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ON COMMAND CORPORATION
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(Name of Registrant as Specified in Its Charter)
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[GRAPHIC]
ON COMMAND CORPORATION
4610 SOUTH ULSTER STREET, SUITE 600
DENVER, COLORADO 80237
TELEPHONE: (720) 873-3200
November 27, 2002
Dear Fellow Stockholder:
On behalf of the board of directors and management of On Command
Corporation, we cordially invite you to attend the Company's annual meeting of
stockholders. The meeting will be held at 9:00 a.m. Mountain Time on
December 20, 2002, at the Company's headquarters, located at 4610 South Ulster
Street, Suite 600, Denver, Colorado. At the annual meeting, you will have the
opportunity to meet with the Company's management team, and we will report to
you on the Company's financial and operating performance.
As you know, an important aspect of the annual meeting process is the
stockholder vote on corporate business items. I urge you to exercise your rights
as a stockholder to vote and participate in this process.
Whether or not you plan to attend the annual meeting, PLEASE READ THE
ENCLOSED PROXY STATEMENT AND THEN COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT AS PROMPTLY AS POSSIBLE IN THE ACCOMPANYING POSTAGE PAID RETURN
ENVELOPE. This will save the Company additional expense in soliciting proxies
and will ensure that your shares are represented at the meeting.
Sincerely,
/s/ Gary S. Howard
Gary S. Howard
Chairman of the Board
ON COMMAND CORPORATION
4610 SOUTH ULSTER STREET, SUITE 600
DENVER, COLORADO 80237
TELEPHONE: (720) 873-3200
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 20, 2002
------------------------
To Our Stockholders:
The 2002 Annual Meeting of Stockholders of On Command Corporation ("On
Command" or the "Company") will be held at the Company's headquarters, located
at 4610 South Ulster Street, Suite 600, Denver, Colorado, on Friday,
December 20, 2002, at 9:00 a.m. Mountain Time for the purpose of considering and
acting upon the following matters:
1. Election of the Company's board of directors; and
2. Ratification of the appointment of KPMG LLP as independent auditors
for the Company for the year ending December 31, 2002;
together with such other matters, if any, as may properly come before the annual
meeting or any adjournments thereof. The board of directors is not aware of any
other business scheduled for the annual meeting.
Action may be taken on the foregoing proposals at the annual meeting on the
date specified above, or on any date or dates to which the annual meeting may be
adjourned.
Stockholders of record at the close of business on November 1, 2002, are the
stockholders entitled to vote at the annual meeting and any adjournments
thereof. A complete list of stockholders entitled to vote at the meeting will be
available for inspection by stockholders during normal business hours at the
Company headquarters located at 4610 South Ulster Street, Suite 600, Denver,
Colorado 80237, during the ten days prior to the meeting as well as at the
annual meeting.
Your vote is important. Please sign and date the enclosed proxy, and return
it promptly in the enclosed postage-paid envelope to ensure your representation
at the annual meeting. The proxy will not be used if you attend and vote at the
meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Gary S. Howard
Gary S. Howard
Chairman of the Board
Denver, Colorado
November 27, 2002
A PRE-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED WITHIN THE UNITED STATES.
TABLE OF CONTENTS
PAGE
----
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
ABOUT THE MEETING........................................... 1
What is the purpose of the annual meeting?................ 1
Who is entitled to vote?.................................. 1
What if my shares are held in "street name" by a
broker?................................................. 2
How many shares must be present to hold the meeting?...... 2
What if a quorum is not present at the meeting?........... 2
How do I vote?............................................ 2
Can I change my vote after I submit my proxy?............. 2
How does the board of directors recommend I vote on the
proposals?.............................................. 3
What if I do not specify how my shares are to be voted?... 3
Will any other business be conducted at the meeting?...... 3
How many votes are required to elect the director
nominees?............................................... 3
Can I cumulate my votes for the election of directors?.... 3
What happens if a nominee is unable to stand for
election?............................................... 4
How many votes are required to ratify the appointment of
the Company's independent auditors?..................... 4
How will abstentions be treated?.......................... 4
Who pays for the costs of soliciting proxies?............. 4
Where can I find more information about the Company?...... 4
PROPOSAL 1--ELECTION OF DIRECTORS........................... 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 9
Does anyone own more than five percent of any class of the
Company's stock?........................................ 9
How much stock do the Company's directors and executive
officers own?........................................... 11
Are there any arrangements which may result in a change in
control of the Company?................................. 15
Who are the executive officers?........................... 16
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS........... 17
How often did the board of directors meet during 2001?.... 17
Are there any board committees?........................... 17
The Executive Committee................................. 17
The Audit Committee..................................... 17
The Compensation Committee.............................. 18
AUDIT COMMITTEE REPORT...................................... 18
COMPENSATION INFORMATION.................................... 19
How are directors compensated?............................ 19
Summary Compensation Table................................ 20
Option grants in last fiscal year......................... 21
Aggregated option exercises and fiscal year-end option
values.................................................. 22
Does the Company have any termination or severance
agreements with any of its former directors or named
executive officers?..................................... 23
Separation and Release Agreement of Jerome H. Kern...... 23
Waiver and Release Agreement of Jean A. DeVera.......... 23
The Executive Severance Pay Plan.......................... 23
Compensation Committee Interlocks and Insider
Participation in Compensation Decisions................. 24
i
PAGE
----
COMPENSATION REPORT ON EXECUTIVE COMPENSATION............... 24
Compensation philosophy................................... 24
Compensation of the executive officers.................... 25
Chief Executive Officer Compensation...................... 25
Section 162 of the Internal Revenue Code.................. 26
Stock performance graph................................... 26
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS........ 27
Executive Officer Loans................................... 27
Expense Allocations from Liberty Media.................... 27
Expense Allocations from Liberty Satellite................ 27
Satellite Transport Agreement with Ascent Media Group..... 27
Consulting Arrangement with William D. Myers.............. 27
Transactions with Jerome H. Kern.......................... 28
Issuance of Series B Preferred Stock to Ascent............ 29
Issuance of Series C Preferred Stock to Ascent............ 31
Issuance of Series D Preferred Stock to Ascent............ 32
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE........ 38
PROPOSAL 2--RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
AUDITORS.................................................. 38
Audit fees and all other fees............................. 38
STOCKHOLDER PROPOSALS....................................... 39
OTHER MATTERS............................................... 39
ANNEX A Audit Committee Charter............................. A-1
ii
ON COMMAND CORPORATION
4610 SOUTH ULSTER, SUITE 600
DENVER, COLORADO 80237
TELEPHONE: (720) 873-3200
------------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 20, 2002
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the board of directors of On Command Corporation (the
"Company" or "On Command") to be used at the Company's annual meeting of
stockholders to be held at the Company's headquarters, located at 4610 South
Ulster Street, Suite 600, Denver, Colorado, at 9:00 a.m. Mountain Time on
Friday, December 20, 2002, and all adjournments of the meeting. The accompanying
Notice of Meeting, this proxy statement and proxy are first being mailed to
stockholders on or about November 27, 2002. A copy of the Company's Annual
Report on Form 10-K for the year ended December 31, 2001, also accompanies these
materials.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the annual meeting, stockholders are being asked to consider and vote
upon the following proposals outlined in the accompanying Notice of Meeting:
PROPOSAL 1. Election of the Company's board of directors; and
PROPOSAL 2. Ratification of the appointment of KPMG LLP as independent
auditors for the Company for the year ending December 31, 2002.
The stockholders will also transact any other business that may properly
come before the meeting. Members of our management team will be present at the
meeting to respond to appropriate questions from stockholders.
WHO IS ENTITLED TO VOTE?
The record date for the annual meeting is November 1, 2002. Only
stockholders of record at the close of business on that date are entitled to
notice of, and to vote at, the annual meeting. The Company has five series of
capital stock outstanding: the Common Stock, par value $0.01 per share ("Common
Stock"); the Convertible Participating Preferred Stock, Series A, par value
$0.01 per share ("Series A Preferred Stock"); the Cumulative Redeemable
Preferred Stock, Series B, par value $0.01 per share ("Series B Preferred
Stock"); the Cumulative Redeemable Preferred Stock, Series C, par value $0.01
per share ("Series C Preferred Stock"); and the Cumulative Convertible
Redeemable Preferred Stock, Series D, par value $0.01 per share ("Series D
Preferred Stock"). Holders of the Common Stock and the Series A Preferred Stock
are entitled to vote at the meeting. The Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock do not generally have voting
rights.
Except as otherwise required by law, or as described in this proxy
statement, the holders of shares of Common Stock and Series A Preferred Stock
vote together as a single class on all matters presented
1
to the vote of stockholders. Each holder of Common Stock and Series A Preferred
Stock is entitled to one vote per share on each matter submitted at the meeting,
except that each record holder of Common Stock is entitled to cumulate votes in
the election of directors. As of November 1, 2002, the record date, 30,961,607
shares of Common Stock and 13,500 shares of Series A Preferred Stock were issued
and outstanding.
WHAT IF MY SHARES ARE HELD IN "STREET NAME" BY A BROKER?
If you are the beneficial owner of shares held in "street name" by a broker,
your broker, as the record holder of the shares, is required to vote those
shares in accordance with your instructions. If you do not give instructions to
your broker, your broker will be entitled to vote the shares with respect to the
election of directors (Proposal 1) and the ratification of auditors (Proposal
2), which are the only proposals for which proxies are being solicited by this
proxy statement.
HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING?
A quorum must be present at the meeting for any business to be conducted.
The presence at the meeting, in person or by proxy, of the holders of a majority
of the shares of voting stock outstanding on the record date will constitute a
quorum. Proxies received but marked as abstentions will be included in the
calculation of the number of shares considered to be present at the meeting.
WHAT IF A QUORUM IS NOT PRESENT AT THE MEETING?
If a quorum is not present at the scheduled time of the meeting, the holders
of a majority in total voting power of the shares that are represented, or the
chairman of the meeting, may adjourn the meeting until a quorum is present. The
time and place of the adjourned meeting will be announced at the time the
adjournment is taken, and no other notice will be given. An adjournment will
have no effect on the business that may be conducted at the meeting.
HOW DO I VOTE?
1. YOU MAY VOTE BY MAIL. If you properly complete and sign the accompanying
proxy card and return it in the enclosed envelope, it will be voted in
accordance with your instructions. The enclosed envelope requires no additional
postage if mailed in the United States. If your shares are held in "street name"
by a broker or other nominee, you may also be able to vote by telephone or on
the Internet. Please check the voting form provided by your broker or nominee to
see if such options are available to you.
2. YOU MAY VOTE IN PERSON AT THE MEETING. If you hold your shares of record
and attend the annual meeting and wish to vote in person, we will give you a
ballot at the annual meeting. However, if your shares are held in the name of
your broker, bank or other nominee, you will need to obtain a proxy from the
institution that holds your shares indicating that you were the beneficial owner
of the Company's voting stock on November 1, 2002, the record date for voting at
the annual meeting. Please contact your broker or other institution directly if
you would like to obtain a proxy to vote your shares directly at the annual
meeting. Even if you plan to attend the annual meeting, please sign and return
your proxy card to ensure that your shares are represented. If you do attend the
annual meeting, any votes you cast at the meeting will supersede your proxy.
CAN I CHANGE MY VOTE AFTER I SUBMIT MY PROXY?
Yes, you may revoke your proxy and change your vote at any time before the
polls close at the annual meeting by:
- signing another proxy with a later date;
2
- giving written notice of the revocation of your proxy to the Secretary of
the Company prior to the annual meeting; or
- voting in person at the annual meeting.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE PROPOSALS?
The board recommends that you vote:
- "FOR" Proposal 1: the election to the board of directors of the nominees
named in this proxy statement (see page 5); and
- "FOR" Proposal 2: the ratification of the appointment of KPMG LLP as
independent auditors for the Company for the year ending December 31, 2002
(see page 38).
WHAT IF I DO NOT SPECIFY HOW MY SHARES ARE TO BE VOTED?
If you submit an executed proxy but do not indicate any voting instructions,
your shares will be voted "FOR" each of the proposals set forth in this proxy
statement.
WILL ANY OTHER BUSINESS BE CONDUCTED AT THE MEETING?
The board of directors knows of no other business that will be presented at
the annual meeting. If any other proposal properly comes before the stockholders
for a vote at the meeting, however, the proxy holders will vote your shares in
accordance with their best judgment.
HOW MANY VOTES ARE REQUIRED TO ELECT THE DIRECTOR NOMINEES?
The affirmative vote of a plurality of the votes cast on this matter is
required to elect the seven nominees as directors. This means that the seven
nominees will be elected if they receive more affirmative votes than any other
person. If you mark "Withhold For All" on your proxy card, your shares will not
be voted with respect to the election of directors, although they will be
counted for purposes of determining whether there is a quorum. If you mark the
"Exceptions" box on your proxy card, your shares will not be voted for the
nominees you specifically list on the line provided for "Exceptions," but your
shares will be voted for the remaining nominees not so listed.
CAN I CUMULATE MY VOTES FOR THE ELECTION OF DIRECTORS?
Each holder of shares of Common Stock is entitled to cumulate votes in the
election of directors. The right to cumulate votes in an election of directors
entitles a holder of shares of Common Stock to cast as many votes as he or she
has shares of Common Stock 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 holder of shares of Common Stock 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 holder of shares of Common Stock
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. Holders of shares of
Series A Preferred Stock are not entitled to cumulate votes in the election of
directors.
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 the "For All" box 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, including an
allocation of no
3
votes for one or more nominees. If the "Exceptions" box is checked, 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 that no
votes covered by such proxy shall be cast for any nominee specifically excepted
by such stockholder.
WHAT HAPPENS IF A NOMINEE IS UNABLE TO STAND FOR ELECTION?
If a nominee is unable to stand for election, the board of directors may
either reduce the number of directors to be elected or cause a substitute
nominee to be selected. If a substitute nominee is selected, the proxy holders
will vote your shares for the substitute nominee, unless you have withheld
authority.
HOW MANY VOTES ARE REQUIRED TO RATIFY THE APPOINTMENT OF THE COMPANY'S
INDEPENDENT AUDITORS?
The ratification of the appointment of KPMG LLP as independent auditors for
the Company requires the affirmative vote of a majority of the combined voting
power of the Common Stock and Series A Preferred Stock present in person or by
proxy and entitled to vote as of the record date.
HOW WILL ABSTENTIONS BE TREATED?
If you abstain from voting on one or more proposals, your shares will still
be included for purposes of determining whether a quorum is present. Because
directors are elected by a plurality of votes, an abstention will have no effect
on the outcome of the vote and, therefore, is not offered as a voting option for
Proposal 1. If you abstain from voting on Proposal 2, for which this option is
available, your shares will be included in the number of shares voting on that
proposal and, consequently, your abstention will have the same practical effect
as a vote against the proposal.
WHO PAYS FOR THE COSTS OF SOLICITING PROXIES?
The Company will pay the cost of soliciting proxies. The Company will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of voting stock. In addition to solicitation by mail,
directors, officers and employees of the Company may solicit proxies personally
or by facsimile, telegraph or telephone, without additional compensation.
WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANY?
The Company files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission (also referred
to in this proxy statement as the "SEC"). You may read and copy any reports or
other information the Company files at the SEC's public reference room in
Washington, D.C. Please call the SEC at 1-800-SEC-8330 for further information
on the public reference room. You may also obtain copies of any reports or other
information the Company files from the SEC by (i) faxing a request for such
information to 202-628-9001, Attention: Public Reference Room or (ii) sending a
request for such information via e-mail to PUBLICINFO@SEC.GOV. The Company's SEC
filings are also available to the public from various commercial document
retrieval services and at the Web site maintained by the SEC at
HTTP://WWW.SEC.GOV.
4
PROPOSAL 1
ELECTION OF DIRECTORS
Except as disclosed in this proxy statement, there are no arrangements or
understandings between any of the nominees and any other person pursuant to
which such nominee was selected to stand for election to the board.
Each nominee has consented to being named in this proxy statement and has
agreed to serve if elected. If a nominee is unable to stand for election, the
board of directors may either reduce the number of directors to be elected or
cause a substitute nominee to be selected. If a substitute nominee is selected,
the proxy holders will vote your shares for the substitute nominee, unless you
have withheld authority.
The following table sets forth, with respect to each director nominee, his
or her name, date of birth, principal occupation and employment during the past
five years, the year in which he or she first became a director of the Company,
and directorships held in other public companies. For additional information
regarding the nominees, see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT," "MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS," "COMPENSATION
INFORMATION," and "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS".
The affirmative vote of a plurality of the votes cast for a director at the
annual meeting is required to elect the seven nominees as directors.
Each person elected as a director of the Company will serve until such
director's successor is duly elected and qualified, or until such director's
earlier resignation or removal. Each seat on the board of directors will be up
for election at each annual meeting of stockholders.
NAME POSITION
--------------------------------------------- ---------------------------------------------
Kenneth G. Carroll........................... Has served as a Director of On Command since
Born April 21, 1955 May 2002. Mr. Carroll has served as Senior
Vice President and Chief Financial Officer of
the Company's parent, Liberty Satellite &
Technology, Inc. (also referred to in this
proxy statement as Liberty Satellite), since
February 1995 and as its Treasurer since
August 1999. Mr. Carroll is also currently
Liberty Satellite's acting President. He has
also served as Senior Vice President and
Chief Financial Officer of Phoenixstar, Inc.
since April 1998.
5
NAME POSITION
--------------------------------------------- ---------------------------------------------
William R. Fitzgerald........................ Has been a Director of On Command since
Born May 20, 1957 October 2001. Mr. Fitzgerald has served as
Senior Vice President of the Company's
indirect parent, Liberty Media Corporation
(also referred to in this proxy statement as
Liberty Media), and as Chairman of the Board
of the Company's affiliate, Ascent Media
Group, Inc. (also referred to in this proxy
statement as Ascent Media Group), formerly
known as Liberty Livewire Corporation, since
August 2000, and acting Chief Executive
Officer of Ascent Media Group since May 2002.
Mr. Fitzgerald served as Chief Operating
Officer, Operations Administration, of AT&T
Broadband LLC, which was formerly known as
Tele-Communications, Inc., or TCI, from
August 1999 to May 2000, and Executive Vice
President and Chief Operating Officer of TCI
from March 1999 to August 1999. Mr.
Fitzgerald served as Executive Vice President
and Chief Operating Officer of TCI
Communications, Inc. from November 1998 to
March 1999, served as an Executive Vice
President of TCI Communications from December
1997 to March 1999, and served as Senior Vice
President of TCI Communications from March
1996 to December 1997. Mr. Fitzgerald is also
a Director of Liberty Satellite and Ascent
Media Group.
Paul A. Gould................................ Has been a Director of On Command since April
Born September 27, 1945 2000. Mr. Gould has served as a Managing
Director and Executive Vice President of
Allen & Company Incorporated, an investment
banking services company, for over five
years. Mr. Gould is a Director of Liberty
Media and Ampco-Pittsburgh Corporation.
6
NAME POSITION
--------------------------------------------- ---------------------------------------------
Mark K. Hammond.............................. Has served as a Director of On Command since
Born September 2, 1960 November 2002. Mr. Hammond has been Executive
Vice President and Chief Financial Officer of
Amerus Annuity Group, an insurance company
focused exclusively in the individual annuity
market, since January 2001. Mr. Hammond was
Chief Financial Officer and Chief Operating
Officer of Integrated Communications Systems
Corporation, Inc., a start-up sales,
distribution and marketing services company,
from March 2000 through November 2000 and was
Vice President of OrionAuto, Inc., an
insurance company, from January 1999 through
December 1999. Mr. Hammond worked in various
positions at Deloitte & Touche LLP from 1983
to 1998 with the most recent position being
Audit Partner from June 1996 through December
1998.
Gary S. Howard............................... Has been Chairman of the Board of On Command
Born February 22, 1951 since October 2001 and a Director of On
Command since April 2000. Mr. Howard has
served as Executive Vice President and Chief
Operating Officer of Liberty Media since July
1998. Mr. Howard has also served as Chairman
of the Board of Liberty Satellite since
August 2000, as Chief Executive Officer of
Liberty Satellite from December 1996 to April
2000 and as President of Liberty Satellite
from February 1995 through August 1997. Mr.
Howard served as Executive Vice President of
Tele-Communications, Inc., or TCI (now known
as AT&T Broadband LLC), from December 1997 to
March 1999; as Chief Executive Officer,
Chairman of the Board and a Director of TV
Guide, Inc. from June 1997 to March 1999; and
as President and Chief Executive Officer of
TCI Ventures Group, LLC from December 1997 to
March 1999. Mr. Howard is a Director of
Liberty Media, Liberty Satellite, Ascent
Media Group and UnitedGlobalCom, Inc.
7
NAME POSITION
--------------------------------------------- ---------------------------------------------
Christopher Sophinos......................... Has been nominated for election to the
Born January 26, 1952 Company's board of directors at the annual
meeting. Has been President of On Command
since April 2001 and Chief Executive Officer
since October 2001. Mr. Sophinos has also
served as Senior Vice President of Liberty
Satellite since April 2000. Mr. Sophinos
served as President of Liberty Satellite from
September 1997 to April 2000 and as Senior
Vice President of Liberty Satellite from
February 1996 until September 1997. Mr.
Sophinos served as Senior Vice President of
Primestar, Inc. from April 1998 until August
1999. Mr. Sophinos served as the President of
Boats Unlimited, a retail boat dealership,
from November 1993 to September 1998.
J. David Wargo............................... Has been a Director of On Command since
Born October 1, 1953 November 1998. Mr. Wargo has served as
President of Wargo & Company, Inc., a private
investment company specializing in the
communications industry, since 1993. Mr.
Wargo is also a Director of Strayer
Education, Inc. and OpenTV, Inc.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH
OF THE NOMINEES.
8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
DOES ANYONE OWN MORE THAN FIVE PERCENT OF ANY CLASS OF THE COMPANY'S STOCK?
As of September 30, 2002, 30,930,437 shares of Common Stock and 13,500
shares of Series A Preferred Stock were issued and outstanding. As of such date,
15,000 shares of Series B Preferred Stock, 10,000 shares of Series C Preferred
Stock, and 60,000 shares of Series D Preferred Stock were issued and
outstanding. None of the shares of Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock are entitled to vote on the matters to be
voted upon at the annual meeting. To the Company's knowledge, based upon
Schedules 13D or 13G filed with the SEC, the following persons were the only
beneficial owners of more than five percent of the outstanding Common Stock and
Series A Preferred Stock as of September 30, 2002. Under the rules of the SEC, a
person's beneficial ownership includes any shares over which that person has
sole or shared voting power or investment power, and also any shares over which
such person has the right to acquire sole or shared voting power or investment
power within 60 days through the exercise of any stock option or other right.
Shares issuable upon exercise or conversion of options, warrants and convertible
securities that are exercisable or convertible on or within 60 days after
September 30, 2002, and upon the vesting of restricted shares, are deemed to be
outstanding for the purpose of computing the percentage ownership of persons
believed to beneficially own such securities, but have not been deemed to be
outstanding for the purpose of computing the percentage ownership of any other
person.
NUMBER OF
SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER TITLE OF CLASS OWNED CLASS (1)
---------------------------------- ---------------------------------- ------------ ----------
Liberty Media Corporation (2) Series A Preferred Stock -- --
12300 Liberty Boulevard Common Stock 28,475,215 71.2%
Englewood, CO 80112
Liberty Satellite & Series A Preferred Stock -- --
Technology, Inc. (2) Common Stock 28,475,050 71.2%
12300 Liberty Boulevard
Englewood, CO 80112
J.P. Morgan Chase & Co. (3) Series A Preferred Stock -- --
500 Stanton Christina Road Common Stock 2,384,896 7.7%
Newark, DE 19713
Credit Suisse First Boston (4) Series A Preferred Stock -- --
11 Madison Avenue Common Stock 2,255,035 7.3%
New York, NY 10010
Merrill Lynch & Co., Inc. (5) Series A Preferred Stock -- --
800 Scudders Mill Road Common Stock 1,948,671 6.3%
Plainsboro, NJ 08536
Gary Wilson (6) Series A Preferred Stock -- --
300 Delfern Drive Common Stock 1,870,000 5.7%
Los Angeles, CA 90077
Par Capital Management, Inc. (7) Series A Preferred Stock -- --
One Financial Center, Suite 1600 Common Stock 1,588,100 5.1%
Boston, MA 02111
Jerome H. Kern (8) Series A Preferred Stock 13,500 100.0%
4600 S. Syracuse, Suite 1000 Common Stock 1,350,000 4.2%
Denver, CO 80237
(FOOTNOTES ON FOLLOWING PAGE)
9
(FOOTNOTES FOR PRECEDING PAGE)
------------------------
(1) Based on 13,500 shares of the Series A Preferred Stock and 30,930,437 shares
of the Common Stock outstanding as of September 30, 2002. The Company's
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock are not voting securities.
(2) Based upon information contained in a Schedule 13D/A jointly filed on
November 1, 2002 by Liberty Media and Liberty Satellite. Includes
(i) 1,123,792 shares of Common Stock issuable upon the exercise of currently
exercisable Series A Warrants and (ii) 7,947,018 shares of Common Stock
issuable upon the conversion of shares of Series D Preferred Stock. Each
Series A Warrant represents the right to acquire one share of Common Stock
and each share of Series D Preferred Stock is convertible into 132.4503
shares of Common Stock on or after December 31, 2002. Liberty Media owns,
and has sole voting and dispositive power with respect to 165 shares of
Common Stock, which represents less than 1% of the issued and outstanding
shares of Common Stock. Of such 165 shares beneficially owned by Liberty
Media, 40 of such shares consist of shares of Common Stock issuable upon the
exercise of currently exercisable Series B Warrants. Each Series B Warrant
represents the right to acquire one share of Common Stock. Liberty Media and
Liberty Satellite share the voting and dispositive power with respect to
28,475,050 shares of Common Stock.
Liberty Media acquired its equity interest in the Company upon the
consummation of a transaction in March 2000 whereby Liberty Media acquired
control of Ascent Entertainment Group, Inc., the Company's controlling
stockholder, by means of a tender offer. On April 1, 2002, a subsidiary of
Liberty Media contributed all of the shares of Ascent owned by it to Liberty
Satellite, a controlled subsidiary of Liberty Media, and Liberty Satellite
became a beneficial owner of (i) 19,404,240 shares of Common Stock,
(ii) 1,123,792 Series A Warrants and (iii) 7,947,018 shares of Common Stock
issuable upon the conversion of shares of Series D Preferred Stock, and
other outstanding securities of Ascent which are not required to be reported
in the table. By virtue of its control of Liberty Satellite, Liberty Media
continues to be a beneficial owner of the above-mentioned On Command
securities.
(3) Based upon information contained in a Schedule 13G filed with the SEC on
February 14, 2002 by J.P. Morgan Chase & Co., and its wholly owned
subsidiaries J.P. Morgan Investment Management, Inc. and Robert Fleming
Holdings Inc. J.P. Morgan is the beneficial owner of 2,384,896 shares of
Common Stock (sole voting power: 1,687,100, sole dispositive power:
1,718,200 and shared voting and dispositive power: 666,696).
(4) Based upon information contained in a Schedule 13G filed with the SEC on
February 14, 2002 by Credit Suisse First Boston. Credit Suisse First Boston
shares voting and dispositive power over 2,255,035 shares of Common Stock
with its consolidated subsidiaries to the extent that they constitute a part
of Credit Suisse First Boston.
(5) Based upon information contained in a Schedule 13G filed with the SEC on
February 14, 2002 by Merrill Lynch & Co., Inc. ("Merrill Lynch"), on behalf
of Merrill Lynch Investment Managers. Merrill Lynch is the beneficial owner
of, and shares voting and dispositive power over, 1,948,671 shares of Common
Stock. Merrill Lynch is a parent holding company of Merrill Lynch Investment
Managers (formerly known as Merrill Lynch Asset Management Group).
(6) Includes 1,810,000 Series C Warrants to purchase the same number of shares
of Common Stock having an exercise price of $15.27 per share and options to
purchase 58,000 shares of Common Stock, the Series C Warrants and the
options being exercisable within 60 days after September 30, 2002. Effective
as of September 18, 2002, Mr. Wilson resigned as a member of the board of
directors. As a result of such resignation, Mr. Wilson's options to purchase
58,000 shares of Common Stock expire on December 18, 2002.
(7) Based upon information contained in a Schedule 13G filed with the SEC on
November 1, 2001 by Par Investment Partners, L.P., Par Group, L.P. and Par
Capital Management, Inc. The foregoing persons are hereinafter referred to
collectively as the Par Reporting Persons. The Par Reporting Persons have
sole voting and dispositive power over 1,588,100 shares of Common Stock. Par
Group, L.P. and Par Capital Management, Inc. are general partners of Par
Investment Partners, L.P.
(8) Mr. Kern holds 13,500 shares of Series A Preferred Stock, which are
convertible, at Mr. Kern's option, into 1,350,000 shares of Common Stock.
10
HOW MUCH STOCK DO THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS OWN?
The following table sets forth information with respect to the ownership by
each director and each of the named executive officers, including former
directors Richard D. Goldstein, Carl E. Vogel and Gary L. Wilson, and former
named executive officers Jerome H. Kern, William D. Myers, Gregory Armstrong,
Jean A. DeVera, Anne Doris and Jerry Hodge, and by all directors and executive
officers of the Company as a group, of shares of Common Stock and Series A
Preferred Stock. In addition, the table sets forth information with respect to
the ownership of such individuals of shares of Liberty Media Series A and
Series B Common Stock which are equity securities of Liberty Media, and Liberty
Satellite Series A Common Stock and Series B Common Stock, which are equity
securities of Liberty Satellite. Liberty Satellite owns a controlling interest
in the Company and Liberty Media owns a controlling interest in Liberty
Satellite. All of the equity securities referenced in the table below are
publicly-traded securities. Shares of Liberty Satellite Series A Common Stock
and Series B Common Stock are referred to in the table as LSAT Series A and LSAT
Series B, respectively.
The following information is given as of September 30, 2002 and, in case of
percentage ownership information, is based on: (i) 30,930,437 shares of Common
Stock; (ii) 13,500 shares of Series A Preferred Stock, (iii) 2,373,439,500
shares of Series A Liberty Media Common Stock; (iv) 212,045,128 shares of
Series B Liberty Media Common Stock, (v) 11,078,611 shares of Series A Liberty
Satellite Common Stock, and (vi) 34,765,055 shares of Series B Liberty Satellite
Common Stock, in each case outstanding on that date.
Shares issuable upon exercise or conversion of options, convertible
securities and warrants that are exercisable or convertible on or within
60 days after September 30, 2002, and upon the vesting of restricted shares, are
deemed to be outstanding for the purpose of computing the percentage ownership
of persons believed to beneficially own such securities, but have not been
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person. So far as is known to the Company, the persons indicated
below have sole voting and investment power with respect to the shares indicated
as believed to be owned by them, except as indicated in the notes to the table.
NUMBER
OF SHARES PERCENT
BENEFICIALLY OF
NAME TITLE OF CLASS OWNED CLASS
---- ------------------------------ ------------ --------
DIRECTORS:
Kenneth G. Carroll................. Common Stock --
Series A Preferred Stock --
Liberty Media Series A 15,490(1) *
Liberty Media Series B --
LSAT Series A 33,698(2) *
LSAT Series B
William R. Fitzgerald.............. Common Stock 400 *
Series A Preferred Stock --
Liberty Media Series A 386,008(3)(4) *
Liberty Media Series B --
LSAT Series A 527 *
LSAT Series B --
Richard D. Goldstein............... Common Stock 51,200(5) *
Series A Preferred Stock --
Liberty Media Series A --
Liberty Media Series B --
LSAT Series A --
LSAT Series B --
11
NUMBER
OF SHARES PERCENT
BENEFICIALLY OF
NAME TITLE OF CLASS OWNED CLASS
---- ------------------------------ ------------ --------
Paul A. Gould...................... Common Stock 25,800(6) *
Series A Preferred Stock --
Liberty Media Series A 1,514,691 *
Liberty Media Series B 600,344 *
LSAT Series A --
LSAT Series B --
Mark K. Hammond.................... Common Stock --
Series A Preferred Stock --
Liberty Media Series A --
Liberty Media Series B --
LSAT Series A --
LSAT Series B --
Gary S. Howard..................... Common Stock 800 *
Series A Preferred Stock --
Liberty Media Series A 3,998,458(7)(8)(9)(10)(11) *
Liberty Media Series B --
LSAT Series A 58,272(12) *
LSAT Series B --
Peter M. Kern...................... Common Stock 25,800(13) *
Series A Preferred Stock --
Liberty Media Series A 175,800(14) *
Liberty Media Series B --
LSAT Series A --
LSAT Series B --
Christopher Sophinos............... Common Stock 40,000(15) *
Series A Preferred Stock --
Liberty Media Series A 5,140(16) *
Liberty Media Series B --
LSAT Series A 33,495(17) *
LSAT Series B --
Carl E. Vogel...................... Common Stock 25,800(18) *
Series A Preferred Stock --
Liberty Media Series A 218,400(19) *
Liberty Media Series B --
LSAT Series A --
LSAT Series B --
J. David Wargo..................... Common Stock 51,200(20) *
Series A Preferred Stock --
Liberty Media Series A 523,121(21) *
Liberty Media Series B 4,304 *
LSAT Series A --
LSAT Series B --
12
NUMBER
OF SHARES PERCENT
BENEFICIALLY OF
NAME TITLE OF CLASS OWNED CLASS
---- ------------------------------ ------------ --------
Gary L. Wilson..................... Common Stock 1,870,000(22) 5.7%
Series A Preferred Stock --
Liberty Media Series A --
Liberty Media Series B --
LSAT Series A --
LSAT Series B --
NAMED EXECUTIVE OFFICERS
Jerome H. Kern..................... Common Stock 1,350,000(23) 4.18%
Series A Preferred Stock 13,500(23) 100%
Liberty Media Series A 310,652(24)(25) *
Liberty Media Series B --
LSAT Series A 11,000(26) *
LSAT Series B --
David A. Simpson................... Common Stock 99,000(27) *
Series A Preferred Stock --
Liberty Media Series A --
Liberty Media Series B --
LSAT Series A --
LSAT Series B --
William D. Myers................... Common Stock 30,000(28) *
Series A Preferred Stock --
Liberty Media Series A 60,652(29) *
Liberty Media Series B --
LSAT Series A 53,088 *
LSAT Series B --
Gregory Armstrong.................. Common Stock --
Series A Preferred Stock --
Liberty Media Series A 67,400 *
Liberty Media Series B --
LSAT Series A --
LSAT Series B --
Jean A. DeVera..................... Common Stock 2,840 *
Series A Preferred Stock --
Liberty Media Series A --
Liberty Media Series B --
LSAT Series A --
LSAT Series B --
Anne Doris......................... Common Stock 2,465(30) *
Series A Preferred Stock --
Liberty Media Series A --
Liberty Media Series B --
LSAT Series A --
LSAT Series B --
13
NUMBER
OF SHARES PERCENT
BENEFICIALLY OF
NAME TITLE OF CLASS OWNED CLASS
---- ------------------------------ ------------ --------
Jerry Hodge........................ Common Stock --
Series A Preferred Stock --
Liberty Media Series A --
Liberty Media Series B --
LSAT Series A --
LSAT Series B --
All directors and executive Common Stock 3,605,305 10.40%
officers as a group (21 Series A Preferred Stock 13,500 100%
persons)......................... Liberty Media Series A 7,279,044 *
Liberty Media Series B 638,346 *
LSAT Series A 156,382 *
LSAT Series B --
------------------------
* Less than 1%.
(1) Includes 2,784 shares held by the Liberty 401(k) Saving Plan. Mr. Carroll's
beneficial ownership of these shares is limited to his ability to direct the
voting thereof pursuant to the terms of the savings plan.
(2) Assumes the exercise in full of options, in respect of the following:
(i) options granted in tandem with SARs to acquire 10,215 shares, all of
which are exercisable within 60 days after September 30, 2002; and
(ii) stock options to purchase 10,625 shares, all of which are exercisable
within 60 days after September 30, 2002. Also includes 7,500 restricted
shares, none of which are currently vested.
(3) Includes vested options to purchase 346,016 shares of Series A Liberty Media
Common Stock.
(4) Includes 5,224 shares held by the Liberty Media 401(k) Savings Plan.
(5) Effective as of September 3, 2002, Mr. Goldstein resigned as a member of the
board of directors. Includes vested options to purchase 50,000 shares of
Common Stock, which expire on December 3, 2002.
(6) Includes vested options to purchase 25,000 shares of Common Stock.
(7) Includes 582,177 restricted shares of Liberty Media Series A Common Stock
held by a Grantor Retained Annuity Trust, none of which is currently vested.
(8) Includes options to purchase 2,575,431 shares of Liberty Media Series A
Common Stock, which may be acquired within 60 days after September 30, 2002.
(9) Includes 40,774 shares of Liberty Media Series A Common Stock held by the
Liberty Media 401(k) Savings Plan.
(10) Includes 178,000 shares of Liberty Media Series A Common Stock owned by
Mr. Howard's wife, Leslie D. Howard, and held by a Grantor Retained Annuity
Trust, as to which Mr. Howard has disclaimed beneficial ownership.
(11) Includes 12,308 shares Liberty Media Series A Common Stock held by the
Liberty Media 401(k) Savings Plan for Mr. Howard's wife, Leslie D. Howard,
as to which Mr. Howard has disclaimed beneficial ownership.
(12) Includes options to purchase 50,215 shares of Series A Liberty Satellite
Common Stock, which may be acquired within 60 days of September 30, 2002.
(13) Although Mr. Kern is currently a member of the board of directors, his term
as a director expires on December 20, 2002 and he is not going to stand for
reelection to the board at the annual
14
meeting. The share number assumes the exercise in full of options to
purchase 25,000 shares of Common Stock, which expire on March 20, 2003.
(14) Includes vested options to purchase 124,800 shares of Series A Liberty
Media Common Stock granted in tandem with stock appreciation rights.
(15) Includes vested options to purchase 40,000 shares of Common Stock.
(16) Includes 3,051 shares held by the Liberty 401(k) Savings Plan.
(17) Assumes the exercise in full of (i) stock options granted in tandem with
SARs to purchase 10,000 shares, all of which are exercisable within 60 days
after September 30, 2002; and (ii) stock options to purchase 10,625 shares,
all of which are exercisable within 60 days after September 30, 2002. Also
includes 7,500 restricted shares, none of which are currently vested.
(18) Effective as of September 24, 2002, Mr. Vogel resigned as Chairman of the
Company's board of directors. The share number assumes the exercise in full
of options to purchase 25,000 shares of Common Stock, which expire on
December 24, 2002.
(19) On October 8, 2001, Mr. Vogel resigned as an officer of Liberty Media. The
share number assumes the exercise in full of options to purchase 200,000
shares, which expired on October 8, 2002.
(20) Includes vested options to purchase 50,000 shares of Common Stock.
(21) Includes 498,758 shares of Series A Liberty Common Stock held in investment
accounts managed by Mr. Wargo as to which he shares voting and investment
power and as to which he disclaims beneficial ownership.
(22) See Footnote (6) to the beneficial ownership table included under the
heading, "--Does anyone own more than five percent of any class of the
Company's stock?" on page 10.
(23) See Footnote (8) to the beneficial ownership table included under the
heading, "--Does anyone own more than five percent of any class of the
Company's stock?" on page 10.
(24) Includes options to purchase 58,000 shares of Liberty Series A Common
Stock, which may be acquired within 60 days after September 30, 2002.
(25) Includes 80,400 shares of Liberty Series A Common Stock held by Mr. Kern's
wife, Mary Rossick Kern, as to which shares Mr. Kern has disclaimed
beneficial ownership.
(26) Includes vested options to purchase 10,000 shares of Liberty Satellite
Series A Common Stock granted in tandem with stock appreciation rights.
(27) Includes vested options to purchase 99,000 shares of Common Stock.
(28) Includes vested options to purchase 30,000 shares of Common Stock.
(29) Includes vested options to purchase 43,964 shares of Liberty Series A
Common Stock granted in tandem with stock appreciation rights.
(30) Includes 2,465 shares of Common Stock acquired through the Company's
Employee Stock Purchase Plan.
In addition, Jerry Hodge, a former officer of the Company named in the table
above, holds 50,000 shares of common stock of Digital Music Network d/b/a
Instant Media Network, one of the Company's privately-held, controlled
subsidiaries. Mr. Hodge's interest in Digital Music Network represents less than
a 1% common equity and voting interest in Digital Music Network based on the
number of shares of common stock outstanding as of September 30, 2002.
ARE THERE ANY ARRANGEMENTS WHICH MAY RESULT IN A CHANGE IN CONTROL OF THE
COMPANY?
We know of no arrangements, including any pledge by any person of the
Company's securities, the operation of which may at a subsequent date result in
a change in control of the Company.
15
WHO ARE THE EXECUTIVE OFFICERS?
The following lists the Company's executive officers, other than executive
officers who also serve as directors of the Company and who are listed under
"Proposal 1--Election of Directors," beginning on page 5. During the second
quarter of 2002, William Myers resigned as an officer of the Company and Bernard
G. Dvorak became the Company's new Senior Vice President, Chief Financial
Officer and Treasurer.
Bernard G. Dvorak ........................ Has been Senior Vice President, Chief Financial Officer
Born April 19, 1960 and Treasurer of On Command since July 2002. Mr. Dvorak
was Chief Executive Officer and a member of the board of
directors of Formus Communications, Inc., from September
2000 until June 2002, and from April 1999 until
September 2000, he served as Chief Financial Officer of
Formus Communications, Inc., a provider of fixed
wireless services in Europe. On March 28, 2001, an
involuntary petition under Chapter 7 of the United
States Bankruptcy Code was filed against Formus
Communications, Inc., in the United States Bankruptcy
Court for the District of Colorado. From February 1998
until April 1999, Mr. Dvorak was President, Chief
Executive Officer and a member of the board of directors
of Cordillera Communications Corp., and from February
1997 until February 1998, he served as Chief Financial
Officer of Cordillera Communications Corp., a
specialized mobile radio operator in Latin America.
David A. Simpson ......................... Has been Senior Vice President of Research & Development
Born February 19, 1958 and Engineering of On Command since July 2001, and
Senior Vice President of Research & Development,
Operations and Engineering from October 2000 until July
2001. Mr. Simpson was Vice President, Operations of On
Command, from July 1998 until October 2000. From January
1997 until June 1998, Mr. Simpson founded HomeIntranet,
Inc., a start-up venture formed to design and market an
integrated residential gateway device to simplify
television, voice, data and home automation.
Laurence M. Smith ........................ Has been Senior Vice President of Sales and Distribution
Born April 16, 1959 for On Command since November 2001. From August 2001 to
November 2001, Mr. Smith served as a consultant for On
Command. Mr. Smith was Executive Vice President of Sales
and Marketing for IntelliReady, Inc., a provider of
wiring and technology for entertainment, communication
and data networks, from October 2000 until June 2001,
and President of Sun Valley Resources, Inc., a start-up
applications service provider serving professional
employment organizations, from February 2000 until
October 2000. From November 1996 until January 2000, Mr.
Smith was co-founder and Executive Vice President of
Internet Gift Registries, Inc., an e-commerce start-up
venture.
16
Pamela J. Strauss ........................ Has been Senior Vice President, General Counsel and
Born September 5, 1960 Secretary of the Company since January 2002, and Vice
President, General Counsel and Secretary since June
2001. Ms. Strauss has also served as General Counsel of
Liberty Satellite since February 2000, and Secretary of
Liberty Satellite since April 2000. Ms. Strauss served
as Corporate Counsel for Liberty Satellite from April
1994 to April 1998, and Assistant Secretary from
December 1996. Ms. Strauss has also served as Associate
General Counsel for Phoenixstar, Inc. since April 1998,
Secretary since July 1999 and Assistant Secretary from
August 1997 to June 1999.
Except as indicated above, there are no family relations by blood, marriage
or adoption, of first cousin or closer, among the above named individuals.
During the past five years, none of the persons named above has had any
involvement in such legal proceedings as would be material to an evaluation of
his or her ability or integrity.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
HOW OFTEN DID THE BOARD OF DIRECTORS MEET DURING 2001?
For the year ended December 31, 2001, the Company's board of directors met
eleven times. During 2001, each director other than Peter Kern attended, either
in person or telephonically, at least 75% of the aggregate of the total number
of board of directors meetings and the total number of meetings held by the
committees of the board of directors on which they served.
ARE THERE ANY BOARD COMMITTEES?
The board of directors has three standing committees, which are described
below.
THE EXECUTIVE COMMITTEE
The Executive Committee may exercise all of the powers and authority of the
board of directors in the management of the business and affairs of the Company,
except to the extent limited by Delaware law. The Executive Committee was
established and approved by the board of directors in April 2000. The Executive
Committee consists of Messrs. Gould (Chairman), Fitzgerald and Howard. The
Executive Committee did not meet during 2001.
THE AUDIT COMMITTEE
The principal responsibilities of the Audit Committee are described in the
Audit Committee Charter that was adopted by the Company's board of directors and
is attached as Annex A to this proxy statement. The Audit Committee reviews the
scope and approach of the annual audit, the annual financial statements and the
auditor's reports thereon and the auditor's comments relative to the adequacy of
the Company's system of internal controls and accounting systems. The Audit
Committee is also responsible for recommending to the board of directors the
appointment of independent public accountants for the following year. During
2001 and thereafter until September 2002, the Audit Committee was comprised of
Messrs. Wargo (Chairman), Wilson and Goldstein. On September 3, 2002 and
September 18, 2002, Messrs. Goldstein and Wilson, respectively, resigned as
members of the board of directors. Effective November 15, 2002, the Audit
Committee is comprised of Messrs. Hammond (Chairman), Wargo and Carroll. The
Audit Committee met one time in 2001.
The Marketplace Rules of the National Association of Securities
Dealers, Inc. (which are sometimes referred to in this proxy statement as the
"NASD Rules") generally require that companies
17
listed on The Nasdaq Stock Market maintain an Audit Committee consisting of at
least three independent directors. However, under exceptional and limited
circumstances, NASD Rule 4350(d)(2)(B) permits Nasdaq listed companies to have
one member of the Audit Committee who does not meet the definition of
independent director under NASD Rule 4200(a)(14), provided that such person is
not a current employee of the company nor an immediate family member of any
individual who is an employee of the Company.
During 2001, each member of the Audit Committee, comprised of
Messrs. Wargo, Goldstein and Wilson, was an independent director, as defined
under NASD Rule 4200(a)(14). With respect to the board's current Audit
Committee, each of Messrs. Wargo and Hammond is an independent director as
defined in NASD Rule 4200 (a)(14). Mr. Carroll is not an independent director as
defined in such NASD Rule as he is currently an officer and employee of the
Company's indirect parent, Liberty Satellite. However, the board of directors
determined that the recent and unexpected resignations of Messrs. Goldstein and
Wilson constitute "exceptional and limited circumstances" within the meaning of
NASD Rule 4350(d)(2)(B). The board of directors further determined that it is in
best interests of the Company and its stockholders to have Mr. Carroll serve on
the Audit Committee on an interim basis until the Company is able to locate and
appoint another willing and qualified individual who meets the independent
director requirements of NASD Rule 4200(a)(14).
THE COMPENSATION COMMITTEE
The purpose of the Compensation Committee is to review management
compensation levels and provide recommendations to the board of directors
regarding salaries and other compensation for the Company's executive officers,
including bonuses and incentive programs. During 2001 and thereafter until
September 2002, the Compensation Committee was comprised of Messrs. Goldstein
(Chairman) and Wilson. Effective November 14, 2002, the Compensation Committee
is comprised of Messrs. Wargo (Chairman) and Hammond. The Compensation Committee
met one time during 2001.
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the Company's audited
consolidated financial statements with management. The Audit Committee has also
discussed with the independent auditors the matters required to be discussed by
the Statement on Auditing Standards No. 61 (SAS 61--Communication with Audit
Committees), as amended, relating to the auditors' judgment about the quality of
the Company's accounting principles, judgments and estimates, as applied in its
financial reporting.
The Audit Committee has received the written disclosures and the letter from
the independent public accountants required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), as amended,
that relates to the accountants' independence from the Company and its
subsidiaries, and has discussed with the independent public accountants their
independence.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Company's board of directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, for filing with the SEC.
J. David Wargo
18
COMPENSATION INFORMATION
HOW ARE DIRECTORS COMPENSATED?
In May 1997, the Company adopted a compensation plan for independent
directors, providing for both a cash component and an equity component. As cash
compensation for their service to the Company, each independent director
receives an annual retainer of $6,000 in cash, payable quarterly, $500 for each
board meeting attended, and $500 for each meeting of a committee of the board
attended. Each independent director who is also a chairman of a committee of the
board receives an additional annual fee of $2,000 payable quarterly.
The equity component of such compensation plan was set forth in the 1997
Non-Employee Directors Stock Plan adopted by the board of directors and the
stockholders of the Company (hereinafter referred to in this proxy statement as
the "Directors Stock Plan"). Under the Directors Stock Plan, each independent
director was originally granted an award of 400 shares of Common Stock and a
non-qualified option to purchase 4,000 shares of Common Stock, priced at the
fair market value on the date of grant, each on an annual basis effective
immediately following the Company's annual stockholder meeting. Such options are
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.
In April 1999, the board ratified and adopted an amendment to the Directors
Stock Plan, which amendment was approved by the stockholders at the Company's
1999 annual stockholders meeting. Pursuant to the amendment, the independent
directors would continue to receive 400 shares annually, however, the annual
grant to independent directors of an option to purchase 4,000 shares of Common
Stock was replaced with a one-time grant of an option to purchase 50,000 shares
of Common Stock. Under the terms of the amendment, any independent director who
received such an option would not be eligible to receive an additional option
under the Directors Stock Plan until the fifth annual meeting after the original
grant. Such options provided for vesting of 25% on the first anniversary of
grant, and 25% and 50%, respectively, on the second and third anniversaries, or
100% upon a change in control of the Company. In November 1999, the board acted
to provide that the acquisition of Ascent by Liberty would constitute a change
in control of the Company for purposes of the Directors Stock Plan.
In June 2000, the board adopted a further amendment to the Directors Stock
Plan, which amendment was approved by the Company's stockholders in
October 2000, to increase the authorized number of shares under the Plan subject
to the grant of options from 296,800 to 696,800 shares.
Since May 1997, the definition of independent director has changed, both for
purposes of the Directors Stock Plan and for purposes of the cash compensation
paid to independent directors. Initially, "independent director" meant a
director who was not an employee of the Company or any direct or indirect parent
or subsidiary of the Company. In June 2000, the board of directors changed the
definition of independent director to mean a director who was not an officer or
employee of the Company. This change was subsequently approved by the Company's
stockholders as an amendment to the Directors Stock Plan in October 2000. Then,
on May 9, 2002, the definition of the term "independent director" was changed
again to mean a director who is not an employee of the Company or Liberty Media,
or of any of their respective subsidiaries or affiliates, which is the current
meaning of the term for both the Directors Stock Plan and the cash compensation
paid by the Company to its independent directors.
In addition to the compensation provided generally to independent directors,
as described above, during the first quarter of 2002, Messrs. Goldstein and
Wargo each received $60,000 for their service during 2001 and the first quarter
of 2002 on a special committee formed by the board of directors.
19
SUMMARY COMPENSATION TABLE
The following table is a summary of all forms of compensation paid by the
Company to the officers named therein for services rendered in all capacities to
the Company for the fiscal years ended December 31, 2001, 2000 and 1999 (total
of eight persons).
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION STOCK OPTIONS/SARS COMPENSATION
NAME AND POSITION YEAR ($) ($) ($) AWARD(S) ($) (#) ($)(8)
----------------- -------- -------- -------- ------------ ------------ ------------ ------------
Christopher Sophinos(1)....... 2001 201,262 50,000 -- -- 200,000 --
President and Chief 2000 -- -- -- -- -- --
Executive Officer 1999 -- -- -- -- -- --
Jerome H. Kern(2)............. 2001 254,199 -- -- -- -- 31,480
Former Chairman and 2000 389,583 -- -- -- -- 667
Chief Executive Officer 1999 -- -- -- -- -- --
David A. Simpson.............. 2001 290,000 -- -- -- -- 12,114
Senior Vice President, 2000 212,855 19,812 -- -- 100,000 6,281
Research & Development and 1999 155,308 -- -- -- 35,000 5,478
Engineering
William D. Myers(3)........... 2001 132,708 30,000 -- -- 150,000 11,561
Former Executive Vice 2000 -- -- -- -- -- --
President, Chief Financial 1999 -- -- -- -- -- --
Officer and Treasurer
Gregory Armstrong(4).......... 2001 290,000 -- -- -- 150,000 11,567
Former Executive Vice 2000 84,583 -- -- -- -- --
President and Chief Operating 1999 -- -- -- -- -- --
Officer
Jean A. DeVera(5)............. 2001 137,502 -- -- -- -- 309,101
Former Senior Vice 2000 291,294 67,475 -- -- -- 6,475
President, Sales 1999 178,000 38,000 -- -- 50,000 5,790
Anne Doris(6)................. 2001 192,307 -- -- -- 100,000 22,168
Former Senior Vice 2000 -- -- -- -- -- --
President, Marketing and 1999 -- -- -- -- -- --
Programming
Jerry Hodge(7)................ 2001 235,240 100,000 -- -- -- 90,284
Former Senior Vice President-- 2000 -- -- -- -- -- --
On Command Chief Executive 1999 -- -- -- -- -- --
Officer of Casino and Gaming
Division
------------------------------
(1) Mr. Sophinos became President of the Company on April 27, 2001. Although
Mr. Sophinos has continued to perform duties as an officer of Liberty
Satellite, Mr. Sophinos has devoted substantially all of his time to the
Company since April 27, 2001. As such, the Company was responsible for
Mr. Sophinos' compensation from May 1, 2001 through December 31, 2001, and
the 2001 compensation in the table represents the amount paid to reimburse
Liberty Satellite for Mr. Sophinos' compensation for the eight months ended
December 31, 2001.
(2) Mr. Kern became Chief Executive Officer and Chairman of the Board of
Directors on April 1, 2000. Accordingly, the 2000 compensation information
included in the table represents nine months of employment. Mr. Kern
resigned as Chief Executive officer on April 27, 2001 and as Chairman on
June 1, 2001. Accordingly, the 2001 compensation information included in the
table represents five months of employment.
(3) Mr. Myers became Executive Vice President, Chief Financial Officer and
Treasurer on June 1, 2001. Accordingly, the compensation information
included in the table represents seven months of employment. Mr. Myers
resigned from the Company on June 7, 2002.
20
(4) Mr. Armstrong became Senior Vice President for International and Special
Projects in September 2000. Accordingly, the 2000 compensation information
included in the table represents three and one-half months of employment.
Mr. Armstrong resigned from the Company on December 31, 2001.
(5) Ms. DeVera's employment with the Company terminated on May 31, 2001.
Accordingly, the 2001 compensation information included in the table
represents five months of employment.
(6) Ms. Doris became Senior Vice President, Marketing and Programming in
March 2001. Accordingly, the 2001 compensation information included in the
table represents nine and one half months of employment. Ms. Doris'
employment with the Company terminated on January 2, 2002.
(7) Mr. Hodge's employment with the Company terminated on September 30, 2001.
Accordingly, the 2001 compensation information included in the table
represents nine months of employment. Mr. Hodge received a one-time $100,000
payment in February 2001 as a part of his hiring package.
(8) For 2001, other compensation includes: (i) contributions by the Company on
behalf of the executives to the On Command 401(k) Plan; (ii) life insurance
premiums for policies in excess of $50,000 face value; and (iii) all
severance and final payout of accumulated paid time-off for the named
executive officers whose employment with the Company ended during 2001. For
2000 and 1999, the other compensation amounts include the Company's matching
contributions to the On Command 401(k) Plan and insurance premiums paid by
the Company. The On Command 401(k) Plan provides employees with an
opportunity to save for retirement by contributing up to 15% of their
eligible earnings in several different mutual funds. The Company, by annual
resolution of the board of directors, generally contributes up to 50% of the
amount contributed by the employee up to a maximum matching contribution of
4%. Participant contributions to the On Command 401(k) Plan are fully vested
upon contribution. Details of other compensation for 2001 are summarized
below:
YEAR ENDED DECEMBER 31, 2001
---------------------------------------------------------------------
COMPANY MATCH OF SEVERANCE AND
401(K) INSURANCE PREMIUMS ACCUMULATED
NAME CONTRIBUTION PAID BY COMPANY PAID TIME-OFF TOTAL
---- ----------------- ------------------- ---------------- --------
Christopher Sophinos................. $ -- $ -- $ -- $ --
Jerome H. Kern....................... -- 807 30,673 31,480
David A. Simpson..................... 10,500 1,614 -- 12,114
William D. Myers..................... 10,500 1,061 -- 11,561
Gregory Armstrong.................... 9,953 1,614 -- 11,567
Jean A. DeVera....................... 10,500 673 297,928 309,101
Anne Doris........................... 10,500 1,211 10,457 22,168
Jerry Hodge.......................... 9,953 1,076 79,255 90,284
OPTION GRANTS IN LAST FISCAL YEAR
The following table discloses information regarding stock options granted
during the year ended December 31, 2001, to each of the executive officers of
the Company named in the Summary Compensation Table above in respect of shares
of Common Stock under the Company's Amended and Restated 1996 Key Employee Stock
Plan.
INDIVIDUAL GRANTS
--------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION PRESENT
GRANTED(#)(1) IN 2001(2) ($/SHARE)(3) DATE VALUE ($)(4)
------------- ---------------- ------------ ---------- ------------
Chris Sophinos................... 200,000 16% $5.7950 6/5/11 $748,000
William D. Myers................. 150,000 12% $5.7950 6/5/11(5) $561,000
Anne Doris....................... 100,000 8% $7.5000 3/13/11(6) $420,000
Jerry Hodge...................... 150,000 12% $9.7500 3/13/11(7) $573,000
------------------------
(1) The options expire ten years from grant date and vest 20% annually over five
years.
(2) The total number of options granted to On Command employees in 2001 was
1,267,000.
(3) Represents the closing market price per share of the Common Stock on the
date of the grant.
21
(4) The value shown is based upon the Black-Scholes model and is stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
(a) a discount rate equal to the one-year Treasury Bill rate at the date of
grant; (b) a 71.8% volatility factor; (c) a five-year option term; (d) the
closing price of Common Stock on the date of grant; and (e) an expected
dividend rate of zero. The actual value realized will depend on the extent
to which the stock price exceeds the exercise price on the date the option
is exercised. Accordingly, the realized value, if any, will not necessarily
be the value determined by the model.
(5) Mr. Myers' unvested options on 120,000 shares of Common Stock expired on
June 7, 2002, in connection with his resignation from the Company. The
30,000 of vested options expire on September 7, 2004 pursuant to the terms
of a consulting arrangement Mr. Myers has with the Company. For a more
detailed discussion of this arrangement, see "Certain Relationships and
Related Party Transactions--Consulting Arrangement with William D. Myers,"
beginning on page 27.
(6) Ms. Doris' options expired on January 2, 2002 in connection with the
termination of her employment.
(7) Mr. Hodge's options expired on September 30, 2001 in connection with the
termination of his employment.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table provides, for the executives named in the Summary
Compensation Table above, information on (i) the exercise during the year ended
December 31, 2001 of options with respect to shares of Common Stock, (ii) the
number of shares of Common Stock represented by unexercised options owned by
them at December 31, 2001, and (iii) the value of those options as of the same
date.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/01 OPTIONS AT 12/31/01
SHARES --------------------------- ---------------------------
ACQUIRED ON VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
EXERCISE REALIZED ($) (#) (#) ($) ($)
----------- ------------ ----------- ------------- ----------- -------------
Christopher Sophinos...... -- -- -- 200,000 $ -- $ --
Jerome H. Kern............ -- -- -- -- $ -- $ --
David A. Simpson.......... -- -- 73,000 92,000 $ -- $ --
William D. Myers(1)....... -- -- -- 150,000 $ -- $ --
Gregory Armstrong(2)...... -- -- -- -- $ -- $ --
Jean A. DeVera(3)......... -- -- 110,000 -- $ -- $ --
Anne Doris(4)............. -- -- -- 100,000 $ -- $ --
Jerry Hodge............... -- -- -- -- $ -- $ --
------------------------
(1) Mr. Myers' unvested options on 120,000 shares expired on June 7, 2002, in
connection with his resignation from the Company.
(2) Mr. Armstrong's options expired on December 31, 2001, and March 31, 2002, in
connection with his resignation from the Company.
(3) Ms. DeVera's options expired on May 31, 2002, in connection with the
termination of her employment.
(4) Ms. Doris' options expired on January 2, 2002, in connection with the
termination of her employment.
22
DOES THE COMPANY HAVE ANY TERMINATION OR SEVERANCE AGREEMENTS WITH ANY OF ITS
FORMER DIRECTORS OR NAMED EXECUTIVE OFFICERS?
SEPARATION AND RELEASE AGREEMENT OF JEROME H. KERN
Pursuant to a Separation and Release Agreement dated as of April 25, 2001
between Jerome H. Kern and the Company, the employment of Mr. Kern with the
Company and its subsidiaries was terminated on April 27, 2001. Mr. Kern
continued to serve as Chairman of the Board of Directors of the Company until
June 1, 2001 (the "Termination Date"). Until the Termination Date, Mr. Kern was
paid his regular salary and remained eligible to receive all employment benefits
to which he was then entitled. Other than as required by COBRA, all employment
benefits provided to Mr. Kern terminated on the Termination Date. Pursuant to
the terms of that certain Stock Purchase and Loan Agreement dated as of
August 8, 2000 between the Company and Mr. Kern (the "Stock Purchase
Agreement"), whereby Mr. Kern purchased 13,500 shares of Series A Preferred
Stock, the Company had a right to repurchase such shares upon the termination of
Mr. Kern's employment with the Company and its subsidiaries. The Company waived
this repurchase right under the terms of the Separation and Release Agreement.
The Stock Purchase Agreement was amended, however, to provide that to the extent
Mr. Kern had the right to vote any shares of stock acquired pursuant to such
agreement as a separate class, Mr. Kern would cause such shares to be voted in
the manner recommended by the Company's Board of Directors. See "Certain
Relationships and Related Party Transactions--Transactions with Jerome H. Kern"
beginning on page 28 for a further discussion of the terms of the Stock Purchase
Agreement. As part of the Separation and Release Agreement, Mr. Kern agreed to
release the Company and certain related entities and individuals, and the
Company agreed to release Mr. Kern, from any and all causes of action, claims,
charges, demands, losses, damages, costs, attorneys' fees, judgments, liens,
indebtedness and liabilities of every kind and character, except for claims
arising from a breach by the other party of its obligations under the Separation
and Release Agreement and certain claims for indemnification by Mr. Kern.
WAIVER AND RELEASE AGREEMENT OF JEAN A. DEVERA
On May 31, 2001, the employment of Jean A. DeVera was terminated by the
Company. Ms. DeVera held the title of Senior Vice President, Sales with the
Company at the time of her termination. On June 6, 2001, Ms. DeVera executed a
Waiver and Release Agreement pursuant to which the Company agreed to pay her
$275,000 less applicable tax withholding on or before 21 days following the
execution of such agreement in consideration for the release of the Company and
certain related entities and individuals from any and all causes of action,
claims, charges, demands, losses, damages, costs, attorneys' fees and
liabilities of any kind. All stock options held by Ms. DeVera became exercisable
on the date of her termination and terminated on May 31, 2002.
THE EXECUTIVE SEVERANCE PAY PLAN
On May 1, 2002, the Company adopted the 2002 Executive Severance Pay Plan.
Employees eligible to participate under the Executive Severance Pay Plan include
the Company's Senior Vice Presidents, Executive Vice Presidents, President and
Chief Executive Officer. Under the Executive Severance Pay Plan, an eligible
employee may receive certain payments and benefits in the event such employee's
employment (i) is terminated by the Company as a result of a layoff, reduction
in force, or as part of a corporate transaction involving the Company where the
employee is not offered comparable employment with the entity involved in the
corporate transaction with the Company, or (ii) is terminated by the employee
for good reason. A termination of employment by the employee will be considered
"good reason" if the employee terminates his or her employment because the
employee is relocated by the Company or a successor-in-interest to the Company
to a primary job location more than 50 miles from the employee's prior job
location with the Company or because the employee's base
23
wage rate is reduced by any amount. The plan administrator has the sole
discretion to determine whether these conditions are met.
Under the Executive Severance Pay Plan, if an executed waiver and release
agreement is delivered by the eligible employee to the Company within the period
specified by the Company, eligible employees are entitled to salary continuation
as follows:
TITLE OF ELIGIBLE EMPLOYEE PERIOD OF COMPENSATION
------------------------------------------------ ----------------------
Senior Vice President 12 months
Executive Vice President 18 months
President or Chief Executive Officer 24 months
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The current members of the Compensation Committee of the board of directors
are Messrs. J. David Wargo (Chairman) and Mark K. Hammond. Messrs. Goldstein and
Wilson served as members of the Compensation Committee during 2001 and
thereafter until their resignations as members of the board of directors in
September 2002. No member of the Company's Compensation Committee during 2001
nor any member of the current Compensation Committee is or was an officer in the
Company or any of its affiliates.
COMPENSATION REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed entirely of non-employee directors
and is responsible for developing and making recommendations to the board of
directors with respect to the Company's executive compensation policies and
practices. In addition, the Compensation Committee determines the compensation
to be paid to the Chief Executive Officer and each of the other executive
officers. The Compensation Committee is currently composed of two directors, J.
David Wargo (Chairman) and Mark K. Hammond.
The report on executive compensation is generally provided by the members of
the Compensation Committee. However, since the members of the Compensation
Committee during 2001 are no longer members of the Company's board of directors,
the following compensation report is being made by those current members of the
Company's board of directors who were directors during 2001 and who participated
in certain executive compensation decisions covered by this report.
COMPENSATION PHILOSOPHY
The philosophy of the Company's compensation program is, generally, to
provide a performance-based executive compensation program that rewards
executives whose efforts enable the Company to achieve its business objectives
and enhance stockholder value. Specifically, the Company's executive
compensation program has been designed to provide an overall level of
compensation opportunity that is competitive within the telecommunications
industry. The Compensation Committee uses its discretion to set individual
executive compensation levels warranted in its judgment by market practice,
Company performance and individual performance, thereby enabling the Company to
attract, motivate, reward and retain individuals who possess the skills,
experience and talents necessary to advance the Company's growth and financial
performance.
The compensation of the Company's executive officers, including the
executive officers named in the Summary Compensation Table above, is comprised
of three elements: base salary, annual cash bonus and stock options.
BASE SALARY. Base salary is the primary mechanism used to compensate
executives for their management responsibilities. Base salaries are determined
by evaluating the responsibilities of the
24
position, the experience and knowledge of the individual, the contribution of
the individual to the Company's achievements during the prior year and the
competitive marketplace for executive talent. The Chief Executive Officer
recommends annual salary adjustments for executive officers after consideration
of these factors. The Chief Executive Officer's recommendations are considered
by the Compensation Committee in determining executive officers' annual salary
levels. The annual salary of the Chief Executive Officer is determined by the
Compensation Committee with input from the Board of Directors.
ANNUAL BONUS. From time to time, the Company pays annual performance
bonuses to its executive officers, depending upon individual and overall company
performance. The Compensation Committee will generally meet at the beginning of
the year to approve specific performance measures and goals based upon the
business plan for that year and at the conclusion of the year to compare actual
achievements against these goals. None of the Company's executive officers
received a performance bonus in 2001.
STOCK OPTIONS. Stock options provide an incentive for retention of
executive talent and the creation of stockholder value in the long term since
their full benefits cannot be realized unless the price of the Company's stock
appreciates over a specified number of years and the executive continues to
perform services for the Company. The Compensation Committee believes that stock
options serve as an important component of compensation by closely aligning
management's interest and actions with those of the Company's stockholders.
COMPENSATION OF THE EXECUTIVE OFFICERS
The Compensation Committee believes that the 2001 compensation of the
Company's executive officers was reasonable in view of the Company's performance
and the contribution of those officers to that performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Kern served as Chairman and Chief Executive Officer from April 2000
until he resigned as Chief Executive Officer in April 2001 and as Chairman in
June 2001. During this period, he did not have an employment contract.
Mr. Kern's base salary for the year ended December 31, 2001 was $520,000 per
year, and the remaining components of Mr. Kern's compensation for that the year,
which amounted to an additional $31,480, consisted of premiums paid for life
insurance policies and the accumulated "paid time-off" received by him upon his
resignation as an officer of the Company. The Compensation Committee based
Mr. Kern's compensation for the year ended December 31, 2001 primarily on his
experience, his professional accomplishments and the Compensation Committee's
then perception of compensation paid to officers with similar responsibilities
in the Company's industry, and was also based on the Committee's evaluation of
the Company's performance.
Chris Sophinos became President of the Company on April 27, 2001, and Chief
Executive Officer on October 25, 2001. Although Mr. Sophinos continued to
perform duties as an officer of Liberty Satellite through 2001, Mr. Sophinos has
devoted substantially all of his time to the Company since April 27, 2001. As
such, the Company was responsible for Mr. Sophinos' compensation from May 1,
2001 through December 31, 2001. The Company reimbursed Liberty Satellite
$201,262 for Mr. Sophinos' compensation for the eight months ended December 31,
2001. The remaining components of Mr. Sophinos compensation for the year ended
December 31, 2001 consisted of a grant of 200,000 options to purchase Common
Stock and a bonus of $50,000. Mr. Sophinos' base salary for the year ended
December 31, 2001 was initially based on the salary paid to him by Liberty
Satellite. In June 2001, the board of directors ratified the salary that was
being paid to Mr. Sophinos by Liberty Satellite, and also approved the
aforementioned option grant and $50,000 bonus as part of his compensation. The
option and bonus components of Mr. Sophinos' compensation were added because
25
the board anticipated that the demands placed on Mr. Sophinos as the Company's
President would be more significant than the demands placed on him as an officer
of Liberty Satellite, and that he would be required to put forth more time and
effort to perform his duties as the Company's President than what was, and would
be, required of him as an officer of Liberty Satellite. In October 2001, the
Compensation Committee approved an increase in Mr. Sophinos' base salary in
connection with his appointment as Chief Executive Officer based on the
additional responsibilities inherent with this title, the Compensation
Committee's objective of having his base salary remain competitive with salaries
being paid to similarly situated chief executive officers, as well as the
Committee's evaluation of the Company's performance.
SECTION 162 OF THE INTERNAL REVENUE CODE
In adopting and administering executive compensation plans and arrangements,
the Compensation Committee will consider whether the deductibility of such
compensation will be limited under Section 162(m) of the Internal Revenue Code,
as amended, and, in appropriate cases, may serve to structure arrangements so
that any such limitation will not apply.
Paul A. Gould
Gary S. Howard
Peter M. Kern
J. David Wargo
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Common Stock during the five years ended
December 31, 2001, with (a) the cumulative total return on the Nasdaq Index and
(b) the cumulative total return on the Nasdaq Telecommunications Index. The
comparison assumes $100 was invested in Common Stock on December 31, 1996, and
the two stock indices and assumes reinvestment of dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
ON COMMAND CORPORATION, NASDAQ INDEX AND NASDAQ TELECOMMUNICATIONS INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
ON COMMAND NASDAQ INDEX NASDAQ TELECOMMUNICATIONS INDEX
12/31/96 $100 $100 $100
12/31/97 $80 $122 $142
12/31/98 $57 $170 $232
12/31/99 $117 $315 $470
12/31/00 $55 $191 $215
12/31/01 $19 $151 $110
26
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
EXECUTIVE OFFICER LOANS
On August 3, 1998, the Company loaned a Senior Vice President of the Company
$175,000 in connection with such Senior Vice President's relocation. The loan
bears interest at an annual interest rate of 6.34%. Interest accrues annually
but is not payable by the Senior Vice President until the last payment is made
on the loan in accordance with the terms of the loan agreement. All principal
amounts due under the loan are to be paid in three equal payments on
December 31, 2002, 2003 and 2004. If the Senior Vice President is terminated
without cause, all outstanding principal and accrued but unpaid interest remain
due under this payment schedule. If the Senior Vice President resigns from the
Company or is terminated for cause, all outstanding principal and accrued but
unpaid interest is due and owing 30 days after the Senior Vice President's last
day of employment. As of October 31, 2002, the outstanding balance on the loan
to the Senior Vice President, including accrued interest, was approximately
$204,586.65.
EXPENSE ALLOCATIONS FROM LIBERTY MEDIA
Subsequent to Liberty Media's acquisition of Ascent in March of 2000,
Liberty Media and Ascent have allocated certain general and administrative
expenses (including portions of the salaries of certain employees) to the
Company. Although there are no written agreements with Liberty Media and Ascent
for these allocations, the Company believes the amounts to be reasonable.
Allocations from Liberty Media and Ascent aggregated to approximately $900,000
during 2001. In addition, the Company reimburses Liberty Media and Ascent for
certain expenses paid by Liberty Media and Ascent on behalf of the Company.
Amounts owned to Liberty Media and Ascent pursuant to these arrangements totaled
$711,000 at December 31, 2001 and are non-interest bearing.
EXPENSE ALLOCATIONS FROM LIBERTY SATELLITE
During the second quarter of 2001, three employees of Liberty Satellite
began performing duties for the Company. Accordingly, during 2001, portions of
the salaries and related benefits of such employees and certain other
administrative costs were allocated to the Company by Liberty Satellite, which
amounted to $408,000. Effective January 1, 2002, the Company began paying the
compensation of such employees. Certain of the management fees paid by the
Company to Liberty Satellite are actually for services provided by Liberty
Media. As such, when these fees are paid by the Company to Liberty Satellite,
Liberty Satellite subsequently pays such fees to Liberty Media.
SATELLITE TRANSPORT AGREEMENT WITH ASCENT MEDIA GROUP
Effective October 1, 2002, On Command Video Corporation, a wholly owned
subsidiary of the Company, entered into a short term arrangement with Ascent
Media Group, a controlled subsidiary of Liberty Media, pursuant to which Ascent
Media Group is to supply On Command Video with encryption, packaging and
satellite transport services at a cost to On Command Video of $30,000 per month.
On Command Video is utilizing the services to test the satellite delivery of
content updates to various hotels. The term of the arrangement ends on
January 31, 2003, but the parties expect to enter into a long term agreement
which will be effective upon the completion of the test.
CONSULTING ARRANGEMENT WITH WILLIAM D. MYERS
William D. Myers was the Company's Senior Vice President, Chief Financial
Officer and Treasurer until June 7, 2002 when he resigned as an officer of the
Company. On June 5, 2001, Mr. Myers received a option grant of 150,000 shares of
Common Stock. The terms of the Option Agreement pursuant to which such option
was granted provided, among other things, (i) for a five-year vesting period for
the options with the first 20% vesting on the first anniversary date of the
grant and (ii) for
27
the termination of the option three months after the termination of Mr. Myers'
employment with the Company. On June 5, 2002, the option vested with respect to
30,000 shares of Common Stock and based upon Mr. Myers' resignation on June 7,
2002, these vested options were to terminate on September 5, 2002; Mr. Myers'
unvested options under the option grant terminated on June, 7, 2002. Rather than
having Mr. Myers' vested options terminate on September 5, 2002, effective
August 15, 2002, the Company entered into an arrangement with Mr. Myers, whereby
Mr. Myers has agreed to provide up to 80 hours of consulting services to the
Company during the period commencing June 8, 2002 and ending September 8, 2004.
In exchange therefor, the Company has agreed to amend the Option Agreement to
provide an extension of the termination date with respect to the 30,000 vested
options to September 7, 2004.
TRANSACTIONS WITH JEROME H. KERN
AIRPLANE USAGE. The Company had made arrangements for the use of an
airplane owned by a limited liability company of which Jerome H. Kern, the
Company's former Chairman and Chief Executive Officer, is the sole member. When
that airplane was used for purposes related to the conduct of the Company's
business, the Company reimbursed the limited liability company for such use at
market rates. The aggregate amount paid for this service during the year ended
December 31, 2001, was approximately $190,000. This arrangement was terminated
in June 2001.
SERIES A PREFERRED STOCK AND THE SECURED NOTE. On August 8, 2000, the
Company and Mr. Kern entered into a Stock Purchase Agreement pursuant to which
the Company issued 13,500 shares of Series A Preferred Stock to Mr. Kern in
exchange for a $21,080,000 promissory note and a $13,500 cash payment. The
promissory note is secured by the Series A Preferred Stock or proceeds thereon;
Mr. Kern's personal obligations under such promissory note are limited. The
note, which may not be prepaid, is due and payable on August 1, 2005, and
interest on the note accrues at a rate of 7% per annum, compounded quarterly. As
of September 30, 2002, the outstanding balance on the loan to Mr. Kern,
including accrued interest, was approximately $24,455,591.76. The payment of
principal of and interest on the promissory note is secured by a pledge of the
13,500 shares of Series A Preferred Stock issued to Mr. Kern, and any proceeds
thereof, pursuant to the terms of a Pledge and Security Agreement, dated
August 10, 2000 (hereinafter referred to in this proxy statement as the "Pledge
and Security Agreement"), between the Company and Mr. Kern.
In addition, the Stock Purchase Agreement and the Pledge and Security
Agreement contain certain restrictions on Mr. Kern's ability to sell, exchange
or otherwise dispose of, or grant any option or other right with respect to, or
create or suffer any lien or other encumbrance on, any of the collateral under
the Pledge and Security Agreement, including the shares of Series A Preferred
Stock issued to Mr. Kern or shares of Common Stock issued upon conversion
thereof, with certain exceptions. In addition, the shares of Series A Preferred
Stock issued to Mr. Kern are "restricted securities" within the meaning of
Rule 144 under the Securities Act, and accordingly may not be sold, transferred
or otherwise disposed of unless such sale, transfer or other disposition is
effected pursuant to an effective registration statement under the Securities
Act or pursuant to a valid exemption from the registration requirements of the
Securities Act.
Pursuant to the terms of the Certificate of Designations for the Series A
Preferred Stock, each share of Series A Preferred Stock may be converted at any
time, at the option of the holder, into 100 shares of Common Stock (subject to
certain customary adjustments). Shares of Series A Preferred Stock will
participate in any dividends or distributions on the Common Stock on an
as-converted basis, but otherwise are not entitled to receive any regular
dividends. Shares of Series A Preferred Stock are entitled to a preference on
liquidation equal to $.01 per share, and thereafter will participate with the
shares of Common Stock in any liquidating distributions on an as-converted
basis. Shares of Series A Preferred Stock vote together with the Common Stock on
all matters presented to a vote of the stockholders of the Company, and holders
of Series A Preferred Stock are entitled to one vote per
28
share of Series A Preferred Stock held. Pursuant to the terms of the Stock
Purchase Agreement, Mr. Kern has agreed that if the shares of Series A Preferred
Stock held by him become entitled to vote as a separate class on any matter
presented to the stockholders of the Company he will cause such shares of
Series A Preferred Stock to be voted for or against such matter in the same
proportion as the holders of shares of Common Stock vote upon such matter.
Furthermore, the Stock Purchase Agreement was amended to provide that to the
extent Mr. Kern had the right to vote any shares of stock acquired pursuant to
such agreement as a separate class, Mr. Kern would cause such shares to be voted
in the manner recommended by the Company's board of directors.
The Stock Purchase Agreement provides that Mr. Kern and the Company will
enter into a mutually acceptable registration rights agreement having customary
terms and conditions and providing Mr. Kern with two demand registration rights
(each of which may be a "shelf" registration) in respect of shares of Common
Stock issuable upon conversion of shares of Series A Preferred Stock, but will
not provide any rights to participate in registrations initiated by the Company
or others. The initial terms of the Stock Purchase Agreement provided the
Company with the right to repurchase all or a specified portion (depending upon
the date on which Mr. Kern's employment is terminated) of the shares of
Series A Preferred Stock, or shares of Common Stock issued upon conversion
thereof, for a purchase price that is equivalent to the amount of Mr. Kern's
indebtedness related thereto under the promissory note, if Mr. Kern's employment
with the Company is terminated before April 6, 2005. In connection with the
termination of Mr. Kern's employment with the Company, however, the Company
waived this right to repurchase these shares. See "--Does the Company have any
termination or severance agreements with any of its former directors or named
executive officers?--Separation and Release Agreement of Jerome H. Kern,"
beginning on page 23 for a further discussion of the severance arrangements
between the Company and Mr. Kern.
ISSUANCE OF SERIES B PREFERRED STOCK TO ASCENT
On March 5, 2001, the Company issued 15,000 shares of the Company's
Cumulative Redeemable Preferred Stock, Series B, par value $.01 per share
("Series B Preferred Stock"), to Ascent in consideration of $15,000,000 in cash,
pursuant to a Preferred Stock Purchase Agreement, dated March 5, 2001 (the
"Series B Purchase Agreement"), between the Company and Ascent.
The liquidation preference (the "Series B Liquidation Preference") of each
share of the Series B Preferred Stock as of any date of determination is equal
to the sum of (a) the stated value per share of $1,000, plus (b) an amount equal
to all dividends accrued on such share which have been added to and remain a
part of the Series B Liquidation Preference as of such date, plus (c) for
purposes of the liquidation and redemption provisions of the Series B Preferred
Stock, an amount equal to all unpaid dividends accrued on the sum of the amounts
specified in clauses (a) and (b) above during the period from and including the
immediately preceding dividend payment date to but excluding the date in
question. At September 30, 2002, the Series B Liquidation Preference amounted to
$18,114,841.
The holders of Series B Preferred Stock are entitled to receive cumulative
dividends, when and as declared by the Company, in preference to dividends on
junior securities, including the Common Stock and the Series A Preferred Stock.
Dividends accrue on the Series B Preferred Stock on a daily basis at the rate of
8.5% per annum of the Series B Liquidation Preference from and including
March 5, 2001 to but excluding April 15, 2001 and at the rate of 12% per annum
of the Series B Liquidation Preference from and including April 15, 2001 to but
excluding the date on which the Series B Liquidation Preference is made
available pursuant to a redemption of the Series B Preferred Stock or a
liquidation of the Company. Accrued dividends are payable monthly, commencing on
April 15, 2001, in cash. Dividends not paid on any dividend payment date are
added to the Series B Liquidation Preference on such date and remain a part of
the Series B Liquidation Preference until such dividends are paid. Dividends
added to the Series B Liquidation Preference shall accrue dividends on a daily
basis at the rate of 12% per annum. Accrued dividends not paid as provided above
on any dividend
29
payment date accumulate and such accumulated unpaid dividends may be declared
and paid at any time without reference to any regular dividend payment date, to
holders of record of Series B Preferred Stock as of a special record date fixed
by the Company. Subject to certain specified exceptions, the Company is
prohibited from paying dividends on any parity securities or any junior
securities (including the Common Stock) during any period in which the Company
is in arrears with respect to payment of dividends on Series B Preferred Stock.
Upon any liquidation, dissolution or winding up of the Company, the holders
of Series B Preferred Stock are entitled to receive from the assets of the
Company available for distribution to stockholders an amount in cash per share
equal to the Series B Liquidation Preference of a share of Series B Preferred
Stock, after payment is made on any senior securities and before any
distribution or payment is made on any junior securities, which payment will be
made ratably among the holders of Series B Preferred Stock and the holders of
any parity securities. The holders of Series B Preferred Stock will be entitled
to no other or further distribution of or participation in the remaining assets
of the Company after receiving the Series B Liquidation Preference per share.
Series B Preferred Stock is not convertible into any other security of the
company.
Shares of Series B Preferred Stock are redeemable at the option of the
Company at any time after March 5, 2001 at a redemption price per share payable
in cash equal to the Series B Liquidation Preference of such share on the
redemption date. Any redemptions by the Company are required to be made pro rata
if less than all shares of Series B Preferred stock are to be redeemed.
At any time on or after April 15, 2001, or prior to that date, if certain
events of bankruptcy occur and are continuing, any holder of Series B Preferred
Stock has the right to require the Company to redeem all or any portion of such
holder's shares for a redemption price per share payable in cash equal to the
Series B Liquidation Preference of that share on the redemption date. The
Company will redeem shares at the option of the holder out of funds that are
legally available for that purpose and not restricted pursuant to the Credit
Agreement, dated as of July 18, 2000, as amended, among the Company and the
lenders and other parties signatory thereto, as may be amended or modified from
time to time (the "Credit Agreement"). If the legally available funds are
insufficient for that purpose, the Company will redeem the maximum number
possible of the shares requested to be redeemed on the redemption date and will
redeem the balance of such shares as additional funds become legally available.
If and so long as the Company fails to redeem all shares of Series B
Preferred Stock required to be redeemed on a particular redemption date, the
Company may not redeem or discharge any sinking fund obligation with respect to
any shares of Series B Preferred Stock or any parity securities or junior
securities or pay any dividends on any junior securities, and neither the
Company nor any of its subsidiaries may purchase or otherwise acquire any shares
of Series B Preferred Stock, parity securities or junior securities unless all
shares of Series B Preferred Stock required to be redeemed are redeemed. The
foregoing prohibitions do not apply to certain purchase or exchange offers made
to all holders of Series B Preferred Stock.
Series B Preferred Stock will not rank junior to any other capital stock of
the Company in respect of rights of redemption or rights to receive dividends or
liquidating distributions. The Company may not issue any senior securities
without the consent of the holders of at least 66 2/3% of the number of shares
of Series B Preferred Stock then outstanding.
Holders of Series B Preferred Stock are not entitled to vote on any matters
submitted to a vote of the stockholders of the Company, except as required by
law and except that without the consent of the holders of at least 66 2/3% of
the number of shares of Series B Preferred Stock then outstanding, the Company
may not take any action, including by merger, to amend any of the provisions of
the certificate of designations of the Series B Preferred Stock (the
"Certificate of Designations") or amend
30
any of the provisions of the Restated Certificate of Incorporation of the
Company so as to adversely affect any preference or right of the Series B
Preferred Stock.
Any provision of the Certificate of Designations which, for the benefit of
the holders of Series B Preferred Stock, prohibits, limits or restricts actions
by, or imposes obligations on, the Company may be waived in whole or in part by
the affirmative vote or with the consent of the holders of record of at least
66 2/3% of the number of shares of Series B Preferred Stock then outstanding.
Holders of Series B Preferred Stock do not have any preemptive right to
purchase any class of securities that may be issued by the Company.
ISSUANCE OF SERIES C PREFERRED STOCK TO ASCENT
The Company issued 10,000 shares of Cumulative Redeemable Preferred Stock,
Series C, par value $0.01 per share ("Series C Preferred Stock"), of the Company
to Ascent in consideration of $10,000,000 in cash, pursuant to the Preferred
Stock Purchase Agreement, dated April 23, 2001 (the "Series C Purchase
Agreement"), between the Company and Ascent.
The liquidation preference (the "Series C Liquidation Preference") of each
share of the Series C Preferred Stock as of any date of determination is equal
to the sum of (a) the stated value per share of $1,000, plus (b) an amount equal
to all dividends accrued on such share which have been added to and remain a
part of the Series C Liquidation Preference as of such date, plus (c) for
purposes of the liquidation and redemption provisions of the Series C Preferred
Stock, an amount equal to all unpaid dividends accrued on the sum of the amounts
specified in clauses (a) and (b) above during the period from and including the
immediately preceding dividend payment date to but excluding the date in
question. At September 30, 2002, the Series C Liquidation Preference amounted to
$11,883,756.
The holders of Series C Preferred Stock are entitled to receive cumulative
dividends, when and as declared by the Company, in preference to dividends on
junior securities, including the Company's Common Stock and Series A Preferred
Stock. Dividends accrue on the Series C Preferred Stock on a daily basis at the
rate of 12% per annum of the Series C Liquidation Preference from and including
April 23, 2001 to but excluding the date on which the Series C Liquidation
Preference is made available pursuant to a redemption of the Series C Preferred
Stock or a liquidation of the Company. Accrued dividends are payable quarterly,
commencing on June 15, 2001, in cash. Dividends not paid on any dividend payment
date are added to the Series C Liquidation Preference on such date and remain a
part of the Series C Liquidation Preference until such dividends are paid.
Accrued dividends not paid as provided above on any dividend payment date
accumulate and such accumulated unpaid dividends may be declared and paid at any
time without reference to any regular dividend payment date, to holders of
record of Series C Preferred Stock as of a special record date fixed by the
Company.
Subject to certain specified exceptions, the Company is prohibited from
paying dividends on any parity securities (including the Series B Preferred
Stock and the Cumulative Convertible Redeemable Preferred Stock, Series D, par
value $0.01 per share (the "Series D Preferred Stock")) or any junior securities
during any period in which the Company is in arrears with respect to payment of
dividends on Series C Preferred Stock.
Upon any liquidation, dissolution or winding up of the Company, the holders
of Series C Preferred Stock are entitled to receive from the assets of the
Company available for distribution to stockholders an amount in cash per share
equal to the Series C Liquidation Preference, after payment is made on any
senior securities and before any distribution or payment is made on any junior
securities, which payment will be made ratably among the holders of Series C
Preferred Stock and the holders of any parity securities. The holders of
Series C Preferred Stock will be entitled to no other or further distribution of
or participation in the remaining assets of the Company after receiving the
Series C Liquidation Preference per share.
31
Holders of Series C Preferred Stock will not have any right to convert
shares of Series C Preferred Stock into any other security.
Shares of Series C Preferred Stock are redeemable at the option of the
Company at any time after April 23, 2001 at a redemption price per share payable
in cash equal to the Series C Liquidation Preference of such share on the
redemption date. Any redemptions by the Company are required to be made pro rata
if less than all shares of Series C Preferred Stock are to be redeemed.
At any time on or after June 15, 2001, or prior to that date if certain
events of bankruptcy occur and are continuing, any holder of Series C Preferred
Stock has the right to require the Company to redeem all or any portion of such
holder's shares for a redemption price per share payable in cash equal to the
Series C Liquidation Preference of that share on the redemption date. The
Company will redeem shares at the option of the holder out of funds that are
legally available for that purpose and not restricted pursuant to the Credit
Agreement. If the legally available funds are insufficient for that purpose, the
Company will redeem the maximum number possible of the shares requested to be
redeemed on the redemption date and will redeem the balance of such shares as
additional funds become legally available.
If and so long as the Company fails to redeem all shares of Series C
Preferred Stock required to be redeemed on a particular redemption date, the
Company may not redeem or discharge any sinking fund obligation with respect to
any shares of Series C Preferred Stock or any parity securities or junior
securities or pay any dividends on any junior securities, and neither the
Company nor any of its subsidiaries may purchase or otherwise acquire any shares
of Series C Preferred Stock, parity securities or junior securities unless all
shares of Series C Preferred Stock required to be redeemed are redeemed. The
foregoing prohibitions do not apply to certain purchase or exchange offers made
to all holders of Series C Preferred Stock.
Series C Preferred Stock will not rank junior to any other capital stock of
the Company in respect of rights of redemption or rights to receive dividends or
liquidating distributions. The Company may not issue any senior securities
without the consent of the holders of at least 66 2/3% of the number of shares
of Series C Preferred Stock then outstanding.
Holders of Series C Preferred Stock are not entitled to vote on any matters
submitted to a vote of the shareholders of the Company, except as required by
law and except that without the consent of the holders of at least 66 2/3% of
the number of shares of Series C Preferred Stock then outstanding, the Company
may not take any action, including by merger, to amend any of the provisions of
the certificate of designations of the Series C Preferred Stock (the "Series C
Certificate of Designations") or amend any of the provisions of the Restated
Certificate of Incorporation of the Company so as to adversely affect any
preference or right of the Series C Preferred Stock.
Any provision of the Series C Certificate of Designations which, for the
benefit of the holders of Series C Preferred Stock, prohibits, limits or
restricts actions by, or imposes obligations on, the Company may be waived in
whole or in part by the affirmative vote or with the consent of the holders of
record of at least 66 2/3% of the number of shares of Series C Preferred Stock
then outstanding.
Holders of Series C Preferred Stock will not have any preemptive right to
purchase any class of securities that may be issued by the Company.
ISSUANCE OF SERIES D PREFERRED STOCK TO ASCENT
Pursuant to the Preferred Stock Purchase Agreement, dated June 29, 2001 (the
"Series D Purchase Agreement"), between the Company and Ascent, the Company has
issued an aggregate of 60,000 shares of Series D Preferred Stock to Ascent for
aggregate cash consideration of $60,000,000. These shares of Series D Preferred
Stock were issued in three subseries, each consisting of 20,000 shares and in
each case in exchange for the payment of $20,000,000 in cash. Series D-1
Preferred Stock
32
was issued on June 29, 2001, the Series D-2 Preferred Stock was issued on
August 2, 2001 and the Series D-3 Preferred Stock was issued on October 18,
2001.
The liquidation preference (the "Series D Liquidation Preference") of each
share of the Series D Preferred Stock as of any date of determination is equal
to the sum of (a) the stated value per share of $1,000, plus (b) an amount equal
to all dividends accrued on such share which have been added to and remain a
part of the Series D Liquidation Preference as of such date, plus (c) for
purposes of the liquidation and redemption provisions of the Series D Preferred
Stock, an amount equal to all unpaid dividends accrued on the sum of the amounts
specified in clauses (a) and (b) above during the period from and including the
immediately preceding dividend payment date to but excluding the date in
question. At September 30, 2002, the Series D Liquidation Preference amounted to
$65,644,264.
The holders of Series D Preferred Stock are entitled to receive cumulative
dividends, when and as declared by the Company, in preference to dividends on
junior securities, including the Common Stock and the Series A Preferred Stock.
Dividends accrue on each outstanding share of each subseries of Series D
Preferred Stock on a daily basis at the rate of 8% per annum of the Series D
Liquidation Preference from and including the applicable issue date of such
share (the "Issue Date") to but excluding the date on which the Series D
Liquidation Preference is made available pursuant to a redemption of the
Series D Preferred Stock or a liquidation of the Company or such share is
converted to shares of Common Stock. Accrued dividends are payable quarterly on
the last day of March, June, September and December, commencing, with respect to
each outstanding share of a subseries of Series D Preferred Stock, on the first
such date following the Issue Date of such share, in cash. Dividends not paid on
any dividend payment date are added to the Series D Liquidation Preference on
such date and remain a part of the Series D Liquidation Preference until such
dividends are paid. Accrued dividends not paid as provided above on any dividend
payment date accumulate and such accumulated unpaid dividends may be declared
and paid at any time without reference to any regular dividend payment date, to
holders of record of Series D Preferred Stock as of a special record date fixed
by the Company.
Subject to certain specified exceptions, the Company is prohibited from
paying dividends on any parity securities or any junior securities during any
period in which the Company is in arrears with respect to payment of dividends
on Series D Preferred Stock.
Upon any liquidation, dissolution or winding up of the Company, the holders
of shares of Series D Preferred Stock are entitled to receive from the assets of
the Company available for distribution to stockholders an amount in cash per
share equal to the Series D Liquidation Preference of a share of Series D
Preferred Stock, after payment is made on any senior securities and before any
distribution or payment is made on any junior securities, which payment will be
made ratably among the holders of Series D Preferred Stock and the holders of
any parity securities. Payment to the holders of shares of a subseries of
Series D Preferred Stock shall be made on a PARI PASSU basis with any such
payment to the holders of the other subseries of the Series D Preferred Stock.
The holders of Series D Preferred Stock will be entitled to no other or further
distribution of or participation in the remaining assets of the Company after
receiving the Liquidation Preference per share.
Shares of Series D Preferred Stock are convertible on and after
December 31, 2002, at the option of the holder thereof, into Common Stock at the
initial conversion rate of 132.4503 fully paid and non-assessable shares of
Common Stock for each share of Series D Preferred Stock, which conversion rate
was determined by dividing the stated value of a share of Series D Preferred
Stock by $7.55. If on any conversion date for a share of Series D Preferred
Stock, the Series D Liquidation Preference of such share is greater than its
stated value of such share, then an additional number of shares of Common Stock
or units of securities or other assets will be issued with respect to the amount
of such difference. The number of additional shares or units to be issued will
be determined by dividing the amount of the difference between the Series D
Liquidation Preference and the stated value by the
33
quotient obtained by dividing the stated value of such share by the conversion
rate then in effect. The conversion rate is subject to adjustment upon the
occurrence of certain events specified in the certificate of designations of the
Series D Preferred Stock (the "Series D Certificate of Designations"), which
events include, without limitation, (i) a payment of a stock dividend; (ii) a
stock split; (iii) a combination of the outstanding shares of capital stock;
(iv) issuance by reclassification of any shares of Common Stock; (v) issuance of
rights, options or warrants to holders of Common Stock entitling them to
purchase shares of Common Stock at below-market prices; (vi) payment of a
dividend to holders of Common Stock of indebtedness of the Company, securities
of a subsidiary of the Company, or other assets of the Company;
(vii) completion of a tender or exchange offer for Common Stock at an above-
market price; and (viii) payment of an extraordinary cash dividend.
Except as otherwise provided in the following paragraph, if the Company
consolidates with any other entity, merges into another entity, or sells all or
substantially all of its properties and assets, or if the Company is a party to
a merger or binding share exchange which reclassifies or changes its outstanding
Common Stock (any such transaction, an "Acquisition Transaction"), the Company
(or its successor in such transaction) or the purchaser of such properties and
assets shall make appropriate provision so that on the effective date of such
transaction each share of each subseries of Series D Preferred Stock shall be
converted into or exchanged for one or more shares of a class, series or
subseries of preferred stock of the person issuing securities or paying other
consideration to the holders of Common Stock in such transaction (the
"Acquiror"), which class, series or subseries of preferred stock shall have
terms identical to those of the shares of such subseries of Series D Preferred
Stock, except that such share(s) of preferred stock of the Acquiror shall be
convertible into the kind and amount of securities, cash or other assets that
such holder would have owned immediately after such consolidation, merger, sale
or transfer if such holder had converted such share into Common Stock
immediately prior to the effective date of such consolidation, merger, sale or
transfer, and the holders of the Series D Preferred Stock shall have no other
conversion rights under these provisions.
Notwithstanding the provisions of the preceding paragraph, in the event that
any Acquisition Transaction is consummated prior to December 31, 2002, then each
share of each subseries of Series D Preferred Stock outstanding at the time of
consummation of such Acquisition Transaction shall be converted into the right
to receive from the Acquiror an amount in cash equal to the redemption price of
such share as of the effective time of such Acquisition Transaction, together
with interest on such redemption price at the rate of 12% per annum compounded
quarterly from the date of effectiveness of such Acquisition Transaction until
the date such redemption price plus interest thereon is paid in full.
Subject to the provisions described in the immediately following paragraph,
if the holders of Series D Preferred Stock would be entitled to receive upon
conversion of such Series D Preferred Stock any of the Company's capital stock
that is redeemable or exchangeable at the election of the Company ("Redeemable
Capital Stock"), and all of the outstanding shares or other units of the
Redeemable Capital Stock are redeemed or exchanged, then after such event (a
"Redemption Event"), the holders of Series D Preferred Stock will be entitled to
receive upon conversion of such shares, in lieu of shares of the Redeemable
Capital Stock, the kind and amount of shares of stock and other securities and
property receivable upon the Redemption Event by a holder of the number of
shares or units of Redeemable Capital Stock into which such shares of Series D
Preferred Stock could have been converted immediately prior to the effectiveness
of the Redemption Event. After the Redemption Event, the holders of the
Series D Preferred Stock will have no other conversion rights with respect to
the Redeemable Capital Stock.
Notwithstanding the foregoing, if (1) the redemption price for the shares of
the Redeemable Capital Stock is paid in whole or in part in stock of a
subsidiary of the Company ("Redemption Securities") and (2) in connection with
the Redemption Event, the "Mirror Preferred Stock Condition" (as such term is
defined in the Series D Certificate of Designations) is met, then the provisions
34
described in the immediately preceding paragraph will not apply, and after the
Redemption Event the holders of Series D Preferred Stock that are not exchanged
as described in this paragraph will not have conversion rights with respect to
the Redeemable Capital Stock so redeemed or exchanged. Generally, the Mirror
Preferred Stock Condition will be satisfied if the Company makes appropriate
provisions so that holders of Series D Preferred Stock have the right,
exercisable on the effective date of the Redemption Event, to exchange their
shares of Series D Preferred Stock for convertible preferred stock of the
Company and convertible preferred stock of the issuer of the Redemption
Securities. Such convertible preferred stocks shall together have an aggregate
liquidation preference equal to the aggregate Series D Liquidation Preference of
the Series D Preferred Stock to be exchanged for them and otherwise shall
contain terms and conditions equivalent to those of the Series D Preferred
Stock, except that applicable time periods under the Series D Preferred Stock
will be tacked to corresponding time periods under such convertible preferred
stocks, and except that (A) the convertible preferred stock of the issuer of the
Redemption Securities will be convertible into the kind and amount of Redemption
Securities, cash and other assets that the holder of a share of Series D
Preferred Stock in respect of which such convertible preferred stock is issued
would have received in the Redemption Event, had such shares of Series D
Preferred Stock been converted prior to the Redemption Event, and (B) the
convertible preferred stock of the Company will not be convertible into the
Redeemable Capital Stock redeemed, or the Redemption Securities issued, in the
Redemption Event.
If the Company distributes the stock of one of its subsidiaries as a
dividend to all holders of Common Stock (a "Spin Off"), the Company will make
appropriate provision so that holders of Series D Preferred Stock have the right
to exchange their shares of Series D Preferred Stock on the effective date of
the Spin Off for convertible preferred stock of the Company and convertible
preferred stock of that subsidiary. These convertible preferred stocks shall
together have an aggregate liquidation preference equal to the Series D
Liquidation Preference of a share of Series D Preferred Stock on the effective
date of the Spin Off and otherwise shall contain terms and conditions equivalent
to those of the Series D Preferred Stock, except that applicable time periods
under the Series D Preferred Stock will be tacked to corresponding time periods
under such convertible preferred stocks, and except that (1) the convertible
preferred stock of the subsidiary whose stock is distributed in such Spin Off
will be convertible into the kind and amount of stock of that subsidiary, and
other securities and property that the holder of a share of Series D Preferred
Stock in respect of which such convertible preferred stock is issued would have
received in the Spin Off, had such shares of Series D Preferred Stock been
converted prior to the record date for such Spin Off, and (2) the convertible
preferred stock of the Company will not be convertible into the stock of that
subsidiary. From and after the effective date of the Spin Off, holders of any
shares of Series D Preferred Stock that have not been exchanged for convertible
preferred stock of the Company and convertible preferred stock of that
subsidiary shall have no conversion rights with respect to the stock of the
subsidiary distributed in the Spin Off.
The Company is obligated to reserve such number of shares of Common Stock as
would be issuable upon the conversion of all outstanding shares of Series D
Preferred Stock. Upon conversion of shares of Series D Preferred Stock, the
shares of Series D Preferred Stock will be cancelled and restored to the status
of authorized and unissued shares of preferred stock.
If an exchange offer is commenced by the Company or one of its subsidiaries
to holders of Common Stock pursuant to which capital stock of the Company or a
subsidiary of the Company and/or other property will be issued in exchange for
shares of Common Stock, the Company or such subsidiary is required to make an
equivalent offer to the holders of Series D Preferred Stock in lieu of any
antidilution adjustment which might otherwise apply to the conversion rate of
the Series D Preferred Stock, except as set forth in the Series D Certificate of
Designations in connection with a tender or exchange offer for Common Stock at
an above-market price. Pursuant to such offer, holders may tender their shares
of Series D Preferred Stock, based on the number of shares of Common Stock into
which such shares are then convertible, and receive in lieu of the securities or
other property offered in
35
such exchange offer (the "Exchange Securities"), a new series of preferred stock
of the issuer of the Exchange Securities, which would be convertible into such
Exchange Securities, would have an aggregate liquidation preference equal to the
aggregate Series D Liquidation Preference of the shares of Series D Preferred
Stock exchanged for such new preferred stock and would otherwise contain terms
and conditions equivalent to those of the Series D Preferred Stock. Whether or
not a holder of shares of Series D Preferred Stock elects to accept such offer
and tender shares of Series D Preferred Stock, no adjustment to the Conversion
Rate will be made in connection with such a tender or offer, except as set forth
in the Series D Certificate of Designations in connection with a tender or
exchange offer for Common Stock are an above-market price.
Shares of Series D Preferred Stock are redeemable at the option of the
Company between June 29, 2001 and December 31, 2002 at a redemption price per
share payable in cash equal to the Series D Liquidation Preference of such share
on the redemption date of such share plus an amount equal to the difference
between (1) the Series D Liquidation Preference of such share on such redemption
date calculated as if the dividend rate applicable to such share was 12% per
annum and (2) the Series D Liquidation Preference of such share on such
redemption date. Shares of Series D Preferred Stock are also redeemable at the
option of the Company on or after June 30, 2005 at a redemption price per share
in cash equal to the Series D Liquidation Preference of such share on the
redemption date of such share plus the percentage set forth below opposite the
applicable period in which such redemption date occurs of the Series D
Liquidation Preference of such share as in effect on such redemption date:
REDEMPTION DATE PERCENTAGE
--------------- ----------
June 30, 2005 to June 29, 2006 4%
June 30, 2006 to June 29, 2007 3%
June 30, 2007 to June 29, 2008 2%
June 30, 2008 to June 29, 2009 1%
June 30, 2009 and thereafter 0%
Subject to the foregoing, shares of Series D Preferred Stock may be redeemed
in whole or in part, provided that if less than all outstanding shares of
Series D Preferred Stock are to be redeemed on any date, (x) the Company shall
be required to redeem all and not less than all of the shares of each subseries
of Series D Preferred Stock on such date and (y) all shares of each subseries of
Series D Preferred Stock shall be redeemed in the order of issuance thereof.
At any time after the occurrence and during the continuance of certain
events of bankruptcy, any holder of Series D Preferred Stock has the right to
require the Company to redeem all or any portion of such holder's shares for the
applicable redemption price per share payable in cash as set forth in the
preceding paragraph on the redemption date of such share. The Company will
redeem shares at the option of the holder out of funds that are legally
available for that purpose and not restricted pursuant to the Credit Agreement.
If the legally available funds are insufficient for that purpose, the Company
will redeem the maximum number possible of the shares requested to be redeemed
on the redemption date and will redeem the balance of such shares as additional
funds become legally available.
Subject to the rights of senior securities, the terms of the Credit
Agreement and the provisions of the following paragraph, the Company shall
redeem all outstanding shares of Series D Preferred Stock on June 30, 2011.
If and so long as the Company fails to redeem all shares of Series D
Preferred Stock required to be redeemed on a particular redemption date, the
Company may not redeem or discharge any sinking
36
fund obligation with respect to any shares of Series D Preferred Stock or any
parity securities or junior securities or pay any dividends on any junior
securities, and neither the Company nor any of its subsidiaries may purchase or
otherwise acquire (except on conversion thereof into junior securities) any
shares of Series D Preferred Stock, parity securities or junior securities
unless all shares of Series D Preferred Stock required to be redeemed are
redeemed. The foregoing prohibitions do not apply to certain purchase or
exchange offers made to all holders of Series D Preferred Stock.
Series D Preferred Stock will not rank junior to any other capital stock of
the Company in respect of rights of redemption or rights to receive dividends or
liquidating distributions. The Company may not issue any senior securities
(other than shares of any other subseries of Series D Preferred Stock) without
the consent of the holders of at least 66 2/3% of the number of shares of
Series D Preferred Stock then outstanding.
Holders of Series D Preferred Stock are not entitled to vote on any matters
submitted to a vote of the shareholders of the Company, except as required by
law and except that without the consent of the holders of at least 66 2/3% of
the number of shares of Series D Preferred Stock then outstanding (and to the
extent that one or more subseries of Series D Preferred Stock are affected in a
manner different from the manner in which each other subseries of Series D
Preferred Stock is affected, such affected subseries, voting together as a
separate class), the Company may not take any action, including by merger, to
amend any of the provisions of the Series D Certificate of Designations or amend
any of the provisions of the Restated Certificate of Incorporation of the
Company so as to adversely affect any preference or right of the Series D
Preferred Stock. In addition, the consent of the holders of 66 2/3% of the
shares of Series D Preferred Stock outstanding shall be required in order for
the Company to take any action to an Acquisition Transaction consummated prior
to December 31, 2002 unless the acquiror in such Acquisition Transaction agrees
to pay to the holders of Series D Preferred Stock the amounts due upon
consummation of such Acquisition Transaction.
In addition to the rights set forth above, following December 31, 2002, in
connection with any matter as to which the holders of Common Stock are entitled
to vote, each outstanding share of Series D Preferred Stock shall have (and the
holder thereof shall be entitled to cast) the number of votes equal to the
number of votes such holder would have been entitled to cast had it converted
its shares of Series D Preferred Stock into shares of Common Stock immediately
prior to the record date for the determination of the stockholders entitled to
vote upon such matter.
Any provision of the Series D Certificate of Designations which, for the
benefit of the holders of Series D Preferred Stock, prohibits, limits or
restricts actions by, or imposes obligations on, the Company may be waived in
whole or in part by the affirmative vote or with the consent of the holders of
record of at least 66 2/3% of the number of shares of Series D Preferred Stock
then outstanding.
Holders of Series D Preferred Stock will not have any preemptive right to
purchase any class of securities that may be issued by the Company.
Pursuant to the terms of the respective Purchase Agreements executed in
connection with the issuances of the Series B, Series C and Series D Preferred
Stock to Ascent, the Company reimbursed Ascent for Ascent's attorneys fees
incurred in connection with such issuances, which attorneys fees amounted to
approximately $59,033.
37
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the Company's most recent fiscal year, Section 16(a) of the
Securities Exchange Act of 1934 required the Company's directors and officers,
and persons who own more than 10% of a registered class of the Company's equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of the Company's Common Stock and other equity securities
of the Company. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on the Company's review of copies of Forms 3, 4 and 5, and
amendments thereto, furnished to the Company with respect to its most recent
fiscal year, or written representations that no Forms 5 were required, the
Company believes that all of its directors and officers and persons who own more
than 10% of the Common Stock complied with all Section 16(a) filing
requirements, except as follows:
PERSON LATE FILINGS
------ ------------
William R. Fitzgerald................ Form 5--December 31, 2001
Kathryn Hale......................... Form 5--December 31, 2001(1)
Gary S. Howard....................... Form 5--December 31, 2001
Gary S. Wilson....................... Form 5--December 31, 2000
------------------------
(1) To the Company's knowledge, Ms. Hale failed to file the Form 5 required for
the fiscal year ended December 31, 2001.
PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
KPMG LLP was the Company's auditor in the year ended December 31, 2001. The
board of directors has renewed the Company's engagement of KPMG LLP to be its
independent auditor for the year ending December 31, 2002, subject to the
ratification of the appointment by stockholders. A representative of KPMG LLP is
expected to attend the annual meeting to respond to appropriate questions and
will have an opportunity to make a statement if he or she so desires.
AUDIT FEES AND ALL OTHER FEES
The following table presents fees for professional audit services rendered
by KPMG LLP during 2001 for the audit of the Company's annual financial
statements and the review of the financial statements included in the Company's
quarterly reports filed with the SEC.
Audit fees, excluding audit related:........................ $262,500
========
All other fees:
Audit related fees(1)..................................... 196,482
Other non-audit services(2)............................... 233,711
--------
Total all other fees........................................ $430,193
========
------------------------
(1) Audit related fees consisted principally of professional consultations with
respect to accounting issues affecting the Company's financial statements,
reviews of private placement offering documents, issuances of letters to
underwriters, due diligence related to potential business combinations and
audits of financial statements of certain employee benefit plans.
38
(2) Other non-audit fees consisted primarily of tax compliance and consultations
regarding the tax implications of certain transactions.
The Audit Committee has considered whether the provision of services by KPMG
LLP to the Company other than auditing is compatible with KPMG LLP maintaining
its independence and believes that the provision of such other services is
compatible with KPMG LLP maintaining its independence.
The Audit Committee has adopted an Audit Committee Charter, which is
attached to this proxy statement as Annex A.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE
YEAR ENDING DECEMBER 31, 2002.
STOCKHOLDER PROPOSALS
This proxy statement relates to the Company's annual meeting of stockholders
for the calendar year 2002, which will take place on December 20, 2002. The
Company currently expects that its annual meeting of stockholders for the
calendar year 2003 will be held during the third quarter of 2003. In order to be
eligible for inclusion in the Company's proxy materials for the 2003 annual
meeting, any stockholder proposal must be submitted in writing to the Company's
Secretary and received at the Company's executive office at 4610 South Ulster
Street, Suite 600, Denver, Colorado 80237 by the close of business on May 15,
2003, or such earlier or later date as the Company may determine in connection
with the actual scheduling of the annual meeting.
All stockholder proposals for inclusion in the Company's proxy materials
will be subject to the requirements of the proxy rules adopted under the
Securities Exchange Act of 1934, as amended and, as with any stockholder
proposal (regardless of whether it is included in the Company's proxy
materials), the Company's Restated Certificate of Incorporation, Bylaws and
Delaware law.
OTHER MATTERS
The board of directors is not aware of any business to come before the
annual meeting other than the matters described above in this proxy statement.
However, if any other matters should properly come before the annual meeting, it
is intended that holders of the proxies will act in accordance with their best
judgment.
39
ANNEX A
ON COMMAND CORPORATION
AUDIT COMMITTEE CHARTER
There shall be a committee of the Board of Directors to be known as the
Audit Committee. The Audit Committee shall be composed of directors who are
independent of the management of the Corporation and are free from any
relationship that, in the opinion of the Board of Directors, would interfere
with their exercise of independent judgment as a Committee member.
STATEMENT OF PURPOSE
The purpose of the Audit Committee is to provide assistance to the Board of
Directors in fulfilling the board's responsibilities to the Corporation and its
shareholders relating to accounting and financial reporting. To that end, the
Audit Committee shall oversee management's processes and activities relating to:
- maintaining the reliability and integrity of the Corporation's accounting
policies and financial reporting practices;
- confirming the functioning and adequacy of the Corporation's internal
controls; and
- confirming compliance with U.S. Federal laws and regulations, and the
requirements of any stock exchange or quotation system on which the
Corporation's securities may be listed, regarding accounting and financial
reporting.
FUNCTIONS AND RESPONSIBILITIES
In furtherance of the purposes set forth above, the Audit Committee shall
perform the following functions and responsibilities as appropriate, and shall
have all powers of the Board of Directors necessary or desirable to perform such
functions and responsibilities as may be delegated to a committee of the board
under applicable law. Notwithstanding the enumeration of specific functions and
responsibilities herein, the Audit Committee believes that its policies and
procedures should remain flexible, in order to best respond to changing
circumstances and conditions in fulfilling its responsibilities to the
Corporation and its stockholders. The Committee shall by resolution establish
its own rules and regulations, including notice and quorum requirements for all
meetings.
- The Committee shall review the performance of the Corporation's
independent accountants; make recommendations to the board regarding the
appointment or termination of independent accountants, and review and
approve the independent accountants' annual engagement letter, including
compensation.
- The Committee shall confirm the independence of the Corporation's
independent accountants, including an annual review of all consulting and
other non-audit services provided to the Corporation by outside
accountants and related fees.
- The Committee shall meet with the Corporation's independent accountants
and financial management prior to each audit to review the scope of the
proposed audit and the procedures to be utilized, and shall meet again
with them after the audit to assess the audit process, including a
discussion of any material deviations from the audit plan, any material
difficulties or disputes with management encountered during the course of
the audit, any other matters relating to the conduct of the audit that are
to be communicated by the auditors under generally accepted auditing
standards, and any changes or proposed changes in accounting principles.
Any changes or proposed changes in accounting principles shall also be
reviewed by either the Audit Committee or the independent accountants with
senior management and the Board of Directors.
A-1
- The Committee shall review the financial statements to be contained in SEC
filings and other reports to shareholders prior to the filing or
publication of such documents and shall confirm that the independent
accountants are satisfied with the content of such financial statements
and related disclosures.
- The Committee shall review with independent accountants and financial
management the adequacy and effectiveness of the Corporation's accounting
and financial controls and elicit any recommendations for the improvement
of such controls and other matters relating to accounting procedures and
shall review the correction of any controls or procedures deemed
deficient.
- The Committee shall provide sufficient opportunity for the independent
accountants and management to meet with the Committee in separate
executive sessions to discuss any matters that the Committee or any of
such groups believe should be discussed privately with the Audit
Committee. The Committee shall also encourage free and open communications
at all times among the directors, the independent accountants and
management of the Corporation.
- The Committee shall review and discuss with management and the Board of
Directors, as appropriate, the Corporation's accounting and financial
human resources and succession planning.
- The Committee shall report Committee actions to the Board of Directors
from time to time, with any recommendations the Committee finds
appropriate.
- The Committee shall prepare a letter for inclusion in the Corporation's
annual report to stockholders that describes the Committee's composition
and responsibilities and how such responsibilities were discharged.
- The Committee shall consider such other matters in relation to the
financial affairs of the Corporation and its books of account and other
records and disclosures, and in relation to the internal and external
audit of the Corporation, as the Committee, in its judgment, from time to
time finds advisable. In that connection, the Committee shall have the
power to conduct or authorize investigations into any matters within the
Committee's scope of responsibilities and to retain such independent
counsel, accountants or other persons or entities as the Committee finds
appropriate to assist the Committee in any such investigation or other
responsibility.
A-2
REVOCABLE PROXY
ON COMMAND CORPORATION
ANNUAL MEETING OF STOCKHOLDERS DECEMBER 20, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ON COMMAND CORPORATION (THE "COMPANY")
The undersigned hereby appoints Bernard G. Dvorak and Pamela J. Strauss, and
each or either of them, with full power of substitution, as proxies for the
undersigned and authorizes them to represent the undersigned and vote, as
designated on the reverse side hereof and in accordance with their judgment upon
any other matters properly presented at the Company's Annual Meeting of
Stockholders, all the shares of the Company's stock held of record by the
undersigned at the close of business on November 1, 2002, at the Company's
Annual Meeting of Stockholders to be held on December 20, 2002, and at any and
all adjournments thereof. THE UNDERSIGNED ACKNOWLEDGES RECEIPT, PRIOR TO THE
EXECUTION OF THIS PROXY, OF NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS, A
PROXY STATEMENT DATED NOVEMBER 27, 2002, AND THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" EACH OF THE PROPOSALS SET FORTH HEREIN. UNLESS OTHERWISE
DIRECTED, THE NAMED PROXIES WILL HAVE THE DISCRETIONARY AUTHORITY TO CUMULATE
VOTES REPRESENTED BY THIS PROXY FOR THE ELECTION OF THE NOMINEES NAMED HEREIN AS
DIRECTORS AND ALLOCATE SUCH VOTES AMONG THE NOMINEES AS THEY DEEM APPROPRIATE.
The Board of Directors recommends a vote "FOR" the election of the nominees
named herein as directors of the Company and "FOR" the ratification of the
appointment of KPMG LLP as the Company's independent auditors for the fiscal
year ending December 31, 2002.
1. Election of the following persons as directors of On Command Corporation:
Kenneth G. Carroll Paul A. Gould Gary S. Howard J. David Wargo
William R. Fitzgerald Mark K. Hammond Christopher Sophinos
FOR ALL / / WITHHOLD FOR ALL / / EXCEPTIONS / /
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.
* Exceptions ______________________________________________________________
OR
To allocate your votes among nominees for director utilizing cumulative
voting, indicate the number of votes for each director opposite the name of
each nominee. Please refer to the Proxy Statement for a discussion of
cumulative voting.
/ / Kenneth G. Carroll
/ / William R. Fitzgerald
/ / Paul A. Gould
/ / Mark K. Hammond
/ / Gary S. Howard
/ / Christopher Sophinos
/ / J. David Wargo
2. Ratification of the appointment of KPMG LLP as independent auditors for the
Company for the year ending December 31, 2002.
FOR / / AGAINST / / ABSTAIN / /
/ / CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING.
DATED:
_______________________________________
_______________________________________
PRINT NAME OF STOCKHOLDER
_______________________________________
SIGNATURE OF STOCKHOLDER
_______________________________________
PRINT NAME OF STOCKHOLDER
_______________________________________
SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears 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 your full
title. PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.