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EXHIBIT 1
STOCK PURCHASE AND LOAN AGREEMENT
THIS STOCK PURCHASE AND LOAN AGREEMENT (this "Agreement"), dated as of
August 4, 2000, by and between Jerome H. Kern ("Kern"), and On Command
Corporation, a corporation organized and existing under the laws of the State of
Delaware (the "Company").
W I T N E S S E T H:
WHEREAS, on April 6, 2000 the Company's Board of Directors approved
the appointment of Kern as Chairman of the Board and President of the Company
and, in connection therewith, Kern's purchase of equity securities of the
Company and the Company's extension of credit to Kern for such purchase;
WHEREAS, Kern wishes to purchase from the Company and the Company
wishes to sell to Kern 13,500 shares (the "Preferred Shares") of the Company's
Series A Convertible Participating Preferred Stock, par value $.01 per share
(the "Series A Preferred Stock"), which shares are initially convertible into
1,350,000 shares (the "Common Shares"; the Preferred Shares, the Common Shares
issuable upon conversion thereof and any other securities issuable upon
conversion of the Preferred Shares are hereinafter sometimes referred to
collectively as the "Securities") of the Company's common stock, par value $.01
per share (the "Common Stock"); and
WHEREAS, Kern wishes to borrow from the Company and the Company has
agreed to lend to Kern, on the terms and subject to the conditions hereinafter
provided, $21,080,250 in order to finance the acquisition of the Preferred
Shares;
NOW, THEREFORE, in consideration of the agreements, covenants,
representations and warranties set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Kern and the Company hereby agree as follows:
1. Stock Purchase. Subject to the terms and conditions hereof, Kern
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hereby agrees to purchase from the Company, and the Company hereby agrees to
sell to Kern, the Preferred Shares at a price per share of $1,562.50, payable as
described in Section 3 hereof.
2. The Closing. The closing (the "Closing") of the purchase and sale of
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the Shares shall take place at the offices of the Company, located at 96
Inverness Drive East, Englewood, Colorado 80112 at 10:00 am, local time, on
August 8, 2000, or on such other date and at such other time and place as the
Company and Kern shall mutually agree in writing.
3. Payment for Shares; Delivery of Other Instruments. At the Closing,
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Kern shall pay the requisite consideration for the Preferred Shares, which shall
consist of:
(a) a promissory note payable to the order of the Company (the
"Note") in the form attached as Appendix A, duly executed and delivered by
Kern; and
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(b) cash in the amount of $13,500.
Kern and the Company shall also execute and deliver a pledge and security
agreement in the form attached as Appendix B (the "Pledge Agreement") pursuant
to which the obligations under the Note will be secured by a pledge of the
Securities. Kern will also execute and deliver a stock power with respect to the
Preferred Shares endorsed in blank or in such manner as the Company may require
in connection with the pledge of the Preferred Shares pursuant to the Pledge
Agreement. The Company shall issue a certificate representing the Preferred
Shares (the "Certificate") in the name of Kern and shall retain the Certificate,
accompanied by the stock power referred to in the preceding sentence, as
security for the obligations evidenced by the Note.
4. Payments. All amounts outstanding under the Note shall be due and
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payable on the fifth anniversary of the date of the Closing. No prepayment of
any principal or interest on the Note shall be permitted other than as expressly
provided in Section 12.
5. Limited Recourse Nature of Note. The recourse of the Company against
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Kern with respect to amounts outstanding under the Note shall be limited as and
to the extent provided in the Note and the Pledge Agreement.
6. Events of Default. Upon the occurrence of one or more "Events of
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Default" as specified in the Note, the Company shall have the rights and
remedies with respect thereto as specified in the Note and in the Pledge
Agreement.
7. Remedies. Each of the rights, powers and remedies of the Company set
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forth in this Agreement, the Note and the Pledge Agreement may be exercised
alternatively or in conjunction with others, singly or in any combination, and
at such times and in such order, all as determined by the Company, except as
otherwise provided herein or therein. No partial exercise of any right, remedy
or power by the Company shall preclude any further exercise of such right, power
or remedy or the exercise of any other right, power or remedy consistent with
the terms hereof. The rights, remedies and powers of the Company set forth
herein, in the Note and in the Pledge Agreement are cumulative and are in
addition to any provided by law or in equity. No delay or omission on the part
of the Company in exercising any right, power or remedy shall impair such right,
power or remedy or be construed as a waiver of any Event of Default or
acquiescence therein. No waiver of any Event of Default shall extend to any
subsequent Event of Default of the same or a dissimilar nature.
8. Code Section 83(b) Election. Kern and the Company acknowledge and
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agree that Kern will make a timely election under Section 83(b) of the Internal
Revenue Code of 1986, as amended, regarding his purchase of the Preferred
Shares. Kern and the Company will mutually agree upon the amount to be specified
in such election, which amount the parties agree will be used consistently for
all tax purposes relating to the reporting of the transactions contemplated
hereby.
9. Registration Rights. Kern acknowledges that the Securities are
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"restricted securities" under applicable federal securities laws and that the
Securities Act of 1933, as amended (the "Securities Act"), and the rules of the
Securities Exchange Commission (the "SEC") provide in substance that Kern may
dispose of the Securities only pursuant to an
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effective registration statement under the Securities Act or an exemption from
registration. Following the Closing, Kern and the Company shall enter into
mutually acceptable Registration Rights Agreement having customary terms and
conditions and providing Kern with two (2) demand registration rights (each of
which may be a "shelf" registration under Rule 415 under the Securities Act) in
respect of the shares of Common Stock issuable upon conversion of the Preferred
Shares, but with no rights to participate in registrations initiated by the
Company or others.
10. Representations and Warranties of the Company. The Company represents
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and warrants to Kern that:
(a) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
has the requisite corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder;
(b) the Certificate of Designation establishing the rights and
preferences of the Series A Preferred Stock has been approved by the
Company's Board of Directors in accordance with the Company's Certificate
of Incorporation and Delaware law and, prior to the Closing will have been
duly filed and become effective under Delaware law;
(c) the execution, delivery and performance of this Agreement,
and the issuance, sale and delivery of the Preferred Shares pursuant to
this Agreement have been duly authorized by all necessary corporate action
on the part of the Company;
(d) this Agreement constitutes, and the Pledge Agreement, when
duly executed and delivered by the respective parties thereto will
constitute, the valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms; and
(e) the Preferred Shares, when issued and paid for in accordance
with the terms of this Agreement, and the Common Shares, when issued upon
conversion of Preferred Shares in accordance with the provisions of the
Certificate of Designation, will be validly issued, fully paid and
nonassessable.
11. Kern's Representations, Warranties and Covenants. Kern hereby
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represents and warrants to, and covenants with, the Company that:
(a) General.
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(i) Kern has the legal capacity to enter into this Agreement and
to perform all the obligations required to be performed by Kern
hereunder.
(ii) This Agreement constitutes, and the Note and the Pledge
Agreement when duly executed and delivered by the parties thereto will
constitute, the valid and binding obligation of Kern, enforceable
against Kern in accordance with its terms.
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(iii) Neither the Company nor any person acting on behalf of the
Company has offered or sold the Securities to Kern by means of any
form of general solicitation or general advertising. Kern has not
received, paid or given, directly or indirectly, any commission or
remuneration for or on account of any sale, or the solicitation of any
sale, of the Securities.
(iv) No representation or warranty has been made to Kern by the
Company or anyone acting on its behalf or directly or indirectly
controlling the Company with respect to the Securities or the purchase
and sale of the Securities or the other transactions contemplated by
this Agreement, the Note and the Pledge Agreement, except as set forth
herein and therein.
(v) Kern and his spouse are parties to a valid and enforceable
prenuptial agreement pursuant to which Kern's spouse has waived any
rights she may have with respect to the Securities, including, without
limitation, under applicable marital sharing, community property and
similar laws.
(vi) The Company's extension of credit (as represented by the
Note) to Kern with respect to the purchase of the Preferred Shares
does not and will not violate Regulation U promulgated by the Board of
Governors of the Federal Reserve Board.
(b) Information Concerning the Company.
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(i) Kern is familiar with the business and financial
condition, properties, operations and prospects of the Company and its
subsidiaries.
(ii) Kern has been given full access to all material
information concerning the condition, properties, operations and
properties of the Company and its subsidiaries. Kern has had an
opportunity to ask questions of, and to receive information from, the
Company and persons acting on its behalf concerning the business of
the Company.
(iii) Kern has made such independent investigation of the
Company and its subsidiaries, its management and related matters as
Kern has deemed to be necessary or advisable in connection with this
investment; and Kern has received all information and data that Kern
believes to be necessary in order to reach an informed decision as to
the advisability of the transactions contemplated hereby.
(iv) Kern understands that the purchase of the Securities
involves various risks, including those outlined in the reports filed
by the Company with the SEC.
(c) Status.
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(i) Kern has such knowledge, skill and experience in business,
financial and investment matters that Kern is capable of evaluating
the merits and risks of an investment in the Securities and, to the
extent necessary, Kern has
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retained at Kern's own expense, and relied upon, appropriate
professional advice regarding the investment, tax and legal merits and
consequences of this Agreement and acquiring the Securities.
(ii) Kern is an "accredited investor" within the meaning of
Rule 501(a) of Regulation D under the Securities Act. Kern represents
and warrants that he is capable of bearing the economic risk of the
investment in the Securities for the indefinite future and can bear
the risk of loss of Kern's entire investment in the Company.
(d) Restrictions on Transfer or Sale.
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(i) Kern represents that Kern is acquiring the Preferred
Shares solely for Kern's own account, for investment purposes, and not
with a view to, or for resale in connection with, any distribution of
the Preferred Shares or the Common Shares issuable upon conversion
thereof. Kern understands that the Preferred Shares have not been
registered under the Securities Act or any state securities laws by
reason of specific exemptions under the provisions thereof which
depend in part upon Kern's investment intent and on the other
representations made by Kern in this Agreement. Kern understand that
the Company is relying upon Kern's representations and agreements
contained in this Agreement (and any supplemental information provided
by Kern) for the purpose of determining whether this transaction meets
the requirements for such exemptions.
(ii) Kern agrees: (A) that Kern will not sell, assign, pledge,
give, transfer or otherwise dispose of the Securities or any interest
therein, or make any offer or attempt to do any of the foregoing
(other than the pledge thereof pursuant to the Pledge Agreement),
unless such transaction (1) is permitted by the Pledge Agreement and
(2) is pursuant to a registration of the Common Shares under the
Securities Act and applicable state securities laws or a transaction
that, in the written opinion (which requirement may be waived by the
Company upon advice of counsel) of Kern's counsel (such counsel and
such opinion to be reasonably satisfactory to the Company), is exempt
from the registration provisions of the Securities Act and applicable
state securities laws; (B) that the certificate(s) representing the
Securities will bear a legend making reference to the foregoing
restrictions; and (C) that the Company and any transfer agent for the
Securities shall not be required to register or give effect to any
purported transfer of any of the Securities except upon compliance
with the foregoing restrictions.
Kern acknowledges and agrees that, unless Kern otherwise notifies the
Company in writing prior to the Closing, Kern's representations and warranties
as set forth in this Section 11 shall be deemed to be confirmed and repeated on
and as of the time of the Closing as though made on and as of such time.
12. Company's Right to Repurchase Securities on Termination of Employment.
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In the event that Kern's employment with the Company shall be terminated before
April 6, 2005 by the Company for Cause or by Kern other than for Good Reason,
the Company shall have the right, exercisable by written notice delivered to
Kern within thirty (30) days of the date of
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termination, to repurchase all or a portion of the Unvested Shares (as defined
below) on the terms and conditions set forth herein at a price per share equal
to the Repurchase Price (as defined below).
The term "Unvested Shares" shall mean an amount of Securities equal to
the percentage of the Original Number of Preferred Shares (as defined below) set
forth opposite the applicable employment termination date listed below. The term
"Original Number of Preferred Shares" shall mean 13,500 Preferred Shares, or, in
the event Preferred Shares have been converted into Common Shares (or other
securities), the number of Common Shares (or other securities) issued upon the
conversion of such Preferred Shares, in each case, as such amount shall be
appropriately adjusted to reflect any stock dividends, stock splits,
recapitalizations and similar events affecting the Securities, the record or
effective date for which occurs prior to the closing of the repurchase, and
shall include a proportionate amount of any dividends (including cash dividends)
or distributions made or declared on the Securities prior to the date of the
repurchase. The term "Repurchase Price" shall mean (x) with respect to the
Preferred Shares, $2,209.00 and (y) with respect to the Common Shares, $22.09;
to the extent that any cash, securities or other property have been distributed
in respect of such Preferred Shares or Common Shares prior to the repurchase or
are issuable upon conversion of the Preferred Shares or have been issued upon
such conversion, such cash, securities or other property will be included in the
Preferred Shares or Common Shares to be repurchased for no additional
consideration payable to Kern. The Repurchase Price shall be appropriately
adjusted to reflect the effects of any stock splits, stock dividends,
recapitalizations and similar events affecting the Preferred Shares or Common
Shares, as applicable, the record or effective date of which occurs prior to the
closing of the repurchase. The Repurchase Price shall be paid by applying the
amount of the aggregate Repurchase Price for the Unvested Shares being
repurchased to the payment of the Accreted Amount (as defined in the Note). If
the aggregate Repurchase Price exceeds the Accreted Amount, such amount shall be
used to pay the Accreted Amount in full and Kern's obligations under the Note
shall be terminated.
<TABLE>
<CAPTION>
Percentage of Original Number of
Preferred Shares Subject to
Employment Termination Date: Repurchase:
<S> <C>
Before April 6, 2002 100%
On or after April 6, 2002 but before April 6, 2003 75%
On or after April 6, 2003 but before April 6, 2004 50%
On or after April 6, 2004 but before April 6, 2005 25%
On or after April 6, 2005 0%
</TABLE>
The closing of any repurchase of Unvested Shares that the Company elects to
repurchase pursuant to this Section 12 shall occur on the third business day
following the date of delivery of notice of repurchase to Kern. Kern
acknowledges and agrees that the decision whether to exercise the right of
repurchase set forth in this Section 12 shall be at the sole discretion of the
Company.
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For purposes of this Agreement, a termination of Kern's employment by
the Company shall be for "Cause" if by reason of (i) Kern's final conviction of
a felony crime that enriched Kern at the expense of the Company or (ii) Kern's
serious or willful misconduct or a serious or willful neglect of duties which,
in either case, has resulted, or is likely to result, in material economic
damage to the Company.
For purposes of this Agreement, the termination by Kern of his
employment with the Company shall be for "Good Reason" if such termination is
based upon the occurrence of any of the following:
(i) any material failure by the Company to substantially
comply with any of the provisions of any employment agreement entered
into between the Company and Kern, other than a failure which is
remedied by the Company promptly after receipt of notice thereof given
by Kern;
(ii) any reduction in Kern's annual rate of salary (other than
a reduction to which Kern consents);
(iii) a failure by the Company to continue in effect any
employee benefit plan in which Kern was participating, or the taking
of any action by the Company that would adversely affect Kern's
participation in, or materially reduce Kern's benefits under, any such
employee benefit plan, unless such failure or such taking of any
action adversely affects the senior members of the corporate
management of the Company (as applicable) generally;
(iv) the relocation of the office location at which Kern is to
be based to a location which is outside the Denver, Colorado
metropolitan area without Kern's consent; or
(v) any purported termination of Kern's employment by the
Company other than for Cause.
For purposes of the foregoing, any action of the Company forming a
basis for termination by Kern for Good Reason shall constitute "Good Reason"
only if the action in question has been approved by the Company's Board of
Directors.
Upon any termination of Kern's employment with the Company before
April 6, 2005, as a result of (x) Kern's death or Disability (as defined below)
or (y) a termination by the Company without Cause or a termination by Kern with
Good Reason, the rights of the Company to repurchase the Unvested Shares shall
automatically terminate. "Disability" means the inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that (a) can be expected to result in death or (b) has lasted
or can be expected to last for a continuous period of not less than 12 months.
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13. Conditions to Obligations.
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(a) Kern's obligation to purchase and pay for the Preferred
Shares is subject to the satisfaction at or prior to the Closing of the
following conditions precedent:
(i) the representations and warranties of the Company contained
in Section 10 hereof shall be true and correct on and as of the
Closing in all respects with the same effect as though such
representations and warranties had been made on and as of the Closing;
and
(ii) the Company shall have executed and delivered the Pledge
Agreement.
(b) the Company's obligations to sell the Preferred Shares to
Kern are subject to the satisfaction at or prior to the Closing of the
following conditions precedent:
(i) the representations and warranties of Kern contained in
Section 11 shall be true and correct on and as of the Closing in all
respects with the same effect as though such representations and
warranties had been made on and as of the Closing; and
(ii) Kern shall have duly executed and delivered to the Company
the Note and the Pledge Agreement.
14. Waiver, Amendment. Neither this Agreement nor any provision hereof
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shall be modified, changed, discharged or terminated except by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought.
15. Assignability. Neither this Agreement nor any right, remedy,
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obligation or liability arising hereunder or by reason hereof shall be
assignable by either the Company or Kern without the prior written consent of
the other party; provided, however, that after the Closing Kern shall be
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entitled to assign his rights hereunder to a corporation, partnership or limited
liability company (x) of which at least 50% of the outstanding equity interests
are owned of record and beneficially by Kern and (y) which is Controlled by
Kern; provided, that no such assignment shall release Kern from his obligations
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hereunder. For purposes of this Agreement, the term "Control" shall mean the
direct or indirect power to direct, or cause the direction of the management and
policies of any person, whether through the ownership of voting securities, by
contract, by membership or involvement on the board of directors, management
committee or other management structure or otherwise.
16. Applicable Law, etc. This Agreement shall be governed by and
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construed in accordance with the law of the State of Colorado, regardless of the
law that might be applied under principles of conflicts of law, except insofar
as the laws of the State of Delaware apply to the Shares and the issuance
thereof. Each of Kern and the Company hereby irrevocably submits, to the fullest
extent permitted by applicable law, to the exclusive jurisdiction of any state
or federal court sitting in the State of Colorado in connection with any action
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby. Each of Kern and the Company also hereby irrevocably
waives, to the fullest extent he or it may effectively do so,
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any objection that he or it may now or hereafter have to the laying of the venue
of any such action or proceeding brought in any court and any claim that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum. Each of Kern and the Company hereby irrevocably waives, to
the fullest extent he or it may effectively do so, all right to a trial by jury
in any action, proceeding or counterclaim arising out of or relating to this
Agreement or the transactions contemplated hereby.
17. Section and Other Headings. The section and other headings contained
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in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in any number of
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counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which together shall be deemed to be one and the same
agreement.
19. Notices. All notices and other communications provided for herein
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shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by registered or certified mail, return receipt requested,
postage prepaid:
(a) If to the Company, to it at the following address:
On Command Corporation
96 Inverness Drive East
Englewood, CO 80112
Attn: General Counsel
(b) If to Kern, at the following address:
Jerome H. Kern
31 Albion Place
Castle Rock, CO 80104
or at such other address as either party shall have specified by notice in
writing to the other.
20. Binding Effect. The provisions of this Agreement shall be binding
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upon and accrue to the benefit of parties hereto and their respective heirs,
legal representatives, successors and assigns.
21. Indemnification. Kern acknowledges that he understands the meaning
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and legal consequences of the representations, warranties, and covenants set
forth herein and that the Company has relied and will rely upon such
representations, warranties and covenants. Therefore, Kern hereby agrees to
indemnify and hold harmless the Company and the officers, directors, controlling
persons and agents of the Company from and against any and all loss, claim,
damage, liability or expense, and any action in respect thereof, joint or
several, to which any such person may become subject, due to or arising out a
breach of any such representation, warranty or covenant, together with all
reasonable costs and expenses (including attorneys' fees) incurred by any such
person in connection with any action, suit, proceeding, demand, assessment
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or judgment incident to any of the matters so indemnified against.
Notwithstanding the foregoing, however, no representation, warranty,
acknowledgment or agreement made herein by Kern shall in any manner be deemed to
constitute a waiver of any rights granted to Kern under federal securities laws
or any state securities laws.
22. Survival. All representations, warranties and covenants contained in
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this Agreement and the indemnification contained in Section 21 shall survive (a)
the Closing and (b) Kern's death or disability.
23. Reasonable Best Efforts. Upon the terms and subject to the conditions
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hereof, each of the parties hereto shall use its reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations or otherwise to consummate and make effective the transactions
contemplated hereby.
24. Additional Covenants.
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(a) Promptly following the Closing, Kern and the Company will
file a Notification and Report Form under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), in respect of Kern's
acquisition of the Preferred Shares and will use their respective
reasonable efforts to, and to cause their respective affiliates to,
promptly comply with any requests for additional information and
documentary material that may be requested pursuant to the HSR Act.
(b) Kern agrees that he will not convert any Preferred Shares
into Common Shares unless (i) such conversion is effected simultaneously
with a sale of the Common Shares to an unaffiliated third party or (ii)
such conversion does not, directly or indirectly, result in the Company's
extension of credit to Kern in connection with the purchase of the
Securities being in violation of Regulation U promulgated by the Board of
Governors of the Federal Reserve Board.
(c) Kern agrees that in the event the Preferred Shares become
entitled to vote as a separate class on any matter to be presented to
stockholders of the Company, Kern will cause the Preferred Shares to be
voted for or against such proposal in the same proportions as the holders
of Common Stock vote upon such matter.
25. Notification of Changes. Kern hereby covenants and agrees to notify
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the Company upon the occurrence of any event prior to the Closing which would
cause (a) Kern's status as an accredited investor as defined in Rule 501(a) of
Regulation D of the Act to change or (b) any representation, warranty or
covenant by Kern contained in this Agreement to be false or incorrect.
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In witness whereof, the parties have executed this Stock Purchase and
Loan Agreement this 4th day of August, 2000.
On Command Corporation
By: /s/ Paul J. Milley
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Name: Paul J. Milley
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Title: Senior V.P.-Finance
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/s/ Jerome H. Kern
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Jerome H. Kern
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