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EXHIBIT 3
THE SECURITY REPRESENTED HEREBY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT.
Englewood, Colorado Initial Principal
August 10, 2000 Amount: $21,080,250
SECURED NOTE DUE AUGUST 1, 2005
FOR VALUE RECEIVED, Jerome H. Kern ("Maker") promises to pay to the
order of On Command Corporation, a Delaware corporation ("Payee"), or registered
assigns, on the Maturity Date (as defined below), the Accreted Amount (as
defined below) of this Note, without setoff, counterclaim or deduction of any
nature, except as provided herein. As used herein, the term "principal" or
"principal amount" shall mean the Accreted Amount of this Note. Interest on the
Accreted Amount after it shall have become due and payable shall accrue as
provided in Section 1(e). Capitalized terms not defined herein shall have the
meanings ascribed to such terms in the Stock Purchase and Loan Agreement, dated
as of August 4, 2000, between Maker and Payee (the "Stock Purchase Agreement").
1. Payment Terms.
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(a) Maturity Date. Unless accelerated pursuant to an Event of Default
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(as hereinafter defined), the Accreted Amount of this Note shall
be paid by the Maker on August 1, 2005 (such date, the "Maturity
Date").
(b) Prepayment. Maker shall have no right to prepay this Note, except
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that, in the event Payee elects to repurchase from Maker any
Unvested Shares pursuant to Section 12 of the Stock Purchase
Agreement, Payee shall apply the aggregate Repurchase Price
payable to the payment of the Accreted Amount. In connection with
any such repurchase, Maker consents to the application of the
Repurchase Price payable and acknowledges that such payment shall
be deemed a prepayment by Maker of its obligations hereunder.
(c) Payment.
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(i) Except as provided in Section 1(b) above and Section
1(c)(ii), all payments on this Note shall be made to the
registered holder of this Note (the "Holder") against
surrender of this Note in lawful money of the United States
of America and immediately available funds. Any payment on
this Note which is due on a day which is not a
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banking day in Denver, Colorado shall be made on the next
succeeding banking day in Denver, Colorado.
(ii) Notwithstanding the provisions of clause (i) above, upon the
maturity of this Note, whether pursuant to acceleration or
otherwise, in lieu of the cash payment referred to in clause
(c)(i) above, Maker may tender the Pledged Shares (as such
term is defined in such Pledge Agreement (as defined below))
in full or partial payment of the Accreted Amount, with such
Pledged Shares being valued for such purpose at its Fair
Market Value (as defined below) as of the date so tendered.
For this purpose, the "Fair Market Value" of any security
(x) which is publicly traded shall be the average of the
closing prices of such security on the principal exchange
upon which it is traded over the 10 days preceding the date
of tender (appropriately adjusted in the event of any stock
splits, stock dividends or other similar actions occurring
during the measurement period) and (y) if such security is
not publicly traded, the fair market value thereof as Maker
and Payee shall reasonably agree, or if they can not agree,
as determined by a nationally-recognized investment banking
firm selected by Maker and reasonably acceptable to Payee.
(d) Accreted Amount. The "Accreted Amount" shall be the initial
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principal amount of this Note as set forth on the first page of
this Note, together with assumed interest thereon from August 10,
2000 to July 31, 2005 at the Accretion Rate, compounded quarterly
on the last day of March, June, September and December of each
year, commencing on September 30, 2000; provided, that the
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Accreted Amount shall be reduced by the amount of any prepayment
permitted pursuant to Section 1(b) of this Note. In order to
provide for compounding of interest on a quarterly basis, on each
date specified for the quarterly compounding of interest, all
assumed interest accrued on this Note subsequent to the preceding
quarterly compounding date shall automatically be added to the
principal amount hereof, and thereafter interest shall accrue on
the principal amount hereof as so increased. The "Accretion Rate"
shall equal 7% per annum.
(e) Payments Upon Default. In the event that Maker fails to pay in
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full the Accreted Amount on the Maturity Date or upon any
acceleration thereof resulting from the occurrence of any Event
of Default, the Accretion Rate shall be increased to 9% per annum
following the date such payment in full is due until payment in
full (after giving effect to the limited recourse to Maker
pursuant to Section 2 hereof).
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2. Limited Personal Liability of Maker.
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(a) Except as set forth in Section 2(b) hereof, notwithstanding any other
provision contained in this Note or any other instrument or agreement
evidencing, securing or relating to the indebtedness evidenced by this
Note, by its acceptance of this Note, Payee, for itself and on behalf
of any subsequent Holders, agrees that no deficiency or other money
judgment, order or execution shall be sought, taken or entered in any
suit, claim, action or proceeding, whether legal or equitable,
relating to or based upon this Note or any other instrument or
agreement executed in connection herewith evidencing, securing or
relating to the indebtedness evidenced by this Note (collectively, the
"Loan Documents") against Maker for the purpose of obtaining or
seeking collection, satisfaction or payment of this Note or
performance or satisfaction of any obligation or any claim arising
hereunder or under the Loan Documents, but that it shall seek such
satisfaction and payment and performance only from the Pledged
Collateral, and all such rights to suit, action, proceeding or
deficiency are hereby waived; provided, that the foregoing shall not
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prevent or limit the Holder's rights to enforce (i) all of its rights
and remedies hereunder and under the Pledge Agreement against any
Pledged Collateral, which enforcement shall be to the full extent of
such Pledged Collateral, (ii) any rights or remedies of the Holder
hereof in any action to recover from Maker to the extent set forth in
Section 2(b) and (iii) any rights or remedies which do not require the
payment of money damages.
(b) Notwithstanding the foregoing provisions of Section 2(a), Maker shall
be personally liable under this Note to the extent and in the
following manner, but only to the extent and in the following manner:
Maker's personal liability for amounts due and payable under this Note
and any other obligations relating thereto under the Pledge Agreement,
whether by reason of the occurrence of the Maturity Date or
acceleration of this Note by reason of the occurrence of an Event of
Default, shall not exceed 25% of the Accreted Amount together with all
other sums owing under this Note. In determining Maker's personal
liability hereunder, Payee shall be required to proceed first against
the Pledged Collateral and shall apply the net proceeds of the sale or
other disposition of the Pledged Collateral (including pursuant to
Section 1(c)(ii)) together with any amounts paid to Payee pursuant to
the Escrow Agreement (as defined in the Pledge Agreement) first to
extinguish all amounts for which Maker may be personally liable
hereunder and then to the repayment of all other amounts owed under
this Note.
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3. Security Agreement.
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The payment of this Note is secured by that certain Pledge and Security
Agreement of even date herewith between Maker and Payee (the "Pledge
Agreement").
4. Default.
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(a) If any of the following (each an "Event of Default") shall occur:
(i) Maker fails to pay the Accreted Amount of this Note when due;
or
(ii) Any representation or warranty made by Maker in the Stock
Purchase Agreement or the Pledge Agreement shall prove to have
been false in any material respect as of the time as of which
it was made; or
(iii) Default shall be made in the due observance or performance of
any material covenant or agreement contained in the Stock
Purchase Agreement or any covenant in this Note (other than as
specified in clause (a)(i)) to be observed or performed by
Maker, and such default shall remain unremedied for ten days
after written notice thereof shall have been given to Maker by
Payee; or
(iv) Default shall be made with due observance or performance of any
covenant or agreement or obligation of Maker under the Pledge
Agreement or any event of default shall occur or continue under
the Pledge Agreement and, in any such case, such default shall
remain unremedied for ten days after written notice thereof
shall have been given to Maker by Payee; or
(v) Maker shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with
respect to himself or itself or his or its debts under any
Bankruptcy Law or seeking the appointment of a Custodian of any
substantial part of his or its property, or shall consent to
any such relief or to the appointment of or taking possession
by any Custodian in an involuntary case or other proceeding
commenced against him or it, or shall make a general assignment
for the benefit of creditors, or shall acknowledge in writing
his or its inability to pay his or its debts as they become
due, or shall take any corporate action to authorize any of the
foregoing; or
(vi) A court of competent jurisdiction shall enter a decree or order
providing for relief in respect of Maker in an involuntary case
under any Bankruptcy Law or appointing a Custodian of Maker or
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for any substantial part of his or its property, or ordering
the winding-up or liquidation of his or its affairs and such
decree or order shall remain unstayed and in effect for a
period of 90 consecutive days;
then and only then Maker shall be in default hereunder, and thereafter, during
the continuance of an Event of Default described in clauses (i), (ii), (iii) or
(iv) above, the Holder of this Note may, at its option, exercise any and all
rights, powers and remedies provided for under this Note, the Pledge Agreement
or any other security instrument securing this Note, or by law, including the
right to declare the Accreted Amount at once mature and payable. Upon the
occurrence of an Event of Default described in clauses (v) or (vi) above, the
Accreted Amount of this Note shall at once be and become due and payable and the
Holder may exercise any and all rights, powers and remedies provided for under
this Note, the Pledge Agreement or any other security instrument or by law. As
used herein, "Bankruptcy Law" means Title 11, United States Code or any similar
federal, state or foreign law for the relief of debtors, and "Custodian" means
any receiver, trustee, assignee, liquidator, sequestrator, custodian or similar
official under any Bankruptcy Law.
Maker, for himself and his legal representatives, successors and
assigns, and any guarantor, surety or endorser, hereby: waives demand,
presentment, notice of dishonor, notice of intent to demand, notice of
acceleration, notice of intent to accelerate, protest, notice of protest and
diligence in collecting and the bringing of suit against any party hereto for
the purpose of fixing liability; agrees to the application of any Payee balance
to payment hereof; agrees that extensions, renewals and modifications without
limit as to number, acceptance of any number of partial payments, and releases
of or substitutions of collateral, with or without notice, before or after the
maturity of this Note, shall not release or discharge his obligation hereunder;
agrees that waiver of any default shall not constitute waiver of any prior or
subsequent default; and agrees, subject to Section 2 hereof, to pay in addition
to all other sums due hereunder reasonable attorney's fees if this Note is
placed in the hands of an attorney for collection or if it is collected through
probate, bankruptcy or other judicial proceeding. As used herein, where
appropriate, the masculine gender includes the feminine and the neuter and the
singular number includes the plural number.
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THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF COLORADO, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES
THEREOF.
/s/ Jerome H. Kern
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Jerome H. Kern
Address:
31 Albion Place
Castle Rock, Colorado 80104
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