<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
ON COMMAND CORPORATION
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
ON COMMAND CORPORATION
6331 SAN IGNACIO AVENUE
SAN JOSE, CALIFORNIA 95119
April 8, 1999
Dear Stockholder:
The Annual Meeting of Stockholders of On Command Corporation (the
"Company") will be held at 11:00 a.m. on Thursday, May 13, 1999, at the
Company's headquarters at 6331 San Ignacio Avenue, San Jose, California 95119.
The matters on the meeting agenda are described on the following pages.
If you are a stockholder of record, we urge that you send in your proxy
promptly for the Annual Meeting whether or not you plan to attend. Giving your
proxy will not affect your right to vote in person if you attend. If you wish to
give a proxy to someone other than the persons named on the enclosed proxy form,
you may cross out their names and insert the name of some other person who will
be at the meeting. The signed proxy form then should be given to that person for
his or her use at the meeting. If your shares are held in the name of a broker
and you wish to attend the meeting, you should obtain a letter of identification
from your broker and bring it to the meeting. In order to vote personally shares
held in the name of your broker, you must obtain from the broker a proxy issued
to you.
Sincerely,
LOGO LOGO
Charles Lyons Brian A.C. Steel
Chairman of the Board President and Chief
Operating Officer
YOUR PROXY IS IMPORTANT . . . PLEASE VOTE PROMPTLY
<PAGE> 3
ON COMMAND CORPORATION
6331 SAN IGNACIO AVENUE
SAN JOSE, CALIFORNIA 95119
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of ON COMMAND CORPORATION:
The 1999 Annual Meeting of Stockholders of On Command Corporation will be
held at the Company's headquarters at 6331 San Ignacio Avenue, San Jose,
California 95119, on Thursday, May 13, 1999 at 11:00 a.m., Pacific Daylight
Time, for the following purposes:
1. election of all directors;
2. amendment of the 1997 Non-employees Director Stock Plan; and
3. action on such other matters as may properly come before the meeting or
any reconvened session thereof.
The Board of Directors has fixed the close of business on March 16, 1999,
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting and at any reconvened session thereof.
YOUR PROXY IS IMPORTANT. EVEN IF YOU HOLD ONLY A FEW SHARES, AND WHETHER OR
NOT YOU EXPECT TO BE PRESENT, YOU ARE URGENTLY REQUESTED TO DATE, SIGN AND MAIL
THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE THAT IS PROVIDED. THE PROXY MAY
BE REVOKED BY YOU AT ANY TIME, AND THE GIVING OF YOUR PROXY WILL NOT AFFECT YOUR
RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
This notice is given pursuant to direction of the Board of Directors.
LOGO
Arthur M. Aaron
Acting General Counsel
and Secretary
San Jose, California
April 8, 1999
<PAGE> 4
ON COMMAND CORPORATION
6331 SAN IGNACIO AVENUE
SAN JOSE, CALIFORNIA 95119
TELEPHONE: (408) 360-4500
------------------------
PROXY STATEMENT
This Proxy Statement is provided by the Board of Directors of On Command
Corporation (the "Company" or "OCC") in connection with its solicitation of
proxies for the 1999 Annual Meeting of Stockholders to be held on May 13, 1999,
or any adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. The date of this Proxy
Statement is April 8, 1999, the approximate date on which this Proxy Statement
and the accompanying proxy were first sent or given to stockholders.
Stockholders of record of the Company's Common Stock at the close of
business on March 16, 1999 are entitled to vote at the meeting in person or by
proxy. Each share is entitled to one vote, except that for the election of
directors, each Stockholder of record of the Company's Common Stock at the close
of business on March 16, 1999 is entitled to vote for each share then held and
to cumulate votes in the election of directors. If a proxy in the accompanying
form is properly executed and returned, the shares represented by the proxy will
be voted as the stockholder specifies. A stockholder may revoke a proxy at any
time before it is exercised by submitting a written revocation, submitting a
later-dated proxy, or voting in person at the meeting.
Abstentions and broker non-votes will not be counted for purposes of
determining whether any given proposal has been approved by the stockholders.
Accordingly, abstentions and broker non-votes will not affect the votes on any
of the proposals, all of which require for approval the affirmative vote of a
majority of the shares represented and entitled to vote at the meeting.
OWNERSHIP OF COMMON STOCK
As of March 16, 1999, the record date, approximately 30,169,752 shares of
Common Stock were issued and outstanding. To the knowledge of the Company, based
upon Schedules 13G or 13D filed with the Securities and Exchange Commission (the
"SEC" of "Commission"), the following persons were the only beneficial owners of
more than five percent of the Company's Common Stock as of December 31, 1998.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP ISSUED AND OUTSTANDING
------------------------------------ -------------------- -----------------------
<S> <C> <C>
Ascent Entertainment Group, Inc.(1).......... 18,274,091 57.2%
1225 Seventeenth Street, Ste. 1800
Denver, CO 80202
Credit Suisse First Boston(2)................ 3,274,952 10.9%
11 Madison Avenue
New York, NY 10010
Hilton Hotels Corporation(3)................. 2,486,132 8.3%
9336 Civic Center Drive
Beverly Hills, CA 90210
Merrill Lynch & Co., Inc.(4)................. 2,153,239 7.1%
Merrill Lynch Corporate Bond Fund
800 Scudders Mill Road
Plainsboro, NJ 08536
Gary Wilson(5)............................... 1,810,000 5.7%
9665 Wilshire Blvd., Suite 200
Beverly Hills, CA 90212
</TABLE>
- - ---------------
(1) Ascent Entertainment Group, Inc. ("Ascent") holds sole voting and
dispositive power over 17,140,416 shares of Common Stock of On Command
Corporation and 1,123,792 Series A Warrants of On Command Corporation.
1
<PAGE> 5
(2) Based on information contained in Schedule 13G/A filed with the Commission
on February 12 1999. Credit Suisse First Boston shares voting and
dispositive power over 3,279,952 shares of Common Stock with its
consolidated subsidiaries to the extent that they constitute a part of the
Credit Suisse First Boston business unit which is engaged in corporate and
investment banking, trading, private equity investment and derivatives
business on a world-wide basis.
(3) Hilton Hotels Corporation holds 2,333,346 shares of Common Stock of On
Command Corporation and 152,782 Series A Warrants of On Command Corporation.
(4) Based on information contained in Schedule 13G/A filed with the Commission
on February 1, 1999. Merrill Lynch & Co., Inc., ("MLI") is the beneficial
owner of 2,153,239 shares of OCC Common Stock (7.1%) (sole voting and
dispositive power: 0 shares and shared voting and dispositive power:
2,153,239 shares) as parent holding company of Merrill Lynch Asset
Management, L.P. ("MLAM"), which is a registered investment advisor. MLAM is
the beneficial owner of 2,153,239 shares of OCC Common Stock (7.1%) (sole
voting and dispositive power: 0 shares and shared voting and dispositive
power: 2,153,239 shares) as investment advisor to certain registered
investment companies, including Merrill Lynch Corporate Bond Fund, Inc.
("Fund"). Fund is the beneficial owner of 1,569,811 shares of OCC Common
Stock (5.2%) (shared voting and dispositive power: 1,569,811 shares) and,
according to the Schedule 13G/A, is the only reporting person in the 13G/A
with an interest related to more than 5% of the OCC Common Stock.
(5) Mr. Wilson holds 1,810,000 Series C Warrants to purchase Common Stock of
OCC, which are not publicly traded, with an exercise price of $15.33 per
share.
COMMON STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of March 16, 1999, by all directors
and nominees, by each of the executive officers named in the Summary
Compensation Table on page 11, and by all directors and executive officers as a
group. Under rules of the SEC, beneficial ownership includes any shares over
which an individual has sole or shared voting power or investment power, and
also any shares that the individual has the right to acquire within 60 days
through the exercise of any stock option or other right.
<TABLE>
<CAPTION>
ASCENT ENTERTAINMENT GROUP, INC.
NAME(1) COMMON STOCK COMMON STOCK
------- ------------ --------------------------------
<S> <C> <C>
James A. Cronin, III........................ -- --
Richard D. Goldstein........................ -- --
Richard Fenwick, Jr......................... 67,946(2) --
J. David Wargo.............................. -- --
Ronald D. Lessack........................... 92,626(3) 820
J.C. Sparkman............................... -- --
Charles Lyons............................... --(4) 19,551
Paul J Milley............................... 30,000(5) --
Brian A.C. Steel............................ 192,656(6) --
Gary Wilson................................. 1,810,000(7) --
All Executive Officers And Directors as a
group
(11 persons).............................. 2,389,425 20,331
</TABLE>
- - ---------------
(1) Unless otherwise indicated, each person has sole voting and investment
powers over the shares listed, and no director or executive officer
beneficially owns more than 1.0% of the Common Stock of the Company or
Ascent.
(2) Includes vested options to purchase 67,760 shares of Common Stock and 186
Series A Warrants of OCC.
(3) Includes vested options to purchase 92,440 shares of Common Stock and 186
Series A Warrants of OCC.
2
<PAGE> 6
(4) Ascent holds approximately 59.0% of the issued and outstanding Common Stock
of OCC. Mr. Lyons' ownership of OCC Common Stock does not reflect ownership
of the OCC shares owned by Ascent, even though Mr. Lyons holds the proxy to
vote those shares on behalf of Ascent.
(5) Includes vested options to purchase 30,000 shares of Common Stock.
(6) Included vested options to purchase 192,656 shares of OCC Common Stock.
(7) Mr. Wilson holds 1,810,000 Series C Warrants to purchase common stock of
OCC, which are not publicly traded, with an exercise price of $15.33 per
share.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, which is composed of three directors, Richard
Goldstein (Chairman), Charles Lyons (an executive officer and director of Ascent
Entertainment Group, Inc., the Company's majority stockholder ("Ascent")), and
J.C. Sparkman, is responsible for establishing and administering the Company's
executive compensation philosophy. Set forth below is the Committee's report on
the 1998 compensation of the executive officers of the Company, including Mr.
Kavner, the former President and Chief Executive Officer of the Company (who
resigned effective December 31, 1998), Mr. Steel, the Company's current
President and Chief Operating Officer, and the other executive officers of the
Company whose compensation is discussed below under "Executive Compensation"
(collectively, the "Named Executive Officers").
ANNUAL COMPENSATION
Each of the Named Executive Officer's annual compensation for 1998 was
based on the Company's executive compensation philosophy that emphasizes
risk-based performance incentives as a key component of both annual and
long-term compensation. Messrs. Kavner's and Steel's compensation are based upon
their respective employment agreements with the Company. See Executive
Compensation -- Employment Agreements.
The other Named Executive Officers' annual base salary rates were
consistent with competitive salary ranges developed by the Company. These salary
ranges are based on market data for technology companies of comparable revenue
in the same geographic area. Annual salary adjustments take into account
individual Named Executive Officers' achievements during the prior year towards
key Company-wide objectives set annually by the Board of Directors, as well as
the Named Executive Officers' performance of their individual responsibilities.
The bonus opportunities for the Named Executive Officers for 1998 were
based on corporate financial goals (i.e., earnings before interest, taxes and
depreciation, known as "EBITDA") set by the Board of Directors for the year and
specified strategic and/or other operating objectives established by management
in consultation with the Compensation Committee. Distributions to the Named
Executive Officers under the executive bonus plan are reviewed and determined by
the Compensation Committee on an annual basis. The bonus targets for the Named
Executive Officers other than Messrs. Steel and Kavner are allocated among the
individual executive officers with reference to responsibilities, performance
and goal achievement of individual executive officers.
The annual bonus targets for each of Mr. Steel and Mr. Kavner were as set
forth in their respective employment agreements which provide for target bonuses
in an amount equal to seventy percent of base salary for achieving certain
performance measures as approved by the Compensation Committee. For 1998, each
of their bonuses was based on the achievement of certain financial measures and
his individual performance and leadership, including the achievement of the
Company's EBITDA target, accomplishment of certain operating improvements and
progress on various strategic initiatives. The Compensation Committee considered
these accomplishments and the recommendation of Mr. Lyons in his capacity as
Chairman of the Board, and awarded annual bonuses to each of Mr. Steel and Mr.
Kavner representing seventy percent of their respective base salaries. In
addition, in light of Mr. Steel's valuable contributions in the recent
management transition
3
<PAGE> 7
and accession to President of OCC, the Committee and Board increased Mr. Steel's
bonus by $47,000, to a total of $250,000.
Bonuses for Messrs. Fenwick, Lessack and Milley were based on the
achievement of one or more financial measures as compared to planned performance
for the Company, as well as Mr. Steel's evaluation of each individual executive
officer's achievement of his performance objectives for the year. The
Compensation Committee reviewed and approved Mr. Steel's bonus recommendations
for each of the Named Executive Officers.
LONG TERM COMPENSATION
In connection with Mr. Steel's hiring by the Company in September 1996, the
Board, with the review and approval of Ascent's Compensation Committee and Board
of Directors, awarded Mr. Steel stock options to purchase 385,312 shares of OCC
Common Stock. The options vest 25% after one year, an additional 25% after two
years and an additional 50% after three years, and expire 10 years after the
grant. Eighty percent of the shares purchasable upon exercise of each option may
be purchased at a price per share which the Board of Directors and the
Compensation Committee determined based upon the fair value of the combination
of OCV and SpectraVision, prior to the public trading of OCC's Common Stock
which was determined to be $15.33 and the remaining twenty percent may be
purchased at $16.40 per share, which was the average of the high and low bid
prices of the OCC Common Stock for the twenty trading days following the third
trading day after OCC's public release of financial results for the third
quarter of 1996. The intent in granting the option was to create an immediate
and significant link between Mr. Steel's compensation and the interests of On
Command Corporation's stockholders. The size of the option award and the vesting
schedule were effectively based upon the practices of companies engaging in
public offerings. Mr. Kavner was also granted stock options concurrently with
Mr. Steel. In February 1998, Mr. Kavner volunteered, and the Compensation
Committee accepted, the forfeiture by Mr. Kavner of 203,500 such options in
order to increase the number of shares available under the Company's 1996 Key
Employee Stock Plan to be granted to other executive officers. In December 1998,
the Company and Mr. Kavner agreed to cancel all his remaining stock options
effective December 31, 1998.
In February 1998, Messrs. Lessack, Fenwick and Milley received stock option
awards from On Command pursuant to the Company's 1996 Key Employee Stock Plan
out of the shares made available by Mr. Kavner's forfeiture. The amounts of the
non-qualified stock options awarded to Messrs. Lessack, Fenwick and Milley were
based on internal guidelines developed by the Company in an effort to be
competitive with other long-term incentive compensation for comparable positions
in technology companies. The Compensation Committee wanted to increase the link
between senior management's compensation and the interests of On Command's
stockholders. The size of the stock awards and the vesting schedule were
determined in an effort to be competitive with other companies in similar
industries. All grants of options will expire 10 years after grant.
Compensation Committee
Richard Goldstein, Chairman
Charles Lyons
J. C. Sparkman
4
<PAGE> 8
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in
the cumulative total stockholder return on the Company's Common Stock with the
cumulative total return of the NASDAQ Index, an SIC Code Index, and a
Company-constructed peer group. The graph covers the period commencing on
October 10, 1996 (the date that the Company's S-4 Registration statement was
declared effective by the SEC) and ending on December 31, 1998.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG ON COMMAND CORPORATION, NASDAQ INDEX AND PEER GROUP
<TABLE>
<CAPTION>
ON COMMAND PEER GROUP SIC CODE 4841 INDEX NASDAQ
---------- ---------- ------------------- ------
<S> <C> <C> <C> <C>
10/96 100 100 100 100
12/96 67 84 108 103
12/97 54 81 188 127
12/98 38 108 345 178
</TABLE>
- - ---------------
* Assumes $100 invested on October 10, 1996 in the Common Stock of On Command
Corporation, the Nasdaq Market, and Peer Companies (Weighted by Market
Capitalization). Total return assumes reinvestment of dividends and common
stock equivalent.
(1) The Company has reconstructed the SIC Code 4841 Index to mirror the original
group of companies as closely as possible, however it is difficult to
completely track the index because companies continuously enter and exit the
group. Therefore, the Company has chosen to replace the SIC Code 4841 Index
with a Company-constructed peer group. The number of publicly traded
companies with significant hotel entertainment system operations is limited,
however the Company believes this comparison is more relative than using the
index comparison. The Company-constructed peer group is weighted annually by
market capitalization and consists of publicly-traded companies including
@Entertainment, Inc.,
5
<PAGE> 9
Advanced Radio Telecom Corporation, Ascent Entertainment Group, Lodgenet
Entertainment Corporation, and Network Event Theater Incorporated.
COMPLIANCE WITH SECURITIES LAWS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities, to file initial
reports of ownership and reports of changes in ownership with the Securities and
Exchange Commission ("SEC") and the NASDAQ National Market System. Such persons
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file. The Company has undertaken the obligation to make
these filings on behalf of its directors and executive officers.
Based solely on its review of copies of such forms received and filed by it
with respect to 1998, or written representations from certain reporting persons,
the Company believes that all of its directors and executive officers and
persons who own more than 10% of the Company's registered equity have complied
with the reporting requirements of Section 16(a), except that Form 5 related to
the grant of 400 shares of common stock and 4,000 options to purchase shares of
common stock to Mr. Wilson pursuant to the Company's 1997 Non-Employee
Director's Stock Plan was not timely filed. The grant was effective as of August
8, 1997, however, the related stock and options were not delivered to Mr. Wilson
until December 1998 and were then reported in a Form 5 filed on behalf of Mr.
Wilson by the Company on January 29, 1999.
EXECUTIVE COMPENSATION
The following table shows the compensation received for the three fiscal
years ended December 31, 1998 by the (i) former President and Chief Executive
Officer, (ii) the President and Chief Operating Officer (formerly the Executive
Vice President, Chief Financial Officer and Chief Operating Officer), (iii) the
Senior Vice President, Operations of OCC and, previously, OCV, (iv) the Senior
Vice President, Finance, and (v) the Senior Vice President, Engineering of OCC
and, previously, OCV (the officers being hereafter referred to as the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------- -------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS COMPENSATION
NAME AND POSITION(1) YEAR ($)(2) ($) ($)(3) ($) (#)(4) ($)(5)
-------------------- ---- ------- ------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Kavner.............. 1998 500,000 350,000 -0- -0- -0- 19,520
President and 1997 500,000 350,000 316,672 -0- -0- 336,471
Chief Executive Officer(4) 1996 173,034 60,000 -0- -0- 1,041,562 761
Brian A.C. Steel.............. 1998 294,617 250,000 -0- -0- -0- 19,520
President and 1997 290,000 203,000 172,467 -0- -0- 483,894
Chief Operating Officer 1996 96,273 35,000 -0- -0- 385,312 8,225
Ronald D. Lessack............. 1998 205,500 57,000 -0- -0- 48,200 6,320
Senior Vice 1997 193,500 70,000 -0- -0- 10,000 5,572
President, Operations 1996 183,708 27,500 -0- -0- 65,000* 9,947
Paul J. Milley................ 1998 181,249 54,000 -0- -0- 50,000 5,000
Senior Vice 1997 174,996 44,000 30,000 -0- -0- 61,403
President, Finance 1996 7,292 -0- -0- 50,000 -0-
Richard Fenwick, Jr. ......... 1998 178,958 45,000 -0- -0- 35,300 6,320
Senior Vice 1997 165,000 40,000 -0- -0- 10,000 4,984
President, Engineering 1996 168,228 22,500 -0- -0- 65,000* 9,263
</TABLE>
- - ---------------
(1) Messrs. Kavner and Steel commenced employment with the Company in September
1996. Mr. Milley commenced employment with the Company in December 1996. Mr.
Kavner resigned as President, Chief Executive Officer and Director effective
as of December 31, 1998.
6
<PAGE> 10
(2) Includes retroactive pay made in January 1996 for the period December 1,
1995 to December 31, 1995 as follows: for Mr. Lessack in the amount of
$2,500; and Mr. Fenwick in the amount of $1,875.
(3) Other Annual Compensation consists of tax reimbursements for the amounts
shown. Other Annual Compensation shown for 1996, 1997 and 1998 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 the combined salary and bonus for the Named Executive Officer in each
year.
(4) All options marked with an asterisk (*) are Stock Appreciation Rights
("SARs") that were issued in exchange for Ascent employee stock options,
which options were canceled in connection with the grant of the SARs.
Additionally, in February 1998, Mr. Kavner volunteered, and the Compensation
Committee accepted, the forfeiture by Mr. Kavner of his right to purchase
203,500 shares of OCC Common Stock pursuant to Mr. Kavner's stock option
award, thereby reducing Mr. Kavner's stock options to 838,062 shares. Mr.
Kavner volunteered to forfeit such portion of his option award in order to
return to the Key Employee Plan the number of shares of OCC Common Stock
which such forfeiture represents to increase the number of shares of OCC
Common Stock subject to the Key Employee Plan available for other executive
officers. Subsequently, in December 1998, in connection with his
resignation, all of Mr. Kavner's stock options were canceled (See
"Employment and Severance Agreements").
(5) For 1998, other compensation includes: (i) contributions by the Company on
behalf of the executive to the On Command Video 401(k) plan, (ii) life
insurance premiums for policies in excess of $50,000 face value and (iii)
auto allowance.
<TABLE>
<CAPTION>
401(K) INSURANCE AUTO
NAME MATCHING PREMIUM ALLOWANCE TOTAL
---- -------- --------- --------- ------
<S> <C> <C> <C> <C>
Robert M. Kavner.................................. 5,000 1,320 13,200 19,520
Brian A.C. Steel.................................. 5,000 1,320 13,200 19,520
Ronald D. Lessack................................. 5,000 1,320 -0- 6,320
Paul J. Milley.................................... 5,000 -0- -0- 5,000
Richard Fenwick, Jr. ............................. 5,000 1,320 -0- 6,320
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH) DATE PRESENT VALUE$(3)
---- ------------- ------------------ ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Richard Fenwick, Jr. ......... 35,300 4% $13.00 02/04/08 $115,588
Ronald Lessack................ 48,200 7% $13.00 02/04/08 $157,828
Paul Milley................... 50,000 8% $13.00 02/04/08 $163,722
</TABLE>
- - ---------------
(1) The options expire ten years from grant date and vest 20% annually over five
years.
(2) The total number of options granted to OCC employees in 1998 was 632,192.
(3) On Command used the Black-Scholes option pricing model to determine grant
date present values using the following assumptions: stock price volatility
of 47.0%, a five to six year option term, a risk-free rate of return of
4.67%, and no dividend yield. Forfeitures are reflected as they occur. The
use of this model is in accordance with SEC rules; however the actual value
of an option will be measured by the difference between the stock price and
the exercise price on the date the option is exercised.
7
<PAGE> 11
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information on (i) options exercised by the
Named Executive Officers in 1998, and (ii) the number and value of their
un-exercised options at December 31, 1998.
AGGREGATED OPTION EXERCISES IN 1998, AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF IN-THE MONEY
SHARES OPTIONS AT 12/31/98 OPTIONS AT 12/31/98
UNDERLYING --------------------------- ---------------------------
OPTIONS VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME EXERCISED REALIZED (#) (#) ($) ($)
---- ---------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Kavner............... -0- -0- -0- -0- -0- -0-
Ascent.................... -0- -0- -0- -0- -0- -0-
Brian A.C. Steel............... -0- -0- 192,656 192,656 -0- -0-
Ronald D. Lessack.............. -0- -0- 71,440 98,560 -0- -0-
Ascent.................... -0- -0- 10,000 -0- -0- -0-
Paul J. Milley................. -0- -0- 20,000 80,000 -0- -0-
Richard Fenwick, Jr............ 5,000 44,150 60,700 74,300 109,062 -0-
Ascent.................... -0- -0- 10,000 -0- -0- -0-
</TABLE>
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
On December 28, 1998, On Command and Mr. Kavner entered into an amendment
to Mr. Kavner's employment agreement. Pursuant to the amendment Mr. Kavner
resigned as President, Chief Executive Officer and Director of On Command
effective December 31, 1998 and agreed to act as a consultant to On Command
through December 31, 1999 (the "Consulting Period"). In addition, under the
terms of the amendment (i) Mr. Kavner is entitled to $350,000 for consulting
services during the Consulting Period and may participate in On Command's
employee benefit programs; (ii) all of Mr. Kavner's On Command stock options
were canceled; (iii) Mr. Kavner agreed that he would not provide services to a
competitor of On Command during the Consulting Period; and (iv) On Command and
Mr. Kavner agreed to a mutual release of any and all claims that each might have
related to the other.
In September 1996, the Company and Brian A.C. Steel entered into an
employment agreement that expires on September 11, 2000. Pursuant to the
agreement, Mr. Steel's initial base salary was $290,000 per year, subject to
increases at the discretion of the Board of Directors of the Company. Under the
agreement, Mr. Steel is eligible for annual bonuses based on performance
measures determined by the Compensation Committee with a target bonus equal to
70% of Mr. Steel's base salary for achieving 100% of the target level for the
performance measures. In addition, Mr. Steel has been granted options to
purchase 385,312 shares of OCC Common Stock, exercisable at the following
per-share prices: (i) 80% of such options shall be exercisable at a per-share
price equal to $15.33 and (ii) 20% of each such executive's options shall be
exercisable at a per-share price equal to $16.40. The options vest 25% on
September 11, 1997, an additional 25% on September 11, 1998 and the remaining
50% on September 11, 1999. The options will expire at the earlier of (i) three
months after the date upon which Mr. Steel is terminated for "cause" (as defined
in the employment agreement); (ii) one year after Mr. Steel's employment
agreement is terminated as a result of death or (iii) on September 11, 2006. Mr.
Steel is also be entitled to participate in group health, dental and disability
insurance programs and any group profit sharing, deferred compensation, life
insurance or other benefit plans as are generally made available by the Company
to its senior executive officers on a favored nations basis.
In addition, the employment agreement for Mr. Steel provides that upon a
"Change of Control Event" (as defined in the agreement), Mr. Steel will be
entitled to elect to terminate his employment with the Company and, for the
longer of (a) the remainder of the term of his employment agreement as if such
agreement had not been terminated and (b) one year following the date of such
termination (such period being the "Duration Period"), will receive: (i) his
then current base salary; (ii) an annual bonus equal to 70%
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of his then current base salary for each year during the Duration Period; and
(iii) all other benefits provided pursuant to the employment agreement. A
"Change of Control Event" is defined in the employment agreement as an
affirmative determination, either jointly by Mr. Steel and the Board of
Directors or pursuant to an arbitration which Mr. Steel has the right to invoke,
that any "change of control" of the Company (defined as an event as result of
which (i) a single person or entity other than Ascent or its affiliates owns 50%
or more of the voting stock of the Company or (ii) a single person or entity
other than COMSAT Corporation ("COMSAT") or its affiliates (which as of the date
of the employment agreements held approximately 80% of the outstanding Common
Stock of Ascent, but which consummated the distribution of its 80.67% ownership
interest in Ascent to the COMSAT shareholders on June 27, 1997) owns directly or
indirectly 50% or more of the voting stock of Ascent) or prospective change of
control would be reasonably likely to have a materially detrimental effect on
either the day-to-day circumstances of Mr. Steel's employment, or the
compensation payable to Mr. Steel under his employment agreement.
On December 28, 1998, On Command and Mr. Steel entered into an amendment to
Mr. Steel's employment agreement. Pursuant to the amendment, Mr. Steel assumed
the title of President and Chief Operating Officer of On Command through
September 11, 2000, while reporting directly to the Chief Executive Officer and
Board of Directors of the Company, and if there is no Chief Executive Officer,
then to the Chairman of the Board. In addition, under the terms of the amendment
(i) Mr. Steel's base salary was increased to $375,000 per year and (ii) if the
Company failed to review Mr. Steel's compensation prior to June 1, 1999 or
revise such compensation prior to August 1, 1999, then Mr. Steel would be
entitled to terminate his employment with the Company and receive (a) his then
base salary for a year from such termination, (b) pro-rated annual bonus for the
year in which employment was terminated and (iii) a pro-rated portion of the
options previously granted to Mr. Steel under the Company's stock option plans
that were scheduled to vest during the year of such termination, which shall
vest as of the date of such termination.
In February 1999, the Company adopted a change of control severance plan
for the Company's executive officers at or above the level of vice president
(the "Severance Plan"). Under the Severance Plan, such employees are eligible
for certain payments and benefits, if within one year of a Change of Control,
such employee's employment is either terminated by the Company for any reason
other than death, disability or cause, or is terminated by the employee for good
reason. "Change of Control" is defined as any event as a result of which any
single entity or "group" (as defined in Rule 13d-5 of the Exchange Act) other
than Ascent or a group of which Ascent is a part owns more than fifty percent
(50%) of the voting stock of the Company.
Under the Severance Plan eligible employees would be entitled to salary
continuation of from six months to twelve months depending upon the employee's
length of service, an annual bonus prorated to the effective date of
termination, and during the relevant period of salary continuation, continued
participation in OCC's benefit plans. In addition, stock options held by an
eligible employee would become 100% vested immediately and remain exercisable
for one year.
PROPOSAL 1. ELECTION OF DIRECTORS
BOARD OF DIRECTORS
The Company's Board of Directors consists of seven directors. Mr. Kavner
resigned from the Board in December 1998, Mr. Bernstein resigned from the Board
in February 1999 and Messrs. Wargo, Sparkman and Goldstein joined the Board in
November 1998. All directors are elected annually by the stockholders for a term
of one year or until their successors have been elected and qualified. Pursuant
to the Company's Certificate of Incorporation and the Corporate Agreement (the
"Corporate Agreement") between the Company and Ascent, the Company has agreed,
for so long as Ascent beneficially owns, directly or indirectly, the largest
percentage (and at least 40%) of the outstanding securities of the Company
entitled to be cast for the election of directors, to propose, at each election
of directors, a slate of directors, or in the case of vacancies, individual
directors, for election so that at all times during the term of the Corporate
Agreement, a majority of the Board of Directors of the Company is comprised of
persons designated by Ascent. See "Certain Relationships and Related Party
Transactions." The Board met five times in 1998. All incumbent directors
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who were directors throughout 1998 attended all of such Board meetings, except
Mr. Bernstein who missed one meeting, and Messrs. Wargo, Sparkman and Goldstein
attended the meeting held subsequent to their joining the Board.
VOTING FOR DIRECTORS
At the meeting all seven of the Directors will be elected to serve until
the 1999 Annual Meeting of Stockholders and until their successors are elected
and qualified. All of the nominees currently serve as directors.
Each stockholder is entitled to cumulate votes in the election of
directors. The right to cumulate votes in an election of directors entitles a
stockholder to as many votes as he or she has shares multiplied by the number of
directors to be elected (in this case, seven), which votes may then be allocated
among the nominees in such proportion as the stockholder decides, including
casting all of the votes for one nominee. If a stockholder wishes to cumulate
his or her votes, the proxy card should be marked, in any way that the
stockholder desires in order to: (i) indicate clearly that the stockholder is
exercising the right to cumulate votes and (ii) specify how the votes are to be
allocated among the nominees for director. For example, a stockholder may write
next to the name of each nominee for whom the stockholder desires to cast votes,
the number of votes to be cast for such nominee.
Unless contrary directions are set forth on the proxy card, proxies will be
voted in such manner as to elect all or as many of the nominees listed as
possible. If either of the "For All Nominees Listed Above" or "Exception" boxes
is marked or no instructions are given, the named proxies will have
discretionary authority to cumulate votes if they so choose and allocate votes
among the nominees as they deem appropriate (except for any nominee specifically
excepted by the stockholder), including not casting any votes for one or more
nominees. If any of the nominees becomes unavailable for election, which is not
currently anticipated, shares represented by proxies in the accompanying form
will be voted for a substitute nominee designated by the Board of Directors.
NOMINEES FOR ELECTION OF DIRECTORS
James A. Cronin, III, 44, has been a Director of On Command Corporation
since its formation in July 1996 and was Vice President and Acting Chief
Financial Officer from July 1996 until September 1996. Mr. Cronin has been
Executive Vice President, Chief Financial Officer and Chief Operating Officer of
Ascent since November 1996, and prior thereto was Chief Operating Officer and
Executive Vice President, Finance for Ascent since June 1996. Prior to joining
Ascent, Mr. Cronin served as a financial and management consultant from 1992
through June 1996. Mr. Cronin is also a Director of Landair Services, Inc.
Richard D. Goldstein, 47, has been a Director of On Command Corporation
since November 1998. Mr. Goldstein has served as a Managing Director (and
currently is a Senior Managing Director) and as one of three principals of
Alpine Capital Group Inc. and related entities since 1990. Mr. Goldstein is also
a Director of US Franchise Systems, Inc. and numerous portfolio companies of
Alpine.
Charles Lyons, 44, has been Chairman of the Board of On Command Corporation
since its formation in July 1996. Mr. Lyons has been President, Chief Executive
Officer, and director of Ascent since October 1995 and Chairman of Ascent since
June 1997. Prior thereto, he was President of Ascent's predecessors since
February 1992. He was Vice President and General Manager of COMSAT Video
Enterprises, now Ascent Network Services, from October 1990 to January 1992. Mr.
Lyons had been Chairman of the Board of Directors of OCV since December 1994 and
a Director since 1992.
J.C. Sparkman, 66, has been a Director of On Command Corporation since
November 1998. Mr. Sparkman served as Executive Vice President and Chief
Operating Officer of Tele-Communications, Inc. from 1987 until his retirement in
1995. Mr. Sparkman is a Director of TCI, Shaw Communications and Universal
Electronics, Inc.
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Brian A.C. Steel, 39, has been President and Chief Operating Officer since
December 1998 and Executive Vice President, Chief Financial Officer, and Chief
Operating Officer of On Command Corporation since September 1996 and a Director
of On Command Corporation since October 1996. Prior thereto, Mr. Steel was
Executive Vice President, Strategic Development, and Chief Financial Officer for
TELE-TV, a video services partnership among several regional telephone
companies, since August 1995. Prior to joining TELE-TV, Mr. Steel was Vice
President, Strategic Development of Pacific Telesis Enhanced Services and
Executive Director, Corporate Development of Pacific Telesis Group from January
1994 to July 1995.
J. David Wargo, 45, has been a Director of On Command Corporation since
November, 1998. Mr. Wargo is President of Wargo & Company, Inc. Mr. Wargo is
also a Director of TV Guide, Inc.
Gary L. Wilson, 59, has been a Director of On Command Corporation since
October 1996. Mr. Wilson is also chairman of the board and a principal investor
in NWA, Inc., parent of Northwest Airlines and several other
transportation-related subsidiaries. He served as co-chairman since 1991 and was
named chairman in 1997. Mr. Wilson is a director of The Walt Disney Company. He
joined The Walt Disney Company in 1985 and served as executive vice president
and chief financial officer until 1990. He serves on the board of trustees at
Duke University, the board of visitors at the Fuqua School of Business at Duke,
and also the board of overseers of The Wharton School at the University of
Pennsylvania. Mr. Wilson is a member of the board of directors of CB Richard
Ellis, Inc. and the National Collegiate Athletic Association Foundation.
OTHER INFORMATION CONCERNING DIRECTORS
COMMITTEES
The Board has two standing committees, described below.
The Audit Committee consists of Messrs. Cronin, Wargo (Chairman) and
Wilson. The Committee makes recommendations to the Board of Directors concerning
the selection of independent public accountants; confers with the independent
public accountants to determine the scope of the audit that such accountants
will perform; receives reports from the Independent Public Accountants and
transmits such reports to the Board of Directors, and after the close of the
fiscal year, transmits to the Board of Directors the financial statements
certified by such accountants; inquires into, examines and makes comments on the
accounting procedures of the Company and the reports of the Independent Public
Accountants; considers and makes recommendations to the Board of Directors upon
matters presented to it by the officers of the Company pertaining to the audit
practices and procedures adhered to by the Company; considers and makes
recommendations to the Board of Directors in respect of the financial affairs of
the Company, including matters related to the capital structure and
requirements, financial performance, dividend policy, capital and significant
capital commitments; and reviews and approves the Company's overall financial
policies and procedures, spending controls, systems integrity, balance sheet
reserve levels, and revenue and expense accountability. The Committee met twice
in 1998 and Messrs. Cronin and Wilson attended such meetings and Mr. Wargo
attended the one meeting held after his joining the Committee.
The Compensation Committee consists of Messrs. Goldstein (Chairman), Lyons,
and Sparkman. The Committee approves long-term compensation for senior
executives; considers and makes recommendations to the Board of Directors with
respect to: programs for human resources development and management organization
and succession; salary and bonus for senior executives; and compensation matters
and policies and employee benefit and incentive plans; and exercises authority
granted to it to administer such plans. In addition, the Compensation Committee
recommends to the Board of Directors qualified candidates for election as
directors and as Chairman of the Board, and considers, acts upon or makes
recommendations to the Board of Directors with respect to such other matters as
may be referred to it by the Board of Directors, the Chairman of the Board or
the Chief Executive Officer. It will consider candidates recommended by
stockholders, if the recommendations are submitted in writing to the Secretary
of the Company. The Committee met three times during 1998 and Mr. Lyons attended
such meetings and Messrs. Goldstein and Wargo attended all meetings held after
they joined the Committee.
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DIRECTORS COMPENSATION
In May 1997 the Company adopted a compensation plan for Independent
Directors, which is defined for purposes of such compensation as a Director who
is not an employee of the Company nor an officer or employee of Ascent or
COMSAT, so long as Ascent or COMSAT, respectively, directly or indirectly holds
50% or more of the outstanding Common Stock of the Company. Such Independent
Directors will receive an annual retainer of $6,000 in cash, payable quarterly;
$500 for each Board of Directors meeting attended by such Director; and $500 for
each official Committee of the Board of Directors meeting attended by an
Independent Directors for which such Director is a member. Each Independent
Director who is also a chairman of an official Committee of the Board of
Directors will receive an additional annual fee of $2,000 payable quarterly. In
addition, the Board of Directors and the Company's stockholders approved the
1997 Non-Employee Directors Stock Plan (the "Directors Plan") to grant annual
awards of the Company's Common Stock and options to purchase the Company's
Common Stock to Independent Directors. The Directors Plan authorizes the
granting of an award of 400 shares of the Company's Common Stock and a non-
qualified option to purchase 4,000 shares of the Company's Common Stock, priced
at the fair market value on the date of grant, to each Independent Director on
an annual basis following the company's Annual Stockholder meeting. Such option
will generally be exercisable as follows: 25% on the first anniversary of the
date of grant, 50% on the second anniversary of the date of grant and 100% on
the third anniversary of the date of grant.
At this meeting, stockholders are being asked to approve an amendment to
the Directors Plan. The amendment is described in detail in Proposal 2 below.
PROPOSAL 2 ADOPTION OF AN AMENDMENT TO THE 1999
NON-EMPLOYEE DIRECTORS STOCK PLAN
In 1997, the Board of Directors and stockholders adopted and approved the
Company's 1997 Non-employee Directors Stock Plan (the "Directors Plan"). In
November 1998, the Board first elected three new outside directors and began
considering an amendment to the Directors Plan. In connection with its
consideration of the amendment, the Board engaged an independent compensation
consultant to analyze outside director compensation for companies similarly
situated to On Command. The final version of the Directors Plan amendment was
based upon that analysis. On April 7, the Board of Directors unanimously
ratified and adopted, subject to stockholder approval, an amendment to the
Directors Plan (the "1999 Amendment"). The stockholders are asked to approve the
adoption of the 1999 Amendment. The Board of Directors believes that the 1999
Amendment is an appropriate step to attract and retain highly qualified
directors to devote significant time and energy to the success of the Company by
providing a significant alignment of their long-term interests with those of the
stockholders.
The 1999 Amendment and Directors Plan have the following additional
features.
GENERAL
The Directors Plan originally authorized the granting of an award of 400
shares of the Company's Common Stock and a non-qualified option to purchase
4,000 shares of the Company's Common Stock (an "Option") to each Independent
Director ("Optionee") on an annual basis. The Directors Plan is not subject to
the provisions of ERISA, and is not a qualified plan under Section 401(a) of the
Code. Proceeds received by the Company from the sale of Common Stock pursuant to
the exercise of Options under the Directors Plan will be used for general
corporate purposes. Pursuant to the 1999 Amendment, Independent Directors would
continue to receive 400 shares annually, but would receive a one-time grant of
an Option to purchase 50,000 shares of the Company's Common Stock. Such options
would be granted as of November 23, 1998, the date on which the Board elected
three new Independent Directors. Any Independent Director who received such an
Option would not be eligible to receive an additional Option until the fifth
annual meeting after the original grant.
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EFFECT OF THE 1999 AMENDMENT ON SECURITIES SUBJECT TO THE DIRECTORS PLAN
Originally, the aggregate number of shares of the Company's Common Stock
which may be issued upon exercise of Options granted under the Directors Plan
plus the number of shares which may be awarded pursuant to the Directors Plan
will not exceed 110,000. Prior to the 1999 Amendment, there have been 13,200
shares used to grant shares and Options under the Plan, leaving only 96,800
shares still available. Therefore, the 1999 Amendment provides for the total
number of shares subject to the Plan to be increased to 296,800.
The Directors Plan provides for appropriate adjustments in the number and
kind of shares subject to the plan and to outstanding options and stock awards
in the event of a stock split, stock dividend or certain other similar changes
in the Company's Common Stock and in the event of a merger, consolidation or
certain other types of recapitalizations of the Company.
ADMINISTRATION OF THE DIRECTORS PLAN
The Directors Plan provides for administration by the Board of Directors.
All expenses and liabilities that the members of the Board incur in
connection with the administration of the Directors Plan will be borne by the
Company. The Board is authorized to interpret the Directors Plan and the options
granted pursuant to the Directors Plan and to adopt such rules for the
administration, interpretation and application of the Directors Plan and options
as are consistent therewith and to interpret, amend or revoke any such rules.
ELIGIBILITY TO PARTICIPATE
An Independent Director is a Director who is not an employee of the Company
nor an officer or employee of Ascent so long as Ascent, directly or indirectly,
holds 50% or more of the outstanding Common Stock. Therefore, if the 1999
Amendment is adopted, Options will be granted to Messrs. Goldstein, Sparkman,
Wargo and Wilson.
STOCK OPTIONS -- PRICE
The price of a share of Common Stock subject to an Option granted under the
Directors Plan, and the 1999 Amendment, is the fair market value of the Common
Stock, defined as (i) the mean between the highest and lowest selling price of a
share of Common Stock on the principal exchange on which shares of Common Stock
are then trading, if any, on such date, or if shares were not traded on such
date, then on the closest preceding date on which a trade occurred; or (ii) if
Common Stock is not traded on an exchange, the mean between the closing
representative bid and asked prices for the Common Stock on such date as
reported by NASDAQ or, if NASDAQ is not then in existence, by its successor
quotation system; or (iii) if Common Stock is not publicly traded, the fair
market value of a share of Common Stock as established by the Board of Directors
acting in good faith.
The fair market value of the Company's Common Stock (as determined pursuant
to the above formula) on November 23, 1998, the date of grant for the options
subject to the 1999 Amendment, was $8.62 per share.
The fair market value of the Company's common stock on April 7, 1999 was
$10.28 per share.
STOCK OPTION AGREEMENTS
Options granted under the Directors Plan are evidenced by written stock
option agreements between the Optionee and the Company. Stock option agreements
must be consistent with the Directors Plan but need not contain identical
provisions.
EXERCISE OF OPTIONS
Subject to the provisions of the Directors Plan, the Options to be granted
pursuant to the 1999 Amendment will be exercisable 25% on the first anniversary
of the date of grant of such Option, 50% on the second anniversary of the date
of grant of such Option and 100% on the third anniversary of the date of grant
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of such Option. No portion of an Option which is unexercisable at termination of
an Independent Director's directorship will thereafter become exercisable.
Options are exercisable by written notice to the Company, specifying the
number of shares of Common Stock being purchased, accompanied by payment of the
purchase price for such shares. The option price may be paid in cash or, with
the consent of the Board of Directors, by delivery of shares of any class of the
Company's stock already owned by the Optionee or issuable to the Optionee upon
exercise of the option, or a full recourse promissory note containing terms and
conditions prescribed by the Board. Any shares of stock tendered in exercise of
an option are valued at their fair market value on the date of their delivery to
the Company.
The Company will issue and deliver certificates for shares of Common Stock
purchased upon the exercise of any Option after the fulfillment of certain
conditions, including the payment to the Company of all amounts which are
required to be withheld under Federal, state or local law in connection with the
exercise of the Option. Such payment may be effected by the Company's retention
of shares otherwise issuable upon such exercise. The number of shares retained
will equal the minimum whole number of shares equaling or exceeding the amount
of required tax withholding. The Company will pay cash to the Optionee for any
fractional share retained in excess of the required withholding.
The Option, or relevant portion thereof, will be exercised when the
Optionee makes a full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, at the discretion of the Board the terms of the Option may, and it is
expected that the 1999 Amendment Options will, (i) allow a delay in payment up
to thirty (30) days from the date the Option, or portion thereof, is exercised;
(ii) allow payment, in whole or in part, through the delivery of shares of
Common Stock owned by the Optionee for a period of not less than six months,
duly endorsed for transfer to the Company with a fair market value on the date
of delivery equal to the aggregate exercise price of the Option or exercised
portion thereof; (iii) allow payment, in whole or in part, through the delivery
of property of any kind which constitutes good and valuable consideration; (iv)
allow payment, in whole or in part, through the delivery of a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such terms
as may be prescribed by the Board, or (v) allow payment through any combination
of the consideration provided in the foregoing subparagraphs (ii), (iii) and
(iv). In the case of a promissory note, the Board may also prescribe the form of
such note and the security to be given for such note. The Option may not be
exercised, however, by delivery of a promissory note or by a loan from the
Company when or where such loan or other extension of credit is prohibited by
law.
EXPIRATION OF OPTIONS
The Board will provide in the terms of each stock option agreement when
such Option expires and becomes unexercisable. The Board will provide that each
Option issued pursuant to the 1999 Amendment will expire twelve (12) months from
the date of the Optionee's death; twelve (12) months from the date of the
Optionee's Termination of Directorship (as defined in the Directors Plan) by
reason of his/her permanent and total disability; three (3) months from the date
of the Optionee's Termination of Directorship for any reason other than such
Optionee's death or his/her permanent and total disability, unless the Optionee
dies within said three-month period; and in any event, if not expired earlier
due to the factors described herein, ten years from the date the Option was
granted.
RESTRICTIONS ON TRANSFER OF OPTIONS
Options under the Directors Plan may not be sold, pledged, assigned, or
transferred in any manner other than by will or the laws of descent and
distribution.
In addition to the foregoing, Directors may not offer or sell the shares of
Common Stock they acquire upon exercise of Options under the Directors Plan
unless such offers and sales are made pursuant to an effective Registration
Statement under the Securities Act or 1933, as amended, (the "Securities Act")
or pursuant to an appropriate exemption from the registration requirements of
the Securities Act or, if available
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to the selling stockholder, within the limitations and subject to conditions set
forth in Rule 144 promulgated under the Securities Act. Upon such offers and
sales, any of such persons may be deemed to be an "underwriter" as that term is
defined in Section 2(11) of the Securities Act. Persons through whom any of such
persons may sell may also be deemed to be underwriters.
Additionally, under Section 16(b) of the Exchange Act, any person who is a
Director of the Company may be liable to the Company for profit realized from
any purchase and sale (or any sale and purchase) of any equity security of the
Company, occurring within a period of less than six months, irrespective of the
intention on the part of such person in entering into the transaction. The
exercise of an option acquired under the Directors Plan is not considered a
purchase under Section 16 of the Exchange Act, provided such option is held for
a period of at least six months following the date of grant of such option. In
determining whether a person is the beneficial owner of any class of Common
Stock of the Company, such person may be required to include shares of Common
Stock issuable upon exercise of options or warrants or upon conversion of
convertible securities. The term "equity security" may include rights to acquire
capital stock upon exercise of warrants or options or upon conversion of
convertible securities, or otherwise.
AMENDMENT OF THE DIRECTORS PLAN
The stockholders of the Company must approve all amendments to the
Directors Plan which increase the number of shares which are authorized for
issuance upon exercise of options (except for anti-dilution adjustments),
materially modify the eligibility requirements, or amend or modify the Directors
Plan in a manner requiring shareholder approval under Rule 16b-3. In all other
respects, the Directors Plan may be amended, suspended, or terminated by the
Board of Directors. No such amendment, suspension, or termination may, however,
alter or impair the rights or obligations of the holders of outstanding options
or stock appreciation rights without the consent of such holders.
CONFORMITY TO SECURITIES LAWS
The Directors Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the SEC thereunder, including without
limitation Rule 16b-3. The Directors Plan will be administered, and options will
be granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
Directors Plan and options granted thereunder shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
FEDERAL INCOME TAX CONSEQUENCES
The income tax consequences of the Directors Plan under current Federal law
are summarized below. The discussion is intended to provide only general
information. State and local income tax consequences are not discussed.
Non-Qualified Stock Options. Holders of non-qualified stock options will
not realize income for federal income tax purposes as a result of the grant of
the option, but normally will realize compensation income upon exercise of the
non-qualified stock option to the extent that the fair market value of the
shares on the date of exercise of the option exceeds the aggregate option
exercise price paid. The Company is entitled to a deduction in the same amount
at the same time of exercise of the option, provided that the Company withholds
taxes on the ordinary income realized by an Optionee upon the exercise of a
non-qualified stock option.
Optionees who are subject to the short-swing profits restrictions of
Section 16(b) of the Exchange Act ("Insiders") may be affected by Section 83(c)
of the Code. Section 83(c) provides generally that, unless the Insider otherwise
elects, so long as the sale of securities at a profit could subject an Insider
to suit under Section 16(b), the imposition and calculation of the tax on any
compensation income realized will be deferred until the six-month 16(b) period
expires. Amendments to the rules under Section 16 of the Exchange Act, effective
May 1, 1991, provide that option exercises will not constitute "purchases" for
Section 16(b) purposes. As a result, Section 83(c) will no longer apply to
option exercises (provided the option has been
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held for six months or more) and Insiders will be taxed on the difference
between the option exercise price and the fair market value of the stock at the
date of exercise.
Pursuant to the Directors Plan, a holder of non-qualified stock options may
exercise such options through delivery of shares of the Company's Common Stock
already held by such holder. The tax consequences resulting from the exercise of
non-qualified stock options through the delivery of already-owned shares are not
completely certain. The Internal Revenue Service in a published ruling has taken
the position that the tax consequences of exercising options with shares of the
Company's Common Stock must be determined separately for the number of shares
received upon exercise equal to the number of shares surrendered (as a tax-free
exchange of stock for stock) and the remaining shares received upon exercise (as
compensation income). Specifically, to the extent the number of shares of the
Company's Common Stock acquired upon exercise of the options equals the number
of shares of Common Stock delivered, the Optionee will not recognize gain and
the Optionee's basis in the Common Stock acquired upon such exercise will equal
the Optionee's basis in the surrendered shares of the Common Stock. Any
additional shares of the Common Stock acquired upon such exercise will result in
compensation income to the Optionee in an amount equal to their then fair market
value and, accordingly, the basis in such additional shares of the Common Stock
will be their fair market value.
A holder exercising a non-qualified stock option may elect to pay amounts
required to be withheld under Federal, state or local law in connection with the
exercise of the option by having a portion of the shares purchased upon exercise
retained by the Company. The shares of stock retained will be treated as sold to
the Company and the holder generally will not realize a gain on the sale, unless
the option is exercised through the delivery of already-owned shares. If the
option is exercised through the delivery of already-owned shares, the holder may
realize gain on the shares of stock retained by the Company to the extent the
fair market value of the shares retained on the date of exercise of the option
exceeds the holder's basis in such shares delivered.
Also, a holder exercising a non-qualified stock option may elect to pay for
the shares of stock purchased upon exercise and all applicable withholding taxes
by having a portion of the shares of stock purchased upon exercise sold by the
holder's broker and the proceeds of the sale paid to the Company. The holder
will realize additional gain or loss on the sale of the shares of stock by the
holder's broker based on the difference between the fair market value of the
shares of stock on the exercise date and the sale price.
Stock Awards. A director receiving an annual 400-share Stock Award will
recognize income in the year of receipt in an amount equal to the fair market
value of the shares on the award date.
NEW PLAN BENEFIT TABLE
The following table illustrates the benefits to be received by each of the
Independent Directors in connection with the 1999 Amendment.
1999 DIRECTORS PLAN AMENDMENT (1)
<TABLE>
<CAPTION>
NAME DOLLAR VALUE(2) SHARES
---- --------------- ------
<S> <C> <C>
Richard D. Goldstein........................................ $293,000 50,000
J.C. Sparkman............................................... $293,000 50,000
Gary Wilson................................................. $293,000 50,000
J. David Wargo.............................................. $293,000 50,000
</TABLE>
- - ---------------
(1) The 50,000 grant is a one-time grant over a period of five years and
replaces annual grants of 4,000 options.
(2) On Command used the Black Scholes option pricing model to determine grant
date present values using the following assumptions: stock price volatility
of 47.0%, a five to six year option term, a risk free rate of return of
4.67%, and no dividend yield. The option exercise price is $8.62.
Forfeitures are reflected as they occur. The use of this model is in
accordance with SEC rules; however the actual value of an option will
16
<PAGE> 20
be measured by the difference between the stock price and the exercise price
on the date the option is exercised.
VOTE AND RECOMMENDATIONS
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock present or represented at the Meeting is required to
adopt the Directors Plan. Abstentions as to this Proposal 2 will be treated as
votes against Proposal 2. Broker non-votes, however, will be treated as unvoted
for purposes of determining approval of Proposal 2 and will not be counted as
votes for or against Proposal 2. Properly executed, unrevoked abstention is
specifically indicated in the proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE 1999 AMENDMENT
TO THE 1997 NON-EMPLOYEE DIRECTORS STOCK PLAN.
Executive compensation is described beginning on page 6.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Lyons is an executive of Ascent and has been on the Compensation
Committee of On Command Corporation from October 1996. Mr. Cronin is an
executive of Ascent and was on the Compensation Committee of On Command
Corporation from October 1996 through 1998. There was no other compensation
committee interlocks or insider participation in compensation decisions during
1998.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
RELATIONSHIP WITH ASCENT
Ascent owns approximately 57% of the Company's issued and outstanding
Common Stock. For so long as Ascent continues to own more than 50% of the
outstanding voting stock of the Company, Ascent will be able, among other
things, to approve any corporate action requiring majority stockholder approval,
including the election of a majority of the Company's directors, effect
amendments to the Company's Certificate of Incorporation and Bylaws and approve
any other matter submitted to a vote of the stockholders without the consent of
the other stockholders of the Company. In addition, through its representation
on the Board of Directors, Ascent is able to influence certain decisions,
including decisions with respect to the Company's dividend policy, the Company's
access to capital (including the decision to incur additional indebtedness or
issue additional shares of Common Stock), mergers or other business combinations
involving the Company, the acquisition or disposition of assets by the Company
and any change in control of the Company.
The Company and Ascent have entered into a Management Services Agreement
pursuant to which Ascent provides certain management services, including
insurance, administration, coordination and advisory services regarding
corporate financing, employee benefits administration, public relations and
other corporate functions to the Company and makes available certain of its
employee benefit plans to the Company's employees. Pursuant to the Services
Agreement, Ascent is entitled to the payment of (i) an annual fee of $1.2
million, (ii) the actual cost to Ascent of the benefits provided to the
Company's employees and (iii) 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, the Company will indemnify Ascent from 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 in fulfilling its obligations under the
Services Agreement. Ascent will indemnify the Company 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 Services Agreement
is for an initial term through December 31, 1999, renewable for additional
one-year terms by Ascent upon notice to On Command which election Ascent may
exercise as long as it and its subsidiaries own at least 50% of the outstanding
Common Stock. The Services Agreement is subject to the termination by either
party upon 60 days prior notice if Ascent fails to own the largest percentage
and at least 40% of the Company's outstanding securities.
17
<PAGE> 21
The Company and Ascent have also entered into a Corporate Agreement that
governs certain other relationships and arrangements between the Company and
Ascent. Pursuant to the Corporate Agreement, for so long as Ascent beneficially
owns, directly or indirectly, the largest percentage (and at least 40%) of the
outstanding securities of the Company entitled to be cast for the election of
directors, Ascent may propose, at each election of directors, a slate of
directors, or in the case of vacancies, individual directors, for election so
that at all times during the term of the Corporate Agreement, a majority of the
Board of Directors of the Company is comprised of persons designated by Ascent.
In addition, pursuant to the Corporate Agreement, as amended, for so long as
Ascent owns the largest percentage (and at least 40%) of the outstanding OCC
Common Stock (i) the Company will not incur any indebtedness, other than that
under its existing Credit Facility (and refinancings thereof) and indebtedness
incurred in the ordinary course of business which together shall not exceed $182
million in the aggregate through December 31, 1999, or issue any equity
securities or any securities convertible into equity securities without Ascent's
prior consent, (ii) the Company may not amend its Certificate of Incorporation
or Bylaws without Ascent's prior consent, and (iii) the Company will utilize
reasonable cash management procedures and use its reasonable best efforts to
minimize the Company's excess cash holdings.
OTHER MATTERS
At April 8, 1999, management knew of no other matters to be presented for
action at the meeting. If any other matter is properly introduced, the persons
named in the accompanying form of proxy will vote the shares represented by the
proxies according to their judgment.
The Company will bear all costs of the proxy solicitation. In addition to
the solicitation by mail, the Company's directors, officers and employees,
without additional compensation, may solicit proxies by telephone, personal
contact or other means. The Company also has retained D.F. King to assist in the
solicitation, at a cost of $1,500. The Company will reimburse brokers and other
persons holding shares in their names, or in the names of nominees, for their
expenses in forwarding proxy materials to the beneficial owners.
Stockholders wishing to submit proposals for consideration at the 2000
Annual Meeting should submit them in writing to the Secretary, On Command
Corporation, 6331 San Ignacio Avenue, San Jose, California 95119, to be received
no later than December 7, 1999.
This proxy statement is provided by direction of the Board of Directors.
LOGO
Arthur M. Aaron
Acting General Counsel and Secretary
San Jose, California
April 8, 1999
18
<PAGE> 22
April 12, 1999
Securities and Exchange Commission
450 Fifth Street, NW
Room 1004
Washington, DC 20549
Re: 1999 Amendment to the On Command Corporation 1997 Non-Employee Directors
Plan (the "1999 Amendment")
Ladies and Gentlemen:
On Command Corporation will revise the S-8 Registration Statement related to the
On Command 1997 Non-Employee Directors Plan to reflect the provisions of the
1999 Amendment shortly after approval of the adoption of the 1999 Amendment by
the On Command stockholders.
If you have any questions please call me at (303) 308-7042.
Very truly yours,
/s/ David B. Ehrlich
- - --------------------------------
David B. Ehrlich
Acting Assistant General Counsel
DBE/ml
<PAGE> 23
FIRST AMENDMENT TO 1997 NON-EMPLOYEE DIRECTORS PLAN
This First Amendment (the "1999 Amendment") to the On Command Corporation
("OCC") or the "Company") 1997 Non-Employee Directors Stock Plan (the "Directors
Plan") is dated April 7, 1999. Any capitalized term not defined herein has the
meaning ascribed to such term in the Directors Plan.
RECITALS
1. On November 23, 1998, three additional Independent Directors were elected
to the On Command Board of Directors, and the Board commenced consideration of
amending the Directors Plan.
2. On April 7, 1999, the OCC Board ratified and approved the 1999 Amendment
and submitted the 1999 Amendment for approval to the Company's stockholders at
the Company's 1999 Annual Meeting on May 13, 1999.
3. Upon such stockholder approval, the 1999 Amendment will be deemed effective
as of November 23, 1998, the date that the three additional Independent
Directors were elected to the Board.
NOW THEREFORE, it is agreed as follows:
1. Section II.1 - Shares Subject to Plan and Section II.2 - Unexercised
Options, are hereby replaced in their entirety with the following:
"II.1 Shares Subject to Plan. The shares subject to Options and Stock Awards
shall be Common Stock, initially shares of the Company's Common Stock, par value
$.01 per share. The aggregate number of such shares which may be issued upon
exercise of such options or upon any awards under the Plan shall not exceed
296,800 (Two hundred ninety six thousand eight hundred).
2
<PAGE> 24
II.2 Unexercised Options. If any option expires or is canceled without having
been fully exercised, the number of shares subject to such option but as to
which such option was not exercised prior to its expiration or cancellation may
again be optioned hereunder, subject to the limitations of Section II.1."
1. Article III.2 - Granting of Options, is hereby replaced in its entirety
with the following:
"III.2 Granting of Options.
(a) For those Independent Directors whose tenure with the Board began
November 23, 1998 and for all other Independent Directors who were members of
the Board as of such date, each such Independent Director shall be granted an
option to acquire 50,000 shares of Common Stock, with an effective grant date of
November 23, 1998.
(b) Any Independent Director who receives an option pursuant to Section
III.2(a) above, shall not be eligible to receive an additional Option until the
fifth annual meeting after such grant."
IN WITNESS WHEREOF, we have executed this action in counterparts as of April 7,
1999.
/s/ Charles Lyons /s/ Arthur M. Aaron
- - ----------------- -------------------
Chairman Secretary
<PAGE> 25
ON COMMAND CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, MAY 13, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles Lyons, J.C. Sparkman and Gary
Wilson, and each or any of them, (with power of substitution), proxies for the
undersigned to represent and to vote, as designated on the reverse side hereof,
all shares of Common Stock of On Command Corporation which the undersigned would
be entitled to vote if personally present at the Annual Meeting of its
stockholders to be held on May 13, 1999, and at any reconvened session thereof,
subject to any directions indicated on the reverse side of this card. If no
directions are given, this proxy will be voted FOR Proposals 1, 2 and 3.
This proxy is continued on the reverse side. Please sign and return
promptly in the envelope provided. No postage is required if mailed in the
United States. If you attend the Meeting and vote in person, the proxy will not
be used.
Continued and to be signed and dated on reverse side.
ON COMMAND CORPORATION
P.O. Box 11114
NEW YORK, N.Y. 10203-0114
<PAGE> 26
HARDING & HEAL, INC. PROOF #2 3/22/99 1625
CUST. THE BANK OF NEW YORK FILE NAME 67949 ON COMMAND PROXY
ATTN: SANDRA BROWN
- - ------
- - ------
Director's recommend a vote FOR Proposals 1, 2 and 3.
1. Election of All Proposed Directors.
FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS [ ]
listed below for all nominees listed below
Nominees: Charles Lyons, James A. Cronin, III, Richard D. Goldstein, J.C.
Sparkman, Brian A.C. Steel, J. David Wargo and Gary Wilson.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
IF YOU DESIRE TO CUMULATE YOUR VOTES FOR ANY INDIVIDUAL NOMINEE(S), WRITE YOUR
INSTRUCTION, AS TO THE NUMBER OF VOTES CAST FOR EACH, ON THE SPACE PROVIDED
BELOW. THE TOTAL NUMBER MUST NOT EXCEED SIX TIMES THE NUMBER OF SHARES YOU
HOLD.)
*EXCEPTIONS:
--------------------------------------------------------------------
2. Amendment of the 1997 Non-employees Director Stock Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Approval of Independent Accountants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Change of Address and
or Comments Mark Here [ ]
Please sign exactly as name or names
appear on this proxy. If stock is held
jointly, each holder should sign. If
signing as attorney, trustee, executor,
administrator, custodian, guardian or
corporate officer, please give full title.
DATED , 1999
-------------------------------
SIGNED
------------------------------------
------------------------------------------
PLEASE SIGN, DATE AND RETURN THIS CARD VOTES MUST BE INDICATED
PROMPTLY IN THE ENCLOSED ENVELOPE. (X) IN BLACK OR BLUE INK. [X]
