 28,921 359 -- 29,280
Selling and marketing expenses........... -- -- 4,321 562 -- 4,883
General and administrative expenses...... 1,606 3 13,796 1,915 -- 17,320
Research and development (net)........... -- -- 1,769 -- -- 1,769
Exchange loss............................ -- -- (18) 846 (581) 247
Intercompany charges..................... -- 3 -- 4,181 (4,181) --
--------- --------- --------- ------- --------- ---------
Total costs and expenses................. 1,606 (3) 139,839 26,553 (4,762) 163,239
--------- --------- --------- ------- --------- ---------
Operating Income (Loss).................... (1,606) -- (37,403) (822) 581 (39,253)
Non-operating income....................... -- -- (458) (50) -- (508)
Equity in losses of subsidiaries........... 85,874 -- -- -- (85,874) --
Interest expense (net)..................... 26,030 -- 1,859 288 -- 28,177
Intercompany interest expense (39,865) 39,865 -- -- -- --
(income).................................
Reorganization items....................... -- 1 7,561 1 -- 7,563
--------- --------- --------- ------- --------- ---------
Gain (Loss) Before Income Taxes and
Extraordinary Item....................... (73,645) (39,869) (46,365) (1,061) 86,455 (74,485)
Income Taxes:
State and foreign provision.............. -- -- 1 125 -- 126
Deferred benefit......................... -- -- (966) -- -- (966)
--------- --------- --------- ------- --------- ---------
Total Income Tax Benefit................... -- -- (965) 125 -- (840)
--------- --------- --------- ------- --------- ---------
Gain (Loss) before extraordinary item...... (73,645) (39,869) (45,400) (1,186) 86,455 (73,645)
Extraordinary item
Loss on debt extinguishment.............. 915 -- -- -- -- 915
--------- --------- --------- ------- --------- ---------
Net Income (Loss)........................ $(74,560) $(39,869) $(45,400) $(1,186) $ 85,455 $(74,560)
========= ========= ========= ======= ========= =========
</TABLE>
F-51
<PAGE> 156
SPECTRAVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
DECEMBER 31, 1994
(in thousands)
<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES
PARENT NONGUARANTOR SPECTRAVISION
COMPANY NEWCO SPECTRADYNE SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ----- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................... $ -- $ -- $ 122,138 $24,659 $ (4,413) $ 142,384
Costs and Expenses:
Direct Costs............................. -- -- 50,576 7,439 -- 58,015
Depreciation and amortization............ 20 -- 45,353 5,161 -- 50,534
Write-down of hotel contracts............ -- -- 196,256 -- -- 196,256
Operating expenses....................... -- -- 9,802 3,403 -- 13,205
Contracted service costs................. -- -- 19,563 1,466 -- 21,029
Selling and marketing expenses........... -- -- 8,467 274 -- 8,741
General and administrative expenses...... 1,990 3 16,277 1,325 -- 19,595
Research and development (net)........... -- -- 3,649 165 -- 3,814
Exchange loss............................ -- -- -- 1,754 (1,173) 581
Intercompany charges..................... -- -- -- 4,413 (4,413) --
--------- --------- --------- ------- --------- ---------
Total costs and expenses............... 2,010 3 349,943 25,400 (5,586) 371,770
--------- --------- --------- ------- -------- ---------
Operating Income (Loss).................... (2,010) (3) (277,805) (741) 1,173 (229,386)
Non-operating expense (income):............ -- -- (1,163) -- -- (1,163)
Equity in losses of subsidiaries......... 239,991 -- -- -- (239,991) --
Interest expense (net)................... 54,628 -- (239) 592 -- 54,981
Intercompany interest expense (42,345) 42,345 -- -- -- --
(income)...............................
Intercompany dividend expense -- (42,345) 42,345 -- -- --
--------- --------- --------- ------- --------- ---------
(income)...............................
Income (Loss) Before Income Taxes........ (254,284) (3) (268,748) (1,333) 241,164 (283,204)
Income Taxes:
State and foreign provision (benefit).... -- -- (812) 364 -- (448)
Deferred benefit......................... -- -- (28,465) (7) -- (28,472)
--------- --------- --------- ------- --------- ---------
Total Income Tax (Benefit)................. -- -- (29,277) 357 -- 28,920
--------- --------- --------- ------- --------- ---------
Net Income (Loss).......................... $(254,284) $ (3) $(239,471) $(1,690) $ 241,164 $(254,284)
========= ========= ========= ======= ========= =========
</TABLE>
F-52
<PAGE> 157
SPECTRAVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES
----------------------
PARENT NONGUARANTOR
COMPANY NEWCO SPECTRADYNE SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ----- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ 143,493 $ 23,576 $ (4,079) $ 162,993
Costs and expenses
Direct Costs -- -- 52,108 6,726 -- 58,834
Depreciation and amortization 34 45 38,427 5,597 -- 44,103
Technology and field service
charges -- -- 6,703 297 -- 7,000
Loss on sale of manufacturing
assets and inventory -- -- 649 -- -- 649
Operating expenses -- -- 21,103 3,480 -- 24,583
Contracted service costs -- -- 1,716 -- -- 1,716
Selling and marketing expenses -- -- 4,887 167 -- 5,054
General and administrative
expenses 2,102 3 11,539 1,787 -- 15,431
Research and development (net) -- -- 1,426 159 -- 1,585
Exchange loss -- -- 9 824 -- 833
Intercompany charges -- -- -- 4,079 (4,079) --
--------- --------- --------- --------- --------- ---------
Total costs and expenses 2,136 48 138,567 23,116 (4,079) 159,788
--------- --------- --------- --------- --------- ---------
Operating Income (Loss) (2,136) (48) 4,926 463 -- 3,205
Non-operating expense (income):
Equity in losses of subsidiaries . 50,691 -- -- -- (50,691) --
Interest expense (net) 47,762 -- 696 532 -- 48,990
Intercompany interest expense
(income) (57,532) 57,532 -- -- -- --
Intercompany dividend expense
(income) -- (57,532) 57,532 -- -- --
--------- --------- --------- --------- --------- ---------
Income (Loss) Before Income
Taxes and Extraordinary Item (43,057) (48) (53,302) (69) 50,691 (45,785)
Income Taxes:
State and foreign provision -- -- 1,275 464 -- 1,739
Deferred benefit -- -- (4,369) (98) -- (4,467)
--------- --------- --------- --------- --------- ---------
Total Income Tax Provision (Benefit) -- -- (3,094) 366 -- (2,728)
--------- --------- --------- --------- --------- ---------
Income (loss) before 43,057 (48) (50,208) (435) 50,691 (43,057)
extraordinary item
Extraordinary item loss from
debt extinguishment (2,699) -- -- -- -- (2,699)
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ (45,576) $ (48) $ (50,208) $ (435) $ 50,691 $ (45,756)
========= ========= ========= ========= ========= =========
</TABLE>
F-53
<PAGE> 158
SPECTRAVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES
----------------------
PARENT NONGUARANTOR SPECTRAVISION
COMPANY NEWCO SPECTRADYNE SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ----- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net cash provided by (used in) operating
activities $ 13,436 $ 2 $(10,432) $ 15,137 $ 561 $ 18,704
-------- -------- -------- -------- -------- --------
Investing activities:
Cost of in-process systems and capital
expenditures $ -- $ -- $(10,379) $ (5,752) $ -- $(16,131)
-------- -------- -------- -------- -------- --------
Net cash used in investing activities $ -- $ -- $(10,379) $ (5,752) $ -- $(16,131)
-------- -------- -------- -------- -------- --------
Financing activities:
Borrowings under Revolving Credit Facility $ 7,396 $ -- $ -- $ -- $ -- $ 7,396
Repayment of Revolving Credit Facility (20,811) -- -- -- -- (20,811)
Borrowings under Foothill Revolving Facility -- -- 88,618 -- -- 88,618
Repayment of Foothill Revolving Facility -- -- (61,915) -- -- (61,915)
Repayment of other debt and capitalized lease
obligations -- -- (6,150) (7,566) -- (13,716)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) financing (13,415) -- 20,553 (7,566) -- (428)
activities -------- -------- -------- -------- -------- --------
Effect of exchange rate changes on cash flow (23) -- -- 560 (561) (24)
Net increase (decrease) in cash and cash equivalents (2) 2 (258) 2,379 -- 2,121
Cash and cash equivalents at beginning of period 2 -- 260 1,055 -- 1,317
-------- -------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 2 $ 2 $ 3,434 $ -- $ 3,438
======== ======== ======== ======== ======== ========
</TABLE>
F-54
<PAGE> 159
SPECTRAVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
(in thousands)
<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES
----------------------
PARENT NONGUARANTOR SPECTRAVISION
COMPANY NEWCO SPECTRADYNE SUBSIDIARIES CONSOLIDATED
------- ----- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net cash provided by (used in) operating
activities $(12,504) $ (1) $ 43,314 $ 5,356 $ 36,165
-------- -------- -------- -------- --------
Investing activities:
Cost of in-process systems and capital
expenditures $ -- $ -- $(52,350) $ (5,012) $(57,362)
-------- -------- -------- -------- --------
Net cash used in investing activities $ -- $ -- $(52,350) $ (5,012) $(57,362)
-------- -------- -------- -------- --------
Financing activities:
Borrowings under Revolving Credit Facility $ 12,500 $ -- $ -- $ -- $12,500
Repayment of other debt and capitalized lease
obligations -- -- (3,897) (290) (4,187)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities $ 12,500 $ -- $ (3,897) $ (290) $ 8,313
Effect of exchange rate changes on cash flow -- -- -- (84) (84)
-------- -------- -------- -------- --------
Net decrease in cash and cash equivalents (4) (1) (12,933) (30) (12,968)
Cash and cash equivalents at beginning of period 6 1 13,193 1,085 14,285
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ 2 $ -- $ 260 $ 1,055 $ 1,317
======== ======== ======== ======== ========
</TABLE>
F-55
<PAGE> 160
SPECTRAVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES
----------------------
PARENT NONGUARANTOR SPECTRAVISION
COMPANY NEWCO SPECTRADYNE SUBSIDIARIES CONSOLIDATED
------- ----- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net cash provided by (used in) operating
activities $ (31,102) $ (4) $ 31,138 $ 6,228 $ 6,260
Investing activities:
Proceeds from sale of manufacturing
assets and inventory $ -- $ -- $ 5,201 $ -- $ 5,201
Increase in raw materials -- -- (313) -- (313)
Cost of in-process systems and capital
expenditures -- -- (30,941) (5,156) (36,097)
--------- --------- --------- --------- ---------
Net cash used in investing activities $ -- $ -- $ (26,053) $ (5,156) $ (31,209)
--------- --------- --------- --------- ---------
Financing activities:
Borrowings under Supplemental -- $ 23,000
Bank Credit Facility 23,000 --
Repayment of Supplemental
Bank Credit Facility (31,000) -- -- -- (31,000)
Repayment of Bank Credit Facility (180,120) -- -- -- (180,120)
Repayment of other debt and capitalized lease
obligations -- -- (1,043) (389) (1,432)
Issuance of class B common stock 84,150 -- -- -- 84,150
Stock issuance costs (6,501) -- -- -- (6,501)
Issuance of senior discount notes 149,981 -- -- -- 149,981
Payment of debt issue costs (8,417) -- -- -- (8,417)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities $ 31,093 $ -- $ (1,043) $ (389) $ 29,661
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash flow -- -- (9) (11) (20)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents (9) (4) 4,033 672 4,692
Cash and cash equivalents at beginning of period 15 5 9,160 413 9,593
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 6 $ 1 $ 13,193 $ 1,085 $ 14,285
========= ========= ========= ========= =========
</TABLE>
F-56
<PAGE> 161
NOTE 20 - FINANCIAL STATEMENTS OF ENTITIES UNDER CHAPTER 11
The condensed balance sheet as of December 31, 1995 of SpectraVision
and all entities included in the Chapter 11 filings is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents ....................................... $ 84
Accounts receivable ............................................ 13,346
Debt issuance costs ............................................ 5,827
Prepaids and other assets ...................................... 7,304
Video systems .................................................. 222,802
Less accumulated depreciation
and amortization ............................................. 132,332
---------
Total video systems .......................................... 90,470
Building and equipment ......................................... 4,300
Furniture, fixtures and other equipment ........................ 6,649
Less accumulated depreciation .................................. (4,769)
---------
Total building and equipment ................................. 6,180
Land ........................................................... 2,559
Hotel contracts ................................................ 47,403
Deferred contract concession costs (net) ....................... 11,749
Investment in and advances to subsidiaries, at cost ............ 33,202
---------
TOTAL ASSETS ................................................. $ 218,124
=========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Accounts payable ............................................. $ 7,723
Other accrued liabilities .................................... 10,881
Deferred income taxes ........................................ 5,467
Foothill Revolving Facility .................................. 26,703
Capital lease obligations .................................... 1,617
---------
52,391
---------
Liabilities subject to settlement under reorganization ....... 579,587
Intercompany payable ......................................... 4,947
Total liabilities .......................................... 636,925
Contingent value rights subject to settlement under reorganization 20,000
Stockholders' deficit:
Common stock ................................................. 24
Paid-in capital .............................................. 393,092
Retained deficit ............................................. (831,917)
---------
Total stockholders' deficit ................................ (438,801)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' .............................. $ 218,124
=========
EQUITY (DEFICIT) ...............................................
</TABLE>
F-57
<PAGE> 162
The condensed statement of operations for the year ended December 31,
1995 of SpectraVision and all entities included in the Chapter 11 filings is as
follows (dollars in thousands):
<TABLE>
<S> <C>
Revenues ........................................ $ 104,063
Costs and expenses:
Direct costs ................................... 44,779
Depreciation and amortization .................. 34,676
Operating expenses ............................. 12,771
Contracted service costs ....................... 29,686
Selling and marketing expenses ................. 4,294
General and administrative expenses ............ 15,646
Research and development (net) ................. 1,769
Exchange loss .................................. 1,051
---------
Total costs and expenses ..................... 144,672
---------
Operating income (loss) .......................... (40,609)
Non-operating income ............................. (508)
Interest expense (contractual interest expense of
$67,596 in 1995)(net) .......................... 27,873
---------
Loss before reorganization items, income taxes
and extraordinary item ......................... (67,974)
................................................. ---------
Reorganization items ............................. 7,593
---------
Loss before income taxes and extraordinary items.. (75,567)
Income taxes:
State and foreign provision (benefit) .......... 1
Deferred benefit ............................... (966)
---------
Total income tax benefit ..................... (965)
Loss before extraordinary item ................... (74,602)
Extraordinary item ............................... 915
---------
Net loss ......................................... $ (75,517)
=========
</TABLE>
F-58
<PAGE> 163
SPECTRAVISION, INC
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1996 1995
-------- -------------
ASSETS (unaudited)
<S> <C> <C>
Cash and Cash Equivalents ................................................ $ 4,918 $ 3,438
Accounts Receivable (net) ................................................ 13,763 16,428
Debt Issuance Costs (net) ................................................ 5,662 5,827
Prepaids and Other Assets ................................................ 6,323 8,125
Video Systems: ...........................................................
In Process Video Systems ............................................... 10,823 11,329
Installed Video Systems ................................................ 258,573 247,987
--------- ---------
Subtotal ............................................................. 269,396 259,316
Less Accumulated Depreciation and Amortization ........................... (170,815) (155,604)
--------- ---------
Total Video Systems ...................................................... 98,581 103,712
Building and Equipment Building .......................................... 4,300 4,300
Furniture, Fixtures and Other Equipment .................................. 8,882 8,002
--------- ---------
Subtotal ............................................................... 13,182 12,302
Less Accumulated Depreciation ............................................ (6,881) (5,921)
--------- ---------
Total Building and Equipment ............................................. 6,301 6,381
Land ..................................................................... 2,559 2,559
Hotel Contracts (net) .................................................... 46,104 47,403
Deferred Contract Concession Costs (net) ................................. 10,426 11,749
--------- ---------
TOTAL ASSETS ........................................................... $ 194,637 $ 205,622
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT ......................................
Liabilities ................................................................
Accounts Payable ......................................................... $ 12,289 $ 8,128
Accrued Liabilities ......................................................
Interest ............................................................... 328 --
Compensation ........................................................... 3,914 2,112
Other .................................................................. 7,655 9,086
Income Taxes ........................................................... 358 183
Deferred Income Taxes .................................................. 4,920 5,467
Debt .....................................................................
Foothill Revolving Credit Facility ..................................... 37,919 26,703
Capitalized Lease Obligations .......................................... 3,379 1,964
--------- ---------
Total Debt ............................................................... 41,298 28,667
Liabilities Subject to Settlement Under Reorganization ................... 576,040 579,587
--------- ---------
Total Liabilities .......................................................... 646,802 633,230
Contingent Value Right Subject to Settlement Under Reorganization .......... 20,000 20,000
Stockholders' Deficit: .....................................................
Class A Common Stock--$0.001 par value, authorized 6,000,000 shares,
issued and outstanding, 4,593,526 shares in 1996 and 1995 ............. 5 5
Class B Common Stock--$0.001 par value, authorized 144,000,000 shares,
issued and outstanding, 19,390,379 shares in 1996 and 1995 ............. 19 19
Additional Paid in Capital ............................................... 392,185 392,185
Retained Deficit ......................................................... (863,075) (840,289)
Foreign Currency Translation Adjustment .................................. (1,299) 472
--------- ---------
Total Stockholders' Deficit ................................................ (472,165) (447,608)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ................................ $ 194,637 $ 205,622
========= =========
</TABLE>
See accompanying Notes to the Condensed Consolidated Financial Statements.
F-59
<PAGE> 164
SPECTRAVISION, INC
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Pay-Per-View..................................................................................... $ 50,382 $ 55,110
Free-To-Guest.................................................................................... 5,489 6,876
Other............................................................................................ 2,141 3,222
----------- -----------
Total Revenues................................................................................. 58,012 65,208
Direct Costs:
Pay-Per-View..................................................................................... 20,174 19,156
Free-To-Guest.................................................................................... 5,882 5,673
Other............................................................................................ 1,032 1,055
----------- -----------
Total Direct Costs............................................................................. 27,088 25,884
Depreciation and Amortization...................................................................... 20,519 18,920
Operating Expenses................................................................................. 20,016 20,992
Selling, General and Administrative Expense........................................................ 7,190 10,211
Research and Development (net)..................................................................... 988 1,183
Exchange Gain (Loss)............................................................................... (4) 254
----------- -----------
Total Costs and Expenses........................................................................... 75,797 77,444
----------- -----------
Operating Loss..................................................................................... (17,785) (12,236)
----------- -----------
Non-Operating Loss (Income)........................................................................ 234 (139)
Interest Expense, net (Contractual interest expense of $34,975 and $30,576 for the
six months ended June 30, 1996 and 1995, respectively)........................................... 3,062 26,919
----------- -----------
Loss Before Reorganization Items and Income Taxes.................................................. (21,081) (39,016)
Reorganization Items............................................................................... 1,827 177
----------- -----------
Loss Before Income Taxes and Extraordinary Item.................................................... (22,908) (39,193)
Income Taxes:
State and Foreign Provision...................................................................... 495 20
Deferred Benefit................................................................................. (617) (484)
----------- -----------
Total Income Tax Benefit....................................................................... (122) (464)
----------- -----------
Loss Before Extraordinary Item..................................................................... (22,786) (38,729)
Extraordinary Item (Loss from Debt Extinguishment)................................................. -- (915)
----------- -----------
Net Loss........................................................................................... $ (22,786) $ (39,644)
=========== ===========
Loss Per Common Share.............................................................................. $ (0.95) $ (1.65)
=========== ===========
Average Common Shares Outstanding.................................................................. 23,983,905 23,983,905
</TABLE>
See accompanying Notes to the Condensed Consolidated Financial Statements.
F-60
<PAGE> 165
SPECTRAVISION, INC
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
--------- ---------
<S> <C> <C>
Operating Activities:
Net Loss $(22,786) $(39,644)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 20,519 18,920
Other non-cash items:
Conversion of non-cash interest to secondary notes -- 18,494
Deferred income tax benefit (617) (484)
Increase in pre-petition liabilities (899) --
Extraordinary loss from debt extinguishment -- 915
Write-off of assets 373 --
Loss on sale of fixed assets 270 --
Accretion of discount on senior notes -- 8,609
Amortization of debt issuance cost 165 553
Exchange loss (4) 254
Other items, net (469) (651)
Increase (decrease) in:
Accounts Payable 4,161 13,639
Accrued interest 328 (993)
Other accrued liabilities 371 1,239
Income taxes payable 175 10
Decrease (increase) in:
Accounts receivable 2,665 (623)
Prepaids and other assets 1,570 335
Income tax receivable 232 --
-------- --------
Net cash provided by operating activities 6,054 20,573
Investing Activities:
Cost of in-process systems and capital expenditures (10,368) (12,216)
Financing Activities:
Borrowing under Foothill revolving facility 67,696 25,052
Repayment of Foothill revolving facility (56,480) (9,644)
Repayment of revolving facility -- (19,896)
Repayment of Canadian bank credit facility -- (7,350)
Borrowing under revolving credit facility -- 7,396
Repayment of other debt and capitalized leases (3,651) (3,225)
-------- --------
Net cash provided by (used in) financing activities 7,565 (7,667)
Effect of exchange rate changes on cash (1,771) (55)
-------- --------
Net Increase in cash and cash equivalents 1,480 635
Cash and cash equivalents at beginning of period 3,438 1,317
-------- --------
Cash and cash equivalents at end of period $ 4,918 $ 1,952
======== ========
</TABLE>
See accompanying Notes to the Condensed Consolidated Financial Statements.
F-61
<PAGE> 166
SPECTRAVISION, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. General
These condensed consolidated financial statements should be read in
the context of the financial statements and notes thereto filed with the
Securities and Exchange Commission in the 1995 Annual Report on Form 10-K of
SpectraVision, Inc. ("SpectraVision" or the "Company"). The accompanying
unaudited condensed consolidated financial statements include SpectraVision and
all of its subsidiaries. Intercompany transactions have been eliminated. Certain
prior period amounts have been reclassified to conform with the current period
presentation. In the opinion of management, these financial statements include
all adjustments, consisting only of normal recurring adjustments, except as
described in note 3, necessary to present fairly the Company's financial
position and results of its operations for the periods presented. The results of
operations for such interim periods are not necessarily indicative of results of
operations for the entire year.
2. Organization and Basis of Presentation
The Company is a leading provider of in-room entertainment services
to the lodging industry. Founded in 1971, the Company originally developed and
patented a system known as "SpectraVision", which provides in-room television
viewing of recently released major and other motion pictures on a pay-per-view
("PPV") basis.
Unless the context otherwise requires, all references herein to the
Company are not intended to imply exact corporate relationships and include
SpectraVision, SPI Newco, Inc. ("Newco") its direct subsidiary, Spectradyne,
Inc. ("Spectradyne") the direct subsidiary of Newco, and the foreign
subsidiaries.
3. Bankruptcy
On June 8, 1995 (the "Petition Date"), SpectraVision, together with
Newco, Spectradyne, Spectradyne International, Inc., and Kalevision Systems,
Inc. - USA, filed voluntary petitions for reorganization under Chapter 11
("Chapter 11") of the United States Bankruptcy Code ("the Bankruptcy Code") in
the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court") and are currently operating their respective businesses as
debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
The Canadian and Far East Subsidiaries are not a part of the Bankruptcy
Proceedings. On June 23, 1995, a single unsecured creditors' committee was
appointed by the U.S. Trustee for the District of Delaware pursuant to Section
1102 of the Bankruptcy Code (the "Creditors' Committee"). The Creditors'
Committee has the right to review and object to certain business transactions
and is expected to participate in the negotiation of the Company's plan of
reorganization.
As of the Petition Date, actions to collect pre-petition indebtedness
have been automatically stayed pursuant to Section 362 of the Bankruptcy Code
(subject to order of the Bankruptcy Court) and, in certain circumstances, other
pre-petition contractual obligations may not be enforced against the Company. In
addition, the Company may reject pre-petition executory contracts and lease
obligations, and parties
F-62
<PAGE> 167
affected by these rejections may file claims with the Bankruptcy Court in
accordance with the reorganization process. Substantially all liabilities as of
the Petition Date are subject to being paid or compromised under a plan of
reorganization to be voted upon by all impaired classes of creditors and equity
security holders and approved by the Bankruptcy Court.
As of December 1995, the Company employed Salomon Brothers Inc. as
investment bankers and financial advisors. The agreement with Salomon Brothers
Inc. calls for a monthly advisory fee and an additional fee ("Transaction Fee")
upon the consummation of a transaction resulting in the sale of the Company. The
Transaction Fee will be a percentage of the total purchase price.
In January 1996 the Company solicited bids from third parties for
financial restructuring proposals which would allow the Company to emerge from
bankruptcy. On April 19, 1996, the Company announced the signing of an agreement
with Ascent Entertainment Group, Inc. ("Ascent") in which Ascent would acquire
the assets and certain of the liabilities of the Company. Ascent intends to
combine its 85 percent-owned subsidiary, On Command Video Corporation, ("OCV")
with the Company's assets and certain of its liabilities to form a new company
("Newco") which will be 72.5 percent-owned by Ascent and the current minority
stockholders of OCV. The Company's bankruptcy estate will receive 27.5 percent
of Newco's stock, which will be distributed through a bankruptcy plan to the
Company's creditors to resolve claims of approximately $600 million. Newco will
also issue warrants to be distributed to OCV stockholders and certain other
persons to purchase 13 percent of Newco's common stock and warrants to the
Company's estate to purchase another 7 percent of the stock.
The transaction is subject to Bankruptcy Court approval and certain
other conditions. If the transaction is consummated, shares of Newco are
expected to be publicly traded upon completion of the transaction, which is
expected to be completed by the end of the third quarter of 1996.
The Company filed with the United States Department of Justice under
the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act") in early May,
1996. No comments were received from any agency of the United States having
jurisdiction under the HSR Act during the time limits set out in the HSR Act.
On June 21, 1996, the Company filed its proposed Plan of
Reorganization and Disclosure Statement with the Bankruptcy Court. The Plan
provides for the implementation of the transaction with Ascent and the
distribution of the Newco stock and Newco warrants to the Company's creditors.
The Plan does not provide for any distribution to the Company's equity security
holders. The Court must still conduct a hearing of the adequacy of the
Disclosure Statement at which time the Plan of Reorganization and Disclosure
Statement and certain other supporting materials will be distributed to
creditors and certain other parties in interest. Thereafter certain of the
creditors will be allowed an opportunity to vote to accept or reject the Plan.
After the balloting process is completed, the Court will conduct a hearing to
determine whether the Plan should be confirmed. No hearing has been set for the
Court to consider confirmation of the Plan, but the Company believes the closing
on the transaction with Ascent can occur by the end of the third quarter of
1996.
The Company's cash on hand and cash flow from operations in 1996 will
not be sufficient to satisfy its current demands for cash. There can be no
assurance that the amount the Company can borrow under its revolving line of
credit will be sufficient to meet its cash requirements for 1996. If the Company
cannot borrow or otherwise obtain the cash necessary to operate throughout 1996
or the Company is unable to obtain confirmation of a plan of reorganization, its
creditors, equity security holders or the United States Trustee may seek a
liquidation of the Company by conversion to a Chapter 7 bankruptcy proceeding.
F-63
<PAGE> 168
The accompanying condensed consolidated financial statements have
been prepared on a going concern basis, which assumes continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. However, as a result of the Chapter 11 filings and circumstances
relating to these events, such realization of assets and liquidation of
liabilities is subject to significant uncertainty. In addition, the Company's
independent public accountants included in their report on the Company's
consolidated financial statements as of December 31, 1995, an explanatory
paragraph that describes the uncertainty about the Company's ability to continue
as a going concern.
As a Chapter 11 debtor, the Company may sell (subject, in certain
circumstances, to Bankruptcy Court approval) or otherwise dispose of assets, and
liquidate or settle liabilities for amounts other than those reflected in the
condensed consolidated financial statements. The amounts reported in the
condensed consolidated financial statements do not give effect to any
adjustments to the carrying value of assets or amounts of liabilities that might
result as a consequence of actions taken pursuant to a plan of reorganization.
If the Company is unable to obtain confirmation of a plan of reorganization, its
creditors, equity security holders or the United States Trustee may seek a
liquidation of the Company by conversion to a Chapter 7 bankruptcy proceeding.
In that event, it is likely that additional liabilities and claims would be
asserted which are not presently reflected in the condensed consolidated
financial statements. In the event of a liquidation, the amounts reflected in
the condensed consolidated financial statements would be subject to adverse
adjustments in amounts which, while not presently determinable, could be
material.
Financial accounting and reporting during a Chapter 11 proceeding is
prescribed in Statement of Position No. 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Accordingly, certain
pre-petition obligations, which may be impaired, have been classified as
obligations subject to Chapter 11 reorganization proceedings and include the
following estimated amounts at June 30, 1996 (dollars in thousands):
<TABLE>
<S> <C>
Debt Instruments:
11.5% Senior Discount Notes due 2000 ........................... $180,904
11.65% Senior Subordinated Reset Notes due 2001 ................ 313,262
--------
Total debt instruments 494,166
Accrued Expenses:
Interest ....................................................... 2,411
Liabilities .................................................... 3,662
Compensation ................................................... 885
--------
Subtotal ..................................................... 6,958
Capital lease obligations ........................................ 20,437
Accounts payable ................................................. 11,952
EDS and EDS affiliated ........................................... 42,527
--------
Total liabilities subject to settlement under reorganization ... $576,040
========
Contingent value rights subject to settlement under reorganization $ 20,000
========
</TABLE>
The total effect of the bankruptcy reorganization items was to
increase the net loss for the six months ended June 30, 1996 and 1995 by
approximately $1.8 million or $0.08 per common share and $.2 million or $0.01
per common share, respectively. The bankruptcy reorganization items consist of
normal bankruptcy, professional and miscellaneous charges.
F-64
<PAGE> 169
4. Debt
Foothill Revolving Facility: On June 9, 1995, Spectradyne entered
into a loan and security agreement with Foothill Capital Corporation to provide
debtor-in-possession financing (the "Foothill Loan"). The Foothill Loan allows
for revolving advances up to a maximum amount of $40 million and bears interest
payable monthly at prime plus 1.75% with a floor of 8.5%. Due to collateral
restrictions, the Company was only allowed to borrow up to $38.1 million at June
30, 1996. The Foothill Loan matures June 15, 1997.
The Foothill Loan is secured by all of the assets of Spectradyne and
certain subsidiaries, all of the outstanding stock of the Company's subsidiaries
and the guarantees of SpectraVision and certain subsidiaries. The Foothill Loan
contains various and customary financial and operating covenants including
limitations on additional indebtedness and limitations on capital expenditures.
At June 30, 1996 the Company was not in compliance with the financial covenants
relating to its operating cash flow and its fixed charges to cash flow ratio
requirements. On July 24, 1996 the Company obtained a waiver from Foothill
Capital Corporation for these covenant violations. However, the Company does not
expect that it will be in compliance with the financial covenants relating to
its operating cash flow and its fixed charges to cash flow ratios for the
remainder of 1996. Accordingly, in October, Foothill Capital Corporation could
elect to terminate the revolving line of credit for noncompliance with the
Financial Covenants. Foothill Capital Corporation could then demand immediate
payment of all outstanding balances and foreclose on the Company's assets
securing the revolving line of credit if payment is not made. In this event, if
the Company cannot obtain alternative financing, it may be forced to liquidate
in a Chapter 7 bankruptcy proceeding.
Pursuant to SOP 90-7, the Company has discontinued, effective June 8,
1995, the accrual of interest on pre-petition debt that is unsecured or
estimated to be undersecured.
5. Contingencies
On October 20, 1994, a purported class action complaint was filed in
the United States District Court alleging misrepresentations and omissions
concurrent with and following the Company's 1993 offerings of Class B Common
Stock and Senior Discount Notes. The plaintiff seeks unspecified damages,
prejudgment interest, and fees and costs of the plaintiff. The Company believes
that it has meritorious defenses to the claims and it intends to vigorously
defend itself. Proceedings in this lawsuit with respect to the Company have been
stayed as a result of the Chapter 11 filings.
The Company and its subsidiaries and related companies are potential
and named defendants in several other lawsuits and claims arising in the
ordinary course of business. While the outcome of such claims, lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
expects that such liability, to the extent not provided for through insurance or
otherwise, will not have a material adverse effect on the operating results or
financial condition of the Company. Proceedings in connection with any lawsuit
against the Company have been stayed as a result of the Chapter 11 filings.
F-65
<PAGE> 170
6. Balance Sheet of Entities under Chapter 11
The condensed balance sheet of SpectraVision and all entities
included in the Chapter 11 filings is as follows (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1996
-----------
ASSETS (unaudited)
<S> <C>
Cash and Cash Equivalents ................................................. $ 46
Accounts Receivable (net) ................................................. 10,858
Debt Issuance Costs (net) ................................................. 5,662
Prepaids and Other Assets ................................................. 5,344
Video Systems .............................................................
In Process Video Systems ................................................ 8,099
Installed Video Systems ................................................. 223,469
---------
Subtotal .............................................................. 231,568
Less Accumulated Depreciation and Amortization ............................ (146,314)
---------
Total Video Systems ....................................................... 85,254
Building and Equipment Building ........................................... 4,300
Furniture, Fixtures and Other Equipment ................................... 7,480
Subtotal ................................................................ 11,780
Less Accumulated Depreciation ............................................. (5,649)
---------
Total Building and Equipment .............................................. 6,131
Land ...................................................................... 2,559
Hotel Contracts (net) ..................................................... 46,104
Deferred Contract Concession Costs (net) .................................. 10,427
Investment In and Advances to Subsidiaries ................................ 35,191
---------
TOTAL ASSETS $ 207,576
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT: ......................................
Liabilities .................................................................
Accounts Payable .......................................................... $ 12,052
Accrued Liabilities ....................................................... 9,669
Deferred Income Taxes ..................................................... 4,850
Debt ......................................................................
Foothill Revolving Credit Facility ...................................... 37,919
Capitalized Lease Obligations ........................................... 3,002
---------
Total Debt ................................................................ 40,921
Liabilities Subject to Settlement Under Reorganization .................... 576,040
Intercompany Payables ..................................................... 5,183
---------
Total Liabilities ........................................................... 648,715
Contingent Value Right Subject to Settlement Under Reorganization ........... 20,000
Stockholders' Deficit .......................................................
Class A Common Stock ......................................................
Class B Common Stock ......................................................
Additional Paid in Capital ................................................ 392,185
Retained Deficit .......................................................... (852,633)
Foreign Currency Translation Adjustment ................................... (715)
---------
Total Stockholders' Deficit ............................................. (461,139)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ................................. $ 207,576
=========
</TABLE>
F-66
<PAGE> 171
ON COMMAND CORPORATION
AND
ON COMMAND VIDEO CORPORATION
Annexes to the Information
Statement/Prospectus
I. Agreement and Plan of Merger*
II. Acquisition Agreement*
III. Warrant Agreement*
IV. Registration Rights Agreement*
V. Opinion of Allen & Company*
VI. Section 262 of the Delaware General
Corporation Law*
------------
* To be filed by amendment.
<PAGE> 172
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of On Command Corporation
provides for the indemnification by On Command Corporation of each director and
officer of On Command Corporation to the fullest extent permitted by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended. Section 145 of the Delaware General Corporation Law provides in
relevant part that a corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
In addition, Section 145 provides that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such a
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if 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 the corporation and except that no
indemnification shall be made in respect of any claim, issue or 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 or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper. Delaware law further provides that nothing in the above-described
provisions shall be deemed exclusive of any other rights to indemnification or
advancement of expenses to which any person may be entitled under any bylaw,
agreement, vote of stockholders or disinterested director or otherwise.
Article Tenth of the Certificate of Incorporation of On
Command Corporation provides that a Director of On Command Corporation shall not
be personally liable to On Command Corporation or its stockholders for monetary
damages for any breach of fiduciary duty as a Director. Article Eighth of the
Bylaws provides that a director, officer, employee, or other agent of the
corporation shall be indemnified against actions by reason of the fact that the
person is or was an agent of the corporation. Section 102(b)(7) of the Delaware
General Corporation Law provides that a provision so limiting the personal
liability of a director shall not eliminate or limit the liability of a
director, for, among other things: breach of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; unlawful payment of dividends; and transactions from which
the director derived an improper personal benefit.
II-1
<PAGE> 173
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of August 13, 1996, by
and among On Command Corporation, On Command Merger
Corporation, and On Command Video Corporation
2.2 Acquisition Agreement, dated as of August 13, 1996, by and
among On Command Corporation, Ascent Entertainment Group,
Inc., the Official Creditors' Committee for SpectraVision,
Inc. and certain of its subsidiaries, SpectraVision, Inc.,
Spectradyne, Inc. and the other Debtors named therein
3.1 Certificate of Incorporation of On Command Corporation
3.2 Certificate of Merger**
3.3 Bylaws of On Command Corporation
4.1 Registration Rights Agreement by and among On Command
Corporation and the other parties named therein
4.2 Warrant Agreement by and among On Command Corporation and the
other parties named therein
5.1 Opinion of Latham & Watkins regarding the legality of the
securities being issued**
8.1 Opinion of Latham & Watkins relating to certain tax matters**
10.1 Master Services Agreement, dated as of August 3, 1993, by and
between Marriott International, Inc., Marriott Hotel Services,
Inc. and On Command Video Corporation (confidential treatment
requested)
10.2 Amended and Restated SpectraVision and Interactive Services
National Agreement, dated August 31, 1993, by and between
Hyatt Corporation and Spectradyne, Inc. (confidential
treatment requested)
10.3 Amended and Restated SpectraMax National Agreement, dated
August 31, 1993, by and between Hyatt Corporation and
Spectradyne Inc. (confidential treatment requested)
10.4 Hilton Hotels Corporation-ON COMMAND VIDEO Agreement, dated
April 27, 1993, by and between Hilton Hotels Corporation and
On Command Video Corporation (confidential treatment
requested)
10.5 EDS Agreement, dated August 5, 1996, among Electronic Data
Systems Corporation, EDS Technical Products Corporation,
Ascent Entertainment Group, Inc. and On Command Video
Corporation
21.1 Subsidiaries of On Command Corporation*
23.1 Consent of Latham & Watkins (included in their opinion filed
as Exhibit 5.1)**
23.2 Consent and Report on Schedule of Deloitte & Touche LLP*
23.3 Consent of Ernst & Young LLP, Independent Auditors*
23.4 Consent of KPMG Peat Marwick LLP*
24.1 Power of Attorney*
99.1 Opinion of Allen & Company (included as Annex V to the
Information Statement/Prospectus included herein)**
- ------------------------------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts (OCV)*
Schedule II--Valuation and Qualifying Accounts
(SpectraVision)*
II-2
<PAGE> 174
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes as follows:
that prior to any public reoffering of the securities registered hereunder
through the use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by any other items of the applicable form.
(b) The registrant undertakes that every prospectus: (i) that
is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 175
SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Denver,
State of Colorado, on September 4, 1996.
ON COMMAND CORPORATION
By: /s/ Arthur M. Aaron
---------------------------
Name: Arthur M. Aaron
Title: Executive Vice President
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
*
- -------------------------------------- Chief Executive Officer September 4, 1996
Robert Snyder
*
- -------------------------------------- Executive Vice President--Finance and September 4, 1996
James A. Cronin, III Chief Operating Officer and Director
*
- -------------------------------------- Director September 4, 1996
Charles Lyons
* Director September 4, 1996
- --------------------------------------
Robert M. Kavner
</TABLE>
* By /s/ Arthur M. Aaron
---------------------
Arthur M. Aaron
Attorney-in-Fact
II-4
<PAGE> 176
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Merger, dated as of August 13, 1996, by
and among On Command Corporation, On Command Merger
Corporation, and On Command Video Corporation
2.2 Acquisition Agreement, dated as of August 13, 1996, by and
among On Command Corporation, Ascent Entertainment Group,
Inc., the Official Creditors' Committee for SpectraVision,
Inc. and certain of its subsidiaries, SpectraVision, Inc.,
Spectradyne, Inc. and the other Debtors named therein
3.1 Certificate of Incorporation of On Command Corporation
3.2 Certificate of Merger**
3.3 Bylaws of On Command Corporation
4.1 Registration Rights Agreement by and among On Command
Corporation and the other parties named therein
4.2 Warrant Agreement by and among On Command Corporation and the
other parties named therein
5.1 Opinion of Latham & Watkins regarding the legality of the
securities being issued**
8.1 Opinion of Latham & Watkins relating to certain tax matters**
10.1 Master Services Agreement, dated as of August 3, 1993, by and
between Marriott International, Inc., Marriott Hotel Services,
Inc. and On Command Video Corporation (confidential treatment
requested)
10.2 Amended and Restated SpectraVision and Interactive Services
National Agreement, dated August 31, 1993, by and between
Hyatt Corporation and Spectradyne, Inc. (confidential
treatment requested)
10.3 Amended and Restated SpectraMax National Agreement, dated
August 31, 1993, by and between Hyatt Corporation and
Spectradyne Inc. (confidential treatment requested)
10.4 Hilton Hotels Corporation-ON COMMAND VIDEO Agreement, dated
April 27, 1993, by and between Hilton Hotels Corporation and
On Command Video Corporation (confidential treatment
requested)
10.5 EDS Agreement, dated August 5, 1996, among Electronic Data
Systems Corporation, EDS Technical Products Corporation,
Ascent Entertainment Group, Inc. and On Command Video
Corporation
21.1 Subsidiaries of On Command Corporation*
23.1 Consent of Latham & Watkins (included in their opinion filed
as Exhibit 5.1)**
23.2 Consent and Report on Schedule of Deloitte & Touche LLP*
23.3 Consent of Ernst & Young LLP, Independent Auditors*
23.4 Consent of KPMG Peat Marwick LLP*
24.1 Power of Attorney*
99.1 Opinion of Allen & Company (included as Annex V to the
Information Statement/Prospectus included herein)**
- ------------------------------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ON COMMAND CORPORATION,
ON COMMAND MERGER CORPORATION,
AND
ON COMMAND VIDEO CORPORATION
Dated as of August 13, 1996
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 13, 1996, by
and among On Command Video Corporation ("OCV"), which is a subsidiary of Ascent
Entertainment Group, Inc. ("Ascent"), On Command Corporation ("Buyer"), which is
a wholly-owned subsidiary of Ascent, and On Command Merger Corporation ("Merger
Subsidiary"), which is a wholly-owned subsidiary of Buyer. Unless otherwise
defined in this Agreement, all capitalized terms in this Agreement shall have
the meanings assigned to them in Section 1 of this Agreement.
R E C I T A L S
WHEREAS, SpectraVision, Inc. ("SpectraVision"), Spectradyne,
Inc. ("Spectradyne") and each of the other domestic subsidiaries of
SpectraVision (collectively, the "SpectraVision Domestic Subsidiaries" and,
together with SpectraVision and Spectradyne, the "Debtors") have filed a
petition for relief under Chapter 11 of the United States Bankruptcy Code, 11
U.S.C. Section 101, et seq., in the Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"), which cases were procedurally consolidated
for joint administration as Case No. 95-659 (collectively, the "Bankruptcy
Case").
WHEREAS, on December 20, 1995, the Bankruptcy Court entered the
Order Granting the Motion for Order (1) Approving Process for Solicitation and
Selection of a Third Party Plan Sponsor, (2) Bid Protection, (3) Expense
Reimbursement, and (4) Break-Up Fee (the "Procedures Order").
WHEREAS, on April 19, 1996, SpectraVision, Ascent, OCV and the
Official Creditors' Committee appointed by the U.S. Trustee in the Bankruptcy
Case (the "Creditors' Committee" and, together with SpectraVision, Ascent and
OCV, the "PSA Parties") entered into an agreement (the "Plan Sponsor Agreement")
pursuant to which all or substantially all of the assets of the Debtors and OCV
are to be acquired, directly or indirectly, by Buyer or one or more wholly-owned
subsidiaries of Buyer.
WHEREAS, pursuant to the Plan Sponsor Agreement, the PSA Parties
agreed that: (a) Ascent shall be the plan sponsor as provided in the Procedures
Order, (b) the PSA Parties will sponsor and support a plan of reorganization for
the Debtors and the PSA Parties will not support any other plan of
reorganization except as provided in the Procedures Order, (c) the PSA Parties
will reasonably cooperate in preparing and submitting a plan of reorganization
for the Debtors, the disclosure statement for such plan (the
1
<PAGE> 3
"Disclosure Statement") and all other documents necessary to obtain confirmation
of such plan, (d) the Debtors and the Creditors' Committee (i) will not solicit
any other bids to acquire assets of the Debtors, (ii) will not negotiate with
any other person concerning the disposition of any assets of the Debtors (except
as provided in the Procedures Order), and (iii) will inform Ascent within one
business day of the receipt of any unsolicited bid received by either the
Creditors' Committee or the Debtors, and (e) Ascent shall be entitled to the
benefits that the Procedures Order provides for the Plan Sponsor.
WHEREAS, Buyer, Ascent, the Creditors Committee and the Debtors
(collectively, the "PA Parties") have entered into an Acquisition Agreement (the
"Acquisition Agreement") pursuant to which Buyer (or, at the election of Buyer,
a wholly-owned subsidiary of Buyer) will acquire all of the outstanding capital
stock of Spectradyne (the "Spectradyne Stock").
WHEREAS, this Agreement is being entered into by OCV, Buyer and
Merger Subsidiary (collectively, the "Parties"), and the Acquisition Agreement
is being entered into by the PA Parties, in accordance with the terms and
provisions of the Plan Sponsor Agreement for the purpose of implementing the
Plan Sponsor Agreement.
A G R E E M E N T
NOW THEREFORE, in consideration of the foregoing and of the
mutual promises, covenants, and conditions set forth below, the Parties hereby
agree as follows:
SECTION 1
DEFINITIONS
Except as otherwise specifically specified in this Agreement or
as the context may otherwise require, the following terms have the meanings set
forth below.
"Acquisition Agreement" has the meaning given to it in the
recitals to this Agreement.
"Addendum" has the meaning given to it in the Acquisition
Agreement.
"Additional OCV Debt" has the meaning given to it in the
Acquisition Agreement.
"Aggregate Warrant Exercise Price" has the meaning given to it
in the
2
<PAGE> 4
Acquisition Agreement.
"Agreement" means this Agreement, as amended, supplemented or
modified from time to time in accordance with its terms.
"Ascent" means Ascent Entertainment Group, Inc., a Delaware
corporation, and its successors and assigns.
"Bankruptcy Court" has the meaning given to it in the recitals
to this Agreement.
"Buyer" means On Command Corporation, a Delaware corporation,
and its successors and assigns.
"Buyer Stock Certificate" has the meaning given to it in Section
4.2.1(b) of this Agreement.
"Buyer Stock Option Plan" means a stock option plan
substantially in the form of Exhibit A to this Agreement.
"Certificate of Merger" has the meaning given to it in Section
3.3 of this Agreement.
"Closing" has the meaning given to it in Section 3.2 of this
Agreement.
"Closing Date" has the meaning given to it in Section 3.2 of
this Agreement.
"Common Stock" means the common stock of Buyer, par value $.01
per share.
"Creditors" has the meaning given to in the Acquisition
Agreement.
"Creditors' Committee" has the meaning given to it in the
recitals to this Agreement.
"Debtors" has the meaning given to it in the recitals of this
Agreement.
"DGCL" means the General Corporation Law of the State of
Delaware.
"DIP Loan" has the meaning given to it in the Acquisition
Agreement.
"Disclosure Statement" has the meaning given to it in the
recitals to this
3
<PAGE> 5
Agreement.
"Disclosure Statement Order" has the meaning given to it in the
Acquisition Agreement.
"Effective Time" means the date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware (or
such later time as is specified in the Certificate of Merger).
"Employee Stock Options" has the meaning given to it in Section
4.5 of this Agreement.
"Equipment Lease" has the meaning given to it in the Acquisition
Agreement.
"Exercise Price" has the meaning given to it in the Acquisition
Agreement.
"Final Distribution Date" has the meaning given to it in the
Acquisition Agreement.
"Fully Diluted Outstanding Common Stock" has the meaning given
to it in the Acquisition Agreement.
"Initial Shares of Common Stock" has the meaning given to it in
the Acquisition Agreement.
"Merger" has the meaning given to it in Section 3.1 of this
Agreement.
"New Employee Stock Option" has the meaning given to it in
Section 4.5 of this Agreement.
"OCV" means On Command Video Corporation, a Delaware
corporation, and its successors and assigns.
"OCV Common Stock" means the common stock, $0.01 par value per
share, of OCV.
"OCV Debt" means all of the current liabilities of OCV and the
Additional OCV Debt.
"OCV Equipment" has the meaning given to it in the Acquisition
Agreement.
"OCV Reserved Stock" has the meaning given to it in the
Acquisition Ag-
4
<PAGE> 6
reement.
"OCV Stock Certificate" has the meaning given to it in Section
4.2.1(a) of this Agreement.
"OCV Stock Option Plan" has the meaning given to it in Section
4.5 of this Agreement.
"Parties" has the meaning given to it in the first paragraph of
this Agreement.
"Plan Sponsor Agreement" has the meaning given to it in the
recitals of this Agreement.
"Procedures Order" has the meaning given to it in the recitals
to this Agreement.
"Registration Rights Agreement" has the meaning given to it in
the Acquisition Agreement.
"Registration Statement" has the meaning given to it in Section
6.9 of this Agreement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Spectradyne Stock" has the meaning given to it in the recitals
to this Agreement.
"Transactions" has the meaning given to it in the Acquisition
Agreement.
"Warrant Agreement" has the meaning given to it in the
Acquisition Agreement.
"Warrant Certificate" has the meaning given to it in the
Acquisition Agreement.
"Warrants" has the meaning given to it in the Acquisition
Agreement.
5
<PAGE> 7
SECTION 2
PROCEDURES ORDER; PLAN SPONSOR AGREEMENT
This Agreement shall in no way adversely affect, modify or limit
any of the rights of, or the benefits provided to, Ascent under the Procedures
Order (including, but not limited to, any rights of Ascent to reimbursement of
expenses) or the Disclosure Statement Order. This Agreement and the Acquisition
Agreement shall collectively supersede, replace and terminate the Plan Sponsor
Agreement; provided, however, that notwithstanding the foregoing, (i) the
Addendum shall not be superseded, replaced, terminated or otherwise affected by
this Agreement or the Acquisition Agreement, and (ii) all of the rights and
obligations of Ascent, the Debtors and the Creditors' Committee under the
Addendum shall remain in full force and effect.
SECTION 3
THE MERGER
3.1 Merger. Upon the terms and subject to the conditions set
forth in this Agreement and in accordance with the DGCL, at the Effective Time,
(i) Merger Subsidiary shall be merged with and into OCV (the "Merger"), and (ii)
the separate corporate existence of Merger Subsidiary shall cease, and OCV shall
continue as the surviving corporation of the Merger (the "Surviving
Corporation") under the name "On Command Video Corporation."
3.2 Closing. Unless this Agreement shall have been terminated
pursuant to Section 10 of this Agreement, and subject to the satisfaction or
waiver of the conditions set forth in Section 7 of this Agreement, the closing
of the Merger (the "Closing") will take place as soon as practicable after the
satisfaction or waiver of the conditions set forth in Section 7 of this
Agreement (the "Closing Date") at the offices of Latham & Watkins, 885 Third
Avenue, New York, New York 10022-4802, unless another date, time or place is
agreed to in writing by the Parties.
3.3 Effective Time. On the Closing Date, the Parties shall cause
the Merger to be consummated by filing a certificate of merger (the "Certificate
of Merger") with the Secretary of State of the State of Delaware, in such form
as required by, and executed in accordance with the relevant provisions of, the
DGCL.
3.4 Effects of the Merger. The Merger shall have the effects set
forth in Sections 259, 260 and 261 of the DGCL.
6
<PAGE> 8
3.5 Certificate of Incorporation; By-Laws. (a) At the Effective
Time, the certificate of incorporation of OCV that is in effect immediately
prior to the Effective Time shall become the certificate of incorporation of the
Surviving Corporation.
(b) At the Effective Time, the by-laws of OCV that are in
effect immediately prior to the Effective Time shall become the by-laws of the
Surviving Corporation.
3.6 Directors and Officers. The directors of OCV immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the certificate of
incorporation and by-laws of the Surviving Corporation, and the officers of OCV
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed, as the case may be, and qualified.
SECTION 4
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
4.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holders of any shares of
capital stock of OCV or Merger Subsidiary:
4.1.1 Common Stock of Merger Subsidiary. Each share of
common stock, par value $.01 per share, of Merger Subsidiary issued and
outstanding immediately prior to the Effective Time shall be converted into and
become one validly issued, fully paid and nonassessable share of common stock,
par value $.01 per share, of the Surviving Corporation.
4.1.2 Cancellation of Treasury Stock. Each share of OCV
Common Stock that is issued and outstanding prior to the Effective Time and that
is owned by OCV, or by any direct or indirect subsidiary of OCV, shall
automatically be cancelled and retired and shall cease to exist, and no
consideration shall be delivered or deliverable in exchange therefor.
4.1.3 Conversion of OCV Common Stock. Each share of OCV
Common Stock that is issued and outstanding immediately prior to the Effective
Time (other than shares of OCV Common Stock to be cancelled in accordance with
Section 4.1.2 of this Agreement and Dissenting Shares) shall be converted into
the following (collectively, the "Merger Consideration"):
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(a) the right to receive a number of fully paid and
nonassessable shares of Common Stock that is equal to (i) the product of 72.5%
and the number of Initial Shares of Common Stock, divided by (ii) the total
number of shares of OCV Common Stock that are issued and outstanding immediately
prior to the Effective Time (other than the shares of OCV Common Stock that are
to be cancelled pursuant to Section 4.1.2 of this Agreement);
(b) if any shares of the OCV Reserved Stock are to be
distributed to holders of OCV Common Stock pursuant to the Acquisition
Agreement, the right to receive an additional number of fully paid and
nonassessable shares of Common Stock that is equal to (i) the number of shares
of the OCV Reserved Stock to be distributed to the holders of OCV Common Stock,
divided by (ii) the total number of shares of OCV Common Stock that are issued
and outstanding immediately prior to the Effective Time (other than the shares
of OCV Common Stock that are to be cancelled pursuant to Section 4.1.2 of this
Agreement); and
(c) the right to receive Series A Warrants to
purchase a number of fully paid and nonassessable shares of Common Stock that is
equal to (i) 3.8% of the Fully Diluted Outstanding Common Stock, divided by (ii)
the total number of shares of OCV Common Stock that are issued and outstanding
immediately prior to the Effective Time (other than the shares of OCV Common
Stock that are to be cancelled pursuant to Section 4.1.2 of this Agreement).
4.1.4 Shares of Dissenting Holders. Notwithstanding
anything to the contrary in this Agreement, shares of OCV Common Stock (the
"Dissenting Shares") issued and outstanding immediately prior to the Effective
Time that are held by holders (if any) that have not voted in favor of the
Merger or consented thereto in writing and that have demanded appraisal rights
with respect to their shares of OCV Common Stock in accordance with Section 262
of the DGCL and, as of the Effective Time, shall not have failed to perfect (or
shall not have effectively withdrawn or lost) their rights to appraisal and
payment under Section 262 of the DGCL shall not be converted into the right to
receive the Merger Consideration, but holders of Dissenting Shares shall be
entitled to receive a cash payment in the amount of the appraised value of such
shares (the "Appraised Share Value") in accordance with the provisions of such
Section 262, except that any Dissenting Shares held by a holder that has failed
to perfect or shall have effectively withdrawn or lost its right to appraisal
and payment under Section 262 of the DGCL shall be converted into the right to
receive the Merger Consideration. OCV shall give Buyer (i) prompt notice of any
written demands for appraisal of any shares, attempted withdrawals of such
demands, and any other instruments served pursuant to the
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DGCL received by OCV relating to stockholders' rights of appraisal, and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the DGCL. OCV shall not, except with the prior written
consent of Buyer, voluntarily make any payment with respect to any demands for
appraisals of capital stock of OCV, offer to settle or settle any such demands
or approve any withdrawal of any such demands. None of the shares of Common
Stock or Series A Warrants that would have been issued pursuant to Section 4.1.3
of this Agreement in exchange for Dissenting Shares if such Dissenting Shares
had been converted into the Merger Consideration will be issued to any holder of
OCV Common Stock or any other person or entity.
4.1.5. Cancellation and Retirement of OCV Common Stock. As
of the Effective Time, all shares of OCV Common Stock issued and outstanding
immediately prior to the Effective Time shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of OCV Common Stock shall cease to have any rights with respect thereto, except
that (i) each holder of OCV Common Stock (other than holders of shares to be
cancelled pursuant to Section 4.1.2 of this Agreement and holders of Dissenting
Shares) shall have the right to receive the Merger Consideration for such shares
as provided in Section 4.1.3 of this Agreement and any cash that such holder is
entitled to receive pursuant to Section 4.3 of this Agreement in lieu of a
fractional share of Common Stock, and (ii) each holder of Dissenting Shares
shall be entitled to receive a cash payment in the amount of the Appraised Share
Value of such shares as set forth in Section 4.1.4 of this Agreement.
4.2 Exchange of OCV Stock Certificates for Merger
Consideration.
4.2.1 Exchange Procedures. (a) After the Effective Time,
there shall be no further transfer of certificates representing shares of OCV
Common Stock (each, an "OCV Stock Certificate") and if any such certificates
(other than certificates representing Dissenting Shares) are presented to the
Buyer or the Surviving Corporation for transfer, such certificates shall be
cancelled against delivery of the Merger Consideration and, if certificates
representing Dissenting Shares are presented for transfer, such certificates
shall be cancelled against payment of the Appraised Share Value of such
Dissenting Shares. No Merger Consideration or cash shall be delivered or paid to
a holder of an OCV Stock Certificate until such certificate has been surrendered
to, and accepted by, Buyer (or such holder has provided Buyer with evidence that
such certificate has been lost or stolen and such holder has indemnified Buyer
against any losses or damages that might result from treating such holder as the
owner of such certificate). Buyer shall accept OCV Stock Certificates upon
compliance with such reasonable terms and conditions as Buyer may impose in
order to effect an orderly exchange thereof in accordance with normal exchange
practices. Until surrendered and accepted as contemplated by this Section
4.2.1(a), (i) each OCV Stock Certificate (other than certificates held by
holders of shares to be cancelled pursuant to Section 4.1.2 of this
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Agreement and holders of Dissenting Shares) shall be deemed at any time after
the Effective Time to represent only the right to receive the Merger
Consideration and any cash payable to the holder of such certificate in lieu of
a fractional share of Common Stock, and (ii) each OCV Stock Certificate that
represents Dissenting Shares shall be deemed at any time after the Effective
Time to represent only the right to receive a cash payment in the amount of the
Appraised Share Value of such Dissenting Shares. No interest will accrue or be
paid with respect to any cash payable to holders of OCV Common Stock in lieu of
fractional shares of Common Stock.
(b) As of the Effective Time, each holder of an
outstanding OCV Stock Certificate that has been surrendered to, and accepted by,
Buyer shall be entitled to receive (i) a certificate or certificates (each, a
"Buyer Stock Certificate") representing the whole number of shares of Common
Stock into which the aggregate number of shares of OCV Common Stock represented
by such OCV Stock Certificate have been converted pursuant to Section 4.1.3(a)
of this Agreement, and (ii) one or more Warrant Certificates representing the
right to purchase (on a net basis and without the exchange of any funds), at the
Exercise Price, the whole number of additional shares of Common Stock into which
the aggregate number of shares of OCV Common Stock represented by such OCV
Certificate have been converted pursuant to Section 4.1.3(c) of this Agreement.
(c) As of the Final Distribution Date, each holder of an
outstanding OCV Stock Certificate that has been surrendered to, and accepted by,
Buyer shall be entitled to receive one or more Buyer Stock Certificates
representing the whole number of shares of Common Stock, if any, into which the
aggregate number of shares of OCV Common Stock represented by such OCV Stock
Certificate have been converted pursuant to Section 4.1.3(b) of this Agreement.
(d) If any Merger Consideration is to be issued, or any
cash is to be paid pursuant to Section 4.1.4 or 4.3 of this Agreement, to a
person other than the registered holder of an OCV Stock Certificate surrendered
for exchange, it shall be a condition of such exchange that such OCV Stock
Certificate shall be properly endorsed, with signature guaranteed, or otherwise
in proper form for transfer and that the person requesting such exchange shall
pay to Buyer any transfer or other taxes required by reason of the issuance of
any Merger Consideration in a name other than that of, or the payment of cash to
any person other than, the registered holder of the OCV Stock Certificate
surrendered, or establish to the satisfaction of Buyer that such tax has been
paid or is not applicable.
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4.2.2 Distributions on Common Stock. No holder of an
unsurrendered OCV Stock Certificate shall be entitled to receive any dividends
or other distributions that are payable with respect to the shares of Common
Stock issuable in exchange for such OCV Stock Certificate until such certificate
has been surrendered to, and accepted by, Buyer in accordance with Section 4.2.1
of this Agreement. Subject to applicable law, if any dividends or distributions
are paid on the Common Stock before any OCV Stock Certificate has been
surrendered to, and accepted by, Buyer, then upon the surrender and acceptance
of such certificate, Buyer shall pay, without interest, to the holder of such
certificate all of the dividends and distributions that would have been paid to
such holder if its OCV Stock Certificate had been exchanged for Common Stock
immediately after the Effective Time.
4.2.3 No Obligations With Respect to OCV Common Stock. As
of the Effective Time, all of OCV's obligations and liabilities with respect to
the OCV Common Stock shall have been satisfied and discharged in full and
neither Buyer nor the Surviving Corporation shall have any obligation or
liability with respect to any OCV Common Stock except as provided in Sections
4.1.3, 4.1.4 and 4.3 of this Agreement.
4.3 No Fractional Shares. (a) Notwithstanding any other
provision of this Agreement, no certificates representing fractional shares of
Common Stock shall be issued upon the surrender of OCV Stock Certificates. In
the event that any holder of OCV Common Stock would otherwise have been entitled
to receive a fractional share of Common Stock pursuant to Section 4.1.3(a) or
Section 4.1.3(b) of this Agreement, such holder shall be entitled to receive in
lieu of such fractional share an amount of cash equal to the product of the
average of the high and the low trading price for the Common Stock for the five
trading days immediately following the Effective Date and the fraction of Common
Stock that such holder would have been entitled to receive.
(b) Notwithstanding any other provision of this Agreement,
no Warrant shall provide any holder with the right to purchase a fractional
share of Common Stock. In the event that any holder of OCV Common Stock would be
entitled to receive a Warrant to purchase a fractional share of Common Stock
pursuant to Section 4.1.3(c) of this Agreement, the number of shares of Common
Stock that such holder will have the right to purchase pursuant to such Warrant
shall be rounded to the nearest whole number.
4.4 No Liability. None of Buyer, the Surviving Corporation,
Merger Subsidiary or OCV shall be liable to any person in respect of any Common
Stock (or dividends or distributions with respect thereto) or cash delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any OCV Stock Certificate has not been surrendered prior to two
years after the Effective Time (or immediately prior to such earlier date on
which any Common Stock, any cash in lieu of fractional Common Stock or any
dividends or distributions with respect to Common Stock
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exchangeable for such certificate would otherwise escheat to or become the
property of any government entity), any such Common Stock, cash, dividends, or
distributions exchangeable for such OCV Stock Certificate shall, to the extent
permitted by applicable law, become the property of Buyer, free and clear of all
claims or interest of any person or entity previously entitled thereto.
4.5 Treatment of Employee Stock Options. Prior to the Effective
Time, the board of directors of OCV (or, if appropriate, any committee thereof)
shall adopt appropriate resolutions and take all other actions necessary to
provide for the cancellation, as of the Effective Time, of all the outstanding
stock options (the "Employee Stock Options") previously granted under the On
Command Video Corporation 1987 Stock Option Plan (the "OCV Stock Option Plan"),
whether or not then vested or exercisable. As of the Effective Time, or as soon
as practicable thereafter, there shall be substituted for each outstanding
Employee Stock Option an equivalent option (each, a "New Employee Stock Option")
to purchase shares of Common Stock pursuant to the Buyer Stock Option Plan. The
number of shares of Common Stock that a holder of any New Employee Stock Option
will be entitled to purchase, the price at which shares of Common Stock will be
purchasable upon the exercise of any New Employee Stock Option, and the dates on
which any New Employee Stock Option will vest and become exercisable will be
determined by Buyer's board of directors based upon the ratio at which OCV
Common Stock is converted into Common Stock pursuant to Section 4.1.3(a) of this
Agreement. As of the Effective Time, (1) the Buyer Stock Option Plan shall
become effective, and (2) the OCV Stock Option Plan shall terminate and no
holder of an Employee Stock Option or any participant in the OCV Stock Option
Plan shall have any right thereunder to acquire capital stock of OCV or the
Surviving Corporation.
4.6 Additional Warrants. In consideration for certain investment
banking and advisory services provided in connection with the Transactions, at
the Effective Time, Buyer shall issue to Gary Wilson Partners a Series C Warrant
to purchase, for cash, at the Exercise Price, a number of fully paid and
nonassessable shares of Common Stock that is equal to 9.2% of the Fully Diluted
Outstanding Common Stock.
4.7 Registration Rights. Subject to the terms, conditions and
exceptions set forth in the Registration Rights Agreement, any person or entity
that receives 10% or more of the outstanding shares of Common Stock and the
holder of the Series C Warrant shall have certain registration rights with
respect to such Common Stock or the Common Stock purchasable upon the exercise
of the Series C Warrant, all as set forth in the Registration Rights Agreement.
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SECTION 5
REPRESENTATIONS AND WARRANTIES OF OCV
OCV hereby makes the following representations and warranties to
Buyer, all of which shall be true and correct as of the date hereof and on the
Closing Date:
5.1 Financial Statements. The financial statements of OCV, dated
December 31, 1995, that were supplied to the Debtors and the Creditors'
Committee on April 18, 1996 fairly present in accordance with generally accepted
accounting principles (except as otherwise set forth in the notes thereto) the
financial condition and results of operations at and for the period reported
thereon, and there exists no material adverse change in such financial condition
or results of operations of OCV between that date and the Effective Time.
5.2 There are no grounds that would allow any of OCV's five (5)
largest (by number of rooms served by OCV) hotel customers, or any of OCV's
major studio movie suppliers or free-to-guest programming suppliers, to
terminate their existing service contracts with OCV.
SECTION 6
PRE- AND POST-CLOSING OBLIGATIONS
6.1 Operation of OCV's Business Prior to Closing. Prior to the
Closing, OCV shall operate its business in the ordinary course as conducted on
April 19, 1996 and will use its best efforts to maintain favorable relationships
with its major hotel customers.
6.2 Incurrence of Debt by OCV. Except as provided in this
Agreement, OCV shall not incur any debt other than OCV Debt prior to the
Effective Time.
6.3 Lease of OCV Equipment to Spectradyne. If Spectradyne
desires to lease OCV Equipment pursuant to one or more Equipment Leases and (a)
such equipment is compatible with Spectradyne's existing technology or OCV
provides support services to Spectradyne on terms similar to those it previously
provided to Comsat Video Enterprises, and (b) installation of such equipment
will not breach any of the Debtors' contracts with the hotels it serves, then
OCV shall have the right, but not the obligation, to lease such OCV Equipment to
Spectradyne pursuant to one or more Equipment Leases.
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6.4 Agreements with Ascent. Prior to the Closing Date, Ascent
and its affiliates may enter into agreements with Buyer with respect to the
provision of management services, matters of corporate governance, technology
licensing, tax sharing and other operating matters, subject to the approval of
Buyer's board of directors and on terms at least as favorable as may be
available to Buyer in comparable third-party transactions.
6.5 No Conflicting Agreements. None of the Parties shall enter
into any agreement that would adversely affect (i) its ability to perform its
obligations under this Agreement, or (ii) the rights of any other person or
entity under this Agreement, the Acquisition Agreement or the Procedures Order.
6.6 Cooperation. Buyer and OCV shall (i) cause any necessary
filings with any governmental agency to be made expeditiously, and (ii) use
their reasonable best efforts to obtain any necessary government or third-party
approvals (including, without limitation, any filings or registrations with the
SEC or state securities regulatory authorities).
6.7 OCV Debt. On or prior to the Closing Date, OCV shall use its
reasonable best efforts to estimate the aggregate amount of OCV Debt that will
be outstanding as of the Effective Time, which amount shall be used to calculate
the Aggregate Warrant Exercise Price.
6.8 Special Meeting. OCV shall take all action necessary in
accordance with and subject to applicable law and its certificate of
incorporation and by-laws to convene a special meeting of its stockholders as
soon as practicable after the approval of the Disclosure Statement by the
Bankruptcy Court to consider and vote upon the adoption and approval of this
Agreement.
6.9 Preparation of Registration Statement and Information
Statement/ Prospectus. Buyer and OCV shall prepare and file with the SEC an
information statement/prospectus with respect to the Transactions (the
"Information Statement/ Prospectus") and Buyer shall prepare and file with the
SEC a registration statement on form S-4 (the "Registration Statement"), in
which the Information Statement/Prospectus will be included as a prospectus.
Each of Buyer and OCV shall use its reasonable best efforts to have the
Registration Statement declared effective under the Securities Act as soon as
practicable after it has been filed with the SEC. OCV will use its reasonable
best efforts to cause the Information Statement/Prospectus to be mailed to OCV's
stockholders as soon as practicable after the Registration Statement has been
declared effective under the Securities Act.
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6.10 Stock Exchange Listing. Buyer shall use its reasonable best
efforts to cause the Common Stock and the Series A Warrants to be approved for
listing on a securities exchange, subject to official notice of issuance, prior
to the Closing Date, or at Buyer's election, to be listed on the Nasdaq National
Market.
6.11 Financing. OCV shall cooperate with Buyer in connection
with Buyer obtaining the financing required to pay up to $40,000,000 of the DIP
Loan as contemplated by the Acquisition Agreement.
6.12 Further Assurances. After the Closing, OCV and Buyer shall
take such additional actions, and execute and deliver such additional documents
and instruments, as may be reasonably necessary or appropriate to effect the
transactions contemplated by, and to carry out the intent of, this Agreement.
SECTION 7
CONDITIONS PRECEDENT
7.1 Conditions to OCV's Obligations. The obligation of OCV to
consummate the Merger is subject to the satisfaction of each of the following
conditions:
7.1.1 Consents and Approvals. All consents and approvals
required to consummate the Merger shall have been obtained.
7.1.2 Absence of Adverse Order. As of the Closing Date, no
court has entered an order that enjoins, restrains, or prohibits the
consummation of the Merger.
7.1.3 Registration of Common Stock and Warrants. A
registration statement covering both the Common Stock and the Series A Warrants
shall have been filed with, and declared effective by (and no stop order or
other action has been taken, and no proceeding has been commenced, to enjoin
distribution of such shares) the SEC, and such Common Stock and Warrants shall
have been qualified under all applicable state securities laws.
7.1.4 Acquisition of the Spectradyne Stock. Prior to or
contemporaneously with the consummation of the Merger, Buyer (or, at the
election of Buyer, a wholly-owned subsidiary of Buyer) shall have acquired all
of the Spectradyne Stock pursuant to and in accordance with the terms of the
Acquisition Agreement.
7.2 Waiver of Conditions Precedent. If any condition described
in Section 7.1 of this Agreement has not been satisfied, OCV may (in its sole
discretion) waive such
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condition.
SECTION 8
TERMINATION OF THIS AGREEMENT
8.1 Termination. This Agreement may be terminated by OCV prior
to the Effective Time upon the occurrence of any of the following events:
(a) Buyer has not acquired the Spectradyne Stock on or
before October 30, 1996 or such later date as is acceptable to OCV; or
(b) The Acquisition Agreement has been terminated for any
reason.
8.2 Notice of Termination. OCV may elect to exercise its right
to terminate this Agreement by sending a written notice to the Buyer in the
manner provided in Section 9.2 of this Agreement. In the event of any
termination of this Agreement, the Parties shall have no further obligations or
liabilities to one another under this Agreement.
SECTION 9
GENERAL PROVISIONS
9.1 Expenses. Except as otherwise provided in this Agreement and
the Procedures Order, all expenses involved in the preparation and consummation
of this Agreement shall be borne by the Party incurring such expense whether or
not the Transactions are consummated; provided, however, that the costs of
registering the Common Stock and the Series A Warrants and the costs of
preparing and filing the Registration Statement shall be paid by Buyer.
9.2 Notices. All notices, requests, demands, and other
communications pertaining to this Agreement shall be in writing and shall be
deemed duly given when delivered personally (which shall include delivery by (i)
Federal Express or other nationally recognized, reputable overnight courier
service that issues a receipt or other confirmation of delivery or (ii) fax upon
confirmation of delivery) to the Party for whom such communication is intended,
or three (3) business days after the date mailed by certified or registered U.S.
mail, return receipt requested, postage prepaid, addressed as follows:
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(a) If to OCV:
On Command Video Corporation
3301 Olcott Street
Santa Clara, CA 95054
Attention: Robert Snyder
Telephone: (408) 496-1800
Telecopy: (408) 496-0668
With a copy to:
Latham & Watkins
885 Third Avenue
Suite 1000
New York, New York 10022
Attention: Roger H. Kimmel
Telephone: (212) 906-1200
Telecopy: (212) 751-4864.
(b) If to Buyer:
On Command Corporation
c/o Ascent Entertainment Group, Inc.
1200 Seventeenth Street
Denver, CO 80202
Attention: General Counsel
Telephone: (303) 572-0381
Telecopy: (303) 572-0396
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Attention: William J. Perlstein
Telephone: (202) 663-6000
Telecopy: (202) 663-6363.
(c) If to Merger Subsidiary:
On Command Merger Corporation
c/o Ascent Entertainment Group, Inc.
1200 Seventeenth Street
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Denver, CO 80202
Attention: General Counsel
Telephone: (303) 572-0381
Telecopy: (303) 572-0396
With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Attention: William J. Perlstein
Telephone: (202) 663-6000
Telecopy: (202) 663-6363.
Buyer, OCV or Merger Subsidiary may change its address for notices by notice to
the other given pursuant to this Section 9.2.
9.3 Attorneys' Fees. If any Party initiates any litigation
against any other Party involving this Agreement prior to the Closing Date, the
prevailing Party in such action shall be entitled to receive reimbursement from
the other Party in that litigation of the prevailing Party's reasonable
attorneys' fees and other costs and expenses incurred by the prevailing Party in
connection with that litigation, including any appeal, and such reimbursement
may be included in the judgment or final order issued in that proceeding.
9.4 Waiver. Unless otherwise specifically agreed in writing to
the contrary: (i) the failure of any Party at any time to require performance by
any other Party of any provision of this Agreement shall not affect such Party's
right thereafter to enforce the same; (ii) no waiver by any Party of any default
by any other Party shall be valid unless in writing and acknowledged by an
authorized representative of the nondefaulting Party, and no such waiver shall
be taken or held to be a waiver by the nondefaulting Party of any other
preceding or subsequent default; and (iii) no extension of time granted by any
Party for the performance of any obligation or act by the any other Party shall
be deemed to be an extension of time for the performance of any other obligation
or act under this Agreement.
9.5 Assignment; Survival of Representations, Warranties and
Covenants. Except as otherwise contemplated by this Agreement, neither Buyer nor
OCV may assign its rights or delegate its obligations under this Agreement
without the prior written consent of the other. Subject to the foregoing, this
Agreement shall be binding upon and shall inure to the benefit of the Parties
and their respective successors and assigns, and no other person shall acquire
or have any right under or by virtue of this Agreement. The representations and
warranties of OCV in this Agreement shall expire on the Closing Date and neither
OCV nor Buyer shall have any liability after the Closing Date for any
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breach of any of their representations, warranties, covenants or agreements
under this Agreement; provided, however, that notwithstanding anything to the
contrary in this Agreement, following consummation of the Merger, the respective
obligations of Buyer and the Surviving Corporation under Section 4 shall survive
and continue until performed or discharged in accordance with the terms of this
Agreement.
9.6 Entire Agreement. This Agreement and the Exhibits and
Schedules to this Agreement (which are incorporated by reference herein)
constitute the entire agreement among the Parties with respect to the Merger,
and supersede and terminate any prior agreement between the Parties (written or
oral) with respect to the Merger. Neither this Agreement nor any Exhibit or
Schedule may be altered or amended except by an instrument in writing signed by
all of the Parties.
9.7 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures on each such counterpart
were on the same instrument.
9.8 Construction. The Section headings of this Agreement are for
convenience only and in no way modify, interpret or construe the meaning of
specific provisions of this Agreement. As used in this Agreement, the neuter
gender shall also denote the masculine and feminine, and the masculine gender
shall also denote the neuter and feminine, where the context so permits.
9.9 Severability. If any one or more of the provisions contained
in this Agreement should be found invalid, illegal or unenforceable in any
respect, the validity, legality, and enforceability of the remaining provisions
contained in this Agreement shall not in any way be affected or impaired
thereby. Any illegal or unenforceable term shall be deemed to be void and of no
force and effect only to the minimum extent necessary to bring such term within
the provisions of applicable law and such term, as so modified, and the
remainder of this Agreement shall then be fully enforceable.
9.10 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the choice of law rules of that jurisdiction.
9.11 Counsel. Each Party has been represented by its own counsel
in connection with the negotiation and preparation of this Agreement and,
consequently, each Party waives the application of any rule of law that would
otherwise be applicable in connection with the interpretation of this Agreement
(including, but not limited to, any rule of law to the effect that any provision
of this Agreement shall be interpreted or construed against the Party whose
counsel drafted that provision).
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[SIGNATURES ON NEXT PAGE]
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
be executed by a respective duly authorized officer as of the date first written
above.
ON COMMAND CORPORATION
By: _____________________
Name:
Title:
ON COMMAND MERGER CORPORATION
By: _____________________
Name:
Title:
ON COMMAND VIDEO CORPORATION
By: _____________________
Name:
Title:
20
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EXECUTION COPY
ACQUISITION AGREEMENT
BY AND AMONG
ON COMMAND CORPORATION,
ASCENT ENTERTAINMENT GROUP, INC.,
THE OFFICIAL CREDITORS' COMMITTEE FOR
SPECTRAVISION, INC. AND CERTAIN OF ITS SUBSIDIARIES,
SPECTRAVISION, INC.,
SPECTRADYNE, INC.,
AND
THE OTHER DEBTORS NAMED HEREIN
Dated as of August 13, 1996
<PAGE> 2
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT, dated as of August 13, 1996, by and among
SpectraVision, Inc. ("SpectraVision"), Spectradyne, Inc., ("Spectradyne"), and
all of the direct and indirect subsidiaries of SpectraVision that are debtors in
the Bankruptcy Case (as defined below) other than Spectradyne (collectively, the
"Non- Spectradyne Subsidiaries" and, together with SpectraVision, the
"Non-Spectradyne Debtors"), On Command Corporation (the "Buyer"), the Creditors'
Committee (as defined below), Ascent Entertainment Group, Inc. ("Ascent" and,
together with Buyer, the Non-Spectradyne Debtors, Spectradyne and the Creditors'
Committee, the "Parties"). Unless otherwise defined in this Agreement, all
capitalized terms in this Agreement shall have the meanings assigned to them in
Section 1 of this Agreement.
R E C I T A L S
WHEREAS, the Non-Spectradyne Debtors and Spectradyne
(collectively, the "Debtors") have each filed a petition for relief under
Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Section 101, et seq.,
(the "Bankruptcy Code") in the Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court"), which cases have been procedurally consolidated for
joint administration as Case No. 95-659 (collectively, the "Bankruptcy Case").
WHEREAS, on December 20, 1995, the Bankruptcy Court entered the
Order Granting the Motion for Order (1) Approving Process for Solicitation and
Selection of a Third Party Plan Sponsor, (2) Bid Protection, (3) Expense
Reimbursement, and (4) Break-Up Fee (the "Procedures Order").
WHEREAS, on April 19, 1996, SpectraVision, Ascent, On Command
Video Corporation ("OCV") and the Official Creditors' Committee appointed by the
U.S. Trustee in the Bankruptcy Case (the "Creditors' Committee" and, together
with SpectraVision, Ascent and OCV, the "PSA Parties") entered into an agreement
(the "Plan Sponsor Agreement"), pursuant to which all or substantially all of
the assets of the Debtors and OCV are to be acquired, directly or indirectly, by
Buyer or one or more wholly-owned subsidiaries of Buyer.
WHEREAS, pursuant to the Plan Sponsor Agreement, the PSA Parties
agreed that: (a) Ascent shall be the Plan Sponsor as provided in the Procedures
Order, (b) the PSA Parties will sponsor and support a plan of reorganization for
the Debtors and the PSA Parties will not support any other plan of
reorganization except as provided in the Procedures Order, (c) the PSA Parties
will reasonably cooperate in preparing and submitting a plan of reorganization
for the Debtors, the disclosure statement for such plan (the "Disclosure
Statement") and all other documents necessary to obtain confirmation of such
plan, (d) the Debtors and the Creditors' Committee (i) will not solicit any
other bids
<PAGE> 3
to acquire assets of the Debtors, (ii) will not negotiate with any other person
concerning the disposition of any assets of the Debtors (except as provided in
the Procedures Order), and (iii) will inform Ascent within one business day of
the receipt of any unsolicited bid received by either the Creditors' Committee
or the Debtors, and (e) Ascent shall be entitled to the benefits that the
Procedures Order provides for the Plan Sponsor.
WHEREAS, this Agreement is being entered into by and among the
Parties in accordance with the terms and provisions of the Plan Sponsor
Agreement for the purpose of implementing the Plan Sponsor Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and of the
mutual promises, covenants, and conditions set forth below, the Parties hereby
agree as follows:
SECTION 1
DEFINITIONS
Except as otherwise specified in this Agreement or as the
context may otherwise require, the following terms have the meanings set forth
below.
"1995 Financial Statements" has the meaning given to in Section
6.2 of this Agreement.
"1996 Financial Statements" has the meaning given to in Section
6.2 of this Agreement.
"Accounts Receivable" means the accounts receivable of
Spectradyne after giving effect to all of the transactions contemplated by
Section 3 of this Agreement.
"Addendum" means the addendum to the Plan Sponsor Agreement,
dated as of April 19, 1996, that was entered into on behalf of the PSA Parties.
"Additional OCV Debt" means the following: (i) $22,000,000 of
inter-company debt owed by OCV to Ascent as of March 1, 1996, plus any
additional debt incurred by OCV in connection with its buildout of hotel rooms
and transition costs associated with the Transactions from March 1, 1996 to the
Closing Date; provided, however, that (a) prior to May 18, 1996, the rate of
additional debt incurred by OCV in connection with buildouts and transition
costs shall not exceed $3,000,000 per month and shall be consistent with, and on
the same terms as, the intercompany debt outstanding on March 1, 1996, and (b)
on and after May 18, 1996, the amount of additional debt incurred by OCV may
exceed $3,000,000 per month (but shall be consistent with, and on the
<PAGE> 4
same terms, as the intercompany debt outstanding on March 1, 1996) in order to
accelerate the buildout of room backlog after consultation with SpectraVision
and the Creditors' Committee; (ii) all of the debt incurred by OCV in connection
with leasing OCV Equipment to Spectradyne and all of the Rental Charges to be
assumed or paid by Buyer; and (iii) all of the debt incurred by OCV, directly or
on behalf of Buyer, in arranging for alternative service to replace the network,
transponder and similar services currently provided to the Debtors by Electronic
Data Systems Corporation.
"Adjusted Balance Sheet" shall mean the Closing Balance Sheet as
revised to reflect the changes, if any, that have been ordered by the Bankruptcy
Court pursuant to Section 7.12.4 of this Agreement; provided, however, that if
Buyer does not submit a Buyer's Statement to SpectraVision and the Creditors'
Committee prior to the expiration of the Resolution Period, or if each
disagreement that Buyer has with the Closing Balance Sheet as set forth in the
Buyer's Statement has been resolved by Buyer, SpectraVision and the Creditors'
Committee prior to the expiration of the Resolution Period, the Closing Balance
Sheet (with such changes, if any, that are agreed to by Buyer, SpectraVision and
the Creditors' Committee) shall be the Adjusted Balance Sheet.
"Adjusted Current Assets" means the aggregate dollar amount of
the Current Assets less the sum of the following assets if, and only to the
extent that, such assets constitute Current Assets: (i) the aggregate
outstanding balance of the Accounts Receivable that are more than 90 days past
due, and (ii) the aggregate amount of cash and other assets, if any, transferred
by Spectradyne to the Debtors' Estates pursuant to Section 3.3(vii) of this
Agreement.
"Adjusted Current Liabilities" means the aggregate dollar amount
of the Current Liabilities less the sum of the following liabilities if, and
only to the extent that, such liabilities constitute Current Liabilities: (i)
the Rental Charges, (ii) the aggregate amount of liabilities to be paid by Buyer
pursuant to Sections 4.1.1, 4.1.2 and 4.1.3 of this Agreement, and (iii) the
deferred obligations set forth on Schedule A to the Plan Sponsor Agreement, a
copy of which is attached to this Agreement as Schedule 1.1(a); provided,
however, that the amount of each such deferred obligation that is excluded from
Current Liabilities shall not exceed the amount of such obligation as set forth
on such Schedule.
"Adjustment Date" means (i) the date on which the disagreements,
if any, that Buyer has with the Closing Balance Sheet as set forth in the
Buyer's Statement have been resolved in accordance with the provisions of
Section 7.12 of this Agreement, or (ii) if Buyer does not have any disagreements
with the Closing Balance Sheet or if all such disagreements have been resolved
by Buyer, SpectraVision and the Creditors' Committee prior to the expiration of
the Resolution Period, the last day of the Resolution Period or such earlier
date as is agreed to by Buyer, SpectraVision and the Creditors' Committee.
3
<PAGE> 5
"Aggregate Warrant Exercise Price" means the amount by which
$550,000,000 exceeds the Total Buyer Debt.
"Agreement" means this Acquisition Agreement, as amended,
supplemented or modified from time to time in accordance with its terms.
"Allowed Administrative Expenses" means administrative expenses
of the Debtors that have been allowed pursuant to a Bankruptcy Court Order.
"Appellate Court Review" has the meaning given to it in the
definition of Final Order.
"Ascent" means Ascent Entertainment Group, Inc., a Delaware
corporation, and its successors and assigns.
"Assets" means all of the assets and properties of the Debtors
(including, without limitation, all tangible, intangible, real and personal
assets and properties of the Debtors), wherever located, other than the Excluded
Assets.
"Assumed Liabilities" has the meaning given to it in Section
4.1.5 of this Agreement.
"Authorizations" means, with respect to any Person, all
consents, authorizations, approvals, notices, filings, permits, permissions and
registrations required under (i) all Laws applicable to such Person, and (ii)
all contracts and other agreements to which such Person is a Party.
"Bankruptcy Case" has the meaning given to it in the recitals to
this Agreement.
"Bankruptcy Code" has the meaning given to it in the recitals to
this Agreement.
"Bankruptcy Court" has the meaning given to it in the recitals
to this Agreement.
"Bankruptcy Court Order" means an order or judgment of the
Bankruptcy Court that was entered in accordance with the Bankruptcy Code.
"Buyer" means On Command Corporation, a Delaware corporation,
and its successors and assigns.
4
<PAGE> 6
"Buyer's Statement" has the meaning given to it in Section
7.12.2 of this Agreement.
"Buyer Termination Event" has the meaning given to it in Section
11.2 of this Agreement.
"Bylaws" has the meaning given to it in Section 5.3.2 of this
Agreement.
"Certificate of Incorporation" has the meaning given to it in
Section 5.3.1 of this Agreement.
"Closing" has the meaning given to it in Section 9.1 of this
Agreement.
"Closing Balance Sheet" has the meaning given it in Section
7.12.1 of this Agreement.
"Closing Date" means the first practicable date after all
conditions precedent set forth in Sections 8.1, 8.2 and 8.3 of this Agreement
have been satisfied or waived by the Party entitled to waive such condition.
"Common Stock" means common stock of Buyer, $.01 par value per
share.
"Confirmation Letter" means a letter addressed to Buyer from
counsel to the Debtors (i) stating that, to the best knowledge of such counsel
after due inquiry and investigation, as of the Closing Date such counsel is
unaware of any Post-Trial Motion or request for Appellate Court Review with
respect to the Confirmation Order, or (ii) identifying all such Post-Trial
Motions or requests for Appellate Court Review of which such counsel is aware,
and describing the status of each such motion and request (including, without
limitation, whether a request for a stay of the Confirmation Order has been
sought or granted).
"Confirmation Order" means a Bankruptcy Court Order that
confirms the Plan and satisfies the conditions set forth in Sections 8.2.6 and
8.3.11 of this Agreement.
"Creditors" means the creditors of the Debtors.
"Creditors' Committee" has the meaning given to it in the
recitals to this Agreement.
5
<PAGE> 7
"Creditor Warrants" means Series B Warrants that will entitle
the holders thereof, upon initial issuance of such Warrants and for a period of
seven years thereafter, to purchase an aggregate number of shares of Common
Stock equal to 7% of the Fully Diluted Outstanding Common Stock.
"Cure Payments" means, with respect to any lease or executory
contract assumed by any of the Debtors at the written direction of Ascent or
Buyer, all amounts that the Bankruptcy Court determines are required to cure any
defaults under such lease or contract at the time the Bankruptcy Court grants a
motion to assume such contract or lease pursuant to section 365 of the
Bankruptcy Code other than the amounts required to be paid by the Debtors
pursuant to Section 7.2(b) of this Agreement.
"Current Assets" means the aggregate dollar amount of the
consolidated assets of Spectradyne and the Foreign Subsidiaries as of the
Closing Date that are properly classified as "current assets" under GAAP, after
giving effect to all of the transactions contemplated by Section 3 of this
Agreement (in calculating such dollar amount, if the current assets of any
Foreign Subsidiary are not denominated in U.S. dollars, such current assets
shall be converted into their U.S. dollar equivalent as of the Closing Date in
accordance with GAAP).
"Current Liabilities" means the aggregate dollar amount of the
consolidated liabilities of Spectradyne and the Foreign Subsidiaries as of the
Closing Date that are properly classified as "current liabilities" under GAAP,
after giving effect to all of the provisions of Section 4 of this Agreement (in
calculating such dollar amount, if the current liabilities of any Foreign
Subsidiary are not denominated in U.S. Dollars, such current liabilities shall
be converted into their U.S. dollar equivalent as of the Closing Date in
accordance with GAAP).
"Debtors" has the meaning given to it in the recitals to this
Agreement.
"Debtors' Estates" means the bankruptcy estates of the Debtors
after the Closing.
"Debtor Termination Event" has the meaning given to it in
Section 11.3 of this Agreement.
"Default Notice" has the meaning given to it in Section 10 of
this Agreement.
"DIP Lender" means Foothill Capital Corporation.
"DIP Loan" means all amounts (including, without limitation,
principal, interest and fees) due and owing to the DIP Lender under the DIP Loan
Agreement as of the Closing Date.
6
<PAGE> 8
"DIP Loan Agreement" means the loan and security agreement,
dated as of June 9, 1995, by and between Spectradyne and the DIP Lender.
"Disclosure Statement" has the meaning given to it in the
recitals to this Agreement.
"Disclosure Statement Order" means the order of the Bankruptcy
Court entered on June 7, 1996 that sets forth the procedures for the approval of
the Disclosure Statement and the Plan.
"Effective Date" means the effective date of the Plan, which
shall occur on or prior to the Closing Date.
"Equipment Lease" means a lease of OCV equipment from OCV to
Spectradyne that is in form and substance satisfactory to OCV and Spectradyne;
provided, however, that (i) each Equipment Lease shall provide that, in the
event that this Agreement is terminated for any reason, such lease shall
terminate not later than 180 days after the date this Agreement (the "lease
termination date") has been terminated and Spectradyne shall return all
equipment leased pursuant to such lease, and pay all Rental Charges payable with
respect to such lease, on or prior to the lease termination date for such lease,
and (ii) the Rental Charges due under each Equipment Lease shall accrue until
the earlier of the Closing Date and the lease termination date for such lease.
"Estimated Net Working Capital" means the positive or negative
amount obtained by subtracting (i) the Adjusted Current Liabilities as reflected
in the Pre-Closing Balance Sheet, from (ii) 95% of the Adjusted Current Assets
as reflected in Pre-Closing Balance Sheet.
"Excess Payment" means the dollar amount, if any, by which the
Non-Specified Payment Obligations as of the Adjustment Date exceeds the sum of
the Adjusted Current Assets as reflected in the Adjusted Balance Sheet and the
Reserved Stock Value, if any; provided, however, that the Excess Payment shall
be equal to zero unless the Non-Specified Payment Obligations as of the
Adjustment Date exceed the Adjusted Current Assets as reflected in the Adjusted
Balance Sheet by at least $250,000.
"Excess Stock Payment" means a number of shares of Common Stock
equal to the product of the Excess Payment and a fraction, the numerator of
which shall be equal to the Initial Shares of Common Stock and the denominator
of which shall be equal to the Aggregate Warrant Exercise Price.
"Excluded Assets" has the meaning given to it in Section 3.3 of
this Agreement.
7
<PAGE> 9
"Excluded Subsidiaries" means all of the direct and indirect
subsidiaries of Spectradyne other than the Foreign Subsidiaries.
"Exercise Price" shall mean a dollar amount calculated by
dividing the Aggregate Warrant Exercise Price by the Initial Shares of Common
Stock.
"Final Order" means an order or judgment rendered by the
Bankruptcy Court or other court of competent jurisdiction that has been entered
on the docket and (unless otherwise ordered by such court) as to which (i) both
(a) the time to seek reconsideration, rehearing, or new trial by the rendering
court (hereinafter, a "Post-Trial Motion"), and (b) the time (including time
resulting from a timely filed motion under Rule 8002(c) under the Federal Rules
of Bankruptcy Procedure) to appeal or to seek a petition for review or
certiorari (hereinafter, an "Appellate Court Review"), has expired (without
regard to whether time to seek relief of a judgment under Rule 60(b) of the
Federal Rules of Civil Procedure or Rule 9024 of the Federal Rules of Bankruptcy
Procedure has expired); and (ii) either (a) no Post-Trial Motion or request for
Appellate Court Review is pending, or (b) a Post-Trial Motion or a request for
Appellate Court Review is pending but the subject order of judgment has not been
stayed, amended, modified or reversed by a court of competent jurisdiction or,
if stayed, such stay has been vacated or is no longer in effect. Without
limiting the foregoing, the pendency of, or request for, a Post-Trial Motion or
an Appellate Court Review shall not prevent an order from becoming final and
being implemented, absent the entry of a stay by a court of competent
jurisdiction and the continuation thereof.
"Final Distribution Date" shall mean the first business day
practicable after the Adjustment Date; provided, however, that if the Estimated
Net Working Capital exceeds $1,000,000, the "Final Distribution Date" shall be
the Closing Date.
"Financial Statements" means the 1995 Financial Statements and
the 1996 Financial Statements.
"Foreign Subsidiaries" means the direct and indirect
subsidiaries of SpectraVision that are incorporated in any country other than
the United States of America.
"Fully Diluted Outstanding Common Stock" means a number of
shares of Common Stock equal to 125% of the Initial Shares of Common Stock.
"GAAP" means generally accepted accounting principles
consistently applied.
"Initial Percentage" means the percentage equal to the
difference between 27.5% of the Initial Shares of Common Stock and the Potential
Additional Percentage.
8
<PAGE> 10
"Initial Shares of Common Stock" means 30,000,000 shares of
Common Stock, or such other number of shares of Common Stock that is acceptable
to Ascent and the Creditors' Committee.
"Laws" means, with respect to any Person, all laws, statutes,
rules, regulations, judgments, orders, writs, injunctions and decrees applicable
to such Person or its properties or assets (whether foreign, provincial,
federal, state or local).
"Maximum Assumable Amount" means the sum of 95% of the Adjusted
Current Assets as reflected in the Pre-Closing Balance Sheet and the Reserved
Stock Value, if any.
"Maximum Remaining Payment Amount" means the difference between
(i) the Adjusted Current Assets as reflected in the Adjusted Balance Sheet, and
(ii) the Non-Specified Payment Obligations as of the Adjustment Date; provided,
however, that if Non-Specified Payment Obligations as of the Adjustment Date
equal or exceed the Adjusted Current Assets as reflected in the Adjusted Balance
Sheet, the Maximum Remaining Payment Amount shall be equal to zero.
"Merger" has the meaning given to it in Section 8.3.3 of this
Agreement.
"Merger Agreement" means the merger agreement between OCV and On
Command Merger Corporation, a wholly-owned subsidiary of Buyer, which agreement
shall be substantially in the form of Exhibit A of this Agreement.
"Non-Creditor Warrants" means Series A Warrants and Series C
Warrant that entitle the holders thereof, upon initial issuance of such
Warrants, to purchase an aggregate number of shares of Common Stock equal to 13%
of the Fully Diluted Outstanding Common Stock.
"Non-Specified Payment Obligations" means, (A) as of the Final
Distribution Date, an amount equal to the sum of, without duplication, (i) the
aggregate amount of the Adjusted Current Liabilities that have been assumed by
Spectradyne pursuant to Section 4.1.5 of this Agreement, (ii) the aggregate
amount of the Allowed Administrative Expenses that have been paid by Buyer
and/or it subsidiaries pursuant to Section 4.1.4 of this Agreement as of the
Final Distribution Date, and (iii) the aggregate amount of the Current
Liabilities, if any, that have been assumed by Spectradyne pursuant to Section
4.1.4 of this Agreement as of the Final Distribution Date, and (B) as of the
Adjustment Date, an amount equal to the sum of, without duplication, (i) the
aggregate amount of the Adjusted Current Liabilities that have been assumed by
Spectradyne pursuant to Section 4.1.5 of this Agreement, (ii) the aggregate
amount of the Allowed Administrative
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<PAGE> 11
Expenses that have been paid by Buyer and/or its subsidiaries pursuant to
Section 4.1.4 of this Agreement as of the Adjustment Date, and (iii) the
aggregate amount of the Current Liabilities, if any, that have been assumed by
Spectradyne pursuant to Section 4.1.4 of this Agreement as of the Adjustment
Date.
"Non-Spectradyne Debtors" has the meaning given to it in the
first paragraph of this Agreement.
"Non-Spectradyne Debtor Records" has the meaning given to in
Section 3.2.4(i) of this Agreement.
"OCV" means On Command Video Corporation, a Delaware
corporation, and its successors and assigns.
"OCV Assets" means all of the assets, leases (which consist only
of real estate operating leases with standard payment requirements), operations
and business of OCV.
"OCV Equipment" means any equipment leased by OCV to Spectradyne
pursuant to an Equipment Lease.
"OCV Reserved Stock" means the number of shares of Common Stock
equal to the product (rounded to the nearest whole number) of: (i) the amount,
if any, by which the Non-Specified Payment Obligations as of the Final
Distribution Date exceeds the Adjusted Current Assets as reflected in the
Adjusted Balance Sheet, and (ii) a fraction, the numerator of which shall be
equal to the Initial Shares of Common Stock and the denominator of which shall
be equal to the Aggregate Warrant Exercise Price; provided, however, that
notwithstanding the foregoing, (A) there shall not be any shares of OCV Reserved
Stock if either (1) the Estimated Net Working Capital is equal to or greater
than $1,000,000, or (2) the Non-Specified Payment Obligations as of the Final
Distribution Date do not exceed the Adjusted Current Assets as reflected in the
Adjusted Balance Sheet by at least $250,000, and (B) the number of shares of OCV
Reserved Stock shall not exceed the number of shares of Reserved Stock under any
circumstances.
"OCV Warrant Parties" means OCV's stockholders and any other
persons or entities entitled to receive the Non-Creditor Warrants pursuant to
the terms of the Merger Agreement.
"Parties" has the meaning given to it in the first paragraph of
this Agreement.
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<PAGE> 12
"Plan" means a plan of reorganization for the Debtors, as
amended or modified, that (i) has been prepared and submitted by the PSA Parties
to the Bankruptcy Court, and (ii) satisfies the conditions set forth in Sections
8.2.6 and 8.3.11 of this Agreement.
"Plan Sponsor" has the meaning given to it in the Procedures
Order.
"Plan Sponsor Agreement" has the meaning given to it in the
recitals of this Agreement.
"Post-Trial Motion" has the meaning given to it in the
definition of Final Order.
"Potential Additional Percentage" means the percentage (rounded
to the nearest one-thousandth) calculated by dividing the number of shares of
Reserved Stock by the number of shares of Initial Shares of Common Stock.
"Pre-Closing Balance Sheet" has the meaning given it in Section
7.12.1 of this Agreement.
"Procedures Order" has the meaning given to it in the recitals
to this Agreement.
"PSA Parties" has the meaning given to it in the recitals to
this Agreement.
"Records" means the Non-Spectradyne Debtor Records and the
Spectradyne Records.
"Registration Rights Agreement" means a registration rights
agreement substantially in the form attached to this Agreement as Exhibit B.
"Rental Charges" means the aggregate amount of rental charges
payable to OCV by Spectradyne under the Equipment Leases, which shall be equal
to OCV's cost of capital in connection with any debt incurred by OCV in
providing OCV Equipment to Spectradyne (which shall include any interest on the
debt incurred to purchase and install such equipment).
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<PAGE> 13
"Reserved Amount" means (i) if the Estimated Net Working Capital
is positive but less than $1,000,000, the difference between $1,000,000 and the
Estimated Net Working Capital, (ii) if the Estimated Net Working Capital is
negative, the sum of $1,000,000 and the absolute value of the Estimated Net
Working Capital; provided, however, that Reserved Amount shall not exceed
$10,000,000 under any circumstances, and (iii) if the Estimated Net Working
Capital is equal to or greater than $1,000,000, then the Reserved Amount shall
be zero.
"Reserved Stock" means a number of authorized but unissued
shares of Common Stock (rounded to the nearest whole number) that is determined
as follows: (i) if the Estimated Net Working Capital is less than $1,000,000, a
number of shares of Common Stock equal to the product of Initial Shares of
Common Stock and a fraction, the numerator of which shall be equal to the
Reserved Amount and the denominator of which shall be equal to the Aggregate
Warrant Exercise Price, and (ii) if the Estimated Net Working Capital is greater
than or equal to $1,000,000, there shall be no shares of Reserved Stock.
"Reserved Stock Value" means an amount equal to the product of
the number of shares of Reserved Stock and a fraction, the numerator of which
shall be equal to the Aggregate Warrant Exercise Price and the denominator of
which shall be equal to the number of Initial Shares of Common Stock.
"Resolution Period" means the twenty (20) day period following
delivery of the Closing Balance Sheet to Buyer pursuant to Section 7.12.1 of
this Agreement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Spectradyne" means Spectradyne, Inc., a Texas corporation.
"Spectradyne Records" means all records relating to
Spectradyne's business (including, but not limited to, all books of account,
customer lists, supplier lists, employee personnel files, tax records and
information, local public records file materials, engineering data, logs,
programming records, consultants' reports, budgets, financial reports and
projections, and sales, operating and business plans, that relate to or are used
in the operation of Spectradyne's business or necessary or desirable to show
compliance with any Law applicable to Spectradyne).
"Spectradyne Stock" means all of the outstanding shares of
capital stock of Spectradyne and all other securities exchangeable or
exercisable for, or convertible into, shares of capital stock of Spectradyne and
all other rights or claims for the purchase or issuance, with or without
consideration, of shares of capital stock of Spectradyne.
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<PAGE> 14
"SPI Newco" means SPI Newco, Inc., a wholly-owned subsidiary of
SpectraVision that owns the Spectradyne Stock.
"SPI Newco Debt" has the meaning given to it in Section 3.2.3 of
this Agreement.
"SpectraVision" means SpectraVision, Inc., a Delaware
corporation.
"Termination Notice" has the meaning given to it in Section 11.4
of this Agreement.
"Total Buyer Debt" means the aggregate amount of consolidated
debt of Buyer and its subsidiaries (including, but not limited to, OCV,
Spectradyne and any subsidiary of Spectradyne or OCV) that is outstanding as of
the Closing Date after giving effect to the Transactions (including, but not
limited to, the aggregate amount of the Additional OCV Debt and all of the debt
incurred by Buyer in connection with its obligations under this Agreement).
"Transactions" means all of the transactions contemplated by
this Agreement and the Merger Agreement.
"Warrant Agreement" means a warrant agreement substantially in
the form attached to this Agreement as Exhibit C.
"Warrant Certificate" means a certificate representing a Warrant
and substantially in the form attached as an exhibit to the Warrant Agreement.
"Warrants" means seven-year warrants for the purchase of Common
Stock, consisting of Series A Warrants, Series B Warrants and the Series C
Warrant, all of which shall be issued pursuant to the Warrant Agreement. Each
series of Warrants shall be evidenced by a Warrant Certificate and shall have
the terms applicable to such series of Warrants set forth in the Warrant
Agreement. Each share of Common Stock purchasable upon the exercise of a
Warrant of any series shall have an initial purchase price equal to the Exercise
Price payable in the manner specified in the Warrant Agreement for such series
of Warrants.
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SECTION 2
PROCEDURES ORDER; PLAN SPONSOR AGREEMENT
This Agreement shall in no way adversely affect, modify or limit
any of the rights of, or the benefits provided to, Ascent under the Procedures
Order (including, but not limited to, the rights of Ascent to reimbursement of
expenses, over-bid protection and break-up fees) or the Disclosure Statement
Order. This Agreement and the Merger Agreement collectively supersede, replace
and terminate the Plan Sponsor Agreement; provided, however, that
notwithstanding the foregoing, (i) the Addendum shall not be superseded,
replaced, terminated or otherwise affected by this Agreement or the Merger
Agreement, and (ii) all of the rights and obligations of Ascent, OCV, the
Debtors and the Creditors' Committee under the Addendum shall remain in full
force and effect.
SECTION 3
SALE OF SPECTRADYNE STOCK AND RELATED TRANSACTIONS
3.1 Spectradyne Stock. Subject to the terms and conditions of
this Agreement, pursuant to the Plan, on the Closing Date, SPI Newco shall sell,
assign, transfer and deliver to Buyer, and Buyer shall purchase from SPI Newco,
the Spectradyne Stock free and clear of all liens, claims, interests, rights of
others and encumbrances of every kind.
3.2 Actions to be Taken by the Debtors. Prior to or
contemporaneously with the sale and assignment of the Spectradyne Stock to
Buyer, the following shall have occurred:
3.2.1 Excluded Assets and Subsidiaries. All of the
Excluded Assets owned by Spectradyne, if any, shall have been assigned and
transferred to SPI Newco and the capital stock of all Excluded Subsidiaries
shall have been assigned and transferred by Spectradyne to SPI Newco.
3.2.2 Name Change. Unless otherwise directed by
Ascent, Spectradyne shall have changed its name to SpectraVision, Inc. and
SpectraVision shall have changed its name to one that is acceptable to Buyer
and, any other Non-Spectradyne Debtor that has the term "Spectra" or "Vision" in
its name shall change its name to one that is acceptable to Buyer.
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<PAGE> 16
3.2.3 Contribution of Spectradyne Debt. Any debt (the
"SPI Newco Debt") that is owed by Spectradyne or any of its subsidiaries to SPI
Newco or SpectraVision shall have been contributed to the capital of
Spectradyne; provided, however, that unless otherwise agreed to by Ascent in
writing, none of the SPI Newco Debt shall be discharged pursuant to the Plan or
otherwise. Notwithstanding the foregoing, (i) nothing in this Agreement shall
limit or otherwise affect the distributions to be made pursuant to the Plan to
Creditors on account of the SPI Newco Debt or any other intercompany debt, and
(ii) neither Ascent nor Buyer shall be entitled to receive any distribution
under the Plan on account of the SPI Newco Debt or any other intercompany debt.
3.2.4 Assignment of Non-Spectradyne Debtor Assets to
Spectradyne. All of the Assets owned by the Non-Spectradyne Debtors shall have
been assigned and transferred to Spectradyne, which shall include, without
limitation, the following assets and properties of the Non-Spectradyne Debtors:
(a) All rights of the Non-Spectradyne Debtors
under the following: (i) all contracts, leases and licenses assumed by the
Non-Spectradyne Debtors at the written direction of Ascent or Buyer pursuant to
Section 7.9 of this Agreement, all of which are identified on Schedule
3.2.4(a)(i) to this Agreement, as amended by Buyer pursuant to Section 3.5 of
this Agreement, and (ii) all other contracts, leases and licenses that (a) have
been entered into by the Non-Spectradyne Debtors since the commencement of the
Bankruptcy Case in the ordinary course of business or that have been assumed by
the Non-Spectradyne Debtors pursuant to a Bankruptcy Court Order, and (b) are
identified on Schedule 3.2.4(a)(ii) to this Agreement, as amended by Buyer
pursuant to Section 3.5 of this Agreement. At any time prior to the Closing
Date, Ascent or Buyer may, in its sole discretion, direct the Non-Spectradyne
Debtors to assume any contract or lease pursuant to Section 7.9 of this
Agreement and any such contract or lease shall be added to Schedule 3.2.4(a)(i)
to this Agreement.
(b) All copyrights, patents, trademarks,
tradenames, slogans, logos, service marks, computer software, data processing
files, systems and programs, business lists, trade secrets, sales and operating
plans and other similar intangible property owned by the Non-Spectradyne Debtors
(including, but not limited to, the name "SpectraVision" and all other
intangible property identified on Schedule 3.2.4(b) to this Agreement).
(c) All Authorizations obtained by or issued to
the Non-Spectradyne Debtors in connection with the operation of their
businesses (including, but not limited to, the Authorizations identified on
Schedule 3.2.4(c) to this Agreement).
(d) All personal property and equipment owned by
the Non-Spectradyne Debtors (including, but not limited to, the property and
equipment described on Schedule 3.2.4(d) to this Agreement).
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(e) All real property owned by the
Non-Spectradyne Debtors identified on Schedule 3.2.4(e) to this Agreement.
(f) All of the capital stock and other equity
interests owned by any of the Non-Spectradyne Debtors in (i) the Foreign
Subsidiaries, and (ii) every other corporation, limited liability company,
foreign company, limited partnership, general partnership and other entity
(other than the Non-Spectradyne Debtors), each of which is identified on
Schedule 3.2.4(f) to this Agreement.
(g) All current assets of the Non-Spectradyne
Debtors other than the cash transferred to the Debtors' Estates in accordance
with Section 3.3(vii) of this Agreement.
(h) All claims of the Non-Spectradyne Debtors
(other than the SPI Newco Debt, which shall be contributed to Spectradyne
pursuant to Section 3.2.3 of this Agreement) against all persons and entities
(other than another Non-Spectradyne Debtor) other than those claims described in
Section 3.3(v) of this Agreement.
(i) All records (the "Non-Spectradyne Debtor
Records") relating to the Non-Spectradyne Debtors' businesses and the Assets
owned by the Non-Spectradyne Debtors (including, but not limited to, all books
of account, customer lists, supplier lists, employee personnel files, tax
records and information, local public records file materials, engineering data,
logs, programming records, consultants' reports, budgets, financial reports and
projections, and sales, operating and business plans, that relate to or are used
in the operation of any the Non-Spectradyne Debtor's business or necessary or
desirable to show compliance with any Law applicable to the Non-Spectradyne
Debtors).
3.3 Excluded Assets. Notwithstanding the foregoing, the Assets
shall not include any of the following (collectively, the "Excluded Assets"):
(i) the contracts, leases, licenses, real and personal property and other
assets, if any, of Spectradyne identified on Schedule 3.3(a) to this Agreement;
provided, however, that the Excluded Assets may not include any contract or
lease assumed by Spectradyne at the written direction of Ascent or Buyer
pursuant to Section 7.9 of this Agreement, (ii) the assets and properties, if
any, of the Non-Spectradyne Debtors identified on Schedule 3.3(b) to this
Agreement, (iii) all contracts, leases and licenses of the Non-Spectradyne
Debtors other than those identified on Schedule 3.2.4(a)(i) or 3.2.4(a)(ii) to
this Agreement, (iv) the claims of each Non-Spectradyne Debtor against any other
Non-Spectradyne Debtor, (v) all causes of action and avoidance powers of the
Debtors other than the causes of action and avoidance powers related to, or
derived from, the leases and executory contracts assumed by and/or assigned to
Spectradyne after giving effect to Section 3.2 of this Agreement, (vi) any real
estate owned by the Non-Spectradyne Debtors that is not identified on Schedule
3.2.4(e) to this Agreement, and (vii) to the extent necessary, a reason-
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able amount of the Debtors' cash that is transferred to the Debtors' Estates to
pay the Debtors' administrative expenses, which amount shall have been approved
by the Bankruptcy Court.
3.4 Ownership of the Assets. Upon and after the Closing, (i)
Spectradyne shall own all of the Assets free and clear of all liens, claims,
interests and encumbrances to the fullest extent permitted by the Bankruptcy
Code; provided, however, that to the extent known to any Debtor, all liens,
claims, interests and encumbrances in, on or against any of the Assets that will
not be discharged pursuant the Plan are identified on Schedule 3.4 to this
Agreement, and (ii) Spectradyne shall not, directly or indirectly, own or have
any liability under or with respect to any of the Excluded Assets.
3.5 Modification of Schedules. Prior to the Closing Date, Buyer
may amend any of the Schedules to this Agreement to reclassify any Asset as an
Excluded Asset (other than any lease or executory contract assumed by any of the
Debtors at the written direction of Ascent or Buyer or assumed by any Debtor
pursuant to a Bankruptcy Court Order) and to reclassify any Excluded Asset
(other than any the causes of action and avoidance powers described in Section
3.3(v) of this Agreement) as an Asset.
SECTION 4
ASSUMPTION OF LIABILITIES
4.1 Assumption of Debtors' Liabilities. Upon and after the
Closing, none of Buyer, Spectradyne or any of their post-closing affiliates
shall have any responsibility or liability for any of the Debtors' pre- or
post-petition liabilities or obligations other than as expressly provided in
Sections 4.1.1, 4.1.2, 4.1.3, 4.1.4 and 4.1.5 of this Agreement.
4.1.1 DIP Loan. Buyer and/or its subsidiaries shall be
responsible for paying all amounts due and payable under the DIP Loan Agreement
on the Closing Date up to a maximum amount of $40,000,000 with the proceeds from
a financing facility to be entered into by Buyer and/or its subsidiaries on such
terms and conditions as shall be satisfactory to Buyer in its sole discretion
after consultation with SpectraVision and the Creditors' Committee (all amounts
payable under or with respect to the DIP Loan Agreement in excess of $40,000,000
shall be paid by the Debtors' Estates); provided, however, that each Party
acknowledges and agrees that so long as Buyer is a consolidated subsidiary of
COMSAT Corporation under GAAP, Buyer shall be subject to Ascent's intercompany
agreements with COMSAT Corporation.
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4.1.2 Amounts Due Under Assumed and Post-Petition
Contracts. Buyer and/or its subsidiaries shall be responsible for paying the
Allowed Administrative Expenses and Cure Payments payable by the Debtors with
respect to all of the contracts and leases that were (i) assumed by any Debtor
pursuant to a Bankruptcy Court Order (excluding contracts and leases assumed at
the written direction of Ascent or Buyer pursuant to Section 7.9 of this
Agreement), or (ii) entered into by any Debtor in the ordinary course of its
business since the commencement of the Bankruptcy Case; provided, however, that
(a) the amounts payable by Buyer pursuant to this Section 4.1.2 shall only be
for the liabilities identified or described in the Addendum, and (b) the
aggregate amount payable by Buyer pursuant to this Section 4.1.2 with respect to
each liability identified or described in the Addendum shall not exceed the
amount set forth in the Addendum with respect to such liability.
4.1.3 Amounts Due Under Assumed Contracts at the Direction
of Ascent or Buyer. Buyer and/or its subsidiaries shall pay all of the Cure
Payments that are payable with respect to, and Buyer shall assume all of the
Debtors' other liabilities and obligations (exclusive of the amounts payable by
the Debtors pursuant to Section 7.2(b) of this Agreement) under, the contracts
and leases assumed by the Debtors at the written direction of Ascent or Buyer
pursuant to Section 7.9 of this Agreement (and transferred to Spectradyne on or
prior to the Closing Date pursuant to Section 3.2.4 of this Agreement). The
amounts to be paid by Buyer pursuant to this Section 4.1.3 shall be quantified
to the extent feasible and, to the extent not quantifiable, described on
Schedule 4.1.3 to this Agreement (which schedule shall be revised and updated by
the Debtors to the extent necessary or appropriate on a regular basis until the
Closing Date, and a copy of each revised schedule shall be provided to Buyer
promptly after each revision or update).
4.1.4 Allowed Administrative Expenses and Current
Liabilities. Notwithstanding anything to the contrary in Section 4.1.5 of this
Agreement, from and after the Closing Date until the Adjustment Date, to the
extent that the Debtors' Estates have inadequate funds to pay the Allowed
Administrative Expenses and the Current Liabilities, if any, that are not set
forth on the Pre-Closing Balance Sheet, Buyer and/or its subsidiaries shall
provide the Debtors' Estates with sufficient funds to pay such expenses, and
Spectradyne shall assume such liabilities, up to an aggregate amount not to
exceed the sum of the Estimated Net Working Capital and the Reserved Stock
Value, if any. Notwithstanding anything to the contrary in Section 4.1.5 of this
Agreement, after the Adjustment Date, to the extent that the Debtor's Estates
have inadequate funds to pay the Allowed Administrative Expenses and the Current
Liabilities, if any, that are not set forth on the Pre-Closing Balance Sheet,
Buyer and/or its subsidiaries shall provide the Debtors' Estates with sufficient
funds to pay such expenses, and Spectradyne shall assume such liabilities, up to
an aggregate amount not to exceed the Maximum Remaining Payment Amount.
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4.1.5 Current Liabilities. On the Closing Date, subject to
Section 4.2 of this Agreement and the limits set forth in this Section 4.1.5,
Spectradyne shall assume the Current Liabilities identified on the Pre-Closing
Balance Sheet (exclusive of the current liabilities of the Foreign Subsidiaries,
which shall remain the obligations of the Foreign Subsidiaries) up to a maximum
amount not to exceed the Current Liabilities specified in the Pre-Closing
Balance Sheet; provided, however, that if the Adjusted Current Liabilities set
forth on the Pre-Closing Balance Sheet exceed the Maximum Assumable Amount, the
Current Liabilities to be assumed by Spectradyne pursuant to this Section 4.1.5
shall be reduced until the Adjusted Current Liabilities equals the Maximum
Assumable Amount, in which case Buyer shall designate the Current Liabilities
that will not be assumed by Spectradyne and the Debtors' Estates shall remain
liable for all Current Liabilities not assumed by Spectradyne. The Current
Liabilities assumed by Spectradyne pursuant to this Section 4.1.5 and the
liabilities assumed by Spectradyne pursuant to Sections 4.1.3 and 4.1.4 of this
Agreement (the "Assumed Liabilities") shall be paid by Spectradyne in accordance
with the terms of such liabilities.
4.2 Discharge and Payment of Debtors' Liabilities. (a) The Plan
shall discharge all liabilities of, and claims against, the Debtors as of the
Closing Date other than (i) Assumed Liabilities, and (ii) the SPI Newco Debt,
which shall be contributed to the capital of Spectradyne pursuant to Section
3.2.3 of this Agreement.
(b) Except for the Assumed Liabilities and the other
liabilities for which the Buyer and/or its subsidiaries are expressly
responsible for paying pursuant to Section 4.1 of this Agreement, none of Buyer,
Spectradyne or any of their post-closing affiliates shall have any
responsibility or liability for any expenses or liabilities of, or any claims
(whether matured, contingent or otherwise) against, the Debtors, all of which
shall be the responsibility and liability of the Debtors' Estates. In the event
that there is any Excess Payment as of the Adjustment Date, the Debtors' Estates
shall promptly pay Buyer an amount equal to such Excess Payment, which at the
option of the Creditors' Committee may be paid with either cash or a number of
shares of Common Stock equal to the Excess Stock Payment.
(c) Notwithstanding any provision in this Agreement
(including, without limitation, Section 4.1) to the contrary, none of Buyer,
Spectradyne or any of their post-closing affiliates shall have any liability or
responsibility for any amounts due under or with respect to the DIP Loan
Agreement in excess of $40,000,0000.
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SECTION 5
PURCHASE PRICE
5.1 Total Consideration for the Spectradyne Stock and the
Assets. The sole consideration for the sale of the Spectradyne Stock by SPI
Newco to Buyer, and the transfer of the Assets owned by the Non-Spectradyne
Debtors to Spectradyne, shall be shares of Common Stock as provided in Section
5.1.1 of this Agreement and Warrants as provided in Section 5.1.2 of this
Agreement.
5.1.1 Common Stock. (a) On the Closing Date,
contemporaneously with the consummation of the transactions contemplated by
Section 3 of this Agreement, and in consideration therefor, Buyer shall issue an
aggregate number of shares of Common Stock that represents the Initial
Percentage to the Creditors, or an agent on their behalf, in accordance with the
provisions of the Plan.
(b) On the Final Distribution Date, in consideration
for the sale of the Spectradyne Stock to Buyer and the transfer of the Assets
owned by the Non-Spectradyne Debtors to Spectradyne, Buyer shall issue all
shares of Reserved Stock other than the OCV Reserved Stock, if any, to the
Creditors, or an agent on their behalf, in accordance with the provisions of the
Plan.
5.1.2 Creditor Warrants. On the Closing Date Buyer shall
issue the Creditor Warrants to the Creditors, or an agent on their behalf, in
accordance with the provisions of the Plan.
5.2 Issuance of Common Stock and Warrants to OCV's Stockholders.
5.2.1 Common Stock. (a) Upon consummation of the Merger,
and in consideration therefor, on the Closing Date Buyer shall issue 72.5% of
the Initial Shares of Common Stock to OCV's stockholders in accordance with the
provisions of the Merger Agreement.
(b) On the Final Distribution Date Buyer shall issue
the OCV Reserved Stock, if any, to OCV's stockholders in accordance with the
provisions of the Merger Agreement.
5.2.2 Non-Creditor Warrants. Upon consummation of the
Merger, on the Closing Date Buyer shall issue the Non-Creditor Warrants to the
OCV Warrant Parties in accordance with the provisions of the Merger Agreement.
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5.3 Certain Corporate Matters.
5.3.1 Buyer's Certificate of Incorporation. As of the
Closing Date, the certificate of incorporation of Buyer (the "Certificate of
Incorporation") shall be substantially in the form attached to this Agreement as
Exhibit D.
5.3.2 Buyer's Bylaws. As of the Closing Date, the bylaws
of Buyer (the "Bylaws") shall be substantially in the form attached to this
Agreement as Exhibit E.
5.3.3 Registration Rights. Subject to standard and
customary terms, conditions and exceptions, any Creditor that receives 10% or
more of the outstanding shares of Common Stock pursuant to the Plan shall have
(i) piggyback rights to obtain registration of its shares of Common Stock in the
event that Buyer files a registration statement on behalf of itself or any of
its stockholders (the costs of registering such shares shall be at the expense
of Buyer as and to the extent provided in the Registration Rights Agreement and
all other costs of registering such shares shall be at the expense of such
Creditor), and (ii) the right to demand registration of its shares, at the
expense of such Creditor.
SECTION 6
REPRESENTATIONS AND WARRANTIES OF THE DEBTORS
The Debtors hereby jointly and severally make the following
representations and warranties to Buyer, all of which shall be true and correct
as of the date of this Agreement and on the Closing Date:
6.1 Title to Real Property; No Liens. The Debtors have, and
after the Closing Spectradyne shall have, good and marketable title to the real
property reflected in the Financial Statements, and other than the lien granted
in connection with the DIP Loan or other customary "permitted encumbrances," or
that are reflected in the Financial Statements, there are no liens or
encumbrances against any such assets, other than liens and encumbrances that
will be removed as of the Closing Date.
6.2 Financial Condition. The financial statements (the "1995
Financial Statements") of SpectraVision and its subsidiaries set forth in
SpectraVision's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, which was filed with the SEC on or about March 30, 1996, fairly
present (in accordance with generally accepted accounting principles except as
otherwise set forth in Notes thereto consistently applied) the financial
condition and results of operations of SpectraVision and its subsidiaries at and
for period reported thereon. There exists no material adverse change
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in such financial condition or results of operations of the Debtors since
December 31, 1995, except as reflected in SpectraVision's unaudited financial
statements for the periods ending January 31, 1996, and February 29, 1996
(collectively, the "1996 Financial Statements"), copies of which have been
provided to Ascent and OCV and which fairly present (in accordance with
generally accepted accounting principles except as otherwise set forth in Notes
thereto consistently applied) the financial condition and results of operations
of the Debtors; provided, however, that Buyer understands and acknowledges that
the continuation of trends reflected in the Financial Statements shall not
constitute a material adverse change.
6.3 No Right of Termination by Major Customers or Suppliers.
There are no grounds that would allow any of the Debtors' five largest (by
number of rooms served by the Debtors) hotel customers, or any of the Debtors'
major studio movie suppliers or free-to-guest programming suppliers, to
terminate their existing service contracts, other than breaches that (i) will be
cured in connection with the assumption of such contracts under Section 365 of
the Bankruptcy Code, or (ii) are unenforceable under the Bankruptcy Code.
6.4 Environmental Liabilities. The Debtors have provided Ascent
with the Environmental Assessment Report, dated July 1995, which was prepared by
ENTRIX, Inc. Other than the liabilities set forth in such Environmental
Assessment Report (which the Debtors do not concede are material), none of the
Debtors has any material environmental liability.
6.5 Tax Liabilities. None of the Debtors has any material
federal, state or foreign tax liability that may be assessed against or
collected from Buyer as a successor of the Debtors or otherwise.
SECTION 7
PRE- AND POST-CLOSING OBLIGATIONS
7.1 Agreement to Support Plan. Each Party agrees that (i) Ascent
shall be the Plan Sponsor as provided in the Procedures Order, (ii) it will
sponsor and support the Plan, which will reflect the terms set forth in this
Agreement and the Merger Agreement, (iii) it will reasonably cooperate in
preparing and submitting the Plan, the Disclosure Statement and all other
documents necessary to obtain confirmation of the Plan, and (iv) it will provide
the other Parties with whatever information is reasonably necessary for the
preparation of the Plan and Disclosure Statement. In addition, each of the
Debtors and the Creditors' Committee agrees that (a) it will not solicit any
other bids to acquire the Spectradyne Stock or any of the Assets, (b) it will
not negotiate with any other person or
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entity concerning the disposition of the Spectradyne Stock or any of the Assets
except as provided in the Procedures Order, (c) it will not support any other
plan of reorganization for the Debtors except as provided in the Procedures
Order, (d) it will inform Ascent and Buyer within one business day of the
receipt of any unsolicited bid that is received by the Debtors or the Creditors'
Committee with respect to the Spectradyne Stock or any of the Assets, and (e)
Ascent shall be entitled to the protections and benefits that the Procedures
Order provides for the Plan Sponsor.
7.2 Operation of the Debtors' Business Prior to Closing. (a)
Prior to the Closing, except as provided in Section 7.9 of this Agreement, the
Debtors shall operate their businesses in the ordinary course as conducted on
April 19, 1996 and will use their best efforts to maintain favorable
relationships with major hotel customers.
(b) If and to the extent that the Debtors have been making
any payments on any leases or executory contracts during the Bankruptcy Case
prior to the date of the Plan Sponsor Agreement, the Debtors shall continue to
make such payments (which shall be on the same terms as the payments made by the
Debtors prior to the date of the Plan Sponsor Agreement) until the Closing Date.
7.3 Securities Law Exemption and Stock Market Listing. The
Parties shall seek to structure the Transactions so that the Common Stock and
Warrants to be distributed to the Creditors pursuant to the Plan will qualify
for the registration exemption under section 1145 of the Bankruptcy Code. The
Parties agree to use their best efforts to cause the Common Stock and the
Warrants to be listed on a securities exchange or the Nasdaq National Market as
soon as practicable after the date of this Agreement.
7.4 Use of Intellectual Property. After the Closing, neither
SpectraVision nor any of its subsidiaries shall use the terms "Spectra" or
"Vision" as part of its corporate name or d/b/a name or otherwise use any name
that is similar to SpectraVision or Spectradyne.
7.5 Employee Matters. (a) On or before the business day
immediately preceding the Closing Date, Spectradyne shall terminate the
employment of all of its officers and other employees. Except as may otherwise
be provided in Section 4 of this Agreement, neither Buyer nor any of its
affiliates shall have any liability on account of the Debtors' employees
(including without limitation any liability arising in connection with or with
respect to any of the following: unemployment insurance contributions,
termination payments, severance payments, retirement, pension, profit-sharing,
bonus, severance pay, disability, health, accrued vacation, accrued sick leave
or other employee benefit plans, agreements or understandings). Subject to
Section 7.5(b) of this Agreement, if Buyer or any of its subsidiaries elect to
hire any employee of Debtors, the
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terms and conditions (including the scope and amount of all benefits) under
which any employment will be offered to employees of such Debtor by Buyer (or
any of its subsidiaries) shall be determined by Buyer in its sole discretion. To
the extent required by applicable law, prior to the Closing Date each Debtor
shall provide all necessary notices to the employees of such Debtor with respect
to the closing of any of such Debtor's facilities, and the Debtors' Estates
shall be responsible for all (and from and after the Closing none of Buyer,
Spectradyne or any of their post-closing affiliates shall be responsible for
any) of the liabilities that may arise as a result of any failure by any Debtor
to provide any such notices.
(b) Buyer (or any of its subsidiaries) may extend
offers of employment to those employees of the Debtors that Buyer desires to
hire, which offers shall be on terms and conditions that Buyer shall determine
in its sole discretion. Each Debtor hereby waives any and all claims against
Buyer, Buyer's affiliates and/or such Debtor's employees arising from any such
employment (including, without limitation, any claims arising under or with
respect to any employment agreement or agreement not to compete). Each Debtor
shall cooperate with Buyer in Buyer's efforts to secure satisfactory employment
arrangements with such Debtor's employees to whom Buyer (or any of its
subsidiaries) makes offers of employment.
(c) Nothing in this Agreement, the Merger Agreement
or the Plan Sponsor Agreement shall confer upon any employee of any Debtor any
right to be employed after the Closing Date by Buyer, Spectradyne or any of
their subsidiaries or post-closing affiliates. In addition, nothing in this
Agreement shall prevent the Debtors from taking actions that seek to minimize
the expenses incurred by the Debtors' Estates in connection with the termination
to the Debtors' employees.
7.6 Reformulation of Plan. If following the filing of the Plan
and Disclosure Statement, any of the Debtors or the Creditors' Committee notify
Ascent that there are substantial grounds for concluding that the Plan cannot be
confirmed within a reasonable period of time, then Ascent shall have a thirty
(30) day exclusive period to reformulate the terms of the Plan.
7.7 Agreements with Ascent. Prior to the Closing Date, Ascent
and its affiliates may enter into agreements with Buyer (or any of Buyer's
subsidiaries) with respect to the provision of management services, matters of
corporate governance, technology licensing, tax sharing and other operating
matters, subject to the approval of Buyer's board of directors and on terms at
least as favorable as may be available to Buyer in comparable third-party
transactions.
7.8 No Conflicting Agreements. No Party shall enter into any
agreement that would adversely affect (i) its ability to perform its obligations
under this Agreement, or (ii) the rights of any other Party under this Agreement
or the Procedures Order.
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7.9 Assumption, Rejection and Modification of Agreements. On and
after May 18, 1996, the Debtors shall not assume or reject any leases or
executory contracts, incur any material indebtedness or obligations (other than
pursuant to the DIP Loan Agreement), amend the terms of the DIP Loan Agreement,
or enter into or amend any other material contracts or make any material
commitments (including, without limitation, any employment or severance
agreements), without prior written notice to and consultation with Ascent. If
directed by Buyer or Ascent in writing, Spectradyne shall move to assume and the
Non-Spectradyne Debtors shall move to assume and assign to Spectradyne, any
supplier, customer or other contracts or leases that Ascent or Buyer determine
are necessary for the provisions of services by Buyer, Spectradyne and their
post-closing affiliates, and each such assumption and assignment shall become
effective on the Closing Date. Buyer and its subsidiaries shall have the right
to find alternative sources of products and services and will have no obligation
to agree to the assumption by any of the Debtors, or the assignment to
Spectradyne, of any contract or lease. The Parties will cooperate to minimize
the costs to be incurred by Buyer, Spectradyne and their post-closing affiliates
pursuant to Section 4 of this Agreement.
7.10 Financial and Budgetary Information. On and after May 18,
1996, (i) the Debtors shall provide Ascent with copies of the financial and
budgetary information provided to the DIP Lender and/or the Creditors'
Committee, and (ii) Buyer shall cause OCV to provide the Debtors and the
Creditors' Committee, subject to an appropriate confidentiality agreement, with
comparable financial information.
7.11 Cooperation. (a) The Debtors and Ascent shall (i) cause any
necessary filings with any governmental agency to be made expeditiously, and
(ii) obtain or cooperate in obtaining any necessary government or third-party
approvals (including, without limitation, any filings or registrations with the
SEC or state securities regulatory authorities). In addition, each of the
Parties agrees to use its best efforts to expeditiously prepare, file and seek
confirmation of the Plan.
(b) After the Closing Date, Buyer shall provide
SpectraVision and the Creditors' Committee with reasonable access to (i) the
Records, and (ii) the former employees of the Debtors that are hired by Buyer;
provided, however, that any such access shall only be given during normal
business hours of Buyer and/or its subsidiaries at the place of their business;
provided further that any reasonable fees, costs and expenses incurred or
suffered by Buyer or its subsidiaries in connection with providing such access
shall be paid by the Party requesting such access.
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(c) After the Closing Date, the Debtors shall provide
Buyer and/or its representatives, agents and designees with (i) reasonable
access to the Debtors books and records, employees, agents, accountants,
advisors and other representatives, and (ii) such other persons and information
as Buyer shall request with respect to the assets, liabilities and businesses of
the Debtors; provided, however, that any such access shall only be given during
normal business hours of the Debtors at the place of their business; provided
further that any reasonable fees, costs and expenses incurred or suffered by the
Debtors in connection with providing such access shall be paid by Buyer.
7.12 Balance Sheets.
7.12.1 Pre-Closing and Closing Balance Sheets. At least
five (5) business days prior to the Closing Date, SpectraVision shall deliver to
Ascent a pro forma balance sheet for Spectradyne (the "Pre-Closing Balance
Sheet"), which shall set forth SpectraVision's best estimate of the Current
Assets, Current Liabilities, Adjusted Current Assets and Adjusted Current
Liabilities as of the Closing Date after giving effect to the provisions of
Sections 3 and 4 of this Agreement. Within 15 days after the Closing Date,
SpectraVision shall deliver a balance sheet for Spectradyne (the "Closing
Balance Sheet"), which shall fairly present the Current Assets, Current
Liabilities, Adjusted Current Assets and Adjusted Current Liabilities as of the
Closing Date after giving effect to the provisions of Sections 3 and 4 of this
Agreement. The Pre-Closing Balance Sheet and the Closing Balance Sheet shall
each be (i) prepared from the books and records of the Debtors in conformity
with GAAP, and (ii) accompanied by worksheets that support the calculation of
the Adjusted Current Assets and the Adjusted Current Liabilities. In addition,
the Closing Balance Sheet shall be accompanied by a letter from the Debtors'
accountants (which shall be in form and substance reasonably satisfactory to
Buyer) stating that the Closing Balance Sheet (a) has been prepared in a manner
consistent with the Financial Statements in conformity with GAAP, and (b) fairly
presents the assets and liabilities set forth therein.
7.12.2 Buyer's Statement and Resolution Period. Within
twenty (20) days of the delivery of the Closing Balance Sheet to Buyer, Buyer
may deliver a written statement (the "Buyer's Statement") to SpectraVision and
the Creditors' Committee setting forth any disagreement that Buyer or its
accountants has with respect to the accuracy of the computation or
classification of the Current Assets, Current Liabilities, Adjusted Current
Assets or Adjusted Current Liabilities reflected in the Closing Balance Sheet;
provided, however, that if any Debtor has not provided Buyer and its
representatives with reasonable access immediately after the Closing in
accordance with the provisions of Section 7.12.3 of this Agreement, the time in
which Buyer may deliver the Buyer's Statement shall be extended by the number of
days that Buyer and/or its representatives were not provided such access.
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7.12.3 Access to be Provided by the Debtors. The Debtors shall
provide Buyer and Buyer's accountants, and their respective representatives,
with reasonable access to all books and records of the Debtors (including, but
not limited to, the books, records, schedules, work papers and audit programs of
the Debtors' accountants), and Buyer shall be permitted to examine and make
copies of such books and records. In addition, the Debtors shall provide Buyer
with reasonable access to representatives of the Debtors' accountants.
7.12.4 Resolution of Disputes. In the event that SpectraVision,
the Creditors' Committee and Buyer are unable to reach an agreement with
respect to any disagreement that Buyer has with respect to the Closing Balance
Sheet as set forth in the Buyer's Statement prior to the expiration of the
Resolution Period, then Buyer may commence an action before the Bankruptcy Court
to resolve each disagreement that Buyer has with respect to the Closing Balance
Sheet as soon as practicable after the expiration of the Resolution Period (or
such earlier date as is acceptable to Buyer, SpectraVision and the Creditors'
Committee).
7.13 Equipment and Supplies. Buyer shall be responsible for
acquiring, at its expense, all equipment, supplies, materials, hardware and
software, and services reasonably necessary for (i) the operation of its
business (and the business of each of its subsidiaries) after giving effect to
the Transactions, and (ii) carrying out the contractual and other obligations
that Buyer (and its subsidiaries) will undertake under the Plan and the
ancillary agreements thereunder.
7.14 Further Assurances. After the Closing, (i) the Debtors and
the Creditors' Committee shall, at the request of Buyer or Ascent, take such
additional actions, and execute and deliver such additional documents and
instruments, as may be reasonably necessary or appropriate to effect the
transactions contemplated by, and to carry out the intent of, this Agreement,
and (ii) Buyer shall, at the request of the Debtors' or the Creditors'
Committee, take such additional actions, and execute and deliver such additional
documents and instruments, as may be reasonably necessary or appropriate to
effect the transactions contemplated by, and to carry out the intent of, this
Agreement.
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7.15 Incurrence of Debt by Buyer. Buyer and its subsidiaries may
borrow funds on or prior to the Closing Date in such amounts as are determined
by Buyer to be necessary to perform all of their obligations under this
Agreement and the Merger Agreement. Subject to Section 7.7, any debt incurred by
Buyer under or in connection with this Agreement and the Merger Agreement shall
be on terms and conditions that are acceptable to Buyer in its sole discretion
after consultation with SpectraVision and the Creditors' Committee.
7.16 Directors and Officers of Spectradyne. Immediately prior to
the Closing, all of the directors of Spectradyne shall resign from Spectradyne's
board of directors. Upon the Closing, the officers and directors of Spectradyne
shall be the persons selected by the Buyer prior to the Closing.
7.17 Certificate of Incorporation and By-laws of Spectradyne. On
or prior to the Closing Date, if and to the extent directed by Buyer, the
certificate of incorporation and by-laws of Spectradyne shall be amended to be
in form and substance satisfactory to Buyer.
7.18 Sale of Common Stock and Creditor Warrants. The Debtors and
the Creditors' Committee acknowledge and agree that none of the Common Stock or
the Creditor Warrants to be distributed to the Creditors, or an agent on their
behalf, pursuant to Section 5.1 of this Agreement shall be sold or transferred
to any person or entity in any manner that would either (i) violate the
registration requirements of the Securities Act or any state securities laws, or
(ii) impair or have an adverse effect on the exemption from registration that is
available under section 1145 of the Bankruptcy Code with respect to the
distribution of such Common Stock and Creditor Warrants to the Creditors.
SECTION 8
CONDITIONS PRECEDENT
8.1 Mutual Conditions. The obligations of the Debtors and Buyer
under this Agreement are subject to the satisfaction of each of the following
conditions:
8.1.1 Authorizations. All Authorizations required to
consummate the Transactions shall have been obtained.
8.1.2 Absence of Adverse Order. As of the Closing Date, no
court has entered an order that enjoins, restrains, or prohibits the
consummation of the Transactions.
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8.1.3 The Plan. The Plan shall (i) incorporate the terms
of this Agreement, (ii) have been confirmed pursuant to the Confirmation Order,
and (iii) have become effective in accordance with the provisions of Chapter 11
of the Bankruptcy Code.
8.1.4 Independent Directors. If the Common Stock is listed
on a national securities exchange or the Nasdaq National Market, Buyer's board
of directors shall satisfy the applicable requirements, if any, for independent
directors.
8.2 Conditions to Buyer's Obligations. In addition to
satisfaction of the mutual conditions set forth in Section 8.1 of this
Agreement, the obligations of Buyer under this Agreement shall be subject to the
satisfaction of each of the following conditions:
8.2.1 Representations and Warranties of the Debtors. The
representations and warranties of the Debtors in this Agreement shall be true
and correct on the Closing Date as if made on and as of that date, except for
changes occurring in the ordinary course of the Debtors' businesses (provided
that such changes do not have a material adverse effect on the Debtors'
businesses taken as a whole), or with the prior written consent of Ascent.
8.2.2 Compliance with Conditions. All of the terms,
conditions, covenants and agreements to be complied with or performed by the
Debtors and the Creditors' Committee under this Agreement on or before the
Closing Date shall have been duly complied with or performed in all material
respects.
8.2.3 Confirmation Order. Unless otherwise agreed to in
writing by Buyer, the Confirmation Order shall have become a Final Order that,
among other things, (A) approves the Debtors' execution, delivery and
performance of this Agreement and all other agreements contemplated by this
Agreement; (B) approves the transfer of the Assets owned by the Non-Spectradyne
Debtors to Spectradyne; (C) approves the transfer of the Excluded Assets owned
by Spectradyne to SPI Newco; (D) approves the contribution of the SPI Newco Debt
to Spectradyne; (E) approves the sale of the Spectradyne Stock to Buyer free and
clear of all liens, claims, interests, rights of others and encumbrances of
every kind and provides that all of the Assets are legally and beneficially
owned by Spectradyne free and clear of (i) all liens, claims and encumbrances of
the DIP Lender, and (ii) all other liens, claims, interests, rights of others
and encumbrances to the fullest extent permitted by the Bankruptcy Code; (F)
includes an express finding that Buyer is a "good faith purchaser" of the
Spectradyne Stock; (G) enjoins and restrains (i) the DIP Lender from asserting
any lien that it has against the Spectradyne Stock or the Assets, and (ii) all
other creditors of the Debtors from asserting any lien, claim, interest or
encumbrance (other than any lien, claim, interest or encumbrance that cannot be
removed under the Bankruptcy Code) that it has or had against the Spectradyne
Stock or
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any of the Assets; (H) includes a reservation of jurisdiction by the Bankruptcy
Court to implement and enforce this Agreement and Buyer's peaceful use and
enjoyment of the Assets after the Closing Date, free and clear of all liens,
claims, and encumbrances to the fullest extent permitted under the Bankruptcy
Code; (I) terminates the automatic stay under Section 362 of the Bankruptcy Code
to the extent necessary to permit Buyer to enforce the terms of this Agreement;
(J) releases Ascent, OCV, Buyer and their post-closing affiliates,
representatives, employees and agents from any claims related to or arising in
the Bankruptcy Case through the Closing Date other than claims arising under
this Agreement; (K) provides that the transfer of the Spectradyne Stock to Buyer
is exempt from any tax to the fullest extent permitted by Section 1146 of the
Bankruptcy Code; (L) provides that the issuance of Common Stock and Creditor
Warrants to the Creditors in accordance with the terms of this Agreement is
exempt from registration under the Securities Act and all applicable state and
local securities laws; and (M) any other matter that the Buyer shall reasonably
determine is necessary or appropriate to effect the transactions contemplated
by, and to carry out the intent of, this Agreement.
8.2.4 Confirmation Letter Obtained. The Confirmation
Letter shall have been received by Buyer in form and substance reasonably
satisfactory to Buyer.
8.2.5 No Material Change. Since December 31, 1995, there
shall have been no material adverse change in the number of rooms under contract
by the Debtors, or in the hotel chains party to such contracts, except to the
extent that (i) the Debtors have listed such contracts on Exhibit A to the Plan
Sponsor Agreement, a copy of which is attached to this Agreement as Exhibit F,
(ii) OCV shall have entered into contracts with respect to such rooms or hotel
chains, or (iii) such change is the result of actions that were taken with the
prior written approval of Ascent.
8.2.6 Material Documents Satisfactory to Buyer. The
Disclosure Statement, the Plan and the Confirmation Order shall (i)
incorporate, and otherwise be consistent with, the terms of this Agreement and
the Merger Agreement, and (ii) be in form and substance reasonably satisfactory
to Buyer.
8.2.7 Closing Documents. The Debtors shall deliver to
Buyer all the closing documents specified in Section 9.2.1 of this Agreement,
each of which shall be dated as of the Closing Date, duly executed and in a form
reasonably satisfactory to Buyer.
8.2.8 No Buyer Termination Event. No Buyer Termination
Event shall have occurred (other than Buyer Termination Events, if any, that
have been waived by Buyer in writing).
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8.2.9 No Default Notice or Termination Notice. Buyer has
not sent (i) any uncured Default Notice to SpectraVision (other than Default
Notices, if any, that have been rescinded or waived by Buyer in writing), or
(ii) a Termination Notice to SpectraVision.
8.2.10 Court Approval of Directors Nominated by Ascent.
The Bankruptcy Court shall have approved the appointment of five persons
selected by Ascent to Buyer's initial board of directors; provided, however,
that if the Bankruptcy Court shall not approve one or more of the persons
selected by Ascent to serve as a director of Buyer, Ascent shall select a
replacement for each such person as soon as practicable. Ascent shall have the
sole right to select all of the initial officers of Buyer.
8.2.11 Board Nominees of Creditors' Committee. The two
persons selected by the Creditors' Committee for Buyer's initial board of
directors shall have been approved by Ascent (which approval shall not be
unreasonably withheld).
8.2.12 Registration of Common Stock and Warrants. A
registration statement covering both the Common Stock to be issued to OCV's
stockholders pursuant to this Agreement and the Non-Creditor Warrants to be
issued to the OCV Warrant Parties (and the Common Stock to be issued upon the
exercise of the Non-Creditor Warrants) pursuant to this Agreement shall have
been filed with, and declared effective by the SEC (and no stop order or other
action has been taken, and no proceeding has been commenced, to enjoin
distribution of such shares), and such Common Stock and Warrants shall have been
qualified under all applicable state securities laws.
8.2.13 Pre-Closing Balance Sheet. Buyer shall have
received the Pre- Closing Balance Sheet at least five (5) business days prior to
the Closing Date, which shall be in form and substance reasonably satisfactory
to Buyer.
8.3 Conditions to the Debtors' Obligations. In addition to
satisfaction of the mutual conditions set forth in Section 8.1 of this
Agreement, the obligations of the Debtors under this Agreement shall be subject
to satisfaction of each of the following conditions:
8.3.1 Representations and Warranties of Buyer. The
representations and warranties of Buyer in this Agreement shall be true and
correct in all material respects on the Closing Date as if made on and as of
that date. The representations and warranties made by OCV in the Merger
Agreement shall be true and correct on the Closing Date as if made on and as of
that date, except for changes occurring in the ordinary course of OCV's business
(provided that such changes do not have a material adverse effect on OCV's
business taken as a whole), or with the prior written consent of SpectraVision
and the Creditors' Committee.
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8.3.2 Compliance with Conditions. All of the terms,
conditions, covenants and agreements to be complied with or performed by Buyer
or Ascent on or before the Closing Date under this Agreement shall have been
duly complied with or performed in all material respects. All of the terms,
conditions, covenants and agreements to be complied with or performed by OCV on
or before the Closing Date (and which have not been performed on its behalf by
Buyer) under the Merger Agreement shall have been duly complied with or
performed in all material respects.
8.3.3 Merger Agreement. Contemporaneously with the sale
and assignment of the Spectradyne Stock to Buyer pursuant to this Agreement, a
newly formed wholly-owned subsidiary of Buyer shall be merged with and into OCV
(the "Merger"), with OCV as the surviving corporation. Prior to the consummation
of the Merger, all conditions to Buyer's obligations to acquire the OCV Assets
under the Merger Agreement shall have been satisfied or waived and the Merger
Agreement shall not have amended, supplemented or modified without the prior
written consent of SpectraVision and the Creditors' Committee.
8.3.4 Closing Documents. Buyer shall deliver to
SpectraVision all the closing documents specified in Section 9.2.2 of this
Agreement, each of which shall be dated as of the Closing Date, duly executed
and in a form reasonably satisfactory to SpectraVision.
8.3.5 No Default Notice. SpectraVision has not sent (i)
any Default Notice to Buyer (other than Default Notices, if any, that have been
rescinded or waived by SpectraVision in writing), or (ii) a Termination Notice
to Buyer. The Creditors' Committee has not sent (a) any Default Notice to Buyer
(other than Default Notices, if any, that have been rescinded or waived by the
Creditors' Committee in writing), and (b) a Termination Notice to Buyer.
8.3.6 Nomination of Directors by the Creditors' Committee.
The Creditors' Committee shall have been permitted an opportunity to nominate
two persons to serve as directors on Buyer's initial Board of Directors, both of
which shall be subject to the written approval of the Bankruptcy Court and
Ascent. If any nominee of the Creditors' Committee is not approved by the
Bankruptcy Court or Ascent, the Creditors' Committee shall have been permitted
an opportunity to nominate a replacement to serve as a director of Buyer, which
replacement shall also be subject to the written approval of the Bankruptcy
Court and Ascent; provided, however, that Ascent's approval of any nominee of
the Creditors' Committee shall not be unreasonably withheld.
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8.3.7 Warrant Agreement and Registration Rights Agreement.
The Warrant Agreement shall be in full force and effect and, if any Creditors
are entitled to registration rights as provided in Section 5.3.3 of this
Agreement, the Registration Rights Agreement shall be in full force and effect.
8.3.8 Payment of DIP Loan. Buyer shall have made
arrangements to repay the amounts due and payable under the DIP Loan as of the
Closing Date up to a maximum amount of $40,000,000.
8.3.9 OCV Debt. Except as provided in this Agreement or
the Merger Agreement, prior to the Closing Date, OCV shall not have (i) incurred
any debt that will be assumed or paid by Buyer (or any wholly-owned subsidiary
of Buyer) other than the Additional OCV Debt and the current liabilities of OCV,
(ii) engaged in any transaction out of the ordinary course of its business,
(iii) changed the manner in which it has conducted its business operations
through March 1, 1996, from either an operational or financial perspective, or
(iv) taken any action or omit to take any action that would materially adversely
affect its financial condition or results of operations, taken as a whole.
8.3.10 Compliance with Securities Laws. Either: (1) the
Common Stock and the Warrants (including the Common Stock to be issued upon the
exercise of the Warrants) to be issued to the Creditors pursuant to this
Agreement shall be exempt from the registration requirements of the Securities
Act pursuant to Section 1145 of the Bankruptcy Code, or (2) to the extent that
any such Common Stock or Warrants would not be exempt from such registration
requirements upon issuance, a registration statement covering such Common Stock
and Warrants shall have been filed with, and declared effective by (and no stop
order or other action has been taken, and no proceeding has been commenced, to
enjoin distribution of such shares) the SEC, and such Common Stock and Warrants
shall have been qualified under applicable state securities laws.
8.3.11 Material Documents Satisfactory to SpectraVision
and Creditors' Committee. The Disclosure Statement, the Plan and the
Confirmation Order shall (i) incorporate, and otherwise be consistent with, the
terms of this Agreement and the Merger Agreement, and (ii) be in form and
substance reasonably satisfactory to SpectraVision and the Creditors' Committee.
8.3.12 No Debtor Termination Event. No Debtor Termination
Event shall have occurred (other than Debtor Termination Events, if any, that
have been waived by SpectraVision and the Creditors' Committee in writing).
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8.3.13 Capital Structure of Buyer. On the Closing Date,
after giving effect to the Transactions, (i) no capital stock of Buyer will be
outstanding other than the Common Stock to be issued pursuant to Section 5 of
this Agreement and one share of Common Stock issued to Ascent in connection with
the formation of Buyer, and Buyer shall have no obligation to issue any
additional shares of Common Stock other than pursuant to this Agreement and the
Merger Agreement, (ii) no warrants, options or other rights to acquire shares of
Common Stock shall be outstanding and Buyer shall have no obligation to issue
any warrants, options or other rights to acquire shares of Common Stock other
than the Warrants to be issued pursuant to Section 5 of this Agreement and
options to be issued under an employee stock option plan to be adopted by Buyer
on or about the Closing Date, and (iii) the aggregate consolidated debt of Buyer
and its subsidiaries will not exceed the sum of (a) the amount of debt assumed
or incurred by Buyer in connection with its obligations under this Agreement,
(b) the aggregate outstanding debt of Spectradyne and its subsidiaries after
giving effect to all of the provisions of Section 4 of this Agreement, (c) the
Additional OCV Debt as of the Closing Date after giving effect to the
Transactions, and (d) the current liabilities of OCV.
8.4 Waiver of Conditions Precedent. If any condition described
in this Section 8 has not been satisfied, the Party that is entitled to require
that such condition be satisfied may (in its sole discretion) waive such
condition.
SECTION 9
CLOSING
9.1 Closing Date. The transactions contemplated by this
Agreement shall close (the "Closing") on the Closing Date. The Closing shall
take place at such location and time as is mutually acceptable to the Parties.
9.2 Performance at Closing. The following documents shall be
executed and delivered at the Closing:
9.2.1 By Debtors. The Debtors shall deliver to Buyer:
(a) Certificates of the officers of the Debtors in
form and substance reasonably satisfactory to Buyer with respect to such
matters as Buyer may reasonably request (including, but not necessarily limited
to, a certificate with respect to each Debtor that (i) all conditions precedent
to be satisfied by such Debtor under this Agreement have been satisfied in all
material respects, (ii) such Debtor has performed all of its duties under this
Agreement in all material respects, (iii) the representations and
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warranties of such Debtor in this Agreement are true and correct on the Closing
Date, except for changes occurring in the ordinary course of the Debtors'
businesses (provided that such changes do not have a material adverse effect on
the Debtors' business taken as a whole), or with the prior written consent of
Ascent, and (iv) evidencing the incumbency and signatures of such Debtor's
officers authorized to act on behalf of such Debtor with respect to the
transactions contemplated by this Agreement.
(b) To the extent deemed necessary or appropriate by
Buyer, such bills of sale, warranty deeds and other instruments of transfer and
assignment as Buyer may reasonably request to insure the full conveyance of the
Spectradyne Stock to Buyer, the Assets owned by the Non-Spectradyne Debtors to
Spectradyne and the Excluded Assets owned by Spectradyne to SPI Newco, in each
case in form and substance reasonably satisfactory to Buyer.
(c) Copies of all Authorizations, if any, required to
be obtained by the Debtors to consummate the transactions contemplated by this
Agreement.
(d) Certified copies of (i) the resolutions of each
Debtor's board of directors then in full force and effect authorizing the
transactions contemplated by this Agreement and the execution of all of the
documents entered into by such Debtor to effectuate such transactions, and (ii)
the certificate of incorporation and bylaws of each Debtor and each Foreign
Subsidiary.
(e) The Confirmation Order and the Confirmation
Letter.
(f) Opinions of Debtors' counsel with respect to such
matters as Buyer shall reasonably request, which opinions shall be in form and
substance reasonably satisfactory to Buyer.
(g) Physical possession of (i) the Spectradyne Stock,
(ii) original copies of all Assets that constitute contracts, agreements,
securities and similar assets, and (iii) all of the Records.
(h) An updated schedule of all liabilities and
obligations to be assumed or paid by Buyer and/or its subsidiaries pursuant to
Section 4 of this Agreement.
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9.2.2 By Buyer. Buyer shall deliver to SpectraVision:
(a) Certificates of the officers of Buyer in form and
substance reasonably satisfactory to SpectraVision with respect to such matters
as SpectraVision may reasonably request (including, but not necessarily limited
to, a certificate with respect to Buyer that (i) all conditions precedent to be
satisfied by Buyer under this Agreement have been satisfied in all material
respects, (ii) Buyer has performed all of its duties under this Agreement in all
material respects, (iii) the representations and warranties of Buyer in this
Agreement are true and correct on the Closing Date in all material respects, and
(iv) evidencing the incumbency and signatures of Buyer's officers authorized to
act on behalf of Buyer with respect to the transactions contemplated by this
Agreement).
(b) Such assumption agreements and other instruments
and documents as are necessary to confirm and evidence Buyer's assumption of the
Debtors' liabilities and obligations that are to be assumed by Buyer pursuant to
Section 4 of this Agreement.
(c) Certified copies of (i) the resolutions of
Buyer's board of directors then in full force and effect authorizing the
transactions contemplated by this Agreement and the execution of all of the
documents entered into by Buyer to effectuate such transactions, and (ii) the
Certificate of Incorporation and Bylaws.
(d) Opinions of Buyer's counsel with respect to such
matters as SpectraVision shall reasonably request, which opinions shall be in
form and substance reasonably satisfactory to the Debtors and the Creditors'
Committee.
9.3 Other Documents and Acts. The Debtors and Buyer shall also
execute such other documents and perform such other acts, before and after the
Closing Date, as may be reasonably necessary or appropriate for the consummation
of the Transactions.
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SECTION 10
NOTICE OF DEFAULT AND ADVERSE DEVELOPMENTS
10.1 Notice of Default. If any Party determines that any other
Party is in default of its material obligations, or has breached any of its
representations and warranties in any material respect, under this Agreement,
such Party shall provide the defaulting Party and the other non-defaulting
Parties with notice (a "Default Notice") specifying in reasonable detail the
nature of such default or breach; provided, however, that delivery of a Default
Notice by any Party to a defaulting Party shall not constitute a waiver of (i)
any default or breach by the defaulting Party, or (ii) any rights or remedies
under this Agreement of any non-defaulting Party.
10.2 Notice of Adverse Developments. Each Party shall promptly
notify the other Parties of each development known to such Party that may have a
material adverse effect on the operation of the Debtors' businesses or any of
the Assets; provided, however, that the compliance by the Debtors and/or the
Creditors' Committee with the disclosure requirements of this Section 7.4 shall
not relieve the Debtors of any obligation with respect to their representations,
warranties, covenants and agreements in this Agreement or waive any condition to
Buyer's obligations under this Agreement
SECTION 11
TERMINATION OF THIS AGREEMENT
11.1 By Any Party. If any Party has delivered a Default Notice
to the other Parties pursuant to Section 10 of this Agreement and the default
described in such notice has not been cured within twenty (20) days after
delivery of such notice, then the Party giving such notice may terminate this
Agreement.
11.2 By Buyer and Ascent. This Agreement may be terminated by
Buyer and Ascent, at their election, prior to the Closing upon the occurrence of
any of the following events (each, a "Buyer Termination Event"):
(a) A trustee is appointed in the Bankruptcy Case;
(b) The Bankruptcy Case is converted to a case under
Chapter 7 of the Bankruptcy Code; or
(c) The Closing Date has not occurred on or before October
30, 1996 or such later date as is acceptable to Buyer and Ascent.
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11.3 By SpectraVision and the Creditors' Committee. This
Agreement may be terminated by SpectraVision and the Creditors' Committee, at
their election, prior to the Closing upon the occurrence of any of the following
events (each, a "Debtor Termination Event"):
(a) The Closing Date has not occurred on or before October
30, 1996 or such later date as is acceptable to SpectraVision and the Creditors'
Committee; or
(b) The Debtors receive a higher and better offer for
their assets that complies with the terms and conditions of the Procedures Order
and the Disclosure Statement Order and Ascent or Buyer has not matched such
offer in accordance with the terms and conditions of the Procedures Order and
the Disclosure Statement Order.
11.4 Notice of Termination. Any Party that elects to exercise
its right to terminate this Agreement pursuant to Section 11.1, 11.2 or 11.3 of
this Agreement may do so by sending a written notice (a "Termination Notice") to
the other Parties in the manner provided in Section 12.2 of this Agreement. In
the event of any termination of this Agreement, the Parties shall have no
further obligations or liabilities to one another under this Agreement;
provided, however, that notwithstanding any termination of this Agreement,
Ascent shall retain all of the rights and remedies granted to it under the
Procedures Order.
SECTION 12
GENERAL PROVISIONS
12.1 Expenses. Except as otherwise provided in this Agreement
and the Procedures Order, all expenses involved in the preparation and
consummation of this Agreement shall be borne by the Party incurring such
expense whether or not the transactions contemplated by this Agreement are
consummated. To the extent not exempted by section 1146 of the Bankruptcy Code,
all recording costs for instruments of transfer, and all stamp, sales, use and
transfer taxes shall be paid by the Debtors. In the event that any Common Stock
and/or Warrants being issued to the Creditors on the Closing Date are required
to be registered under the Securities Act, all of the fees and expenses incurred
in connection with such registration shall be paid by Buyer.
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12.2 Notices. All notices, requests, demands, and other
communications pertaining to this Agreement shall be in writing and shall be
deemed duly given when delivered personally (which shall include delivery by (i)
Federal Express or other nationally recognized, reputable overnight courier
service that issues a receipt or other confirmation of delivery, or (ii) fax
upon confirmation of delivery) to the Party for whom such communication is
intended, or three (3) business days after the date mailed by certified or
registered U.S. mail, return receipt requested, postage prepaid, addressed as
follows:
(a) If to the Debtors:
SpectraVision, Inc.
1501 North Plano Road
Richardson, Texas 75081
Attention: President
Telephone: (214) 234-2721
Telecopy: (214) 301-9296
With a copy to:
Haynes and Boone, L.L.P.
3100 NationsBank Plaza
901 Main Street
Dallas, Texas 75202-3789
Attention: William R. Hays, III
Robert D. Albergotti
Telephone: (214) 651-5000
Telecopy: (214) 651-5940
(b) If to Buyer:
On Command Corporation
c/o Ascent Entertainment Group, Inc.
1200 Seventeenth Street
Denver, CO 80202
Attention: President
Telephone: (303) 572-0381
Telecopy: (303) 572-0396
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With a copy to:
Latham & Watkins
885 Third Avenue
Suite 1000
New York, New York 10022
Attention: Roger H. Kimmel
Telephone: (212) 906-1200
Telecopy: (212) 751-4864
and
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Attention: William J. Perlstein
Telephone: (202) 663-6000
Telecopy: (202) 663-6363
(c) If to Ascent:
Ascent Entertainment Group, Inc.
1200 Seventeenth Street
Denver, CO 80202
Attention: President
Telephone: (303) 572-0381
Telecopy: (303) 572-0396
(d) If to the Creditors' Committee:
Wachtell, Lipton, Rosen and Katz
51 W. 52nd Street
New York, New York 10019
Attention: Chaim J. Fortgang
Telephone: (212) 403-1000
Telecopy: (212) 403-2000
Any Party may change its address for notices by notice to the other Parties
given pursuant to this Section 12.2. For purposes of this Agreement, any notice
delivered to SpectraVision shall be deemed to have been given to all of the
other Debtors at the time such notice is delivered to SpectraVision and any
notice delivered to Ascent shall be deemed to have been given to Buyer.
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12.3 Attorneys' Fees. If any Party initiates any litigation
against any other Party involving this Agreement prior to the Closing Date or
pursuant to Section 7.12.4 of this Agreement, each prevailing Party in any such
litigation shall be entitled to receive reimbursement from the other Parties in
that litigation of such prevailing Party's reasonable attorneys' fees and other
costs and expenses incurred by such prevailing Party in connection with that
litigation, including any appeal, and such reimbursement may be included in the
judgment or final order issued in that proceeding.
12.4 Waiver. Unless otherwise specifically agreed in writing to
the contrary by each adversely affected Party: (i) the failure of any Party at
any time to require performance by the other of any provision of this Agreement
shall not affect such Party's right thereafter to enforce the same; (ii) no
waiver by any Party of any default by any other Party shall be valid unless in
writing and acknowledged by an authorized representative of the non-defaulting
Party, and no such waiver shall be taken or held to be a waiver by the
non-defaulting Party of any other preceding or subsequent default; and (iii) no
extension of time granted by any Party for the performance of any obligation or
act by the any other Party shall be deemed to be an extension of time for the
performance of any other obligation or act under this Agreement.
12.5 Assignment; Survival of Representations, Warranties and
Covenants. Except as otherwise contemplated by this Agreement, no Party may
assign its rights or delegate its obligations under this Agreement without the
prior written consent of the other Parties. Subject to the foregoing, this
Agreement shall be binding upon and shall inure to the benefit of the Parties
and their respective successors and assigns, and no other person shall acquire
or have any right under or by virtue of this Agreement. The representations and
warranties of the Debtors in this Agreement shall expire on the Closing Date and
neither the Debtors nor Buyer shall have any liability to any Person after the
Closing Date for any breach of any of its representations, warranties, covenants
or agreements under this Agreement; provided, however, that notwithstanding
anything to the contrary in this Agreement, the following shall survive the
termination of this Agreement: (i) Buyer's obligations under Sections 4, 5 and
12.1 of this Agreement, (ii) the registration rights that any Creditor is
entitled to pursuant to Section 5.3.3 of this Agreement, (iii) the post-closing
obligations of the Parties set forth in Section 7 of this Agreement, and (iv)
the Debtors' obligations under Section 12.1 of this Agreement.
12.6 Entire Agreement. This Agreement and the Exhibits and
Schedules to this Agreement (which are incorporated by reference in this
Agreement), the Merger Agreement and the Addendum constitute the entire
agreement among the Parties with respect to the Transactions, and supersede and
terminate any prior agreements (including, but not limited to, the Plan Sponsor
Agreement) between the Parties (written or oral). Except as provided in Section
3.5 of this Agreement, neither this Agreement nor any Exhibit or Schedule may be
altered or amended except by an instrument in writing by all of the Parties.
41
<PAGE> 43
12.7 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures on each such counterpart
were on the same instrument.
12.8 Construction. The Section headings of this Agreement are
for convenience only and in no way modify, interpret or construe the meaning of
specific provisions of this Agreement. As used in this Agreement, the neuter
gender shall also denote the masculine and feminine, and the masculine gender
shall also denote the neuter and feminine, where the context so permits.
12.9 Severability. If any one or more of the provisions
contained in this Agreement should be found invalid, illegal or unenforceable in
any respect, the validity, legality, and enforceability of the remaining
provisions contained in this Agreement shall not in any way be affected or
impaired thereby. Any illegal or unenforceable term shall be deemed to be void
and of no force and effect only to the minimum extent necessary to bring such
term within the provisions of applicable law and such term, as so modified, and
the remainder of this Agreement shall then be fully enforceable.
12.10 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the choice of law rules utilized in that jurisdiction.
12.11 Consent to Jurisdiction. To the maximum extent permitted
by applicable law, each Party hereby irrevocably and unconditionally submits to
the jurisdiction of the Bankruptcy Court, as well as to the jurisdiction of all
courts from which an appeal may be taken from such courts, for the purpose of
any suit, action or other proceeding by a Party arising out of, or with respect
to, this Agreement and expressly waive, to the fullest extent permitted by law,
any objection that it or they may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. Any judgment in any such suit, action or
proceeding may be entered, filed, registered and enforced in any federal or
state court by entry, filing and/or registering of such judgment, by a suit upon
such judgment or as otherwise permitted by applicable law. Final judgment in any
such suit, action or proceeding shall be conclusive and binding upon the
Parties. In the event of any dispute between any of the Parties in connection
with this Agreement, to the extent permitted under applicable law, the Parties
involved in such dispute shall seek redress in the Bankruptcy Court in a
proceeding within the Bankruptcy Case.
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<PAGE> 44
12.12 Counsel. Each Party has been represented by its own
counsel in connection with the negotiation and preparation of this Agreement
and, consequently, each Party hereby waives the application of any rule of law
that would otherwise be applicable in connection with the interpretation of this
Agreement (including, but not limited to, any rule of law to the effect that any
provision of this Agreement shall be interpreted or construed against the Party
whose counsel drafted that provision).
12.13 Enforcement of the Rights of Buyer and the Debtors. Until
all of the transactions contemplated by this Agreement have been consummated on
the Closing Date, (i) all of Buyer's rights under this Agreement shall be for
the benefit of Ascent, (ii) Ascent shall be entitled to enforce any such rights
against any other Party, and (iii) all of the Debtors' rights under this
Agreement shall be for the benefit of the Debtors and the Creditors' Committee
and any such rights may be enforced by either the Debtors or the Creditors'
Committee.
12.14 Creditors' Committee. The execution of this Agreement by
the Creditors' Committee does not bind any member of the Creditors' Committee
in its individual capacity. In addition, the Creditors' Committee shall have no
obligations under this Agreement other than to support the Plan containing the
terms set forth in this Agreement and the Merger Agreement (subject to any
competing offer that complies with the provisions of the Procedures Order and
the Disclosure Statement Order) and those provisions that specifically impose
obligations on the Creditors' Committee or all Parties. Without limiting the
generality of the foregoing, the Creditors' Committee shall not have any
obligations or responsibilities in respect of the representations and warranties
in this Agreement and the Creditors' Committee makes no representations or
covenants, either express or implied, relating to the working capital of
Spectradyne.
[SIGNATURES ON NEXT PAGE]
43
<PAGE> 45
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
be executed by a respective duly authorized officer as of the date first written
above.
SPECTRAVISION, INC. SPECTRADYNE, INC.
By: _____________________ By: _____________________
Name: Name:
Title: Title:
SPI NEWCO, INC. SPECTRADYNE INTERNATIONAL, INC.
By: _____________________ By: _____________________
Name: Name:
Title: Title:
KALEVISION SYSTEMS, ON COMMAND CORPORATION
INC. - USA
By: _____________________ By: _____________________
Name: Name:
Title: Title:
ASCENT ENTERTAINMENT THE OFFICIAL COMMITTEE OF
GROUP, INC. UNSECURED CREDITORS
By: _____________________ By: _____________________
Name: Name:
Title: Title:
44
<PAGE> 1
CERTIFICATE OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ON COMMAND CORPORATION
-----------------------------------------------------
Adopted in accordance with the provisions of Section 242 and
Section 245 of the General Corporation Law of the State of Delaware
-----------------------------------------------------
We, the Vice President and Secretary of Ascent Acquisition Corporation,
a corporation existing under the laws of the State of Delaware, do hereby
certify as follows:
FIRST: That said corporation was incorporated on July 25, 1996.
SECOND: That the Certificate of Incorporation of said corporation has
been amended and restated in its entirety as follows:
ARTICLE I
The name of the corporation is On Command Corporation.
ARTICLE II
The address of the corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the corporation's registered agent
at such address is the Corporation Trust Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
<PAGE> 2
ARTICLE IV
The total number of shares of stock which the corporation shall have
authority to issue is 60,000,000, divided into 50,000,000 shares of common
stock, par value $0.01 per share (the "Common Stock"), and 10,000,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock").
The Board of Directors of the corporation is authorized, subject to
limitations prescribed by law and the provisions of this Article IV, to provide
for the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions thereof.
The authority of the Board of Directors of the corporation with respect
to each series shall include, but not be limited to, determination of the
following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights,
provided that no series of Preferred Stock shall have a class vote unless the
same has been approved in writing by the holders of at least a majority of the
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
(h) Any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period.
2
<PAGE> 3
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the assets available for distribution to holders
of shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
ARTICLE V
(a) Subject to the voting rights provided by law or granted to any
series of Preferred Stock, all rights to vote and all voting power shall be
exclusively vested in the Common Stock. In the event that the stockholders of
the corporation elect to take any action by written consent in lieu of any
annual or special meeting of such stockholders as authorized by Section 228 of
the General Corporation Law of the State of Delaware, or any successor
provision, such action shall not become effective until 20 days after the
corporation or any stockholder of the corporation provides the notice required
by Section 228(d) of the General Corporation Law of the State of Delaware, or
any successor provision, unless all of the stockholders of the corporation have
consented to the taking of such action.
(b) Until the Termination Date (as defined below), each holder of
shares of Common Stock shall be entitled at all elections of directors to as
many votes as shall equal the number of votes which (except for this provision
as to cumulative voting) he would be entitled to cast for the election of
directors with respect to his shares of Common Stock multiplied by the number of
directors to be elected, and such holder may cast all of such votes for a single
director or may distribute them among the number to be voted for, or for any two
or more of them as he may see fit, and to one vote for each share upon all other
matters. Upon the occurrence of the Termination Date, the holders of the Common
Stock shall cease to be entitled to cumulative voting rights with respect
thereto and, from and after the Termination Date, the directors shall be elected
by straight voting.
As used herein, the term "Termination Date" means the first date on
which any "person" or related group (within the meaning of Rule 13(d)(3) or Rule
14(d)(2) of the General Rules and Regulations under the Securities Exchange Act
of 1934 as in effect on the date of the adoption of this Article, including any
"group" acting for the purpose of acquiring or disposing of securities within
the meaning of Rule 13d-5(b)(1) of the General Rules and Regulations under the
Securities Exchange Act of 1934 as in effect on the date of adoption of this
Article), other than the Excluded Persons (as defined below), holds, directly or
indirectly, more than 15% of the outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors (considered
for this purpose as one class), and, for the purpose of this provision, all
shares of Common Stock issuable upon the exercise or conversion of all currently
exercisable or convertible warrants, options or other securities held by such
person or related group shall be deemed to be outstanding and held by such
person or related group. As used herein, "Excluded Persons" means (a) each
person who held common stock of On Command Video Corporation ("OCV") immediately
prior to the merger of OCV with On Command Video Corporation and (b) any other
person who, individually or collectively with its affiliates, receives upon
original issuance thereof shares of Common Stock and Common Stock Purchase
Warrants of the corporation that represent more than 5% of the Applicable
Securities (as defined below) to be issued to such person or related group
pursuant to the Purchase Agreement (as defined below). As used herein, the term
"Applicable Securities" means all shares of Common Stock (including shares of
Common Stock purchasable upon exercise of Common Stock Purchase Warrants) to be
issued and outstanding immediately upon consummation of the transactions
contemplated by that certain Acquisition Agreement, dated August 13, 1996, among
the corporation, Ascent Entertainment Group, Inc., SpectraVision, Inc., the
Official Creditors' Committee
3
<PAGE> 4
for SpectraVision, Inc., Spectradyne, Inc. and the other domestic subsidiaries
of SpectraVision, Inc., after giving effect to the post-closing adjustment, if
any, contemplated by Section 5.2 of such Acquisition Agreement.
ARTICLE VI
Unless and except to the extent that the By-Laws of the corporation
shall so require, the election of directors of the corporation need not be by
written ballot.
ARTICLE VII
(a) The number of directors constituting the entire Board of Directors
of the corporation shall be fixed by, or in the manner provided in, the
corporation's By-Laws from time to time; provided, however, that until the
Termination Date, the number of directors shall not be less than seven.
(b) From and after the date of issuance of the Applicable Securities,
the Board of Directors will be elected at the annual meeting of stockholders of
On Command Corporation and will serve a one-year term until the next annual
meeting of stockholders. Director nominees receiving a plurality of the votes
cast by the holders of outstanding shares of On Command Corporation represented
at the annual meeting of stockholders, in person or by proxy, will be elected as
directors of On Command Corporation. Any vacancies in the Board of Directors for
any reason, and any directorships resulting from any increase in the number of
directors, may be filled by the Board of Directors, acting by a majority of the
directors then in office, although less than a quorum, and any directors so
chosen shall hold office until the next election at which such directors
successors shall have been elected and qualified. Notwithstanding the foregoing,
and except as otherwise required by law, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class, to
elect one or more directors of the corporation, the terms of the director or
directors elected by such holders shall expire at the next succeeding annual
meeting of stockholders. Subject to the foregoing, at each annual meeting of
stockholders the successors to the directors whose term shall then expire shall
be elected to hold office for a term expiring at the next succeeding annual
meeting.
(c) Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the corporation, any director or the entire
Board of Directors of the corporation may be removed at any time, with or
without cause, by the holders of a majority of the outstanding shares of capital
stock of the corporation entitled to vote generally in the election of directors
(considered for this purpose as one class), except that, prior to the
Termination Date, if less than the entire Board of Directors is to be removed,
no director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire Board of Directors. Notwithstanding the foregoing, and except as
otherwise required by law, whenever the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a class, to elect one
or more directors of the corporation, the provisions of section (c) of this
Article shall not apply with respect to the director or directors elected by
such holders of Preferred Stock.
4
<PAGE> 5
ARTICLE VIII
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, a majority of the entire Board of Directors of
the corporation is expressly authorized to make, alter and repeal from time to
time the By-Laws of the corporation, subject to the power of the stockholders of
the corporation to alter or repeal any by-law made by the Board of Directors of
the corporation.
ARTICLE IX
A director of the corporation shall not be liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the corporation hereunder in respect of any
act or omission occurring prior to the time of such amendment, modification or
repeal.
ARTICLE X
The corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; provided, however, that any amendment, alteration,
change or repeal of the provisions of clause (a) of Article V, clause (a) of
article VII and this Article X shall require the affirmative vote of the holders
of at least 80% of the outstanding shares of capital stock of the corporation
entitled to vote thereon.
All rights, preferences and privileges of whatsoever nature conferred
upon stockholders, directors or any other persons whomsoever by and pursuant to
this Certificate of Incorporation in its present form or as hereafter amended
are granted subject to the rights reserved in this article.
THIRD: That such amended and restated Certificate of Incorporation has
been duly adopted in accordance with Section 242 and Section 245 of the General
Corporation Law of the State of Delaware by the written consent of the
stockholder of the corporation in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
5
<PAGE> 6
IN WITNESS WHEREOF, we have signed this certificate this _____ day of
August, 1996.
------------------------------------
James A. Cronin, III
Vice President
ATTEST:
- -----------------------------------
Arthur M. Aaron
Secretary
6
<PAGE> 1
BYLAWS
OF
ON COMMAND CORPORATION
ARTICLE I
OFFICES
The corporation shall maintain a registered office in the State of
Delaware as required by law. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders for the
election of directors shall be held at such place, within or without the State
of Delaware, as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting. At each annual
meeting the stockholders shall elect a board of directors in accordance with the
provisions of Article Fifth of the Certificate of Incorporation, and transact
such other business as may properly be brought before the meeting. To be
properly brought before an annual meeting business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation, not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than
<PAGE> 2
the close of business on the 10th day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in the Bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 2. The chairman of the
annual meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting and in accordance with
the provisions of this Section 2, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
Section 3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the chief executive officer and
shall be called by the chief executive officer or the secretary at the request
in writing of a majority of the entire Board of Directors, or at the request in
writing of stockholders owning at least a majority of the outstanding shares of
capital stock of the corporation entitled to vote generally in the election of
directors (considered for this purpose as one class). Such request shall state
the purpose or purposes of the proposed meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 4. Notice of Meetings. Written notice of each meeting, stating
the place, date and hour of the meeting, shall be given to each stockholder
entitled to vote at such meeting not less than 10 nor more than 60 days before
the date of the meeting. Notice of any meeting shall state in general terms the
purpose or purposes for which the meeting is called.
Section 5. Quorum; Adjournments of Meetings. The holders of a majority
of the stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute, by the Certificate of Incorporation or by these Bylaws. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 6. Vote; Proxy. When a quorum is present at any meeting, the
vote of the holders of a majority of the shares of stock having voting power
present in person or represented
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<PAGE> 3
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statute, the Certificate
of Incorporation or these Bylaws, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Unless otherwise provided in the Certificate of Incorporation, each stockholder
shall at every meeting of the stockholders be entitled to one vote in person or
by proxy for each share of the capital stock having voting power held by such
stockholder on the record date set by the Board of Directors as provided for in
Article V, Section 6 hereof, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period. All proxies must
be filed with the Secretary of the corporation at the beginning of each meeting
in order to be counted in any vote at the meeting.
Section 7. Action in Lieu of Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 8. Stockholders Record. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 9. Notice of Stockholder Nominees. Only persons who are
nominated in accordance with the procedures set forth in this Section 8 shall be
eligible for election as directors. Nominations of persons for election to the
Board of Directors of the corporation may be made at a meeting of stockholders
by or at the direction of the Board of Directors or by any stockholder of the
corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 8. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the corporation not
less than 60 days nor more than 90 days prior to the meting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later
3
<PAGE> 4
than the close of business on the 10th day following the day on which such
notice of the date of the meting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of the corporation which are beneficially owned by such person and (iv)
any other information relating to such person that is required to be disclosed
in solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including without limitation such persons' written consent to
be named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the corporation's books, of such stockholder and (ii)
the class and number of shares of the corporation which are beneficially owned
by such stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this Section 8. The Chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the Bylaws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. Powers. The business of the corporation shall be managed by
or under the direction of its Board of Directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 2. Number of Directors. The number of directors which shall
constitute the whole Board of Directors shall be one (1) until the issuance of
the Applicable Securities (as defined in the Certificate of Incorporation) and
thereafter shall be seven (7). The directors need not be stockholders of the
corporation.
Section 3. Compensation of Directors. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, the Board of Directors shall
have the authority to fix the compensation and expenses of directors. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed compensation for and expenses of attending committee
meetings.
Section 4. Place of Meetings. The Board of Directors of the corporation
may hold meetings, both regular and special, either within or without the State
of Delaware.
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Section 5. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be called by the chief executive officer on two days' notice to each
director, either personally or by mail or by facsimile. Special meetings shall
be called by the chief executive officer or the secretary in like manner and on
like notice on the written request of a majority of the entire Board, unless the
Board of Directors consists of only one director, in which case special meetings
shall be called by the chief executive officer or the secretary in like manner
and on like notice at the request in writing of such sole director. Such request
shall state, in general terms, the purpose or purposes of the proposed meeting.
Section 7. Quorum. At all meetings of the Board of Directors a majority
of the number of directors constituting the whole board shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute, by the Certificate of Incorporation or by these Bylaws. If a quorum
shall not be present at any meeting of the Board of Directors the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 8. Action in Lieu of Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or such committee.
Section 9. Conference Call Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 10. Committees of the Board of Directors. The Board of
Directors may, by resolution passed by a majority of the whole Board of
Directors, designate one or more committees, each committee to consist of one or
more of the directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they
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constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it, but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the Bylaws of the corporation. Unless
the resolution creating such committee or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock or to adopt a
certificate of ownership and merger. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the Board of Directors.
Section 11. Minutes of Meetings. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the corporation shall be chosen by
the Board of Directors and shall be a president, a secretary and such other
officers as in its opinion are desirable for the conduct of the business of the
corporation. The president shall serve as chief executive officer until such
time as the Board of Directors appoints a chief executive officer in addition to
a president. The Board of Directors may also appoint a treasurer and one or more
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person, unless the Certificate of Incorporation or these Bylaws
otherwise provide. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
Section 2. Powers and Duties. Each of the officers of the corporation
shall, unless otherwise ordered by the Board of Directors, have such powers and
duties as generally pertain to his respective office as well as such powers and
duties as from time to time may be conferred upon him by the Board of Directors.
Section 3. Salary. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors or a committee thereof.
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Section 4. Term of Office; Removal and Vacancy. Subject to the terms of
any employment agreements, the officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
Section 5. Power to Vote Stock. Unless otherwise ordered by the Board
of Directors, the chief executive officer of the corporation shall have the full
power and authority on behalf of the corporation to attend and to vote at any
meeting of the stockholders of any corporation in which the corporation may hold
any equity interest, and may exercise on behalf of the corporation any and all
of the rights and powers incident to the ownership of such equity interest at
any such meeting and shall have power and authority to execute and deliver
proxies, waivers and consents on behalf of the corporation in connection with
the exercise by the corporation of the rights and powers incident to the
ownership of such equity interests. The Board of Directors, from time to time,
may confer like powers upon any other person or persons.
ARTICLE V
CAPITAL STOCK
Section 1. Certificates of Stock. The shares of the corporation shall
be represented by a certificate or shall be uncertificated. Certificates shall
be signed by, or in the name of the corporation by, the chief executive officer
or a vice president, and by the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation.
Section 2. Facsimile Signatures. Any or all of the signatures on a
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Legends. If the corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
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Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates or uncertificated shares
to be issued in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate
or certificates or uncertificated shares, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Upon receipt of proper transfer instructions from
the registered owner of uncertificated shares such uncertificated shares shall
be canceled and issuance of new equivalent uncertificated shares or certificated
shares shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the corporation.
Section 6. Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 7. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of Delaware.
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ARTICLE VI
NOTICES
Section 1. Notice. Whenever, under the provisions of the statutes, the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any director or stockholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram or by facsimile.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of the statutes, the Certificate of Incorporation or these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
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ARTICLE VIII
INDEMNIFICATION
To the fullest extent permitted by the General Corporation Law of the
State of Delaware, the corporation shall indemnify its officers and directors
and, in the sole discretion of the Board of Directors of the corporation, may
indemnify its employees and agents.
ARTICLE IX
AMENDMENTS
These Bylaws may be altered, amended or repealed or new bylaws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the Certificate of Incorporation, at
any regular meeting of the stockholders or of the Board of Directors, or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws is
conferred upon the Board of Directors by the Certificate of Incorporation, it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of __________, 1996 by Ascent Entertainment Group, Inc.
("Ascent"), On Command Corporation ("OCC"), Gary Wilson Partners ("Gary Wilson
Partners"), and the Official Creditors' Committee (the "Creditors Committee")
for SpectraVision, Inc. ("SpectraVision"), Spectradyne, Inc. ("Spectradyne"),
and the other domestic subsidiaries of SpectraVision. This Agreement shall
become effective at the Effective Time (as hereinafter defined) under the
Agreement and Plan of Merger (as hereinafter defined) and the other agreements
to be entered into on the date thereof.
R E C I T A L S
A. Pursuant to an Agreement and Plan of Merger, dated as of August 13,
1996 (the "Merger Agreement"), by and among Ascent, OCC, On Command Merger
Corporation ("Merger Sub") and On Command Video Corporation ("OCV"), Merger Sub
will merge with and into OCV, with OCV as the surviving corporation and each
share of OCV Common Stock that is issued and outstanding immediately prior to
the Effective Time (other than shares of OCV Common Stock held by OCV or by its
direct or indirect subsidiaries and shares held by any dissenting stockholders),
will be converted into the right to receive: (i) approximately 2.84 shares of
OCC Common Stock, (ii) such additional number of shares of Reserved Stock (as
defined in the Merger Agreement), if any, to which holders of OCV Common Stock
may be entitled and (iii) Series A warrants to purchase, on a cashless basis, up
to 18.61% of a share of OCC Common Stock (the "Series A Warrants").
B. Pursuant to an Acquisition Agreement, dated as of August 13, 1996
(the "Acquisition Agreement"), by and among OCC, Ascent, SpectraVision and the
Creditors' Committee, OCC will purchase all of the capital stock of Spectradyne.
As consideration for the capital stock of Spectradyne, OCC will issue to the
creditors of SpectraVision and its domestic subsidiaries, including Spectradyne
(collectively, the "Creditors"), or an agent on their behalf: (i) an aggregate
of 8,250,000 shares of OCC Common Stock, less the aggregate amount of Reserved
Stock and (ii) Series B warrants to purchase for cash an aggregate of 2,625,000
shares of OCC Common Stock (the "Series B Warrants").
C. Pursuant to a letter agreement, dated April 19, 1996 (the "GWP
Agreement") between Ascent and Gary Wilson Partners, Gary Wilson Partners is
entitled to receive Series C warrants to purchase 9.2% of the OCC Common Stock
that is issued and outstanding after exercise of all of the Warrants (the
"Series C Warrant").
D. Pursuant to the Merger Agreement, the Acquisition Agreement and the
GWP Agreement, any person owning 10% or more of the OCV Common Stock prior to
the Effective Time, Gary Wilson Partners and any other person that receives 10%
or more of the OCC Common Stock issuable upon consummation of the transactions
contemplated by the Merger Agreement and the Acquisition Agreement, including
shares issuable upon conversion of the Warrants (collectively, the "Holders")
are entitled to certain registration rights set forth herein.
<PAGE> 2
In consideration of the agreements and covenants hereinafter set forth,
and intending to be legally bound hereby, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For purposes of this Agreement:
"Act" shall mean the Securities Act of 1933, as amended.
"Actions" shall have the meaning set forth in Section 2.6(a) of this
Agreement.
"Advice" shall have the meaning set forth in Section 2.3(c) of this
Agreement.
"Agreement" shall mean this Agreement, as the same may be amended or
supplemented from time to time in accordance with its terms.
"Acquisition Agreement" shall have the meaning set forth in the second
recital of this Agreement.
"Ascent" shall have the meaning set forth in the preamble of this
Agreement.
"Closing Date" shall have the meaning set forth in the Merger
Agreement.
"Commission" shall have the meaning set forth in Section 2.1 of this
Agreement.
"Controlling Person" shall have the meaning set forth in Section 2.6(a)
of this Agreement.
"Demand Registration" shall have the meaning set forth in Section
2.2(a) of this Agreement.
"Demanding Party" shall mean a person asserting the rights set forth in
Section 2.2(a) of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expenses" shall have the meaning set forth in Section 2.6(a) of this
Agreement.
"Gary Wilson Partners" shall have the meaning set forth in the preamble
of this Agreement.
"GWP Agreement" shall have the meaning set forth in third recital of
this Agreement.
"Holders" shall have the meaning set forth in the fourth recital of
this Agreement.
"Indemnified Holder" shall have the meaning set forth in Section 2.6(a)
of this Agreement.
"Indemnified Issuer" shall have the meaning set forth in Section 2.6(c)
of this Agreement.
"Liabilities" shall have the meaning set forth in Section 2.6(a) of
this Agreement.
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"Notice" shall have the meaning set forth in Section 2.2(b) of this
Agreement.
"OCC" shall have the meaning set forth in the preamble of this
Agreement.
"OCC Certificate" shall mean the Amended and Restated Certificate of
Incorporation of OCC.
"OCC Shares" shall mean, collectively, (i) the shares of OCC Common
Stock received by the Holders pursuant to the Acquisition Agreement and the
Merger Agreement, (ii) the Series A Warrant Shares, (iii) the Series B Warrant
Shares and (iv) the Series C Warrant Shares.
"Piggyback Registration" shall have the meaning set forth in Section
2.1(a) of this Agreement.
"Prospectus" shall mean any prospectus contained in a Registration
Statement.
"Registrable Securities" shall mean OCC Shares or Warrants, but with
respect to any Share or Warrant, only until (i) such Share or Warrant has been
effectively registered under the Act and disposed of in accordance with the
Registration Statement covering it, (ii) such Share or Warrant has been sold to
the public pursuant to Rule 144 (or any similar provision then in force) under
the Act and the legend on the certificate which explains that the certificate
represents a Share of a restricted security has been removed from the
certificate representing such Share or (iii) such Warrant has expired.
"Registration" shall mean any Piggyback Registration or Demand
Registration pursuant to Section 2.1 or 2.2 of this Agreement, respectively.
"Registration Statement" shall mean a registration statement or
statements relating to the applicable Registration on any appropriate form under
the Act.
"Series A Warrant Shares" shall mean shares of OCC Common Stock
issuable upon exercise of the Series A Warrants in accordance with the terms of
the Series A Warrants.
"Series B Warrant Shares" shall mean shares of OCC Common Stock
issuable upon exercise of the Series B Warrants in accordance with the terms of
the Series B Warrants.
"Series C Warrant Shares" shall mean shares of OCC Common Stock
issuable upon exercise of the Series C Warrant in accordance with the terms of
the Series C Warrant.
"Stockholder" shall mean any person who has or hereafter acquires
shares of Common Stock of OCC.
"Warrants" shall mean the Series A Warrants, the Series B Warrants and
the Series C Warrant.
ARTICLE II
REGISTRATION RIGHTS
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Section 2.1 Piggyback Registration Rights.
(a) Whenever OCC proposes to (i) register any shares of OCC Common
Stock (or securities convertible into or exchangeable for, or options to
acquire, Common Stock) with the Securities and Exchange Commission (the
"Commission") under the Act (a "Registration") and the form to be used, if any,
in connection with such Registration may be used for the Registration of the
Registrable Securities under the Act (a "Piggyback Registration"), OCC will give
written notice to all Holders holding Registrable Securities, at least 30 days
prior to the anticipated filing date of its intention to effect such
Registration, which notice will specify the proposed offering price (or the
method proposed to be used to determine the offering price), the kind and number
of securities proposed to be issued in connection with such Registration, the
distribution arrangements and such other information that at the time would be
appropriate to include in such notice, and will, subject to Section 2.1(b)
below, include in such Piggyback Registration all Registrable Securities with
respect to which OCC has received written requests for inclusion therein within
20 days after delivery of OCC's notice. Except as may otherwise be provided in
this Agreement, Registrable Securities with respect to which such request for
inclusion in such Registration has been received will be included by OCC and
offered to the public in a Piggyback Registration pursuant to this Section 2.1
on terms and conditions at least as favorable as those applicable to the
Registration of shares of OCC Common Stock (or securities convertible into or
exchangeable or exercisable for Common Stock) to be sold by OCC and by any other
person selling under such Piggyback Registration.
Notwithstanding the foregoing, if at any time after giving written
notice of its intention to effect a Registration and before the effectiveness of
any Registration Statement filed in connection with such Registration, OCC
determines for any reason either not to effect such Registration or to delay
such Registration, OCC may, at its election, by delivery of a written notice to
each Holder, (i) in the case of a determination not to effect such Registration,
relieve itself of its obligation to include the Registrable Securities in
connection with such Registration, or (ii) in the case of a determination to
delay such Registration, delay the inclusion of such Registrable Securities for
the same period as the delay in the Registration of such other OCC Common Stock.
Each Holder requesting inclusion of its Registrable Securities in a Registration
pursuant to this Section 2.1(a) may, at any time before the effective date of
the Registration Statement relating to such Registration, revoke such request by
delivering written notice of such revocation to OCC (which notice shall be
effective only upon receipt by OCC); provided, however, that if OCC, in
consultation with its financial and legal advisors, determines that such
revocation would materially delay or have an adverse effect on the success of,
the Registration, as the case may be, or otherwise require a recirculation of
the Prospectus contained in any Registration Statement, then such holder shall
have no right to so revoke its request.
(b) If in any Piggyback Registration the managing underwriter or
underwriters, if any, advise OCC that in its or their opinion or, in the case of
a Piggyback Registration not being underwritten, OCC shall reasonably determine
(and notify the holders of Registrable Securities of such determination) after
consultation with an investment banker of nationally recognized standing, that
the number or kind of securities proposed to be sold in such Registration will
have an adverse effect on the success of such offering (including, without
limitation, an impact on the selling price or the number of OCC Shares that any
participant may sell), OCC will include in such Registration the number of
securities, if any, which, in the opinion of such underwriter or underwriters,
or OCC, as the case may be, can be sold in the following order: (i) first, the
shares OCC proposes to sell and (ii) second, the Registrable Securities
requested to be included in such registration by the Holders. To the extent that
the privilege of including
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Registrable Securities in any Piggyback Registration must be allocated among the
Holders pursuant to the foregoing sentence, the allocation shall be made pro
rata based on the number of Registrable Securities that each such participant
shall have requested to include therein.
(c) If any Piggyback Registration is an underwritten offering, OCC
shall select a managing underwriter or underwriters to administer the offering,
which managing underwriter or underwriters will be of nationally recognized
standing.
Section 2.2 Demand Registration Rights.
(a) Each Holder shall have the right once during any twelve-month
period to make a written request of OCC for a registration with the Commission
under and in accordance with the provisions of the Act of all or part of its
Registrable Securities (a "Demand Registration"); provided, that (i) OCC need
not effect a Demand Registration if (A) such Demand Registration fails to
include at least $10,000,000 in aggregate fair market value of the Registrable
Securities or (B) such Demand Registration would require an audit of OCC's
financial statements for a period as of a date other than its fiscal year end
and the Demanding Party fails to agree to bear responsibility for the expenses
of such an audit, (ii) OCC may, if a majority of the Board of Directors
determines in the exercise of their good faith judgment that compliance with the
disclosure obligations necessary to effect such Demand Registration at such time
would have an adverse effect on OCC, defer such Demand Registration for a single
period not to exceed 180 days, and (iii) if OCC has undertaken a Registration
within the six months preceding the receipt by OCC of the request for the Demand
Registration, commencement of such Demand Registration may, at OCC's option, be
delayed until at least six months have elapsed from the date of effectiveness of
such Registration.
(b) Within 20 business days after receipt of the request for any Demand
Registration under Section 2.2(a), OCC shall send written notice (the "Notice")
of such Registration request and its intention to comply therewith to each of
the other Holders who are holders of Registrable Securities and, subject to
Section 2.2(c) below, OCC will include in such Registration all Registrable
Securities of such Holders with respect to which OCC has received written
requests for inclusion therein within 20 business days after the delivery of the
Notice. All requests made pursuant to this Section 2.2(a) shall specify the
aggregate number of Registrable Securities requested to be registered and shall
also specify the intended methods of disposition thereof.
(c) Subject to applicable laws, the expenses of each Demand
Registration (including the fees and expenses of a total of one counsel for the
Holders in accordance with Section 2.5(b) below) shall be borne by OCC. A Demand
Registration shall not be counted as a Demand Registration hereunder until such
Demand Registration has been declared effective by the Commission and maintained
continuously effective for a period of at least three months or such shorter
period as will terminate when all Registrable Securities included therein have
been sold in accordance with such Demand Registration.
(d) If in any Demand Registration the managing underwriter or
underwriters thereof (or in the case of a Demand Registration not being
underwritten, in the opinion of the Demanding Party) advise OCC in writing that
in its or their reasonable opinion the number of securities proposed to be sold
in such Demand Registration exceeds the number that can be sold in such offering
without having an adverse effect on the success of the offering (including,
without limitation, an impact on the selling price or the number of OCC Shares
that any participant may sell), OCC shall include in such Registration only the
number of securities that, in the reasonable opinion of such underwriter or
underwriters (or the Demanding Party, as the case may be) can be sold without
having an adverse effect on the success of the offering as
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follows: (i) first, the Registrable Securities requested to be included in such
Demand Registration by the Demanding Party, (ii) second, the Registrable
Securities requested to be included in such Demand Registration by any other
Holders pro rata among those requesting such Registration on the basis of the
number of OCC Shares requested to be included, and (iii) third, shares to be
issued and sold by OCC or shares held by persons other than the Holders and
requested to be included in such Demand Registration.
(e) If a Demand Registration is an underwritten offering, OCC shall
select a managing underwriter or underwriters of recognized national standing
reasonably acceptable to the Demanding Party to administer the offering.
(f) Notwithstanding anything to the contrary contained herein, at any
time a Holder shall request a Demand Registration pursuant to this Section 2.2,
OCC may elect at that time to effect an underwritten primary registration if the
Board of Directors of OCC believes that such primary registration would be in
the best interests of OCC or if the managing underwriters for the requested
Demand Registration advise OCC in writing that in their opinion in order to sell
the Registrable Securities to be sold OCC should include its own securities.
Promptly after receiving a written request for a Demand Registration, OCC shall
notify the members of its Board of Directors (and the Board of Directors shall
consider the issue as soon as practicable after receiving such request), and OCC
shall meet with the managing underwriters, if any, and shall decide whether or
not to effect an underwritten primary registration on behalf of OCC. If OCC
elects to effect an underwritten primary registration after receiving a request
for a Demand Registration, OCC shall give prompt written notice (and in any
event within 45 days after receiving a written request for a Demand
Registration) to all Holders holding Registrable Securities of its intention to
effect such an underwritten primary registration and shall afford such Holders
the right to participate in such registration pursuant to Section 2.1. In the
event that OCC so elects to effect an underwritten primary registration after
receiving a request for a Demand Registration, (i) such registration shall not
count as a Demand Registration for purposes of this Section 2.2 and (ii) OCC
shall have the sole discretion to designate the managing underwriter or
underwriters to be used in connection with such registration.
(g) If any Registration of Registrable Securities shall be in
connection with an underwritten public offering, each Holder agrees not to
effect any public sale or distribution, including, without limitation, any sale
pursuant to Rule 144, or any successor provision under the Securities Act, of
any Registrable Securities of the same type (other than as part of such
underwritten public offering) during the 14 days prior to the effective date of
such registration statement (except as part of such registration) or during the
period after such effective date that such managing underwriter and OCC shall
agree (but not to exceed 180 days).
Section 2.3 Registration Procedures.
(a) With respect to any Registration under the Act, OCC shall, subject
to Sections 2.1 and 2.2, as expeditiously as practicable:
(1) prepare and file with the Commission a Registration
Statement relating to the applicable Registration on any appropriate
form under the Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or
methods of distribution thereof and use reasonable efforts to cause
such Registration Statement to become effective;
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(2) use reasonable efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
for the applicable period; upon the occurrence of any event that would
cause any such Registration Statement or any Prospectus contained
therein (A) to contain a material misstatement or omission or (B) not
to be effective and usable for resale of Registrable Securities during
the period required by this Agreement, OCC shall prepare and file
promptly an appropriate amendment to such Registration Statement and
supplement to the Prospectus, in the case of clause (A), correcting any
such misstatement or omission, and, in the case of either clause (A) or
(B), use reasonable efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as practicable
thereafter;
(3) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for a period of
at least three months or such shorter period as will terminate when all
Registrable Securities covered by such Registration Statement have been
sold; cause the Prospectus to be supplemented by any required
Prospectus supplement, and to comply fully with the applicable
provisions of Rules 424 and 430A under the Act in a timely manner; and
comply with the provisions of the Act with respect to the disposition
of all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(4) advise the managing underwriters, if any, and the selling
Holders of Registrable Securities promptly and, if requested by such
persons, to confirm such advice in writing, (A) when the Prospectus or
any Prospectus supplement or post-effective amendment has been filed,
and, with respect to any Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any
request by the Commission for amendments to the Registration Statement
or amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement under the Act or of the suspension by any state securities
commission of the qualification of the Registrable Securities for
offering or sale in any jurisdiction, or the initiation of any
proceeding for any of the preceding purposes, (D) of the existence of
any fact or the happening of any event that makes any statement of a
material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto, or any document incorporated by
reference therein untrue, or that requires the making of any additions
to or changes in the Registration Statement or the Prospectus in order
to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Registrable Securities under
state securities or Blue Sky laws, OCC shall use reasonable efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time;
(5) furnish to each of the Holders of Registrable Securities
requesting inclusion in such Registration and each of the managing
underwriters, if any, copies of any Registration Statement or any
Prospectus included therein or any amendments or supplements to any
such Registration Statement or Prospectus (including all documents
incorporated by reference), and OCC will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which a selling Holder of Registrable
Securities covered by such Registration
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Statement or the managing underwriters, if any, shall reasonably object
within five business days after the receipt thereof. A selling Holder
or managing underwriter, if any, shall be deemed to have reasonably
objected to such filing only if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed,
contains a material misstatement or omission;
(6) make available at reasonable times for inspection by the
selling Holders of Registrable Securities, any managing underwriter
participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant retained by such selling
Holders or any of the managing underwriters, all financial and other
records, pertinent corporate documents and properties of OCC and cause
OCC's officers, directors and employees to supply all information
reasonably requested by any such selling Holder, managing underwriter,
attorney or accountant in connection with such Registration Statement
subsequent to the filing thereof and prior to its effectiveness;
(7) if requested by any selling Holders of Registrable
Securities or the managing underwriters, if any, promptly incorporate
in any Registration Statement or Prospectus, pursuant to a supplement
or post-effective amendment if necessary, such information as such
selling Holders and managing underwriters, if any, may reasonably
request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Registrable
Securities, information with respect to the amount of Registrable
Securities being sold to such managing underwriters, the purchase price
being paid therefor and any other terms of the offering of the
Registrable Securities to be sold in such offering; and make all
required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after OCC is notified of the matters
to be incorporated in such Prospectus supplement or post-effective
amendment;
(8) furnish to each selling Holder of Registrable Securities
and each of the managing underwriters, if any, without charge, at least
one copy of the Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents
incorporated by reference therein;
(9) deliver to each selling Holder of Registrable Securities
and each of the managing underwriters, if any, without charge, as many
copies of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such persons reasonably may
request; OCC hereby consents to the use of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and each
of the managing underwriters, if any, in connection with the offering
and the sale of the Registrable Securities covered by the Prospectus or
any amendment or supplement thereto;
(10) (A) enter into customary agreements (including an
underwriting agreement in customary form in the case of an underwritten
offering), (B) make such representations and warranties to the selling
Holders of Registrable Securities and underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters
in secondary underwritten offerings, (C) if applicable, provide for
indemnity provisions substantially similar to those set forth in
Section 2.6 of this Agreement or incorporate such provisions by
reference, (D) upon the reasonable request of any Holder of
Registerable Securities being registered or the managing underwriter,
if any, use reasonable efforts to obtain a "comfort" letter, an opinion
or opinions from counsel for OCC in customary form and a certificate of
a principal financial or accounting officer of OCC, confirming, as of
the date thereof, such representations, warranties and other matters as
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the selling Holders or managing underwriters, if any, may reasonably
request, and (E) cause management to participate in customary
"roadshow" presentations;
(11) prior to any public offering of Registrable Securities,
cooperate with the selling Holders of Registrable Securities, the
managing underwriters, if any, and their respective counsel in
connection with the registration and qualification of the Registrable
Securities under the securities or Blue Sky laws of such jurisdictions
as the selling Holders or managing underwriters, if any, may request
and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statement; provided, however,
that OCC shall not be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(12) cooperate with the selling Holders of Registrable
Securities and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive
legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the selling Holders or
the managing underwriters, if any, may request at least two business
days prior to any sale of Registrable Securities made by such managing
underwriters;
(13) if any fact or event contemplated by clause (4)(D) above
shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of
Registrable Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
in which they were made, not misleading;
(14) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter")
that is required to be retained in accordance with the rules and
regulations of the NASD, and use reasonable best efforts to cause such
Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the
Holders selling Registrable Securities to consummate the disposition of
such Registrable Securities;
(15) otherwise use reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
under the Act (which need not be audited) for the twelve-month period
(A) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm or best efforts
underwritten offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of OCC's first fiscal quarter
commencing after the effective date of the Registration Statement;
(16) cause all Registrable Securities covered by the
Registration Statement to be listed on each securities exchange on
which similar securities issued by OCC are then listed if requested by
the Holders of a majority in aggregate amount of Registrable Securities
or the managing underwriters, if any; and
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(17) provide promptly to each Holder of Registrable Securities
upon request each document filed with the Commission pursuant to the
requirements of Section 13 and Section 15 of the Exchange Act.
(b) OCC may require each selling Holder of Registrable Securities as to
which any Registration is being effected to furnish to OCC such information
regarding the proposed distribution of such securities as OCC may from time to
time reasonably request in writing.
(c) Each Holder agrees by acquisition of a Registrable Security that,
upon receipt of any notice from OCC of the existence of any fact of the kind
described in Section 2.3(a)(4)(D), such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the applicable Registration
Statement until such holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 2.3(a)(13), or until it is advised in
writing (the "Advice") by OCC that the use of the Prospectus may be resumed, and
has received copies of any additional or supplemental filings that are
incorporated by reference in such Prospectus. If so directed by OCC, each Holder
will deliver to OCC (at OCC's expense) all copies, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Securities that was current at the time of receipt of such notice.
In the event OCC shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 2.3(a)(3)
shall be extended by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 2.3(a)(4)(D) to and
including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 2.3(a)(13) or shall have received the Advice.
Section 2.4 Restrictions on Sale of Common Stock. To the extent not
inconsistent with applicable law and subject to Section 2.2(e), if requested by
the managing underwriter or underwriters for any underwritten Registration, or
by the holders of a majority of the Registrable Securities held by the Holders
being registered in a Demand Registration that is not being underwritten, (i)
OCC and the Holders will not effect any public sale or distribution of, or
register, offer to sell, or otherwise transfer, any shares of Common Stock (or
securities convertible into or exchangeable or exercisable for, or options to
purchase, Common Stock) during the 9 business days prior to, and during the
90-day period (such period to be 120 days with respect to OCC) beginning on, the
effective date of such Registration (provided, however, that this clause shall
not limit the ability of any of the Holders to effect sales pursuant to Rule 144
under the Act or sales or other transfers that do not constitute a public sale
or distribution.
Section 2.5 Registration Expenses.
(a) To the extent not inconsistent with applicable law, all expenses
incident to OCC's performance of or compliance with this Agreement will be borne
by OCC regardless of whether a Registration Statement becomes effective.
Notwithstanding the foregoing or anything in this Agreement to the contrary,
each of the Holders shall pay all underwriting discounts and commissions of any
underwriters with respect to OCC Shares sold by it. OCC will, in any event, bear
its expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any person, including special
experts, retained by OCC.
(b) In connection with any Registration Statement required by this
Agreement, OCC will reimburse the holders of Registrable Securities being
registered pursuant to such Registration Statement
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for the reasonable fees and disbursements of not more than one counsel chosen by
the holders of a majority of such Registrable Securities.
Section 2.6 Indemnification.
(a) OCC will indemnify and hold harmless each Holder, its affiliates
and each person, if any, who controls such Holder or any of its affiliates
within the meaning of either the Act or the Exchange Act (a "Controlling
Person"), and the respective directors, officers, agents and employees of each
such Holder, any Controlling Persons and such affiliates (each such entity or
person, an "Indemnified Holder") from and against any losses, claims, damages,
judgments, assessments, costs and other liabilities (collectively
"Liabilities"), and will reimburse each Indemnified Holder for all fees and
expenses (including the reasonable fees and expenses of counsel) (collectively,
"Expenses") as they are incurred in investigating, preparing, pursuing or
defending any claim, action, proceeding or investigation, whether or not in
connection with pending or threatened litigation and whether or not any
Indemnified Holder is a party (collectively, "Actions"), caused by, or arising
out of or in connection with, any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement or Prospectus,
including any amendments thereof and supplements thereto, or by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading (other than untrue statements or alleged untrue statements in, or
omission or alleged omissions from, information relating to any of the Holders
furnished in writing by or on behalf of such Holders expressly for use in such
Registration Statement or Prospectus); provided, however, that OCC shall not be
liable for any Liabilities or Expenses arising out of a untrue statement or
alleged untrue statement made in any preliminary prospectus if (i) a copy of the
Prospectuses (as then amended or supplemented) was not sent or given by or on
behalf of the underwriter, if any, or Holder to the person asserting any such
loss, claim, damage or liability, if required by law so to have been delivered
at or prior to the written confirmation of the sale of the Registrable
Securities, (ii) copies of the Prospectuses were made available to such
underwriter, if any, or Holder in compliance with Section 5(e) hereof 2.3(a)(13)
and (iii) the Prospectuses (as then amended or supplemented) would have
completely corrected such untrue statement or omission. OCC also agrees to
reimburse each Indemnified Holder for all Expenses that are incurred in
connection with enforcing such Indemnified Holder's rights under this Section
2.6.
(b) Upon receipt by an Indemnified Holder of actual notice of an Action
against such Indemnified Holder with respect to which indemnity may be sought
under this Agreement, such Indemnified Holder shall promptly notify OCC in
writing; provided that failure so to notify OCC shall not relieve OCC from any
liability that OCC may have on account of this indemnity or otherwise, except to
the extent OCC shall have been materially prejudiced by such failure. OCC may,
at its option, assume the defense of any such Action, including the employment
of counsel reasonably satisfactory to the Indemnified Holders. Any Indemnified
Holder shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Holder, unless: (i) OCC has failed
to assume the defense and employ counsel reasonably satisfactory to the
Indemnified Holders or (ii) the named parties to any such Action (including any
impleaded parties) include such Indemnified Holder and OCC, and such Indemnified
Holder shall have been advised by counsel that there may be one or more legal
defenses available to it that are different from or in addition to those
available to OCC; provided that OCC shall not in such event be responsible
hereunder for the reasonable fees and expenses of more than one firm of separate
counsel in connection with any Action in the same jurisdiction, in addition to
any local counsel. OCC shall not be liable for any settlement of any Action
effected without its written consent (which shall not be unreasonably withheld).
In addition, OCC will not, without the prior written consent of each Indemnified
Holder, settle, compromise or consent
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to the entry of any judgment in or otherwise seek to terminate any pending or
threatened Action in respect of which indemnification or contribution has been
sought hereunder (whether or not any Indemnified Holder is a party thereto)
unless such settlement, compromise, consent or termination includes an
unconditional release of each Indemnified Holder from all Liabilities arising
out of such Action for which such Indemnified Holder is entitled to
indemnification hereunder.
(c) Each selling Holder of Registrable Securities, severally and not
jointly, will indemnify and hold harmless OCC, its affiliates, its Controlling
Persons, and the respective directors, officers, agents and employees of OCC,
any Controlling Persons and such affiliates (each such entity or person, an
"Indemnified Issuer") to the same extent as the foregoing indemnity from OCC to
the Indemnified Holders, but only with respect to Liabilities and Expenses
incurred in investigating, preparing, pursuing or defending Actions caused by,
or arising out of or in connection with information relating to such holder
furnished in writing by or on behalf of such holder expressly for use in the
Registration Statement or Prospectus. In case any Action shall be brought
against any Indemnified Issuer in respect of which indemnification may be sought
against a selling Holder of Registrable Securities, such Holder shall have the
rights and duties given to OCC and the Indemnified Issuer shall have the rights
and duties given to each Indemnified Holder by paragraph (b) of this Section. In
no event shall the liability of any selling Holder hereunder be greater than the
dollar amount of the proceeds received by such holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(d) In the event that the indemnification provided for in the foregoing
paragraphs (a) and (c) above is judicially determined to be unavailable to an
indemnified party (other than in accordance with the terms of this Agreement),
the indemnifying party shall contribute to the Liabilities and Expenses paid or
payable by such indemnified party in such proportion as is appropriate to
reflect (i) the relative benefits to OCC, on the one hand, and to the selling
holders on the other hand, from their sale of Common Stock pursuant to the
Registration Statement or (ii) if the allocation provided by the immediately
preceding clause is not permitted by applicable law, not only such relative
benefits but also the relative fault of OCC, on the one hand, and the selling
holders, on the other hand, in connection with the statements or omissions to
which such Liabilities or Expenses relate, as well as any other relevant
equitable considerations. In no event shall OCC be required to contribute less
than the amount necessary to ensure that all selling holders, in the aggregate,
are not liable for any Liabilities and Expenses in excess of the dollar amount
of the proceeds received by such holders upon the sale of the Registrable
Securities giving rise to such Liabilities and Expenses.
OCC and each Holder of Registrable Securities agree that it would not
be just and equitable if contribution pursuant to this Section 2.6(d) were
determined by pro rata allocation (even if all holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. If any term,
provision, covenant or restriction contained in this Section 2.6 is held by a
court of competent jurisdiction or other authority to be invalid, void,
unenforceable or against its regulatory policy, the remainder of the terms,
provisions, covenants and restrictions contained in this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated. The reimbursement, indemnity and contribution obligations set forth
herein shall apply to any modification of this Agreement and shall remain in
full force and effect regardless of any termination of this Agreement.
Section 2.7 Rule 144. OCC agrees that at all times after it has filed a
registration statement pursuant to the requirements of the Act relating to any
class of its equity securities, it will file in a timely
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manner all reports required to be filed by it pursuant to the Act and the
Exchange Act and will take such further action as any holder of Registrable
Securities may reasonably request in order that such holder may effect sales of
Shares pursuant to Rule 144 or Rule 144A. At any reasonable time and upon
request of a Holder, OCC will furnish such Holder and others with such
information as may be necessary to enable the Holder to effect sales of Common
Stock pursuant to Rule 144 or Rule 144A under the Act and will deliver to such
Holder a written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, OCC may deregister any class of its equity
securities under Section 12 of the Exchange Act or suspend its duty to file
reports with respect to any class of its securities pursuant to Section 15(d) of
the Exchange Act if it is then permitted to do so pursuant to the Exchange Act
and the rules and regulations thereunder.
Section 2.8 Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to select
the underwriter pursuant to Sections 2.1(c) and 2.2(e) above, and (ii)
accurately completes in a timely manner and executes all questionnaires, powers
of attorney, underwriting agreements and other documents customarily required
under the terms of such underwriting arrangements.
Section 2.9 Other Registration Rights. OCC has not granted and will not
grant to any person (including the Holders) any demand registration rights with
respect to the OCC Common Stock (or securities convertible into or exchangeable
for, or options to purchase, OCC Common Stock) unless the applicable agreement
pursuant to which such demand registration rights are granted provides (i) that
no request for a demand registration may be made thereunder during the period
commencing on the date of receipt by OCC of a written request for a Demand
Registration pursuant to Section 2.2(b) hereof and ending 90 days after the date
of effectiveness of the Registration Statement relating to such Demand
Registration and (ii) for customary hold-back and cut-back provisions that are
consistent with the provisions of this Agreement.
ARTICLE III
OTHER PROVISIONS
Section 3.1 Entire Agreement. Except as otherwise set forth herein,
this Agreement constitutes the entire agreement among the parties with respect
to the subject matter hereof, and supersedes all prior agreements and
understandings among parties with respect thereto.
Section 3.2 No Inconsistent Agreements. OCC will not on or after the
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of OCC's securities under any agreement in
effect on the date hereof.
Section 3.3 No Partnership or Joint Venture. Nothing in this Agreement
shall create a partnership or joint venture or any other relationship of a
similar nature between the parties.
Section 3.4 Costs. Except as otherwise provided herein, each party
shall pay its own costs and expenses incurred in connection with this Agreement.
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Section 3.5 Governing Law and Arbitration THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
Section 3.6 Notices. All notices and other communications provided for
or permitted hereunder shall be in writing duly signed by or on behalf of the
party or parties giving it and shall be served by hand, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or
professional courier:
(1) if to OCC, c/o On Command Video Corporation,
3301 Olcott Street, Santa Clara, California 95054, telecopy number
(408) 496-0668, attention: Robert Snyder, President and Chief Executive
Officer;
(2) if to Ascent, at Ascent Entertainment Group, One
Tabor Center, 1200 Seventeenth Street, Suite 1000, Denver, Colorado,
80202 telecopy number (303) 595-0197, attention: Arthur M. Aaron, Vice
President Business and Legal Affairs, with a copy to Latham & Watkins,
885 Third Avenue, Suite 1000, New York, New York 10022-4802, telecopy
number (212) 751-4864, attention: Roger H. Kimmel, Esq.;
(3) if to Gary Wilson Partners, at Gary Wilson
Partners, 9665 Wilshire Boulevard, Suite 200, Beverly Hills, California
90212, telecopy number (310) 247-2701; and
(4) if to any other Holder, at such Holder's address
as shown on OCC's stock register; or
in each case, at such other address or telecopy number as the person to whom
notice is given may have previously furnished to the others in writing in the
manner as set forth herein.
All such notices and communications shall be deemed to have been duly
given: (i) at the time delivered by hand, if personally delivered; (ii) when
deposited in the mail, postage prepaid, if mailed; (iii) when answered back, if
telexed; (iv) when receipt acknowledged, if telecopied; and (v) the next
business day, if sent by overnight courier guaranteeing next day delivery.
Section 3.7 Termination. This Agreement shall terminate upon the
earlier of (i) 5:00 P.M., New York City time, on the seventh anniversary of the
Effective Time; (ii) the closing of OCC's sale of all or substantially all of
its assets or the acquisition of OCC by another entity by means of merger or
consolidation resulting in the exchange of the outstanding shares of OCC's
capital stock for securities or consideration issued, or caused to be issued, by
the acquiring entity or its subsidiary as a result of which the Stockholders
collectively own less than a majority of the outstanding shares of OCC Common
Stock or (iii) the first day on which there are no Registrable Securities
outstanding.
Section 3.8 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provisions shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and the remaining
provisions of the Agreement shall be enforceable in accordance with it terms.
Section 3.9 Amendments. This Agreement may not be amended or
supplemented except by an instrument in writing signed by OCC and by Holders of
a majority of the shares of Registrable
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Securities; provided, that so long as Ascent shall own 20% or more of the
outstanding Registrable Securities, any such amendment shall require the written
consent of that party.
Section 3.10 Captions. The table of contents, headings and captions
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
Section 3.11 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 3.12 Recapitalizations, Exchange, Etc. Affecting OCC's Stock.
The provisions of this Agreement shall apply, to the full extent set forth
herein with respect to the Common Stock, to any and all shares of capital stock
of OCC or any successor or assign of OCC (whether by merger, consolidation, sale
of assets, or otherwise) that may be issued in respect of, in exchange for, or
in substitution of the Common Stock and shall be appropriately adjusted for any
stock dividends, splits, reverse splits, combinations, recapitalization and the
like occurring after the date hereof.
Section 3.13 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
Section 3.14 Calculation of Percentage Interests in Registrable
Securities. For purposes of this Agreement, all references to a percentage of
the Registrable Securities shall be calculated based upon the number of
Registrable Securities outstanding at the time such calculation is made.
Section 3.15 No Third Party Beneficiaries. Nothing contained in this
Agreement, express or implied, is intended to or shall confer upon anyone other
than the parties hereto (and their permitted successors and assigns) any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 3.16 Inspection and Compliance with Law. Copies of this
Agreement will be available for inspection or copying by any Holder at the
offices of OCC through the Secretary of OCC. OCC shall take all reasonable
action to insure that the provisions of New York law relating to agreements
similar to this Agreement are promptly complied with.
[Signature Pages Follow]
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
ON COMMAND CORPORATION
By:
---------------------------------
Authorized Officer
ASCENT ENTERTAINMENT, INC.
By:
---------------------------------
Authorized Officer
GARY WILSON PARTNERS
By:
---------------------------------
Authorized Officer
SPECTRAVISION CREDITORS' COMMITTEE
By:
---------------------------------
Authorized Representative
16
<PAGE> 1
================================================================================
ON COMMAND CORPORATION
and
THE BANK OF NEW YORK,
as Warrant Agent
WARRANT AGREEMENT
Dated as of , 1996
Common Stock Purchase Warrants
----------
================================================================================
<PAGE> 2
WARRANT AGREEMENT dated as of ________________, 1996 between On Command
Corporation, a Delaware corporation (the "Company"), and The Bank of New York,
as warrant agent (the "Warrant Agent").
Pursuant to an Acquisition Agreement dated August 13, 1996 (the
"Acquisition Agreement") among, inter alia, the Company and SpectraVision, Inc.,
the Company is proposing to issue Series B Common Stock Purchase Warrants, as
herein described (the "SpectraVision Warrants"), to purchase an aggregate of
________________ shares of Common Stock, $0.01 par value per share, of the
Company (the "Common Stock"). In addition, pursuant to an Agreement and Plan of
Merger dated August 13, 1996 (the "OCV Agreement") among the Company, On Command
Merger Corporation and On Command Video Corporation ("OCV"), the Company is
proposing to issue (a) Series A Common Stock Purchase Warrants, as herein
described (the "Series A Warrants"), to purchase an aggregate of ______ shares
of Common Stock and (b) Series C Common Stock Purchase Warrants, as herein
described (the "Series C Warrants"), to purchase an aggregate of _____ shares of
Common Stock. The SpectraVision Warrants, the Series C Warrants and the Series A
Warrants are referred to herein collectively as the "Warrants" and individually
as a "Warrant." Each Warrant entitles the holder thereof to purchase one share
of Common Stock, subject to adjustment as hereinafter provided. The shares of
Common Stock issuable on exercise of the Warrants are referred to herein as the
"Warrant Shares."
The Company wishes the Warrant Agent to act on behalf of the Company,
and the Warrant Agent is willing to act in connection with the issuance,
division, transfer, exchange and exercise of Warrants.
In consideration of the foregoing and for the purposes of defining the
terms and provisions of the Warrants and the respective rights and obligations
thereunder of the Company and the registered owners of the Warrants (the
"Holders"), the Company and the Warrant Agent hereby agree as follows:
Section 1. Appointment of Warrant Agent.
The Company hereby appoints the Warrant Agent to act as agent for the
Company in accordance with the instructions hereinafter in this Agreement set
forth, and the Warrant Agent hereby accepts such appointment and the obligations
hereunder.
Section 2. Transferability and Form of Warrant.
2.1. Registration. The Warrant Agent, on behalf of the Company, shall
number and register each series of Warrants in a register (the "Warrant
Register") as they are issued by the Company. The Company and the Warrant Agent
shall be entitled to treat the Holder of any Warrant as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Warrant on the part of any other person, and
shall not be liable for any registration of transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration of transfer, or
with such knowledge of such facts that its participation therein amounts to bad
faith.
2.2. Transfer. (a) Except as set forth herein, the Warrants and the
Warrant Shares shall not be subject to restrictions on transfer. The Series C
Warrants and the Warrant Shares issuable upon exercise thereof (the "Series C
Warrant Shares") may not be transferred except as provided herein. For so long
as the Series C Warrants and the Series C Warrant Shares are Transfer Restricted
Securities (as defined below), such securities may not be sold, transferred,
pledged or hypothecated unless the
<PAGE> 3
registration provisions of the Securities Act have been complied with or unless
the Company has received an opinion of counsel reasonably satisfactory to the
Company that such registration is not required.
"Transfer Restricted Securities" means each Series C Warrant and each
Series C Warrant Share until the earliest to occur of (a) the date on which such
security has been effectively registered in a registration statement under the
Securities Act and disposed of in accordance with such registration statement
and (b) the date on which such security is distributed to the public pursuant to
Rule 144 under the Securities Act.
For so long as any Series C Warrant or Series C Warrant Share is a
Transfer Restricted Security, such security will bear the following legend:
"The securities evidenced hereby have not been registered under the
Securities Act of 1933, as amended. Such securities may not be sold,
transferred, pledged or hypothecated unless the registration provisions
of said Act have been complied with or unless the Company has received
an opinion of counsel reasonably satisfactory to the Company that such
registration is not required."
(b) Registration of transfer of the Warrants shall be effected only in
the Warrant Register maintained at the principal office of the Warrant Agent
upon delivery thereof duly endorsed by the Holder or by his duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer, which endorsement shall be guaranteed by a
bank or trust company having an office or correspondent in the United States or
a broker or dealer which is a member of a registered national securities
exchange or the National Association of Securities Dealers, Inc. In all cases of
transfer by an attorney, the original power of attorney, duly approved, or a
copy thereof, duly certified, shall be deposited and remain with the Warrant
Agent. In case of transfer by executors, administrators, guardians or other
legal representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited and remain with the Warrant Agent
in its discretion. Upon any registration of transfer, the Warrant Agent shall
countersign and deliver a new Warrant or Warrants to the person entitled
thereto.
2.3. Form of Warrant. The text of the Series A Warrant and of the form
of election to purchase Warrant Shares thereunder shall be substantially as set
forth in Exhibit A attached hereto. The text of the SpectraVision Warrants and
of the form of election to purchase Warrant Shares thereunder shall be
substantially as set forth in Exhibit B attached hereto. The text of the Series
C Warrant and of the form of election to purchase Warrant Shares thereunder
shall be substantially as set forth in Exhibit C attached hereto.
The price per Warrant Share and the number of Warrant Shares issuable
upon exercise of each Warrant are subject to adjustment upon the occurrence of
certain events, all as hereinafter provided. The Warrants shall be executed on
behalf of the Company by the manual or facsimile signature of the Chairman of
the Board, President or any one of the Vice Presidents of the Company, under its
corporate seal, affixed or in facsimile, attested by the manual or facsimile
signature of the Secretary or an Assistant Secretary of the Company.
Warrants bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrants or did not hold such
offices on the date of this Agreement.
2
<PAGE> 4
Warrants shall be dated as of the date of countersignature thereof by
the Warrant Agent (or any successor to the Warrant Agent then acting as warrant
agent under this Agreement, collectively the "Warrant Agent") either upon
initial issuance or upon division, exchange, substitution or transfer.
Section 3. Countersignature of Warrants.
The Warrants shall be countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. Warrants may be countersigned
by the Warrant Agent and may be delivered by the Warrant Agent notwithstanding
that the persons whose manual or facsimile signature appears thereon as proper
officers of the Company shall have ceased to be such officers at the time of
such countersignature, issuance or delivery. The Warrant Agent shall, upon
written instructions of the Chairman of the Board, the President, one of the
Vice Presidents or the Secretary of the Company, countersign, issue and deliver
SpectraVision Warrants, Series A Warrants and Series C Warrants upon initial
issuance entitling the Holders thereof to purchase not more than 2,625,000
Warrant Shares, 1,425,000 Warrant Shares and 3,450,000 Warrant Shares,
respectively (subject, in each case, to adjustment as provided in Section 10
hereof), and shall countersign and deliver Warrants as otherwise provided in
this Agreement.
Section 4. Exchange of Warrant Certificates.
Each Warrant certificate of any series may be exchanged for another
certificate or certificates of the same series entitling the Holder thereof to
purchase a like aggregate number of Warrant Shares as the certificate or
certificates surrendered then entitle such Holder to purchase. Any Holder
desiring to exchange a Warrant certificate or certificates shall make such
request in writing delivered to the Warrant Agent, and shall surrender, properly
endorsed, the certificate or certificates to be so exchanged. Thereupon, the
Warrant Agent shall countersign and deliver to the person entitled thereto a
Warrant certificate or certificates, as the case may be, of the same series, as
so requested.
Section 5. Term of Warrants; Exercise of Warrants.
5.1. Term of Warrants. (a) Subject to the terms of this Agreement, each
Holder of SpectraVision Warrants and Series C Warrants shall have the right,
which may be exercised at any time prior to and until 5:00 P.M., New York City
Time, on ___________, 2003, to purchase from the Company for cash the number of
fully paid and nonassessable Warrant Shares which the Holder may at the time be
entitled to purchase on exercise of such Warrants.
(b) Subject to the terms of this Agreement, each Holder of Series A
Warrants shall have the right, which may be exercised at any time prior to and
until 5:00 P.M., New York City Time, on _____, 2003, to receive from the
Company, on a net basis and without the exchange of any funds, that number of
fully paid and nonassessable Warrant Shares which is equal to the number of
Warrant Shares specified in such Holder's Series A Warrants, less a number of
Warrant Shares having an aggregate fair market value (as defined in Section
11.3) at the time of exercise equal to the then Warrant Price multiplied by the
number of Warrant Shares specified in such Holder's Series A Warrants.
(c) Each Warrant not exercised prior to 5:00 P.M., New York City Time,
on __________, 2003 shall become void and all rights thereunder and all rights
in respect thereof under this Agreement shall cease as of such time.
5.2. Exercise of Warrants. Warrants may be exercised upon (i) surrender
to the Company at the principal office of the Warrant Agent of the certificate
or certificates evidencing the Warrants to
3
<PAGE> 5
be exercised, together with the form of election to purchase on the reverse
thereof duly filled in and signed, with the signature thereon guaranteed by a
bank or trust company having an office or correspondent in the United States or
a broker or dealer which is a member of a registered securities exchange or the
National Association of Securities Dealers, Inc., and (ii) payment to the
Warrant Agent for the account of the Company of the Warrant Price for the number
of Warrant Shares in respect of which such Warrant is then exercised, such
payment to be made in cash, in the case of the SpectraVision Warrants and the
Series C Warrants, and in the manner provided in Section 5.1(b) in the case of
the Series A Warrants. Payment of the Warrant Price, when payable in cash, shall
be made at the option of the Holder by certified check or official bank check
payable to the order of the Company.
No adjustment shall be made in respect of any accrued and unpaid
dividends on any Warrant Shares issued upon exercise of Warrants.
Subject to the provisions of Section 6 hereof, upon such surrender of
Warrants and payment of the Warrant Price as aforesaid, the Company shall issue
and the Warrant Agent shall cause to be delivered with all reasonable dispatch
to or upon the written order of the Holder and in such name or names as the
Holder may designate, a certificate or certificates for the number of full
Warrant Shares so purchased upon the exercise of such Warrants, together with
cash, as provided in Section 11 of this Agreement, in respect of any fractional
Warrant Share otherwise issuable upon such surrender. Such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of record of such
Warrant Shares as of the date of the surrender of such Warrants and payment of
the Warrant Price, as aforesaid; provided, however, that if, at the date of
surrender of such Warrants and payment of the Warrant Price, the transfer books
for the Warrant Shares or other class of stock purchasable upon the exercise of
such Warrants shall be closed, the certificates for the Warrant Shares in
respect of which such Warrants are then exercised shall be issuable as of the
date on which such books shall next be opened and until such date the Company
shall be under no duty to deliver any certificate for such Warrant Shares;
provided further, however, that such transfer books unless otherwise required by
law, shall not be closed at any one time for a period longer than twenty days.
The rights of purchase represented by the Warrants shall be
exercisable, at the election of the Holder thereof, either in full or from time
to time in part. In the event that a certificate evidencing Warrants of any
series is exercised in respect of less than all of the Warrant Shares
purchasable upon such exercise at any time prior to the date of expiration of
the Warrants, a new certificate or certificates evidencing the remaining Warrant
or Warrants of such series will be issued, and the Warrant Agent is hereby
irrevocably authorized to countersign and to deliver the required new Warrant
certificate or certificates pursuant to the provisions of this Section and of
Section 3 hereof and the Company, whenever required by the Warrant Agent, will
supply the Warrant Agent with Warrant certificates of the applicable series duly
executed on behalf of the Company for such purpose.
Section 6. Payment of Taxes.
The Company will pay all documentary stamp taxes, if any, attributable
to the initial issuance of the Warrant Shares upon the exercise of Warrants;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue or
delivery of any Warrants or certificates for Warrant Shares in a name other than
that of the registered Holder of such Warrants.
4
<PAGE> 6
Section 7. Mutilated or Missing Warrants.
In case any of the certificates evidencing the Warrants shall be
mutilated, lost, stolen or destroyed, the Company may in its discretion issue,
and the Warrant Agent shall countersign and deliver in exchange and substitution
for and upon cancellation of the mutilated Warrant certificate, or in lieu of
and substitution for the Warrant certificate lost, stolen or destroyed, a new
Warrant certificate of the same series, of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant certificate and a customary form of indemnity, if requested, also
satisfactory to them. An applicant for such a substitute Warrant certificate
shall also comply with such other reasonable regulations and pay such other
reasonable charges as the Company or the Warrant Agent may prescribe.
Section 8. Reservation of Warrant Shares; Purchase of Warrants.
8.1. Reservation of Warrant Shares. There has been reserved, and the
Company shall at all times keep reserved, out of its authorized Common Stock, a
number of shares of Common Stock sufficient to provide for the exercise of the
rights of purchase represented by the outstanding Warrants. The Transfer Agent
for the Common Stock and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the Warrants will
be irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be requisite for such purpose. The Company will keep
a copy of this Agreement on file with the Transfer Agent for the Common Stock
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the Warrants. The Warrant Agent is hereby
irrevocably authorized to requisition from time to time from such Transfer Agent
the stock certificates then required to honor Warrants that have been
surrendered for exercise thereof in accordance with the terms of this Agreement.
The Company will supply such Transfer Agent with duly executed stock
certificates for such purposes and will provide or otherwise make available any
cash which may be payable as provided in Section 11 hereof. Promptly after the
date of expiration of the Warrants, the Warrant Agent shall certify to the
Company the total aggregate number of Warrants then outstanding, and thereafter
no shares of Common Stock or other capital stock of the Company shall be subject
to reservation for such Warrants.
8.2. Purchase of Warrants by Company.
The Company shall have the right, except as limited by law, other
agreement or herein, to purchase or otherwise acquire Warrants at such times, in
such manner and for such consideration as it may deem appropriate.
8.3. Cancellation of Warrants. In the event the Company shall purchase
or otherwise acquire Warrants, such Warrants shall thereupon be delivered to the
Warrant Agent and be cancelled by it and retired. The Warrant Agent shall cancel
any Warrant surrendered for exchange, substitution, transfer or exercise in
whole or in part, which shall thereafter be delivered to the Company.
Section 9. Warrant Price.
The price per share at which Warrant Shares shall be purchasable upon
exercise of Warrants (the "Warrant Price") shall be $_______, subject to
adjustment pursuant to Section 10 hereof, such price to be paid in the manner
provided in Section 5.
5
<PAGE> 7
Section 10. Adjustment of Warrant Price and Number of Warrant Shares.
The number and kind of securities purchasable upon the exercise of each
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as hereinafter defined.
10.1. Adjustments. The number of Warrant Shares purchasable upon the
exercise of each Warrant and the Warrant Price shall be subject to adjustment as
follows:
(a) If the Company:
(i) pays a dividend on its Common Stock in shares of its
Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a
greater number of shares,;
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares;
(iv) distributes to all holders of its Common Stock shares of
its capital stock other than Common Stock; or
(v) issues by reclassification of its Common Stock any shares
of its capital stock;
then, immediately prior to such action, the Warrant Price in effect, and the
number of Warrant Shares purchasable upon exercise of each Warrant shall be
adjusted so that the Holder of any Warrant thereafter exercised may receive the
number of shares of Common Stock or capital stock other than Common Stock of the
Company which he would have owned immediately following such action had such
Warrant been exercised immediately prior to such action. For a dividend or
distribution, the adjustment shall become effective immediately after the record
date for the dividend or distribution. For a subdivision, combination or
reclassification, the adjustment shall become effective immediately after the
effective date of the subdivision, combination or reclassification. If, after an
adjustment, a Holder of Warrants upon exercise may receive shares of two or more
classes of capital stock of the Company, the Board of Directors of the Company
shall determine the allocation of the adjusted Warrant Price between or among
the classes of capital stock. After such allocation, the exchange privilege and
Warrant Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section 10 and the provisions of Sections 5, 6, 8.1 and 10.1 hereof shall apply
to such other class or classes of capital stock.
(b) If the Company:
(i) distributes any rights, options or warrants to all holders
of its Common Stock or to any affiliate (as such term is defined under
the Securities Act) of the Company entitling such holders or such
affiliate to purchase shares of Common Stock at a price per share less
than the fair market value (as defined in Section 11.3 hereof) per
share on the record date for the distribution; or
(ii) (A) sells to any affiliate (as defined above) of the
Company any shares of Common Stock at a price per share that is less
than the fair market value (as defined in Section 11.3 hereof) per
share on the date of such sale or (B) sells to any such affiliate
rights, options or warrants to purchase any shares of Common Stock at a
price per right, option or warrant that,
6
<PAGE> 8
when added to the initial exercise price of such right, option or
warrant, is less than the fair market value (as defined in Section 11.3
hereof) per share on the date of such sale;
then the Warrant Price shall be adjusted in accordance with the formula:
O + N x P
-----
E' = E x M
-------------
O + N
where:
E' = the adjusted Warrant Price
E = the current Warrant Price
O = the number of shares of Common Stock outstanding on the record
date
N = the number of additional shares of Common Stock into which
such rights, options or warrants initially are exercisable (in
the case of clause (i) or clause (ii)(B)) or the number of
additional shares of Common Stock sold (in the case of clause
(ii)(A))
P = the offering price per share of the additional shares
(which, in the case of rights, options and warrants, shall be
the aggregate of the purchase price of such rights, options or
warrants and the initial exercise price of such rights,
options or warrants, calculated on a per share basis)
M = the current market price per share of Common Stock on the
record date (in the case of clause (i)) or the date of sale
(in the case of clause (ii))
and the number of Warrant Shares into which each Warrant is exercisable shall be
adjusted in accordance with the following formula:
N'= N x E
-----
E'
where:
N' = the adjusted number of Warrant Shares issuable upon exercise
of a Warrant by payment of the adjusted Warrant Price
N = the number of Warrant Shares previously issuable upon
exercise of a Warrant by payment of the Warrant Price prior to
adjustment
E' = the adjusted Warrant Price (without giving effect to the
provisions of Section 10.2(a))
E = the Exercise Price prior to adjustment
The adjustment pursuant to this Section 10.1(b) shall become effective
immediately after the record date for the distribution, in the case of an
adjustment pursuant to clause (i) of this Section 10.1(b), and immediately after
the sale, in the case of an adjustment pursuant to clause (ii) of this Section
10.1(b).
7
<PAGE> 9
(c) If the Company, by dividend or otherwise, distributes to all
holders of its Common Stock cash or assets in an aggregate amount that, together
with any other distributions to all holders of its Common Stock within the 12
months preceding the date of payment of such distribution and in respect of
which no adjustment pursuant to this clause (c) has been made, exceeds 5% of the
product of the fair market value (as defined in Section 11.3 hereof) per share
of the Common Stock on the record date for such distribution times the number of
shares of Common Stock outstanding on such date, the Warrant Price shall be
adjusted in accordance with the formula:
M - P
-----
E' = E x M
where:
E' = the adjusted Warrant Price
E = the current Warrant Price
P = the amount of cash plus the fair market value of the assets
(as determined in good faith by the Board of Directors of the
Company as of the record date for the distribution of such
cash or assets) so distributed
M = the current market price per share of Common Stock on the
record date for the distribution of such cash or assets
and the number of Warrant Shares into which each Warrant is exercisable shall be
adjusted in accordance with the formula set forth in clause (b) above.
(d) Whenever the number of Warrant Shares purchasable upon the exercise
of each Warrant or the Warrant Price of such shares is adjusted as herein
provided, the Company shall cause the Warrant Agent promptly to mail by first
class mail, postage prepaid, to each Holder notice of such adjustment or
adjustments and shall file with the Warrant Agent a certificate signed by two
officers of the Company setting forth the Warrant Price and the number of shares
into which each Warrant is exercisable after such adjustment, briefly stating
the facts requiring the adjustment and setting forth in reasonable detail the
manner of computing it. Absent manifest error, the certificate shall be
conclusive evidence that the adjustment is correct. The Warrant Agent shall be
under no duty or responsibility with respect to any such certificate, except to
exhibit the same, from time to time, to any Holder desiring an inspection
thereof during reasonable business hours. The Warrant Agent shall not at any
time be under any duty or responsibility to any Holder to determine whether any
facts exist which may require any adjustment of the Warrant Price or the number
of Warrant Shares purchasable upon exercise of Warrants or with respect to the
nature or extent of any such adjustment when made, or with respect to the method
employed in making such adjustment.
(e) For the purpose of this Section 10.1, the term "shares of Common
Stock" shall mean (i) shares of Common Stock, $0.01 par value per share, of the
Company at the date of this Agreement or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value to
par value.
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<PAGE> 10
10.2. Other Adjustments.
(a) No adjustment in the Warrant Price need be made unless the
cumulative adjustment not already made would require an increase or decrease of
at least 1% in the Warrant Price. Any adjustments which are not made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 10 and Sections 5 and 11 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(b) Except as otherwise provided in Section 10.1 or Section 10.3(b)
hereof, no adjustment in the Warrant Price shall be made because the Company
issues, in exchange for cash, property or services, shares of Common Stock, or
any securities convertible into or exchangeable for shares of Common Stock, or
securities carrying the right to purchase shares of Common Stock or such
convertible or exchangeable securities. Furthermore, no adjustment in the
Warrant Price need be made under this Section 10 for sales of shares of Common
Stock pursuant to a plan providing for reinvestment of dividends or interest or
in the event the par value of the Common Stock is changed or in the event the
par value of the Common Stock is eliminated.
(c) In any case in which Section 10.1 shall require that an adjustment
as a result of any event become effective from and after a record date, the
Company may elect to defer until after the occurrence of such event (i) the
issuance to the Holder of any Warrant exercised after such record date and
before the occurrence of such event of the additional Warrant Shares issuable
upon such exchange over and above the shares issuable on the basis of the
Warrant Price in effect immediately prior to the adjustment and (ii) the payment
to such Holder of any amount in cash in lieu of a fractional share of Common
Stock pursuant to Section 11 hereof.
10.3. Preservation of Purchase Rights Upon Reclassification,
Consolidation, etc.
(a) If:
(i) the Company takes any action which would require an
adjustment in the Warrant Price pursuant to clause (iv) or (v) of
paragraph (a) of Section 10.1;
(ii) the Company consolidates or merges with, or transfers all
or substantially all of its assets to, another corporation, and
stockholders of the Company must approve the transaction; or
(iii) there is a dissolution or liquidation of the Company;
the Company shall cause the Warrant Agent to mail to the Holders, by first class
mail, postage prepaid, (A) in the case of a transaction which stockholders of
the Company must approve, a notice stating the proposed record date for
determining the stockholders entitled to vote to approve such transaction, at
least 10 days before such date, and (B) otherwise, a notice stating the record
date of any distribution (if applicable) or the effective date of the action, at
least 10 days before the earlier of such dates. Failure to mail the notice or
any defect in it shall not affect the validity of any transaction referred to in
clause (i), (ii) or (iii) of this paragraph.
(b) In case of a reclassification, capital reorganization, merger or
other change which reclassifies or changes the Common Stock of the Company or in
case of the consolidation or merger of the Company with or into another
corporation or the conveyance of all or substantially all of the assets of the
Company to another corporation, each Warrant shall thereafter be exercisable for
the number of shares of stock or
9
<PAGE> 11
other securities or property (including cash) to which a holder of the number of
shares of Common Stock of the Company deliverable upon exercise of such Warrants
would have been entitled upon such reclassification, consolidation, merger or
conveyance; and, in any such case, appropriate adjustment (as determined in good
faith by the Board of Directors of the Company) shall be made in the application
of the provisions herein set forth with respect to the rights and interests
thereafter of the Holders, to the end that the provisions set forth herein
(including provisions with respect to changes in and other adjustments of the
Warrant Price) shall thereafter be applicable, as nearly as reasonably may be,
in relation to any shares of stock or other securities or property thereafter
deliverable upon exercise of the Warrants. If this Section 10.3(b) applies,
Section 10.1(a) shall not apply. If the Warrants become exchangeable solely for
cash, no adjustment need be made thereafter. Interest shall not accrue on the
cash.
In the case of such a reclassification, capital reorganization, merger
or other change, the Company and the successor or purchasing corporation and the
Warrant Agent shall execute an agreement supplemental to this Agreement setting
forth the rights of the Holders as determined pursuant to the foregoing
provisions and the Company or such other corporation shall make available to the
Warrant Agent a sufficient number of copies of such agreement for delivery to
Holders upon request. Notice of the execution of such supplement and of the
adjusted Warrant Price including the number of shares of stock or other
securities or property thereafter deliverable upon such exercise of the Warrants
shall be mailed to each Holder promptly after execution. Upon any change in the
shares issuable upon exercise of the any Warrant, the term Warrant Shares shall
include such other stock, securities or property. The Warrant Agent shall be
under no duty or responsibility to determine the correctness of any provisions
contained in any such agreement relating either to the kind or amount of shares
of stock or other securities or property receivable upon exercise of Warrants or
with respect to the method employed and provided therein for any adjustments.
10.4. Voluntary Reduction in Warrant Price. The Company may, at its
option, at any time and from time to time during the term of the Warrants reduce
the then-current Warrant Price by any amount for any period of time if the
period is at least 15 days and if the reduction is irrevocable during the
period, but in no event shall the Warrant Price be less than the par value of
the Common Stock at the time the reduction is made.
10.5. Statement on Warrants. Irrespective of any adjustments in the
Warrant Price or the number or kind of shares purchasable upon exercise of the
Warrants, Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the Warrants initially
issuable pursuant to this Agreement.
Section 11. Fractional Interests.
11.1. The Company will not issue a fractional Warrant Share upon
exercise of a Warrant. Instead the Company will deliver its check for an amount
equal to the then-fair market value of the fractional share. The fair market
value of a fraction of a share is determined by multiplying the fair market
value per Warrant Share (as defined in Section 11.3 hereof) by the fraction and
rounding the result to the nearest cent.
11.2. If one or more Warrants shall be presented for exercise at the
same time by the same Holder, the number of full Warrant Shares which shall be
issuable upon the exercise thereof shall be computed on the basis of the
aggregate number of Warrant Shares represented by the Warrants so presented.
10
<PAGE> 12
11.3. For the purpose of any computation under Section 5.1, 10.1 or
11.1, the fair market value per share of Common Stock on any date is, if the
Common Stock is listed on a national securities exchange (including, without
limitation, the Nasdaq National Market), the average of the last reported sales
price per share of the Common Stock for the 30 consecutive trading days
commencing 45 trading days before the date in question, and, otherwise, the fair
market value per share of the Common Stock as of the date in question as
determined in good faith by the Board of Directors of the Company. If pursuant
to the terms of this Agreement the Warrants are exercisable for any stock or
other securities of another person, the fair market value per share of such
stock or other securities shall be determined in the same manner.
Section 12. No Right as Stockholders.
Nothing contained in this Agreement or in any of the Warrants shall be
construed as conferring upon the Holders or their transferees the right to vote
or to receive dividends or to consent or to receive notice as stockholders in
respect of any meeting of stockholders for the election of directors of the
Company or any other matter, or any rights whatsoever as stockholders of the
Company, except as otherwise provided in Section 10.
Section 13. Disposition of Proceeds on Exercise of Warrants; Inspection of
Warrant Agreement.
The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all moneys received by
the Warrant Agent for the purchase of the Warrant Shares through the exercise of
such Warrants.
The Warrant Agent shall keep copies of this Agreement and any notices
given or received hereunder available for inspection by the Holders during
normal business hours at its principal office. The Company shall supply the
Warrant Agent from time to time with such number of copies of this Agreement as
the Warrant Agent may request.
Section 14. Merger or Consolidation or Change of Name of the Warrant Agent.
Any corporation into which the Warrant Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent is a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor Warrant Agent
under the provisions of Section 16 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement, any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned; and in case
at that time any of the Warrants shall have not been countersigned, any
successor to the Warrant Agent may countersign such Warrants either in the name
of the predecessor Warrant Agent or in the name of the successor Warrant Agent;
and in all such cases such Warrants shall have the full force provided in the
Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned; and in case at that time any of the
Warrants shall not have been countersigned, the Warrant Agent may countersign
such Warrants
11
<PAGE> 13
either in its prior name or in its changed name; and in all such cases such
Warrants shall have the full force provided in the Warrants and in this
Agreement.
Section 15. Concerning the Warrant Agent.
The Warrant Agent hereby undertakes the duties and obligations imposed
by this Agreement upon the following terms and conditions, by all of which the
Company and the Holders, by their acceptance of Warrants, shall be bound:
15.1. The statements contained herein and in the Warrants shall be
taken as statements of the Company, and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or action taken by it. The Warrant Agent assumes no
responsibility with respect to the distribution of the Warrants except as herein
otherwise provided.
15.2. The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrants to be complied with by the Company.
15.3. The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents (which shall not include its employees), and
shall not be responsible for the misconduct of any agent appointed with due
care.
15.4. The Warrant Agent may consult at any time with legal counsel
satisfactory to it (who may be counsel to the Company) and shall incur no
liability or responsibility to the Company or to any Holder in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion or the advice of such counsel.
15.5. Whenever in the performance of its duties under this Agreement
the Warrant Agent shall deem it necessary or desirable that any fact or matter
be proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed conclusively to be proved and
established by a certificate signed by any two officers of the Company and
delivered to the Warrant Agent; and such certificate shall be full authorization
to the Warrant Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
15.6. The Company agrees to pay the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the performance
of its duties under this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges and expenses
(including counsel fees) of any kind and nature incurred by the Warrant Agent in
the performance of its duties under this Agreement, and to indemnify the Warrant
Agent and save it harmless against any loss, liability or expense (including
judgments, costs and counsel fees) incurred without negligence or bad faith on
its part, arising out of or in connection with the performance of its duties
under this Agreement.
15.7. The Warrant Agent shall be obligated to perform such duties as
are herein and in the Warrant specifically set forth and no implied duties or
obligations shall be read into this Agreement or the Warrants against the
Warrant Agent. The Warrant Agent shall not be under any obligation to take any
action hereunder which may tend to involve it in any expense or liability, the
payment of which within a reasonable time is not, in its reasonable opinion,
assured to it. The Warrant Agent shall not be accountable or under any duty or
responsibility for the use by the Company of any of the Warrants
12
<PAGE> 14
countersigned by the Warrant Agent and delivered by it to the Company pursuant
to this Agreement or for the application by the Company of the funds or
securities obtained upon payment of the Warrant Price. The Warrant Agent shall
have no duty or responsibility in case of any default by the Company in the
performance of its covenants or agreements contained in the Warrants or in the
case of the receipt of any written demand from a holder of a Warrant with
respect to such default, including, without limiting the generality of the
foregoing, any duty or responsibility to initiate or attempt any proceedings at
law or otherwise or to make any demand upon the Company; provided, however, that
if the Warrant Agent shall receive any notice or demand addressed to the Company
by the holder of a Warrant pursuant to the provisions of the Warrant, the
Warrant Agent shall promptly forward such notice or demand to the Company.
15.8. The Warrant Agent and any stockholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
the Warrant Agent under this Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any other
legal entity.
15.9. The Warrant Agent shall act hereunder solely as agent, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not be liable for anything which it may do or refrain from doing in
connection with this Agreement except for its own negligence or bad faith.
15.10. The Warrant Agent will incur no liability or responsibility to
the Company or to any Holder for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument reasonably believed by it to be genuine and to have been signed, sent
or presented by the proper party or parties.
15.11. The Warrant Agent shall be under no responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Warrant Agent) or in respect of the validity or
execution of any Warrant (except its countersignature thereof); nor shall the
Warrant Agent by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Warrant Shares (or other
stock) to be issued pursuant to this Agreement or as to whether any Warrant
Shares (or other stock) will, when issued, be validly issued, fully paid and
nonassessable or as to the Warrant Price, or the number or kind or amount of
Warrant Shares or other securities or other property issuable upon exercise of
any Warrant.
15.12. The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary or the
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer or officers.
Section 16. Change of Warrant Agent.
The Warrant Agent may resign and be discharged from its duties under
this Agreement by giving to the Company 30 days' notice in writing. The Warrant
Agent may be removed by like notice to the Warrant Agent from the Company. If
the Warrant Agent shall resign or be removed or shall otherwise become incapable
of acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant
13
<PAGE> 15
Agent or by any Holder (who shall with such notice submit his Warrant for
inspection by the Company), then any Holder may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Any
successor Warrant Agent (whether appointed by the Company or such a court) shall
be a bank or trust company, in good standing, incorporated or organized under
the laws of the United States of America or any state thereof or the District of
Columbia and having at the time of its appointment as Warrant Agent a combined
capital and surplus of not less than $500,000,000. Pending appointment of a
successor to the Warrant Agent, the duties of the Warrant Agent shall be
performed by the Company.
After appointment, the successor Warrant Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Warrant Agent without further act or deed. The former Warrant Agent
shall deliver and transfer to the successor Warrant Agent any property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. In the event of such
resignation or removal, the successor Warrant Agent shall mail, first class, to
each Holder, written notice of such removal or resignation and the name and
address of such successor Warrant Agent. Failure to file any notice provided for
in this Section 16, however, or any defects therein, shall not affect the
legality or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be.
Section 17. Identity of Transfer Agent.
The name and address of the Company's present Transfer Agent are: The
Bank of New York, One Wall Street, New York, New York 10286. Forthwith upon the
appointment of any subsequent Transfer Agent for the Company's shares of Common
Stock, the Company will file with the Warrant Agent a statement setting forth
the name and address of such Transfer Agent.
Section 18. Notices.
Any notice by the Company or the Warrant Agent to the other or by any
Holder to the Company or the Warrant Agent, shall be in writing and delivered in
person or mailed first-class, postage prepaid, (a) if to the Company at its
office at 3301 Olcott Street, Santa Clara, California, 95054, Attention:
Treasurer; (b) if to the Warrant Agent: to The Bank of New York, One Wall
Street, New York, New York 10286, Attention: Kevin Dunphy. The parties hereto
may from time to time change the address to which notices to it are to be
delivered or mailed hereunder by notice in writing to the other party. No notice
given to the Company or the Warrant Agent shall be effective unless actually
received by it.
Any notice mailed pursuant to this Agreement by the Company or the
Warrant Agent to any Holder shall be mailed first class, postage prepaid, or
delivered by messenger or overnight courier service to such Holder at its
address shown on the Warrant Register kept by the Warrant Agent. Failure to mail
a notice or communication to any Holder or any defect in it shall not affect its
sufficiency with respect to other Holders.
If a notice is mailed to a Holder in the manner provided above, it
shall be deemed duly given when received if delivered by messenger, and upon
deposit in the mail or with the courier service if mailed or delivered by
overnight courier service, whether or not the addressee receives it.
Section 19. Miscellaneous.
14
<PAGE> 16
19.1. Successors. All the covenants and provisions of this Agreement by
and for the benefit of the Warrant Agent or the Company shall bind and inure to
the benefit of their respective successors and assigns.
19.2. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall constitute but one and the same instrument.
19.3. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
19.4. Governing Law. THIS AGREEMENT AND EACH WARRANT ISSUED HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK.
19.5. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
19.6. Benefits of this Agreement. This Agreement is for the sole and
exclusive benefit of the Company, the Warrant Agent and the Holders and nothing
in this Agreement shall be construed to, or give, any person or corporation
other than the Company, the Warrant Agent and the Holders any legal or equitable
right, remedy or claim under this Agreement.
19.7. Amendments. This Agreement may from time to time be amended or
supplemented by the Company and the Warrant Agent without the approval of any
Holder in order to cure any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions in regard to matters or questions
arising hereunder which the Company and the Warrant Agent may deem necessary or
desirable and which shall not be inconsistent with the provisions of the
Warrants and shall not adversely affect the interests of the Holders.
19.8. Merger or Consolidation of the Company. The Company will not
merge or consolidate with or into any other corporation unless the corporation
resulting from such merger or consolidation (if not the Company) shall expressly
assume, by supplemental agreement reasonably satisfactory in form to the Warrant
Agent and executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
15
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ON COMMAND CORPORATION
By:
-------------------------------
[Title]
Attest:
-----------------------------------------
Secretary
THE BANK OF NEW YORK,
as Warrant Agent
By:
-------------------------------
[Title]
Attest:
------------------------------------------
[Title]
16
<PAGE> 18
EXHIBIT A
VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON __________, 2003
SERIES A WARRANTS
WITH RESPECT TO _______
NO. A-______ SHARES OF COMMON STOCK
SERIES A
COMMON STOCK PURCHASE WARRANTS
ON COMMAND CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT, for value received, this Series A Common Stock
Purchase Warrant (the "Warrant") entitles _________________________, the
registered holder hereof, or registered assigns (the "Holder"), to receive from
On Command Corporation, a Delaware corporation (the "Company"), upon exercise of
this Warrant, at any time prior to and until 5:00 P.M., New York City Time, on
__________, 2003, on a net basis and without the exchange of any funds, that
number of fully paid and nonassessable shares of Common Stock, $0.01 par value
per share, of the Company (the "Common Stock") which is equal to __________
shares of Common Stock, less a number of shares of Common Stock having an
aggregate fair market value (as defined in Section 11.3 of the Warrant Agreement
referred to below) at the time of exercise equal to $____ (the "Warrant Price")
multiplied by the number of shares of Common Stock set forth above. The number
of shares covered by this Warrant and the Warrant Price per share shall be
subject to adjustment from time to time as set forth in the Warrant Agreement
referred to below.
This Warrant may be exercised in whole or in part by presentation of
this Warrant with the Purchase Form on the reverse side hereof duly executed,
which signature shall be guaranteed by a bank or trust company having an office
or correspondent in the United States or a broker or dealer which is a member of
a registered securities exchange or the National Association of Securities
Dealers, Inc. at the principal office of The Bank of New York (the "Warrant
Agent"). Upon exercise of this Warrant in whole or in part, the Holder shall be
entitled to receive such number of shares of Common Stock as to which this
Warrant has been exercised, less a number of shares of Common Stock having an
aggregate fair market value (as defined in Section 11.3 of the Warrant Agreement
referred to below) at the time of exercise equal to the Warrant Price multiplied
by such number of shares of Common Stock as to which this Warrant has been
exercised.
This Warrant is one of a duly authorized issue of Series A Common Stock
Purchase Warrants evidencing the right to purchase an aggregate of up to
1,425,000 shares of Common Stock, less a number of shares of Common Stock having
an aggregate fair market value (as defined in Section 11.3 of the Warrant
Agreement) at the time of exercise equal to the Warrant Price multiplied by such
1,425,000 shares of Common Stock, is issued under and in accordance with a
Warrant Agreement (the "Warrant Agreement") dated as of __________, 1996,
between the Company and the Warrant Agent and is subject to the terms and
provisions contained in the Warrant Agreement, to all of which the Holder of
this Warrant by acceptance hereof consents. A copy of the Warrant Agreement may
be obtained for inspection by the Holder hereof upon written request to the
Warrant Agent.
A-1
<PAGE> 19
Upon any partial exercise of this Warrant, there shall be countersigned
and issued to the Holder hereof a new Warrant certificate for the balance
remaining of the shares under this Warrant certificate. No fractional shares
will be issued upon the exercise of this Warrant, but the Company shall pay the
cash value of any fraction upon the exercise of one or more Warrants. This
Warrant is transferable at the office of the Warrant Agent in the manner and
subject to the limitations set forth in the Warrant Agreement.
The Holder hereof may be treated by the Company, the Warrant Agent, and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby, or
to the transfer hereof on the books of the Company, any notice to the contrary
notwithstanding, and until such transfer on such books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any rights as a
stockholder of the company.
This Warrant shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Warrant Agent.
Witness the facsimile seal of the Company and the facsimile signatures
of its duly authorized officers.
Dated: , ON COMMAND CORPORATION
------------- ------
By:
-------------------------------
[Title]
[Corporate Seal]
Attest:
-----------------------------
[Title]
Countersigned: THE BANK OF NEW YORK,
as Warrant Agent
By:
-------------------------------
Authorized Signature
A-2
<PAGE> 20
ON COMMAND CORPORATION
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
________ shares of the stock provided for therein, and requests that
certificates be issued for such number of shares, less a number of shares of
such stock having an aggregate fair market value (as defined in Section 11.3 of
the Warrant Agreement) at the time of exercise equal to the Warrant Price
multiplied by such number of shares as to which this Warrant has been exercised
as payment of the Warrant Price, in the name of:
- -------------------------------------------------------------------------------
(Please Print Name, Address and Social Security No.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
and, if the number of shares with respect to which this Warrant is hereby
exercised shall not be all the shares for which this Warrant is exercisable,
that a new Warrant certificate for the balance remaining of the shares under the
within Warrant certificate be registered in the name of the undersigned Warrant
holder or his assignee as below indicated and delivered to the address stated
below.
Dated: ,
------------ -----
Name of Warrant holder or Assignee:
--------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
Signature Guarantee: Note: The above signature must correspond with
the name as written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatsoever, unless this Warrant
has been assigned.
A-3
<PAGE> 21
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
- --------------------------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
- --------------------------------------------------------------------------------
the within Warrant, hereby irrevocably constituting and appointing
- -------------------------------------------------------------------------------
attorney to transfer said Warrant on the books of the Company, with full power
of substitution in the premises.
Dated: ,
------------ -----
Name of Warrant holder or Assignee:
---------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
Signature Guarantee: Note: The above signature must correspond with
the name as written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatsoever, unless this Warrant has
been assigned.
A-4
<PAGE> 22
EXHIBIT B
VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON __________, 2003
SERIES B WARRANTS
TO PURCHASE ________
NO. B-______ SHARE OF COMMON STOCK
SERIES B
COMMON STOCK PURCHASE WARRANTS
ON COMMAND CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT, for value received, this Series B Common Stock
Purchase Warrant (the "Warrant") entitles _________________________, the
registered holder hereof, or registered assigns (the "Holder"), to purchase from
On Command Corporation, a Delaware corporation (the "Company"), at any time
prior to and until 5:00 P.M., New York City Time, on __________, 2003, at the
cash purchase price of $_____ per share (the "Warrant Price"), the number of
fully paid and nonassessable shares of Common Stock, $0.01 par value per share,
of the Company (the "Common Stock") set forth above. The number of shares
purchasable upon exercise of this Warrant and the Warrant Price per share shall
be subject to adjustment from time to time as set forth in the Warrant Agreement
referred to below.
This Warrant may be exercised in whole or in part by presentation of
this Warrant with the Purchase Form on the reverse side hereof duly executed,
which signature shall be guaranteed by a bank or trust company having an office
or correspondent in the United States or a broker or dealer which is a member of
a registered securities exchange or the National Association of Securities
Dealers, Inc., and simultaneous payment of the Warrant Price (subject to
adjustment) at the principal office of The Bank of New York (the "Warrant
Agent"). Payment of such price shall be made at the option of the holder hereof
by certified check or official bank check payable to the order of the Company.
This Warrant is one of a duly authorized issue of Series B Common Stock
Warrants evidencing the right to purchase an aggregate of up to 2,625,000 shares
of Common Stock and is issued under and in accordance with a Warrant Agreement
(the "Warrant Agreement") dated as of __________, 1996, between the Company and
the Warrant Agent and is subject to the terms and provisions contained in the
Warrant Agreement, to all of which the Holder of this Warrant by acceptance
hereof consents. A copy of the Warrant Agreement may be obtained for inspection
by the Holder hereof upon written request to the Warrant Agent.
Upon any partial exercise of this Warrant, there shall be countersigned
and issued to the Holder hereof a new Warrant certificate for the balance
remaining of the shares under this Warrant certificate. No fractional shares
will be issued upon the exercise of this Warrant, but the Company shall pay the
cash value of any fraction upon the exercise of one or more Warrants. This
Warrant is transferable at the office of the Warrant Agent in the manner and
subject to the limitations set forth in the Warrant Agreement.
B-1
<PAGE> 23
The Holder hereof may be treated by the Company, the Warrant Agent, and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby, or
to the transfer hereof on the books of the Company, any notice to the contrary
notwithstanding, and until such transfer on such books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any rights as a
stockholder of the company.
This Warrant shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Warrant Agent.
Witness the facsimile seal of the Company and the facsimile signatures
of its duly authorized officers.
Dated: , ON COMMAND CORPORATION
------------ -----
By:
-------------------------------
[Title]
[Corporate Seal]
Attest:
-----------------------------
[Title]
Countersigned: THE BANK OF NEW YORK,
as Warrant Agent
By:
-------------------------------
Authorized Signature
B-2
<PAGE> 24
ON COMMAND CORPORATION
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
____________ shares of the stock provided for therein, and herewith tenders in
payment for such shares, a certified check or official bank check payable to the
order of On Command Corporation in the amount $________ and requests that
certificates for such shares be issued in the name of:
- --------------------------------------------------------------------------------
(Please Print Name, Address and Social Security No.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
and, if the number of shares with respect to which this Warrant is hereby
exercised shall not be all the shares for which this Warrant is exercisable,
that a new Warrant certificate for the balance remaining of the shares under the
within Warrant certificate be registered in the name of the undersigned Warrant
holder or his assignee as below indicated and delivered to the address stated
below.
Dated: ,
------------ -----
Name of Warrant holder or Assignee:
---------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
Signature Guarantee: Note: The above signature must correspond with
the name as written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatsoever, unless this Warrant has
been assigned.
B-3
<PAGE> 25
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
- --------------------------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
- --------------------------------------------------------------------------------
the within Warrant, hereby irrevocably constituting and appointing
- --------------------------------------------------------------------------------
attorney to transfer said Warrant on the books of the Company, with full power
of substitution in the premises.
Dated: ,
------------ -----
Name of Warrant holder or Assignee:
---------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
Signature Guarantee: Note: The above signature must correspond with
the name as written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatsoever, unless this Warrant has
been assigned.
B-4
<PAGE> 26
EXHIBIT C
VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON __________, 2003
SERIES C WARRANTS
TO PURCHASE ________
NO. C-______ SHARE OF COMMON STOCK
SERIES C
COMMON STOCK PURCHASE WARRANTS
ON COMMAND CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT, for value received, this Series C Common Stock
Purchase Warrant (the "Warrant") entitles _________________________, the
registered holder hereof, or registered assigns (the "Holder"), to purchase from
On Command Corporation, a Delaware corporation (the "Company"), at any time
prior to and until 5:00 P.M., New York City Time, on __________, 2003, at the
cash purchase price of $_____ per share (the "Warrant Price"), the number of
fully paid and nonassessable shares of Common Stock, $0.01 par value per share,
of the Company (the "Common Stock") set forth above. The number of shares
purchasable upon exercise of this Warrant and the Warrant Price per share shall
be subject to adjustment from time to time as set forth in the Warrant Agreement
referred to below.
This Warrant may be exercised in whole or in part by presentation of
this Warrant with the Purchase Form on the reverse side hereof duly executed,
which signature shall be guaranteed by a bank or trust company having an office
or correspondent in the United States or a broker or dealer which is a member of
a registered securities exchange or the National Association of Securities
Dealers, Inc., and simultaneous payment of the Warrant Price (subject to
adjustment) at the principal office of The Bank of New York (the "Warrant
Agent"). Payment of such price shall be made at the option of the holder hereof
by certified check or official bank check payable to the order of the Company.
This Warrant is one of a duly authorized issue of Series C Common Stock
Warrants evidencing the right to purchase an aggregate of up to 3,150,000 shares
of Common Stock and is issued under and in accordance with a Warrant Agreement
(the "Warrant Agreement") dated as of __________, 1996, between the Company and
the Warrant Agent and is subject to the terms and provisions contained in the
Warrant Agreement, to all of which the Holder of this Warrant by acceptance
hereof consents. A copy of the Warrant Agreement may be obtained for inspection
by the Holder hereof upon written request to the Warrant Agent.
Upon any partial exercise of this Warrant, there shall be countersigned
and issued to the Holder hereof a new Warrant certificate for the balance
remaining of the shares under this Warrant certificate. No fractional shares
will be issued upon the exercise of this Warrant, but the Company shall pay the
cash value of any fraction upon the exercise of one or more Warrants. This
Warrant is transferable at the office of the Warrant Agent in the manner and
subject to the limitations set forth in the Warrant Agreement.
C-1
<PAGE> 27
The Holder hereof may be treated by the Company, the Warrant Agent, and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby, or
to the transfer hereof on the books of the Company, any notice to the contrary
notwithstanding, and until such transfer on such books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any rights as a
stockholder of the company.
This Warrant shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Warrant Agent.
Witness the facsimile seal of the Company and the facsimile signatures
of its duly authorized officers.
Dated: , ON COMMAND CORPORATION
------------ -----
By:
---------------------------------
[Title]
[Corporate Seal]
Attest:
-----------------------------
[Title]
Countersigned: THE BANK OF NEW YORK,
as Warrant Agent
By:
---------------------------------
Authorized Signature
C-2
<PAGE> 28
ON COMMAND CORPORATION
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
____________ shares of the stock provided for therein, and requests that
certificates for such shares be issued in the name of:
- --------------------------------------------------------------------------------
(Please Print Name, Address and Social Security No.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
and, if the number of shares with respect to which this Warrant is hereby
exercised shall not be all the shares for which this Warrant is exercisable,
that a new Warrant certificate for the balance remaining of the shares under the
within Warrant certificate be registered in the name of the undersigned Warrant
holder or his assignee as below indicated and delivered to the address stated
below.
Dated: ,
------------ -----
Name of Warrant holder or Assignee:
---------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
Signature Guarantee: Note: The above signature must correspond with the
name as written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatsoever, unless this Warrant has
been assigned.
C-3
<PAGE> 29
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
- --------------------------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
- --------------------------------------------------------------------------------
the within Warrant, hereby irrevocably constituting and appointing
- --------------------------------------------------------------------------------
attorney to transfer said Warrant on the books of the Company, with full power
of substitution in the premises.
Dated: ,
------------ -----
Name of Warrant holder or Assignee:
---------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
Signature Guarantee: Note: The above signature must correspond with
the name as written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatsoever, unless this Warrant has
been assigned.
C-4
<PAGE> 1
AGREEMENT
This agreement ("EDS/Newco Agreement"), dated as of August 5, 1996, is
among Electronic Data Systems Corporation and EDS Technical Products Corporation
(collectively, "EDS") and Ascent Entertainment Group ("Ascent") and On Command
Video Corporation ("OCV"; collectively, the "Ascent Parties").
RECITALS:
A. SpectraVision, Inc. (for itself and its subsidiaries, including
without limitation Spectradyne, Inc.; collectively, the "Debtors") and EDS are
parties to the Phase 1 Information Technology Services Agreement, Phase 2
Information Technology Product and Services Agreement, and PCFM Agreement, as
modified and amended (the "EDS Contracts"). Addendum No. 4 to the Phase 1
Agreement, Addendum No. 2 to the Phase 2 Agreement and the PCFM (collectively,
the "Equipment Leases") set forth the terms of the leases of the Equipment (the
"Leased Equipment") supplied under the EDS Contracts. The Leased Equipment has
been, or is, installed at Debtors' pay-per-view sites in three basic
configurations (each configuration, a "Leased Configuration"). The Leased
Configurations consist of either (i) a satellite antenna, grounding kit, antenna
and IFL cable, LNB's, power kit, eight (8) IRD's and DEU's, modulators, and
related equipment and wiring ("Phase 1 Configuration"), (ii) an IRD, DEU and a
Phase 2 digital server ("Phase 2 Configuration"), or (iii) two IRD's, DEU's and
two Phase 2 servers (Phase 2-72 Hard Drive Configuration). Generally, each Phase
1 Configuration site has a personal computer ("PC") provided under the PCFM and,
generally, each Phase 2 or Phase 2-72 Hard Drive Configuration site has a Phase
1 Configuration installed.
AGREEMENT
Page 1 of 19
<PAGE> 2
B. On June 8, 1995 the Debtors filed voluntary Chapter 11 Petitions in
In re SpectraVision, Inc., SPI Newco, Inc., Spectradyne, Inc., Spectradyne
International, Inc., Kalevision Systems, Inc. - USA, Debtors, (the "Case"),
pending in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court") as Case No. 95-659 (PJW) (Jointly Administered).
C. The EDS Contracts consist of executory contracts and unexpired
leases which have not been assumed or rejected by the Debtors.
D. By order dated February 1, 1996, the Bankruptcy Court approved the
EDS/SVN Term Sheet (the "EDS/SVN Term Sheet"), a copy of which is attached
hereto as Exhibit "A".
E. On April 19, 1996, the Ascent Parties, the Debtors and the
Creditors' Committee executed an agreement (the "Newco Agreement") and addendum
(the "Addendum") which set forth the terms and conditions under which
substantially all of the Debtors' assets will be acquired by an entity ("Newco")
to be formed by the Ascent Parties pursuant to a plan of reorganization.
F. On June 21, 1996, the Debtors filed Debtors' Joint Plan of
Reorganization (as it may be amended, modified or supplemented, the "Plan") and
proposed Disclosure Statement.
G. On August __, 1996, the Ascent Parties, the Debtors and the
Creditors' Committee executed an agreement ("Acquisition Agreement") which sets
forth the terms and conditions under which the Plan shall provide for
substantially all of the Debtors' assets to be transferred to Spectradyne, Inc.
(following consummation of the transactions contemplated by the Plan and the
Acquisition Agreement, "New Spectradyne") and for all outstanding stock of New
Spectradyne to be contemporaneously acquired by Newco free and clear of all
liens, claims and encumbrances.
H. Under the Newco Agreement and the Acquisition Agreement, the Ascent
Parties may direct the Debtors to move pursuant to the Plan to assume and assign
to Newco or New Spectradyne the EDS Contracts. The Ascent Parties have
determined that because of the obligations that would be assumed by New
Spectradyne and the cure amounts necessary to allow
AGREEMENT
Page 2 of 19
<PAGE> 3
the Debtors to assume and assign the EDS Contracts, the Ascent Parties will not
direct the Debtors to assume the EDS Contracts. The Debtors have stated that
unless the Ascent Parties directed the Debtors to assume the EDS Contracts (in
which event under the Newco Agreement and the Acquisition Agreement, New
Spectradyne and Newco would be responsible for the payment of any cure amounts),
the Debtors would reject the EDS Contracts.
I. In order to effectuate the transactions contemplated in the Newco
Agreement and the Acquisition Agreement, the Ascent Parties determined that it
would be advantageous for New Spectradyne to receive EDS services, technology
and leased equipment in order for New Spectradyne to provide satellite
transmitted digital pay-per-view content to hotel customers and their guests.
J. In connection with the transactions contemplated by the Newco
Agreement and the Acquisition Agreement, under the Addendum, the Ascent Parties
obtained the right to direct the Debtors and the Creditors' Committee to provide
releases of any affirmative claims that the Debtors or the Debtors' estates may
have against EDS in the event the Ascent Parties determined that such releases
are in the best interests of Newco. EDS has determined that one of the
conditions to any agreement under which EDS would provide services, technology
or leased equipment to Newco or New Spectradyne is obtaining such a release.
Therefore, the Ascent Parties have determined that the releases as provided for
in this EDS/Newco Agreement are in the best interests of Newco.
K. In order to effectuate the transactions contemplated in the Newco
Agreement and the Acquisition Agreement, the Ascent Parties desire New
Spectradyne enter into an agreement, to be effective on the Effective Date, with
EDS on substantially the terms and conditions set forth in this EDS/Newco
Agreement, for which agreement, Newco and OCV will become co-obligors with New
Spectradyne.
L. EDS' cooperation in entering into this EDS/Newco Agreement to
provide continuing services and use of leased equipment at reduced rates has
substantially contributed to the Debtors' reorganization under the Plan.
AGREEMENT
Page 3 of 19
<PAGE> 4
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this EDS/Newco Agreement and the representations, warranties, covenants and
agreements contained herein, the Ascent Parties and EDS agree as follows:
I. PLAN MODIFICATION. The Ascent Parties shall promptly cause the Plan
to be modified (the "Plan Modifications") as follows:
A. REJECTION OF EDS CONTRACTS. On the Effective Date, the EDS
Contracts shall be rejected by Spectradyne, and all restrictions on competition
or providing services or technology to third parties under the EDS Contracts
shall terminate.
B. CAC, TAC AND FMS LEASE. The post-petition lease(s)
authorized by the EDS/SVN Term Sheet shall be assumed by New Spectradyne in the
Plan and shall remain in full force and effect. On the Effective Date, Newco and
OCV shall become co-obligors with New Spectradyne on said post-petition leases.
C. ALLOWED ADMINISTRATIVE EXPENSES. All unpaid administrative
expense claims set forth in the EDS/SVN Term Sheet as though extended to the
Effective Date shall be assumed by New Spectradyne in the Plan and shall be paid
as provided therein. On the Effective Date, Newco and OCV shall become
co-obligors with New Spectradyne on all unpaid administrative expense claims set
forth in the EDS/SVN Term Sheet. The unpaid administrative expense claims
assumed by New Spectradyne, and by Newco and OCV, as co-obligors of Spectradyne,
pursuant to Sections 3.A and 4 of the EDS/SVN Term Sheet for services rendered
or use of leased equipment (excluding DGC Maintenance) for the period from
October 1, 1996 through the earlier of the Effective Date or October 31, 1996
shall be equal to $900,000 minus any payments actually made by the Debtors for
Network Services (including Transponder but excluding DGC Maintenance) rendered
or leased equipment used during the month of October 1996, divided by 31,
multiplied by the number of days in said period. Other than as set forth in the
preceding sentence, Newco and OCV shall not be entitled to any credits for
obligations arising after the Effective Date for payments made by the Debtors
for Network Services (including Transponder) rendered and leased equipment used
during the month of October 1996.
AGREEMENT
Page 4 of 19
<PAGE> 5
D. RELEASE.
1. The Plan shall provide that on the Effective Date, the
Debtors and the Debtors' estates (collectively, the "Releasors"),
unconditionally release, discharge, and acquit EDS, its subsidiaries and
affiliates, their past, present and future officers, directors, agents,
servants, employees, attorneys, subcontractors, representatives, successors and
assigns (the "EDS Released Parties") of and from any and all claims,
obligations, liabilities, causes of action, damages and theories or rights of
recovery whatsoever (including those arising under the Bankruptcy Code), known
or unknown, foreseen or unforeseen, existing or hereafter arising, in law,
equity or otherwise, that the Releasors may have had, now have, or in the future
may have for (x) affirmative relief, including, without limitation, damages
(direct, indirect, consequential, actual or punitive), refunds, turnover,
disgorgement, avoidance actions (including all rights or remedies under Chapter
5 of title 11 of the United States Code or other applicable law), (y)
affirmative relief asserting ownership by any person or entity other than EDS of
the Leased Equipment or the EDS Software, or (z) equitable actions for an
accounting or to establish that any monies paid by Debtors to EDS or that the
Leased Equipment or the EDS Software is subject to a constructive, statutory,
equitable, express or implied, trust in favor of the Debtors, the Debtors'
estates or any third parties (collectively, the "EDS Released Claims"). Without
limiting the foregoing, the EDS Released Claims include those arising from,
relating to, or connected with:
(a) Any of the Debtors or the Debtors' estates;
(b) The EDS Contracts or the EDS/SVN Term Sheet,
including failure to perform any obligation thereunder;
(c) Any (i) action or inaction; (ii) statement,
mis-statement or omission; or (iii) representation or warranty (whether willful,
malicious, intentional or negligent) by the EDS Released Parties in any way
arising from, related to, or connected with, any service, labor, advice,
technology, software, product, or equipment provided or furnished by or through
AGREEMENT
Page 5 of 19
<PAGE> 6
the EDS Released Parties to, or used or relied on by, the Debtors, the Debtors'
estates, or any third-party;
(d) Any (i) action or inaction; (ii) statement,
mis-statement or omission; or (iii) representation or warranty (whether willful,
malicious, intentional or negligent) by the EDS Released Parties made in
connection with, or relied on by any person or entity in, (x) entering into or
modifying the EDS Contracts, (y) taking or not taking any action with respect
thereto, or (z) the purchase or sale of any security of the Debtors (or their
subsidiaries or predecessors);
(e) The Leased Equipment or the EDS Software, including
any claims by the Releasors, the Debtors (or their domestic or foreign
subsidiaries) or the Debtors' estates of an interest in, or ownership of, the
Leased Equipment or the EDS Software, or rescission or avoidance of the
Equipment Leases; or
(f) The allegations contained in the Original Complaint
for Declaratory Judgment, Equitable Subordination and Other Relief, on file in
the Bankruptcy Court in Adversary Proceeding No. 96-106.
2. Unless otherwise provided by Final Order, Debtors and
Reorganized SPI retain the right to assert any and all EDS Released Claims
referred to in the preceding paragraph I.D.1. above and any facts,
circumstances, claims or causes of action relating to the EDS Released Claims
for purpose of objection, disallowance, offset or subordination of any Claim
which EDS has or may assert in these cases. The Debtors and Reorganized SPI
explicitly retain the right to seek and obtain equitable subordination of any
Claims asserted in the Reorganization Case by EDS.
II. EDS/NEW SPECTRADYNE CONTRACTS. Confirmation of the Plan shall
constitute the entry into an agreement (the "EDS/New Spectradyne Contracts")
among New Spectradyne, Newco, OCV and EDS. The EDS/New Spectradyne Contracts
shall contain those terms and conditions of the EDS Contracts which are not
otherwise modified by this EDS/Newco Agreement. On the Effective Date, New
Spectradyne, with Newco and OCV as co-obligors shall
AGREEMENT
Page 6 of 19
<PAGE> 7
assume and timely discharge and perform all obligations and liabilities under
the EDS/New Spectradyne Contracts. Subject to Section V of this EDS/Newco
Agreement, for purposes of the EDS/New Spectradyne Contracts, whenever the terms
"Spectradyne", "SpectraVision", or "SPI" are used in the EDS Contracts, said
terms shall mean New Spectradyne.
A. AMENDMENTS. The EDS/New Spectradyne Contracts shall contain the
same terms as the EDS Contracts, modified and amended as set forth below.
1. EFFECTIVE DATE: The effective date of the EDS/New Spectradyne
Contracts shall be the effective date of the Plan (the "Effective Date").
Nothing herein shall modify or amend the EDS Contracts for any period prior to
the Effective Date.
2. TERM. The EDS/New Spectradyne Contracts shall terminate at the
end of the forty-fifth (45th) full calendar month after the Effective Date (the
"Termination Date"). Provided, however, that Spectradyne may, by giving not less
than 90 days prior written notice to EDS,
(a) terminate the EDS/New Spectradyne Contracts at the end of
the twenty-first (21st) full calendar month after the Effective Date (the "Early
Termination Date"); or (b) terminate the EDS/New Spectradyne Contracts, except
for the Equipment Leases. If New Spectradyne exercises this option,
(i) EDS shall no longer be obligated to provide, and
New Spectradyne shall no longer be obligated to purchase from EDS, Network
Services or Transponder;
(ii) the monthly charges under the EDS/New Spectradyne
Contracts shall be reduced by $400,000; and
(iii) New Spectradyne shall remain liable under the
Equipment Leases to the extent not transitioned or terminated pursuant to this
EDS/Newco Agreement.
AGREEMENT
Page 7 of 19
<PAGE> 8
3. CHARGES. On the Effective Date, the monthly charges under the
EDS/New Spectradyne Contracts for Network Services, Transponder(1), and the
Leased Equipment shall be reduced to $700,000 (prorated for any period from the
Effective Date until the end of the calendar month), plus encoding charges, as
set forth in Section II.A.4.(b), payable on the first day of each month during
the remaining term of the EDS/New Spectradyne Contracts.
4. ADDITIONAL TRANSPONDER POWER AND ENCODING. During the remaining
term of the EDS/New Spectradyne Contracts, and if New Spectradyne is in
compliance with the terms and conditions of the EDS/New Spectradyne Contracts:
(a) New Spectradyne may, by giving not less than 90 days
written notice to EDS prior to December 31, 1996, continue
to receive the additional 60 watts transponder power for
the period from January 1, 1997 through December 31, 1997,
(and may give similar notice not less than 90 days prior
to the end of each consecutive calendar year thereafter
for which EDS may have the right to obtain such additional
60 watts transponder power with no increase in cost to EDS
over EDS' 1996 costs) at no additional charge in excess of
$700,000 per month as set forth in Section II.A.3. above.
EDS agrees to reasonably cooperate with New Spectradyne in
obtaining this additional power for the period of January
1, 1998 through the Early Termination Date or such other
periods less than a full calendar year as agreed at prices
to be negotiated. If New Spectradyne elects not to obtain
such power, the transponder power available to New
Spectradyne will revert to pre-1995 levels (60 watts) and
upon reversion to such lower power level, New Spectradyne
shall be entitled to a monthly reduction of $70,000.00
from the transponder charges set forth in Section II.A.3.
above.
(b) EDS will provide NTSC encoding of DBVOD content to New
Spectradyne for $35 per finished minute.
5. LEASED EQUIPMENT PURCHASE OPTION. Subject to Section II.A.6.
and 7., upon the expiration of the EDS/New Spectradyne Contracts, New
Spectradyne shall
- -----------------------------
(1) EDS shall provide the additional 60 watts transponder power through
December 31, 1996.
AGREEMENT
Page 8 of 19
<PAGE> 9
return all of the Leased Equipment to EDS; provided, however, that if New
Spectradyne is in compliance with the terms and conditions of the EDS/New
Spectradyne Contracts, upon thirty (30) days prior written notice to EDS, New
Spectradyne shall have the option to purchase all of the Leased Equipment (or
one or more complete Leased Configurations or one or more PC's) from EDS (a) on
the Early Termination Date, (i) with respect to Leased Configurations, at prices
to be negotiated that will not exceed the Purchase Price Option Caps set forth
on Exhibit "B" for each of the Leased Configurations purchased, and (ii) with
respect to the PC's under the PCFM, at the then-current market value of the PC's
(assuming delivery to a third-party at New Spectradyne's cost) being purchased
that will not exceed the Purchase Price Option Caps set forth in Exhibit "B" for
PC's, or (b) on the Termination Date, with respect to Leased Configurations and
PC's, at the then-current fair market value (assuming delivery to a third-party
at New Spectradyne's cost) of the Leased Equipment that will not exceed the
Purchase Price Option Caps set forth in Exhibit "B" for each of the Leased
Configurations or PC's purchased.
6. EARLY TERMINATION OF EQUIPMENT LEASES. Without terminating the
EDS/New Spectradyne Contracts, New Spectradyne may, by giving not less than
ninety (90) days prior written notice to EDS, terminate the Equipment Leases (as
to all of the Leased Equipment or one or more complete Leased Configurations or
one or more PC's) at the Early Termination Date and return to EDS all of the
Leased Equipment or the complete Leased Configurations or PC's as to which the
Equipment Leases have been terminated, subject to the right to purchase under
Section II.A.5. In the event that New Spectradyne terminates all or a portion of
the Equipment Leases under this Section II.A.6., for the remaining term of the
EDS/New Spectradyne Contracts, New Spectradyne shall pay EDS (i) $400,000 per
month for Network Services and Transponder, and (ii) lease payments for all
remaining Leased Equipment as determined in the following sentence. In the event
that New Spectradyne terminates, transitions to SkyLink America pursuant to
Section II.A.7., or purchases Leased Equipment covered by, the Equipment Leases
as to some, but not all of the Leased Configurations or PC's, the monthly lease
payments due under the Equipment Leases for the remainder of the Leased
AGREEMENT
Page 9 of 19
<PAGE> 10
Equipment shall be $300,000 less an amount equal to the monthly lease credit
("Monthly Lease Credit") for each of the Leased Configurations or PC's set forth
on Exhibit "B" multiplied by the respective number of Leased Configurations or
PC's purchased, terminated or transitioned to SkyLink America.
7. TRANSITION OF LEASED EQUIPMENT TO SKYLINK AMERICA. In the
event that (a) New Spectradyne in good faith enters into an agreement with
SkyLink America pursuant to which New Spectradyne transfers to SkyLink America
one or more Leased Configurations or PC's for use by SkyLink America at site
installations being provided pay-per-view services by Debtors on the Effective
Date, (b) SkyLink America agrees to execute lease agreements ("SkyLink Leases")
with EDS covering such Equipment Configurations or PC's on terms no less
favorable than the terms of the Equipment Leases and providing for monthly lease
amounts equal to or greater than 120% of the Monthly Lease Credit for each of
the Equipment Configurations or PC's leased, and (c) there has been no material
adverse change in SkyLink America's financial condition since the Effective
Date, then EDS shall enter into the SkyLink Leases from the effective date of
the SkyLink Leases through the remaining term of the EDS/New Spectradyne
Contracts, and New Spectradyne shall pay EDS (a) $400,000 per month for Network
Services and Transponder, and (b) lease payments for all of the Leased Equipment
that has not been transitioned to SkyLink America or purchased, or for which the
Equipment Leases have not been terminated under this EDS/Newco Agreement.
8. TRANSITION ACCOMMODATION. EDS and New Spectradyne acknowledge
that an orderly transition of services, technology and Leased Equipment may be
desirable to New Spectradyne prior to the Early Termination Date, and up to
fifteen (15) months thereafter (the "Convenience Period"). In the event New
Spectradyne terminates some or all of the Equipment Leases as of the Early
Termination Date, New Spectradyne may, by giving not less than thirty (30) days
written notice to EDS, begin de-installation of the Leased Equipment or PC's and
return same in commercially reasonable lots of Leased Configurations or PC's to
EDS beginning no sooner than ninety (90) days after the Effective Date;
provided, however, that for a
AGREEMENT
Page 10 of 19
<PAGE> 11
period of one year after the Effective Date, New Spectradyne shall not
de-install and return to EDS for credit more than one-half of the Equipment
Configurations and PC's. Prior to the Early Termination Date, there shall be no
reduction in lease payments for all of the Leased Equipment or PC's, but New
Spectradyne shall be entitled to a credit ("Transition Credit") equal to the
Monthly Lease Credit for each of the respective Leased Configurations or PC's
for each full month remaining from the day that an Equipment Configuration or PC
is received by EDS prior to the Early Termination Date. Such credits may be
applied only to the Equipment Lease obligations during the Convenience Period.
During the Convenience Period, EDS shall continue to provide then-existing
Network Services and Transponder, and New Spectradyne shall pay EDS (i) $400,000
per month for such Network Services and Transponder, and (ii) lease payments for
all remaining Leased Equipment under the Equipment Leases less the Transition
Credit. Payments on such remaining Leased Equipment during the Convenience
Period shall be calculated in the same manner as payments on remaining Leased
Equipment following partial termination of the Equipment Lease as provided for
in the last sentence of Section II.A.6. above, less the Transition Credit. New
Spectradyne shall be responsible for all freight and insurance costs incurred in
the return of Equipment Configurations or PC's to EDS.
9. HARDWARE SALES. During the ninety (90) day period after the
Effective Date, EDS agrees to sell to New Spectradyne up to 2 of the remaining
DGC servers for $25,000 per server. Such sales shall be without warranty or
recourse, shall be sold "as is," shall not include maintenance, integration or
installation, and shall include the EDS software now used in the delivery of
services by EDS to the Debtors under the EDS Contracts.
10. SOFTWARE. During the term of the DS/New Spectradyne Contracts,
New Spectradyne shall be entitled to a non-transferable, non-exclusive, royalty
free license to use solely for New Spectradyne's operation of the CDVRO System
and Digitally Based Video On Demand System acquired from the Debtors (but not to
commercially exploit with or for the benefit of others) all EDS Software now
used in the delivery of services by EDS to the Debtors under the EDS Contracts.
All such license rights shall be limited to use in
AGREEMENT
Page 11 of 19
<PAGE> 12
equipment purchased from, or leased by, EDS (or any substantially identical
equipment now in use by Debtors if acquired from other sources) or now in use by
the Debtors. Subject to the foregoing limitations, during the term of the
EDS/New Spectradyne Contracts, EDS will reasonably cooperate with New
Spectradyne in providing copies of EDS Software for use by New Spectradyne in
making enhancements to the EDS Software. All such enhancements shall be owned
by, and remain the property of, EDS; provided however, the license to EDS
Software as set forth in this Section II.A.10. shall extend to such
enhancements. At the Effective Date, with respect to equipment that (i) was
purchased from, or leased by, EDS or, (ii) may be sold to New Spectradyne
pursuant to Section II.A.9. above, EDS shall waive the Phase 2 License Fee. With
respect to equipment purchased by New Spectradyne pursuant to Sections II.A.5 or
II.A.9, New Spectradyne shall have a 10 year non-transferable, non-exclusive,
royalty free license in all EDS Software resident in such purchased equipment to
use solely for New Spectradyne's operation of such purchased equipment .
11. EXCLUSIVITY AND NON-COMPETITION. New Spectradyne and EDS
shall be released and relieved from any and all (a) obligations to use the other
as an "exclusive" provider of services, technology or equipment or (b)
restrictions on competition or providing services or technology to third parties
that may exist under the EDS Contracts or otherwise. Notwithstanding the above,
during the twenty-one (21) months following the Effective Date, and only so long
as New Spectradyne is in compliance with the EDS/New Spectradyne Contracts, EDS
shall not provide Network Services (or similar services or equipment as provided
under this Agreement) to LodgeNet Corporation for its use in the hotel industry
in North America. Prior to the Effective Date, nothing herein shall be deemed to
be a waiver of EDS' right to be exclusive provider of technology and services to
the Debtors under the EDS Contracts.
12. LIMITATION OF LIABILITY. The total aggregate amount of all
damages for which EDS may be liable to New Spectradyne, Newco or OCV under
Section 14.4(g) of the Phase 1 Agreement shall be $1 million. The total
aggregate amount of all damages for which EDS may be liable to New Spectradyne,
Newco or OCV under Section 14.4(h) of the
AGREEMENT
Page 12 of 19
<PAGE> 13
Phase 1 Agreement shall be $2 million. EDS will not be liable to New
Spectradyne, Newco or OCV, whether based on an action or claim in contract,
equity, tort, negligence, intended conduct or otherwise, or for any amounts
representing loss of income, data, profits or savings or indirect, incidental,
consequential or punitive damages of the Debtors, New Spectradyne, Newco, OCV or
any third-party, and in no event will the amount of damages recoverable against
EDS for any and all acts, events or omissions exceed the total dollar amount
paid by New Spectradyne, Newco or OCV to EDS for services rendered or equipment
used after the Effective Date under the EDS/New Spectradyne Contracts, for the
particular service or product that is the subject matter of, or is directly
related to, the cause of action upon which recovery is sought. For purposes of
this Section I.A.12., the monthly charges under the EDS/New Spectradyne
Contracts as set forth in Section I.A.3. shall be allocated as follows: Network
Services $150,000; Transponder $250,000; and Equipment Leases $300,000.
Inclusion of OCV and Newco in this Section II.A.12 shall not be construed to
create any duty, obligation or liability between EDS and OCV and Newco, except
as expressly set forth in this EDS/Newco Agreement.
13. WARRANTIES AND MAINTENANCE. EDS DISCLAIMS ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING THOSE OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR AGAINST INTERFERENCE OR INFRINGEMENT, with respect to services
provided or equipment sold or leased. EDS shall have no obligation for
installation, maintenance, or service under the EDS Contracts.
14. TRANSPONDER/NETWORK SERVICE OPTION. During the period
beginning 6 months after the Effective Date and ending on the earlier of (a) the
date on which New Spectradyne discontinues paying for and receiving Network
Services and transponder or (b) the Termination Date, if New Spectradyne is in
compliance with the terms and conditions of the EDS/New Spectradyne Contracts
and this EDS/Newco Agreement, New Spectradyne may, by giving EDS ninety (90)
days prior written notice, and subject to AT&T's (or its successor's) written
consent, which consent must be obtained prior to the exercise of this option,
purchase all of EDS' right, title and interest in the Telestar 401 satellite
transponder now used to broadcast
AGREEMENT
Page 13 of 19
<PAGE> 14
Debtors' content for $12 million (the "Purchase Price"). The Purchase Price will
be reduced by $340,000 at the end of each three month period beginning with the
period ending March 31, 1997. If New Spectradyne exercises this purchase option,
(a) EDS will transfer and assign to New Spectradyne all
of its right, title and interest in and to said transponder, any rights to
related additional transponder power, and any AT&T related warranties;
(b) New Spectradyne will assume (and indemnify EDS from)
any and all future obligations to AT&T arising thereunder;
(c) EDS shall no longer be obligated to provide, and New
Spectradyne shall no longer be obligated to purchase from EDS, Network Services
or Transponder;
(d) the monthly charges under the EDS/New Spectradyne
Contracts shall be reduced by $400,000; and
(e) New Spectradyne shall remain liable under the
Equipment Leases to the extent not transitioned or terminated pursuant to this
EDS/Newco Agreement. EDS' sale or assignment of its rights with respect to the
transponder shall be without recourse, representation or warranty.
III. SEPARATE RELEASE. On the Effective Date, EDS, the Ascent
Parties, Newco and New Spectradyne shall unconditionally release, discharge, and
acquit the other and their respective affiliates, subsidiaries, their past,
present and future officers, directors, agents, servants, employees, attorneys,
subcontractors, representatives, successors and assigns, of and from any and all
claims, obligations, liabilities, causes of action, damages and theories of
rights of recovery whatsoever, known or unknown, founded or unfounded, existing
or hereafter arising, in law, equity or otherwise, that each may have had, now
have, or in the future may have arising from, relating to, or connected with any
act, omission, transaction, event or other occurrence taking place up to the
AGREEMENT
Page 14 of 19
<PAGE> 15
Effective Date in any way relating to the Debtors, the Case, or the Plan;
provided, however that the foregoing release shall not apply to any rights,
obligations or responsibilities under this EDS/Newco Agreement or the EDS/New
Spectradyne Contracts.
IV. TRUE LEASES. The Ascent Parties shall cause Newco and New
Spectradyne to acknowledge that, as of the Effective Date, (i) the Equipment
Leases, as modified by this EDS/Newco Agreement, are true leases and not
intended as sales contracts, and (ii) EDS is the owner of the Leased Equipment.
EDS may file such UCC-1 Financing Statements as it determines may be necessary
or appropriate.
V. CONTRACT AMENDMENTS. New Spectradyne and EDS shall enter into
appropriate amendments to the EDS/New Spectradyne Contracts to express the
agreements contained in this EDS/Newco Agreement (as well as applicable
modifications consistent with the EDS/SVN Term Sheet). New Spectradyne and EDS
agree to negotiate in good faith further amendments or modifications to the
EDS/New Spectradyne Contracts (including a restatement of the EDS/New
Spectradyne Contracts into a single document) to reflect the remaining
obligations of the parties. Unless inconsistent with the terms of this EDS/Newco
Agreement or the EDS/SVN Term Sheet, all remaining terms of the EDS/New
Spectradyne Contracts shall remain in full force and effect.
VI. EDS/SVN TERM SHEET. The Ascent Parties hereby consent to the
extension by the Debtors of the EDS/SVN Term Sheet to the Effective Date and
timely payment by Debtors of all obligations thereunder.
VII. CONDITIONS TO CLOSING. This EDS/Newco Agreement shall be
conditioned upon:
A. Extension of the EDS/SVN Term Sheet to the Effective Date and
the Debtors' timely payment of all obligations thereunder or payment at closing
of all obligations under the EDS/SVN Term Sheet as though extended to the
Effective Date;
B. Debtors' modification of the Plan and proposed Disclosure
Statement to contain the Plan Modifications on or before August 12, 1996;
C. Entry of final order of the Bankruptcy Court on or before
October 31, 1996:
AGREEMENT
Page 15 of 19
<PAGE> 16
(1) expressly approving, and authorizing New Spectradyne to
enter into, perform and consummate the transactions contemplated by, the EDS/New
Spectradyne Contracts;
(2) confirming the Plan that contains the Plan
Modifications;
(3) expressly approving and authorizing the EDS Release
provided for in Section I.D.1.;
(4) adjudicating the EDS Release provided for in Section
I.D.1 is binding on the Debtors, the Debtors' estates, New Spectradyne, and all
parties in interest and effective to release and discharge the EDS Released
Parties from the EDS Released Claims;
(5) adjudicating that, with respect to the EDS/New
Spectradyne Contracts, the Equipment Leases are true leases (and not sales), EDS
is the owner of Leased Equipment and EDS Software, and all funds paid by, or for
the benefit of, the Debtors to EDS are not subject to avoidance, rescission,
cancellation or refund; and
(6) providing that vesting of the Debtors' property in New
Spectradyne (and New Spectradyne's stock in Newco) shall not affect or impair
EDS' ownership of, and rights in, the Leased Equipment. Either party may
terminate this EDS/Newco Agreement if the conditions to closing are not timely
satisfied.
VIII. ASCENT PARTIES' REPRESENTATIONS AND WARRANTIES. The Ascent
Parties shall cause New Spectradyne and Newco to represent and warrant to EDS
that, on the Effective Date, (i) to the best of their information and belief,
they have full power and authority to execute the EDS Release provided for in
Section I.D.1. of this EDS/Newco Agreement; and (ii) they have not transferred,
assigned or encumbered any EDS Released Claims.
IX. CLAIMS LITIGATION COOPERATION. The Ascent Parties shall cause
Newco and New Spectradyne to reasonably cooperate in producing witnesses and
documents in connection with any disputes or litigation concerning EDS' claim(s)
against the Debtors or the Debtors' estates.
AGREEMENT
Page 16 of 19
<PAGE> 17
X. WAIVER. Any of the terms or conditions of this EDS/Newco
Agreement may be waived at any time and from time to time in writing by the
party entitled to the benefits thereof without affecting any other terms or
conditions of this EDS/Newco Agreement.
XI. NOTICES, ETC. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when received if delivered in person or by courier, telegraphed,
telexed or by facsimile transmission or mailed by certified or registered mail,
postage prepaid:
If to EDS:
Electronic Data System Corporation
5400 Legacy Drive
Plano, TX 75024
Attn: Art Stewart, Associate General Counsel
with copies to:
Hughes & Luce, L.L.P.
1717 East Main, Suite 2800
Dallas, TX 75201
Attn: William Finkelstein
If to Ascent:
Ascent Entertainment Group, Inc.
1200 Seventh Street
Denver, CO 80202
Attn: Denny Minami
If to OCV:
On Command Video Corporation
----------------------------
San Jose, CA
--------------
Attn:
----------------------
with copies to:
William J. Perlstein
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
AGREEMENT
Page 17 of 19
<PAGE> 18
Either party may, by written notice to the other, change the address to which
notices to such party are to be delivered or mailed.
XII. ENTIRE AGREEMENT: AMENDMENT. This EDS/Newco Agreement and the
other agreements referred to herein and entered into in connection herewith set
forth the entire agreement and understanding of the undersigned parties in
respect of the transactions contemplated hereby and supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof including all such agreements, arrangements and understandings between
the undersigned parties. This EDS/Newco Agreement may be amended or modified
only by a written instrument executed by all undersigned parties or by their
successors and assigns.
XIII. GENERAL. This EDS/Newco Agreement: (i) shall be governed by,
construed and enforced in accordance with the laws of the State of Texas without
regard to the choice of law principles thereof; (ii) shall inure to the benefit
of and be binding upon the successors and assigns of the undersigned parties and
nothing herein, expressed or implied, being intended to confer upon any other
person any rights, obligations or remedies hereunder; provided, that, except as
otherwise provided herein, neither party hereto may assign its rights or
obligations hereunder without the prior written consent of the other party
hereto, except that EDS may assign this Agreement to one or more affiliates of
EDS; (iii) may be signed via facsimile; and (iv) may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The Section and other
headings contained in this Agreement are for reference purposes only and shall
not affect in anyway the meaning or interpretation of this Agreement. Any term
not defined herein shall have the meaning ascribed to such term in the EDS
Contracts.
AGREEMENT
Page 18 of 19
<PAGE> 19
ASCENT ENTERTAINMENT GROUP
By:
--------------------------------------
Title:
Date:
ON COMMAND VIDEO CORPORATION
By:
--------------------------------------
Title:
Date:
ELECTRONIC DATA SYSTEMS
CORPORATION and EDS TECHNICAL
PRODUCTS CORPORATION
By:
--------------------------------------
Title:
Date:
AGREEMENT
Page 19 of 19
<PAGE> 20
EXHIBIT "A"
TERM SHEET
AGREEMENT FOR TRANSITION OF FIELD SERVICES,
INTERIM PAYMENT OF ADMINISTRATIVE EXPENSES,
AND RESERVATION OF RIGHTS
1. Transition.
A. SpectraVision, Inc. and its subsidiaries ("SVN") will transition,
and relieve Electronic Data Systems Corporation and its subsidiaries
(collectively "EDS") from all future liability and responsibility for, Field
Services, including the Technical Assistance Center ("TAC"), the Customer
Assistance Center ("CAC"), and On-Site Services ("OSS") (collectively, "FS") and
Facilities Management Services ("FMS"), on the date that is sixty-six days after
entry of an order of the Bankruptcy Court approving this agreement or such other
date as the parties may mutually agree (the "Transition Date"). Following
Bankruptcy Court approval, EDS shall give notice of its intention to terminate
EDS' subcontract with Granada Computer Services (UK) Limited ("Granada"). EDS
will not object to a transition of CAC prior to the Transition Date after
Bankruptcy Court approval.
B. EDS and SVN will reasonably cooperate in the transition of FS and
FMS (including formulation of a joint transition plan), interviews of EDS
employees assigned to FS and FMS, and accounting for SVN's CDVRO, DBVOD and PCFM
spare parts in EDS' possession (including the three uninstalled DGC servers).
EDS will reasonably cooperate with, and reasonably assist, SVN in seeking
Granada's cooperation in the transition of that portion of FS performed by
Granada to SVN, interviews of Granada employees assigned to FS, and Granada's
accounting for, and delivery of, SVN's spare parts in Granada's possession. Upon
transition of FMS, the Base Services Charge will be reduced by $90,000 per
month, prorated for any partial months.
C. Upon SVN's written request to EDS received not less than ten days
prior to the Transition Date, EDS will "lease" the full-time EDS employees then
assigned to FS and FMS. With respect to each "leased" employee, the term of each
such "lease" shall commence on the Transition Date and shall end on the earlier
of (i) 90 days after the Transition Date, (ii) termination or resignation of
such "leased" employee from EDS, (iii) disability of such "leased" employee,
(iv) transfer or reassignment of such "leased" employee (following at least 30
days prior written notice to SVN), or (v) SVN's determination to discontinue its
use of such "leased" employee (following at least 30 days prior written notice
to EDS). EDS' SVN account management will not initiate efforts to transfer or
reassign any "leased" employee during the term of any such "lease".
The charges for each "leased" employee shall be:
CAC $5,000 per month, prorated for any partial months, or as otherwise
mutually agreed.
TAC $6,300 per month, prorated for any partial months, or as otherwise
mutually agreed.
FMS $11,500 per month, prorated for any partial months, or as otherwise
mutually agreed.
FS $81 per hour (M-F 8:00 a.m. - 5:00 p.m.)
$122 per hour (M-F 5:01 p.m. midnight; Sat 8:00 a.m. midnight)
$162 per hour (M-Sat Midnight - 7:59 a.m.; Sunday & Holidays)
$162 per hour (Expedite Fee)
<PAGE> 21
The charge for each FS "leased" employee shall include continued use of
any vehicle currently assigned to such "leased" employee or a comparable
substitute. FS charges shall be based on: one hour minimum; 1/4 hour increments
thereafter; portal to portal billing. EDS shall have no obligation to replace
said "leased" employees.
D. On the Transition Date (or with respect to FMS, on such earlier date
as FMS is transitioned) EDS shall be relieved from, and SVN shall hold EDS
harmless from, financial responsibility for (and SVN shall no longer be entitled
to any credits for) all costs associated with FS and FMS, which were assumed by
EDS from SVN. To the extent any agreements or leases associated with FS and FMS,
were assigned to EDS, EDS will assign without recourse or warranty same back to
SVN.
E. SVN shall promptly pay, and conditioned upon payment of, the
post-petition invoice for DGC training in November, 1995, in the approximate
amount of $6,500, for a period of ninety (90) days after the Transition Date,
EDS will continue to provide DGC training to employees of SVN in the same scope
as provided by EDS to SVN prior to the Transition Date at the rate of $2,000 per
session. Training will be in the Dallas area or at such other locations as
mutually agreed.
2. Financial Assistance for Transition.
A. EDS will defer payment of $900,000 per month for monthly FS charges
set forth in Section 4(E) below and PPO charges set forth in Section 4(F) below
for a period of two months beginning with the invoices that first become payable
after the Effective Date (as defined in Section 10 below), and such deferred FS
charges shall be an allowed administrative claim in the amount of $1.8 million.
SVN will pay the deferred amount in 12 equal consecutive monthly installments,
with the first installment being paid on the earlier of August 1, 1996 or 60
days after the effective date of its plan of reorganization (the "Plan Effective
Date"). EDS will not accelerate the timing of the delivery of the FS invoices.
B. EDS and SVN will enter into a two-year post-petition capital lease
with bargain purchase option for the CAC, TAC and FMS equipment now located at
SVN's facilities it Richardson, Texas at 12% debt rate and on standard
commercial terms based on EDS' then current book value; provided, however, SVN
may terminate the CAC, TAC and FMS equipment lease at any time after the end of
the first year of the lease upon 60 days written notice. If SVN elects to use
the Expert Advisor Software, SVN will pay any required license or transfer fees
for its use of the Expert Advisor Software.
3. Transponder DGC Encoding and DGC Content Services or "Refresh".
A. If, and only for so long as SVN remains in compliance with the terms
of this agreement and its post-petition obligations arising under the Phase 1,
Phase 2 and PCFM Agreements, as amended (the "EDS Contracts"), FDS will provide
the additional transponder power on a month-to-month basis for $99.000 per month
in addition to the existing $208,000 per month charge for the initial power. The
total amount of $307,000 per month is payable in advance.
B. If, and only for so long as SVN remains in compliance with the terms
of this agreement and its post-petition obligations arising under the EDS
Contracts, EDS will provide (i) NTSC encoding of SVN's DBVOD content on a month
to month basis for $35 per finished minute, and (ii) delivery of DBVOD content
services or "refresh" of DBVOD, in each case, in the same manner and scope as
EDS is currently providing. Nothing herein is intended to prohibit EDS and SVN
from entering into an
2
<PAGE> 22
agreement pursuant to which, conditioned upon SVN's agreement to purchase
certain minimum amounts of encoding minutes, EDS will provide PAL encoding.
4. Continuing Post-Petition Payments. In addition to the amounts
described in Sections I(C), l(E,), Sections 2 and 3, above, and Section 5,
below, SVN will timely pay EDS (or with respect to the PCFM, TPC) all invoices
for charges under the EDS Contracts that, since December 1, 1995, leave or will
come due. The approximate monthly charges are listed below, and the exact
charges will be determined in accordance with the applicable EDS Contract:
<TABLE>
<S> <C> <C>
A. Phase 1 Lease $203,348.45
B. Phase 2 Lease $298,342.03
C. PCFM Lease $139,473.78
D. Base Service Charge Network Services $526,320.85
(less $90,000 monthly reduction upon
transition of FMS)
E. Field Services
(i) Base Service Charge $675,942
(reduced to $654,142 for
services performed after
January 1, 1996)
(ii) Incremental Charge (service for old $101,884
technology; e.g. VCP's)(Items (i) and (ii)
above are calculated on a per site formula
in Phase 1, Addendum 3, Schedule 9.1)
(iii) TAC (Additional Service/Staffing) $55,555
(reduced to $44,444 for
services performed after
January 1, 1996)
(iv) Canada TAC (Per Site Calculation) $9,128
(v) Out-of-scope, T & M and freight Est. $100,000
F. PPO Charges (December through Transition Date) $55,600.00 (approx.)
(Per Site Calculation) (reduced to
approximately
$45,600 for services
performed after
January 1, 1996)
G. License Fee (Per Server Calculation) $15,383.24
H. T & M/out-of-scope charges EDS' standard T & M
rates or as quoted
1. Spare Parts EDS' standard prices or
as quoted
J. Other post-petition services/products requested EDS' standard T & M
rates or as quoted
</TABLE>
3
<PAGE> 23
These charges will be timely paid in full, without offset, as allowed
administrative expenses, subject only to bona fide disputes as to accuracy of
billing and minus (i) the deferrals described in Section 2(A) above, and (ii)
the credit(s) described in Section I (B) above and this Section 4. SVN will not
apply any disputed credits against these amounts unless agreed to by SVN and EDS
or TPC.
5. Past-Due Post-Petition Balances.
A. The past-due post-petition balance of $1,117,929.15 for the services
described on Exhibit A will be an allowed administrative expense claim in said
amount, and will be paid, without offset, in 12 equal consecutive monthly
payments beginning June 1, 1996.
B. The past due post-petition balances for the services and in the
amounts described on Exhibit B hereto have been compromised and settled, and
will be an allowed administrative claim in the reduced amount of $500,000. SVN
will pay this allowed administrative expense claim of $500,000, without offset,
in 12 equal consecutive monthly installments, with the first installment being
paid on the earlier of August 1, 1996 or 60 days after the Plan Effective Date.
6. Allowed Administrative Claims. All unpaid obligations arising tinder
this agreement, including without limitation, lease obligations and deferrals,
shall be allowed administrative expense claims under 11 U.S.C. Section 503,
shall not be subject to any superpriority administrative claims other than those
of Foothill, and shall be a first priority administrative expense claim in the
event SVN's Chapter 11 case is converted to a case under Chapter 7.
7. Pending Motions. So long as SVN is in compliance with this agreement,
EDS and TPC will continue the hearing date(s) for their motions for allowance
and payment of administrative expenses and to set a deadline for assumption or
rejection of the EDS Contracts. Without waiving any of its rights under the EDS
Contracts, EDS agrees to withdraw its objection to SVN's pending motion for
authority to enter into the proposed agreement with Tilt-Rac.
8. Reservation of Rights.
A. This agreement is neither an assumption nor rejection of the EDS
Contracts.
B. Except as expressly set forth herein, all parties reserve their
respective rights and obligations under the EDS Contracts. By entering into this
agreement, neither party is admitting liability to the other. Without limiting
the foregoing, the transition of FS and FMS is not (i) an admission of, and
shall not be received in, evidence as proof of, failure by EDS (or its
subcontractors) to perform under the EDS Contracts, or (ii) a modification of
the EDS Contracts. EDS retains the right to assert all claims arising out of FS
and FMS, including those arising after the Transition Date and those arising as
a result of any rejection of any of the EDS Contracts; and SVN retains the right
to assert all claims arising out of FS and FMS up to, but not after, the
Transition Date; and subject to the provisions of the applicable EDS Contract,
all parties retain any defenses, rights or remedies that may be available to
them.
C. Without waiving any of its rights under the EDS Contracts, EDS
will reasonably cooperate. with SVN in its efforts to obtain replacements parts,
technical information, and engineering services from third parties; provided,
however, that nothing in this Section 8(C) shall be construed
4
<PAGE> 24
to permit SVN to purchase computers from any third party. Nothing in this
Section 8(C) shall be construed to limit or diminish in any way the license
rights granted SVN under Sections 11.4 or 11.5 of the Phase 1 Agreement or
Section 4.2 of the Phase 2 Agreement with respect to computers purchased by SVN
from EDS or with respect to software used thereon, nor shall any license granted
by EDS to any software pursuant to the EDS Contracts extend to the use of any
such software on computers purchased from any party other than EDS. As used in
this Section 8(C), the term "computer" does not include spare or replacement
parts. Except as expressly set forth herein, the warranties on equipment and
software, if any, will remain as provided for in the EDS Contracts.
D. To the extent that SVN's provision of FS or FMS, or the use of
equipment or systems not entirely supplied by EDS or TPC adversely affects EDS'
or TPC's ability to provide any service or meet any performance standard under
the EDS Contracts or to otherwise perform their obligations under the EDS
Contracts, EDS and TPC will be relieved of such obligations, and SVN will,
nonetheless, pay EDS or TPC for all services performed or products provided by
EDS or TPC. To the extent that EDS' performance of any of its remaining
obligations under the EDS Contracts is prevented, hindered or delayed by the
nonperformance or failure to reasonably cooperate with EDS, by SVN, or any third
party on behalf of SVN, EDS will be excused from the performance of those
obligations and from any performance standards and performance penalties related
to those excused obligations.
E. Notwithstanding Section 8(B) above, without waiving any of its
other rights under, or arising from any rejection or alleged breach of, any of
the EDS Contracts, EDS waives any right to seek specific performance of its
right to provide FS or FMS after the Transition Date.
F. With respect to any material and substantial failure by EDS, after
the Effective Date (as defined in Section 10 below), to deliver any remaining
services or products under the EDS Contracts in the same manner and scope as
currently provided to SVN, SVN reserves the right to seek an order of the
Bankruptcy Court relieving SVN from its prospective obligations under Section 4
above and the allowance of prospective administrative expense claims under
Section 6 above; and, in such event, (i) SVN, EDS and TPC shall have such
rights, remedies and defenses that may be otherwise available to them, and (ii)
the obligations of EDS arising under Sections 1(B), 1(C), 1(E), 2(A), 2(B),
3(A), 3(B), and 7 shall expire.
9. Term. nless otherwise mutually agreed, the obligations of EDS and SVN
arising under Sections 1(C), 1(E), 2(A), 3, 4 and 7 hereof shall expire on the
earlier of. (i) August 31, 1996, (ii) rejection of any or all of the EDS
Contracts, (iii) conversion of either or both of the SpectraVision or
Spectradyne Chapter 11 cases to Chapter 7 cases, or (iv) the Effective Date.
10. Bankruptcy Court Approval. This agreement shall be effective and is
conditioned upon Bankruptcy Court approval and the entry of an Order on or
before March 1, 1996 (such date, the "Effective Date") agreeable to EDS and SVN
under 11 U.S.C. Sections 363 and 364 and Bankruptcy Rule 9019 (a)
authorizing the transactions and payments, (b) granting authority for debtors to
obtain post-petition credit and leases, (c) granting EDS and TPC allowed
administrative expense claims for any post-petition unpaid obligations, (d)
prohibiting superpriority administrative expense claims except for Foothill,
liens of equal or senior priority, or 11 U.S.C. Section 506(c) surcharges or
liens, (e) approving the release as to future liability after the Transition
Date as to FS and FMS, (f) granting EDS the protections under 11 U.S.C. Section
364(e), and (g) providing that EDS' and TPC's rights and priorities may not be
modified or abridged by any plan of reorganization unless EDS and TPC shall have
consented.
11. Miscellaneous. The parties to this Term Sheet contemplate entering into
a definitive settlement agreement and amendments to the EDS Contracts. Unless
defined in this Term Sheet, all initial
5
<PAGE> 25
capitalized terms s,all have the meanings ascribed in the EDS Contracts. The
automatic stay shall be modified to allow EDS or TPC to file such financing
statements as EDS shall determine are necessary or appropriate, and to otherwise
effect the transactions provided for herein.
SPECTRAVISION, INC. ELECTRONIC DATA SYSTEMS CORPORATION
SPECTRADYNE, INC. EDS TECHNICAL PRODUCTS CORPORATION
By: /s/ By: /s/
---------------------------- ----------------------------------
Richard M. Gozia Gregory A. Granello
Chief Financial Officer EDS Division Vice President
Date: January 17, 1996 Date: January 17, 1996
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<PAGE> 26
POST PETITION BALANCE SHEETS
<TABLE>
<CAPTION>
EXHIBIT B INVOICE INVOICE INVOICE AMOUNT AMOUNT DATE
--------- NUMBER DATE AMOUNT PAID DUE DUE
FIELD SERVICE
<S> <C> <C> <C> <C> <C> <C>
JUNE (23 DAYS) F4047104/F4048104 8/16/95 770,954.67 751,969.00 18,985.67 9/16/95
JULY F4047103/F4048103 8/16/95 1,004,765.60 975,118.89 29,646.71 9/16/95
AUGUST F4047132/F4047133 9/14/95 1,004,786.12 963,679.85 41,106.27 10/14/95
SEPTEMBER F4047149/F4047150 10/10/95 977,091.88 930,079.92 47,011.96 11/10/95
OCTOBER F4047187/F4048187 11/20/95 943,517.69 914,116.50 29,401.19 12/20/95
TOTAL FIELD SERVICE 4,701,115.96 4,534,964.16 166,151.80
NEW NETWORK OCTOBER F4047168 11/1/95 14,518.00 3,746.58 10,771.42 12/1/95
GRANADA FREIGHT
FREIGHT (POST FILING) F4047099* 8/4/95 4,968.29 3,671.04 1,297.25 9/4/95
FREIGHT F4047127* 9/13/95 6,946.73 63.40 6,883.33 10/13/95
FREIGHT F4047220 12/4/95 2,395.68 2,395.68 0.00 1/5/95
TOTAL GRANADA FREIGHT 14,310.70 6,130.12 0.00
T&M CHARGES
T&M F4047148 10/10/95 98,846.99 0.00 98,846.99 11/10/95
T&M CORRECTION O/T F40471558 10/19/95 2,810.35 2,473.68 336.67 11/19/95
T&M CORRECTION O/T F4047165 10/27/95 3,280.98 0.00 3,280.98 11/27/95
T&M DGC F4047186 11/17/95 39,762.02 0.00 39,762.02 12/17/95
T&M MEMOREX TELEX F4047202 11/29/95 4,253.24 0.00 4,253.24 1/5/96
TOTAL T&M 148,953.58 2,473.68 146,143.23
CAC
PPO REGIONAL STRUCTURE F4047201** 11/29/95 387,225.41 0.00 387,225.41 12/29/95
TOTAL CAC 387,225.41 0.00 387,225.41
OUT OF SCOPE
11/27/95 12/3/95 F4047240 12/18/95 13,645.18 0.00 13,645.18 12/22/95
11/20/95 11/26/95 F4047248 12/21/95 10,380.34 0.00 10,380.34 12/21/95
12/04/95 12/07/95 F4047249 12/21/95 9,988.29 0.00 9,988.29 12/27/95
12/08/95 12/14/95 F4047250 12/21/95 13,512.59 0.00 13,512.59 12/27/95
06/05/95 06/11/95 TAX COR F4047191* 11/22/95 485.64 160.67 324.97 12/22/95
TOTAL OUT OF SCOPE 48,012.04 160.67 47,526.40
EXHIBIT B TOTAL 757,818.26
</TABLE>
*AMOUNT DUE IS PRE PETITION AND NOT INCLUDED IN TOTALS.
**INVOICE REDUCED BY $5,226.31 DUE TO ERR IN SITE FILE.
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<PAGE> 27
POST PETITION BALANCE SHEETS
<TABLE>
<CAPTION>
EXHIBIT A INVOICE INVOICE INVOICE AMOUNT AMOUNT DATE
NUMBER DATE AMOUNT PAID DUE DUE
PHASE II
<S> <C> <C> <C> <C> <C> <C>
ENCODING SEPTEMBER F4047162 10/26/95 54,565.00 0.00 54,565.00 11/26/95
ENCODING OCTOBER F4047172 11/1/95 65,870.00 0.00 65,870.00 12/1/95
LICENSE FEE SEPTEMBER F4047161 10/23/95 15,383.24 0.00 15,383.24 11/23/95
LICENSE FEE OCTOBER F4047169 11/1/95 15,389.16 0.00 15,389.16 12/1/95
LICENSE FEE NOVEMBER F4047208*** 12/1/95 15,524.48 15,389.16 135.32 1/4/96
LICENCE FEE COR F4047205**** 11/29/95 947.19 0.00 947.19 1/5/95
LEASE OCTOBER F4047144 10/4/95 298,336.32 0.00 298,336.32 11/14/95
LEASE NOVEMBER F4047183 11/17/95 298,342.03 0.00 298,342.03 12/1/95
TOTAL PHASE II 764,357.42 15,389.16 748,678.78
NEW NETWORK NOVEMBER F4047211 12/1/95 1,708.00 0.00 1,708.00 1/4/96
SPARE PARTS
DGC SPARE PARTS F4047201 12/14/95 367,542.40 0.00 367,542.40 12/20/95
TOTAL SPARE PARTS 367,542.40 0.00 367,542.40
EXHIBIT A TOTAL 1,117,929.15
</TABLE>
*** AMOUNT DUE WAS BILLED IN F4047205 NOT INCLUDED IN TOTAL.
****$154.16 IS PRE PETITION AND NOT INCLUDED IN TOTALS AND WILL NOT BE PAID.
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<PAGE> 28
EXHIBIT "B"
<TABLE>
<CAPTION>
Purchase Price Purchase Price Option Purchase Price Option Monthly
Equivalent Cap at Early Termination Date Cap at Termination Date Lease Credit
---------- ----------------------------- ----------------------- ------------
<S> <C> <C> <C> <C>
Phase 1 Configuration $10,927 $2,185.40 $1,092.70 $212
(excluding PC)
Phase 2 Configuration $78,377 x .20= x .10= $1,464
$15,675.40 $7,837.70
Phase 2-72 Hard Drive $146,093 x .20= x .10= $2,530
Configuration $29,218.60 $14,609.30
PCFM (est) $10,000 x .10= x .05= $68
$1,000.00 $500.00
</TABLE>
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