Employment Agreement - On Command Corp. and Robert M. Kavner
EXECUTION COPY
EMPLOYMENT AGREEMENT
This AGREEMENT is made as of September 11, 1996, by and
between On Command Corporation, a Delaware corporation ("NEWCO"), and Robert M.
Kavner, a resident of the State of California (the "Executive").
WHEREAS, Ascent Entertainment Group, Inc., a Delaware
corporation ("Ascent"), has entered into agreements with SpectraVision, Inc.
("SpectraVision") to combine (the "Combination") the assets and certain
liabilities of SpectraVision with the assets of Ascent's majority owned
subsidiary, On Command Video Corporation ("OCV");
WHEREAS, Ascent has created NEWCO as a holding company to own
and operate the combined assets and businesses of SpectraVision and OCV; and
WHEREAS, NEWCO desires to employ the Executive as President
and Chief Executive Officer of NEWCO, and the Executive desires to accept such
employment, on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements made herein, and intending to be legally bound hereby, NEWCO
and the Executive agree as follows:
1. Employment; Duties.
(a) Employment and Employment Period. NEWCO shall employ
the Executive to serve as President and Chief Executive Officer of NEWCO for a
period (the "Employment Period") commencing on September 11, 1996 (the
"Effective Date") and continuing thereafter for a term of four years until the
fourth anniversary of the Effective Date unless terminated in accordance with
the provisions of this Agreement. In the event that Newco desires to extend the
employment of the Executive, it must give written notice of such desire by the
third anniversary of the Effective Date, and after such notice the parties
shall enter into an exclusive negotiation period of not less than six months,
unless otherwise mutually agreed upon by the parties in writing. The Executive
may also continue to serve as a director of Ascent but would not receive any
compensation for such
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position in addition to the compensation provided in this Agreement. Each 12
month period ending on the anniversary date of the Effective Date is sometimes
referred to herein as a "year of the Employment Period." Notwithstanding the
foregoing, if the Combination has not been consummated by October 31, 1996 on
terms reasonably similar to those set forth in the On Command Corporation
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on August 16, 1996, this Agreement will terminate in its entirety
and the parties will have no further obligations to each other.
(b) Offices, Duties and Responsibilities. Effective on
the Effective Date, Executive shall be elected President and Chief Executive
Officer of NEWCO. The Executive shall report directly and solely to the Board
of Directors of NEWCO (the "Board"). Throughout the Employment Period, NEWCO
shall cause Executive to be a member of the Board. In addition, the Executive
shall be a member of all committees of the Board (including any executive
committee or nominating committee) other than the Audit Committee and the
Compensation Committee, and other than any special committees on which he might
be regarded as a self-interested member. The Executive's offices initially
shall be located at OCV's present headquarters. The Executive shall have all
duties and authority customarily accorded a chief executive officer, including,
without limitation, the lead responsibility with full autonomy, subject to the
customary authority and direction of the Board, to direct and develop the
capabilities and performance of NEWCO. The Executive shall be a member and the
chairman of any senior executive/management committees which may be established
from time to time by the Board. All employees of NEWCO shall report, directly
or indirectly, to the Executive and the Executive shall have the authority to
hire and fire all such employees within established budget parameters, provided
that the Board shall approve (i) any salary actions (including hiring
decisions) for employees of NEWCO which result in an annual salary in excess of
the amount established by the Board from time to time, but in no event less
than $150,000, and (ii) any bonuses to be awarded to employees of NEWCO, in
excess of the amount established by the Board from time to time, and provided
further that the Board reserves the right to take any such salary or bonus
actions to the Compensation Committee of the Board (the
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"Compensation Committee") for approval. The Executive's management of NEWCO
shall be (x) in accordance with the policies of the Board and NEWCO's policies
and procedures, both as in effect from time to time, and (y) within the limits
of an annual budget for NEWCO which shall be approved by the Board at least 30
days before the beginning of the fiscal year to which such budget relates. The
annual budget shall provide adequate resources for Executive to operate the
businesses of NEWCO (the "Business") in a manner substantially consistent with
the customary day to day operations of comparable first-class businesses in the
United States. If the Executive proposes the expenditure of any amounts which
exceed the applicable annual budgets for NEWCO, such excess amounts shall not
be committed to Executive's authority unless and until specifically authorized
and approved by the Board.
(c) Devotion to Interests of NEWCO. During the
Employment Period, the Executive shall render his business services solely in
the performance of his duties hereunder. The Executive shall use his best
efforts to promote the interests and welfare of NEWCO. Notwithstanding the
foregoing, the Executive shall be entitled to undertake such outside activities
(e.g., charitable, educational, personal interests, board of directors
membership, and so forth, that do not compete with the Business) as do not
unreasonably or materially interfere with the performance of his duties
hereunder as reasonably determined by the Board in consultation with the
Executive.
2. Compensation and Fringe Benefits.
(a) Base Compensation. NEWCO shall pay the Executive a
base salary ("Base Salary") at the rate of $500,000 per year during the
Employment Period with payments made in installments in accordance with NEWCO's
regular practice for compensating executive personnel, provided that in no
event shall such payments be made less frequently than twice per month. The
Base Salary for the Executive shall be reviewed for increases each year during
the Employment Period commencing the second year of the Employment Period. Any
Base Salary increases shall be approved by the Board in its sole discretion.
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(b) Bonus Compensation. The Executive will be eligible
to receive bonuses ("Annual Bonus") during the Employment Period in accordance
with the following parameters: (i) the target bonus for each fiscal year during
the Employment Period shall be 70% of Base Salary for achieving 100% of the
target level for the performance measures; and (ii) the performance measures,
the relative weight to be accorded each performance measure and the amount of
bonus payable in relation to the target bonus for achieving more or less than
100% of the target level for the performance measures shall be determined for
each year during the Employment Period by the Compensation Committee after
consultation with the Executive. As part of the consultation process set forth
in the preceding sentence, the Executive shall prepare before the end of each
fiscal year ending during the Employment Period a business plan for NEWCO with
respect to at least the following three year period. The Board shall consider
and approve such plans on an annual basis, subject to such modifications as are
otherwise consistent with this Agreement, and each fiscal year the current plan
shall be considered by the Compensation Committee as the basis for establishing
the bonus standards for such year with such reasonable modifications as the
Compensation Committee may reasonably determine and which are consistent with
this Agreement. In addition, in connection with awarding the bonus for any
fiscal year, the Compensation Committee will consider whether the achievement
of the standards established for that year have been materially affected by
circumstances beyond the Executive's reasonable control, such as acquisitions,
dispositions, or limitations on NEWCO's ability to raise or deploy adequate
capital to accomplish the business plan approved by the Board. For the period
from the Effective Date through December 31, 1996, the Executive shall receive
an Annual Bonus to be determined in the sole discretion of the Compensation
Committee and which may be equal to 70% of Base Salary pro rated for the period
during which the Executive is employed, but absent the standards described
above will take into consideration achievement of reasonable goals and
objectives for such period. During the final partial fiscal year of the
Employment Period, the Annual Bonus shall be based on the standards set by the
Compensation Committee for that fiscal year and pro rated for the period during
which the Executive is employed.
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(c) Fringe Benefits. The Executive also shall be
entitled to participate in group health, dental and disability insurance
programs, and any group profit sharing, deferred compensation, life insurance
or other benefit plans as are generally made available by NEWCO to the senior
executives of NEWCO on a favored nations basis, which benefits shall be
comparable, in the aggregate, to the benefits available to senior executives of
similarly situated companies; provided, however, for as long as Ascent owns at
least 50% of the voting equity of NEWCO, such benefits shall not be greater in
the aggregate than those available to the senior executives of Ascent,
specifically the President and Chief Executive Officer and Executive Vice
President, Finance and Chief Operating Officer. Such benefits in all events
shall include payment or reimbursement of (i) documented expenses reasonably
incurred in connection with travel and entertainment related to NEWCO's
business and affairs, (ii) documented expenses incurred in connection with the
sale of the Executive's home in Los Angeles, California, the acquisition of a
home in the greater San Francisco or San Jose areas and relocation of Executive
and his family to that area (with such expenses to include, but not be limited
to, closing costs, seller's broker's fees, title insurance, interest costs
associated with maintaining more than one residence while the other residence
is in the process of being sold, prepayment penalties and reasonable temporary
living expenses, and any loss on such sale, without regard to such expenses,
not to exceed $200,000)) with such similar documented expenses as described in
this subsection (ii) to be paid in connection with any subsequent relocation of
the Executive by NEWCO during the Employment Period, (iii) a monthly payment
for or reimbursement of automobile and other transportation related expenses of
$1,100 per month, (iv) documented expenses reasonably incurred, for a period of
one year from the Effective Date or until the Executive has purchased and has
occupied with Executive's family a home in the greater San Francisco or San
Jose area, whichever is earlier, in connection with (x) travel between
Executive's home in Los Angeles and NEWCO's principal offices, and (y) local
lodging expenses not otherwise accounted for in (i) above, and (v) Executive's
reasonable legal fees and costs incurred in connection with the drafting,
negotiation and execution of this
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Agreement. All benefits described in the foregoing (i), (ii), (iv) and (v)
that are reportable as earned or unearned income will be "grossed up" by NEWCO
in connection with federal and state tax obligations to provide Executive with
appropriate net tax coverage so that the benefits received by the Executive
from the foregoing clauses (i), (ii), (iv) and (v) shall be net of income and
employment taxes thereon. NEWCO reserves the right to modify or terminate from
time to time the fringe benefits provided to the senior management group,
provided that the fringe benefits provided to the Executive shall not be
materially reduced on an overall basis during the Employment Period and
provided further that the benefits provided in clauses (i) through (v) above
shall not be reduced at all. Notwithstanding the foregoing, until such time as
NEWCO shall implement group health, dental and disability insurance plans for
its executives, or for a period of one year following the Combination,
whichever is less, Executive will be entitled to participate in the group
health, dental, and disability insurance plans made available to the senior
management group of OCV immediately prior to the Effective Date.
(d) [Intentionally omitted]
(e) Stock Options. NEWCO hereby grants to Executive as
of the Effective Date and pursuant to NEWCO's Stock Option Plan, options
("Options") to purchase 1,041,562 shares of NEWCO's common stock, par value
$0.01 per share (the "Common Stock"). NEWCO will use its best efforts to
register the shares of Common Stock underlying the Options by filing and
exercising best efforts to make and keep effective for the entire period of
exercise of the Options, a Registration Statement on the
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pertinent form within a reasonable period of time after the Combination. The
Options shall be exercisable in the following amounts at the following
per-share prices: (i) eighty percent (80%) of the Options (833,250 shares)
shall be exercisable at a per-share price 15.33 and (ii) twenty percent (20%)
of the Options (208,312 shares) shall be exercisable at a per-share price of
$17.63; provided, however, that if the average of the daily high and low bid
prices of the Common Stock on the NASDAQ Stock Exchange for the twenty trading
days following the third trading day after NEWCO's public release of financial
results for the third quarter of 1996 is less than $17.63, then the exercise
price shall be such average. The Options shall be exercisable by the Executive
according to the following schedule:
(i) with respect to 25% of the Option
shares on or after the commencement of the second year of the Employment
Period;
(ii) with respect to an additional 25% of
the Option shares on or after the commencement of the third year of the
Employment Period; and
(iii) with respect to an additional 50% of the
Option shares on or after the commencement of the fourth year of the Employment
Period.
Notwithstanding the foregoing, 100% of the Options shall immediately vest and
become immediately exercisable, without any further action by the Executive,
upon the occurrence of any "NEWCO change of control" or a "Change of Control
Event," each as defined in Section 7(a) below, or upon the occurrence of any
event that results in NEWCO's Common Stock no longer being traded on any of the
New York Stock Exchange, American Stock Exchange or NASDAQ National Market
System (including, without limitation, as a result of any "going private"
transaction with Ascent). The Options, to the extent they remain unexercised,
shall automatically and without further notice terminate and become of no
further force and effect at the time of the earliest of the following to occur:
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(x) Three months after the date upon
which a termination for cause by NEWCO (as provided in Section 5(b)) shall have
become effective and final; or
(y) Ten years after the Effective Date.
The Options shall have anti-dilution provisions identical to those
contained in the Warrant Agreement between NEWCO and the Warrant Agent related
to the Warrants, except (i) for anti-dilution provisions, if any, related to
sales of Common Stock of NEWCO to non-affiliates, and (ii) there shall be no
adjustment for dividends or distributions of cash or assets unless the
aggregate amount thereof exceeds 15% of the fair market value per share, rather
than the 5% provided in the Warrant Agreement, and the Options shall
additionally contain provisions permitting Executive's cashless exercise
thereof by paying the exercise price through the delivery of Options valued at
the difference between the exercise price of the Options delivered and the
market value of the shares of Common Stock underlying such Options. The
Options shall be represented by a stock option agreement between Executive and
NEWCO containing only terms consistent in all material respects with the
provisions of this Agreement, which stock option agreement shall be prepared by
NEWCO and presented for Executive's review at least ten (10) business days
prior to the Effective Date, shall otherwise qualify under Rule 16b-3 of the
Securities and Exchange Commission, and may be issued pursuant to a Stock
Option Plan adopted by NEWCO, which shall not alter the terms herein related to
the option or the Option shares. In addition, if NEWCO adopts a stock option
plan that in Executive's sole judgment provides for any term(s) more favorable
to the grantee than any term(s) set forth above, Executive will be entitled to
the benefit of such more favorable term(s) with respect to the Options, other
than with respect to the vesting schedule thereof, but in no event will any
term(s) applicable to the Options be less favorable to Executive than those set
forth above.
During the Employment Period, the Executive may be granted additional
non-statutory stock options but only as determined by the Compensation
Committee in its sole discretion, provided that the Executive acknowledges that
he has been advised by NEWCO that
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it is NEWCO's current intention not to issue any additional options to the
Executive during the three year period following the Effective Date.
Notwithstanding any other provision of this Agreement except Section 5(b), the
Compensation Committee may provide in its discretion that any stock options
granted to the Executive which have not vested prior to his termination of
employment shall continue to vest in accordance with their original terms as if
the Executive's employment had not terminated.
(f) Ascent Benefits. After the Effective Date, the
Executive shall cease to participate in Ascent's Non-Employee Directors Stock
Plan, and shall forfeit any and all rights and interests under such plan;
provided, however, that the Executive shall retain the stock options and stock
awards previously granted to him thereunder, which shall continue to vest in
accordance with their original terms as long as the Executive remains employed
by NEWCO or is a member of the Ascent Board of Directors.
(g) Consulting Compensation. If the Executive is still
employed by NEWCO on the date preceding the fourth anniversary of the Effective
Date, and if by such date the Executive and NEWCO have not executed a written
agreement for an additional term of employment, then the Employment Period
shall expire and, in addition to and without limitation of any rights of either
party under this Agreement or otherwise, NEWCO shall retain the Executive as a
non-exclusive consultant and, as compensation for such consulting services,
shall pay the Executive an amount equal to twenty-five percent (25%) of his
then current Base Salary for an additional period of twelve (12) months (the
"Consulting Period"), and during the Consulting Period the Executive shall
continue to receive Fringe Benefits (as defined below), and to vest in any
employee stock options previously awarded to the Executive, but the Executive
shall not be entitled to receive any Base Salary increases, bonuses, or further
awards of stock options. Without limiting any of the Executive's other rights
under this Agreement or otherwise, if the Executive is still employed by NEWCO
on the date preceding the fourth anniversary of the Effective Date and is
retained as a consultant and is entitled to the compensation and benefits set
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forth in the immediately preceding sentence, then such compensation and
benefits shall constitute the Executive's sole compensation resulting from the
expiration of this Agreement, and the Executive waives any claims to any
additional compensation other than as a result of NEWCO's breach of this
Agreement.
(h) Performance-Based Compensation; Conflicting Provisions.
The parties agree to use their best efforts in the administration of Agreement
to take actions so as to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") to ensure, to the extent
possible consistent with the other terms of this Agreement and the Options, the
Federal tax deductibility under that section of compensation paid to the
Executive pursuant to performance-based compensation. Solely to the extent of
any conflict between the provisions of this Agreement and the provisions of any
agreement between Executive, on the one hand, and Ascent, NEWCO and/or any
affiliated or related entity of either of them, on the other hand, relating to
stock options (including the Options), life insurance, health insurance, any
other employee equity participation, profit sharing or retirement plan, group
health plan or other employee benefits (individually and collectively, together
with the Ascent stock awards, referred to herein as the "Fringe Benefits"), the
provisions of this Agreement will control.
3. Trade Secrets; Return of Documents and Property.
(a) Executive acknowledges that during the course of his
employment he will receive secret, confidential and proprietary information
("Trade Secrets") of NEWCO and of other companies with which NEWCO does
business on a confidential basis and that Executive will create and develop
Trade Secrets for the benefit of NEWCO. Trade Secrets shall include, without
limitation, (a) literary, dramatic or other works, screenplays, stories,
adaptations, scripts, treatments, formats, scenarios, characters, titles of any
kind and any rights therein, "know-how," formulae, secret processes or
machines, inventions, computer programs (including documentation of such
programs) (collectively, "Technical Trade Secrets") and (b) matters of a
business nature, such as customer data and proprietary information about costs,
profits, markets and sales, customer databases, and other information of a
similar nature to the
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extent not available to the public, and plans for future development
(collectively, "Business Trade Secrets"). All Trade Secrets disclosed to or
created by Executive shall be deemed to be the exclusive property of NEWCO (as
the context may require). Executive acknowledges that Trade Secrets have
economic value to NEWCO due to the fact that Trade Secrets are not generally
known to the public or the trade and that the unauthorized use or disclosure of
Trade Secrets is likely to be detrimental to the interests of NEWCO and its
subsidiaries. During the Employment Period, Executive therefore agrees to hold
in strict confidence and not to disclose to any third party any Trade Secret
acquired or created or developed by Executive during the term of the Employment
Period except (i) when Executive is required to use or disclose any Trade
Secret in the proper course of the Executive's rendition of services to NEWCO
hereunder, (ii) when such Trade Secret becomes public knowledge other than
through a breach of this Agreement, or (iii) when Executive is required to
disclose any Trade Secret pursuant to any valid court order in which the
Executive is compelled to disclose such Trade Secret. The Executive shall
notify NEWCO immediately of any such court order in order to enable NEWCO to
contest such order's validity. For a period of two (2) years after termination
of the Employment Period for all Business Trade Secrets and for a period of
five (5) years after termination of the Employment Period for all Technical
Trade Secrets, the Executive shall not use or otherwise disclose Trade Secrets
unless such information (x) becomes public knowledge or is generally known in
any industry in which NEWCO conducts business among executives comparable to
the Executive other than through a breach of this Agreement, (y) is disclosed
to the Executive by a third party who is entitled to receive and disclose such
Trade Secret, or (z) is required to be disclosed pursuant to any valid court
order, in which case the Executive shall notify NEWCO immediately of any such
court order in order to enable NEWCO to contest such order's validity.
(b) Upon the effective date of notice of the Executive's
or NEWCO's election to terminate this Agreement, or at any time upon the
request of NEWCO, the Executive (or his heirs or personal representatives)
shall deliver to NEWCO (i) all documents and materials containing or otherwise
relating to Trade Secrets or other information relating to NEWCO's business and
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affairs, and (ii) all other documents, materials and other property belonging
to NEWCO, which in either case are in the possession or under the control of
the Executive (or his heirs or personal representatives). The Executive shall
be entitled to keep his personal records relating to NEWCO's business and
affairs except to the extent those contain documents or materials described in
clause (i) or (ii) of the preceding sentence, in which case Executive may
retain copies for his personal and confidential use.
4. Discoveries and Works. All discoveries and works made or
conceived by the Executive during his employment by NEWCO pursuant to this
Agreement, jointly or with others, that relate to NEWCO's activities
("Discoveries and Works") shall be owned by NEWCO, it being understood that the
Discoveries and Works referred to in this paragraph are limited to those that
are made, disclosed, reduced to tangible or written form or description, or are
reduced to practice by the Executive in the course of his performing services
for NEWCO. Discoveries and Works shall include, without limitation, literary,
dramatic or other works, screenplays, stories, adaptations, scripts,
treatments, formats, scenarios, characters, titles of any kind and any rights
therein, other works of authorship, inventions, computer programs (including
documentation of such programs), technical improvements, processes and
drawings. The Executive shall (i) promptly notify, make full disclosure to,
and execute and deliver any documents reasonably requested by, NEWCO to
evidence or better assure title to such Discoveries and Works in NEWCO, (ii)
assist NEWCO in obtaining or maintaining for itself at its own expense United
States and foreign copyrights, trade secret protection or other protection of
any and all such Discoveries and Works, and (iii) promptly execute, whether
during his employment by NEWCO or thereafter, all applications or other
endorsements necessary or appropriate to maintain copyright and other rights
for NEWCO and to protect their title thereto. Any Discoveries and Works which,
within sixty days after the termination of the Executive's employment by NEWCO,
are made, disclosed, reduced to a tangible or written form or description, or
are reduced to practice by the Executive and which pertain to work performed by
the Executive while with NEWCO shall, as between the Executive and NEWCO be
presumed to have been made
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during the Executive's employment by NEWCO.
5. Termination. During the Employment Period, Executive's
employment with NEWCO may be terminated only as follows:
(a) By the Executive (an "Executive Election") at any
time upon sixty (60) days advance written notice to NEWCO upon an "Executive
Election Event" (as defined below). In such event or if the Executive's
employment is terminated by NEWCO without "cause" (as defined below), there
will be no forfeiture, penalty, reduction or other adverse effect upon any
rights or interests relating to any Fringe Benefits, all of which will fully
vest, to the extent not previously vested, immediately upon such termination
becoming effective and final. Without limiting the foregoing, in the event of
an Executive Election or if the Executive's employment is terminated without
"cause," the Executive shall be entitled to receive the following benefits
through the longer of (A) the remainder of the Employment Period as if this
Agreement had remained in effect until the end of the Employment Period and (B)
one year following the date of such termination (the "Duration Period"): (i)
his then current Base Salary; (ii) an Annual Bonus equal to seventy percent
(70%) of his then current Base Salary for each year during the Duration Period;
and (iii) all other benefits provided pursuant to Sections 2(c), (d) and (e) of
this Agreement. The Executive shall have no obligation to seek other
employment in the event of his termination pursuant to this paragraph (a),
provided, however, that his compensation from any such employment obtained
shall offset up to fifty percent (50%) of NEWCO's obligations under clauses (i)
and (ii) above, but only after payments pursuant to clauses (i) and (ii) are
made with respect to a one year period following termination. NEWCO shall have
the option at any time during the Duration Period, after prior written notice
to the Executive, to pay to the Executive in a lump sum the net present value,
assuming a discount rate equivalent to the yield to maturity of United States
Treasury Bonds maturing on the same date as the end of the Duration Period, of
the amounts remaining under clauses (i) and (ii) of this paragraph (a), and the
amount of such lump sum payment shall be reduced by compensation actually paid
or payable to the Executive from other employment for the time period remaining
on NEWCO's payment
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obligation under this Agreement at the time such payment is made on the basis
set forth in the preceding sentence. If NEWCO pays such lump sum, NEWCO shall
have no further compensation payment obligations under clauses (i) and (ii)
above. The Executive shall have the right to instruct NEWCO to decrease any
such payment or other benefit due under this paragraph (a) to an amount not to
exceed an amount to be designated by the Executive in writing for the purpose
of providing that such payment (together with any other benefits provided to
the Executive) shall not constitute a "parachute payment" as defined in Section
280G of the Code; provided, however, that NEWCO's agreement to decrease such
payment shall not result in any liability from NEWCO to the Executive with
respect to any excise tax under Section 4999 of the Code (or any similar state
or local provision), or any penalties or interest with respect to such excise
tax. NEWCO shall place an amount equivalent to its obligations owed to the
Executive in connection with this Section 5(a) in an escrow account to be
administered by an unrelated third party, or shall provide some other
comparable form of security (e.g., an irrevocable letter of credit) for such
obligations reasonably acceptable to the Executive. In all circumstances of
termination under this Section 5(a), NEWCO shall remain obligated under clause
(iii) and all stock options (including the Option) will remain exercisable for
the maximum period provided in each applicable grant.
An "Executive Election Event" shall be any of the following:
(I) any change in the reporting structure set forth in Section 1(b) above; (II)
any requirement that the Executive perform material services of lesser stature
than those typically performed by the president and CEO of comparably sized
companies; (III) any reduction in Executive's title; (IV) a "Change of Control
Event" (as defined in Section 7(a) below); provided that in such event, the 50%
offset from subsequent employment set forth in the preceding paragraph shall be
increased to 100% and such offset shall apply during the first year after
termination as well; (V) any other material default of this Agreement which
continues for ten (10) business days following NEWCO's receipt of written
notice from the Executive specifying the manner in which NEWCO is in default of
this Agreement; (VI) the Board's requiring Executive to be based at any office
location other than the
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principal offices of NEWCO, or the relocation, without Executive's consent, of
such principal offices to a location outside the greater San Francisco and San
Jose areas prior to the second anniversary of the Effective Date; (VII) any
purported termination of Executive's employment otherwise than as expressly
permitted by the Agreement; or (VIII) an action by the Board, without the prior
written consent of the Executive, which results in NEWCO materially diminishing
the scope or magnitude of those operations in which it is expected to engage
immediately following the Combination.
(b) By NEWCO at any time for "cause." For purposes of
this Agreement, NEWCO shall have "cause" to terminate the Executive's
employment hereunder upon (i) the continued and deliberate failure of the
Executive to perform those material duties reasonably prescribed by the Board
and in accordance with the terms of this Agreement (other than any such failure
resulting from his incapacity due to physical or mental illness), which failure
continues for ten (10) business days following the Executive's receipt of
written notice from the Board specifying those duties which the Executive is so
failing to perform, (ii) the engaging by the Executive in intentional serious
misconduct that is materially and demonstrably injurious to NEWCO or its
reputation, which misconduct, if it is reasonably capable of being cured, is
not cured by the Executive within ten (10) business days following the
Executive's receipt of written notice from the Board specifying the serious
misconduct engaged in by the Executive, (iii) the conviction of the Executive
of commission of a felony involving a crime of moral turpitude, whether or not
such felony was committed in connection with NEWCO's business, or (iv) any
material breach by the Executive of Section 8 hereof. If NEWCO shall terminate
the Executive's employment for "cause," there will be no forfeiture, penalty,
reduction or other adverse effect upon any vested rights or interests relating
to any Fringe Benefits. In such event, NEWCO, in full satisfaction of all of
NEWCO's obligations under this Agreement and in respect of the termination of
the Executive's employment with NEWCO, shall pay the Executive his Base Salary,
a prorated Annual Bonus and all other compensation, benefits and reimbursement
through the date of termination of his employment, provided that the Option and
any other stock options granted to
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the Executive under the NEWCO option or any successor plan or under Ascent's
Non-Employee Director Stock Plan shall terminate three months after the date of
termination of his employment for "cause".
6. Disability; Death.
(a) If, prior to the expiration or termination of the
Employment Period, the Executive shall be unable to perform substantially his
duties by reason of disability or impairment of health for at least six
consecutive calendar months, NEWCO shall have the right to terminate
Executive's employment by giving sixty (60) days written notice to the
Executive to that effect, but only if at the time such notice is given such
disability or impairment is still continuing. Following the expiration of the
notice period, (i) the Employment Period shall terminate with the payment of
the Executive's Base Salary for the month in which notice is given and a
prorated Annual Bonus through such month, (ii) there will be no forfeiture,
penalty, reduction or other adverse effect upon any vested rights or interests
relating to any Fringe Benefits and (iii) the Option shall vest in its entirety
and shall remain exercisable for its full term as if the Executive had not
become disabled, notwithstanding the limitations of Section 2(e) of this
Agreement. In the event of a dispute as to whether the Executive is disabled
within the meaning of this paragraph (a), or the duration of any disability,
either party may request a medical examination of the Executive by a doctor
appointed by the Chief of Staff of a hospital selected by mutual agreement of
the parties, or as the parties may otherwise agree, and the written medical
opinion of such doctor shall be conclusive and binding upon the parties as to
whether the Executive has become disabled and the date when such disability
arose. The cost of any such medical examinations shall be borne by NEWCO.
(b) If, prior to the expiration or termination of the
Employment Period, the Executive shall die, NEWCO shall pay to the Executive's
estate his Base Salary and a prorated Annual Bonus through the end of the month
in which the Executive's death occurred, at which time the Employment Period
shall terminate without further notice and there will be no forfeiture,
penalty,
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reduction or other adverse effect upon any vested rights or interests relating
to any Fringe Benefits; provided that upon the Executive's death the Option and
any other stock options granted to the Executive under the NEWCO option plan or
any successor plan shall become fully vested and shall terminate one year after
the date of termination of the Executive's employment for death,
notwithstanding the limitations of Section 2(e) of this Agreement.
(c) Nothing contained in this Section 6 shall impair or
otherwise affect any rights and interests of the Executive under any
compensation plan or arrangement of NEWCO which may be adopted by the Board.
7. Change of Control.
(a) If, prior to the termination of the Employment
Period, there is a "Change of Control Event" (as hereinafter defined in this
paragraph (a)), the Executive shall have the right to exercise his Executive
Election in accordance with Section 5(a), but shall not have the right to give
notice in accordance with Section 5(a) in any event later than 120 days
following such Change of Control Event. Prior to any "change of control" (as
hereinafter defined in this paragraph (a)), and from time to time thereafter at
the Executive's request upon relevant changed circumstances in the ownership or
management of NEWCO, the Executive and the Board will mutually determine
whether such "change of control" or changed circumstances would be reasonably
likely to have a materially detrimental effect on the condition, reputation or
future prospects of NEWCO or its successor entity, the day-to-day circumstances
of the Executive's employment or the compensation payable to the Executive
hereunder. An affirmative determination with respect to any of the foregoing
by the Executive and the Board, or by an arbitrator as provided below, shall be
referred to herein as a "Change of Control Event", it being agreed that the
arbitrator shall award the Executive costs and attorneys' fees under Section
11(c) if the Executive has submitted the matter to arbitration with a
reasonable basis for doing so, even if the Executive is not the prevailing
party therein. If the Executive and the Board are unable to agree on such
determination, the Executive shall have the right: (i) to
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submit to arbitration pursuant to Section 11 below the determination of whether
the "change of control" or changed circumstances would be reasonably likely to
have any of the materially detrimental effects mentioned above, and an
affirmative determination by the arbitrator shall constitute a "Change of
Control Event"; (ii) to accept continued employment with NEWCO or its successor
entity on the terms of this Agreement; or (iii) to terminate his employment by
giving sixty (60) days written notice to NEWCO to that effect. If the
Executive elects to terminate his employment pursuant to clause (iii) of this
paragraph (a), following the expiration of the notice period provided therein,
the Employment Period shall terminate with the payment of the Executive's Base
Salary for the month in which notice is given. "Change of control" for
purposes of this paragraph (a) shall mean either, any event as a result of
which a single third party, or "group" as defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, other than Ascent or its
affiliates owns more than fifty percent (50%) of the voting stock of NEWCO (a
"NEWCO change of control"), or, any event as a result of which a single third
party, or "group" (as defined above) other than COMSAT Corporation or its
affiliates directly or indirectly owns more than fifty percent (50%) of Ascent.
(b) In the event that NEWCO adopts any "change of
control" provisions applicable to any NEWCO benefits plans, respectively,
providing for the accelerated vesting and/or payment of any benefits for its
senior management group, to the extent that such provisions give Executive
greater rights than those provided in paragraph (a) above, such provisions
shall apply to the Executive to the same extent as other NEWCO senior
executives on a favored nations basis with respect to the benefits affected by
such NEWCO provisions.
8. Non-Competition.
(a) As an inducement for NEWCO to enter into this
Agreement, the Executive agrees that for a period commencing as of the
Effective Date and running through the earlier of (i) the end of the Employment
Period if the Executive remains employed by NEWCO for the entire Employment
Period or (ii) one year following
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termination of the Executive's employment by NEWCO for "cause" as defined in
Section 5(b) hereof, or by the Executive for any reason (other than an
Executive Election Event or an event described in Section 7(a)(iii) above, in
which case the provisions of this paragraph (a) shall not apply) (the
"Non-Competition Period"), the Executive shall not, without the prior written
consent of the Board, undertake employment or services for a company engaged in
a business which is or has publicly announced its intention to become directly
competitive with the business then being primarily conducted by NEWCO, with
respect to any geographic area in which NEWCO then engages in such business, if
the loyal and complete fulfillment of the duties of the competitive employment
or services would call upon Executive to reveal, to make judgments on or
otherwise to use Trade Secrets of NEWCO (as defined in Section 3 above) to
which Executive had access by reason of his employment by NEWCO.
(b) Non-Solicitation of Employees. During the
Non-Competition Period, the Executive will not (for his own benefit or for the
benefit of any person or entity other than NEWCO) solicit, or assist any person
or entity other than NEWCO to solicit, any officer, director, executive or
employee (other than an administrative or clerical employee) of NEWCO to leave
his or her employment.
(c) Reasonableness; Interpretation. The Executive
acknowledges and agrees, solely for purposes of determining the enforceability
of this Section 8 (and not for purposes of determining the amount of money
damages or for any other reason), that (i) the markets served by NEWCO are
national and international and are not dependent on the geographic location of
executive personnel or the businesses by which they are employed; (ii) the
length of the Non-Competition Period is linked to the term of the Employment
Period and the severance benefit provided for in Section 5(a); and (iii) the
above covenants are manifestly reasonable on their face, and the parties
expressly agree that such restrictions have been designed to be reasonable and
no greater than is required for the protection of NEWCO. In the event that the
covenants in this Section 8 shall be determined by any court of competent
jurisdiction in any action to be unenforceable by reason of their extending for
too great a period
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of time or over too great a geographical area or by reason of their being too
extensive in any other respect, they shall be interpreted to extend only over
the maximum period of time for which they may be enforceable, and/or over the
maximum geographical area as to which they may be enforceable and/or to the
maximum extent in all other respects as to which they may be enforceable, all
as determined by such court in such action.
(d) Investment. Nothing in this Agreement shall be
deemed to prohibit the Executive from owning equity or debt investments in any
corporation, partnership or other entity which is competitive with NEWCO,
provided that such investments (i) are passive investments and constitute five
percent (5%) or less of the outstanding equity securities of such an entity the
equity securities of which are traded on a national securities exchange or
other public market, or (ii) are approved by the Board.
9. Indemnification; Liability Insurance. The Executive shall be
entitled to indemnification and coverage under NEWCO's liability insurance
policy for directors and officers to the same extent as other directors and
officers of NEWCO. During and after the term of employment, NEWCO hereby
agrees to indemnify and hold Executive harmless against any and all claims
arising from or in connection with his employment by or service to NEWCO to the
full extent permitted by law and, in connection therewith, to advance the
expenses of Executive incurred in defending against such claims subject to such
limitations as may actually be required by law.
10. Enforcement; Joint and Several Liability. The Executive
acknowledges that a breach of the covenants or provisions contained in Sections
3, 4 and 8 of this Agreement will cause irreparable damage to the Business and
NEWCO, the exact amount of which will be difficult to ascertain, and that the
remedies at law for any such breach will be inadequate. Accordingly, the
Executive agrees that if the Executive breaches or threatens to breach any of
the covenants or provisions contained in Sections 3, 4 and 8 of this Agreement,
in addition to any other remedy which may be available at law or in equity,
NEWCO shall be entitled to seek specific performance and injunctive relief.
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11. Arbitration. (a) Subject to NEWCO's right to
enforce Sections 3, 4 and 8 hereof by an injunction issued by a court having
jurisdiction (which right shall prevail over and supersede the provisions of
this Section 11), any dispute relating to this Agreement, including the
enforceability of this Section 11, arising between the Executive and NEWCO
shall be settled by arbitration which shall be conducted in the greater San
Francisco and San Jose, California area, or any other location where the
Executive then resides at NEWCO's request, before a single arbitrator in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA"). Within 90 days after the Effective Date, the parties
shall mutually agree upon three possible arbitrators, one of whom shall be
selected by the AAA within 2 days after notice of a dispute to be arbitrated
under this Section 11. The parties shall instruct the arbitrator to use his or
her best efforts to conclude the arbitration within 60 days after notice of the
dispute to AAA.
(b) The award of any such arbitrator shall be final.
Judgment upon such award may be entered by the prevailing party in any federal
or state court sitting in the greater San Francisco and San Jose, California
area or any other location where the Executive then resides at NEWCO's request.
(c) Subject to Section 7(a), the parties will bear their
own costs associated with arbitration and will each pay one-half of the
arbitration costs and fees of AAA; however, the arbitrator may in his sole
discretion determine that the costs of the arbitration proceedings, including
attorneys' fees, shall be paid entirely by one party to the arbitration if the
arbitrator determines that the other party is the prevailing party in such
arbitration.
12. Severability. Should any provision of this Agreement be
determined to be unenforceable or prohibited by any applicable law, such
provision shall be ineffective to the extent, and only to the extent, of such
unenforceability or prohibition without invalidating the balance of such
provision or any other provision of this Agreement, and any such
unenforceability or prohibition
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in any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.
13. Assignment. The Executive's rights and obligations under this
Agreement shall not be assignable by the Executive. NEWCO's rights and
obligations under this Agreement shall not be assignable by NEWCO except as
incident to the transfer, by merger or otherwise, of all or substantially all
of the business of NEWCO. In the event of any such assignment by NEWCO, all
rights of NEWCO hereunder shall inure to the benefit of the assignee.
14. Notices. All notices and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy, electronic or digital transmission
method, provided that in such case it shall also be sent by certified or
registered mail, return receipt requested; the day after it is sent, if sent
for next day delivery to a domestic address by recognized overnight delivery
service (e.g., Federal Express); and upon receipt, if sent by certified or
registered mail, return receipt requested. Unless otherwise changed by notice,
in each case notice shall be sent to:
If to Executive, addressed to:
Robert M. Kavner
331 S. Cliffwood
Los Angeles, CA 90049
With a copy to:
Robert Adler, Esq.
Munger, Tolles & Olson
355 South Grand Ave.
35th Floor
Los Angeles, CA 90071
Telecopier No. (213)687-3702
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If to NEWCO, addressed to:
On Command Corporation c/o
Ascent Entertainment Group, Inc.
1200 Seventeenth Street
Denver, CO 80202
Attention: Charlie Lyons
Telecopier No. (303) 595-0823
With a copy to:
Ascent Entertainment Group, Inc.
1200 Seventeenth Street
Denver, CO 80202
Attention: Arthur M. Aaron, Esq.
Telecopier No. (303) 595-0127
15. Miscellaneous. This Agreement constitutes the entire
agreement, and supersedes all prior agreements, of the parties hereto relating
to the subject matter hereof, and there are no written or oral terms or
representations made by either party other than those contained herein. No
amendment, supplement, modification or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. The
validity, interpretation, performance and enforcement of the Agreement shall be
governed by the laws of the State of California. The headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
/THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK/
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
/s/
---------------------------
Robert M. Kavner, Executive
ON COMMAND CORPORATION
By:
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Title:
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