Purchase and Option Agreement - On Command Video Corp and Hilton Hotels Corp.
PURCHASE AND OPTION AGREEMENT
PURCHASE AND OPTION AGREEMENT ("Agreement"), dated as of July 7, 1993
between ON COMMAND VIDEO CORPORATION, a Delaware corporation (the "Company")
and Hilton Hotels Corporation (the "Purchaser").
The Company and the Purchaser agree as follows:
SECTION 1
PURCHASE AND SALE OF COMMON STOCK
1.1 PURCHASE AND SALE OF SHARES. The Company hereby sells and the
Purchaser hereby purchases 410,561 shares (the "Shares") of the Company's Common
Stock par value $.01 per share ("Common Stock") for a purchase price of $25.00
per Share (an aggregate of $10,264,025), payable $3,421,325 in cash
concurrently herewith and $6,842,700 by delivery of a promissory note in the
form of Exhibit 1.1 (the "Note"). The Purchaser acknowledges receipt of a
certificate representing 136,853 Shares. The Purchaser agrees that the
certificates for the remaining Shares, which are being issued concurrently
herewith, shall be held by the Company as security for payment of the Note, to
be delivered to Purchaser as set forth in the Note. The Company acknowledges
receipt of the aforesaid cash payment and of the Note.
SECTION 2
STOCK OPTION
2.1 GRANT OF OPTION. The Company grants to the Purchaser the
right and option (the "Option") to purchase up to 410,561 shares of Common
Stock (the "Option Shares") at a purchase price of $25.00 per share (as
increased, the "Purchase Price"). The Purchase Price shall increase to $27.50
on June 1, 1995, to $30.25 on June 1, 1996 and to $33.28 on June 1, 1997.
2.2 EXERCISE OF OPTION. The Option may be exercised, in whole or
in part, at any time or from time to time, from the date hereof through the
earlier of May 31, 1998 or the closing date (the "Option Termination Date") of
the Company's initial public offering netting proceeds to the Company of at
least $10 million (a "Qualifying Offering"). The Company agrees to provide
notice of such offering to the Purchaser at least 10 days prior to such
effective date. Any exercise of the Option shall
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be by means of a written notice of exercise delivered to the Company, together
with a check payable to the Company in the amount of the Purchase Price times
the number of Option Shares being purchased. A certificate or certificates
representing the Option Shares so purchased will be delivered upon receipt of
such notice and payment.
2.3 ANTI-DILUTION. If the number of issued and outstanding shares
of Common Stock changes by reason of any stock dividend, split-up,
recapitalization, merger or other change in the corporate or capital structure
of the Company and such change has the effect of diluting the Purchaser's
rights under the Option, the number of shares subject to the Option and the
Purchase Price (but not the total purchase price) shall be appropriately
adjusted so that the Purchaser shall receive upon exercise of the Option the
number and class of shares or other securities or property that the Purchaser
would have received in respect of the shares purchasable upon the exercise of
the Option if the Option had been exercised immediately prior to such event.
2.4 ASSIGNMENT. The Option granted hereunder may only be sold,
assigned, transferred or pledged by the Purchaser to a person or entity to whom
the Purchaser has transferred its entire interest in the Shares and the Option
Shares. Any such sale, assignment, transfer or pledge shall be subject to the
terms and conditions of that certain Right of First Refusal Agreement dated as
of November 20, 1991 between the Company, the Principal Stockholder and certain
other shareholders of the Company, as amended (the "Right of First Refusal
Agreement"), to which Purchaser shall hereafter be a party as set forth in
Section 6.1 below.
SECTION 3
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company represents and warrants as follows:
3.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation. The Company has all requisite corporate power and
authority to carry on its business as now being conducted. True, correct and
complete copies of the charter documents and bylaws of the Company have been
delivered to Purchaser.
3.2 CORPORATE POWER AND AUTHORIZATION. The Company has the corporate
power to execute, deliver and perform this Agreement, and has taken all
necessary corporate and legal action to authorize it to enter into and perform
this Agreement. This Agreement is a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms (except
as enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting
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creditors' rights generally or by principles governing the availability of
equitable remedies).
3.3 CAPITAL STOCK. The Company has an authorized capital consisting
only of 6,000,000 shares of Common Stock, of which 3,245,047 shares are duly
and validly issued, fully paid and outstanding as of the date hereof (4,105,608
shares upon consummation of the sale of the Shares and the purchase from the
Company concurrently herewith of 450,000 shares by Comsat Video Enterprises,
Inc. (the "Principal Stockholder")). The Company has duly reserved 410,561
shares of Common Stock as Option Shares. Except as set forth in this Agreement
and in Exhibit 3.3A hereto, there are no options, warrants, calls, subscriptions
or other rights or other agreements, arrangements or commitments of any nature
obligating the Company now or at any time in the future to issue, transfer or
sell any shares of Common Stock. Except as set forth in the Right of First
Refusal Agreement, there are no preemptive rights to subscribe for or purchase
any Common Stock. A copy of the Right of First Refusal Agreement is attached
hereto as Exhibit 3.3B. The Shares and the Option Shares (a) are duly
authorized by the Articles of Incorporation of the Company to be issued in
accordance with this Agreement and (b) will be at the time of their purchase
duly and validly issued and fully paid and nonassessable and clear of any
liens, security interests, charges, encumbrances or rights of others
whatsoever. Other than as set forth in Section 5.6, there are no agreements or
understandings obligating the Company at any time to retire, redeem or
repurchase any of its equity securities.
3.4 NO VIOLATION. Neither the execution, delivery nor consummation
of this Agreement nor compliance by the Company with any of the provisions
hereof will (a) violate, conflict with or result in any breach of any provision
of its charter documents or bylaws, (b) to the knowledge of the Company result
in a violation or breach or termination of, or constitute a material default
under, any material agreement or obligation to which it is subject, or (c) to
the knowledge of the Company, violate any judgment, order, writ, injunction,
decree, award, statute, rule or regulation to which it is subject.
3.5 ACTIONS PENDING. Except as set forth in Exhibit 3.5, there is no
pending action, suit or proceeding to which the Company is a party, or to which
the property of the Company is subject, nor is any such action, suit or
proceeding, to the knowledge of the Company, threatened, that would result in
any material adverse change in the business, prospects, operations, income,
financial condition or results of operations, present or prospective, of the
Company.
3.6 OFFERING OF SECURITIES. The Shares will be issued in accordance
with all applicable provisions of law, including the provisions of the
Securities Act of 1933, as amended (the "Act") and applicable state securities
laws. The foregoing representation and warranty is made in reliance upon the
representations of Purchaser set forth in Section 4.2.
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3.7 FINANCIAL STATEMENTS. Attached hereto as Exhibit 3.7 are copies
of the audited Consolidated financial statements of the Company as at December
31, 1992, and unaudited consolidated financial statements of the Company as of
March 31, 1993. Such financial statements (including any notes and schedules
thereto) present fairly the financial position of the Company as at the date
thereof and the results of its operations for such period in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved (except that the unaudited financial statements are subject to
normal year-end audit adjustments and do not include footnotes). Since March
31, 1993, there has been no material adverse change in the assets, liabilities,
financial condition or results of operations of the Company reflected in such
financial statements other than those occurring in the ordinary course of
business. There is no fact known to the Company that materially and adversely
affects the business, properties, assets, operations or condition, financial or
otherwise, of the Company, that has not been disclosed by the Company to the
Purchaser or that is not set forth in the financial statements referred to in
this Section 3.7.
3.8 BROKER'S OR FINDER'S FEES. No finders or brokers fees,
commissions or compensation are payable to any person in connection with the
transactions contemplated by this Agreement.
3.9 SURVIVAL. All representations and warranties under this
Agreement shall survive the execution and delivery of this Agreement and any
investigation by the Purchaser.
SECTION 4
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants that:
4.1 AUTHORITY; BINDING AGREEMENT. The Purchaser has the legal
capacity to execute this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Purchaser, and constitutes a valid and binding agreement of
the Purchaser, enforceable against the Purchaser in accordance with its terms
(except as enforceability may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting creditors' rights generally or by principles
governing the availability of equitable remedies).
4.2 STOCK INTEREST INVESTMENT REPRESENTATIONS. The Purchaser
represents and warrants as set forth in Exhibit 4.2, which is incorporated
herein by this reference.
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SECTION 5
COVENANTS OF THE COMPANY
The Company covenants and agrees that until the earlier of (a) the
Company's Common Stock being publicly traded as a result of a Qualifying
Offering, (b) the Company having been acquired by another unaffiliated person
or (c) the Purchaser beneficially owning fewer than 136,854 shares of Common
Stock (or a comparable number of securities into which the Common Stock is
converted):
5.1 FINANCIAL STATEMENTS. The Company shall deliver to the Purchaser
any financial statements, reports, and other materials that are supplied or
given to directors or other shareholders, as promptly as they are so supplied.
5.2 OBSERVATION RIGHTS. Subject to the following sentence, the
Company shall permit a representative designated from time to time by the
Purchaser to attend all meetings of its Board of Directors or any Committee of
the Board in person or by conference call, and, in this respect, shall give the
Purchaser copies of all notices, minutes, consents and other materials that it
provides to its directors. Such representative may be excluded from portions
of meetings where the subject matter is issues relating to other hotel chains
or the Company's relationship with Purchaser.
5.3 INSPECTION. The Company shall permit representatives designated
by the Purchaser to visit and inspect the Company's properties, to examine the
Company's books of accounts and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Purchaser. The Company may exclude from such inspection any
property, records or other items that, if disclosed to Purchaser, would give it
an unfair competitive advantage.
5.4 PREEMPTIVE RIGHTS. The Purchaser shall have the preemptive right,
in the proportion set forth in the following sentence, to purchase all or any
portion of shares of Common Stock of the Company, and any rights, options,
warrants or other instruments or securities exchangeable for or convertible
into Common Stock or evidencing any right to subscribe for, purchase or
otherwise acquire Common Stock, that may be issued for cash, evidences of
indebtedness or other consideration that the Purchaser is capable of delivering.
The portion of the securities that the Purchaser shall have the right to
purchase in any such issuance shall be that portion necessary to ensure that
the Purchaser shall own, after each such purchase ten percent (10%) of the
Company's total issued and outstanding Common Stock. The foregoing right shall
not apply to the 500,000 shares of Common Stock issuable under the Company's
present stock option plan.
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5.5 CONFIDENTIALITY. The Company and its employees, officers and
directors shall keep this transaction and the Purchaser's identity hereunder
confidential and shall not disclose to any person the fact of this transaction
or the identity of the Purchaser (other than to the Company's officers,
directors, attorneys, accountants and agents who become aware of such
information in the course of the Company's business) without the express
written consent of the Purchaser except to the extent required by applicable
law and after consultation with the Purchaser.
5.6 PUT OPTION. The Purchaser may, commencing at the earlier of the
dates set forth in the following sentence, and ending on the Option Termination
Date, upon written notice delivered to the Company (the "Put Notice"), elect to
sell the Shares to the Company. The dates are (i) June 1, 1995 or (ii) the
date that Purchaser in good faith, after consultation with counsel, determines,
and notifies the Company, that its ownership of the Shares or the Option Shares
is reasonably likely directly or indirectly to jeopardize its ability to retain
any material licenses that it now holds or may hold in the future in connection
with regulated gaming activities. Upon delivering the Put Notice, the
Purchaser shall be obligated to sell, and the Company shall be obligated to buy,
such shares at a price per share equal to their purchase price plus the amount
of interest that would have accrued on the purchase price during the period
from the date the shares were initially purchased through the date the Put
Notice is delivered to the Company, at an interest rate equal to the average of
the one-year U.S. Treasury Bill rate from the date hereof through the date of
the Put Notice, compounded annually (the "Put Price"). The Put Price shall be
paid by the Company to the Purchaser as soon as reasonably practicable
following receipt by the Company of the Put Notice, but in no event later than
thirty (30) days following such receipt, by wire transfer in immediately
available funds, as directed in the Put Notice. The Company agrees that if any
other obligations to retire, redeem or repurchase equity securities are entered
into with other parties, they shall be made expressly subordinate and junior to
the Purchaser's rights hereunder, on terms satisfactory to the Purchaser.
SECTION 6
COVENANTS OF THE PURCHASER
The Purchaser covenants and agrees that until the Company's Common
Stock is either publicly traded as a result of a Qualifying Offering or the
Company been acquired by another unaffiliated person:
6.1 RIGHT OF FIRST REFUSAL AGREEMENT. By signature below, the
Purchaser agrees to be bound by the terms of the Right of First Refusal
Agreement and shall hereafter be deemed to be a "Shareholder" thereunder with
all of the rights and obligations of the Shareholders set forth therein.
Transfers of the Shares, Options or Option Shares between the Purchaser and any
of its wholly-owned (directly or indirectly) subsidiaries, or between such
subsidiaries, shall not be considered "Transfers" under the
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Right of First Refusal Agreement, but the transferee in each such case shall be
bound by this Agreement and the Right of First Refusal Agreement.
6.2 CONFIDENTIALITY. The Purchaser and its employees, officers and
directors shall keep this transaction, and information obtained pursuant to
rights under Section 5, confidential and shall not disclose to any person the
fact of this transaction or the identity of the Company (other than to the
Purchaser's officers, directors, attorneys, accountants and agents who become
aware of such information in the course of the Purchaser's business) without
the express written consent of the Company, except to the extent required by
applicable law and after consultation with the Company.
SECTION 7
REGISTRATION RIGHTS
7.1 "PIGGYBACK" REGISTRATION RIGHTS. If at any time the Company
proposes to register any of its Common Stock or other securities into which
the Purchaser's Shares or Option Shares have been converted (the
"Securities") under the Act, whether or not for sale for its own account, on a
form and in a manner that would permit registration of the Securities for sale
to the public under the Act, the Company shall promptly provide the Purchaser
with a reasonably detailed, written notice of such proposal. Upon the written
request of the Purchaser given within twenty (20) days after the receipt of any
such notice by the Company, the Company shall cause to be registered under the
Act all of the Securities that the Purchaser requests be registered. The
amount that the Purchaser shall be entitled to include in any such registration
may be (a) limited if, in the reasonable and good faith determination of the
managing underwriter for any such offering, such limitation is necessary in
order to enable the Company to sell securities in such offering or (b)
proportionately reduced to accommodate the registration requests of other
shareholders who have similar registration rights. If reasonably required by
the managing underwriter of any such offering, the Purchaser shall enter into
an underwriting agreement containing normal terms and provisions applicable to
all selling shareholders, but shall not be required to make representations and
warranties relating to the Company.
7.2 WITHDRAWAL. The Purchaser shall have the right to withdraw its
shares from the registration statement, but if the same relates to an
underwritten offering it may only do so during the time period and on terms
agreed upon among the underwriters for such underwritten offering.
7.3 EXPENSES. All expenses incurred by the Company or the Purchaser
in connection with a registration pursuant to this Agreement, including, but
not limited to, all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, securities acts and fees and
disbursements of Company
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counsel and the Purchaser's counsel and of independent certified public
accountants of the Company (including the expenses of any special audit
required by or incident to such performance), shall be borne by the Company.
SECTION 8
CONCURRENT DELIVERIES
Concurrently herewith, the Company has delivered the following to the
Purchaser.
8.1 OPINION OF COMPANY'S COUNSEL. The legal opinion of Wilson.
Sonsini, Goodrich & Rosati, counsel for the Company, in the form attached as
Exhibit 8.1 with such firm's standard exceptions and qualifications.
8.2 LETTER AGREEMENT. The letter agreement from the Principal
Stockholder, attached as Exhibit 8.2.
SECTION 9
MISCELLANEOUS
9.1 NOTICES. Except as otherwise provided herein, all payments,
notices and other communications under this Agreement shall be in writing and
shall be personally delivered or delivered by registered or certified mail
(return receipt requested), postage prepaid, by overnight delivery service
(delivery charges prepaid) or by telecopy, mailgram or telex and shall be
deemed to be given upon delivery if delivered personally or 48 hours after
deposit in the mail or 24 hours after delivery by overnight delivery service,
telecopy, telegram or telex, addressed to the party to which such notice is
directed at the address determined as hereinafter set forth. Each notice and
other communication under this Agreement shall be addressed as follows or to
such other address as may be furnished to the other party in writing:
TO THE COMPANY: TO THE PURCHASER:
On Command Video Corporation Hilton Hotels Corporation
3301 Olcott Street
Santa Clara, California 95054
Telcopier: (408) 496-0688
Attention: Robert Snyder,
President
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9.2 AMENDMENTS AND WAIVERS. This Agreement may be amended or any
provision of this Agreement waived only with the written consent of the
Purchaser and the Company. The rights or remedies of the Purchaser and the
Company under this Agreement shall be cumulative and not exclusive of any
rights or remedies that the Purchaser or the Company would otherwise have and
no course Of dealing between the Company and the Purchaser nor any failure or
delay by the Purchaser or the Company in exercising any right shall operate as
a waiver of such right nor shall any single or partial exercise of any power or
right preclude its other or further exercise or the exercise of any other power
or right.
9.3 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions and preliminary agreements.
9.4 ASSIGNMENT. All of the provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
9.5 COUNTERPARTS. This Agreement and any amendments, waivers,
consents, or supplements may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original but all such counterparts
together shall constitute but one and the same instrument.
9.6 HEADINGS. The headings in this Agreement are for purposes of
reference only and shall not affect the meaning or construction of any of the
provisions hereof.
9.7 SEVERABILITY. If any provision or obligation in or under this
Agreement is held to be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired.
9.8 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of California, regardless of the law
that might be applied under conflicts of laws principles.
9.9 ATTORNEYS' FEES. The prevailing party in any controversy, claim
or dispute between the Company on the one hand and the Purchaser on the other
hand arising out of or relating to this Agreement or any of the documents
provided for herein, or the breach hereof or thereof, shall be entitled in
addition to any other appropriate relief to recover from the losing party
reasonable attorneys' fees, expenses and costs.
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9.10 SPECIFIC PERFORMANCE. The Company and the Purchaser agree that
irreparable damage might occur if any of the covenants set forth in this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Each of them accordingly agrees that the other shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof, in addition to any
other remedy to which it is entitled at law or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
ON COMMAND VIDEO CORPORATION
By /s/ ROBERT SNYDER
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Its PRESIDENT
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HILTON HOTELS CORPORATION
By /s/
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Its
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