10-K

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 00-21315

ON COMMAND CORPORATION
(Exact Name of Registrant as specified in its charter)

DELAWARE (State of Incorporation)	77-04535194 (IRS Employer Identification No.)
7900 E. Union Ave., Denver, CO (Address of Principal Executive Offices)	80237 (Zip code)

Registrant's telephone number, including area code: (720) 873-3200

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock
Series A Common Stock Purchase Warrants
Series B Common Stock Purchase Warrants

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant as of March 1, 2002, was $47,086,000 based upon a price of $4.10 per share, which was the last sales prices of such stock on March 1, 2002, as reported on the NASDAQ National Market Reporting System. As of March 1, 2002, there were 30,888,859 shares of the Registrant's Common Stock issued and outstanding.

ON COMMAND CORPORATION
2001 ANNUAL REPORT ON FORM 10-K
Table of Contents

		Page
	Part I
Item 1.	Business	I-1
Item 2.	Properties	I-14
Item 3.	Legal Proceedings	I-14
Item 4.	Submission of Matters to a Vote of Security Holders	I-14
	Part II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	II-1
Item 6.	Selected Financial Data	II-2
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	II-4
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	II-11
Item 8.	Financial Statements and Supplementary Data	II-12
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	II-12
	Part III
Item 10.	Directors and Executive Officers of the Registrant	III-1
Item 11.	Executive Compensation	III-5
Item 12.	Security Ownership of Certain Beneficial Owners and Management	III-9
Item 13.	Certain Relationships and Related Transactions	III-14
	Part IV
Item 14.	Exhibits, Financial Statements and Financial Statement Schedules and Reports on Form 8-K	IV-1

PART I

Item 1. Business.

General Development of Business

        On Command Corporation and its majority-owned subsidiaries (collectively the "Company" or "On Command") is the leading provider (by number of rooms served) of in-room, video entertainment and information services to hotels, motels and resorts. At December 31, 2001, the Company provided in-room entertainment services to approximately 926,000 hotel rooms. Approximately 89% of On Command's total installed rooms are located in the United States, with the balance located primarily in Canada, Mexico and Europe. The majority of the Company's domestic operations are conducted through its primary subsidiary, On Command Video Corporation. Of the Company's total rooms, approximately 893,000 are served by on-demand systems. A hotel, motel or resort is collectively referred to herein as a "hotel."

        On Command has sustained losses from operations and net losses since inception and as of December 31, 2001, reported an accumulated deficit of approximately $243,170,000. The Company is attempting to improve its operating results by increasing revenue, reducing expenses and by more effectively managing capital expenditures. Historically, the Company has required significant external financing to fund the costs of installing and upgrading video systems in its hotels. However, during 2002, the Company intends to reduce its reliance on external financing by reducing expenses and by more effectively managing capital expenditures. Notwithstanding the foregoing, the Company anticipates that it will require additional external financing to fund any significant new growth opportunities or unanticipated liquidity requirements. For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        On Command Corporation is a Delaware corporation formed in July 1996 by Ascent Entertainment Group, Inc. ("Ascent") for the purpose of (i) effecting the merger (the "Merger") of On Command Video Corporation ("OCV"), a majority-owned subsidiary of Ascent, with a wholly-owned subsidiary of On Command Corporation, after which OCV became a wholly-owned subsidiary of On Command Corporation, and (ii) effecting the acquisition (the "Acquisition") of Spectradyne, Inc. Following the Acquisition, Spectradyne, Inc. changed its name to SpectraVision, Inc ("SpectraVision"). The Merger and Acquisition were effective on October 8, 1996. At the time of the Merger and Acquisition, Ascent had been a majority-owned subsidiary of COMSAT Corporation ("COMSAT"). On June 27, 1997, COMSAT consummated the distribution of its 80.67% ownership interest in Ascent to the COMSAT shareholders. On March 28, 2000, Liberty Media Corporation ("Liberty") closed a cash tender offer for the common stock of Ascent, and thereby obtained control of the Company. On June 8, 2000, Liberty completed a merger with Ascent pursuant to which Ascent became an indirect, wholly-owned subsidiary of Liberty. Liberty, primarily through its ownership interest in Ascent, controls approximately 62.83% of On Command's outstanding common stock. Accordingly, Liberty currently has the voting power to control all matters requiring majority approval of On Command's stockholders. Liberty's interests may not be the same as those of the other On Command stockholders.

        Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, some of the statements contained under the captions "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance, or achievements of On Command, or industry results, to differ materially from

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future results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, among others:

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General economic and business conditions, and trends in the travel and entertainment industries;



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Trends in hotel occupancy rates and business and leisure travel patterns;



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The Company's ability to access quality movies, programming networks and other content on acceptable terms;



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The regulatory and competitive environment of the industry in which On Command operates;



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Uncertainties inherent in new business strategies such as the Company's recent efforts to expand its target market to include smaller hotels;



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New product launches and development plans, including the future profitability of such added services;



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Competitive threats posed by rapid technological changes;



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The development and provision of new services such as the Company's recently introduced Internet service, short subject videos and digital music, and customer acceptance and usage rates of such services;



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Uncertainties inherent in the Company's efforts to improve future operating results by increasing revenue and decreasing costs;



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Uncertainties inherent in the Company's efforts to more effectively manage capital expenditures and decrease its reliance on external financing;



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The ability of vendors to deliver required equipment, software and services;



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Availability of qualified personnel;



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Changes in the nature of key strategic relationships with hotel chains and their franchisees, including the renewal of existing agreements on favorable terms;



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Competitor responses to On Command's products and services, and the overall market acceptance of such products and services; and



•

Other factors discussed in this Report.

        Many of the foregoing risks and uncertainties are discussed in greater detail under the captions "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These forward-looking statements (and such risks, uncertainties and other factors) speak only as of the date of this Report, and On Command expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in On Command's expectations with regard thereto, or any other changes in events, conditions, or circumstances on which any such statement is based.

Narrative Description of Business

Industry Background

        The provision of in-room entertainment and information services to the hotel industry includes offering pay-per-view motion pictures, archived television content, games, digital music, Internet connectivity, guest programming of select pay cable channels and an increasing array of interactive programs and information services. Pay-per-view services were introduced in the early 1970s and have since become a standard amenity offered by many hotels to their guests. Historically, providers of programming to hotels delivered their content on a fixed time schedule that did not provide the hotel

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guest flexibility in choosing when to watch a movie. Typically, a guest would be offered a choice of four to eight movies, each of which would be shown once every two to four hours. The development of video switches (including the Company's patented video switch) enabled providers of pay-per-view services to offer scheduling flexibility to the viewer. Depending on the type of system installed and the size of the hotel, guests can choose between 40 and 85 different movies with an on-demand system. Changes in technology have also led to the ability to provide a number of on-demand interactive services such as Internet services, games, digital music, guest folio review, automatic checkout, survey completion and guest messaging. The market for in-room entertainment and information is characterized as a highly competitive environment among several industry-dedicated companies and a number of new entrants including cable companies, satellite distribution companies, telecommunications companies, laptop connectivity companies and others. See additional discussion in "Competition" below.

Operating And Growth Strategy

        On Command's operating and growth strategy is to: (i) increase revenue and create new revenue sources through an expanding range of interactive and information services offered through the OCX video system and OCV video systems including TV Internet, games and digital music; and (ii) increase its installed customer base by obtaining contracts with business and luxury hotels and select mid-priced hotels currently without service, converting hotels currently served by other providers whose contracts are expiring and servicing hotels that are acquired or constructed by existing customers. Historically, On Command has primarily been focused on business and leisure hotels with approximately 150 rooms or more. On Command recently broadened its strategy for obtaining new hotel customers to target both smaller hotels (hotels with 75 to 150 rooms) and lower cost hotels.

Video Systems

OCX Video System

        The OCX video system is a multimedia platform that can incorporate digital content storage. The OCX video system currently is capable of providing interactive multimedia menus, high-speed television-based Internet service, Sony PlayStation™ games and digital music, as well as the ability to offer more choices of higher-quality on-demand movie services. Potential offerings using the digital platform include non-theatrical short videos (such as business, lifestyle and sports videos) and special events, including out-of-market sports events. On Command has developed an updated version of the OCX video system, marketed under the name Roommate. This new version expands upon the basic architecture of the OCX video system, allowing On Command to take advantage of general cost reductions in hardware technology while preserving its investment in its Site Manager software, discussed below. Roommate was launched in October 2001. Due to the cost benefits and greater storage capacity associated with Roommate, On Command is generally installing the Roommate system in all new hotels or hotels where the existing video system is being replaced. At December 31, 2001, On Command had installed the OCX video system in 217,000 rooms, 10,000 of which had the Roommate system.

        The OCX video system supports a high degree of interactivity and customization, including a multimedia user interface. The OCX video system is a standards-based, client-server architecture utilizing Windows NT Server in the "back end" and a customized NTSC version of Microsoft's Internet Explorer running on Windows 98 PC clients in the "front end." HTML-based menus allow integration of content and navigational elements. Video content is provided primarily via a digital file server or an array of video cassette players.

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        A key component of the OCX video system is the "Site Manager" software application that controls the system, interfaces with the hotel billing management systems, and acts as the OCX video system's overall resource manager (including user session management and resource allocation).

        The OCX video system provides enhanced multimedia applications and Internet access using a customized version of Microsoft's Internet Explorer, adapted for use over the television in conjunction with a wireless keyboard. Internet service is available to guests for a daily fee and includes complete web access. On Command has also partnered with several Internet content providers to organize hotel-friendly Internet sites. The OCX video system operates by means of several client computers that serve multiple guestrooms and are located outside of the actual rooms.

        The OCX video system provides a significant increase both in the breadth of possible services and in the efficiency of providing them. While the platform itself may be extended or upgraded to support extensive product offerings, current implementations include video-on-demand, television-based Internet access, Sony PlayStation™ video games, digital music and a rich multimedia user interface. With the OCX video system technology, each component of the platform has multiple uses. For example, the same PC client used for navigating graphics-intensive menus is used subsequently for accessing the Internet and sending e-mail. With digital content storage, a feature film could be replaced by four 30-minute short subject videos (for example, instructional videos, self-help videos or comedy videos), unlike one-for-one replacement with videocassettes. More importantly, digital content storage will allow the Company to begin a transition to electronic delivery of program content.

OCV Video System

        The On Command video system (the "OCV video system") is the Company's original platform, and the predecessor to the OCX video system. At December 31, 2001, On Command had installed the OCV video system in approximately 644,000 hotel rooms. The OCV video system was patented by On Command in 1992 and consists of a microprocessor controlling the television in each room, a hand-held remote control, and a central "head-end" video rack and system computer located elsewhere in the hotel. Programming signals originate from video cassette players located within the head-end rack and are transmitted to individual rooms by way of the OCV video system's proprietary video switching technology. Movie starts are controlled automatically by the system computer. The system computer also records the purchase by a guest of any title and reports billing data to the hotel's accounting system, which posts the charge to the guest's bill.

        Manual functions of the OCV video system equipment are limited to changing videocassettes once per month and are all handled by On Command's service personnel, who also update the system's movie titles screens. The OCV video system's information system is capable of generating regular reports of guests' entertainment selections, permitting the OCV video system to adjust its programming to respond to viewing patterns. The number of guests that can view a particular movie at the same time varies from hotel to hotel depending upon the popularity of the movie. The OCV video system provides more copies of the most popular programming to hotels. The OCV video system includes a computerized in-room on-screen menu that offers guests a list of only those movie selections available to the guest at that time rather than all of the titles currently playing at the hotel. This minimizes the possibility of a guest being disappointed when the guest's selection is not available. The high-speed, two-way digital communications capability of the OCV video system enables On Command to provide advanced interactive and information features, such as video games, in addition to basic guest services such as video checkout, room service ordering and guest satisfaction surveys. The OCV video system also enables hotel owners to broadcast informational and promotional messages and to monitor room availability.

        The Company has developed a technology that will economically allow the Company to upgrade its OCV video system to digitally provide music, non-rated motion pictures intended for mature audiences

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and a full-motion video and audio promotional screen. The Company expects the upgrade to be available in mid-2002. Although no assurance can be given, the Company anticipates that upgraded OCV video system will provide increased opportunities for revenue growth.

SpectraVision Video System

        The SpectraVision video system, which provides in-room entertainment on a rolling schedule basis, and in some upgraded variations, on an on-demand basis, was installed in approximately 65,000 hotel rooms at December 31, 2001. The SpectraVision video system generally offers fewer movie choices than the OCX video system or the OCV video system.

Capital Cost Per Room

        On Command undertakes a significant investment when it installs its system in a hotel property. The Company's installation costs generally include labor and equipment costs, and in some cases, the cost of installing a hotel's cable and antennae system. In general, the cost of installing video systems in hotels has decreased as the Company has developed new technology. For example, the cost of installing the Roommate version of OCX, which is currently the Company's most technologically advanced system, is typically lower than the cost of installing the basic OCX or OCV video systems. In addition, as described above, the Company has developed technology that will enable the Company to upgrade portions of the OCV video system to a digital platform at a significantly lower cost than that which would be required to perform a full conversion of the OCV video system to the Roommate version of OCX.

Services

Pay-Per-View Movie Services

        On Command provides on-demand and, in some cases, scheduled in-room television viewing of major motion pictures and non-rated motion pictures intended for mature audiences, for which a hotel guest pays on a per-view basis. Depending on the type of system installed and the size of the hotel, guests can choose between 40 and 85 different movies with an on-demand system, or from eight to twelve movies with a scheduled system.

        On Command obtains the non-exclusive rights to show recently released motion pictures from major motion picture studios generally pursuant to a master agreement with each studio. The license period and fee for each motion picture are negotiated individually with each studio, which typically receives a percentage of that picture's net revenue generated by the pay-per-view system. Typically, On Command obtains rights to exhibit major motion pictures during the "Hotel/Motel Pay-Per-View Window," which is the time period after initial theatrical release and before release for home video distribution or cable television exhibition. On Command attempts to license pictures as close as possible to motion pictures' theatrical release date to benefit from the studios' advertising and promotional efforts. On Command also obtains non-rated motion pictures intended for mature audiences, for a one-time flat fee that is nominal in relation to the licensing fees paid for major motion pictures.

        The revenue generated from On Command's pay-per-view service is dependent on the occupancy rate at the property, the "buy rate" or percentage of occupied rooms that buy movies or other services at the property, and the price of the movie or service. Occupancy rates vary based on the property's location, its competitive position within the marketplace, and general economic conditions. Buy rates generally reflect the hotel's guest mix profile, the popularity of the motion pictures or services available at the hotel and the guests' other entertainment alternatives. Buy rates also vary over time with general economic conditions. The business of On Command is closely related to the performance of the business of the deluxe, luxury and upscale hotel segments of the hotel industry. Movie price levels are set based on the guest mix profile at each property and overall economic conditions. Currently, On Command's movie prices typically range from $8.99 to $12.99 (or $19.99 to $21.99 for 24-hour viewing of certain non-rated motion pictures intended for mature audiences).

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Short Subjects

        In addition to movies, On Command has begun providing short video programming options to the hotel guest. This content includes HBO's Sex and the City and The Sopranos, two very popular series, the comedy series Seinfeld, Showtime's Red Shoe Diaries, programming from the Discovery Networks and other entertainment packages. On Command currently charges $5.99 to $9.99 for one hour of programming and pays the supplier of the programming a percentage of net revenue from the programming. The short subjects offer an alternative to many guests with limited time who cannot watch a full-length feature movie. On Command believes short video programming will continue to grow in popularity with the traveling business customer.

Internet Services

        Beginning in 1997, On Command developed and selectively deployed for market testing several new services to complement its existing offerings and strengthen its growth strategy by creating new potential revenue sources. In July 1999, On Command commercially released its OCX video system, which enables guests to access the Internet through the television and wireless keyboard in their room. This service allows up to 24 hours of access for a typical price of $9.95. On Command is continually upgrading this service through improved versions of its Internet browser software that offer better reformatting for the television and improved speed. On Command believes its television Internet product will continue to increase in popularity, as On Command is able to develop and acquire aggregated television formatted Internet content of particular interest to the hotel guest. On Command pays its Internet browser provider a flat software fee and either On Command or the applicable hotel pay the connectivity fees related to the service. At December 31, 2001, On Command had installed this Internet service in approximately 172,000 rooms.

        On Command has also tested high-speed laptop connectivity for hotel rooms and high-bandwidth services for conference spaces in a small number of properties. Due to the poor financial results experienced and the high costs of maintaining the product, the Company has decided to no longer directly provide this service to its hotel customers. Instead, the Company will pursue high-speed laptop connectivity through its investee, STSN, Inc., a high-speed access provider.

Music

        In March 2001, On Command acquired 80% control of Hotel Digital Network, Inc. ("Hotel Digital Network"), a company that provides in-room music content to hotels through On Command and other in-room entertainment providers. Until February 2002, Hotel Digital Network operated under the name Digital Music Network. In February 2002, Hotel Digital Music Network began doing business under the name Instant Media Network ("IMN"). With the IMN system, an On Command hotel guest can choose from an array of 600 CD titles of many genres to listen to for a two-hour period for a price of $9.99. The IMN system, called MusicOnCommand, integrates seamlessly into the OCX video system architecture. Data on guest use indicates that it occurs at times apart from those associated with heavy television viewing times and suggests that it will supplement On Command's other pay-per-view offerings. At December 31, 2001, On Command had installed its music product in 36,000 rooms. On Command plans to install and market MusicOnCommand aggressively in 2002. IMN's agreements with its suppliers provides for IMN to pay the suppliers a percentage of net revenue generated from the service.

Game Services

        At December 31, 2001, On Command offered video games in approximately 339,000 rooms. Both the OCX and OCV video systems support Sony PlayStation™ games. Children, families and business travelers can entertain themselves with the most popular video game titles available on the market.

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There are on average 8 to 10 titles available in most rooms in which video games are offered at a guest price of $6.99 per hour. On Command pays its video game suppliers a flat software fee. In addition, Sony receives a percentage of net revenue generated from the service.

Guest Programming Services

        On Command also markets guest programming services pursuant to which a hotel may elect to receive one or more programming channels, such as HBO, Starz, ESPN, Turner, Disney Channel, Discovery and other popular cable networks, which the hotel provides to guests at no additional cost. On Command provides hotels with guest programming services through a variety of arrangements, including having the hotel pay the company a monthly fee per room for each programming channel selected or including the cost or part of the cost of such programming within the Company's overall contractual arrangements with the hotel or hotels. On Command has a unique contract with each network vendor (approximately 25 vendors, serving 50-60 channels). Payment to network vendors is based on subscriber room count but also use variables such as the combination of channels received, occupancy, volume and penetration. The terms of the contracts with network vendors average three to five years.

Other Hotel and Guest Services

        In addition to entertainment services, On Command provides other guest services to the hotel industry. These additional services use the two-way interactive communications capability of the Company's equipment. Among the guest services provided are video check-out, room service ordering and guest satisfaction surveys. Guest services are available in various foreign languages.

Sales and Marketing

        Substantially all of On Command's growth to date has been derived from obtaining contracts with hotels in the United States not under contract with existing vendors or whose contracts with other vendors are expiring or have expired. On Command believes that opportunities for additional growth in the deluxe, luxury and upscale hotel markets in the United States are more limited than in the past. Therefore, the Company has broadened its strategy for obtaining new hotel customers to target both smaller hotels and lower cost hotels as well. Management anticipates that the lower costs and flexibility afforded by the continued design improvements in the Company's video platforms will make marketing to smaller hotels and lower cost hotels more economically attractive than in the past.

        On Command's marketing efforts have historically been primarily focused on business and leisure hotels with approximately 150 rooms or more. The Company also targets smaller deluxe, luxury and upscale hotels and select mid-priced hotels serving business travelers that meet its profitability criteria. As mentioned above, the Company has recently begun to employ additional engineering, development and marketing efforts to target smaller hotels and certain lower cost hotels. On Command intends to continue targeting established hotel chains, certain business and leisure hotel management companies and selected independent hotels.

        In addition to broadening its strategy to obtain new customers, On Command's future growth will be derived from increased revenue earned from each equipped room. On Command markets its services to hotel guests primarily by means of on-screen advertising that highlights the services and motion picture selections for the month. During 2002, the Company plans to implement enhancements to the power-up barker channel on its OCX and OCV video systems. These enhancements should enable the Company to more effectively advertise its product offerings to its hotel guests and improve the buy rate.

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Advertising

        On Command's platforms offer a wide range of venues that could be used to generate advertising revenue. These include advertising on the various menu screens that the hotel guest uses to navigate to movies, games, music or Internet access. Certain forms of such advertising may be subject to provisions contained in the Company's contracts with its hotel customers. On Command currently receives minimal revenue from advertising.

        The OCX video system is designed with an HTML page-based client server architecture with Internet access. Since the typical guest views many of the On Command screens, this presents multiple potential customer exposures for a potential advertiser. In addition, as the market leader for in-room, on-demand video entertainment and information services in the deluxe, luxury and upscale hotel markets, On Command offers advertisers exposure to very high-end viewer demographics. The ability to tie together menu-screen based advertising and Internet advertising to a national television advertising capability gives On Command a unique strength in the market.

Hotel Contracts

        For some of the Company's large customers, the Company negotiates and enters into a single master contract covering all hotels owned, and in some cases, managed by the customer. A master contract typically provides for the financial and operational terms that govern the provision of in-room services. However, the contractual relationship with an individual hotel that is covered by a master contract generally has a duration that commences on the date that the Company's video system becomes operational in that hotel. Accordingly, the expiration date of the contractual relationship with any such hotel is largely independent from the expiration date of the applicable master contract. In the case of hotels that are not covered by master contracts, the Company generally executes contracts separately with each hotel. The Company's existing contracts, whether master contracts or contracts with individual hotels, generally have terms ranging from five to seven years.

        Under its contracts, On Command installs its system into the hotel at On Command's cost, and On Command retains ownership of all equipment used in providing the service. In certain cases, On Command has provided hotels with televisions. Although the Company is obligated to purchase and maintain televisions under certain of its existing contracts, the Company generally seeks to avoid entering into new contracts or renewals that require the Company to purchase televisions for hotels. On Command's contracts with hotels generally provide that On Command will be the exclusive provider of in-room, pay-per-view video entertainment services to the hotel and generally permit On Command to set its prices. Under certain circumstances, certain hotels may have the right to prior approval of the price increases, which approval may not be unreasonably withheld. The hotels collect fees from their guests and retain a commission equal to a negotiated percentage of the net revenue generated from the room, which varies in relationship with the size and profitability of the system. Some contracts also require On Command to upgrade systems to the extent that new technologies and features are introduced during the term of the contract. At the scheduled expiration of a contract, On Command generally seeks to extend the agreement on terms that are based upon the competitive situation in the market. As of December 31, 2001, contracts covering approximately 41% of the Company's installed rooms are scheduled to expire, if not renewed, during the two-year period ending December 31, 2003.

Markets And Customers

        On Command currently provides entertainment and information services to hotels that are associated with major hotel chains, management companies and independent hotels including Marriott, Hilton, Six Continents, Starwood, Hyatt, Wyndham, Radisson, Four Seasons, Fairmont and other select hotels. On Command's hotel customers are located in the United States, Canada, Mexico and Europe.

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        The following table sets forth certain information regarding the number of hotels and rooms served by On Command:

		December 31,
		2001		2000
Hotels served:
	U.S.		3,038		3,054
	International		402		465
Rooms served:
	U.S.		819,000		842,000
	International		107,000		135,000
Total net room revenue per equipped room		$	20.21/month	$	21.46/month

Significant Customers

        On March 21, 2001, the Company and Marriott International, Inc. ("Marriott") entered into a definitive agreement pursuant to which the Company will distribute its services in approximately 165,000 U.S. and Canadian hotel rooms owned or managed by Marriott. In addition, the Company has the opportunity to negotiate agreements to provide its services to approximately 135,000 additional U.S. and Canadian hotel rooms franchised by Marriott.

        The Company's master contract with Hilton Hotels Corporation ("Hilton") expired on April 27, 2000. In October 2000, Hilton announced that it would not renew its master contract with the Company. The Company currently provides service to approximately 7,500 Hilton owned rooms and approximately 66,500 Hilton managed and franchised rooms. The Company's contracts with respect to individual owned, managed or franchised hotels expire over an extended period of time depending on the installation date of the individual hotel. Additionally, the terms of the Company's contracts with hotels owned by a hotel chain are sometimes different than those of the Company's contracts with hotels that are managed or franchised by the same hotel chain. Accordingly, the Company expects that hotels owned by Hilton will not renew their contracts as they expire. However, hotels that are managed or franchised by Hilton are not precluded from renewing their contracts with the Company. Currently the Company cannot predict the number of managed and franchised Hilton hotels that will renew, but believes it will be successful in renewing the contract with certain of these hotels. Individual contracts with Hilton owned, managed and franchised hotels expire, if not renewed, over the next seven years.

        In addition, the Company has a master contract in place with Promus Hotel Corporation ("Promus"). This master contract expires on May 25, 2002. Promus owns, manages and franchises the DoubleTree, Embassy Suites, Hampton Inn and Homewood hotel chains. Promus was acquired by the Hilton Corporation in late 1999. The Company currently provides service to approximately 6,200 Promus- owned rooms and 63,200 Promus managed and franchised rooms. Individual contracts with Promus owned, managed and franchised hotels expire, if not renewed, over the next nine years.

        Hotel rooms owned, managed or franchised by Marriott, Hilton and Six Continents Hotels, Inc. accounted for approximately 27%, 19% and 12% respectively, of On Command's room revenue for the year ended December 31, 2001. Contracts are written at the hotel level and therefore expirations occur over extended periods of time depending on the installation date of the particular hotel. The loss of any of these customers, or the loss of a significant number of other hotel chain customers, could have a material adverse effect on On Command's results of operations or financial condition. As described above, Hilton announced in October 2000 that it would not renew its master contract with On Command.

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Installation And Service Operations

        At December 31, 2001, On Command's installation and service organization consisted of approximately 386 installation and service personnel in the United States and Canada. On Command's installation and service personnel are responsible for system maintenance and distribution of video and audio content for all of the hotel rooms served by On Command in the United States and Canada. On Command's installation personnel also prepare site surveys to determine the type of equipment to be installed at each hotel, install systems, train the hotel staff to operate the systems and perform quality control tests. On Command also uses local installation subcontractors supervised by full-time On Command personnel to install its systems.

        On Command maintains a toll-free technical support hot line that is monitored 24 hours a day by trained support technicians. The on-line diagnostic capability of the OCX video system, OCV video system and SpectraVision systems enables the technician to identify and resolve a majority of the reported system malfunctions from On Command's service control center without visiting the hotel property. Should a service visit be required, the modular design of the OCX video system, OCV video system and SpectraVision systems generally permit service personnel to replace defective components at the hotel site.

Technology—Research And Development

        The Company develops technologies to be used in the OCX video system, OCV video system and SpectraVision video systems to support and enhance their operations, and develops new applications to be marketed by the Company. On Command incurred costs of approximately $5,971,000, $8,461,000 and $8,479,000 in 2001, 2000 and 1999, respectively, related to research and development.

        On Command's product development philosophy is to design high quality entertainment and information systems that incorporate features allowing the Company to add system enhancements as they become commercially available and economically viable. The high speed, two-way digital communications capability of the OCX video system enables the Company to provide advanced interactive features such as video games and Internet access in addition to basic guest services such as video checkout, room service ordering and guest survey.

        The Company's systems incorporate proprietary communications system designs with commercially manufactured components and hardware such as video cassette players, digital video disk players, other digital storage media, televisions, amplifiers and computers. Because the Company's systems generally use industry standard interfaces, On Command can integrate new technologies that may prove to be useful.

Suppliers

        On Command contracts directly with various electronics firms for the manufacture and assembly of its systems hardware, the design of which is controlled by the Company. Historically, these suppliers have been dependable and able to meet delivery schedules on time. Certain electronic component parts used with the Company's products are available from a limited number of suppliers and can be subject to the supplier discontinuing the production of such part. In such event, the Company is given the opportunity to initiate a last time purchase of the applicable part, which provides the Company adequate inventory. If adequate inventory is not available, the Company could experience a temporary reduction in the rate of new installations and/or an increase in the cost of such installations. However, the Company believes that, in the event of a termination of any of its suppliers or the discontinuance of certain electronic components, alternate suppliers or parts can be located without incurring significant costs or delays. Historically these events have not had a significant impact on the timing and/or costs of the Company's installations.

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        The head-end electronics for the Company's systems are assembled at the Company's facilities for testing prior to shipping. Following assembly and testing of equipment for a particular hotel, the system is shipped to each location, where On Command-employed and trained technicians install the system, typically assisted by independent contractors.

        For those hotels in which the Company supplies televisions, On Command purchases such televisions from a limited number of television vendors. In the event of a significant price increase for televisions by such vendors, the Company could face additional, unexpected capital expenditure costs, but the risk is not considered significant.

        On Command maintains direct contractual relations with various suppliers of pay-per-view and guest programming services, including the motion picture studios and/or their domestic and international distributors and programming networks, as well as suppliers of video games and Internet services. On Command believes its relationships with all suppliers are good.

Competition

        In the United States there are numerous providers of in-room video entertainment to the hotel industry. Market participants include, but are not limited to, (i) other full service in-room providers, such as LodgeNet Entertainment Corporation ("LodgeNet"), Hospitality Network ("Hospitality"), NXTV, Inc., SeaChange International, Inc. and other providers in international markets, (ii) cable television companies, such as AOL Time Warner, Inc., AT&T Corp., Cox Communications, Inc. and Comcast Corp., (iii) direct broadcast satellite services, such as DirecTV and the DISH Network, (iv) television networks and programmers, such as ABC, NBC, CBS, FOX, HBO, STARZ, and Showtime, (v) Internet service providers, such as AOL Time Warner, Inc., (vi) broadband connectivity companies, such as STSN, Inc. and KoolConnect Technologies, Inc., and (vii) other telecommunications companies, such as Qwest Communications International, Inc. and SBC Communications, Inc. In addition, On Command's services compete for a guest's time and entertainment resources with other forms of entertainment and leisure activities. On Command anticipates that it will continue to face substantial competition from traditional as well as new competitors and that certain of these competitors have greater financial resources and better access to the capital markets than On Command. Many of the potential competitors are developing ways to use their existing infrastructure to provide in-room video entertainment and/or informational services. Certain of these competitors are already providing guest programming services and are beginning to provide video-on-demand, Internet and high-speed connectivity services to hotels.

        On Command is the leading provider (by number of rooms served) of in-room video entertainment services in the United States and on a world wide basis. At December 31, 2001, On Command served approximately 926,000 video entertainment rooms world wide, of which approximately 893,000 are on-demand rooms. Domestically, On Command competes on a national scale primarily with LodgeNet and Hospitality. Based on publicly available information, On Command estimates that, at December 31, 2001, LodgeNet and Hospitality provided service to approximately 891,000 and 110,000 video entertainment rooms, respectively.

        Domestically, On Command's target market includes hotels with a minimum of 75 rooms per hotel. This market aggregates approximately 3.2 million rooms. At December 31, 2001, On Command provided services to approximately 819,000 video entertainment rooms in the United States of which approximately 800,000 were on-demand rooms.

        Competition with respect to the provision of in-room video entertainment and information systems centers on a variety of factors, depending upon the circumstances important to a particular hotel. Among the more important factors are (i) the features and benefits of the entertainment and information systems, (ii) the quality of the vendor's technical support and maintenance services, and (iii) the financial terms and conditions of the proposed contract. With respect to hotel properties

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already receiving in-room entertainment services, the current provider may have certain informational and installation cost advantages compared to outside competitors.

        On Command anticipates substantial competition in obtaining new contracts with major hotel chains. The Company believes that hotels view the provision of in-room on-demand entertainment and information services both as a revenue source and as a source of competitive advantage because sophisticated hotel guests are increasingly demanding a greater range of quality entertainment and information alternatives. At the same time, On Command believes that certain major hotel chains have awarded contracts based primarily on the level and nature of financial and other incentives offered by the service provider. While On Command believes it will continue to enter into contractual arrangements that are attractive to both On Command and its hotel customers, its competitors may attempt to maintain or gain market share at the expense of profitability. On Command may not always be willing to match incentives provided by its competitors.

        The communications industry is subject to rapid technological change. New technological developments could adversely effect On Command's operations unless the Company is able to provide equivalent services at competitive prices.

Regulation

        The Communications Act of 1934, as amended by the Cable Communications Policy Act of 1984, the Cable Television Consumer Protection and Competition Act of 1992 and the Telecommunications Act of 1996, governs the distribution of video programming by cable, satellite or over-the-air technology, through regulation by the Federal Communications Commission ("FCC"). However, because the Company's video distribution systems do not use any public rights of way, they are not classified as cable systems and are subject to minimal regulation. Thus, the FCC does not directly regulate the pay-per-view or guest programming provided by the Company to hotel guests.

        The Internet-based services offered by the Company potentially may be affected by various laws and governmental regulations. There are currently few laws or regulations directly applicable to access to or commerce on commercial online services or the Internet. However, because of the increasing popularity and use of commercial online services and the Internet, a number of laws and regulations may be adopted with respect to commercial online services and the Internet. For example, the Internet Tax Freedom Act, which was extended through November 1, 2003, placed a moratorium on new state and local taxes on Internet access and commerce. Other Internet-related laws and regulations may cover issues such as user privacy, defamatory speech, copyright infringement, pricing and characteristics and quality of products and services. The adoption of such laws or regulations in the future may slow the growth of commercial online services and the Internet, which could in turn cause a decline in the demand for the Company's Internet-based services and products or otherwise have an adverse effect on the Company. Moreover, the applicability to commercial online services and the Internet of existing laws governing issues such as property ownership, libel, personal privacy and taxation is uncertain and could expose the Company to liability.

        On January 18, 2001, the FCC released a Notice of Inquiry regarding interactive television services ("ITV") over cable television. The FCC seeks comment on, among other things, an appropriate definition of ITV services, whether access to a high-speed connection is necessary to realize ITV capabilities, and whether a nondiscrimination rule is necessary and/or appropriate. The outcome of this proceeding and any rules ultimately adopted by the FCC could affect the ITV services currently offered by the Company and the ITV services which the Company may offer in the future.

        Although the FCC generally does not directly regulate the services provided by the Company, the regulation of video distribution and communications services is subject to the political process and has been in constant flux over the past decade. Further material changes in the law and regulatory

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requirements must be anticipated and there can be no assurance that the Company's business will not be adversely affected by future legislation or new regulations.

        Because most music is copyrighted, license agreements are required for the Company's major motion pictures, short programming and IMN services. IMN has agreements and arrangements with major rights holders and/or organizations that permit the distribution of music through the IMN service. The Company has one agreement in place and is negotiating a second agreement with rights holders for certain services other than IMN services. Music rights licensing has been the subject of industry-wide arbitration and/or litigation for a number of years. Depending upon the outcome of on-going proceedings, the license fee for such distribution may increase.

Patents, Trademarks And Copyrights

        The Company holds a number of patents and patent licenses covering various aspects of its pay-per-view and interactive systems primarily related to the OCV video system. The patents expire between 2007 and 2014. With the rate of technological development currently being experienced, a patent's utility and value may diminish before the end of its respective term. Currently, the Company is pursuing patent protection of the OCX and Roommate video systems. In connection with a settlement with LodgeNet in 1998, the Company and LodgeNet have cross-licensed certain of each other's patented technology and have also agreed not to engage in patent litigation against one another through 2003.

        The Company holds United States trademarks for all significant names that it uses, including "On Command", "OCV", "SpectraVision" and "OCX." The federal registration of these trademarks expire between 2004 and 2011 if not renewed.

        The Company has a pending trademark application for the "Roommate" trademark.

International Markets

        In addition to its operations in the United States, the Company provides services in Canada, Mexico and Europe. The Company historically experienced higher international revenue and operating cash flow per room than in the United States because of higher prices, higher buy rates and the general lack of programming alternatives. However, the Company generally also incurs greater capital expenditures and operating and servicing costs outside the United States. At December 31, 2001, the Company provided service to approximately 107,000 rooms located outside the United States.

        The competition to provide pay-per-view services to hotels is greater in international markets than in the United States. Expansion of On Command's operations into foreign markets involves certain risks that are not associated with further expansion in the United States, including availability of programming, government regulation, currency fluctuations, language barriers, differences in signal transmission formats, local economic and political conditions and restriction on foreign ownership and investment. Consequently, these risks may hinder On Command's ability to grow its base of hotel rooms in foreign markets. For certain financial information concerning the Company's geographic territories, see note 12 to the accompanying consolidated financial statements of the Company.

Licensees And Other System Sales

        On Command sells systems to certain other providers of in-room entertainment including Allin Interactive, which is licensed to install the Company's equipment on cruise ships and e-ROOM CORPORATION ("e-ROOM"), formerly known as MagiNet Corporation, which is licensed to use the Company's system to provide service in the Asia marketplace.

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Seasonality

        The amount of revenue realized by the Company each month is affected by a variety of factors, including among others, hotel occupancy rates, business and leisure travel patterns, changes in the number of rooms served, the number of business days in a month and holidays. With the exception of December, which is generally the Company's lowest month for revenue, the Company typically does not experience significant variations in its monthly revenue that can be attributed solely to seasonal factors.

Employees

        As of December 31, 2001, On Command employed a total of 698 persons. None of the Company's employees are represented by a labor union. The Company has experienced no work stoppages and believes employee relations are good.

Item 2. Properties.

        The Company has a lease, which expires in June 2002, for approximately 55,000 square feet for its corporate headquarters in Denver, Colorado. The Company is negotiating new leases for its headquarters at a nearby location for approximately 25,700 square feet, commencing in July 2002 and expiring in June 2005, and for approximately 7,500 square feet commencing in May 2002 and expiring in May 2006. The Company also has an agreement with a third party for 58,000 square feet of light manufacturing and storage space in Denver, Colorado. The agreement is terminable at either party's discretion. The parties are negotiating a new agreement for this light manufacturing storage space that is expected to require either party to give the other party ninety (90) days prior notice of termination. The Company also has approximately 131,000 square feet of leased office, light manufacturing and storage space in San Jose, California, a portion of which has been subleased and the majority of the remainder of which the Company is attempting to sublease. The Company has a number of other small leases for small parcels of property throughout the United States, Canada, Mexico and Europe. The Company's properties are suitable and adequate for the Company's business operations.

Item 3. Legal Proceedings.

        The Company is a defendant, and may be a potential defendant, in lawsuits and claims arising in the ordinary course of its business. While the outcomes of such claims, lawsuits, or other proceedings cannot be predicted with certainty, management expects that such liability, to the extent not provided for by insurance or otherwise, will not have a material adverse effect on the financial condition of the Company.

Item 4. Submission Of Matters To A Vote Of Security Holders.

        At the Company's annual meeting of stockholders held on December 20, 2001, the following matters were voted upon and approved by the stockholders of the Company:

Election of the following to the Company's Board of Directors: (i) William R. Fitzgerald (27,655,725 votes For and 1,513 votes Withheld); (ii) Richard D. Goldstein (27,655,725 votes For and 1,513 votes Withheld); (iii) Paul A. Gould (27,655,725 votes For and 1,513 votes Withheld); (iv) Gary S. Howard (27,655,725 votes For and 1,513 votes Withheld); (v) Peter M. Kern (27,654,263 votes For and 2,975 votes Withheld); (vi) Carl E. Vogel (27,655,715 votes For and 1,523 votes Withheld); (vii) J. David Wargo (27,655,870 votes For and 1,368 votes Withheld); and (viii) Gary L. Wilson (27,655,870 votes For and 1,368 votes Withheld).

A proposal to ratify the appointment of KPMG LLP as independent auditors for the Company for the year ending December 31, 2001 (27,655,170 votes For, 1,215 votes Against and 853 Abstentions).

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PART II

Item 5. Market Price of and Dividends on On Command's Common Equity.

        The Company's Common Stock ("Company Common Stock") and Series A and B warrants are traded on the NASDAQ National Market under the symbols ONCO, ONCOW and ONCOZ, respectively. The following table sets forth the high and low last sale prices for the Company Common Stock, Series A warrants and Series B warrants for the periods indicated, as reported on the Nasdaq Stock Market's National Market.

		Price range
Common stock
		High		Low
	2001:
	First quarter	$	8.1250	$	5.2500
	Second quarter	$	7.7900	$	4.5000
	Third quarter	$	5.7000	$	2.1900
	Fourth quarter	$	3.7800	$	1.1500
	2000:
	First quarter	$	18.0625	$	14.8750
	Second quarter	$	21.5000	$	12.9375
	Third quarter	$	14.3125	$	9.7500
	Fourth quarter	$	12.9375	$	6.8750

		Price range
Series A warrants
		High		Low
	2001:
	First quarter	$	1.6250	$	1.3750
	Second quarter	$	1.1000	$	0.9900
	Third quarter	$	0.8900	$	0.3000
	Fourth quarter	$	0.2500	$	0.0900
	2000:
	First quarter	$	7.2500	$	4.4375
	Second quarter	$	9.1250	$	4.5000
	Third quarter	$	5.5000	$	3.0625
	Fourth quarter	$	2.6250	$	1.5000

		Price range
Series B warrants
		High		Low
	2001:
	First quarter	$	1.6250	$	0.6250
	Second quarter	$	1.0000	$	0.7100
	Third quarter	$	0.8000	$	0.6400
	Fourth quarter	$	0.4000	$	0.1400
	2000:
	First quarter	$	6.2500	$	4.5000
	Second quarter	$	8.0000	$	4.5000
	Third quarter	$	4.0000	$	4.0000
	Fourth quarter	$	2.6250	$	1.2500

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        As of December 31, 2001, there were 30,884,459 shares of Company Common Stock, 1,424,875 Series A warrants and 2,619,979 Series B warrants issued and outstanding. As of December 31, 2001 there were 368 holders of record of Company Common Stock, 16 holders of record of Series A warrants and 266 holders of record of Series B warrants (which amounts do not include the number of stockholders whose shares are held of record by brokerage houses but include each brokerage house as one stockholder). The Company has never paid dividends on any class of its equity securities. On Command's management does not intend to pay any cash dividends on Company Common Stock in the foreseeable future. Rather, it is expected that On Command will retain any earnings to finance its operations and growth. In addition, On Command's $275,000,000 revolving credit facility contains certain restrictive covenants including a restriction on the Company's ability to pay dividends or make other distributions. The Company's Transfer Agent and Registrar is the Bank of New York, located at 101 Barclay Street, New York, New York.

        During the second and third quarters of 2001, the Company sold 60,000 shares of its Cumulative Convertible Redeemable Preferred Stock, Series D, par value, $.01 per share to Ascent in consideration of $60,000,000 in cash in private transactions exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to section 4(2) thereof. Shares of such preferred stock are convertible, on or after December 31, 2002, at the option of the holder, into the Company's common stock at a conversion price of $7.55 per share of common stock.

Item 6. Selected Financial Data.

        The financial data set forth below, except hotel and room data, was derived from the audited consolidated financial statements of the Company and should be read in connection with the consolidated financial statements and related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7. The consolidated statement of operations data for each of the three years in the period ended December 31, 2001 and the consolidated balance sheet data at December 31, 2001 and 2000 are derived from the audited financial statements included in Item 8. The consolidated statements of operations data for the two

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years ended December 31, 1998 and 1997, and the consolidated balance sheet data for December 31, 1999, 1998 and 1997, are derived from audited consolidated financial statements not included herein.

			Year Ended December 31,
			2001			2000			1999			1998			1997
			(dollars in thousands, except per share data)
Consolidated Statement of Operations Data:
	Total revenue		$	239,409		$	265,380		$	252,948		$	238,820		$	222,103
	Total direct costs of revenue (exclusive of other operating expenses shown below)		$	120,548		$	123,412		$	113,218		$	103,902		$	103,343
	Other operating expenses		$	161,733		$	158,344		$	158,636		$	151,068		$	142,166
	Loss from operations		$	(42,872	)	$	(16,376	)	$	(18,906	)	$	(16,150	)	$	(23,406	)
	Net loss(1)		$	(85,716	)	$	(39,043	)	$	(29,394	)	$	(25,966	)	$	(33,314	)
	Basic and diluted net loss per share		$	(2.92	)	$	(1.28	)	$	(0.97	)	$	(0.86	)	$	(1.11	)
	Basic and diluted weighted average number of common shares outstanding			30,797			30,483			30,222			30,150			30,081
Cash Flow Data:
	Net cash provided by operating activities		$	1,654		$	52,208		$	70,859		$	53,913		$	53,481
	Net cash used in investing activities		$	(102,977	)	$	(124,676	)	$	85,444		$	(83,208	)	$	(88,044	)
	Net cash provided by financing activities		$	100,524		$	66,947		$	16,337		$	30,379		$	35,268
Other Data:
	EBITDA(2)		$	57,993		$	74,299		$	75,912		$	72,049		$	55,578
	Cash dividends per share		$	—		$	—		$	—		$	—		$	—
	Rooms served at end of period(3)			926,000			977,000			956,000			929,000			893,000
		On demand rooms		893,000			929,000			884,000			829,000			765,000
		Scheduled rooms		33,000			48,000			72,000			100,000			128,000
	Hotels served at end of period			3,440			3,519			3,366			3,220			3,060
	Capital expenditures		$	86,992		$	117,001		$	85,444		$	83,208		$	92,307
Consolidated Balance Sheet Data:
	Total assets		$	433,038		$	439,294		$	402,917		$	402,968		$	401,388
	Long-term debt		$	264,761		$	248,465		$	181,758		$	163,013		$	133,002
	Redeemable securities		$	93,310		$	—		$	—		$	—		$	—
	Total stockholders' equity		$	33,234		$	125,057		$	164,147		$	190,005		$	217,167

(1)

The 2001 and 2000 net losses include (i) relocation and restructuring costs of $17,041,000 and $6,108,000, respectively, (ii) impairment of cost investments of $19,639,000 and $900,000, respectively, and (iii) losses on settlement of litigation of $3,700,000 and $4,764,000, respectively. For additional information, see notes 5 and 14 to the accompanying consolidated financial statements of the Company.

(2)

EBITDA represents earnings before interest, income taxes, depreciation, amortization, relocation expense, stock-based compensation, restructuring charges and other non-operating items such as gain/loss on disposal of assets, loss on legal settlements and exchange rate gain/loss. The most significant differences between EBITDA and cash provided from operations is that interest expense and changes in working capital are not included in EBITDA. EBITDA is presented because it is a widely accepted financial indicator used by certain investors and analysts to analyze and compare companies on the basis of operating performance. In addition, management believes EBITDA provides an important additional perspective on the Company's operating results and the Company's ability to service its long-term debt and fund the Company's continuing growth. EBITDA is not intended to represent cash flows for the period, or to depict funds available for dividends, reinvestment or other discretionary uses. EBITDA has not been presented as an alternative to operating income or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles, which are presented in the accompanying consolidated financial statements and discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

(3)

The decrease in rooms in 2001 is primarily due to the transfer of the Company's Asia-Pacific subsidiaries to e-ROOM as a result of a legal settlement. The Asia-Pacific subsidiaries accounted for 35,000 rooms on March 1, 2001, the date of transfer. In addition, the company lost rooms to competitors and discontinued service to certain non-profitable rooms during 2001. For additional information, see note 5 to the accompanying consolidated financial statements of the Company.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

2001 vs. 2000

Revenue

        Revenue consists primarily of fees collected from hotels for in-room services provided to hotel guests by the Company. Services provided by the Company to hotel guests include pay-per-view movies, free-to-guest television programming, video games, Internet service, short video products and digital music. The Company also earns revenue through the sale of video systems to third parties and the sale of video equipment to hotels. The Company's total revenue during 2001 and 2000 was $239,409,000 and $265,380,000, respectively.

        The $25,971,000 or 9.8% decrease in total revenue is primarily attributable to a $20,681,000 or 8.3% decrease in room revenue from $248,918,000 in 2000 to $228,237,000 in 2001. The decrease in room revenue is due to a 5.7% decline from 63.7% to 60.1% in overall hotel occupancy rates from 2000 to 2001 and a 3.7% reduction in the average number of rooms served by the Company in 2001, as compared to 2000. Since the Company derives a significant portion of its room revenue from luxury hotels, and since luxury hotels experienced a 9.2% decline from 72.6% to 65.9% in occupancy rates from 2000 to 2001, the Company believes that the impact on the Company from the decline in hotel occupancy rates was greater than the decline experienced by the overall hotel industry. The foregoing occupancy rates for 2001 include the negative impact attributable to the events of September 11, 2001. Hotel occupancy rates are outside of the Company's control and changes in hotel occupancy rates can have a significant impact on the Company's results of operations. The decline in the average number of rooms served by the Company is primarily attributable to a March 1, 2001 transaction in which the Company transferred approximately 35,000 rooms to e-ROOM in connection with the settlement of certain litigation. In addition, the Company lost rooms to competitors and discontinued service in certain non-profitable rooms during 2001. The declines in occupancy rates and rooms were partially offset by an increase in revenue from Internet access and short video products, as the number of rooms providing such services increased from December 31, 2000 to December 31, 2001 by 63.0% and 106.0%, respectively.

        During 2001, hotels owned, managed or franchised by Marriott, Hilton and Six Continents accounted for 27%, 19% and 12%, respectively, of the Company's room revenue. The loss of any of these customers, or the loss of a significant number of other hotel chain customers, could have a material adverse effect on the Company's results of operations and financial condition. However, contracts with respect to individual owned, managed or franchised hotels expire over an extended period of time depending on the installation date of the individual hotel. Additionally, the terms of the Company's contracts with hotels owned by a hotel chain are sometimes different than those of the Company's contracts with hotels that are managed or franchised by the same hotel chain. In October 2000, Hilton announced that it would not be renewing its master contract with the Company. Accordingly, the Company expects that hotels owned by Hilton will not renew their contracts as they expire. On the other hand, hotels that are managed or franchised by Hilton are not precluded from renewing their contracts with the Company, and, although no assurance can be given, the Company anticipates that certain of those hotels will choose to renew. At December 31, 2001, the Company provided service to 7,500 rooms in hotels that are owned by Hilton and 66,500 rooms in hotels that are managed or franchised by Hilton. Such amounts represent an increase (decrease) of (18,500) and 6,200 respectively, from the corresponding room amounts at December 31, 2000.

        The $5,290,000 or 32.1% decline in video system sales and other revenue from $16,462,000 in 2000 to $11,172,000 in 2001 is primarily attributable to the inclusion of $3,900,000 of non-recurring revenue

II-4

in the 2000 amount. Such non-recurring revenue relates to a one-time payment received for licensing rights for the Company's technologies.

Direct Costs

        Direct costs consist primarily of fees paid to movie and other content providers, hotel commissions, connectivity costs associated with the Company's Internet product and costs associated with the manufacturing of video systems sold to other providers. Content fees, commissions and other in-room service costs decreased by $1,411,000 or 1.2% and video equipment and other costs decreased by $1,453,000 or 15.5% from 2000 to 2001. Content fees, commissions and other in-room service costs represented 49.3% and 45.8% of total room revenue during 2001 and 2000, respectively. The higher percentage in 2001 is primarily attributable to the fact that certain of the Company's content fees and other in-room services costs do not vary with revenue or occupancy rates. An increase in the cost of guest programming in rooms with upgraded video systems and the continued rollout of the Company's Internet product also contributed to the higher percentage in 2001. During 2001, the direct costs of the Company's Internet product exceeded the related revenue by $1,552,000. Although no assurance can be given, the Company expects margins on its Internet service to improve as a result of cost control measures, continued increases in the number of rooms providing the service and product improvements that are expected to lead to increases in buy rates as the service gains consumer acceptance. Excluding revenue and direct costs related to the Company's Internet service, direct costs related to in-room services would have represented 47.5% and 45.1% of total room revenue during 2001 and 2000, respectively.

        The Company is a party to various agreements that permit the Company to distribute movies and programming networks. No assurance can be given that the cost of such movies and programming networks will not increase in future periods as contracts expire and renewals are negotiated. Any cost increases that the company is not able to pass on to its customers would result in increased pressure on the Company's operating margins.

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Operations Support

        Operations support expense includes the labor, materials and overhead costs associated with the repair, maintenance and support of video systems and other room service equipment. Operations support expense was $31,440,000 and $32,045,000 during 2001 and 2000, respectively. The slight decrease from 2000 to 2001 is primarily attributable to a decrease in the number of rooms served by the Company during 2001, as compared to 2000.

Research and Development

        Research and Development expense was $5,971,000 and $8,461,000 during 2001 and 2000, respectively. The $2,490,000 or 29.4% decrease from 2000 to 2001 is primarily attributable to cost savings that resulted from a reduction in internal and external labor costs devoted to research and development projects. A significant portion of the Company's research and development expenses during 2000 related to the development of the Roommate version of the OCX video platform that was launched in 2001.

Selling, General and Administrative

        Selling, general and administrative expense was $23,457,000 and $27,233,000 during 2001 and 2000, respectively. The $3,776,000 or 13.9% decrease from 2000 to 2001 is primarily attributable to lower labor and overhead costs resulting from a May 2001 corporate restructuring and other cost savings measures. Despite a 9.8% decrease in revenue from 2000 to 2001, the lower 2001 costs allowed the Company to reduce the percentage of revenue that is represented by selling, general and administrative expense from 10.3% in 2000 to 9.8% in 2001.

Depreciation and Amortization

        Depreciation and amortization expense was $83,824,000 and $84,497,000 during 2001 and 2000, respectively. The Company experienced a $673,000 decrease in depreciation and amortization as increases in depreciation and amortization resulting from capital expenditures were more than offset by the effects of the disposition of the Company's Asia-Pacific subsidiaries to e-ROOM, and the video systems that became fully depreciated in 2001 and 2000.

Relocation and Restructuring

        Relocation and restructuring expense was $17,041,000 and $6,108,000 during 2001 and 2000, respectively. All of the 2000 amount and $12,132,000 of the 2001 amount relates to the relocation of the Company's headquarters from San Jose, California to Denver, Colorado. The costs attributable to this relocation include severance, stay bonuses, hiring costs, moving and travel costs, contract labor, and redundant labor and overhead costs. The Company completed the relocation of its headquarters during 2001. The 2001 amount also includes $2,212,000 of severance costs related to a May 2001 restructuring plan that resulted in a staffing reduction of approximately 50 employees, and $2,697,000 of future lease obligations (net of estimated sublease income) associated with the Company's exit during the fourth quarter of 2001 from certain leased premises in San Jose, California.

Interest Expense

        Interest expense was $19,176,000 and $16,573,000 during 2001 and 2000, respectively. The $2,603,000 or 15.7% increase in interest expense from 2000 to 2001 represents the net effect of an increase in the Company's weighted average borrowings and a decrease in the weighted average interest rate.

II-6

Impairment of Cost Investments

        Impairment of cost investments was $19,639,000 and $900,000 during 2001 and 2000, respectively. The 2001 amount includes a $16,539,000 writedown of the Company's investment in STSN, Inc. ("STSN"), a $2,000,000 writedown of the Company's investment in e-ROOM and a $1,100,000 writedown of the Company's investment in STS Hotel Net, Inc. The writedowns were recorded to reflect other than temporary declines in the estimated fair values of such investments. In the case of the STSN writedown, the estimated fair value was based on the price of securities sold by STSN during the first quarter of 2002.

Loss on Settlement of Litigation

        The loss on settlement of litigation of $3,700,000 and $4,764,000 during 2001 and 2000 relates to the settlement of the litigation with e-ROOM. For additional information, see note 5 to the accompanying consolidated financial statements.

Provision for income taxes

        The Company recognized income tax expense of $368,000 and $423,000 during 2001 and 2000, respectively. The Company's reported income tax expense differs from the expected benefit that would result by applying the statutory rates to the Company's pre-tax losses primarily because the Company is only able to realize income tax benefits for financial reporting purposes to the extent that such benefits offset income tax liabilities or the Company generates taxable income. For financial reporting purposes, all of the company's income tax liabilities had been fully offset by income tax benefits at December 31, 2001 and 2000, respectively. The income tax provisions recorded in 2001 and 2000 represent taxes on income in certain foreign and domestic jurisdictions. For additional information, see note 9 to the accompanying consolidated financial statements of the Company.

Net Loss

        As a result of the factors described above, the Company's net loss increased from $39,043,000 in 2000 to $85,716,000 in 2001. The Company is attempting to improve its operating results by increasing revenue, reducing expenses and by more effectively managing capital expenditures. Over time, the Company intends to increase revenue by: (i) increasing the average revenue per room derived from existing video services, through improved pricing terms and/or increased buy rates; (ii) increasing the number of rooms in which its video games, Internet services, short video products and digital music are offered; and (iii) increasing the total number of hotels and rooms that offer the Company's services. The Company has taken steps to reduce its cost structure in 2001 and will continue to focus on all opportunities to reduce or control its cost structure in future periods. The Company's cost control efforts include ongoing evaluations of optimum staffing levels and opportunities for greater efficiencies, and renegotiations of contracts with content providers and other vendors where appropriate. In addition, the Company is focusing on increasing the efficiency of its capital expenditures in order to improve the return on its invested assets and reduce expenses. To this end, the Company is focusing on financial, operational and technological opportunities that would lead to reductions in the costs of installing and maintaining the Company's video systems. The Company cannot presently predict the amount of increased revenue, decreased costs or other benefits that might result from its efforts to improve operating results. Furthermore, the Company's ability to increase its revenue is highly dependent on corresponding improvements in hotel occupancy rates, and no assurance can be given that the Company will be able to significantly increase its revenue base. To the extent that changes in hotel occupancy rates impact the Company's revenue base, the Company will not experience proportionate changes in its expenses since many of the Company's expenses do not vary with hotel occupancy rates.

II-7

2000 vs. 1999

Revenue

        The Company's total revenue during 2000 and 1999 was $265,380,000 and $252,948,000, respectively. The $12,432,000 or 4.9% increase in total revenue is primarily attributable to a $9,445,000 or 3.9% increase in room revenue from $239,473,000 in 1999 to $248,918,000 in 2000.

        The increase in room revenue during 2000 is due to a 2.7% increase in the average number of rooms served by the Company, an increase in the number of upgraded video systems, lower customer denials of pay-per-view orders, a higher average price for pay-per-view movies and increased revenue from video game and Internet services.

        During 2000, hotels owned, managed or franchised by Marriott, Hilton and Six Continents accounted for 24%, 20% and 11%, respectively of the Company's room revenue. As discussed in greater detail above, the loss of any of these customers, or the loss of a significant number of other hotel chain customers, could have a material adverse effect on the Company's results of operations and financial condition.

        The $2,987,000 or 22.2% increase in video system sales and other revenue from $13,475,000 in 1999 to $16,462,000 in 2000 is primarily attributable to an increase in the number of video systems sold to a major customer and sales of video systems to a provider of entertainment systems to the cruise ship industry.

Direct Costs

        Content fees, commissions and other in-room service costs increased by $7,225,000 or 6.8% and video equipment and other costs increased by $2,969,000 or 46.2% from 1999 to 2000. Content fees, commissions and other room service costs represented 45.8% and 44.6% of total room revenue during 2000 and 1999, respectively. The higher percentage in 2000 is primarily attributable to an increase in guest programming costs and the increased negative impact on margins of the Company's developing Internet service. Excluding revenue and direct costs related to the Company's Internet service, direct costs related to in-room services would have represented 45.1% and 44.3% of total room revenue during 2000 and 1999, respectively. The increase in video equipment and other costs from 1999 to 2000 is primarily attributable to increased sales of video systems.

Operations Support

        Operations support expense was $32,045,000 and $29,958,000 during 2000 and 1999, respectively. The $2,087,000 or 7.0% increase from 1999 to 2000 is primarily attributable to an increase in the number of rooms served by the Company during 2000, as compared to 1999.

Research and Development

        Research and Development expense remained relatively constant at $8,461,000 and $8,479,000 during 2000 and 1999, respectively.

Selling, General and Administrative

        Selling, general and administrative expense was $27,233,000 and $26,445,000 during 2000 and 1999, respectively. The $788,000 or 3.0% increase from 1999 to 2000 is attributable to higher legal fees due to the e-ROOM litigation and higher executive and travel costs, offset in part by lower stock compensation expense. The Company's stock compensation expense during 2000 and 1999 was primarily attributable to the cashless exercise feature of certain stock options. No such options were

II-8

outstanding at December 31, 2000. During 2000 and 1999, selling, general and administrative expense represented 10.3% and 10.5%, respectively, of total revenue.

Depreciation and Amortization

        Depreciation and amortization expense was $84,497,000 and $93,754,000 during 2000 and 1999, respectively. The Company experienced a $9,257,000 decrease in depreciation and amortization as increases in depreciation and amortization resulting from capital expenditures were more than offset by the effect of video systems that became fully depreciated in 2000 and 1999.

Relocation and Restructuring

        Relocation and restructuring expense was $6,108,000 during 2000. This expense relates to the relocation of the Company's headquarters from San Jose, California to Denver, Colorado. The costs attributable to this relocation include severance, stay bonuses, moving and travel costs, search fees, contract labor, and redundant labor and overhead costs. The Company completed the relocation of its headquarters during 2001.

Interest Expense

        Interest expense was $16,573,000 and $10,368,000 during 2000 and 1999, respectively. The $6,205,000 or 59.8% increase in interest expense from 1999 to 2000 is attributable to an increase in the Company's weighted average borrowings and a higher weighted average interest rate.

Loss on Settlement of Litigation

        The loss on settlement of litigation of $4,764,000 during 2000 relates to the settlement of the litigation with e-ROOM. For additional information, see note 5 to the accompanying consolidated financial statements.

Provision for Income Taxes

        The Company recognized income tax expense of $423,000 and $200,000 during 2000 and 1999, respectively. The Company's reported income tax expense differs from the expected benefit that would result by applying the statutory rates to the Company's pre-tax losses primarily because the Company is only able to realize income tax benefits for financial reporting purposes to the extent that such benefits offset income tax liabilities or the Company generates taxable income. For financial reporting purposes, all of the company's income tax liabilities had been fully offset by income tax benefits at December 31, 2000 and 1999, respectively. The income tax provisions recorded in 2000 and 1999 represent taxes on income in certain foreign and domestic jurisdictions. For additional information, see note 9 to the accompanying consolidated financial statements.

Net Loss

        As a result of the factors described above, the Company's net loss increased from $29,394,000 in 1999 to $39,043,000 in 2000. As described above, the Company is attempting to improve its operating results by increasing revenue, reducing expenses and by more effectively managing capital expenditures.

Liquidity and Capital Resources

        During the year ended December 31, 2001, the Company used $100,524,000 of cash provided by financing activities, $1,654,000 of cash provided by operating activities and a $700,000 decrease in cash and cash equivalents to fund the $102,977,000 required for its investing activities. The Company's sources of financing during 2001 included $15,391,000 of net borrowings and $84,926,000 of net

II-9

proceeds received in exchange for the issuance of preferred stock to Ascent. The Company's investing activities included $86,992,000 of capital expenditures and $15,985,000 of funding provided to investees. For additional information, see the accompanying consolidated statement of cash flows.

        The Company's revolving credit facility, as amended, (the "Revolving Credit Facility") provides for aggregate borrowings of $275,000,000. Borrowings under the Revolving Credit Facility are due and payable in July 2004. Subject to certain conditions, the Revolving Credit Facility can be renewed for two additional years. The Company's ability to draw additional funds under the Revolving Credit Facility is limited by certain financial covenants. The Company had $11,367,000 of remaining availability under the Revolving Credit Facility at December 31, 2001.

        Revolving loans extended under the Revolving Credit Facility bear interest at the London Interbank Offering Rate ("LIBOR") plus a spread that may range from 1.10% to 2.75% depending on certain operating ratios of the Company (3.91% effective borrowing rate at December 31, 2001). In addition, a facility fee ranging from 0.15% to 0.50% per annum is charged on the Revolving Credit Facility, depending on certain operating ratios of the Company. The Revolving Credit Facility contains customary covenants and agreements, most notably the inclusion of restrictions on the Company's ability to pay dividends or make other distributions, and restrictions on the Company's ability to make capital expenditures. In addition, the Company is required to maintain minimum leverage and interest coverage ratios. The Company was in compliance with such covenants at December 31, 2001. Substantially all of the Company's assets are pledged as collateral for borrowings under the Revolving Credit Facility.

        The indentures for certain public indebtedness of Ascent contained limitations with respect to the Company's ability to obtain debt financing. Such limitations were eliminated on December 31, 2001 in connection with Ascent's retirement of its public indebtedness.

        During 2001, the Company issued to Ascent Series B Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), Series C Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series C Preferred Stock") and Cumulative Convertible Redeemable Preferred Stock, Series D, par value $.01 per share ("Series D Preferred Stock") in exchange for aggregate net cash proceeds of $84,926,000. The Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are classified as mandatorily redeemable preferred stock within the accompanying consolidated balance sheet due to the fact that, under certain circumstances and subject to certain restrictions, Ascent could require the Company to redeem such mandatorily redeemable preferred stock. Although no assurance can be given, the Company does not anticipate that any such redemption will be required for the foreseeable future. Dividends on the Company's Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock aggregated $4,259,000 during 2001. Such dividends have been added to the liquidation preference of the applicable preferred stock issuance since the Company did not pay any cash dividends during 2001. The Company does not intend to pay cash dividends on any of its preferred stock issuances for the foreseeable future. For additional information, see note 7 to the accompanying consolidated financial statements.

II-10

        Information concerning the timing of the Company's required payments due under the Company's Revolving Credit Facility, operating leases and capital lease obligations is summarized below (amounts in thousands):

			Payments due by period
	Total		Less than one year		1 - 3 years		4 - 5 years		After 5 years
Revolving Credit Facility	$	263,633	$	—	$	263,633	$	—	$	—
Operating leases		7,802		3,774		4,028		—		—
Capital lease obligations		2,037		909		1,128		—		—
	$	273,472	$	4,683	$	268,789	$	—	$	—

        The Company has agreed to purchase $2,859,000 of preferred stock from its investee, STSN, Inc., during the first two quarters of 2002.

        Historically, the Company has required external financing to fund the cost of installing and upgrading video systems in hotels. However, during 2002, the Company intends to reduce its reliance on external financing by reducing expenses and by more effectively managing capital expenditures. Assuming the Company is successful in meeting its revenue targets, reducing expenses and more effectively managing capital expenditures, the Company expects that it will be able to rely on cash provided by operations, existing availability under its Revolving Credit Facility, and existing cash and cash equivalent balances to fund its capital expenditures and other anticipated liquidity requirements. The Company's revenue targets for 2002 are based in part on the assumption that the overall hotel occupancy rate for 2002 will be consistent with the 2001 rate. Notwithstanding the foregoing, the Company anticipates that it will require additional external financing to fund any significant new growth initiatives or unanticipated liquidity requirements. No assurance can be given that the Company will be successful in reducing its reliance on external financing during 2002, and if external financing is required, no assurance can be given that any such financing would be available on terms acceptable to the Company.

Recent Accounting Pronouncements

        During 2001, the Financial Accounting Standards Board issued four new Statements of Financial Accounting Standards. For information concerning the anticipated effect that such pronouncements will have on the Company's consolidated financial statements, see note 2 to the accompanying consolidated financial statements.

Critical Accounting Policy

        At December 31, 2001, the carrying value of the Company's long-lived assets (including goodwill) aggregated $372,364,000, representing 86.0% of the Company's total assets. The Company considers its policy for assessing the recoverability of its long-lived assets to be its most critical accounting policy due to the materiality of the amounts involved and the high degree of judgment involved in determining the estimates and assumptions that form the basis for the Company's recoverability conclusions under the policy. Certain aspects of this policy will change upon the adoption of new accounting pronouncements in 2002. For a detailed description of the policy and a discussion of the effects of the new accounting pronouncements, see note 2 to the accompanying consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

        The Company is exposed to market risk from changes in interest rates, which could impact its results of operations and financial condition, particularly the Company's interest expense and cash flow. The Company does not hedge this exposure. Revolving loans extended under the Revolving Credit

II-11

Facility generally bear an interest rate that is variable and based on the London Interbank Offering Rate ("LIBOR") and on certain operating ratios of the Company. At December 31, 2001, the Company had $263,633,000 outstanding on the Revolving Credit Facility and the effective borrowing rate on the Revolving Credit Facility was 3.91%. Assuming no increase or decrease in the amount outstanding, a hypothetical 1% increase (or decrease) in interest rates at December 31, 2001 would increase (or decrease) the Company's annual interest expense and cash outflow by approximately $2,636,000.

        On Command transacts business in various foreign currencies, primarily in Canada, Mexico and in certain European countries. On Command believes the risks of foreign exchange rate fluctuations on its present operations are not material to On Command's overall financial condition. However, On Command will consider using foreign currency contracts, swap arrangements, or other financial instruments designed to limit exposure to foreign exchange rate fluctuations, if deemed prudent.

Item 8. Financial Statements and Supplementary Data.

        The consolidated financial statements of the Company are filed under this item beginning on page II-13.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

        The Company engaged KPMG LLP as independent accountants on June 13, 2000, replacing Deloitte & Touche LLP. There were no disagreements or reportable events (as defined by Regulation S-K) with Deloitte & Touche LLP during the fiscal year ended December 31, 1999 and the interim period through June 13, 2000 except as follows:

        On March 10, 2000, Deloitte & Touche LLP advised the Company's Audit Committee that, in connection with their audit of the consolidated financial statements of the Company for the year ended December 31, 1999, they noted a matter involving the Company's internal control and its operation that they considered to be a reportable condition under standards established by the American Institute of Certified Public Accountants. The reportable condition noted by Deloitte & Touche LLP related to personnel staffing in the accounting function. Deloitte & Touche LLP deemed the matter noted above to be a material weakness.

II-12

Report of Independent Auditors

The Board of Directors and Stockholders
On Command Corporation:

        We have audited the accompanying consolidated balance sheets of On Command Corporation (a majority-owned subsidiary of Ascent Entertainment Group, Inc.) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of On Command Corporation and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.

KPMG LLP

Denver, Colorado
February 12, 2002,

II-13

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
On Command Corporation:

        We have audited the accompanying consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows of On Command Corporation (a majority-owned subsidiary of Ascent Entertainment Group, Inc.) and subsidiaries for the year ended December 31, 1999. Our audit also included the financial statement schedule for the year ended December 31, 1999 listed in the Index at Item 14 (a) (2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.

        We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects the results of operations and cash flows of On Command Corporation and subsidiaries for the year ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule for the year ended December 31, 1999, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

San Jose, California
March 3, 2000

II-14

ON COMMAND CORPORATION
(An Indirect Consolidated Subsidiary of Liberty Media Corporation)
Consolidated Balance Sheets

			December 31,
			2001			2000
			(amounts in thousands)
Assets
Current assets:
	Cash and cash equivalents		$	2,869		$	3,569
	Accounts receivable (net of allowance for doubtful accounts of $1,640,000 in 2001 and $1,366,000 in 2000)			33,460			35,529
	Note receivable (note 4)			—			1,445
	Other current assets			2,964			1,993
		Total current assets		39,293			42,536
Property and equipment:
	Video systems
		In service		670,318			605,542
		Construction in progress		53,754			58,831
				724,072			664,373
	Support equipment, vehicles and leasehold improvements			27,148			25,958
				751,220			690,331
	Accumulated depreciation			(444,436	)		(381,455	)
				306,784			308,876
Goodwill				88,903			87,636
Accumulated amortization				(23,323	)		(18,715	)
				65,580			68,921
Cost investments and related note receivable (note 5)				6,759			6,563
Other assets, net				14,622			12,398
		Total assets	$	433,038		$	439,294
(continued)

II-15

Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	21,021		$	41,627
	Accounts payable to parent (note 10)			711			145
	Accrued compensation			5,492			6,932
	Other accrued liabilities (note 14)			6,678			10,906
	Current portion of debt (note 6)			909			705
	Sales, use and property tax liabilities			5,163			5,457
		Total current liabilities		39,974			65,772
Long-term debt (note 6)				264,761			248,465
Other long-term liabilities (note 14)				1,642			—
		Total liabilities		306,377			314,237
Minority interest in consolidated subsidiary				117			—
Redeemable securities (note 7):
	Mandatorily redeemable preferred stock			89,185			—
	Common stock subject to repurchase obligation			4,125			—
				93,310			—
Stockholders' equity (note 8):
Preferred stock, $.01 par value; shares authorized—10,000,000; shares issued and outstanding—98,500 in 2001 and 13,500 in 2000				—			—
Common stock, $.01 par value; shares authorized—150,000,000; shares issued and outstanding—30,884,459 in 2001 and 30,554,388 in 2000				309			306
Additional paid-in-capital				304,429			306,939
Accumulated other comprehensive loss				(5,115	)		(3,060	)
Accumulated deficit				(243,170	)		(157,454	)
Note receivable from stockholder				(23,219	)		(21,674	)
		Total stockholders' equity		33,234			125,057
Commitments and contingencies (notes 11 and 15)
Total liabilities and stockholders' equity			$	433,038		$	439,294

See accompanying notes to consolidated financial statements.

II-16

ON COMMAND CORPORATION
(An Indirect Consolidated Subsidiary of Liberty Media Corporation)
Consolidated Statements of Operations

			Years ended December 31,
			2001			2000			1999
			(amounts in thousands, except per share amounts)
Revenue:
	Room revenue		$	228,237		$	248,918		$	239,473
	Video systems sales and other			11,172			16,462			13,475
		Total revenue		239,409			265,380			252,948
Direct costs of revenue:
	Content fees, commissions and other in-room services costs			112,605			114,016			106,791
	Video equipment and other costs			7,943			9,396			6,427
		Total direct costs of revenue (exclusive of other     operating expenses shown separately below)		120,548			123,412			113,218
Other operating expenses:
	Operations support			31,440			32,045			29,958
		Research and development		5,971			8,461			8,479
		Selling, general and administrative (including $0, $70,000     and $1,064,000 of stock based compensation for the     years ended 2001, 2000 and 1999, respectively)     (notes 8 and 10)		23,457			27,233			26,445
		Depreciation and amortization		83,824			84,497			93,754
		Relocation and restructuring (note 14)		17,041			6,108			—
		Total other operating expenses		161,733			158,344			158,636
Loss from operations				(42,872	)		(16,376	)		(18,906	)
Interest expense				(19,176	)		(16,573	)		(10,368	)
Impairment of cost investments (note 5)				(19,639	)		(900	)		—
Loss on settlement of litigation (note 5)				(3,700	)		(4,764	)		—
Other income (expense), net				39			(7	)		80
Loss before income taxes				(85,348	)		(38,620	)		(29,194	)
Provision for income taxes (note 9)				(368	)		(423	)		(200	)
Net loss				(85,716	)		(39,043	)		(29,394	)
Dividends on mandatorily redeemable preferred stock (note 7)				(4,259	)		—			—
Net loss attributable to common stockholders			$	(89,975	)	$	(39,043	)	$	(29,394	)
Basic and diluted loss per common share			$	(2.92	)	$	(1.28	)	$	(0.97	)
Basic and diluted weighted average number of common shares outstanding				30,797			30,483			30,222

See accompanying notes to consolidated financial statements.

II-17

ON COMMAND CORPORATION
(An Indirect Consolidated Subsidiary of Liberty Media Corporation)
Consolidated Statements of Comprehensive Loss

	Years ended December 31,
	2001			2000			1999
	(amounts in thousands)
Net loss	$	(85,716	)	$	(39,043	)	$	(29,394	)
Foreign currency translation adjustments, net of tax		(2,055	)		(2,188	)		1,667
Comprehensive loss	$	(87,771	)	$	(41,231	)	$	(27,727	)

See accompanying notes to consolidated financial statements.

II-18

ON COMMAND CORPORATION
(An Indirect Consolidated Subsidiary of Liberty Media Corporation)
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 2001, 2000 and 1999

	Preferred stock		Common stock		Additional paid-in capital			Accumulated other comprehensive income			Accumulated deficit			Notes receivable from stockholder			Total stockholders' equity
	(amounts in thousands)
Balance at January 1, 1999	$	—	$	302	$	281,259		$	(2,539	)	$	(89,017	)	$	—		$	190,005
Net loss		—		—		—			—			(29,394	)		—			(29,394	)
Comprehensive income—translation adjustment		—		—		—			1,667			—			—			1,667
Exercise of stock options		—		1		588			—			—			—			589
Stock-based compensation		—		—		1,064			—			—			—			1,064
Issuance of common stock		—		—		216			—			—			—			216
Balance at December 31, 1999		—		303		283,127			(872	)		(118,411	)		—			164,147
Net loss		—		—		—			—			(39,043	)		—			(39,043	)
Comprehensive loss—translation adjustment		—		—		—			(2,188	)		—			—			(2,188	)
Exercise of stock options		—		3		1,825			—			—			—			1,828
Issuance of common stock		—		—		222			—			—			—			222
Conversion of warrants		—		—		77			—			—			—			77
Issuance of preferred stock (note 8)		—		—		21,094			—			—			—			21,094
Receivable from stockholder (note 8)		—		—		—			—			—			(21,080	)		(21,080	)
Interest on stockholder note (note 8)		—		—		594			—			—			(594	)		—
Balance at December 31, 2000		—		306		306,939			(3,060	)		(157,454	)		(21,674	)		125,057
Net loss		—		—		—			—			(85,716	)		—			(85,716	)
Comprehensive loss—translation adjustment		—		—		—			(2,055	)		—			—			(2,055	)
Exercise of stock options		—		—		18			—			—			—			18
Issuance of common stock		—		1		188			—			—			—			189
Interest on stockholder note (note 8)		—		—		1,545			—			—			(1,545	)		—
Accretion of dividends on mandatorily redeemable preferred stock (note 7)		—		—		(4,259	)		—			—			—			(4,259	)
Issuance of common stock in legal settlement (note 5)		—		2		4,123			—			—			—			4,125
Reclassification of redemption amount of common stock subject to repurchase obligation to redeemable securities (notes 5 and 7)		—		—		(4,125	)		—			—			—			(4,125	)
Balance at December 31, 2001	$	—	$	309	$	304,429		$	(5,115	)	$	(243,170	)	$	(23,219	)	$	33,234

See accompanying notes to consolidated financial statements.

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ON COMMAND CORPORATION
(An Indirect Consolidated Subsidiary of Liberty Media Corporation)
Consolidated Statements of Cash Flows

				Years ended December 31,
				2001			2000			1999
				(amounts in thousands) (note 3)
Cash flows from operating activities:
	Net loss			$	(85,716	)	$	(39,043	)	$	(29,394	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Stock-based compensation			—			70			1,064
		Depreciation and amortization			83,824			84,497			93,754
		Restructuring charges			4,909			—			—
		Payments of restructuring costs			(1,819	)		—			—
		Impairment of cost investments			19,639			900			—
		Loss on settlement of litigation			3,700			4,764			—
		Other non-cash items			292			6			(80	)
	Changes in assets and liabilities:
		Accounts receivable			1,276			(3,455	)		412
		Other assets			(598	)		(3,074	)		1,056
		Accounts payable			(20,430	)		6,807			8,062
		Accounts payable to parent			566			(909	)		917
		Accrued compensation			(2,294	)		760			484
		Sales, use and property tax liabilities			(189	)		(1,374	)		(3,635	)
		Other accrued liabilities			(1,506	)		2,259			(1,781	)
			Net cash provided by operating activities		1,654			52,208			70,859
Cash flows from investing activities:
	Capital expenditures				(86,992	)		(117,001	)		(85,444	)
	Cost investments and note receivable				(15,985	)		(7,675	)		—
			Net cash used in investing activities		(102,977	)		(124,676	)		(85,444	)
Cash flows from financing activities:
	Borrowings of debt				42,500			277,134			17,000
	Repayments of debt				(27,109	)		(212,259	)		(1,468	)
	Proceeds from issuance of common and preferred stock				85,133			2,072			805
			Net cash provided by financing activities		100,524			66,947			16,337
Effect of exchange rate changes on cash					99			118			(15	)
Net increase (decrease) in cash and cash equivalents					(700	)		(5,403	)		1,737
Cash and cash equivalents, beginning of year					3,569			8,972			7,235
Cash and cash equivalents, end of year				$	2,869		$	3,569		$	8,972

See accompanying notes to consolidated financial statements.

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ON COMMAND CORPORATION
(An Indirect Consolidated Subsidiary of Liberty Media Corporation)
Notes to Consolidated Financial Statements
Years Ended December 31, 2001, 2000 and 1999

(1)    Basis of Presentation

        On Command Corporation is a Delaware corporation formed in July 1996 by Ascent Entertainment Group, Inc. ("Ascent"). Ascent is the controlling stockholder of On Command Corporation (together with its consolidated subsidiaries, "On Command" or the "Company"). On March 28, 2000, Liberty Media Corporation ("Liberty") closed a cash tender offer for the common stock of Ascent and thereby obtained control of the Company. On June 8, 2000, Liberty completed a merger with Ascent pursuant to which Ascent became an indirect, wholly-owned subsidiary of Liberty. The portion of Liberty's cost to acquire Ascent that is attributable to the Company has not been reflected in the accompanying consolidated financial statements of the Company due to the fact that a significant percentage of the Company's common stock ("Company Common Stock") is owned by shareholders other than Liberty. At December 31, 2001, Liberty, primarily through Ascent, owned 62.83% of the outstanding Company Common Stock.

        The Company designs, develops, manufactures and installs proprietary video systems. The Company's primary distribution system allows hotel guests to select, on an on-demand basis, motion pictures on computer-controlled television sets located in their hotel rooms. The Company also provides in-room viewing of select cable channels and other interactive services under long-term contracts to hotels. These interactive services include video games, Internet offerings, digital music and various hotel and guest services. At December 31, 2001, the Company had operating subsidiaries or branches in the United States, Canada, Mexico and Europe.

(2)    Summary of Significant Accounting Policies

Principles of Consolidation

        The accompanying consolidated financial statements include the accounts of On Command and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents

        The Company considers all highly liquid investments with a maturity of three months at the date of acquisition to be cash equivalents.

Receivables

        Receivables are reflected net of an allowance for doubtful accounts.

Property and Equipment

        Property and equipment is stated at cost less accumulated depreciation. Video systems in service consist of equipment, related costs of manufacturing and costs of installation at hotel locations. Construction in progress consists of materials, labor and related overhead costs associated with partially constructed video systems. Depreciation is calculated on a straight-line basis using contract terms for video systems, and the shorter of capital lease terms or estimated useful lives for all remaining depreciable assets. The contract terms used to depreciate video systems generally range from five to seven years. Support equipment, vehicles and leasehold improvements generally are depreciated over five-year lives. Repairs and maintenance costs that do not significantly extend the life of the asset are charged to operations. Gains and losses are recognized upon the retirement or disposal of assets.

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Goodwill

        Goodwill represents the difference between the cost of acquired companies and the fair value of the acquired companies' identifiable net assets. Goodwill generally is amortized on a straight-line basis over 20 years.

Impairment of Long-Lived Assets

        The Company periodically reviews the carrying amounts of property and equipment and its goodwill to determine whether current events and circumstances indicate that such carrying amounts may not be recoverable. If the carrying amount of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment adjustment is to be recognized. Such adjustment is measured by the amount that the carrying value of such asset exceeds its estimated fair value. The Company generally measures estimated fair value by considering sales prices for similar assets or by discounting estimated future cash flows. Considerable management judgment is necessary to estimate the fair value of assets, accordingly, actual results could vary significantly from such estimates. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.

Cost Investments

        The Company's less-than-20%-owned investments that are not considered marketable securities are accounted for using the cost method. The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. The Company considers a number of factors in its determination including (i) the financial condition, operating performance and near term prospects of the investee; (ii) the reason for the decline in fair value, be it general market conditions, industry specific or investee specific; (iii) the length of time that the fair value of the investment is below the Company's carrying value; and (iv) the Company's intent and ability to hold the investment for a period of time sufficient to allow for a recovery in fair value. If the decline in fair value is deemed to be other than temporary, the cost basis of the security is written down to fair value. In situations where the fair value of an asset is not evident due to a lack of a public market price or other factors, management uses its best estimates and assumptions to arrive at the estimated fair value of such an asset. The Company's assessment of the foregoing factors involves a high degree of judgment and accordingly, actual results may differ from the Company's estimates and judgments. Writedowns for cost investments are included in the consolidated statements of operations as impairment of cost investments.

Internally Developed Software

        The Company capitalizes certain internal development software costs in accordance with SOP 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". Internally developed software that is integral to the Company's video systems is classified within video systems in the accompanying consolidated balance sheet. All other internally developed software is included in other assets in the accompanying consolidated balance sheet. Amortization or depreciation commences when the software is ready for its intended use. Software is generally amortized or depreciated over five years. Capitalized costs primarily include internal salaries and wages of individuals dedicated to the development of internal use software. The Company capitalized software development costs of $4,218,000, $4,088,000 and $5,700,000 during the years ended December 31, 2001, 2000 and 1999, respectively.

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Debt Issuance Costs

        Costs associated with the issuance of the Company's current credit facilities are capitalized and amortized over the term of the related borrowing or facility. Amortization of debt issuance costs is charged to operations and is included in interest expense.

Foreign Currency Translation

        All balance sheet accounts of foreign subsidiaries are translated at the current exchange rate as of the end of the accounting period. Results of operations are translated at average currency exchange rates. The resulting translation adjustment is recorded as a separate component of accumulated other comprehensive earnings in stockholders' equity.

        Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses, which are reflected in the combined statements of operations as unrealized (based on the applicable period end translation) or realized upon settlement of the transactions. Such realized and unrealized gains and losses were not material to the accompanying consolidated financial statements.

Revenue Recognition

        The Company recognizes pay-per-view revenue at the time of viewing, net of estimated denials. Revenue from other guest room services is recognized in the period that services are delivered. Revenue from the sale of video systems is recognized when the equipment is shipped and there are no future obligations. Prewire revenue is recognized upon completion.

Stock Based-Compensation

        The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB Opinion No. 25") and related interpretations, to account for its fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Statement of Financial accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, and has adopted the disclosure requirements of SFAS No. 123.

Income Taxes

        The Company uses the asset and liability approach for accounting and reporting on income taxes. Deferred tax assets and liabilities are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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Earnings (Loss) Per Common Share

        Basic earnings per share is measured as the income or loss attributable to common shareholders divided by the weighted average outstanding common shares for the period. Net earnings (loss) is reduced (increased) by preferred stock dividends and accretion to arrive at income (loss) attributable to common shareholders. Diluted earnings per share is similar to basic earnings per share but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, etc.) as if they had been converted at the beginning of the periods presented, or at original issuance date, if later. Potential dilutive common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from diluted earnings per share.

        The loss per common share for the years ended December 31, 2001, 2000 and 1999 is based on 30,797,000, 30,483,000 and 30,222,000 weighted average shares outstanding during the respective periods. Potential common shares were not included in the computation of diluted earnings per share because their inclusion would be anti-dilutive. At December 31, 2001, the number of potential common shares was approximately 20,328,000. Such potential common shares consist of stock options to acquire shares of Company Common Stock, warrants and convertible securities. The foregoing potential common share amount does not take into account the assumed number of shares that would be repurchased by the Company upon the exercise of stock options.

Recent Accounting Pronouncements

        In June 2001, the Financial Accounting Standards Board issued Statement No. 141, Business Combinations ("Statement 141"), and Statement No. 142, Goodwill and Other Intangible Assets ("Statement 142"). Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria for intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

        The Company adopted the provisions of Statement 141 upon issuance, and is required to adopt Statement 142 effective January 1, 2002.

        Statement 141 requires upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

        In connection with Statement 142's transitional goodwill impairment evaluation, Statement 142 will require the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this, the Company must identify its reporting units and estimate the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The

II-24

Company will then have up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's carrying amount exceeds its estimated fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied estimated fair value of the reporting unit's goodwill, determined by allocating the reporting unit's estimated fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of earnings.

        As of the date of adoption, the Company expects to have unamortized goodwill in the amount of $65,580,000, all of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was $4,608,000 and $4,376,000 for the years ended December 31, 2001 and 2000, respectively. Because of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's financial statements at the date of this report, including whether it will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle.

        In August 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The statement also requires that the associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. This statement is effective for financial statements issued for periods beginning after June 15, 2002. The Company does not believe the adoption of this statement will have a material impact on the Company's financial position, results of operations or cash flows.

        In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supercedes prior statements that address the disposal of a segment of a business, and eliminates the exception to consolidation for subsidiaries for which control is likely to be temporary. This statement retains the prior statement's fundamental provisions for the recognition and measurement of impairment of long-lived assets to be held and used, as well as the measurement of long-lived assets to be disposed of by sale. The statement is effective for fiscal years beginning after December 15, 2001. The Company does not believe the adoption of this statement will have a material impact on the Company's financial position, results of operations or cash flow.

Certain Significant Risks and Uncertainties

        The Company participates in the highly competitive in-room entertainment industry and believes that risks and uncertainties exist in the following areas:

•

General economic and business conditions, and trends in the travel and entertainment industries;



•

Trends in hotel occupancy rates and business and leisure travel patterns;



•

The Company's ability to access quality movies, programming networks and other content on acceptable terms;



•

The regulatory and competitive environment of the industry in which On Command operates;

II-25

•

Uncertainties inherent in new business strategies such as the Company's recent efforts to expand its target market to include smaller hotels;



•

New product launches and development plans, including the future profitability of such added services;



•

Competitive threats posed by rapid technological changes;



•

The development and provision of new services such as the Company's recently introduced Internet service, short subject videos and digital music, and customer acceptance and usage rates of such services;



•

Uncertainties inherent in the Company's efforts to improve future operating results by increasing revenue and decreasing costs;



•

Uncertainties inherent in the Company's efforts to more effectively manage capital expenditures and decrease its reliance on external financing;



•

The ability of vendors to deliver required equipment, software and services;



•

Availability of qualified personnel;



•

Changes in the nature of key strategic relationships with hotel chains and their franchisees, including the renewal of existing agreements on favorable terms; and



•

Competitor responses to On Command's products and services, and the overall market acceptance of such products and services.

        Adverse developments in any of the foregoing areas could have a material adverse impact on the Company's financial condition and results of operations.

Use of Estimates

        The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities, as well as the reported amounts of revenue and expenses. Significant estimates include the allowance for doubtful accounts receivable, inventory reserve and the estimated useful lives of video systems, property and equipment and intangible assets, including goodwill and the amounts in certain accrued liabilities. Actual results may differ from these estimates.

Reclassifications

        Certain prior year amounts have been reclassified to conform to the current year presentation.

(3)    Supplemental Disclosures to Consolidated Statements of Cash Flows

        Cash paid for interest was $19,134,000, $13,762,000 and $9,549,000 during 2001, 2000 and 1999, respectively. Cash paid for income taxes was $236,000, $155,000 and $193,000 during 2001, 2000 and

II-26

1999, respectively. Significant non-cash investing and financing activities for the years ended December 31, 2001, 2000 and 1999 are as follows (amounts in thousands):

2001
	Recorded value of preferred stock acquired	$	20,000,000
	Conversion of note receivable		(5,000,000	)
	Cash paid for preferred stock	$	15,000,000
2000
	Issuance of Series A Preferred Stock in exchange for note receivable from related party	$	21,080,000
1999
	Capital lease obligations	$	5,760,000

        For a description of certain additional non-cash transactions, see notes 4 and 5.

(4)    Acquisition

        On February 28, 2001, the Company acquired a controlling interest in the common stock of Hotel Digital Network, Inc. ("HDN") (d/b/a Instant Media Network) in exchange for (i) the conversion of the amounts due under a note receivable from HDN ($1,445,000), (ii) a commitment to provide approximately $2,400,000 of funding to HDN; and (iii) $226,000 of cash. Through December 31, 2001, the Company had satisfied $1,765,000 of its funding commitment to HDN. HDN provides in-room music content to hotels through the Company and other in-room entertainment providers. The Company accounted for the acquisition of HDN using the purchase method of accounting. Accordingly the excess of the purchase price over the fair value of the identifiable net assets of HDN has been allocated to goodwill. If the HDN acquisition had occurred on January 1, 2000, the Company's results of operations and comprehensive loss would not have been materially different from the Company's historical results of operations and comprehensive loss for the years ended December 31, 2001 and 2000. At December 31, 2001, the Company owned 8,489,586 of HDN's common shares, representing 80% of HDN's outstanding common stock and voting securities.

II-27

(5)    Cost Investments and Related Notes Receivable

        The Company's cost investments are summarized as follows (amounts in thousands):

	December 31,
	2001		2000
STSN, Inc. ("STSN")(a)	$	3,461	$	5,000
e-ROOM CORPORATION ("e-ROOM") (formerly known as MagiNet Corporation)(b)		3,298		348
Other		—		1,215
	$	6,759	$	6,563

(a)

On March 30, 2001, the Company acquired certain preferred stock of STSN, Inc. ("STSN") in exchange for cash of $15,000,000 and the conversion of a $5,000,000 convertible promissory note. The $5,000,000 convertible promissory note is included in the Company's investment in STSN at December 31, 2000. During the fourth quarter of 2001, the Company recorded a $16,539,000 impairment charge to reflect an other than temporary decline in the estimated fair value of its investment in STSN. Such estimated fair value was based on the price of securities sold by STSN during the first quarter of 2002. See note 15.

(b)

During the first quarter of 2001, the Company completed a transaction that resulted in the Company's acquisition of a 7.5% interest in e-ROOM and the settlement of certain litigation. To acquire the 7.5% interest in e-ROOM and settle the litigation, the Company (i) contributed its Asia-Pacific subsidiaries to e-ROOM and transferred the Company's intercompany receivables from such subsidiaries to e-ROOM, (ii) issued 275,000 shares of Company Common Stock to e-ROOM, and (iii) paid $1,000,000 to e-ROOM. The Company also agreed that e-ROOM will have the option during the 15 day period beginning on March 1, 2003 to cause the Company to repurchase all, but not less than all, of the 275,000 shares of Company Common Stock issued to e-ROOM at a price of $15 per share. Such repurchase obligation will terminate if the Company Common Stock closes at or above $15 per share on any ten consecutive trading days prior to March 1, 2003, and the shares of Company Common Stock held by e-ROOM are freely tradable by e-ROOM during such period. Due to the existence of this repurchase obligation, the Company valued the Company Common Stock issued to e-ROOM at $15 per share. The excess of the value assigned to the consideration paid to e-ROOM over the then estimated $5,298,000 fair value of the 7.5% investment in e-ROOM received by the Company has been reflected as loss on settlement of litigation in the accompanying consolidated statements of operations. The Company's original estimate of the litigation loss resulted in a $4,764,000 charge during the fourth quarter of 2000. An additional charge of $3,700,000 was recorded during the first quarter of 2001 to reflect a change in the estimate of the amount of the Company's intercompany receivables to be transferred to e-ROOM. During the fourth quarter of 2001, the Company recorded a $2,000,000 impairment charge to reflect an other than temporary decline in the estimated fair value of its investment in e-ROOM.

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(6)    Debt

        Debt is summarized as follows (amounts in thousands):

	December 31,
	2001			2000
Revolving Credit Facility(a)	$	263,633		$	247,133
Other(b)		2,037			2,037
		265,670			249,170
Less current portion		(909	)		(705	)
	$	264,761		$	248,465

(a)

The Company's revolving credit facility, as amended, (the "Revolving Credit Facility") provides for aggregate borrowings of $275,000,000. Borrowings under the Revolving Credit Facility are due and payable in July 2004. Subject to certain conditions, the Revolving Credit Facility can be renewed for two additional years. The Company's ability to draw additional funds under the Revolving Credit Facility is limited by certain financial covenants. The Company had $11,367,000 of remaining availability under the Revolving Credit Facility at December 31, 2001.

Revolving loans extended under the Revolving Credit Facility bear interest at the London Interbank Offering Rate ("LIBOR") plus a spread that may range from 1.10% to 2.75% depending on certain operating ratios of the Company (3.91% effective borrowing rate at December 31, 2001). In addition, a facility fee ranging from 0.15% to 0.50% per annum is charged on the Revolving Credit Facility, depending on certain operating ratios of the Company. The Revolving Credit Facility contains customary covenants and agreements, most notably the inclusion of restrictions on the Company's ability to pay dividends or make other distributions, and restrictions on the Company's ability to make capital expenditures. In addition, the Company is required to maintain minimum leverage and interest coverage ratios. The Company was in compliance with such covenants at December 31, 2001. Substantially all of the Company's assets are pledged as collateral for borrowings under the Revolving Credit Facility.

(b)

Other debt primarily represents capital lease obligations.

        The fair value of the Company's debt is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for the same remaining maturities. At December 31, 2001, the fair value of the Company's debt approximated its carrying value.

        Annual maturities of the Company's debt for each of the next five years are as follows (amounts in thousands):

2002	$	909
2003		800
2004		263,917
2005		44
2006		—
	$	265,670

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(7)    Redeemable Securities

Mandatorily Redeemable Preferred Stock

        General.    The Company's Series B Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), Series C Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Series C Preferred Stock") and Cumulative Convertible Redeemable Preferred Stock, Series D, par value $.01 per share ("Series D Preferred Stock") are classified as mandatorily redeemable preferred stock within the accompanying consolidated balance sheet due to the fact that the terms of such preferred stock instruments provide for redemption provisions that are outside of the Company's control. Dividends on the Company's Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock aggregated $4,259,000 during 2001. Such dividends have been added to the liquidation preference of the applicable preferred stock issuance since the Company did not pay any cash dividends during 2001.

        Series B and C Preferred Stock.    Pursuant to Preferred Stock Agreements dated March 5, 2001 and April 23, 2001 between the Company and Ascent, the Company sold 15,000 newly issued shares of its Series B Preferred Stock, and 10,000 shares of its Series C Preferred Stock, (collectively, the "Series B and C Preferred Stock"), to Ascent for cash consideration of $15,000,000 and $10,000,000, respectively.

        The liquidation preference (the "Liquidation Preference") of each share of the Series B and 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 shares that have been added to and remain a part of the Liquidation Preference as of such date, plus (c) for purposes of the liquidation and redemption provisions of the Series B and 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.

        The holders of Series B and C Preferred Stock are entitled to receive cumulative dividends, when and as declared by the Company, in preference to dividends on junior securities, including Company Common Stock and the Series A Preferred Stock (as described in note 8), and ratably on dividends to parity securities. Dividends accrue on the Series B Preferred Stock on a daily basis at the rate of 8.5% per annum of the Liquidation Preference from and including March 5, 2001 to but excluding April 15, 2001 and accrue at the rate of 12% per annum of the Liquidation Preference thereafter. Dividends accrue on the Series C Preferred Stock on a daily-basis at the rate of 12% per annum of the Liquidation Preference. Accrued dividends on the Series B Preferred Stock are payable monthly, in cash. Accrued dividends on the Series C Preferred Stock are payable quarterly, in cash. Dividends not paid on any dividend payment date are added to the Liquidation Preference on such date and remain a part of the Liquidation Preference until such dividends are paid.

        Upon any liquidation, dissolution or winding up of the Company, the holders of shares of Series B and 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 Liquidation Preference of a share of Series B and C 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 the Series B and C Preferred Stock and the holders of any parity securities.

        Shares of Series B and C Preferred Stock are redeemable at the option of the Company at any time after the issuance date at a redemption price per share payable in cash equal to the 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 and C Preferred Stock are to be redeemed.

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        Subject to certain restrictions, including any such restrictions contained in the Company's Revolving Credit Facility, shares of Series B and C Preferred Stock are redeemable at the option of the holder at a price equal to the Liquidation Preference.

        Series D Preferred Stock.    On June 29, 2001, pursuant to a Preferred Stock Purchase Agreement between the Company and Ascent (the "Series D Purchase Agreement"), the Company authorized for issuance 60,000 shares of its Series D Preferred Stock, to Ascent in consideration of $60,000,000 in cash. The Series D Purchase Agreement states that the shares are issuable in three sub-series, Series D-1, Series D-2 and Series D-3, each with an aggregate authorized amount of $20,000,000 in stated value. The Series D-1 shares were issued on June 29, 2001, the Series D-2 shares were issued on August 2, 2001 and the Series D-3 shares were issued on October 18, 2001. Shares of Series D Preferred Stock are convertible into shares of Company Common Stock at a conversion price of $7.55 per share on or after December 31, 2002 at the option of the holder.

        The liquidation preference (the "Series D Liquidation Preference") of each share of 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 shares that 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.

        The holders of the 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 Company Common Stock and the Series A Preferred Stock (as described in note 8) and ratably to dividends to parity securities. Dividends accrue on each sub-series of the 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 shares (the "Issue Date"). Accrued dividends are payable in cash quarterly on the last day of March, June, September and December, commencing, with respect to each outstanding share of a sub-series of Series D Preferred Stock, on the first date following the Issue Date of such share. Dividends not paid on any dividend payment date are added to the Series D Liquidation Preference until such dividends are paid.

        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.

        Shares of the 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. The Series D Preferred Stock is not redeemable, at the option of the Company, during the period from December 31, 2002 to June 30, 2005. Thereafter, the shares are redeemable, at the option of the Company, at the Series D Liquidation Preference plus the percentage set forth opposite the applicable redemption date as follows:

Redemption date	Percentage
June 30, 2005—June 29, 2006	4	%
June 30, 2006—June 29, 2007	3	%
June 30, 2007—June 29, 2008	2	%
June 30, 2008—June 29, 2009	1	%
June 30, 2009—thereafter	0	%

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        In the event a default occurs under the Certificate of Designations of the Series D Preferred Stock, and subject to certain restrictions, including any such restrictions contained in the Company's Revolving Credit Facility, shares of Series D Preferred Stock are redeemable at the option of the holder at a price equal to the Series D Liquidation Preference if such redemption occurs prior to June 30, 2005. If the redemption occurs after June 30, 2005, the shares are redeemable at the Series D Liquidation Preference plus the percentage set forth in the foregoing table.

Company Common Stock Subject to Repurchase Obligation

        During the first quarter of 2001, the Company issued 275,000 shares of Company Common Stock that are subject to a repurchase obligation. See note 5.

(8)    Stockholders' Equity

Stock Option Plan

        The Company adopted the 1996 Key Employee Stock Option Plan (the "1996 Plan") under which employees may be granted incentive or non-statutory stock options for the purchase of Company Common Stock. In addition, restricted stock purchases, performance awards, stock payment or appreciation rights or deferred stock may be granted under the 1996 Plan. A total of 3,000,000 shares were initially reserved for the 1996 Plan. The 1996 Plan expires in 2006. In June 2000, the Board of Directors approved an amendment to the 1996 Plan to increase the number of shares reserved under the 1996 Plan to 5,250,000.

        The exercise price of options granted is set by the Company's Board of Directors. Incentive stock options are granted at no less than fair market value on the date of grant. Options generally expire in ten years, vest over a five-year period and are exercisable in installments of 20% one year from the date of grant and 20% annually thereafter. Unvested options generally are cancelled upon termination of employment.

1997 Non-Employee Directors Stock Plan

        In May 1997, the Company adopted the Company's 1997 Non-Employee Directors Stock Plan (the "Directors Plan"). The Directors Plan authorizes the granting of an annual award of 400 shares of the Company Common Stock and, pursuant to an amendment adopted in 1999, a one-time non-qualified option to purchase 50,000 shares of the Company Common Stock (an "Independent Director Option") to each Independent Director. On June 13, 2000, the Board of Directors adopted and approved an amendment to increase the number of authorized shares under the Directors Plan available for issuance and subject to option and share grants to Independent Directors by 400,000 shares. The aggregate number of shares of Company Common Stock which may be issued upon exercise of Independent Directors Options granted under the Directors Plan plus the number of shares which may be awarded pursuant to the Directors Plan will not exceed 696,800, subject to adjustment to reflect events such as stock dividends, stock splits, recapitalizations, mergers or reorganizations of or by the Company. Subject to the terms and conditions of the plan, the stock options are granted at no less than fair market value on the date of grant. The options generally expire in ten years, vest over a three-year period and are exercisable in installments of 25% after the first and second years, and the remaining 50% after the third year. In 2001 and 2000, options granted pursuant to the Directors Plan aggregated 50,000 and 200,000, respectively. No options were granted under the Directors Plan in 1999.

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        The following is a summary of activity under the 1996 Plan and the Directors Plan:

	Options outstanding
	Options available for grant		Number of shares		Weighted average exercise price
Balances, January 1, 1999 (697,313 exercisable at a weighted-average price of $12.43)	1,098,563		1,744,475		13.13
Granted (weighted-average fair value of $7.06)	(1,270,500	)	1,270,500		14.00
Increase in options authorized	200,000		—
Exercised	—		(117,745	)	5.00
Cancelled	408,151		(408,151	)	12.79
Balances, December 31, 1999 (690,847 exercisable at a weighted-average price of $12.77)	436,214		2,489,079		14.11
Granted (weighted-average fair value of $7.06)	(2,410,500	)	2,410,500		14.12
Increase in options authorized	2,650,000		—
Exercised	—		(191,762	)	10.40
Cancelled	831,342		(831,342	)	15.25
Balances, December 31, 2000 (1,124,938 exercisable at a weighted-average price of $13.82)	1,507,056		3,876,475		13.79
Granted (weighted-average fair value of $3.68)	(1,317,000	)	1,317,000		6.62
Increase in options authorized	—		—
Exercised	—		(2,520	)	7.19
Cancelled	1,919,009		(1,919,009	)	13.24
Balances, December 31, 2001 (1,404,793 exercisable at a weighted-average price of $10.82)	2,109,065		3,271,946		11.38

        The following table summarizes information about fixed stock options outstanding at December 31, 2001:

			Options outstanding			Options exercisable
Range of exercise prices		Number outstanding at 12/31/01	Weighted average remaining contractual life (years)	Weighted average exercise price		Number exercisable at 12/31/01	Weighted average exercise price
$	1.85-5.80	695,000	8.2	$	4.86	—	$	—
$	7.34-9.34	601,850	8.3		7.76	210,850		8.36
$	10.94-12.75	230,200	5.8		12.02	106,000		11.81
$	13.00-14.87	302,396	5.3		13.39	217,618		13.32
$	15.19-15.91	1,019,000	5.4		15.28	451,250		15.37
$	16.00-18.09	423,500	5.5		16.07	419,075		16.06
		3,271,946	6.4	$	11.56	1,404,793	$	10.82

        The Company uses the intrinsic value method of APB Opinion No. 25 to account for stock options. During 2000 and 1999, the Company recognized stock compensation expense of $70,000 and $1,064,000, respectively, due primarily to the cashless exercise feature of certain stock options. At December 31, 2001 and 2000, none of the Company's outstanding stock options had a cashless exercise feature. Had the Company determined compensation expense based on the grant-date fair value method prescribed by SFAS No. 123, the Company's net loss and basic and diluted loss per share would have been $92,085,000 and $2.99 in 2001; $45,173,000 and $1.48 in 2000; and $33,318,000 and

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$1.10 in 1999. The grant-date fair values underlying the foregoing calculations are based on the Black-Scholes option-pricing model. The key assumptions used in the model include the following: (a) a discount rate equal to the one-year Treasury Bill rate at the date of grant; (b) volatility rates of 71.8% for 2001 grants, 47.7% for 2000 grants, 45.9% for 1999 grants and 25% for grants in all prior periods; (c) expected option lives of 5 or 5.5 years; (d) the closing price of the Company Common Stock on the date of grant; and (e) an expected dividend rate of zero.

Employee Stock Purchase Plan

        In August 1997, the Company adopted the Employee Stock Purchase Plan (the "ESP Plan") which is intended to qualify under Section 423 of the Internal Revenue Code. Under the terms of the ESP Plan, Company employees can purchase Company Common Stock at a 10% discount from the market value on the purchase date. Through December 31, 2001, 102,808 shares have been purchased by Company employees under the ESP Plan.

Warrants

        At December 31, 2001, warrants ("Warrants") issued by the Company to purchase 7,494,854 shares of Company Common Stock at a purchase price of $15.27 per share were outstanding. The outstanding Warrants, which include 1,424,875 Series A Warrants, 2,619,979 Series B Warrants and 3,450,000 Series C Warrants, expire on October 7, 2003. The Series A Warrants provide only for a cashless exercise that allows the holder to use the excess of the fair market value of Company Common Stock over the $15.27 exercise price as a currency to acquire shares of Company Common Stock. The exercise price for the Series B and Series C Warrants is to be paid with cash. At December 31, 2001, subsidiaries of Liberty held 1,123,792 Series A Warrants and 39 Series B Warrants.

Series A Preferred Stock

        On August 8, 2000, the Company issued 13,500 shares of the Company's Series A, $.01 Par Value Convertible Participating Preferred Stock ("Series A Preferred Stock"), to the former Chairman and Chief Executive Officer of the Company in exchange for a $21,080,000 promissory note and a $13,500 cash payment. The Series A Preferred Stock is initially convertible into an aggregate of 1,350,000 shares of Company Common Stock. The price of the Series A Preferred Stock was $1,562.50 per share. The Series A Preferred Stock participates in any dividends paid to the holders of Company Common Stock but otherwise is not entitled to receive any dividends. The Series A Preferred Stock has a liquidation preference of $.01 per share, and will also participate with the Company Common Stock in any liquidating distributions on an as-converted basis. The holder of the Series A Preferred Stock votes with the holders of the Company Common Stock as a single class and is entitled to one vote per share. The promissory note is secured by the Series A Preferred Stock or proceeds thereon and the former Chairman and Chief Executive Officer's personal obligations under such promissory note are limited. The note may not be prepaid and interest on the note accrues at a rate of 7% per annum, compounded quarterly. The promissory note, which is reflected as a reduction of stockholders' equity, matures on July 31, 2005, at which time all principal and interest becomes due. The right to transfer the Series A Preferred Stock is restricted.

Shares Reserved for Issuance

        At December 31, 2001, a total of 20,403,784 shares of Company Common Stock were reserved for issuance pursuant to the 1996 Plan, the Directors Plan, the ESP Plan, the Warrants, Series A Preferred Stock and Series D Preferred Stock.

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(9)    Income Taxes

        The Company files a separate tax return and is not included in Liberty's consolidated tax return. The provision (benefit) for income taxes consists of the following (amounts in thousands):

		Years ended December 31,
		2001		2000		1999
Current:
	Federal	$	—	$	—	$	—
	State		238		238		162
	Foreign		130		185		38
			368		423		200
Deferred:
	Federal		—		—		—
	State		—		—		—
	Foreign		—		—		—
Total		$	368	$	423	$	200

        The provision for income taxes differs from the amount obtained by applying the federal statutory rate (35%) to loss before income taxes as follows (amounts in thousands):

	Years ended December 31,
	2001			2000			1999
Tax benefit computed at federal statutory rate	$	(29,872	)	$	(13,517	)	$	(10,218	)
State tax benefit, net of federal benefit		(3,494	)		(1,470	)		(689	)
Goodwill		1,822			1,731			1,690
Other		3,666			(1,282	)		130
Foreign		130			185			38
Increase in valuation allowance		28,116			14,776			9,249
Provision for income taxes	$	368		$	423		$	200

        Loss before income taxes consists of the following (amounts in thousands):

	Years ended December 31,
	2001			2000			1999
Domestic	$	(80,332	)	$	(37,006	)	$	(26,359	)
Foreign		(5,016	)		(1,614	)		(2,835	)
Total	$	(85,348	)	$	(38,620	)	$	(29,194	)

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        Deferred income taxes, which result from the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, consist of the following (amounts in thousands):

		December 31,
		2001			2000
Deferred tax assets:
	Tax net operating loss and credit carryforwards	$	104,682		$	68,203
	Accruals not recognized for tax purposes		4,644			4,640
	Other		8,086			(643	)
	Valuation allowance		(99,542	)		(71,426	)
Total deferred tax assets			17,870			774
Deferred tax liabilities:
	Depreciation and amortization		(17,870	)		(774	)
	Other		—			—
Total deferred tax liabilities			(17,870	)		(774	)
Net deferred tax liability		$	—		$	—

        At December 31 2001, the Company had net operating loss carryforwards for federal and state income tax purposes aggregating approximately $201,697,000 and $184,697,000, respectively. If not utilized to reduce taxable income in future periods, the federal net operating loss carryforwards will begin to expire in 2010 and the state net operating loss carryforwards will begin to expire in 2002. Certain subsidiaries of the Company had additional net operating loss carryforwards for federal and state income tax purposes aggregating approximately $43,000,000 and $7,000,000, respectively, and these net operating losses are subject to certain rules limiting their usage. At December 31, 2001, federal and state alternative minimum tax credit carryforwards of $1,595,000 and $251,000, respectively, were available to offset the respective future regular federal and state tax liabilities. At December 31, 2001, federal and state research and development tax credit carryforwards of approximately $32,000 and $894,000, respectively, were available to offset the respective future federal and state tax liabilities.

        Current federal and California state tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" of a corporation. Accordingly, the Company's ability to utilize net operating loss and tax credit carryforwards may be limited as a result of such "ownership change" as defined. Such a limitation could result in the expiration of carryforwards before they are utilized.

(10)    Related Party Transactions

        During the second quarter of 2001, three employees of another subsidiary of Liberty 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 the other Liberty subsidiary. Effective January 1, 2002, the Company began paying the compensation of such employees. The aggregate amount allocated to the Company during 2001 was $408,000, and such amount is included in selling, general and administrative expenses in the accompanying consolidated statement of operations.

        Subsequent to Liberty's acquisition of Ascent in March of 2000, Liberty and Ascent have allocated insurance and certain other general and administrative expenses (including portions of the salaries of certain employees) to the Company. In addition, the Company reimburses Liberty and Ascent for certain expenses paid by Liberty and Ascent on behalf of the Company. Although there are no written agreements with Liberty and Ascent for these allocations and reimbursements, the Company believes the amounts to be reasonable. Allocations and reimbursements from Liberty and Ascent aggregated

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$929,000 and $696,000 during 2001 and 2000, respectively, and such amounts are included in selling, general and administrative expense in the accompanying consolidated statements of operations. Amounts owed to Liberty and Ascent pursuant to this arrangement ($711,000 at December 31, 2001) are non-interest bearing.

        The Company had made arrangements for the use of an airplane owned by a limited liability company of which the Company's former Chairman of the Board 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 in 2001 was approximately $190,000. This arrangement was terminated in June 2001.

(11)    Concentration of Credit Risk

        The Company generates the majority of its revenue from the guest usage of proprietary video systems located in various hotels primarily throughout the United States, Canada, Mexico and Europe. The Company performs periodic credit evaluations of its installed hotel locations and generally requires no collateral while maintaining allowances for potential credit losses. The Company invests its cash in high-credit quality institutions. These instruments are short-term in nature and, therefore, bear minimal risk.

        Hotels owned, managed or franchised by Marriott International, Inc. ("Marriott") accounted for 27%, 24% and 25% of total room revenue for the years ended December 31, 2001, 2000 and 1999, respectively, while hotels owned, managed or franchised by Six Continents Hotels, Inc. ("Six Continents") accounted for 12%, 11% and 10% of total room revenue for the years ended December 31, 2001, 2000 and 1999, respectively. Individual contracts with hotels owned, managed or franchised by Marriott and Six Continents expire, if not renewed, over the next eight years.

        Hotels owned, managed or franchised by the Hilton Hotels Corporation ("Hilton") accounted for 19%, 20% and 20% of total room revenue for the years ended December 31, 2001, 2000 and 1999, respectively. The Hilton master contract expired on April 27, 2000. The Hilton master contract provided the Company exclusive rights to install its in-room entertainment system in all corporate-owned Hilton properties and as a preferred vendor for all managed and franchised properties. Per the terms of the Hilton master contract, individual hotel installations have a term of seven years from installation date. On October 10, 2000, Hilton announced that it would not renew its contract with the Company. Accordingly, the Company expects that hotels owned by Hilton will not renew their contracts as they expire. On the other hand, hotels that are managed or franchised by Hilton are not precluded from renewing their contracts with the Company, and, although no assurance can be given, the Company anticipates that certain of those hotels will choose to renew. At December 31, 2001, the Company provided service to approximately 7,500 Hilton-owned rooms and approximately 66,500 Hilton managed and franchised rooms. Individual contracts with Hilton owned, managed and franchised hotels expire, if not otherwise renewed, over the next seven years.

        In addition, the Company has a master contract in place with Promus Hotel Corporation ("Promus"). The Promus master contract expires on May 25, 2002. Promus owns, manages and franchises the DoubleTree, Embassy Suites, Hampton Inn and Homewood hotel chains. Promus was acquired by the Hilton Corporation in late 1999. At December 31, 2001, the Company provided service to approximately 6,200 Promus-owned rooms and 63,200 Promus managed and franchised rooms. Individual contracts with Promus owned, managed and franchised hotels expire, if not renewed, over the next nine years.

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(12)    Geographic Operating Information

        The following represents total revenue for the years ended December 31, 2001, 2000 and 1999 and long-lived assets as of December 31, 2001, 2000 and 1999 by geographic territory (amounts in thousands):

	2001				2000				1999
	Total revenue*		Long- lived assets		Total revenue*		Long- lived assets		Total revenue*		Long- lived assets
United States	$	218,863	$	339,273	$	237,975	$	339,775	$	227,904	$	322,444
Canada		13,243		21,270		13,441		21,028		13,034		20,931
All other foreign		7,303		11,821		13,964		16,994		12,010		14,513
Total	$	239,409	$	372,364	$	265,380	$	377,797	$	252,948	$	357,888

        *Total revenue is attributed to countries based on invoicing location of customer.

(13)    Employee Benefit Plan

        On Command is the sponsor of the On Command 401(k) Saving Plan (the "On Command 401(k) Plan"), which provides employees an opportunity to create a retirement fund 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 employees up to a maximum matching contribution of 4%. Matching contributions made by the Company were approximately $971,000, $1,068,000 and $995,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

(14)    Restructuring and Relocation Costs

        During 2001, the Company completed the process of relocating its headquarter operations from San Jose, California to Denver, Colorado. During the years ended December 31, 2001 and 2000, $12,132,000 and $6,108,000, respectively, of relocation expenses have been recognized and recorded. The relocation expenses included severance, stay bonuses, hiring costs, moving and travel costs, contract labor, and redundant labor and overhead costs.

        On May 21, 2001, the compensation committee of the Company's board of directors approved a restructuring plan, which affected approximately 50 employees. Severance costs associated with the May 2001 restructuring plan aggregated $2,212,000 and were recognized during the year ended December 31, 2001.

        During the fourth quarter of 2001, the Company recorded a $2,697,000 restructuring charge to record the future lease obligations (net of estimated sublease income) associated with the Company's exit from certain leased premises in San Jose, California.

        At December 31, 2001, the remaining liability related to the May 2001 restructuring plan was $393,000, and the liability with respect to the vacated premises in San Jose, California was $2,697,000. The Company expects to pay most, if not all, of the remaining liability under the May 2001 restructuring plan during 2002. The liability related to the vacated premises in San Jose, California is payable through June 2004.

(15)    Commitments and Contingencies

Operating Leases

        The Company leases office space and certain equipment pursuant to noncancelable operating leases. Rental expense under such agreements amounted to $4,355,000, $3,090,000 and $2,145,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

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        Future minimum annual payments under non-cancelable operating leases at December 31, 2001 are as follows (amounts in thousands):

Years Ending December 31:
	2002		3,774
	2003		2,408
	2004		1,282
	2005		338
	Total	$	7,802

Litigation

        The Company is a defendant, and may be a potential defendant, in lawsuits and claims arising in the ordinary course of its business. While the outcomes of such claims, lawsuits, or other proceedings cannot be predicted with certainty, management expects that any such liability, to the extent not provided for by insurance or otherwise, will not have a material adverse effect on the financial condition results of operations or liquidity of the Company.

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Other

        The Company is a party to affiliation agreements with programming suppliers. Pursuant to certain of such agreements, the Company is committed to carry such suppliers' programming on its video systems. Additionally, certain of such agreements provide for penalties and charges in the event the programming is not carried or not delivered to a contractually specified number of rooms.

        The Company has agreed to purchase $2,859,000 of preferred stock from its investee, STSN during the first two quarters of 2002. See note 5.

(16)    Quarterly Results of Operations (Unaudited)

        The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2001 and 2000:

	Dec. 31			Sept. 30			June 30			March 31
	(amounts in thousands, except per share data)
2001
Revenue	$	55,535		$	58,322		$	63,338		$	62,214
Direct costs of revenue		28,208			30,101			32,202			30,037
Operating expenses		38,978			35,939			44,619			42,197
Loss from operations		(11,651	)		(7,718	)		(13,483	)		(10,020	)
Net loss		(34,121	)		(12,470	)		(19,960	)		(19,165	)
Basic and diluted loss per share	$	(1.17	)	$	(0.44	)	$	(0.68	)	$	(0.63	)
2000
Revenue	$	65,815		$	68,832		$	65,769		$	64,964
Direct costs of revenue		31,884			30,716			30,061			30,751
Operating expenses		41,907			41,908			39,149			35,380
Loss from operations		(7,976	)		(3,792	)		(3,441	)		(1,167	)
Net loss		(19,039	)		(8,477	)		(6,960	)		(4,567	)
Basic and diluted loss per share	$	(0.62	)	$	(0.28	)	$	(0.23	)	$	(0.15	)

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PART III

Item 10. Directors and Executive Officers of the Registrant.

        The following lists the directors and executive officers of the Company, their birth dates, a description of their business experience and positions held with the Company as of February 1, 2002.

Name	Position
William Fitzgerald Born May 20, 1957	Has been a Director of On Command since October 2001. Mr. Fitzgerald has served as Senior Vice President of Liberty and as Chairman of the Board of Liberty Livewire Corporation ("Liberty Livewire") since August 2000. Mr. Fitzgerald served as Chief Operating Officer, Operations Administration, of AT&T Broadband LLC ("AT&T Broadband"), which was formerly known as Tele- Communications, Inc., ("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. ("TCI Communications") 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 and Chairman of the Board of Liberty Livewire.
Richard D. Goldstein Born October 16, 1951	Has been a Director of On Command since November 1998. Mr. Goldstein has served as a Managing Director or Senior Managing Director and a principal of Alpine Capital LLC., a merger advisory and investment/merchant banking firm in New York and predecessor or related entities (including Alpine Equity Partners L.P.) since 1990.
Paul A. Gould Born September 27, 1945	Has been a Director of On Command since April 2000. Mr. Gould has served as a Managing 5 Director and Executive Vice President of Allen & Company Incorporated, an investment banking services company, for over five years. Mr. Gould served as a Director of TCI from December 1996 to March 1999, Liberty Media International, Inc. from July 1995 to October 1998, and TV Guide, Inc. ("TV Guide") from January 1996 to February 1998. Mr. Gould is also a Director of Liberty.

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Gary S. Howard Born February 22, 1951	Has been Chairman of the Board of On Command 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 since July 1998. Mr. Howard has also served as Chairman of the Board of Liberty Satellite & Technology, Inc. ("Liberty Satellite") since August 2000 and as Chief Executive Officer of Liberty Satellite from December 1996 to April 2000. From February 1995 through August 1997, Mr. Howard also served as President of Liberty Satellite. Mr. Howard served as Executive Vice President of TCI, from December 1997 to March 1999; as Chief Executive Officer, Chairman of the Board and a Director of TV Guide 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 served as President of TV Guide from June 1997 to September 1997. Mr. Howard is a Director of Liberty, Liberty Digital, Inc. ("Liberty Digital"), Liberty Satellite, Liberty Livewire and UnitedGlobalCom, Inc. ("UnitedGlobalCom").
Peter M. Kern Born June 2, 1967	Has been a Director of On Command since April 2000. Since September 2001, Mr. Kern has served as Senior Managing Director of Alpine Capital, LLC, a merger advisory and investment/merchant banking firm in New York. From April 1996 until August 2001, Mr. Kern was President of Gemini Associates, Inc., a firm that provides strategic advisory services primarily to media companies. Mr. Kern also serves as a Director of Liberty Digital. Peter M. Kern is the son of Jerome H. Kern, the Company's former Chairman of the Board and Chief Executive Officer.
William D. Myers Born March 23, 1958	Has been Executive Vice President, Chief Financial Officer and Treasurer for On Command since June 2001. Mr. Myers was Senior Vice President and Chief Financial Officer for Formus Communications, Inc. from November 2000 through May 2001. From August 1999 through October 2000, Mr. Myers served as Senior Vice President and Chief Financial Officer of Jato Communications Corp ("Jato"). From September 1996 through July 1999, Mr. Myers served as Vice President and Treasurer of Liberty Satellite and from April 1998 until July 1999 he served as Vice President and Treasurer of Primestar, Inc ("Primestar").
David A. Simpson Born February 19, 1958	Has been Senior Vice President of Research & Development and Engineering for 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, from July 1998 until October 2000. Prior to joining On Command, Mr. Simpson founded a high-tech startup venture.

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Laurence M. Smith Born April 16, 1959	Has been Senior Vice President of Sales and Distribution 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. from October 2000 until June 2001 and President of Sun Valley Resources, Inc., a start up venture, 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.
Christopher Sophinos Born January 26, 1952	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. He 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 from April 1998 until August 1999. Mr. Sophinos served as the President of Boats Unlimited from November 1993 to September 1998.
Pamela J. Strauss Born September 5, 1960	Has been Senior Vice President, General Counsel and 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.
Carl E. Vogel Born October 18, 1957	Has been a Director of On Command since April 2000. During April and May 2001 Mr. Vogel also served as Vice Chairman of the Board and from June 2001 until October 2001 as Chairman of the Board. Mr. Vogel has served as a President and Chief Executive Officer of Charter Communications, Inc. since October 2001. From December 1999 to October 2001, he served as Senior Vice President of Liberty. From April 2000 to October 2001, Mr. Vogel was President, Chief Executive Officer and a Director of Liberty Satellite. Mr. Vogel served as Executive Vice President/Chief Operating Officer of Field Operations for AT&T Broadband from June 1999 until joining Liberty. He served as Chairman and Chief Executive Officer of Primestar from June 1998 to June 1999. From October 1997 to June 1998, Mr. Vogel was Chief Executive Officer of Star Choice Communications. From March 1994 to March 1997, he served initially as Executive Vice President and Chief Operating Officer, and later as President of EchoStar Communications Corporation.
J. David Wargo Born October 1, 1953	Has been a Director of On Command since November 1998. Mr. Wargo has served as President of Wargo & Company, Inc. since 1993. Mr. Wargo is also a Director of Liberty Digital and Strayer Education, Inc.

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Gary L. Wilson
Born January 16, 1940
Has been a Director of On Command since September 1996. Mr. Wilson is Chairman of the Board and a principal investor in NWA, Inc., parent of Northwest Airlines and several other transportation-related subsidiaries. He served as co-chairman since 1991 and was named chairman of NWA, Inc. in 1997. Mr. Wilson is a director of The Walt Disney Company.

        Jerome H. Kern resigned as the Company's Chief Executive Officer on April 27, 2001 and as the Company's Chairman of the Board on June 1, 2001.

        On May 31, 2001, the employment of Jean A. DeVera, a former Senior Vice President of the Company, terminated.

        On September 30, 2001, the employment of Jerry Hodge, a former Senior Vice President of the Company, terminated.

        On December 31, 2001, Gregory Armstrong, the former Executive Vice President and Chief Operating Officer of the Company, resigned.

        On January 2, 2002, the employment of Anne Doris, a former Senior Vice President of the Company, terminated.

        The duties of the foregoing individuals have been assumed by other officers of the Company.

        The directors of the Company will hold office until the next annual meeting of stockholders of the Company and until their successors are duly elected and qualified. The executive officers named above will serve in such capacities until the next annual meeting of the Company's Board of Directors or until their respective successors have been duly elected and have been qualified, or until their earlier death, resignation, disqualification or removal from office.

        The Company's charter provides for a Board of Directors of not less that seven members. The exact number of directors is fixed by resolution of the Board of Directors.

        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 except as noted below.

        On March 21, 2001, an involuntary petition under Chapter 7 of the United States Bankruptcy Code was filed against Jato in the United States Bankruptcy Court for the District of Colorado. Mr. Myers was an executive officer of Jato until October 2000.

Compliance With Securities Laws

        Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors and persons who own more than ten percent of a registered class of the Company's equity securities, to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission ("SEC"). 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 2001, or written representations that no Forms 5 were required, the Company believes that all of its directors and executive officers and greater than ten

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percent beneficial owners complied with all Section 16(a) filing requirements during 2001 except as follows:

Person	Late Filings
Anne Doris	Form 3—March 13, 2001
Kathryn L. Hale	Form 3—March 13, 2001
Marianne G. Morgan	Form 3—March 13, 2001
William D. Myers	Form 3—June 1, 2001
Christopher Sophinos	Form 3—April 27, 2001
Pamela J. Strauss	Form 3—June 1, 2001

Item 11. Executive Compensation.

Summary Compensation Table

        The following table is a summary of all forms of compensation paid by the Company to the officers named therein (the "Named Executive Officers") for services rendered in all capacities to the Company for the fiscal years ended December 31, 2001, 2000 and 1999 (total of eight persons).

Name and Position	Year	Salary ($)	Bonus ($)	Other annual compensation ($)	Restricted stock award(s) ($)	Securities underlying options/SARs (#)	All other compensation ($)(8)
Christopher Sophinos(1) President and Chief Executive Officer	2001 2000 1999	201,262 — —	— — —	— — —	— — —	200,000 — —	— — —
Jerome H. Kern(2) Former Chairman and Chief Executive Officer	2001 2000 1999	254,199 389,583 —	— — —	— — —	— — —	— — —	31,480 667 —
William D. Myers(3) Executive Vice President, Chief Financial Officer and Treasurer	2001 2000 1999	132,708 — —	— — —	— — —	— — —	150,000 — —	11,561 — —
David A. Simpson Senior Vice President, Research & Development and Engineering	2001 2000 1999	290,000 212,855 155,308	— 19,812 —	— — —	— — —	— 100,000 35,000	12,114 6,281 5,478
Gregory Armstrong(4) Former Executive Vice President, Chief Operating Officer	2001 2000 1999	290,000 84,583 —	— — —	— — —	— — —	150,000 — —	11,567 — —
Jean A. DeVera(5) Former Senior Vice President, Sales	2001 2000 1999	137,502 291,294 178,000	— 67,475 38,000	— — —	— — —	— — 50,000	309,101 6,475 5,790
Jerry Hodge(6) Former Senior Vice President — On Command Chief Executive Officer of Casino and Gaming Division	2001 2000 1999	235,240 — —	100,000 — —	— — —	— — —	— — —	90,284 — —
Anne Doris(7) Former Senior Vice President, Marketing and Programming	2001 2000 1999	192,307 — —	— — —	— — —	— — —	100,000 — —	22,168 — —

(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.

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(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.

(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)

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.

(7)

Mrs. 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.

(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 those 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 401(k) contribution		Insurance premiums paid by Company		Severance and accumulated time-off paid		Total
Christopher Sophinos	$	—	$	—	$	—	$	—
Jerome H. Kern		—		807		30,673		31,480
William D. Myers		10,500		1,061		—		11,561
David A. Simpson		10,500		1,614		—		12,114
Gregory Armstrong		9,953		1,614		—		11,567
Jean A. DeVera		10,500		673		297,928		309,101
Jerry Hodge		9,953		1,076		79,255		90,284
Anne Doris		10,500		1,211		10,457		22,168

Option Grants in Last Fiscal Year

	Individual grants
	Number of securities underlying options granted(1)	Percent of total options granted to employees in fiscal year(2)		Exercise or base price ($/share)(3)		Expiration date		Grant date present value ($)(4)
Christopher Sophinos	200,000	16	%	$	5.7950	6/5/11		$	748,000
William D. Myers	150,000	12	%	$	5.7950	6/5/11		$	561,000
Jerry Hodge	150,000	12	%	$	9.7500	3/13/11	(5)	$	573,000
Anne Doris	100,000	8	%	$	7.5000	3/13/11	(6)	$	420,000

(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 Company Common Stock on the date of the grant.

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(4)

On Command used the Black-Scholes option pricing model to determine grant date present values using the following assumptions for the year 2001: stock price volatility of 71.8%; a five year option term; a discount rate equal to the one-year Treasury Bill rate at the date of grant; the closing price of the Company Common Stock on the date of grant; and an expected dividend rate of zero. Forfeitures are reflected as they occur. The use of this model is in accordance with SEC rules; however the actual value of an option will be measured by the difference between the stock price and 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. Hodge's options expired on September 30, 2001 in connection with the termination of his employment.

(6)

Ms. Doris' options expired on January 2, 2002 in connection with the termination of her employment.

Option Exercises And Fiscal Year-End Values

        The following table provides, for the Named Executive Officers, information on (i) the exercise during the year ended December 31, 2001 of options with respect to shares of Company Common Stock, (ii) the number of shares of Company Common Stock represented by unexercised option owned by them at December 31, 2001 and (iii) the value of those options as of the same date.

Aggregated Option Exercises in 2001, and Year-End Option Values

			Number of securities underlying unexercised options at 12/31/01		Value of in-the money options at 12/31/01
	Shares underlying options exercised
		Value realized	Exercisable (#)	Unexercisable (#)	Exercisable ($)		Unexercisable ($)
Christopher Sophinos	—	—	—	200,000	$	—	$	—
Jerome H. Kern	—	—	—	—	$	—	$	—
William D. Myers	—	—	—	150,000	$	—	$	—
David A. Simpson	—	—	73,000	92,000	$	—	$	—
Gregory Armstrong	—	—	—	—	$	—	$	—
Jean A. DeVera(1)	—	—	110,000	—	$	—	$	—
Jerry Hodge	—	—	—	—	$	—	$	—
Anne Doris(2)	—	—	—	100,000	$	—	$	—

(1)

Ms. DeVera's options expire on May 31, 2002.

(2)

Ms. Doris' options expired on January 2, 2002 in connection with the termination of her employment.

Employment and Severance Arrangements

        For a description of certain severance arrangements with Jerome H. Kern, Jean A. DeVera, Jerry Hodge and certain other former executive officers of the Company, see "Certain Relationships and Related Party Transactions," below.

        In May 2001, the Company adopted a severance pay plan for the Company's eligible employees (the "Severance Plan"). The Severance Plan defines eligible employees as every employee of the Company except temporary employees, independent contractors and employees covered by collective bargaining agreements. Under the Severance Plan, such employees are eligible for certain payments

III-7

and benefits in the event such employee's employment is terminated by the Company as a result of a layoff or reduction in force, as determined in the sole discretion of the plan administrator.

        Under the Severance 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 of from one month to twelve months depending upon the employee's title.

Compensation of Directors

        In May 1997 the Company adopted a compensation plan for Independent Directors (defined as directors who are neither employees of the Company nor its subsidiaries or parents, so long as the relevant parent, directly or indirectly controls 50% or more of the voting securities of the Company). Independent Directors receive 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. In addition, the Board of Directors and the Company's stockholders approved the 1997 Non-Employee Directors Stock Plan (the "Directors Plan") to grant annual awards of Company Common Stock and options to purchase Company Common Stock to Independent Directors. The Directors Plan originally authorized the granting of an award of 400 shares of Company Common Stock and a non-qualified option to purchase 4,000 shares of Company Common Stock, priced at the fair market value on the date of grant, to each Independent Director on an annual basis 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 Plan, which amendment was approved by the stockholders at the 1999 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 Company Common Stock was replaced with a one-time grant of an option to purchase 50,000 shares of Company Common Stock (the "Option"). Under the terms of the amendment, any Independent Director who received an Option would not be eligible to receive an additional Option until the fifth annual meeting after the original grant. The Options vest 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 an acquisition of Ascent by Liberty would constitute a change in control of the Company for purposes of the Directors Plan.

        In October 2000, the stockholders approved (i) an amendment to the Director Plan adopted by the Board in June 2000, pursuant to which the authorized number of shares under the Director Plan subject to the grant of options and shares was increased to 696,800, and (ii) an amendment to the Director Plan revising the definition of Independent Director to exclude only officers and employees of the Company.

        During the first quarter of 2002, Mssrs. 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.

Additional Information with Respect to Compensation Committee Interlocks and Insider Participation in Compensation Decisions

        The members of the Company's compensation committee are Messrs. Goldstein and Wilson, each a director of the Company. None of the members of the compensation committee are or were officers of the Company or any of its subsidiaries or any other person that would constitute a compensation committee interlock with the Company.

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Item 12. Securities Ownership of Certain Beneficial Owners and Management.

Securities Ownership of Certain Beneficial Owners

        The following table lists stockholders believed by the Company to be the beneficial owners of more than five percent of the outstanding Company Common Stock and Series A Preferred Stock as of December 31, 2001. Shares issuable upon the exercise of options are only included in the table to the extent that the options are exercisable on or before March 1, 2002. Shares issuable upon exercise of options and upon vesting of restricted shares are deemed to be outstanding for the purpose of computing the percentage ownership and overall voting power of persons believed to beneficially own such securities, but have not been deemed to be outstanding for the purpose of computing the percentage ownership or overall voting power of any other person. Voting power in the table is computed with respect to a general election of directors. 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 otherwise stated in the notes to the table.

Name and address of beneficial owner	Title of class	Amount and nature of beneficial ownership	Percent issued and outstanding(1)
Liberty Media Corporation(2) 12300 Liberty Boulevard Englewood, CO 80112	Series A Preferred Stock Company Common Stock	— 20,528,193	— 64.13	%
J.P. Morgan Chase & Co.(3) 500 Stanton Christina Road Newark, DE 19713	Series A Preferred Stock Company Common Stock	— 2,384,896	— 7.72	%
Credit Suisse First Boston(4) 11 Madison Avenue New York, NY 10010	Series A Preferred Stock Company Common Stock	— 2,255,035	— 7.30	%
Merrill Lynch & Co., Inc.(5) 800 Scudders Mill Road Plainsboro, NJ 08536	Series A Preferred Stock Company Common Stock	— 1,948,671	— 6.31	%
Gary Wilson(6) 300 Delfern Drive Los Angeles, CA 90077	Series A Preferred Stock Company Common Stock	— 1,870,000	— 5.71	%
Par Capital Management, Inc.(7) One Financial Center, Suite 1600 Boston, MA 02111	Series A Preferred Stock Company Common Stock	— 1,588,100	— 5.14	%
Jerome H. Kern (8) 4600 S. Syracuse, Suite 1000 Denver, CO 80237	Series A Preferred Stock Company Common Stock	13,500 1,350,000	100 4.19	% %

(1)

Based on 13,500 shares of the Company's Series A Preferred Stock and 30,884,459 shares of the Company Common Stock outstanding as of December 31, 2001. The Company's Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are not classified as voting shares.

(2)

Liberty, primarily through its wholly-owned subsidiary Ascent, holds 19,404,362 shares of Company Common Stock, 1,123,792 Series A Warrants, and 39 Series B Warrants. The shares were acquired by Liberty pursuant to a transaction in March 2000 in which Liberty acquired control of Ascent, On Command's controlling shareholder, by means of a tender offer. See "Certain Relationships and

III-9

Related Party Transactions." On August 16, 2001, a subsidiary of Liberty entered into an agreement pursuant to which it has agreed to transfer all of the shares of Ascent owned by it to Liberty Satellite, a controlled subsidiary of Liberty. This transaction is subject to approval by Liberty Satellite's stockholders and other conditions and is currently expected to close on April 1, 2002. If the transaction announced in August is consummated, Liberty Satellite will become a beneficial owner of the shares of Company Common Stock and Series A Warrants described above in this footnote 2, although, by virtue of its control of Liberty Satellite, Liberty will continue to be a beneficial owner of such securities as well.

(3)

Based on information contained in Schedule 13G filed with the Commission and dated February 14, 2002. J.P. Morgan Chase & Co. ("J.P. Morgan") is the beneficial owner of 2,384,896 shares of Company Common Stock (sole voting power: 1,687,100, sole dispositive power: 1,718,200 and shared voting and dispositive power: 666,696) as parent holding company of J.P. Morgan Investment Management, Inc. and Robert Fleming Holdings Ltd.

(4)

Based on information contained in Schedule 13G filed with the Commission and dated February 14, 2002. Credit Suisse First Boston ("CSFB") shares voting and dispositive power over 2,255,035 shares of Company Common Stock with its consolidated subsidiaries to the extent that they constitute a part of the Credit Suisse First Boston business unit which is engaged in corporate and investment banking, trading, private equity investment and derivatives business on a world-wide basis.

(5)

Based on information contained in Schedule 13G filed with the Commission and dated February 19, 2000. Merrill Lynch & Co., Inc. ("MLI") is the beneficial owner of 1,948,671 shares of Company Common Stock (sole voting and dispositive power: 0 shares and shared voting and dispositive power: 1,942,599 shares) as parent holding company of Merrill Lynch Asset Management Group, which is comprised of registered investment advisors to various registered investment companies.

(6)

Mr. Wilson holds 1,810,000 Series C Warrants to purchase shares of Company Common Stock having an exercise price of $15.27 per share, vested options to purchase 58,000 shares of Company Common Stock, and 2,000 shares of Company Common Stock.

(7)

Based on information contained in Schedule 13G filed with the Commission and dated November 1, 2001. Par Capital Management, Inc. has sole voting and dispositive ownership of 1,588,100 shares of Company Common Stock.

(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 Company Common Stock.

Common Stock Ownership Of Management

        The following table sets forth information with respect to the ownership by each director and each of the Named Executive Officers of the Company and by all directors and executive officers as a group of shares of On Command Common Stock, Series A Liberty Media Corporation Common Stock ("Series A Liberty Common Stock") and Series B Liberty Media Corporation Common Stock ("Series B Liberty Common Stock"). Series A Liberty Common Stock and Series B Liberty Common Stock are both equity securities of Liberty, which indirectly owns a controlling interest in the Company.

        The following information is given as of December 31, 2001 and, in the case of percentage ownership information, is based on (1) 30,884,459 shares of Company Common Stock; (2) 2,378,127,544 shares of Series A Liberty Common Stock; and (3) 212,045,288 shares of Series B Liberty Common Stock, in each case outstanding on that date. Shares of Company Common Stock issuable upon exercise or conversion of options, warrants and convertible securities that were exercisable or convertible on or before March 1, 2001, are deemed to be outstanding and to be beneficially owned by the person

III-10

holding the options, warrants or convertible securities for the purpose of computing the percentage ownership of that person, but are not treated as 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 the sole voting power with respect to the shares indicated as owned by them except as otherwise stated in the notes to the table.

Name of beneficial owner	Title of class	Amount and nature of beneficial ownership		Percent of class
Directors:
William R. Fitzgerald	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	— 386,008 —	(1)(2)	— * —
Richard D. Goldstein	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	51,200 — —	(3)	* — —
Paul A. Gould	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	13,300 1,504,691 457,344	(4)	* * *
Gary S. Howard	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	12,500 3,968,713 —	(5) (6)(7)(8)	* * —
Peter M. Kern	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	13,300 175,800 —	(9) (10)	* * —
Carl E. Vogel	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	12,900 218,400 —	(11) (12)	* * —
J. David Wargo	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	51,200 523,121 4,304	(13) (14)	* * *
Gary L. Wilson	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	1,870,000 — —	(15)	5.71 — —	%
Named Executive Officers:
Christopher Sophinos	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	— 4,651 —	(16)	— * —
Jerome H. Kern	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	1,350,000 310,652 —	(17) (18)(19)	4.19 * —	%

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William D. Myers	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	— 60,652 —	(20)	— * —
David A. Simpson	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	55,500 — —	(21)	* — —
Gregory Armstrong	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	30,000 67,400 —	(22)	* * —
Jean A. DeVera	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	112,840 — —	(23)	* — —
Jerry Hodge	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	— — —		— — —
Anne Doris	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	2,465 — —	(24)	— — —
All directors and executive officers as a group (18 persons)(25)	Company Common Stock Series A Liberty Common Stock Series B Liberty Common Stock	3,575,205 7,223,320 461,648		7.01 * *	%

*

Less than 1%.

(1)

Includes vested options to purchase 346,016 shares of Series A Liberty Common Stock.

(2)

Includes 5,224 shares held by the Liberty 401(k) Savings Plan. Mr. Fitzgerald's beneficial ownership in these shares is limited to his ability to direct the voting thereof pursuant to the terms of the savings plan.

(3)

Includes vested options to purchase 50,000 shares of Company Common Stock.

(4)

Includes vested options to purchase 12,500 shares of Company Common Stock.

(5)

Includes vested options to purchase 12,500 shares of Company Common Stock.

(6)

Includes 582,177 restricted shares of Liberty Series A Common Stock, none of which is currently vested.

(7)

Includes options to purchase 2,560,431 shares of Liberty Series A Common Stock, which may be acquired within 60 days of December 31, 2001.

(8)

Includes 38,177 shares of Liberty Series A Common Stock held by the Liberty 401(k) Savings Plan. Mr. Howard's beneficial ownership in these shares is limited to his ability to direct the voting thereof pursuant to the terms of the savings plan.

(9)

Includes vested options to purchase 12,500 shares of Company Common Stock.

(10)

Includes vested options to purchase 124,800 shares of Series A Liberty Common Stock granted in tandem with stock appreciation rights.

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(11)

Includes vested options to purchase 12,500 shares of Company Common Stock.

(12)

On October 8, 2001, Mr. Vogel resigned as a director and officer of Liberty. The share number assumes exercise in full of options to purchase 200,000 shares.

(13)

Includes vested options to purchase 50,000 shares of Company Common Stock.

(14)

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.

(15)

Mr. Wilson holds 1,810,000 Series C Warrants to purchase shares of Company Common Stock having an exercise price of $15.27 per share and vested options to purchase 58,000 shares of Company Common Stock.

(16)

Includes 3,051 shares held by the Liberty 401(k) Savings Plan. Mr. Sophinos' beneficial ownership in these shares is limited to his ability to direct the voting thereof pursuant to the terms of the savings plan.

(17)

Mr. Kern holds 13,500 shares of Series A Preferred Stock, which are convertible at the option of the holder into an aggregate of 1,350,000 shares of Company Common Stock.

(18)

Includes options to purchase 58,000 shares of Liberty Series A Common Stock, which may be acquired within 60 days after December 31, 2001.

(19)

Includes 80,400 shares of Liberty Series A Common Stock held by Mr. Kerns wife, Mary Rossick Kern, as to which Mr. Kern has disclaimed beneficial ownership.

(20)

Includes vested options to purchase 43,964 shares of Liberty Series A Common Stock granted in tandem with stock appreciation rights.

(21)

Includes vested options to purchase 55,500 shares of Company Common Stock.

(22)

Includes vested options to purchase 30,000 shares of Company Common Stock. On December 31, 2001, Mr. Armstrong resigned from the Company. Mr. Armstrong's options cancel 90 days after his resignation date.

(23)

Includes vested options to purchase 110,000 shares of Company Common Stock.

(24)

Includes 2,465 shares of Company Common Stock acquired through the Company's Employee Stock Purchase Plan.

(25)

Includes the holdings of two executive officers not considered Named Executive Officers as of December 31, 2001.

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Item 13. Certain Relationships and Related Transactions.

Transactions with Liberty

        General.    Primarily through its ownership of Ascent, Liberty indirectly owned approximately 62.83% of the Company's issued and outstanding Company Common Stock at December 31, 2001. For so long as Liberty continues to own more than 50% of the outstanding voting stock of the Company, it will be able, among other things, to approve any corporate action requiring majority stockholder approval, including the election of a majority of the Company's directors, effect amendments to the Company's Amended and Restated Certificate of Incorporation and Bylaws and approve any other matter submitted to a vote of the stockholders without the consent of the other stockholders of the Company. In addition, through its representation on the Board of Directors, Liberty is able to influence certain decisions, including decisions with respect to the Company's dividend policy, the Company's access to capital (including the decision to incur additional indebtedness or issue additional shares of Company Common Stock or Preferred Stock), mergers or other business combinations involving the Company, the acquisition or disposition of assets by the Company and any change in control of the Company.

        Expense Allocations from Liberty.    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. Effective January 1, 2002, the Company began paying the compensation of such employees. The aggregate amount allocated to the Company during 2001 was $408,000, and such amount is included in selling, general and administrative expenses in the accompanying consolidated statement of operations.

        Subsequent to Liberty's acquisition of Ascent in March of 2000, Liberty and Ascent have allocated insurance and certain other general and administrative expenses (including portions of the salaries of certain employees) to the Company. In addition, the Company reimburses Liberty and Ascent for certain expenses paid by Liberty and Ascent on behalf of the Company. Although there are no written agreements with Liberty and Ascent for these allocations and reimbursements, the Company believes the amounts to be reasonable. Allocations and reimbursements from Liberty and Ascent aggregated $929,000 during 2001. Amounts owed to Liberty and Ascent pursuant to this arrangement ($711,000 at December 31, 2001) are non-interest bearing.

        Issuance of Series B Preferred Stock to Ascent.    On March 5, 2001, the Company issued 15,000 shares of Series B Preferred Stock (designated as "Series B Cumulative Redeemable Preferred Stock, par value $.01 per share") to Ascent in consideration of $15,000,000 in cash, pursuant to a Preferred Stock Purchase Agreement, dated March 5, 2001 (the "Ascent 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.

        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 Company Common Stock and the Series A Preferred Stock. Dividends accrue on the Series B Preferred Stock on a daily

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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 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 common stock) during any period in which the Company is in arrears with respect to payment of dividends on Series B Preferred Stock. Dividends on the Company's Series B Preferred Stock aggregated $1,560,000 during 2001. Such dividends have been added to the Series B Liquidation Preference since the Company did not pay any dividends during 2001.

        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.

        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 Company's 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

III-15

not issue any senior securities without the consent of the holders of at least 66²/3% 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 66²/3% 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 "Series B Certificate of Designations") or amend any of the provisions of the Amended and 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 Series B 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 66²/3% 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.

        A default under the Series B Certificate of Designations occurs if any of the following occur: (1) the entry of a decree or order for relief in respect of the Company under any bankruptcy law or the appointment of a receiver of the Company or of any substantial part of its properties, or ordering the winding up or liquidation of the affairs of the Company or the filing of an involuntary petition and the entry of a temporary stay and such petition and stay are not diligently contested or continue undismissed for a period of 60 consecutive days; or (2) the filing by the Company of a petition, answer or consent seeking relief under any bankruptcy law or the consent by the Company to the institution of proceedings under any bankruptcy law or to the filing of any such petition or to the appointment or taking of possession of a receiver of the Company or any substantial part of its properties or the Company failing generally to pay its respective debts as they become due or taking any action in furtherance of any such action.

        In the event of any action at law or suit in equity with respect to the Series B Preferred Stock, the Company may be required to pay reasonable sums for attorneys' fees incurred by the holder thereof in connection with such action or suit and all other costs of collections.

        Issuance of Series C Preferred Stock to Ascent.    The Company issued 10,000 shares of Series C Preferred Stock (designated as "Series C Cumulative Redeemable Preferred Stock, par value $.01 per share") 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.

        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 Company 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

III-16

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. Dividends on the Company's Series C Preferred Stock aggregated $867,000 during 2001. Such dividends have been added to the Series C Liquidation Preference since the Company did not pay any cash dividends during 2001.

        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.

        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.

        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, dated as of July 18, 2000, as amended, among the Corporation 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 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

III-17

not issue any senior securities without the consent of the holders of at least 66²/3% 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 66²/3% 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 Amended and 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 66²/3% 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.

        A default under the Series C Certificate of Designations occurs if either of the following occur: (1) the entry of a decree or order for relief in respect of the Company under any bankruptcy law or the appointment of a receiver of the Company or of any substantial part of its properties, or ordering the winding up or liquidation of the affairs of the Company or the filing of an involuntary petition and the entry of a temporary stay and such petition and stay are not diligently contested or continue undismissed for a period of 60 consecutive days; or (2) the filing by the Company of a petition, answer or consent seeking relief under any Bankruptcy Law or the consent by the Company to the institution of proceedings under any Bankruptcy Law or to the filing of any such petition or to the appointment or taking of possession of a Receiver of the Company or any substantial part of its properties or the Company failing generally to pay its respective debts as they become due or taking any action in furtherance of any such action.

        In the event of any action at law or suit in equity with respect to the Series C Preferred Stock, the Company may be required to pay reasonable sums for attorneys' fees incurred by the holder thereof in connection with such action or suit and all other costs of collections.

        Issuance of Series D Preferred Stock to Ascent.    On June 29, 2001, pursuant to a Preferred Stock Purchase Agreement between the Company and Ascent (the "Series D Purchase Agreement"), the Company authorized for issuance 60,000 shares of its Series D Preferred Stock (designated as "Series D Cumulative Convertible Redeemable Preferred Stock, par value $.01 per share") to Ascent in consideration of $60,000,000 in cash. The Series D Purchase agreement states that the shares are issuable in three sub-series, Series D-1, Series D-2 and Series D-3, each with an aggregate authorized amount of $20,000,000 in stated value. The Series D-1 shares were issued on June 29, 2001, the Series D-2 shares were issued on August 2, 2001 and the Series D-3 shares were 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.

III-18

        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 Company 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 Company 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. Dividends on the Company's Series D Preferred Stock aggregated $1,832,000 during 2001. Such dividends have been added to the Series D Liquidations Preference since the Company did not pay any cash dividends during 2001.

        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 Company Common Stock at the initial conversion rate of 132.4503 fully paid and non-assessable shares of Company 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 Company 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 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 Company Common Stock; (v) issuance of rights, options or warrants to holders of Company Common Stock entitling them to purchase shares of Company Common Stock at below-market prices; (vi) payment of a dividend to holders of Company Common Stock of indebtedness of the Company, securities of a subsidiary of the Company, or other assets of the Company;

III-19

(vii) completion of a tender or exchange offer for Company 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 Company 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 Company 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 Company 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 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

III-20

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 Company 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 Company 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 un-issued shares of preferred stock.

        If an exchange offer is commenced by the Company or one of its subsidiaries to holders of Company 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 Company 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 Company 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 Company Common Stock into which such shares are then convertible, and receive in lieu of the securities or other property offered in 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

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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 Company 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 on or after the date that an event described under "Series D Default" below has occurred and is continuing, 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 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

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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 66²/3% 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 66²/3% 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 Amended and 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 66²/3% 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 Company 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 Company 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 66²/3% 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.

        A default under the Series D Certificate of Designations occurs if any of the following occur: (1) the entry of a decree or order for relief in respect of the Company under any bankruptcy law or the appointment of a receiver of the Company or of any substantial part of its properties, or ordering the winding up or liquidation of the affairs of the Company or the filing of an involuntary petition and the entry of a temporary stay and such petition and stay are not diligently contested or continue undismissed for a period of 60 consecutive days; or (2) the filing by the Company of a petition, answer or consent seeking relief under any Bankruptcy Law or the consent by the Company to the institution of proceedings under any Bankruptcy Law or to the filing of any such petition or to the appointment or taking of possession of a Receiver of the Company or any substantial part of its properties or the Company failing generally to pay its respective debts as they become due or taking any action in furtherance of any such action.

        In the event of any action at law or suit in equity with respect to the Series D Preferred Stock, the Company may be required to pay reasonable sums for attorneys' fees incurred by the holder thereof in connection with such action or suit and all other costs of collections.

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Transactions with Jerome H. Kern

        Airplane Usage.    The Company had arrangements for the use of an airplane owned by a limited liability company of which Jerome H. Kern 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. On Command reimbursed that limited liability company an aggregate of approximately $190,000 during the year ended December 31, 2001. This arrangement was terminated in June 2001.

        Series A Preferred Stock and the Secured Note.    At a meeting of the Board of Directors held on April 6, 2000, Jerome H. Kern was appointed Chairman of the Board of Directors and Chief Executive Officer of the Company. Also at that meeting, the Board approved the principal terms of a purchase by Mr. Kern from the Company of 2,700,000 shares of Company Common Stock at a per share price of $15.625. Thereafter, Mr. Kern and representatives of the Company engaged in discussions relating to the structure of Mr. Kern's equity purchase. On August 4, 2000, following the approval of the Board of Directors, the Company and Mr. Kern entered into a Stock Purchase and Loan Agreement (the "Series A Stock Purchase Agreement") relating to the purchase by Mr. Kern of 13,500 shares of Series A Preferred Stock. Pursuant to the Series A Stock Purchase Agreement, on August 10, 2000, Mr. Kern purchased 13,500 shares of Series A Preferred Stock (designated as "Series A, $.01 par value Convertible Participating Preferred Stock") at a purchase price of $1,562.50 per share, or an aggregate of $21,093,750. Mr. Kern paid the purchase price for these shares of Series A Preferred Stock by payment of $13,500 in cash and the execution of a promissory note, dated August 10, 2000 (the "Secured Note"), payable to the order of the Company and bearing an initial principal amount of $21,080,250. The payment of principal of and interest on the Secured 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 (the "Pledge and Security Agreement"), between the Company and Mr. Kern.

        Pursuant to the terms of the Certificate of Designations for the Series A Preferred Stock (the "Certificate of Designations"), each share of Series A Preferred Stock may be converted at any time, at the option of the holder, into 100 shares of Company Common Stock (subject to certain customary adjustments) (the "Conversion Rate"). In addition, each share of Series A Preferred Stock will, subject to the receipt of any required governmental consents and approvals, automatically be converted into shares of Company Common Stock at the then effective Conversion Rate upon the satisfaction of all of Mr. Kern's obligations under the Secured Note. Shares of Series A Preferred Stock will participate in any dividends or distributions on the Company 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 will also participate with the shares of Company Common Stock in any liquidating distributions on an as-converted basis. Shares of Series A Preferred Stock vote together with the Company 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 share of Series A Preferred Stock held. Pursuant to the terms of the Series A 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 Company Common Stock vote upon such matter.

        The Secured Note has an initial principal amount of $21,080,250 and, unless accelerated earlier, will mature and become payable, together with accrued interest, on August 1, 2005. Interest on the Secured Note will accrue at a rate of 7% per annum, compounded quarterly. Upon the occurrence of certain events of default, the interest rate will increase to 9% per annum. The Secured Note is non-recourse against Mr. Kern personally except for an amount equal to 25% of the principal of and accrued interest on the Secured Note. In determining Mr. Kern's personal liability under the Secured

III-24

Note, the Company must first proceed against the shares of Series A Preferred Stock (or proceeds thereof) held as collateral for the Secured Note, with such proceeds being applied first to the obligations for which Mr. Kern is personally liable. Except in connection with the repurchase by the Company of shares of Series A Preferred Stock, or shares of Company Common Stock issued upon conversion thereof, as described below, neither the principal of nor interest on the Secured Note may be prepaid. In the event of such a repurchase, the proceeds thereof will be applied to the repayment of principal of and interest on the Secured Note.

        The Series A 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 Company 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. If Mr. Kern's employment with the Company is terminated before April 6, 2005 by the Company for cause (as defined in the Stock Purchase Agreement) or by Mr. Kern without good reason (as defined in the Stock Purchase Agreement), the Company will have 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 Company 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 Secured Note. The Company will be entitled to offset the purchase price of any such shares of Series A Preferred Stock or Company Common Stock against the principal of and interest on the Secured Note.

        The Series A Stock Purchase Agreement and the Pledge and Security Agreement provide that Mr. Kern may not directly or indirectly 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 Company Common Stock issued upon conversion thereof) except that (a) to the extent that the Company's repurchase right under the Series A Stock Purchase Agreement has expired, Mr. Kern may direct the Company to effect a sale of the portion of the collateral with respect to which such repurchase right has expired, provided that the proceeds of any such sale are held in an escrow account pending the date all amounts under the Secured Note become due and owing and (b) Mr. Kern is entitled to assign his rights to the pledged collateral to an entity if (i) Mr. Kern holds at least 50% of the equity interests of such entity, (ii) Mr. Kern "controls" (as that term is defined in the Stock Purchase Agreement) such entity, (iii) the financial obligations of such entity under the Secured Note and the Pledge and Security Agreement have been personally guaranteed by Mr. Kern and (iv) such entity becomes a party to and bound by Mr. Kern's obligations under the Pledge and Security Agreement. 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.

        Separation and Release Agreement.    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 was entitled to all employee benefits that he was then entitled to. Other than as required by COBRA, all employment benefits provided to Mr. Kern terminated on the Termination Date. Pursuant to the Separation and Release Agreement, the right of the Company to repurchase certain "Unvested Shares" as a result of the termination of Mr. Kern's employment, pursuant to the Stock Purchase and Loan Agreement dated as

III-25

of August 4, 2000 by and between Mr. Kern and the Company, was waived by the Company. The Stock Purchase and Loan 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 the preferred shares to be voted in the manner recommended by the Company's Board of Directors. 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. The Company has agreed to indemnify Mr. Kern to the fullest extent permitted by applicable law for matters arising from his employment or performance of services as a director, officer, employee or consultant of the Company or his serving or having served at the request of the Company as a director, officer, employee or agent of another entity, other than proceedings in which Mr. Kern is adjudged liable on the basis that personal benefit was received.

Waiver and Release Agreements with Former Executive Officers

        On May 31, 2001, the employment of Jean A. DeVera, a former Senior Vice President of the Company, terminated. 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 can be exercised until May 31, 2002.

        On May 31, 2001, the employment of Paul Milley, a former Senior Vice President of the Company, terminated. On June 1, 2001, Mr. Milley executed a Waiver and Release Agreement pursuant to which the Company agreed to pay him $600,000 less applicable tax withholding 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 Mr. Milley became exercisable on the date of his termination and can be exercised until May 31, 2003.

        On May 31, 2001, the employment of Bertram Perkel, a former Senior Vice President of the Company, terminated. On May 31, 2001, Mr. Perkel executed a Waiver and Release Agreement pursuant to which the Company agreed to pay him $278,500 less applicable tax withholding 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 Mr. Perkel terminated on his last day of employment.

        On June 15, 2001, the employment of Marianne G. Morgan, a former Senior Vice President of the Company, terminated. On June 18, 2001, Ms. Morgan executed a Waiver and Release Agreement pursuant to which the Company agreed to pay her $235,000 less applicable tax withholding 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. Morgan terminated on her last day of employment.

        On June 30, 2001, the employment of Kathryn Hale, a former Senior Vice President of the Company, terminated. On July 2, 2001, Ms. Hale executed a Waiver and Release Agreement pursuant to which the Company agreed to pay her $250,000 less applicable tax withholding in consideration for the release of the Company and certain related entities and individuals from any and all causes of

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action, claims, charges, demands, losses, damages, costs, attorneys' fees and liabilities of any kind. All stock options held by Ms. Hale terminated on her last day of employment.

        On July 2, 2001, the employment of Ganesh Basawapatna, a former Senior Vice President of the Company, terminated. On September 14, 2001, Mr. Basawapatna executed a Waiver and Release Agreement pursuant to which the Company agreed to pay him $275,000 less applicable tax withholding 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 Mr. Basawapatna terminated on October 2, 2001 without being exercised.

        On September 30, 2001, the employment of Jerry Hodge, a former Senior Vice President of the Company, terminated. On October 1, 2001, Mr. Hodge executed a Waiver and Release Agreement pursuant to which the Company agreed to pay him $157,500.00 less applicable tax withholding 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 Mr. Hodge terminated on his last day of employment.

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PART IV

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K

(a)

(1) Financial Statements

The following consolidated financial statements of On Command Corporation are included in Item 8:

Independent Auditors' Reports

Consolidated Balance Sheets at December 31, 2001 and 2000

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2001, 2000 and 1999

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

Notes to the Consolidated Financial Statements

(a)(2)    Financial Statement Schedules

        The following consolidated financial statement schedule of On Command Corporation is included:

        Independent Auditors' Report on Schedule

        Schedule II—Valuation Accounts

        Information required by the other schedules has been presented in the notes to the consolidated financial statements or such schedule is not applicable and, therefore, has been omitted.

(a)(3)    Exhibits And Reports On Form 8-K

(A)

Exhibits

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation, dated August 13, 1996, as amended by Certificate of Amendment, dated October 6, 2000, Certificate of Designations of Convertible Participating Preferred Stock, Series A, dated August 10, 2000, Certificate of Designations of Cumulative Redeemable Preferred Stock, Series B, dated March 5, 2001, Certificate of Designations of Cumulative Redeemable Preferred Stock, Series C, dated April 23, 2001, and Certificate of Designations of Cumulative Convertible Redeemable Preferred Stock, Series D, dated June 29, 2001.
3.2	Bylaws of On Command Corporation, as amended on November 23, 1998, August 5, 1999 and March 13, 2001. (Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K for the year ended December 31, 2000 of On Command Corporation).
4.1	Registration Rights Agreement by and among On Command Corporation and the other parties named therein (Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 (File No. 333-10407) of On Command Corporation).

IV-1

4.2	Warrant Agreement by and among On Command Corporation and the other parties named therein, which is incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-4 (File No. 333-10407) of On Command Corporation).
10.1	Master Services Agreement, dated as of August 3, 1993, by and between Marriott International, Inc., Marriott Hotel Services, Inc. and On Command Video Corporation (confidential treatment granted) (Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (File No. 33-98502) of Ascent Entertainment Group, Inc.).
10.2	Service Agreement, dated March 21, 2001, between On Command Corporation and Marriott International, Inc. (composite version) (confidential treatment requested) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 of On Command Corporation).
10.3	Hilton Hotels Corporation-On Command Video Agreement, dated April 27, 1993, by and between Hilton Hotels Corporation and On Command Video Corporation (confidential treatment granted) (Incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-4 (File No. 333-10407) of On Command Corporation).
10.4	Standard Lease, dated June, 1996, between Berg & Berg Developers, and On Command Video Corporation (Incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K for the year ended December 31, 1996 of On Command Corporation).
10.5*	Amended and Restated On Command Corporation 1996 Key Employee Stock Plan. (Incorporated by reference to Exhibit 10.8 of the Annual Report on Form 10-K/A for the year ended December 31, 2000 of On Command Corporation).
10.6*	1997 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 4(c) of the Registration Statement on Form S-8 of On Command Corporation (File No. 333-33149), filed on August 8, 1997).
10.7*	Amended and Restated 1997 Non-Employee Directors Stock Plan (Incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K for the year ended December 31, 2000 of On Command Corporation).
10.8*	Change of Control Severance Plan for Executive Officers (Incorporated by reference to Exhibit 10.12 of the Annual Report on Form 10-K for the year ended December 31, 1998 of On Command Corporation).
10.9*	Separation and Release Agreement dated as of April 25, 2001 between Jerome H. Kern and On Command Corporation.
10.10*	Form of Waiver and Release Agreement.
10.11	Stock Purchase and Loan Agreement, dated as of August 4, 2000, by and between Jerome H. Kern and On Command Corporation (Incorporated by reference to Exhibit 1 to the Report on Schedule 13D/A filed by Jerome H. Kern on August 18, 2000 with respect to securities of On Command Corporation).
10.12	Secured Note, due August 1, 2005, made by Jerome H. Kern to the order of On Command Corporation (Incorporated by reference to Exhibit 3 to the Report on Schedule 13D/A filed by Jerome H. Kern on August 18, 2000 with respect to securities of On Command Corporation).

IV-2

10.13	Pledge and Security Agreement, dated as of August 10, 2000, by and between Jerome H. Kern and On Command Corporation (Incorporated by reference to Exhibit 4 to the Report on Schedule 13D/A filed by Jerome H. Kern on August 18, 2000 with respect to securities of On Command Corporation).
10.14	Credit Agreement, dated as of July 18, 2000, by and among On Command Corporation, the lenders party thereto, Toronto Dominion (Texas), Inc., Fleet National Bank, Bank of America, N.A., and the Bank of New York. (Incorporated by reference to Exhibit 10.16 of the Annual Report on Form 10-K/A for the year ended December 31, 2000 of On Command Corporation).
10.15	Amendment No. 1, dated as of March 27, 2001, to the Credit Agreement, dated as of July 18, 2000, by and among On Command Corporation, the lenders party thereto, Toronto Dominion (Texas), Inc., Fleet National Bank, Bank of America, N.A., and the Bank of New York. (Incorporated by reference to Exhibit 10.17 of the Annual Report on Form 10-K/A for the year ended December 31, 2000 of On Command Corporation).
10.16	Amendment No. 2 dated as of November 14, 2001, to the Credit Agreement, by and among On Command Corporation, Toronto Dominion (Texas), Inc. Fleet National Bank, Bank of America, the Bank of New York Company and the Bank of New York.
10.17	Preferred Stock Purchase Agreement, dated March 5, 2001, between On Command Corporation and Ascent Entertainment Group, Inc.
10.18	Preferred Stock Purchase Agreement, dated April 23, 2001, between On Command Corporation and Ascent Entertainment Group, Inc. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by On Command Corporation on July 17, 2001).
10.19	Preferred Stock Purchase Agreement, dated June 29, 2001, between On Command Corporation and Ascent Entertainment Group, Inc. (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by On Command Corporation on July 17, 2001).
21	Subsidiaries of On Command Corporation.
23.1	Independent Auditors' Consent.
23.2	Independent Auditors' Consent.

*

Indicates compensatory plan or arrangement.

(B)

Reports

        No reports on Form 8-K were filed during the quarter ended December 31, 2001.

IV-3

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Denver, State of Colorado on March 26, 2002.

ON COMMAND CORPORATION
By:	/s/ Christopher Sophinos Christopher Sophinos President & Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

SIGNATURE	TITLE	DATE
/s/ Gary S. Howard Gary S. Howard	Chairman of the Board and Director	March 26, 2002
/s/ William R. Fitzgerald William R. Fitzgerald	Director	March 26, 2002
/s/ Richard D. Goldstein Richard D. Goldstein	Director	March 26, 2002
/s/ Paul A. Gould Paul A. Gould	Director	March 26, 2002
/s/ Peter M. Kern Peter M. Kern	Director	March 26, 2002
/s/ Carl E. Vogel Carl E. Vogel	Director	March 26, 2002
/s/ J. David Wargo J. David Wargo	Director	March 26, 2002
/s/ Gary L. Wilson Gary L. Wilson	Director	March 26, 2002
/s/ Christopher Sophinos Christopher Sophinos	President and Chief Executive Officer (Principal Executive Officer)	March 26, 2002
/s/ William D. Myers William D. Myers	Executive Vice President, Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer)	March 26, 2002

IV-4

INDEPENDENT AUDITORS' REPORT ON SCHEDULE

The Board of Directors and Stockholders
On Command Corporation:

        Under date of February 12, 2002, we reported on the consolidated balance sheets of On Command Corporation and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 2001, which are included in the Company's annual report on Form 10-K for the year ended December 31, 2001. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement Schedule II. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

        In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

	KPMG LLP
Denver, Colorado February 12, 2002

IV-5

On Command Corporation
Schedule II

Valuation Accounts

Description		Balance at beginning of period		Charged to costs or expenses		Deductions		Balance at end of period
		(amounts in thousands)
From January 1, 2001 to December 31, 2001
	Deferred tax asset valuation allowance	$	71,426	$	28,114	$	—	$	99,540
	Bad debt allowance		1,366		360,000		86,000		1,640
From January 1, 2000 to December 31, 2000
	Deferred tax asset valuation allowance	$	56,650	$	14,776	$	—	$	71,426
	Bad debt allowance		2,287		451		1,372		1,366
From January 1, 1999 to December 31, 1999
	Deferred tax asset valuation allowance	$	47,401	$	9,249		—	$	56,650
	Bad debt allowance		1,484		1,137		334		2,287

IV-6

EXHIBIT INDEX

3.1	Amended and Restated Certificate of Incorporation, dated August 13, 1996, as amended by Certificate of Amendment, dated October 6, 2000, Certificate of Designations of Convertible Participating Preferred Stock, Series A, dated August 10, 2000, Certificate of Designations of Cumulative Redeemable Preferred Stock, Series B, dated March 5, 2001, Certificate of Designations of Cumulative Redeemable Preferred Stock, Series C, dated April 23, 2001, and Certificate of Designations of Cumulative Convertible Redeemable Preferred Stock, Series D, dated June 29, 2001.
3.2	Bylaws of On Command Corporation, as amended on November 23, 1998, August 5, 1999 and March 13, 2001. (Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K for the year ended December 31, 2000 of On Command Corporation).
4.1	Registration Rights Agreement by and among On Command Corporation and the other parties named therein (Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 (File No. 333-10407) of On Command Corporation).
4.2	Warrant Agreement by and among On Command Corporation and the other parties named therein, which is incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-4 (File No. 333-10407) of On Command Corporation).
10.1	Master Services Agreement, dated as of August 3, 1993, by and between Marriott International, Inc., Marriott Hotel Services, Inc. and On Command Video Corporation (confidential treatment granted) (Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (File No. 33-98502) of Ascent Entertainment Group, Inc.).
10.2	Service Agreement, dated March 21, 2001, between On Command Corporation and Marriott International, Inc. (composite version)(confidential treatment requested)(Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 of On Command Corporation).
10.3	Hilton Hotels Corporation-On Command Video Agreement, dated April 27, 1993, by and between Hilton Hotels Corporation and On Command Video Corporation (confidential treatment granted) (Incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-4 (File No. 333-10407) of On Command Corporation).
10.4	Standard Lease, dated June, 1996, between Berg & Berg Developers, and On Command Video Corporation (Incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K for the year ended December 31, 1996 of On Command Corporation).
10.5*	Amended and Restated On Command Corporation 1996 Key Employee Stock Plan. (Incorporated by reference to Exhibit 10.8 of the Annual Report on Form 10-K/A for the year ended December 31, 2000 of On Command Corporation).
10.6*	1997 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 4(c) of the Registration Statement on Form S-8 of On Command Corporation (File No. 333-33149), filed on August 8, 1997).
10.7*	Amended and Restated 1997 Non-Employee Directors Stock Plan (Incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K for the year ended December 31, 2000 of On Command Corporation).
10.8*	Change of Control Severance Plan for Executive Officers (Incorporated by reference to Exhibit 10.12 of the Annual Report on Form 10-K for the year ended December 31, 1998 of On Command Corporation).
10.9*	Separation and Release Agreement dated as of April 25, 2001 between Jerome H. Kern and On Command Corporation.

IV-7

10.10*	Form of Waiver and Release Agreement.
10.11	Stock Purchase and Loan Agreement, dated as of August 4, 2000, by and between Jerome H. Kern and On Command Corporation (Incorporated by reference to Exhibit 1 to the Report on Schedule 13D/A filed by Jerome H. Kern on August 18, 2000 with respect to securities of On Command Corporation).
10.12	Secured Note, due August 1, 2005, made by Jerome H. Kern to the order of On Command Corporation (Incorporated by reference to Exhibit 3 to the Report on Schedule 13D/A filed by Jerome H. Kern on August 18, 2000 with respect to securities of On Command Corporation).
10.13	Pledge and Security Agreement, dated as of August 10, 2000, by and between Jerome H. Kern and On Command Corporation (Incorporated by reference to Exhibit 4 to the Report on Schedule 13D/A filed by Jerome H. Kern on August 18, 2000 with respect to securities of On Command Corporation).
10.14	Credit Agreement, dated as of July 18, 2000, by and among On Command Corporation, the lenders party thereto, Toronto Dominion (Texas), Inc., Fleet National Bank, Bank of America, N.A., and the Bank of New York. (Incorporated by reference to Exhibit 10.16 of the Annual Report on Form 10-K/A for the year ended December 31, 2000 of On Command Corporation.)
10.15	Amendment No. 1, dated as of March 27, 2001, to the Credit Agreement, dated as of July 18, 2000, by and among On Command Corporation, the lenders party thereto, Toronto Dominion (Texas), Inc., Fleet National Bank, Bank of America, N.A., and the Bank of New York. (Incorporated by reference to Exhibit 10.17 of the Annual Report on Form 10-K/A for the year ended December 31, 2000 of On Command Corporation.)
10.16	Amendment No. 2 dated as of November 14, 2001, to the Credit Agreement, by and among On Command Corporation, Toronto Dominion (Texas), Inc. Fleet National Bank, Bank of America, the Bank of New York Company and the Bank of New York.
10.17	Preferred Stock Purchase Agreement, dated March 5, 2001, between On Command Corporation and Ascent Entertainment Group, Inc.
10.18	Preferred Stock Purchase Agreement, dated April 23, 2001, between On Command Corporation and Ascent Entertainment Group, Inc. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by On Command Corporation on July 17, 2001).
10.19	Preferred Stock Purchase Agreement, dated June 29, 2001, between On Command Corporation and Ascent Entertainment Group, Inc. (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by On Command Corporation on July 17, 2001).
21	Subsidiaries of On Command Corporation.
23.1	Independent Auditors' Consent.
23.2	Independent Auditors' Consent.

*

Indicates compensatory plan or arrangement.

IV-8

QuickLinks

ON COMMAND CORPORATION 2001 ANNUAL REPORT ON FORM 10-K Table of Contents
PART I

Item 1. Business.

Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission Of Matters To A Vote Of Security Holders.

PART II

Item 5. Market Price of and Dividends on On Command's Common Equity.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

ON COMMAND CORPORATION (An Indirect Consolidated Subsidiary of Liberty Media Corporation) Consolidated Balance Sheets
ON COMMAND CORPORATION (An Indirect Consolidated Subsidiary of Liberty Media Corporation) Consolidated Statements of Operations
ON COMMAND CORPORATION (An Indirect Consolidated Subsidiary of Liberty Media Corporation) Consolidated Statements of Comprehensive Loss
ON COMMAND CORPORATION (An Indirect Consolidated Subsidiary of Liberty Media Corporation) Consolidated Statement of Stockholders' Equity Years Ended December 31, 2001, 2000 and 1999
ON COMMAND CORPORATION (An Indirect Consolidated Subsidiary of Liberty Media Corporation) Consolidated Statements of Cash Flows
ON COMMAND CORPORATION (An Indirect Consolidated Subsidiary of Liberty Media Corporation) Notes to Consolidated Financial Statements Years Ended December 31, 2001, 2000 and 1999
PART III

Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.

Item 12. Securities Ownership of Certain Beneficial Owners and Management.

Item 13. Certain Relationships and Related Transactions.

PART IV

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K

SIGNATURES

On Command Corporation Schedule II

EXHIBIT INDEX

EX-3.1

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EXHIBIT 3.1

CERTIFICATE OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ON COMMAND CORPORATION

Adopted in accordance with the provisions of Section 242 and
Section 245 of the General Corporation Law of the State of Delaware

        We, the Vice President and Secretary of On Command Corporation, a corporation existing under the laws of the State of Delaware, do hereby certify as follows:

        FIRST: That said corporation was incorporated on July 25, 1996, under the name of Ascent Acquisition Corporation.

        SECOND: That the Certificate of Incorporation of said corporation has been amended and restated in its entirety as follows:

ARTICLE I

        The name of the corporation is On Command Corporation.

ARTICLE II

        The address of the corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the corporation's registered agent at such address is the Corporation Trust Company.

ARTICLE III

        The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE IV

        The total number of shares of stock which the corporation shall have authority to issue is 60,000,000, divided into 50,000,000 shares of common stock, par value $0.01 per share (the "Common Stock"), and 10,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred Stock").

        The Board of Directors of the corporation is authorized, subject to limitations prescribed by law and the provisions of this Article IV, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof.

        The authority of the Board of Directors of the corporation with respect to each series shall include, but not be limited to, determination of the following:

        (a)  The number of shares constituting that series and the distinctive designation of that series;

        (b)  The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;

        (c)  Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights, provided that no series of Preferred Stock shall have a class vote unless the same has been approved in writing by the holders of at least a majority of the

outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors;

        (d)  Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;

        (e)  Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;

        (f)    Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund;

        (g)  The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; and

        (h)  Any other relative rights, preferences and limitations of that series.

        Dividends on outstanding shares of Preferred Stock shall be paid or declared and set apart for payment before any dividends shall be paid or declared and set apart for payment on the Common Stock with respect to the same dividend period.

        If upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the assets available for distribution to holders of shares of Preferred Stock of all series shall be insufficient to pay such holders the full preferential amount to which they are entitled, then such assets shall be distributed ratably among the shares of all series of Preferred Stock in accordance with the respective preferential amounts (including unpaid cumulative dividends, if any) payable with respect thereto.

ARTICLE V

        (a)  Subject to the voting rights provided by law or granted to any series of Preferred Stock, all rights to vote and all voting power shall be exclusively vested in the Common Stock. In the event that the stockholders of the corporation elect to take any action by written consent in lieu of any annual or special meeting of such stockholders as authorized by Section 228 of the General Corporation Law of the State of Delaware, or any successor provision, such action shall not become effective until 20 days after the corporation or any stockholder of the corporation provides the notice required by Section 228(d) of the General Corporation Law of the State of Delaware, or any successor provision, unless all of the stockholders of the corporation have consented to the taking of such action.

        (b)  Until the Termination Date (as defined below), each holder of shares of Common Stock shall be entitled at all elections of directors to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of Common Stock multiplied by the number of directors to be elected, and such holder may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit, and to one vote for each share upon all other matters. Upon the occurrence of the Termination Date, the holders of the Common Stock shall cease to be entitled to cumulative voting rights with respect thereto and, from and after the Termination Date, the directors shall be elected by straight voting.

        As used herein, the term "Termination Date" means the first date on which any "person" or related group (within the meaning of Rule 13(d)(3) or Rule 14(d)(2) of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on the date of the adoption of this Article, including any "group" acting for the purpose of acquiring or disposing of securities within the

2

meaning of Rule 13d-5(b)(1) of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on the date of adoption of this Article), other than the Excluded Persons (as defined below), holds, directly or indirectly, more than 15% of the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors (considered for this purpose as one class), and, for the purpose of this provision, all shares of Common Stock issuable upon the exercise or conversion of all currently exercisable or convertible warrants, options or other securities held by such person or related group shall be deemed to be outstanding and held by such person or related group. As used herein, "Excluded Persons" means (a) each person who held common stock of On Command Video Corporation ("OCV") immediately prior to the merger of OCV with On Command Video Corporation and (b) any other person who, individually or collectively with its affiliates, receives upon original issuance thereof shares of Common Stock and Common Stock Purchase Warrants of the corporation that represent more than 5% of the Applicable Securities (as defined below) to be issued to such person or related group pursuant to the Purchase Agreement (as defined below). As used herein, the term "Applicable Securities" means all shares of Common Stock (including shares of Common Stock purchasable upon exercise of Common Stock Purchase Warrants) to be issued and outstanding immediately upon consummation of the transactions contemplated by that certain Acquisition Agreement, dated August 13, 1996, among the corporation, Ascent Entertainment Group, Inc., SpectraVision, Inc., the Official Creditors' Committee for SpectraVision, Inc., Spectradyne, Inc. and the other domestic subsidiaries of SpectraVision, Inc., after giving effect to the post-closing adjustment, if any, contemplated by Section 5.2 of such Acquisition Agreement.

ARTICLE VI

        Unless and except to the extent that the By-Laws of the corporation shall so require, the election of directors of the corporation need not be by written ballot.

ARTICLE VII

        (a)  The number of directors constituting the entire Board of Directors of the corporation shall be fixed by, or in the manner provided in, the corporation's By-Laws from time to time; provided, however, that until the Termination Date, the number of directors shall not be less than seven.

        (b)  From and after the date of issuance of the Applicable Securities, the Board of Directors will be elected at the annual meeting of stockholders of On Command Corporation and will serve a one-year term until the next annual meeting of stockholders. Director nominees receiving a plurality of the votes cast by the holders of outstanding shares of On Command Corporation represented at the annual meeting of stockholders, in person or by proxy, will be elected as directors of On Command Corporation. Any vacancies in the Board of Directors for any reason, and any directorships resulting from any increase in the number of directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next election at which such directors successors shall have been elected and qualified. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the corporation, the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of stockholders. Subject to the foregoing, at each annual meeting of stockholders the successors to the directors whose term shall then expire shall be elected to hold office for a term expiring at the next succeeding annual meeting.

        (c)  Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the corporation, any director or the entire Board of Directors of the corporation may be removed at any time, with or without cause, by the holders of a majority of the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors (considered for this purpose as one class), except that, prior to the Termination Date, if less than the entire Board of Directors is to be

3

removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the corporation, the provisions of section (c) of this Article shall not apply with respect to the director or directors elected by such holders of Preferred Stock.

ARTICLE VIII

        In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, a majority of the entire Board of Directors of the corporation is expressly authorized to make, alter and repeal from time to time the By-Laws of the corporation, subject to the power of the stockholders of the corporation to alter or repeal any by-law made by the Board of Directors of the corporation.

ARTICLE IX

        A director of the corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal.

ARTICLE X

        The corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; provided, however, that any amendment, alteration, change or repeal of the provisions of clause (a) of Article V, clause (a) of article VII and this Article X shall require the affirmative vote of the holders of at least 80% of the outstanding shares of capital stock of the corporation entitled to vote thereon.

        All rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this article.

        THIRD: That such amended and restated Certificate of Incorporation has been duly adopted in accordance with Section 242 and Section 245 of the General Corporation Law of the State of Delaware by the written consent of the stockholder of the corporation in accordance with Section 228 of the General Corporation Law of the State of Delaware.

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        IN WITNESS WHEREOF, we have signed this certificate this 13th day of August, 1996.

	/s/ James A. Cronin, III James A. Cronin, III Vice President
ATTEST:
/s/ Arthur M. Aaron Arthur M. Aaron Secretary

5

CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ON COMMAND CORPORATION

        On Command Corporation, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

        (1)  The Board of Directors of the Corporation duly adopted, at a meeting of the Board of Directors in accordance with Section 141 of the Delaware General Corporation Law, the following resolutions:

        RESOLVED, that the first paragraph of ARTICLE IV of the Corporation's Amended and Restated Certificate of Incorporation shall be amended to read in its entirety as follows:

"The total number of shares of stock which the corporation shall have authority to issue is 160 million, divided into 150 million shares of common stock, par value $.01 per share (the "Common Stock"), and 10 million shares of preferred stock, par value $0.01 per share (the "Preferred Stock")."

        and further,

        RESOLVED, that the Board of Directors has determined that amending the Corporation's Amended and Restated Certificate of Incorporation in accordance with the foregoing resolution is advisable and in the best interests of the Corporation, and that the proper officers of the Corporation are hereby authorized and directed to submit the foregoing amendment to the stockholders of the Corporation for their approval at the next annual meeting of the stockholders;

        and further,

        RESOLVED, that upon adoption of such amendment by the Corporation's stockholders, the proper officers of the Corporation be, and each of them hereby is, authorized and empowered for and on behalf of the Corporation to execute a Certificate of Amendment setting forth the foregoing resolutions and to cause it to be acknowledged, filed and recorded in accordance with the Delaware General Corporate Law;

        and further,

        RESOLVED, that the Certificate of Amendment is to take effect upon the filing thereof with the Secretary of State of the State of Delaware.

        (2)  Thereafter, pursuant to resolution of the Corporation's Board of Directors, this Certificate of Amendment to the Certificate of Incorporation of the Corporation was duly submitted to the stockholders of the Corporation at the Corporation's annual meeting of stockholders in accordance with Sections 222 and 242 of the Delaware General Corporation Law and was duly approved and adopted by the stockholders of the Corporation in accordance with Sections 211 and 242 of the Delaware General Corporation Law.

        This Certificate of Amendment has been duly adopted by the Board of Directors and stockholders of this Corporation in accordance with Section 242 of the General Corporation Law of the State of Delaware.

6

        IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by the undersigned this 6th day of October, 2000.

On Command Corporation.

/s/ Jerome Kern Jerome Kern
Chief Executive Officer

7

ON COMMAND CORPORATION
CERTIFICATE OF DESIGNATIONS

SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CONVERTIBLE PARTICIPATING PREFERRED STOCK,
SERIES A" ADOPTED BY THE BOARD OF DIRECTORS
OF ON COMMAND CORPORATION

        The undersigned, a Vice President of ON COMMAND CORPORATION, a Delaware corporation (this "Corporation"), HEREBY CERTIFIES that the Board of Directors of this Corporation on July 25, 2000, duly adopted the following resolutions creating a new series of this Corporation's Preferred Stock:

        "BE IT RESOLVED, that pursuant to authority expressly granted by the provisions of Article IV of the Certificate of Incorporation of this Corporation, the Board of Directors hereby creates and authorizes the issuance of a new series of this Corporation's preferred stock, par value $.01 per share ("Preferred Stock"), and hereby fixes the powers, designations, dividend rights, voting powers, rights on liquidation, conversion rights, redemption rights and other preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions of the shares of such series (in addition to the powers, designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof set forth in the Certificate of Incorporation that are applicable to each class and series of Preferred Stock), as follows:

        1.    Designation and Number. The designation of the series of Preferred Stock, par value $.01 per share, of this Corporation authorized hereby is "Convertible Participating Preferred Stock, Series A" (the "Series A Preferred Stock"). The number of shares constituting the Series A Preferred Stock shall be 13,500.

        2.    Certain Definitions. Unless the context otherwise requires, the terms defined in this paragraph 2 shall, for all purposes of this Certificate of Designations, have the meanings herein specified:

        "Note": The promissory note made by Jerome H. Kern to this Corporation dated August 10, 2000 in the principal amount of $21,080,250, or any substitute therefor or amendment thereof.

        "Board of Directors": The Board of Directors of this Corporation and, to the extent permitted by law, unless the context indicates otherwise, any committee thereof authorized with respect to any particular matter to exercise the power of the Board of Directors of this Corporation with respect to such matter.

        "Business Day": Any day other than a Saturday, Sunday or a day on which banking institutions in Denver, Colorado are not required to be open.

        "Capital Stock": Any and all shares, interests, participations or other equivalents (however designated) of corporate stock of this Corporation.

        "Common Stock": The Common Stock, $.01 par value per share, of this Corporation, and all series thereof hereafter created.

        "Control": The direct or indirect power to direct, or cause the directions of, the management and policies of any person, whether, through the ownership of voting securities, by contract, by membership or involvement on the board of directors, management committee or other management structure or otherwise.

8

        "Conversion Date": Of a share of Series A Preferred Stock, (i) in the case of a conversion at the option of the holder pursuant to paragraph 5(a)(i), the date on which the requirements for conversion of such Share set forth in paragraph 5(j) have been satisfied by the holder thereof and (ii) in the case of an automatic conversion pursuant to paragraph 5(a)(ii), the close of business on the day of the occurrence of the event requiring such automatic conversion.

        "Conversion Price": As defined in paragraph 5(b).

        "Conversion Rate": The kind and amount of securities, cash or other assets that as of any date are issuable or deliverable upon conversion of a share of Series A Preferred Stock. The Conversion Rate of a Share of Series A Preferred Stock shall initially be as set forth in paragraph 5(b), subject to adjustment as set forth in paragraph 5 of this Certificate of Designations. In the event that pursuant to paragraph 5 the Series A Preferred Stock becomes convertible into more than one class or series of Capital Stock of this Corporation, the term Conversion Rate, when used with respect to any such class or series, shall mean the number or fraction of shares or other units of such Capital Stock that as of any date would be issued upon conversion of a share of Series A Preferred Stock.

        "Convertible Securities": Securities that are convertible into or exercisable or exchangeable for Common Stock at the option of the holder thereof, or which otherwise entitle the holder thereof to subscribe for, purchase or otherwise acquire Common Stock.

        "Corporation": On Command Corporation.

        "Exchange Act": The Securities Exchange Act of 1934, as amended.

        "Exchange Offer": An issuer tender offer (within the meaning of Rule 13e-4(a)(2) of the rules and regulations promulgated by the Securities and Exchange Commission under the Exchange Act, as such Rule is in effect on the date hereof), including, without limitation, one that is effected through the distribution of rights or warrants, made to holders of Common Stock (or to holders of other stock of this Corporation receivable by a holder of Shares upon conversion thereof (or upon conversion of securities receivable by a holder of Shares upon conversion of such Shares)), to issue stock of this Corporation or of a Subsidiary of this Corporation and/or other property to a tendering stockholder in exchange for shares of Common Stock (or such other stock) validly tendered pursuant to such issuer tender offer.

        "Exchange Preferred Stock": A series of convertible preferred stock of this Corporation, having terms, conditions, designations, dividend rights, voting powers, rights on liquidation and other preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof that are identical, or as nearly so as is practicable in the judgment of the Board of Directors, to those of the Series A Preferred Stock for which such Exchange Preferred Stock is exchanged, except that (i) the liquidation preference will be determined as provided in paragraph 5(e) or 5(f), as applicable, (ii) the running of any time periods pursuant to the terms of the Series A Preferred Stock shall be tacked to the corresponding time periods in the Exchange Preferred Stock and (iii) the Exchange Preferred Stock will not be convertible into, and the holders will have no conversion rights thereunder with respect to, (x) in the case of a redemption of Redeemable Capital Stock, the Redeemable Capital Stock redeemed, or the Redemption Securities issued, in the Redemption Event, and (y) in the case of a Spin Off, the Spin Off Securities.

        "Exchange Securities": Stock of this Corporation or of a Subsidiary of this Corporation that is issued in exchange for shares of Common Stock (or other stock of this Corporation receivable by a holder of Shares upon conversion thereof (or upon conversion of securities receivable by a holder of Shares upon conversion of such Shares)) pursuant to an Exchange Offer.

        "HSR Act": As defined in paragraph 5(a).

        "Issue Date": The first date on which any shares of the Series A Preferred Stock are issued.

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        "Junior Securities": All shares of Common Stock, and any class or series of Capital Stock of this Corporation, whether now existing or hereafter created, to the extent that it ranks junior to the Series A Preferred Stock as to dividend rights or rights on liquidation. A class or series of Junior Stock shall rank junior to the Series A Preferred Stock as to dividend rights or rights on liquidation if the holders of shares of Series A Preferred Stock shall be entitled to dividend payments or payments of amounts distributable upon liquidation, dissolution or winding up of the affairs of this Corporation, as the case may be, in preference or priority to the holders of shares of such class or series.

        "Liquidation Preference": $.01 per share of Series A Preferred Stock.

        "Mirror Preferred Stock": Convertible preferred stock issued by (a) in the case of a redemption of Redeemable Capital Stock, the issuer of the applicable Redemption Securities, (b) in the case of a Spin Off, the issuer of the applicable Spin Off Securities, and (c) in the case of an Exchange Offer, the issuer of the applicable Exchange Securities, and having terms, conditions, designations, dividend rights, voting powers, rights on liquidation and other preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof that are identical, or as nearly so as practicable in the judgment of the Board of Directors, to those of the Series A Preferred Stock for which such Mirror Preferred Stock is exchanged, except that (i) the liquidation preference will be determined as provided in paragraph 5(e), 5(f) or 6, as applicable, (ii) the running of any time periods pursuant to the terms of the Series A Preferred Stock shall be tacked to the corresponding time periods in the Mirror Preferred Stock, and (iii) the Mirror Preferred Stock shall be convertible into the kind and amount of Redemption Securities, Spin Off Securities or Exchange Securities, as applicable, and other securities and property that the holder of a share of Series A Preferred Stock in respect of which such Mirror Preferred Stock is issued pursuant to the terms hereof would have received (x) in the case of the redemption of Redeemable Capital Stock, upon such redemption had such shares of Series A Preferred Stock been converted immediately prior to the effective date of the Redemption Event, (y) in the case of a Spin Off, in such Spin Off had such share of Series A Preferred Stock been converted immediately prior to the record date for such Spin Off and (z) in the case of an Exchange Offer, upon consummation thereof had such share of Series A Preferred Stock that such holder elects to tender pursuant to Section 6 been converted and the shares of Common Stock received upon such conversion been tendered in full pursuant to such Exchange Offer prior to the expiration thereof and the same percentage of such tendered shares had been accepted for exchange as the percentage of validly tendered shares of Common Stock were accepted for exchange pursuant to such Exchange Offer, as the case may be.

        "Offeror": As defined in paragraph 6(a).

        "Parity Securities": Any class or series of stock of this Corporation, whether now existing or hereafter created, ranking on a parity basis with the Series A Preferred Stock as to dividend rights or rights on liquidation. Stock of any class or series shall rank on a parity basis as to dividend rights or rights on liquidation with the Series A Preferred Stock, whether or not the dividend rates, dividend payment dates or liquidation prices per share are different from those of the Series A Preferred Stock, if the holders of shares of such class or series shall be entitled to dividend payments or payments of amounts distributable upon liquidation, dissolution or winding up of the affairs of this Corporation, as the case may be, in proportion to their respective accumulated and accrued and unpaid dividends or liquidation prices, respectively, without preference or priority, one over the other, as between the holders of shares of such class or series and the holders of Series A Preferred Stock. No class or series of Capital Stock that ranks junior to the Series A Preferred Stock as to rights on liquidation shall rank or be deemed to rank on a parity basis with the Series A Preferred Stock as to dividend rights unless the instrument creating or evidencing such class or series of capital stock otherwise expressly provides.

        "Participating Dividends": As defined in paragraph 3(a).

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        "Permitted Holder": Jerome H. Kern, the executor or personal representative of the estate of Jerome H. Kern and any corporation, partnership or limited liability company (x) of which at least 50% of the outstanding equity interests are owned of record and beneficially by Jerome H. Kern and (y) which is Controlled by Jerome H. Kern.

        "person": A natural person, corporation, limited liability company, partnership or other legal entity.

        "Preferred Stock": The preferred stock, par value $.01 per share, of the Corporation.

        "Redeemable Capital Stock": A class or series of Capital Stock of this Corporation that provides by its terms a right in favor of this Corporation to call, redeem, exchange or otherwise acquire all of the outstanding shares or units of such class or series.

        "Redemption Securities": With respect to the redemption of any Redeemable Capital Stock, stock of a Subsidiary of this Corporation that is distributed by this Corporation in payment, in whole or in part, of the redemption price of such Redeemable Capital Stock.

        "Senior Securities": Any class or series of stock of this Corporation, whether now existing or hereafter created, ranking senior to the Series A Preferred Stock as to dividend rights or rights on liquidation. Stock of any class or series shall rank senior to the Series A Preferred Stock as to dividend rights or rights on liquidation if the holders of shares of such class or series shall be entitled to dividend payments or payments of amounts distributable upon dissolution, liquidation or winding up of the affairs of this Corporation, as the case may be, in preference or priority to the holders of shares of Series A Preferred Stock. No class or series of Capital Stock that ranks on a parity basis with or junior to the Series A Preferred Stock as to rights on liquidation shall rank or be deemed to rank prior to the Series A Preferred Stock as to dividend rights, notwithstanding that the dividend rate or dividend payment dates thereof are different from those of the Series A Preferred Stock, unless the instrument creating or evidencing such class or series of capital stock otherwise expressly provides.

        "Series A Preferred Stock": As defined in paragraph 1.

        "Share": A share of Series A Preferred Stock.

        "Spin Off": The distribution of stock of a Subsidiary of this Corporation as a dividend to all holders of Common Stock (or to holders of other stock of this Corporation receivable by a holder of Shares upon conversion thereof (or upon conversion of securities receivable by a holder of Shares upon conversion of such Shares)).

        "Spin Off Securities": Stock of a Subsidiary of this Corporation that is distributed to holders of Common Stock (or to holders of other stock of this Corporation receivable by a holder of Shares upon conversion thereof (or upon conversion of securities receivable by a holder of Shares upon conversion of such Shares)) in a Spin Off.

        "Stated Value": Of a Share of the Series A Preferred Stock, $1,562.50.

        "Subsidiary": With respect to any person, any corporation, limited liability company, partnership or other legal entity more than 50% of whose outstanding voting securities or membership, partnership or other ownership interests, as the case may be, are directly or indirectly owned by such person.

        3.    Dividends.

        (a)  Subject to the prior preferences and other rights of any Senior Stock and the provisions of paragraphs 5 and 6 hereof, the holders of Series A Preferred Stock shall be entitled to receive dividends per Share in cash, securities, property or other assets of the Corporation (other than a dividend or distribution for which an adjustment is required pursuant to paragraph 5(c)) only when, as and if a dividend or distribution is declared and paid upon the outstanding shares of Common Stock.

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The type and amount of the dividends or distributions to which the holder of a Share is entitled (the "Participating Dividend") shall be determined as follows:

        (i)    Cash Dividends. In case this Corporation, on or after the Issue Date, declares and pays a dividend in cash on the Common Stock (or other securities into which the Series A Preferred Stock is then convertible), a Participating Dividend will be declared and paid to the holders of the Series A Preferred Stock in an amount equal to the product of (x) the amount of the cash dividend declared and to be paid on a single share of Common Stock (or any other security into which the Series A Preferred Stock is then convertible) and (y) the number of shares of Common Stock (or other security) into which a share of Series A Preferred Stock may be converted as of the date such dividend is paid.

        (ii)  Other Distributions. In case this Corporation, on or after the Issue Date, shall distribute to all holders of shares of Common Stock (or other securities into which the Series A Preferred Stock is then convertible) any evidences of its indebtedness or assets or rights or warrants to purchase shares of Common Stock (or Convertible Securities) (excluding dividends or distributions referred to in paragraph 5(c), distributions of Spin Off Securities referred to in paragraph 5(f) and distributions of rights or warrants exercisable for Exchange Securities (which shall be governed by paragraph 6)), a Participating Dividend will be declared and paid to the holders of the Series A Preferred Stock in an amount equal to the product of (x) the type and amount of such security, property or other asset which is to be distributed in respect of a single share of Common Stock (or other security) into which a share of Series A Preferred Stock is then convertible) and (y) the number of shares of Common Stock (or other security) into which a share of Series A Preferred Stock is convertible immediately prior to the opening of business on (A) the record date for the determination of stockholders entitled to receive the distribution or (B) in the case of a reclassification, the effective date of such reclassification.

        (b)  The Participating Dividends shall be the only dividends or distribution payable to holders of Series A Preferred Stock. Participating Dividends shall be payable in preference to, but simultaneously with, any dividend payments to the holders of any Junior Stock. Participating Dividends shall be payable to holders of record of shares of Series A Preferred Stock as of the record date for the determination of holders of Common Stock entitled to receive such dividend or the payment date established by the Corporation for the payment of such dividend or the making of such distribution to holders of Common Stock, if no such record date is established.

        (c)  All dividends paid with respect to the shares of Series A Preferred Stock pursuant to this paragraph 3 shall be paid pro rata to all the holders of shares of Series A Preferred Stock outstanding on the applicable record date.

        4.    Distributions Upon Liquidation, Dissolution or Winding Up.

        Subject to the prior payment in full of the preferential amounts to which any Senior Stock is entitled, in the event of any liquidation, dissolution or winding up of this Corporation, whether voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled to receive from the assets of the Corporation available for distribution to stockholders, before any payment or distribution shall be made to the holders of any Junior Stock, an amount in cash or property at its fair market value, as determined by the Board of Directors in good faith, or a combination thereof, per share, equal to the Liquidation Preference of a share of Series A Preferred Stock as of the date of payment or distribution, which payment or distribution shall be made pari passu with any such payment or distribution made to the holders of any Parity Securities ranking on a parity basis with the Series A Preferred Stock with respect to distributions upon liquidation, dissolution or winding up of the Corporation. Following the payment of all amounts owing to holders of each class or series of Capital Stock of this Corporation having a preference or priority over the Common Stock (or other stock into which the Series A Preferred Stock is then convertible) as to distributions upon the liquidation,

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dissolution or winding up of this Corporation, then the holders of the Series A Preferred Stock shall be entitled to participate, with the holders of the Common Stock (or other stock into which the Series A Preferred Stock is then convertible), pro rata, based upon the number of shares of Common Stock (or other securities) into which the shares of Series A Preferred Stock are then convertible, as to any amounts remaining for distribution to the holders of Common Stock (or other securities) upon the liquidation, dissolution or winding up of this Corporation. If, upon distribution of this Corporation's assets in liquidation, dissolution or winding up, the assets of this Corporation to be distributed among the holders of the Series A Preferred Stock and to all holders of any Parity Stock ranking on a parity basis with the Series A Preferred Stock with respect to distributions upon liquidation, dissolution or winding up shall be insufficient to permit payment in full to such holders of the respective preferential amounts to which they are entitled, then the entire assets of this Corporation to be distributed to holders of the Series A Preferred Stock and such Parity Securities shall be distributed pro rata to such holders based upon the aggregate of the full preferential amounts to which the shares of Series A Preferred Stock and such Parity Securities would otherwise respectively be entitled. Neither the consolidation or merger of this Corporation with or into any other corporation or corporations nor the sale, transfer or lease of all or substantially all of the assets of this Corporation shall itself be deemed to be a liquidation, dissolution or winding up of this Corporation within the meaning of this paragraph 4. Notice of the liquidation, dissolution or winding up of this Corporation shall be given, not less than 20 days prior to the date on which such liquidation, dissolution or winding up is expected to take place or become effective, to the holders of record of the shares of Series A Preferred Stock.

        5.    Conversion.

        (a)  (i) The Series A Preferred Stock may be converted at any time or from time to time, at the option of the holder thereof, in such manner and upon such terms and conditions as hereinafter provided in this paragraph 5 into fully paid and non-assessable full shares of Common Stock.

        (ii)  Each share of Series A Preferred Stock that is outstanding at the date upon which all obligations under the Note have been satisfied will, subject to the receipt of any required governmental consents or approvals and the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), automatically be converted without the taking of any action by the holder thereof into shares of Common Stock (or other securities) at the then applicable Conversion Rate. From and after the date of the occurrence of the event requiring conversion pursuant to this clause (ii), all shares of Series A Preferred Stock will be deemed to represent only the right to receive the number of shares of Common Stock (or other securities) issuable upon such conversion.

        (b)  Subject to the provisions for adjustment hereinafter set forth in this paragraph 5, the Series A Preferred Stock may be converted into Common Stock at the initial conversion rate of 100 fully paid and non-assessable shares of Common Stock for one share of the Series A Preferred Stock, which rate was determined by dividing the Stated Value of a Share of Series A Preferred Stock by $15.625 (the "Conversion Price").

        (c)  In case this Corporation shall, on or after the Issue Date, (i) pay a dividend or make a distribution on its then outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide the then outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine the then outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue by reclassification of its then outstanding shares of Common Stock (other than a reclassification by way of merger or binding share exchange that is subject to paragraph 5(d)) any shares of any other class or series of Capital Stock of this Corporation (other than rights, warrants or options for its Capital Stock), then, subject to the following sentence and to paragraph 5(h), the conversion privilege and the Conversion Rate in effect immediately prior to the opening of business on the record date for such dividend or distribution or the effective date of such subdivision, combination

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or reclassification shall be adjusted so that the holder of each share of the Series A Preferred Stock thereafter surrendered for conversion or deemed automatically converted shall be entitled to receive the number and kind of shares of Capital Stock of this Corporation that such holder would have owned or been entitled to receive immediately following such action had such shares of Series A Preferred Stock been converted immediately prior to the record date for, or effective date of, as the case may be, such event.

        An adjustment made pursuant to this paragraph 5(c) for a dividend or distribution shall become effective immediately after the record date for the dividend or distribution and an adjustment made pursuant to this paragraph 5(c) for a subdivision, combination or reclassification shall become effective immediately after the effective date of the subdivision, combination or reclassification. Such adjustment shall be made successively whenever any action listed above shall be taken.

        Any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the time of the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under paragraph 5(d) below.

        (d)  If this Corporation consolidates with any other entity or merges into another entity, or in case of any sale or transfer to another entity (other than by mortgage or pledge) of all or substantially all of the properties and assets of this Corporation, or if the Corporation is a party to a merger or binding share exchange which reclassifies or changes its outstanding Common Stock, this Corporation (or its successor in such transaction) or the purchaser of such properties and assets shall make appropriate provision so that the holder of a Share shall have the right thereafter to convert such Share 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 (taking into account for this purpose (to the extent applicable) the valid exercise by such holder of any rights of election made available to holders of Common Stock, which rights of election shall simultaneously be made available to holders of Shares on the same basis as if such Shares had theretofore been converted into shares of Common Stock), and the holders of the Series A Preferred Stock shall have no other conversion rights under these provisions; provided that effective provision shall be made, in the Articles or Certificate of Incorporation of the resulting or surviving corporation or otherwise or in any contracts of sale or transfer, so that the provisions set forth herein for the protection of the conversion rights of the Series A Preferred Stock shall thereafter be made applicable, as nearly as reasonably may be, to any such other securities and other assets deliverable upon conversion of the Series A Preferred Stock remaining outstanding or other convertible preferred stock or other convertible securities received by the holders of Series A Preferred Stock in place thereof; and provided, further, that any such resulting or surviving corporation or purchaser shall expressly assume the obligation to deliver, upon the exercise of the conversion privilege, such securities, cash or other assets as the holders of the Series A Preferred Stock remaining outstanding, or other convertible preferred stock or other convertible securities received by the holders in place thereof, shall be entitled to receive pursuant to the provisions hereof, and to make provision for the protection of the conversion rights as above provided.

        (e)  Subject to paragraph 5(h) and to the remaining provisions of this paragraph 5(e), in the event that a holder of Series A Preferred Stock would be entitled to receive upon conversion thereof pursuant to this paragraph 5 any Redeemable Capital Stock and this Corporation redeems, exchanges or otherwise acquires all of the outstanding shares or other units of such Redeemable Capital Stock (such event being a "Redemption Event"), then, from and after the effective date of such Redemption Event, the holders of Shares of Series A Preferred Stock then outstanding shall be entitled to receive upon conversion of such Shares, in lieu of shares or units of such Redeemable Capital Stock, the kind and amount of securities, cash and other assets receivable upon the Redemption Event by a holder of the number of shares or units of such Redeemable Capital Stock into which such Shares of Series A Preferred Stock could have been converted immediately prior to the effective date of such Redemption

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Event (assuming, to the extent applicable, that such holder failed to exercise any rights of election with respect thereto and received per share or unit of such Redeemable Capital Stock the kind and amount of securities, cash and other assets received per share or unit by a plurality of the non-electing shares or units of such Redeemable Capital Stock), and (from and after the effective date of such Redemption Event) the holders of the Series A Preferred Stock shall have no other conversion rights under these provisions with respect to such Redeemable Capital Stock.

        Notwithstanding the foregoing, if the redemption price for the shares of such Redeemable Capital Stock is paid in whole or in part in Redemption Securities, and the Mirror Preferred Stock Condition is met, the Series A Preferred Stock shall not be convertible into such Redemption Securities and, from and after the applicable redemption date, the holders of any shares of Series A Preferred Stock that have not been exchanged for Mirror Preferred Stock and Exchange Preferred Stock shall have no conversion rights under these provisions except for any conversion right that may have existed immediately prior to the effective date of the Redemption Event with respect to any securities (including the Common Stock), cash or other assets other than the Redeemable Capital Stock so redeemed. This Corporation shall use all commercially reasonable efforts to ensure that the Mirror Preferred Stock Condition is satisfied. The Mirror Preferred Stock Condition will be satisfied in connection with a redemption of any Redeemable Capital Stock into which the Series A Preferred Stock is then convertible if appropriate provision is made so that the holders of the Series A Preferred Stock have the right to exchange their shares of Series A Preferred Stock on the effective date of the Redemption Event for Exchange Preferred Stock of this Corporation and Mirror Preferred Stock of the issuer of the Redemption Securities. The sum of the initial liquidation preferences of the shares of Exchange Preferred Stock and Mirror Preferred Stock delivered in exchange for a Share of Series A Preferred Stock will equal the Liquidation Preference of a share of Series A Preferred Stock on the effective date of the Redemption Event. The Mirror Preferred Stock will have an aggregate initial liquidation preference equal to the product of the aggregate Liquidation Preference of the Shares of Series A Preferred Stock exchanged therefor and the quotient of (x) the product of the Conversion Rate for the Redeemable Capital Stock to be redeemed (determined immediately prior to the effective date of the Redemption Event) and the average of the daily Closing Prices of the Redeemable Capital Stock for the period of ten consecutive trading days ending on the third trading day prior to the effective date of the Redemption Event, divided by (y) the sum of the amount determined pursuant to clause (x), plus the fair value of the securities (other than the Redeemable Capital Stock being redeemed), cash or other assets that would have been receivable by a holder of Series A Preferred Stock upon conversion thereof immediately prior to the effective date of the Redemption Event (such fair value to be determined in the case of stock or other securities with a Closing Price in the same manner as provided in clause (x) and otherwise by the Board of Directors in the exercise of its good faith judgment). The shares of Exchange Preferred Stock will have an aggregate initial liquidation preference equal to the difference between the aggregate Liquidation Preference of the Shares of Series A Preferred Stock exchanged therefor and the aggregate initial liquidation preference of the Mirror Preferred Stock.

        (f)    If this Corporation effects a Spin Off, this Corporation shall make appropriate provision so that the holders of the Series A Preferred Stock have the right to exchange their Shares of Series A Preferred Stock on the effective date of the Spin Off for Exchange Preferred Stock of this Corporation and Mirror Preferred Stock of the issuer of the Spin Off Securities. The sum of the initial liquidation preferences of the shares of Exchange Preferred Stock and Mirror Preferred Stock delivered in exchange for a Share of Series A Preferred Stock will equal the Liquidation Preference of a Share of Series A Preferred Stock on the effective date of the Spin Off. The Mirror Preferred Stock will have an aggregate liquidation preference equal to the product of the aggregate Liquidation Preference of the Shares of Series A Preferred Stock exchanged therefor and the quotient of (x) the product of the number (or fraction) of Spin Off Securities that would have been receivable upon such Spin Off by a holder of the number of shares of Common Stock issuable upon conversion of a Share of Series A

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Preferred Stock immediately prior to the effective date of the Spin Off and the average of the daily Closing Prices of the Spin Off Securities for the period of ten consecutive trading days commencing on the tenth trading day following the effective date of the Spin Off, divided by (y) the sum of the amount determined pursuant to clause (x), plus the fair value of the shares of Common Stock and other securities (other than Spin Off Securities), cash or other assets that would have been receivable by a holder of a Share of Series A Preferred Stock upon conversion thereof immediately prior to the effective date of the Spin Off (such fair value to be determined in the case of Common Stock or other securities with a Closing Price in the same manner as provided in clause (x) and otherwise by the Board of Directors in the exercise of its good faith judgment). The shares of Exchange Preferred Stock will have an aggregate initial liquidation preference equal to the difference between the aggregate Liquidation Preference of the Shares of Series A Preferred Stock exchanged therefor and the aggregate initial liquidation preference of the Mirror Preferred Stock. From and after the effective date of such Spin Off, the holders of any Shares of Series A Preferred Stock that have not been exchanged for Mirror Preferred Stock and Exchange Preferred Stock as provided above shall have no conversion rights under these provisions with respect to such Spin Off Securities.

        (g)  Whenever the Conversion Rate or the conversion privilege shall be adjusted as provided in this paragraph 5, this Corporation shall promptly cause a notice to be mailed to the holders of record of the Series A Preferred Stock describing the nature of the event requiring such adjustment, the Conversion Rate in effect immediately thereafter and the kind and amount of Capital Stock or other securities or cash or other assets into which the Series A Preferred Stock shall be convertible after such event. Where appropriate, such notice may be given in advance and included as a part of a notice required to be mailed under the provisions of paragraph 5(i).

        (h)  This Corporation may, but shall not be required to, make any adjustment of the Conversion Rate if such adjustment would require an increase or decrease of less than 1% in such Conversion Rate; provided, however, that any adjustments which by reason of this paragraph 5(h) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 5 shall be made to the nearest cent or the nearest 1/1000th of a share, as the case may be. In any case in which this paragraph 5(h) shall require that an adjustment shall become effective immediately after a record date for such event, the Corporation may defer until the occurrence of such event (x) issuing to the holder of any Shares of Series A Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Common Stock or other Capital Stock issuable upon such conversion by reason of the adjustment required by such event over and above the shares of Common Stock or other Capital Stock issuable upon such conversion before giving effect to such adjustment and (y) paying to such holder cash in lieu of any fractional interest to which such holder is entitled pursuant to paragraph 5(m); provided, however, that, if requested by such holder, this Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares of Common Stock or other Capital Stock, and such cash, upon the occurrence of the event requiring such adjustment.

        To the extent the shares of Series A Preferred Stock become convertible into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash.

        (i)    In case at any time:

        (i)    this Corporation shall take any action which would require an adjustment in the Conversion Rate pursuant to this paragraph;

        (ii)  there shall be any capital reorganization or reclassification of the Common Stock (other than a change in par value), or any consolidation, merger or binding share exchange to which the Corporation is a party and for which approval of any stockholders of this Corporation is required, or any sale, transfer or lease of all or substantially all of the assets of

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the Corporation, or a tender offer for shares of Common Stock of any series representing at least a majority of the total voting power represented by the outstanding shares of Common Stock of such series which has been recommended by the Board of Directors as being in the best interests of the holders of Common Stock; or

        (iii)  there shall be a voluntary or involuntary dissolution, liquidation or winding up of this Corporation;

then, in any such event, this Corporation shall give written notice to the holders of the Series A Preferred Stock at their respective addresses as the same appear on the books of the Corporation, at least twenty days (or ten days in the case of a recommended tender offer as specified in clause (ii) above) prior to any record date for such action, dividend or distribution or the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other assets, if any, deliverable upon such reorganization, reclassification, consolidation, merger, binding share exchange, sale, transfer, lease, tender offer, dissolution, liquidation or winding up; provided, however, that any notice required by any event described in clause (ii) of this paragraph 5(i) shall be given in the manner and at the time that such notice is given to the holders of Common Stock. Without limiting the obligations of this Corporation to provide notice of corporate actions hereunder, the failure to give the notice required by this paragraph 5(i) or any defect therein shall not affect the legality or validity of any such corporate action of the Corporation or the vote upon such action.

        (j)    Upon conversion of Series A Preferred Stock pursuant to paragraph 5(a), the holder shall surrender the certificate or certificates for such Series A Preferred Stock at the office of this Corporation or at the office of the transfer agent for the Series A Preferred Stock, which certificate or certificates, if this Corporation shall so request, shall be duly endorsed to this Corporation or in blank or accompanied by proper instruments of transfer to this Corporation or in blank (such endorsements or instruments of transfer to be in form satisfactory to this Corporation), and shall give written notice to this Corporation at said office that it elects to convert all or a part of the Shares represented by said certificate or certificates in accordance with the terms of this paragraph 5, and shall state in writing therein the name or names in which such holder wishes the certificates for Common Stock to be issued. Every such notice of election to convert shall constitute a contract between the holder of such Series A Preferred Stock and the Corporation, whereby the holder of such Series A Preferred Stock shall be deemed to subscribe for the amount of Common Stock which such holder shall be entitled to receive upon conversion of the number of shares of Series A Preferred Stock to be converted, and, in satisfaction of such subscription, to deposit the shares of Series A Preferred Stock to be converted, and thereby this Corporation shall be deemed to agree that the surrender of the shares of Series A Preferred Stock to be converted shall constitute full payment of such subscription for Common Stock to be issued upon such conversion. This Corporation will as soon as practicable after such deposit of a certificate or certificates for Series A Preferred Stock, accompanied by the written notice and the statement above prescribed, issue and deliver at the office of this Corporation or of said transfer agent to the person for whose account such Series A Preferred Stock was so surrendered, or to his nominee(s) or, subject to compliance with applicable law, transferee(s), a certificate or certificates for the number of full shares of Common Stock to which such holder shall be entitled, together with cash or its check in lieu of any fraction of a share as hereinafter provided. If surrendered certificates for Series A Preferred Stock are converted only in part, this Corporation will issue and deliver to the holder, or to his nominee(s), without charge therefor, a new certificate or certificates representing the aggregate of the unconverted Shares.

        The person or persons entitled to receive the Common Stock issuable upon conversion of such Series A Preferred Stock shall be treated for all purposes as the record holder or holders of such Common Stock on the Conversion Date. Notwithstanding the foregoing, this Corporation shall not be required to convert any Shares of Series A Preferred Stock, and no surrender of Series A Preferred

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Stock shall be effective for that purpose, while the stock transfer books of this Corporation are closed for any purpose; but such surrender shall be effective (assuming all other requirements of this paragraph 5(j) have been satisfied) for conversion, and to constitute the person or persons entitled to receive the Common Stock issuable upon such conversion as the record holder(s) of such shares of Common Stock, for all purposes immediately upon the reopening of such books. Upon conversion of Shares, the rights of the holder of the Shares so converted, as a holder thereof, will cease; provided, however, that if the Board of Directors declares any dividend or makes any distribution on the Series A Preferred Stock pursuant to paragraph 3(a) of this Certificate of Designations and the Conversion Date for any Shares of Series A Preferred Stock occurs after the record date for such dividend or distribution and before the payment date for such dividend or distribution, then the holder of such Shares on such record date shall be entitled to receive such dividend on such payment date as if such Conversion Date had not occurred.

        The issuance of certificates for shares of Common Stock upon conversion of Shares of Series A Preferred Stock shall be made without charge for any issue, stamp or other similar tax in respect of such issuance; provided, however, if any such certificate is to be issued in a name other than that of the registered holder of the Share or Shares of Series A Preferred Stock converted, the person or persons requesting the issuance thereof shall pay to this Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of this Corporation that such tax has been paid.

        (k)  This Corporation shall at all times reserve and keep available, solely for the purpose of issuance upon conversion of the outstanding shares of Series A Preferred Stock, such number of shares of Common Stock (or other Capital Stock) as shall be issuable upon the conversion of all outstanding Shares, provided that nothing contained herein shall be construed to preclude this Corporation from satisfying its obligations in respect of the conversion of the outstanding shares of Series A Preferred Stock by delivery of shares of Common Stock (or such other Capital Stock) which are held in the treasury of this Corporation. This Corporation shall take all such corporate and other actions as from time to time may be necessary to insure that all shares of Common Stock (or other Capital Stock) issuable upon conversion of shares of Series A Preferred Stock from time to time will, upon issue, be duly and validly authorized and issued, fully paid and nonassessable and free of any preemptive or similar rights.

        (l)    All shares of Series A Preferred Stock received by this Corporation upon conversion thereof into Common Stock shall be retired and shall be restored to the status of authorized and unissued shares of preferred stock (and may be reissued as part of another series of the preferred stock of this Corporation, but such shares shall not be reissued as Series A Preferred Stock).

        (m)  This Corporation shall not be required to issue fractional shares of Common Stock or scrip upon conversion of the Series A Preferred Stock. As to any final fraction of a share of Common Stock which a holder of one or more Shares would otherwise be entitled to receive upon conversion of such Shares in the same transaction, this Corporation shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the market value of a full share of Common Stock.

        (n)  This Corporation shall not, by amendment of this Certificate of Designations or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, other than as expressly permitted by this Certificate of Designations or approved by the requisite vote or written consent of the holders of Series A Preferred Stock taken or given in accordance with this Certificate, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this paragraph 5 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of Series A Preferred Stock against impairment.

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        6.    Exchange Option.

        (a)  In the event an Exchange Offer is made by this Corporation or a Subsidiary thereof (the applicable of the foregoing being the "Offeror"), the Offeror shall concurrently therewith make an equivalent offer to the holders of Series A Preferred Stock pursuant to which such holders may tender Shares, based upon the number of shares of Common Stock into which such tendered Shares are then convertible (or other stock of this Corporation receivable by a holder of tendered Shares upon conversion thereof (or upon conversion of securities receivable by a holder of Shares upon conversion of such tendered Shares)) (and in lieu of tendering outstanding shares of Common Stock (or such other stock)), together with such other consideration as may be required to be tendered pursuant to such Exchange Offer, and receive in exchange therefor, in lieu of Exchange Securities (and other property, if applicable), Mirror Preferred Stock with an aggregate liquidation preference equal to the aggregate Liquidation Preference of the shares of Series A Preferred Stock exchanged therefor. Whether or not a holder of Shares elects to accept such offer and tender Shares, no adjustment to the Conversion Rate of the Shares will be made pursuant to paragraph 5 in connection with the Exchange Offer.

        (b)  If an Exchange Offer is made as discussed above, the Offeror shall, concurrently with the distribution of the offering circular or prospectus and related documents to holders of Common Stock, provide each holder of Series A Preferred Stock with a notice setting forth the offer described in paragraph 6(a) above and describing the Exchange Offer, the Exchange Securities and the Mirror Preferred Stock. Such notice shall be accompanied by the offering circular, prospectus or similar document provided to holders of Common Stock in respect of the Exchange Offer and a copy of the certificate of designations (or similar document) proposed to be filed by the Offeror in order to establish the Mirror Preferred Stock. No failure to mail the notice contemplated by this paragraph 6(b) or any defect therein or in the mailing thereof shall affect the validity of the applicable Exchange Offer.

        7.    Limitations on Dividends and Redemptions.

        If at any time this Corporation shall have declared a dividend on the Series A Preferred Stock and failed to pay or set aside consideration sufficient to pay such dividend, or if the Corporation declares a cash dividend on the shares of Common Stock and fails to pay or set aside the Participating Dividend required to be paid to the holders of the Series A Preferred Stock, then (a) this Corporation shall not declare or pay any dividend on or make any distribution with respect to any Parity Stock or Junior Stock or set aside any money or assets for any such purpose until such dividend payable to the holders of Series A Preferred Stock has been paid or consideration sufficient to pay such dividend has been set aside for such purpose, and (b) neither this Corporation nor any Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire any shares of Series A Preferred Stock, Parity Stock or Junior Stock, or set aside any money or assets for any such purpose, pursuant to paragraph 5 hereof, a sinking fund or otherwise, unless all then outstanding shares of any class or series of Parity Stock that by the terms of the instrument creating or evidencing such Parity Stock is required to be redeemed under such circumstances are redeemed or exchanged pursuant to the terms hereof and thereof.

        Neither this Corporation nor any Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire any Parity Stock or Junior Stock, or set aside any money or assets for any such purpose, if after giving effect to such redemption, exchange, purchase or other acquisition, the amount (as determined by the Board of Directors in good faith) that would be available for distribution to the holders of the Series A Preferred Stock upon liquidation, dissolution or winding up of the Corporation if such liquidation, dissolution or winding up were to occur on the date fixed for such redemption, exchange, purchase or other acquisition of such Parity Stock or Junior Stock would be less than the aggregate Liquidation Preference as of such date of all shares of Series A Preferred Stock then outstanding.

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        Nothing contained in this paragraph 7 shall prevent (i) the payment of dividends on any Junior Stock solely in shares of Junior Stock or the redemption, purchase or other acquisition of Junior Stock solely in exchange for (together with a cash adjustment for fractional shares, if any) shares of Junior Stock, or (ii) the payment of dividends on any Parity Stock solely in shares of Parity Stock and/or Junior Stock or the redemption, exchange, purchase or other acquisition of Parity Stock solely in exchange for (together with a cash adjustment for fractional shares, if any), or through the application of the proceeds from the sale of, shares of Parity Stock and/or Junior Stock.

        All provisions of this paragraph 7 are for the sole benefit of the holders of Series A Preferred Stock and accordingly, if the holders of shares of Series A Preferred Stock shall have waived (as provided in paragraph 9) in whole or in part the benefit of the applicable provisions, either generally or in the specific instance, such provision shall not (to the extent of such waiver, in the case of a partial waiver) restrict the redemption, exchange, purchase or other acquisition of, or declaration, payment or making of any dividends or distributions on the Series A Preferred Stock, any Parity Stock or any Junior Stock.

        8.    Voting Rights. Prior to the expiration or termination of the waiting period under the HSR Act with respect to the acquisition by the initial record holder of the Series A Preferred Stock of in excess of $15 million in voting securities of this Corporation, the holders of Series A Preferred Stock shall have no voting rights whatsoever, except as required by law and except for the voting rights described in paragraph 9. Following such expiration or termination of the waiting period under the HSR Act, in connection with any matter as to which the holders of Common Stock are entitled to vote including, but not limited to, the election of directors, each share of Series A Preferred Stock issued and outstanding as of the record date for such meeting shall have (and the holder of record thereof shall be entitled to cast) one vote for each share of Series A Preferred Stock. Except as provided in paragraph 9 and except as otherwise may be required by law, the holders of Common Stock, the holders of Series A Preferred Stock and the holders of any other class or series of Preferred Stock entitled to vote thereon shall be entitled to notice of and to attend any meeting of stockholders and to vote together as a single class. Except as otherwise required by law, the holders of Series A Preferred Stock shall have no other voting rights. Without limiting the generality of the foregoing, no vote or consent of the holders of Series A Preferred Stock shall be required for (a) the creation of any indebtedness of any kind of the Corporation, (b) the creation or designation of any class or series of Senior Stock, Parity Stock or Junior Stock, or (c) any amendment to the Certificate that would increase the number of authorized shares of Preferred Stock or the number of authorized shares of Series A Preferred Stock or that would decrease the number of authorized shares of Preferred Stock or the number of authorized shares of Series A Preferred Stock (but not below the number of shares of Preferred Stock or Series A Preferred Stock, as the case may be, then outstanding).

        9.    Waiver. Any provision of this Certificate of Designations which, for the benefit of the holders of Series A Preferred Stock, prohibits, limits or restricts actions by the Corporation, or imposes obligations on the Corporation, including but not limited to provisions relating to the obligation of the Corporation to redeem or convert such Shares, may be waived in whole or in part, or the application of all or any part of such provision in any particular circumstance or generally may be waived, in each case by the affirmative vote or with the consent of the holders of record of at least 66²/3% of the number of Shares then outstanding (or such greater percentage thereof as may be required by this Certificate of Designations, applicable law or any applicable rules of any national securities exchange or national interdealer quotation system), either in writing or by vote at an annual meeting or a special meeting called for such purpose at which the holders of Series A Preferred Stock shall vote as a separate class.

        10.  Preemptive Rights. The holders of the Series A Preferred Stock will not have any preemptive right to subscribe for or purchase any shares of stock or any other securities which may be issued by this Corporation.

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        11.  Exclusion of Other Rights. Except as may otherwise be required by law and for the equitable rights and remedies that may otherwise be available to holders of Series A Preferred Stock, the shares of Series A Preferred Stock shall not have any designations, preferences, limitations or relative rights, other than those specifically set forth in these resolutions (as such resolutions may, subject to paragraph 9, be amended from time to time) and in the Certificate of Incorporation of this Corporation.

        12.  Headings. The headings of the various paragraphs and subparagraphs hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

        FURTHER RESOLVED, that the appropriate officers of this Corporation are hereby authorized to execute and acknowledge a certificate setting forth these resolutions and to cause such certificate to be filed and recorded, in accordance with the requirements of Section 151(g) of the General Corporation Law of the State of Delaware."

        The undersigned has signed this Certificate of Designations on this 10th day of August, 2000.

Name:
Title:

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Series B Preferred Stock

ON COMMAND CORPORATION
CERTIFICATE OF DESIGNATIONS

SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES B"
ADOPTED BY THE BOARD OF DIRECTORS
OF ON COMMAND CORPORATION

        The undersigned, a Vice President of ON COMMAND CORPORATION, a Delaware corporation (this "Corporation"), HEREBY CERTIFIES that the Board of Directors of this Corporation on March 5, 2001, duly adopted the following resolutions creating a new series of this Corporation's Preferred Stock:

        "BE IT RESOLVED, that pursuant to authority expressly granted by the provisions of Article IV of the Amended and Restated Certificate of Incorporation of this Corporation, the Board of Directors hereby creates and authorizes the issuance of a new series of this Corporation's preferred stock, par value $.01 per share ("Preferred Stock"), and hereby fixes the powers, designations, dividend rights, voting powers, rights on liquidation, conversion rights, redemption rights and other preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions of the shares of such series (in addition to the powers, designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof set forth in the Amended and Restated Certificate of Incorporation that are applicable to each class and series of Preferred Stock), as follows:

        1.    Designation and Number. The designation of the series of Series Preferred Stock, par value $.01 per share, of this Corporation authorized hereby is "Cumulative Redeemable Preferred Stock, Series B" (the "Series B Preferred Stock"). The number of shares constituting the Series B Preferred Stock shall be 15,000 shares.

        2.    Certain Definitions. Unless the context otherwise requires, the terms defined in this paragraph 2 shall, for all purposes of this Certificate of Designations, have the meanings herein specified:

        "Board of Directors": The Board of Directors of this Corporation and, to the extent permitted by law, unless the context indicates otherwise, any committee thereof authorized with respect to any particular matter to exercise the power of the Board of Directors of this Corporation with respect to such matter.

        "Business Day: Any day other than a Saturday, Sunday or a day on which banking institutions in Denver, Colorado are not required to be open.

        "Capital Stock": Any and all shares, interests, participations or other equivalents (however designated) of corporate stock of this Corporation.

        "Common Stock": The Common Stock, par value $.01 per share, of this Corporation, as such exists on the date of this Certificate of Designations, and Capital Stock of any other class or series into which such Common Stock may thereafter have been changed.

        "Credit Agreement": The Credit Agreement among the Corporation and the lenders signatory thereto, Toronto Dominion (Texas), Inc. and Fleet National Bank, as the documentation agents, Bank Of America, N.A., as the syndication agent, The Bank Of New York Company, Inc., as the Swingline

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Lender (as defined therein), and The Bank Of New York, as the Issuing Bank (as defined therein) and as the administrative agent for the lenders, dated as of July 18, 2000, as the same may be amended, supplemented, modified, substituted, increased, replaced or extended from time to time.

        "Default": The occurrence of any of the following events:

        (a)  there shall be entered a decree or order for relief in respect of the Corporation under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator, or similar official of the Corporation or of any substantial part of its properties, or ordering the winding-up or liquidation of the affairs of the Corporation or an involuntary petition shall be filed against the Corporation and a temporary stay entered, and (i) such petition and stay shall not be diligently contested, or (ii) any such petition and stay shall continue undismissed for a period of sixty (60) consecutive days; or

        (b)  the Corporation shall file a petition, answer, or consent seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or the Corporation shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment or taking of possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator, or other similar official, of the Corporation or of any substantial part of its properties, or the Corporation shall fail generally to pay its debts as they become due, or shall take any action in furtherance of any such action.

        "Dividend Payment Date": The fifteenth (15th) day of each month, commencing with April 15, 2001, or the next succeeding Business Day if any such date is not a Business Day.

        "Dividend Period": The period from and including the Issue Date to but excluding the first Dividend Payment Date and, thereafter, each monthly period from and including a Dividend Payment Date to but excluding the next Dividend Payment Date.

        "Exchange Act": The Securities Exchange Act of 1934, as amended.

        "Issue Date": March 5, 2001, such date being the first date on which any shares of the Series B Preferred Stock are first issued or deemed to have been issued.

        "Junior Securities": All shares of Common Stock, the Convertible Participating Preferred Stock, Series A, par value $.01 per share (the "Series A Preferred Stock") and any other class or series of Capital Stock of this Corporation, whether now existing or hereafter created, to the extent that it ranks junior to the Series B Preferred Stock with respect to dividend rights, rights on redemption or rights on liquidation, as the case may be. A class or series of Capital Stock shall rank junior to the Series B Preferred Stock as to dividend rights, rights on redemption or rights on liquidation if the holders of shares of Series B Preferred Stock shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon liquidation, dissolution or winding up of the affairs of this Corporation, as the case may be, in preference or priority to the holders of shares of such class or series.

        "Liquidation Preference": Measured per Share of the Series B Preferred Stock as of any date in question (the "Relevant Date") shall mean an amount equal to the sum of (a) the Stated Value of such Share, plus (b) an amount equal to all dividends accrued on such Share which pursuant to paragraph 3(c) of this Certificate of Designations have been added to and remain a part of the Liquidation Preference as of the Relevant Date, plus (c) for purposes of paragraph 4 and paragraph 5 of this Certificate of Designations and the definition of Redemption Price, 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 (or the Issue Date if the Relevant Date is on or prior to the first Dividend Payment Date) to but excluding the Relevant Date,

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and, in the case of clauses (b) and (c) hereof, whether or not such unpaid dividends have been declared or there are any unrestricted funds of the Corporation legally available for the payment of dividends. In connection with the determination of the Liquidation Preference of a Share of Series B Preferred Stock upon redemption, or upon liquidation, dissolution or winding up of the Corporation, the Relevant Date shall be the applicable date of redemption or the date of distribution of amounts payable to stockholders in connection with any such liquidation, dissolution or winding up.

        "Parity Securities": Any class or series of Capital Stock of this Corporation, whether now existing or hereafter created, ranking on a parity basis with the Series B Preferred Stock with respect to dividend rights, rights on redemption or rights on liquidation, as the case may be. A class or series of Capital Stock shall rank on a parity basis with the Series B Preferred Stock as to dividend rights, rights on redemption or rights on liquidation, whether or not the dividend rates, dividend payment dates, redemption or liquidation prices per share, or sinking fund or mandatory redemption provisions, if any, are different from those of the Series B Preferred Stock, if the holders of shares of such class or series shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon liquidation, dissolution or winding up of the affairs of the Corporation, as the case may be, in proportion to their respective accumulated and accrued and unpaid dividends, redemption prices or liquidation prices, respectively, without preference or priority, one over the other, as between the holders of shares of such class or series and the holders of Series B Preferred Stock. No class or series of Capital Stock that ranks junior to the Series B Preferred Stock as to rights on liquidation shall rank or be deemed to rank on a parity basis with the Series B Preferred Stock as to dividend rights or rights of redemption, unless the instrument creating or evidencing such class or series of Capital Stock otherwise expressly provides.

        "person": A natural person, corporation, limited liability company, partnership or other legal entity.

        "Purchase Agreement": The Preferred Stock Purchase Agreement, dated March 5, 2001, between this Corporation and Ascent Entertainment Group, Inc., a Delaware corporation, providing for the purchase of shares of Series B Preferred Stock.

        "Record Date": For the dividends payable on any Dividend Payment Date, the first day of the month during which such Dividend Payment Date shall occur or the next succeeding Business Day if any such date is not a Business Day, as and if designated by the Board of Directors.

        "Redemption Date": As to any Share, the date, which shall be a Business Day, fixed for redemption of such Share as specified in the notice of redemption given in accordance with paragraph 5(c), provided that no such date will be a Redemption Date unless the applicable Redemption Price is actually paid on such date or the consideration sufficient for the payment thereof, and for no other purpose, has been set apart, and if the Redemption Price is not so paid in full or the consideration sufficient therefor so set apart then the Redemption Date will be the date, which shall be a Business Day, on which such Redemption Price is fully paid or the consideration sufficient for the payment thereof, and for no other purpose, has been set apart.

        "Redemption Price": As to any Share that is to be redeemed on any Redemption Date, the Liquidation Preference as in effect on such Redemption Date.

        "Senior Securities": Any class or series of Capital Stock of this Corporation, whether now existing or hereafter created, ranking senior to the Series B Preferred Stock with respect to dividend rights, rights of redemption or rights on liquidation. A class or series of Capital Stock shall rank senior to the Series B Preferred Stock as to dividend rights, rights of redemption or rights on liquidation if the holders of shares of such class or series shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon dissolution, liquidation or winding up of the affairs of this Corporation, as the case may be, in preference or priority to the holders of shares of

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Series B Preferred Stock. No class or series of Capital Stock that ranks on a parity basis with or junior to the Series B Preferred Stock as to rights on liquidation shall rank or be deemed to rank prior to the Series B Preferred Stock as to dividend rights or rights on redemption, notwithstanding that the dividend rate, dividend payment dates, sinking fund provisions, if any, or mandatory redemption provisions thereof are different from those of the Series B Preferred Stock, unless the instrument creating or evidencing such class or series of Capital Stock otherwise expressly provides.

        "Share": A share of Series B Preferred Stock.

        "Stated Value": Of a Share of the Series B Preferred Stock, $1,000.

        "Subsidiary": With respect to any person, any corporation, limited liability company, partnership or other legal entity more than 50% of whose outstanding voting securities or membership, partnership or other ownership interests, as the case may be, are directly or indirectly owned by such person.

        3.    Dividends.

        (a)  Subject to the prior preferences and other rights of any Senior Securities, the holders of Series B Preferred Stock shall be entitled to receive cumulative dividends, in preference to dividends on any Junior Securities, which shall accrue as provided herein. Dividends on each Share will accrue on a daily basis at the rate of 8.5% per annum of the Liquidation Preference of such Share from and including the Issue Date to but excluding the first Dividend Payment Date, and at a rate of 12% per annum of the Liquidation Preference of such Share from and including such first Dividend Payment Date to but excluding the date on which the Liquidation Preference or Redemption Price of such Share is made available pursuant to paragraph 4 or 5, respectively, of this Certificate of Designations, as applicable; provided, however, that dividends added to the Liquidation Preference of a Share as provided in paragraph 3(c) shall accrue dividends on a daily basis at the rate of 12% per annum. Dividends shall accrue as provided herein whether or not such dividends have been declared and whether or not there are any unrestricted funds of this Corporation legally available for the payment of dividends. Accrued dividends on the Series B Preferred Stock shall be payable monthly on each Dividend Payment Date to the holders of record of the Series B Preferred Stock as of the close of business on the applicable Record Date. For purposes of determining the amount of dividends "accrued" (i) as of the first Dividend Payment Date and as of any date that is not a Dividend Payment Date, such amount shall be calculated on the basis of the applicable rate per annum specified above in this paragraph 3(a) for the actual number of days elapsed from and including the Issue Date (in the case of the first Dividend Payment Date and any date prior to the first Dividend Payment Date) or the last preceding Dividend Payment Date (in the case of any other date) to but excluding the date as of which such determination is to be made, based on a 365-day year, and (ii) as of any Dividend Payment Date after the first Dividend Payment Date, such amount shall be calculated on the basis of such rate per annum based on a 360-day year of twelve 30-day months.

        (b)  All dividends payable with respect to the Shares shall be declared and paid in cash. Payment of such dividends as provided herein shall be deemed to have been made when such payment has been delivered to the record holders of the Series B Preferred Stock entitled to receive the same by wire transfer of immediately available funds in accordance with the instructions of such holders delivered in writing to the Corporation at least two Business Days prior to any Dividend Payment Date (or if no such instructions are received, by check delivered by certified mail, return receipt requested, to the address of such record holder on the books of the Corporation). All dividends paid with respect to the Shares pursuant to this paragraph 3 shall be paid pro rata to all the holders of Shares outstanding on the applicable Record Date or Special Record Date, as the case may be.

        (c)  If on any Dividend Payment Date this Corporation, pursuant to applicable law or otherwise, shall be prohibited or restricted from paying the full dividends to which holders of Series B Preferred Stock, and any Parity Securities ranking on a parity basis with the Series B Preferred Stock with respect

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to the right to receive dividend payments, shall be entitled, the amount available for such payment pursuant to applicable law and which is not otherwise restricted (if any) shall be distributed among the holders of Series B Preferred Stock and any such Parity Securities ratably in proportion to the full amounts to which they would otherwise be entitled. On each Dividend Payment Date, all dividends that have accrued on each share of Series B Preferred Stock during the Dividend Period ending on such Dividend Payment Date shall, to the extent not paid on such Dividend Payment Date for any reason (whether or not such unpaid dividends have been declared or there are any unrestricted funds of this Corporation legally available for the payment of dividends), be added cumulatively to the Liquidation Preference of such Share and will remain a part thereof until such dividends and all dividends accrued thereon are paid. That portion of the Liquidation Preference of a Share that consists of accrued unpaid dividends, together with all dividends accrued in respect thereof, may be declared and paid at any time (subject to the rights of any Senior Securities and to the concurrent satisfaction of any dividend arrearages then existing with respect to any Parity Securities that rank on a parity basis with the Series B Preferred Stock as to the payment of dividends), without reference to any regular Dividend Payment Date, to holders of record as of the close of business on such date, not more than 20 days nor less than 10 days preceding the payment date thereof, as may be fixed by the Board of Directors (the "Special Record Date"). Notice of each Special Record Date shall be given, not more than 20 days nor less than 10 days prior thereto, to the holders of record of the Shares. Any dividend payment made on the Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to such Shares.

        (d)  If at any time this Corporation shall have failed to pay, or declare and set aside the consideration sufficient to pay, full cumulative dividends on the Series B Preferred Stock for all Dividend Periods ending on or before the immediately preceding Dividend Payment Date, and until full cumulative dividends on the Series B Preferred Stock for all Dividend Periods ending on or before the immediately preceding Dividend Payment Date are paid, or declared and the consideration sufficient to pay the same in full is set aside so as to be available for such purpose and no other purpose, (i) this Corporation shall not redeem, or discharge any sinking fund obligation with respect to, any Shares, Parity Securities or Junior Securities, or set aside any money or assets for any such purpose, unless all then outstanding Shares are redeemed pursuant to the terms hereof, (ii) this Corporation shall not declare or pay any dividend on or make any distribution with respect to any Junior Securities or Parity Securities or set aside any money or assets for any such purpose, except that this Corporation may declare and pay a dividend on any Parity Securities ranking on a parity basis with the Series B Preferred Stock with respect to the right to receive dividend payments, contemporaneously with the declaration and payment of a dividend on the Series B Preferred Stock, provided that such dividends are declared and paid pro rata so that the amount of dividends declared and paid per share of Series B Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that accumulated and accrued and unpaid dividends per share on the Series B Preferred Stock and such Parity Securities bear to each other, and (iii) neither this Corporation nor any Subsidiary thereof shall purchase or otherwise acquire any Shares, Parity Securities or Junior Securities.

        Nothing contained in the preceding paragraph of this paragraph 3(d) shall prevent (x) the payment of dividends on any Junior Securities solely in shares of Junior Securities or the redemption, purchase or other acquisition of Junior Securities solely in exchange for shares of Junior Securities, (y) the payment of dividends on any Parity Securities solely in shares of Junior Securities or the redemption, exchange, purchase or other acquisition of Series B Preferred Stock or Parity Securities solely in exchange for (together with a cash adjustment for fractional shares, if any) shares of Junior Securities; or (z) the purchase or acquisition of Shares pursuant to a purchase or exchange offer or offers made to all holders of outstanding shares of Series B Preferred Stock; provided that the terms of the purchase or exchange offer shall be identical for all shares of Series B Preferred Stock and all accrued dividends on such Shares shall have been paid or shall have been declared and irrevocably set apart in trust for the benefit of the holders of shares of Series B Preferred Stock and for no other purpose. The

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provisions of this paragraph 3(d) are for the benefit of the holders of Series B Preferred Stock and accordingly the provisions of this paragraph 3(d) shall not restrict any redemption or purchase by this Corporation or a Subsidiary thereof of Shares held by any holder, provided that all other holders of Shares shall have waived in writing the benefits of this provision with respect to such redemption.

        4.    Liquidation. Upon any liquidation, dissolution or winding up of this Corporation, whether voluntary or involuntary, the holders of Series B Preferred Stock shall be entitled to be paid an amount in cash equal to the aggregate Liquidation Preference at the date of payment of all Shares outstanding, which amounts shall be paid (x) before any distribution or payment upon any such liquidation, dissolution or winding up of this Corporation is made upon any Junior Securities, (y) on a pari passu basis with any such payment made to the holders of any Parity Securities, and (z) after any such payment is made upon any Senior Securities. The holders of Series B Preferred Stock shall be entitled to no other or further distribution of or participation in any remaining assets of this Corporation after receiving the full preferential amounts provided for in the preceding sentence. If upon such liquidation, dissolution or winding up, the assets of this Corporation to be distributed among the holders of Series B Preferred Stock and to all holders of Parity Securities are insufficient to permit payment in full to such holders of the aggregate preferential amounts which they are entitled to be paid, then the entire assets of this Corporation to be distributed to such holders shall be distributed ratably among them based upon the full preferential amounts to which the shares of Series B Preferred Stock and such Parity Securities would otherwise respectively be entitled. Upon any such liquidation, dissolution or winding up, after the holders of Series B Preferred Stock and Parity Securities have been paid in full the amounts to which they are entitled, the remaining assets of this Corporation may be distributed to the holders of Junior Securities. This Corporation shall mail written notice of such liquidation, dissolution or winding up to each record holder of Series B Preferred Stock not less than 20 days prior to the payment date stated in such written notice. Neither the consolidation or merger of this Corporation into or with any other corporation or corporations, nor the sale, transfer or lease by this Corporation of all or any part of its assets, shall be deemed to be a liquidation, dissolution or winding up of this Corporation within the meaning of this paragraph 4.

        5.    Redemption.

        (a)  Subject to paragraph 5(f), the shares of Series B Preferred Stock may be redeemed out of funds legally available therefor, at the option of this Corporation by action of the Board of Directors, in whole or from time to time in part, on any Business Day after the Issue Date at the Redemption Price per Share as of the applicable Redemption Date. If less than all outstanding Shares are to be redeemed, Shares shall be redeemed ratably (as nearly as may be practicable) among the holders thereof.

        (b)  Subject to the rights of any Parity Securities and the provisions of paragraph 5(f) and subject to any prohibitions or restrictions contained in the Credit Agreement, at any time on or after the first Dividend Payment Date or prior thereto if a Default has occurred and during the continuance thereof, any holder of Shares shall have the right, at such holder's option, to require redemption by this Corporation at the Redemption Price per Share as of the applicable Redemption Date of all or any portion of such holder's Shares, by written notice to this Corporation stating the number of Shares to be redeemed. This Corporation shall redeem, out of funds legally available therefor and not restricted in accordance with the first sentence of this paragraph 5(b), the Shares so requested to be redeemed on such date within 10 days following this Corporation's receipt of such notice as this Corporation shall state in its notice given pursuant to paragraph 5(c). If the funds of this Corporation legally available for redemption of Shares and not restricted in accordance with the first sentence of this paragraph 5(b) are insufficient to redeem the total number of Shares required to be redeemed pursuant to this paragraph 5(b), then, those funds which are legally available for redemption of such Shares and not so restricted will be used to redeem the maximum possible number of such Shares ratably among the holders who have required Shares to be redeemed under this paragraph 5(b). At any time thereafter

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when additional funds of this Corporation are legally available and not so restricted for such purpose, such funds will immediately be used to redeem the Shares this Corporation failed to redeem on such Redemption Date until the balance of such Shares are redeemed. Further, if the funds of this Corporation legally available for redemption of Shares are sufficient to pay the Redemption Price of the Shares requested to be redeemed in full, then any portion of such Redemption Price not paid when due as provided in this paragraph 5(b), notwithstanding that payment thereof is restricted pursuant to the Credit Agreement in accordance with the first sentence of this paragraph 5(b), shall constitute indebtedness of this Corporation for borrowed money, the payment of which indebtedness the holders requesting such redemption shall be entitled to enforce by the exercise of any and all rights at law or in equity.

        (c)  Notice of any redemption pursuant to this paragraph 5 shall be mailed, first class, postage prepaid, not less than 5 days nor more than 30 days prior to the Redemption Date, to the holders of record of the shares of Series B Preferred Stock to be redeemed, at their respective addresses as the same appear upon the books of this Corporation or are supplied by them in writing to this Corporation for the purpose of such notice; but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of the Series B Preferred Stock. Such notice shall set forth the Redemption Price, the Redemption Date, the number of Shares to be redeemed and the place at which the Shares called for redemption will, upon presentation and surrender of the stock certificates evidencing such Shares, be redeemed. In case fewer than the total number of shares of Series B Preferred Stock represented by any certificate are redeemed, a new certificate representing the number of unredeemed Shares will be issued to the holder thereof without cost to such holder.

        (d)  If notice of any redemption by this Corporation pursuant to this paragraph 5 shall have been mailed as provided in paragraph 5(c) and if on or before the Redemption Date specified in such notice the consideration necessary for such redemption shall have been set apart so as to be available therefor and only therefor, then on and after the close of business on the Redemption Date, the Shares called for redemption, notwithstanding that any certificate therefor shall not have been surrendered for cancellation, shall no longer be deemed outstanding, and all rights with respect to such Shares shall forthwith cease and terminate, except the right of the holders thereof to receive upon surrender of their certificates the consideration payable upon redemption thereof.

        (e)  All shares of Series B Preferred Stock redeemed, retired, purchased or otherwise acquired by this Corporation shall be retired and shall be restored to the status of authorized and unissued shares of preferred stock (and may be reissued as part of another series of the preferred stock of this Corporation, but such shares shall not be reissued as Series B Preferred Stock).

        (f)    If and so long as this Corporation shall fail to redeem on a Redemption Date pursuant to this paragraph 5 all shares of Series B Preferred Stock required to be redeemed on such date, this Corporation shall not redeem, or discharge any sinking fund obligation with respect to, any Shares, Junior Securities or Parity Securities, or set aside any money or assets for any such purpose, unless all then outstanding Shares required to be redeemed are redeemed pursuant to the terms hereof, and shall not declare or pay any dividend on or make any distribution with respect to any Junior Securities or set aside any money or assets for any such purpose, and neither this Corporation nor any Subsidiary thereof shall purchase or otherwise acquire any Shares, Parity Securities or Junior Securities. Nothing contained in this paragraph 5(f) shall prevent the purchase or acquisition of shares of Series B Preferred Stock pursuant to a purchase or exchange offer or offers made to all holders of outstanding shares of Series B Preferred Stock, provided that the terms of the purchase or exchange offer shall be identical for all Shares and all accrued dividends on such Shares shall have been declared and irrevocably set apart in trust for the benefit of the holders of Shares and for no other purpose. The provisions of this paragraph 5(f) are for the benefit of holders of Series B Preferred Stock and accordingly the provisions of this paragraph 5(f) shall not restrict any redemption or purchase by this

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Corporation or a Subsidiary thereof of Shares held by any holder, provided that all other holders of Shares shall have waived in writing the benefits of this provision with respect to such redemption.

        6.    Voting Rights. The holders of the Series B Preferred Stock shall have no voting rights whatsoever, except as required by law, as provided in paragraph 9 or as provided in this paragraph 6. For so long as any Shares remain outstanding, this Corporation will not, either directly or indirectly, without the consent of the holders of record of at least 66²/3% of the number of Shares then outstanding, take any action (including by merger, consolidation or statutory share exchange with any other corporation or entity) to amend, alter or repeal (i) any of the provisions hereof or (ii) any of the provisions of the Amended and Restated Certificate of Incorporation of this Corporation so as to affect adversely any preference or any relative or other right given to the Series B Preferred Stock.

        7.    Waiver. Any provision of this Certificate of Designations which, for the benefit of the holders of Series B Preferred Stock, prohibits, limits or restricts actions by the Corporation, or imposes obligations on the Corporation, including but not limited to provisions relating to the obligation of the Corporation to redeem or convert such Shares, may be waived in whole or in part, or the application of all or any part of such provision in any particular circumstance or generally may be waived, in each case by the affirmative vote or with the consent of the holders of record of at least 66²/3% of the number of Shares then outstanding (or such greater percentage thereof as may be required by this Certificate of Designations, applicable law or any applicable rules of any national securities exchange or national interdealer quotation system), either in writing or by vote at an annual meeting or a special meeting called for such purpose at which the holders of Series B Preferred Stock shall vote as a separate class.

        8.    Preemptive Rights. The holders of the Series B Preferred Stock will not have any preemptive right to subscribe for or purchase any shares of Capital Stock or any other securities which may be issued by this Corporation.

        9.    Senior or Parity Securities. The Series B Preferred Stock shall not rank junior to any other classes or series of Capital Stock of this Corporation in respect of the right to receive dividends, rights of redemption or the right to participate in any liquidation, dissolution or winding up of this Corporation. Without the prior consent of the holders of record of at least 662/3% of the number of Shares then outstanding, this Corporation shall not issue any Senior Securities or Parity Securities.

        10.  Claims. In the event of any action at law or suit in equity with respect to the Series B Preferred Stock, this Corporation, in addition to all other sums which it may be required to pay, will pay a reasonable sum for attorney's fees incurred by the holders of the Series B Preferred Stock in connection with such action or suit and all other costs of collection. The Corporation shall not assert its right to trial by jury in any action, suit or proceeding arising from or related to this Series B Preferred Stock.

        11.  Exclusion of Other Rights. Except as may otherwise be required by law and for the equitable rights and remedies that may otherwise be available to holders of Series B Preferred Stock, the shares of Series B Preferred Stock shall not have any designations, preferences, limitations or relative rights, other than those specifically set forth in these resolutions (as such resolutions may, subject to paragraph 6, be amended from time to time) and in the Amended and Restated Certificate of Incorporation of this Corporation.

        12.  Headings. The headings of the various paragraphs and subparagraphs hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

        FURTHER RESOLVED, that the appropriate officers of this Corporation are hereby authorized to execute and acknowledge a certificate setting forth these resolutions and to cause such certificate to be filed and recorded, in accordance with the requirements of Section 151(g) of the General Corporation Law of the State of Delaware."

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        The undersigned has signed this Certificate of Designations on this 5th day of March, 2001.

Name: Betram Perkel

Title: Vice President

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Series C Preferred Stock

        ON COMMAND CORPORATION
CERTIFICATE OF DESIGNATIONS

SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES C"
ADOPTED BY THE BOARD OF DIRECTORS
OF ON COMMAND CORPORATION

        The undersigned, a Vice President of ON COMMAND CORPORATION, a Delaware corporation (this "Corporation"), HEREBY CERTIFIES that the Board of Directors of this Corporation on April 23, 2001, duly adopted the following resolutions creating a new series of this Corporation's Preferred Stock:

        "BE IT RESOLVED, that pursuant to authority expressly granted by the provisions of Article IV of the Amended and Restated Certificate of Incorporation of this Corporation, the Board of Directors hereby creates and authorizes the issuance of a new series of this Corporation's preferred stock, par value $.01 per share ("Preferred Stock"), and hereby fixes the powers, designations, dividend rights, voting powers, rights on liquidation, conversion rights, redemption rights and other preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions of the shares of such series (in addition to the powers, designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof set forth in the Amended and Restated Certificate of Incorporation that are applicable to each class and series of Preferred Stock), as follows:

        1.    Designation and Number.    The designation of the series of Series Preferred Stock, par value $.01 per share, of this Corporation authorized hereby is "Cumulative Redeemable Preferred Stock, Series C" (the "Series C Preferred Stock"). The number of shares constituting the Series C Preferred Stock shall be 10,000 shares.

        2.    Certain Definitions.    Unless the context otherwise requires, the terms defined in this paragraph 2 shall, for all purposes of this Certificate of Designations, have the meanings herein specified:

        "Board of Directors": The Board of Directors of this Corporation and, to the extent permitted by law, unless the context indicates otherwise, any committee thereof authorized with respect to any particular matter to exercise the power of the Board of Directors of this Corporation with respect to such matter.

        "Business Day: Any day other than a Saturday, Sunday or a day on which banking institutions in Denver, Colorado are not required to be open.

        "Capital Stock": Any and all shares, interests, participations or other equivalents (however designated) of corporate stock of this Corporation.

        "Common Stock": The Common Stock, par value $.01 per share, of this Corporation, as such exists on the date of this Certificate of Designations, and Capital Stock of any other class or series into which such Common Stock may thereafter have been changed.

        "Credit Agreement": The Credit Agreement among the Corporation and the lenders signatory thereto, Toronto Dominion (Texas), Inc. and Fleet National Bank, as the documentation agents, Bank Of America, N.A., as the syndication agent, The Bank Of New York Company, Inc., as the Swingline Lender (as defined therein), and The Bank Of New York, as the Issuing Bank (as defined therein) and as the administrative agent for the lenders, dated as of July 18, 2000, as amended by Amendment No. 1

thereto dated as of March 27, 2001, as the same may be further amended, supplemented, modified, substituted, increased, replaced or extended from time to time.

        "Default": The occurrence of any of the following events:

        (a)  there shall be entered a decree or order for relief in respect of the Corporation under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator, or similar official of the Corporation or of any substantial part of its properties, or ordering the winding-up or liquidation of the affairs of the Corporation or an involuntary petition shall be filed against the Corporation and a temporary stay entered, and (i) such petition and stay shall not be diligently contested, or (ii) any such petition and stay shall continue undismissed for a period of sixty (60) consecutive days; or

        (b)  the Corporation shall file a petition, answer, or consent seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or the Corporation shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment or taking of possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator, or other similar official, of the Corporation or of any substantial part of its properties, or the Corporation shall fail generally to pay its debts as they become due, or shall take any action in furtherance of any such action.

        "Dividend Payment Date": March 15, June 15, September 15 and December 15 of each calendar year commencing with June 15, 2001, or the next succeeding Business Day if any such date is not a Business Day.

        "Dividend Period": The period from and including the Issue Date to but excluding the first Dividend Payment Date and, thereafter, each three month period from and including a Dividend Payment Date to but excluding the next Dividend Payment Date.

        "Exchange Act": The Securities Exchange Act of 1934, as amended.

        "Issue Date": April 23, 2001, such date being the first date on which any shares of the Series C Preferred Stock are first issued or deemed to have been issued.

        "Junior Securities": All shares of Common Stock, the Convertible Participating Preferred Stock, Series A, par value $.01 per share (the "Series A Preferred Stock") and any other class or series of Capital Stock of this Corporation, whether now existing or hereafter created, to the extent that it ranks junior to the Series C Preferred Stock with respect to dividend rights, rights on redemption or rights on liquidation, as the case may be. A class or series of Capital Stock shall rank junior to the Series C Preferred Stock as to dividend rights, rights on redemption or rights on liquidation if the holders of shares of Series C Preferred Stock shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon liquidation, dissolution or winding up of the affairs of this Corporation, as the case may be, in preference or priority to the holders of shares of such class or series.

        "Liquidation Preference": Measured per Share of the Series C Preferred Stock as of any date in question (the "Relevant Date") shall mean an amount equal to the sum of (a) the Stated Value of such Share, plus (b) an amount equal to all dividends accrued on such Share which pursuant to paragraph 3(c) of this Certificate of Designations have been added to and remain a part of the Liquidation Preference as of the Relevant Date, plus (c) for purposes of paragraph 4 and paragraph 5 of this Certificate of Designations and the definition of Redemption Price, 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 (or the Issue Date if the Relevant Date is on or prior to the first Dividend Payment Date) to but excluding the Relevant Date,

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and, in the case of clauses (b) and (c) hereof, whether or not such unpaid dividends have been declared or there are any unrestricted funds of the Corporation legally available for the payment of dividends. In connection with the determination of the Liquidation Preference of a Share of Series C Preferred Stock upon redemption, or upon liquidation, dissolution or winding up of the Corporation, the Relevant Date shall be the applicable date of redemption or the date of distribution of amounts payable to stockholders in connection with any such liquidation, dissolution or winding up.

        "Parity Securities": All shares of Cumulative Redeemable Preferred Stock, Series B, par value $.01 per share (the "Series B Preferred Stock") and any other class or series of Capital Stock of this Corporation, whether now existing or hereafter created, ranking on a parity basis with the Series C Preferred Stock with respect to dividend rights, rights on redemption or rights on liquidation, as the case may be. A class or series of Capital Stock shall rank on a parity basis with the Series C Preferred Stock as to dividend rights, rights on redemption or rights on liquidation, whether or not the dividend rates, dividend payment dates, redemption or liquidation prices per share, or sinking fund or mandatory redemption provisions, if any, are different from those of the Series C Preferred Stock, if the holders of shares of such class or series shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon liquidation, dissolution or winding up of the affairs of the Corporation, as the case may be, in proportion to their respective accumulated and accrued and unpaid dividends, redemption prices or liquidation prices, respectively, without preference or priority, one over the other, as between the holders of shares of such class or series and the holders of Series C Preferred Stock. No class or series of Capital Stock that ranks junior to the Series C Preferred Stock as to rights on liquidation shall rank or be deemed to rank on a parity basis with the Series C Preferred Stock as to dividend rights or rights of redemption, unless the instrument creating or evidencing such class or series of Capital Stock otherwise expressly provides.

"person": A natural person, corporation, limited liability company, partnership or other legal entity.

        "Purchase Agreement": The Preferred Stock Purchase Agreement, dated April 23, 2001, between this Corporation and Ascent Entertainment Group, Inc., a Delaware corporation, providing for the purchase of shares of Series C Preferred Stock.

        "Record Date": For the dividends payable on any Dividend Payment Date, the first day of the month during which such Dividend Payment Date shall occur or the next succeeding Business Day if any such date is not a Business Day.

        "Redemption Date": As to any Share, the date, which shall be a Business Day, fixed for redemption of such Share as specified in the notice of redemption given in accordance with paragraph 5(c), provided that no such date will be a Redemption Date unless the applicable Redemption Price is actually paid on such date or the consideration sufficient for the payment thereof, and for no other purpose, has been set apart, and if the Redemption Price is not so paid in full or the consideration sufficient therefor so set apart then the Redemption Date will be the date, which shall be a Business Day, on which such Redemption Price is fully paid or the consideration sufficient for the payment thereof, and for no other purpose, has been set apart.

        "Redemption Price": As to any Share that is to be redeemed on any Redemption Date, the Liquidation Preference as in effect on such Redemption Date.

        "Senior Securities": Any class or series of Capital Stock of this Corporation, whether now existing or hereafter created, ranking senior to the Series C Preferred Stock with respect to dividend rights, rights of redemption or rights on liquidation. A class or series of Capital Stock shall rank senior to the Series C Preferred Stock as to dividend rights, rights of redemption or rights on liquidation if the holders of shares of such class or series shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon dissolution, liquidation or winding up of the affairs of this Corporation, as the case may be, in preference or priority to the holders of shares of

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Series C Preferred Stock. No class or series of Capital Stock that ranks on a parity basis with or junior to the Series C Preferred Stock as to rights on liquidation shall rank or be deemed to rank prior to the Series C Preferred Stock as to dividend rights or rights on redemption, notwithstanding that the dividend rate, dividend payment dates, sinking fund provisions, if any, or mandatory redemption provisions thereof are different from those of the Series C Preferred Stock, unless the instrument creating or evidencing such class or series of Capital Stock otherwise expressly provides.

        "Share": A share of Series C Preferred Stock.

        "Stated Value": Of a Share of the Series C Preferred Stock, $1,000.

        "Subsidiary": With respect to any person, any corporation, limited liability company, partnership or other legal entity more than 50% of whose outstanding voting securities or membership, partnership or other ownership interests, as the case may be, are directly or indirectly owned by such person.

        3.    Dividends.

        (a)  Subject to the prior preferences and other rights of any Senior Securities, the holders of Series C Preferred Stock shall be entitled to receive cumulative dividends, in preference to dividends on any Junior Securities, which shall accrue as provided herein. Dividends on each Share will accrue on a daily basis at the rate of 12% per annum of the Liquidation Preference of such Share from and including the Issue Date to but excluding the date on which the Liquidation Preference or Redemption Price of such Share is made available pursuant to paragraph 4 or 5, respectively, of this Certificate of Designations, as applicable. Dividends shall accrue as provided herein whether or not such dividends have been declared and whether or not there are any unrestricted funds of this Corporation legally available for the payment of dividends. Accrued dividends on the Series C Preferred Stock shall be payable on each Dividend Payment Date to the holders of record of the Series C Preferred Stock as of the close of business on the applicable Record Date. For purposes of determining the amount of dividends "accrued" (i) as of the first Dividend Payment Date and as of any date that is not a Dividend Payment Date, such amount shall be calculated on the basis of the rate per annum specified above in this paragraph 3(a) for the actual number of days elapsed from and including the Issue Date (in the case of the first Dividend Payment Date and any date prior to the first Dividend Payment Date) or the last preceding Dividend Payment Date (in the case of any other date) to but excluding the date as of which such determination is to be made, based on a 365-day year, and (ii) as of any Dividend Payment Date after the first Dividend Payment Date, such amount shall be calculated on the basis of such rate per annum based on a 360-day year of twelve 30-day months.

        (b)  All dividends payable with respect to the Shares shall be declared and paid in cash. Payment of such dividends as provided herein shall be deemed to have been made when such payment has been delivered to the record holders of the Series C Preferred Stock entitled to receive the same by wire transfer of immediately available funds in accordance with the instructions of such holders delivered in writing to the Corporation at least two Business Days prior to any Dividend Payment Date (or if no such instructions are received, by check delivered by certified mail, return receipt requested, to the address of such record holder on the books of the Corporation). All dividends paid with respect to the Shares pursuant to this paragraph 3 shall be paid pro rata to all the holders of Shares outstanding on the applicable Record Date or Special Record Date, as the case may be.

        (c)  If on any Dividend Payment Date this Corporation, pursuant to applicable law or otherwise, shall be prohibited or restricted from paying the full dividends to which holders of Series C Preferred Stock, and any Parity Securities ranking on a parity basis with the Series C Preferred Stock with respect to the right to receive dividend payments, shall be entitled, the amount available for such payment pursuant to applicable law and which is not otherwise restricted (if any) shall be distributed among the holders of Series C Preferred Stock and any such Parity Securities ratably in proportion to the full amounts to which they would otherwise be entitled. On each Dividend Payment Date, all dividends that

4

have accrued on each share of Series C Preferred Stock during the Dividend Period ending on such Dividend Payment Date shall, to the extent not paid on such Dividend Payment Date for any reason (whether or not such unpaid dividends have been declared or there are any unrestricted funds of this Corporation legally available for the payment of dividends), be added cumulatively to the Liquidation Preference of such Share and will remain a part thereof until such dividends and all dividends accrued thereon are paid. That portion of the Liquidation Preference of a Share that consists of accrued unpaid dividends, together with all dividends accrued in respect thereof, may be declared and paid at any time (subject to the rights of any Senior Securities and to the concurrent satisfaction of any dividend arrearages then existing with respect to any Parity Securities that rank on a parity basis with the Series C Preferred Stock as to the payment of dividends), without reference to any regular Dividend Payment Date, to holders of record as of the close of business on such date, not more than 20 days nor less than 10 days preceding the payment date thereof, as may be fixed by the Board of Directors (the "Special Record Date"). Notice of each Special Record Date shall be given, not more than 20 days nor less than 10 days prior thereto, to the holders of record of the Shares. Any dividend payment made on the Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to such Shares.

        (d)  If at any time this Corporation shall have failed to pay, or declare and set aside the consideration sufficient to pay, full cumulative dividends on the Series C Preferred Stock for all Dividend Periods ending on or before the immediately preceding Dividend Payment Date, and until full cumulative dividends on the Series C Preferred Stock for all Dividend Periods ending on or before the immediately preceding Dividend Payment Date are paid, or declared and the consideration sufficient to pay the same in full is set aside so as to be available for such purpose and no other purpose, (i) this Corporation shall not redeem, or discharge any sinking fund obligation with respect to, any Shares, Parity Securities or Junior Securities, or set aside any money or assets for any such purpose, unless all then outstanding Shares are redeemed pursuant to the terms hereof, (ii) this Corporation shall not declare or pay any dividend on or make any distribution with respect to any Junior Securities or Parity Securities or set aside any money or assets for any such purpose, except that this Corporation may declare and pay a dividend on any Parity Securities ranking on a parity basis with the Series C Preferred Stock with respect to the right to receive dividend payments, contemporaneously with the declaration and payment of a dividend on the Series C Preferred Stock, provided that such dividends are declared and paid pro rata so that the amount of dividends declared and paid per share of Series C Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that accumulated and accrued and unpaid dividends per share on the Series C Preferred Stock and such Parity Securities bear to each other, and (iii) neither this Corporation nor any Subsidiary thereof shall purchase or otherwise acquire any Shares, Parity Securities or Junior Securities.

        Nothing contained in the preceding paragraph of this paragraph 3(d) shall prevent (x) the payment of dividends on any Junior Securities solely in shares of Junior Securities or the redemption, purchase or other acquisition of Junior Securities solely in exchange for shares of Junior Securities, (y) the payment of dividends on any Parity Securities solely in shares of Junior Securities or the redemption, exchange, purchase or other acquisition of Series C Preferred Stock or Parity Securities solely in exchange for (together with a cash adjustment for fractional shares, if any) shares of Junior Securities; or (z) the purchase or acquisition of Shares pursuant to a purchase or exchange offer or offers made to all holders of outstanding shares of Series C Preferred Stock; provided that the terms of the purchase or exchange offer shall be identical for all shares of Series C Preferred Stock and all accrued dividends on such Shares shall have been paid or shall have been declared and irrevocably set apart in trust for the benefit of the holders of shares of Series C Preferred Stock and for no other purpose. The provisions of this paragraph 3(d) are for the benefit of the holders of Series C Preferred Stock and accordingly the provisions of this paragraph 3(d) shall not restrict any redemption or purchase by this Corporation or a Subsidiary thereof of Shares held by any holder, provided that all other holders of Shares shall have waived in writing the benefits of this provision with respect to such redemption.

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        4.    Liquidation.    Upon any liquidation, dissolution or winding up of this Corporation, whether voluntary or involuntary, the holders of Series C Preferred Stock shall be entitled to be paid an amount in cash equal to the aggregate Liquidation Preference at the date of payment of all Shares outstanding, which amounts shall be paid (x) before any distribution or payment upon any such liquidation, dissolution or winding up of this Corporation is made upon any Junior Securities, (y) on a pari passu basis with any such payment made to the holders of any Parity Securities, and (z) after any such payment is made upon any Senior Securities. The holders of Series C Preferred Stock shall be entitled to no other or further distribution of or participation in any remaining assets of this Corporation after receiving the full preferential amounts provided for in the preceding sentence. If upon such liquidation, dissolution or winding up, the assets of this Corporation to be distributed among the holders of Series C Preferred Stock and to all holders of Parity Securities are insufficient to permit payment in full to such holders of the aggregate preferential amounts which they are entitled to be paid, then the entire assets of this Corporation to be distributed to such holders shall be distributed ratably among them based upon the full preferential amounts to which the shares of Series C Preferred Stock and such Parity Securities would otherwise respectively be entitled. Upon any such liquidation, dissolution or winding up, after the holders of Series C Preferred Stock and Parity Securities have been paid in full the amounts to which they are entitled, the remaining assets of this Corporation may be distributed to the holders of Junior Securities. This Corporation shall mail written notice of such liquidation, dissolution or winding up to each record holder of Series C Preferred Stock not less than 20 days prior to the payment date stated in such written notice. Neither the consolidation or merger of this Corporation into or with any other corporation or corporations, nor the sale, transfer or lease by this Corporation of all or any part of its assets, shall be deemed to be a liquidation, dissolution or winding up of this Corporation within the meaning of this paragraph 4.

        5.    Redemption.

        (a)  Subject to paragraph 5(f), the shares of Series C Preferred Stock may be redeemed out of funds legally available therefor, at the option of this Corporation by action of the Board of Directors, in whole or from time to time in part, on any Business Day after the Issue Date at the Redemption Price per Share as of the applicable Redemption Date. If less than all outstanding Shares are to be redeemed, Shares shall be redeemed ratably (as nearly as may be practicable) among the holders thereof.

        (b)  Subject to the rights of any Parity Securities and the provisions of paragraph 5(f) and subject to any prohibitions or restrictions contained in the Credit Agreement, at any time on or after the first Dividend Payment Date or prior thereto if a Default has occurred and during the continuance thereof, any holder of Shares shall have the right, at such holder's option, to require redemption by this Corporation at the Redemption Price per Share as of the applicable Redemption Date of all or any portion of such holder's Shares, by written notice to this Corporation stating the number of Shares to be redeemed. This Corporation shall redeem, out of funds legally available therefor and not restricted in accordance with the first sentence of this paragraph 5(b), the Shares so requested to be redeemed on such date within 10 days following this Corporation's receipt of such notice as this Corporation shall state in its notice given pursuant to paragraph 5(c). If the funds of this Corporation legally available for redemption of Shares and not restricted in accordance with the first sentence of this paragraph 5(b) are insufficient to redeem the total number of Shares required to be redeemed pursuant to this paragraph 5(b), then, those funds which are legally available for redemption of such Shares and not so restricted will be used to redeem the maximum possible number of such Shares ratably among the holders who have required Shares to be redeemed under this paragraph 5(b). At any time thereafter when additional funds of this Corporation are legally available and not so restricted for such purpose, such funds will immediately be used to redeem the Shares this Corporation failed to redeem on such Redemption Date until the balance of such Shares are redeemed. Further, if the funds of this Corporation legally available for redemption of Shares are sufficient to pay the Redemption Price of

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the Shares requested to be redeemed in full, then any portion of such Redemption Price not paid when due as provided in this paragraph 5(b), notwithstanding that payment thereof is restricted pursuant to the Credit Agreement in accordance with the first sentence of this paragraph 5(b), shall constitute indebtedness of this Corporation for borrowed money, the payment of which indebtedness the holders requesting such redemption shall be entitled to enforce by the exercise of any and all rights at law or in equity.

        (c)  Notice of any redemption pursuant to this paragraph 5 shall be mailed, first class, postage prepaid, not less than 5 days nor more than 30 days prior to the Redemption Date, to the holders of record of the shares of Series C Preferred Stock to be redeemed, at their respective addresses as the same appear upon the books of this Corporation or are supplied by them in writing to this Corporation for the purpose of such notice; but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of the Series C Preferred Stock. Such notice shall set forth the Redemption Price, the Redemption Date, the number of Shares to be redeemed and the place at which the Shares called for redemption will, upon presentation and surrender of the stock certificates evidencing such Shares, be redeemed. In case fewer than the total number of shares of Series C Preferred Stock represented by any certificate are redeemed, a new certificate representing the number of unredeemed Shares will be issued to the holder thereof without cost to such holder.

        (d)  If notice of any redemption by this Corporation pursuant to this paragraph 5 shall have been mailed as provided in paragraph 5(c) and if on or before the Redemption Date specified in such notice the consideration necessary for such redemption shall have been set apart so as to be available therefor and only therefor, then on and after the close of business on the Redemption Date, the Shares called for redemption, notwithstanding that any certificate therefor shall not have been surrendered for cancellation, shall no longer be deemed outstanding, and all rights with respect to such Shares shall forthwith cease and terminate, except the right of the holders thereof to receive upon surrender of their certificates the consideration payable upon redemption thereof.

        (e)  All shares of Series C Preferred Stock redeemed, retired, purchased or otherwise acquired by this Corporation shall be retired and shall be restored to the status of authorized and unissued shares of preferred stock (and may be reissued as part of another series of the preferred stock of this Corporation, but such shares shall not be reissued as Series C Preferred Stock).

        (f)    If and so long as this Corporation shall fail to redeem on a Redemption Date pursuant to this paragraph 5 all shares of Series C Preferred Stock required to be redeemed on such date, this Corporation shall not redeem, or discharge any sinking fund obligation with respect to, any Shares, Junior Securities or Parity Securities, or set aside any money or assets for any such purpose, unless all then outstanding Shares required to be redeemed are redeemed pursuant to the terms hereof, and shall not declare or pay any dividend on or make any distribution with respect to any Junior Securities or set aside any money or assets for any such purpose, and neither this Corporation nor any Subsidiary thereof shall purchase or otherwise acquire any Shares, Parity Securities or Junior Securities. Nothing contained in this paragraph 5(f) shall prevent the purchase or acquisition of shares of Series C Preferred Stock pursuant to a purchase or exchange offer or offers made to all holders of outstanding shares of Series C Preferred Stock, provided that the terms of the purchase or exchange offer shall be identical for all Shares and all accrued dividends on such Shares shall have been declared and irrevocably set apart in trust for the benefit of the holders of Shares and for no other purpose. The provisions of this paragraph 5(f) are for the benefit of holders of Series C Preferred Stock and accordingly the provisions of this paragraph 5(f) shall not restrict any redemption or purchase by this Corporation or a Subsidiary thereof of Shares held by any holder, provided that all other holders of Shares shall have waived in writing the benefits of this provision with respect to such redemption.

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        6.    Voting Rights.    The holders of the Series C Preferred Stock shall have no voting rights whatsoever, except as required by law, as provided in paragraph 9 or as provided in this paragraph 6. For so long as any Shares remain outstanding, this Corporation will not, either directly or indirectly, without the consent of the holders of record of at least 66b% of the number of Shares then outstanding, take any action (including by merger, consolidation or statutory share exchange with any other corporation or entity) to amend, alter or repeal (i) any of the provisions hereof or (ii) any of the provisions of the Amended and Restated Certificate of Incorporation of this Corporation so as to affect adversely any preference or any relative or other right given to the Series C Preferred Stock.

        7.    Waiver.    Any provision of this Certificate of Designations which, for the benefit of the holders of Series C Preferred Stock, prohibits, limits or restricts actions by the Corporation, or imposes obligations on the Corporation, including but not limited to provisions relating to the obligation of the Corporation to redeem such Shares, may be waived in whole or in part, or the application of all or any part of such provision in any particular circumstance or generally may be waived, in each case by the affirmative vote or with the consent of the holders of record of at least 66b% of the number of Shares then outstanding (or such greater percentage thereof as may be required by this Certificate of Designations, applicable law or any applicable rules of any national securities exchange or national interdealer quotation system), either in writing or by vote at an annual meeting or a special meeting called for such purpose at which the holders of Series C Preferred Stock shall vote as a separate class.

        8.    Preemptive Rights.    The holders of the Series C Preferred Stock will not have any preemptive right to subscribe for or purchase any shares of Capital Stock or any other securities which may be issued by this Corporation.

        9.    Senior or Parity Securities.    The Series C Preferred Stock shall not rank junior to any other classes or series of Capital Stock of this Corporation in respect of the right to receive dividends, rights of redemption or the right to participate in any liquidation, dissolution or winding up of this Corporation. Without the prior consent of the holders of record of at least 66b% of the number of Shares then outstanding, this Corporation shall not issue any Senior Securities or Parity Securities.

        10.    Claims.    In the event of any action at law or suit in equity with respect to the Series C Preferred Stock, this Corporation, in addition to all other sums which it may be required to pay, will pay a reasonable sum for attorney's fees incurred by the holders of the Series C Preferred Stock in connection with such action or suit and all other costs of collection. The Corporation shall not assert its right to trial by jury in any action, suit or proceeding arising from or related to this Series C Preferred Stock.

        11.    Exclusion of Other Rights.    Except as may otherwise be required by law and for the equitable rights and remedies that may otherwise be available to holders of Series C Preferred Stock, the shares of Series C Preferred Stock shall not have any designations, preferences, limitations or relative rights, other than those specifically set forth in these resolutions (as such resolutions may, subject to paragraph 6, be amended from time to time) and in the Amended and Restated Certificate of Incorporation of this Corporation.

        12.    Headings.    The headings of the various paragraphs and subparagraphs hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

        FURTHER RESOLVED, that the appropriate officers of this Corporation are hereby authorized to execute and acknowledge a certificate setting forth these resolutions and to cause such certificate to be filed and recorded, in accordance with the requirements of Section 151(g) of the General Corporation Law of the State of Delaware."

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        The undersigned has signed this Certificate of Designations on this 23rd day of April, 2001.

/s/  BERTRAM PERKEL

Name: Bertram Perkel

Title: Senior Vice President and General Counsel

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Series D Preferred Stock

ON COMMAND CORPORATION
CERTIFICATE OF DESIGNATIONS

SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK, SERIES D"
ADOPTED BY THE BOARD OF DIRECTORS
OF ON COMMAND CORPORATION

        The undersigned, a Vice President of ON COMMAND CORPORATION, a Delaware corporation (this "Corporation"), HEREBY CERTIFIES that the Board of Directors of this Corporation on June 29, 2001, duly adopted the following resolutions creating a new series of this Corporation's Preferred Stock:

        "BE IT RESOLVED, that pursuant to authority expressly granted by the provisions of Article IV of the Amended and Restated Certificate of Incorporation of this Corporation, the Board of Directors hereby creates and authorizes the issuance of a new series of this Corporation's preferred stock, par value $.01 per share ("Preferred Stock"), which shall be issued in separate subseries as provided herein, and hereby fixes the powers, designations, dividend rights, voting powers, rights on liquidation, conversion rights, redemption rights and other preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions of the shares of such series and of each subseries thereof (in addition to the powers, designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof set forth in the Amended and Restated Certificate of Incorporation that are applicable to each class and series of this Corporation's Preferred Stock), as follows:

        1.    Designation and Number.    (a) The designation of the series of Preferred Stock, par value $.01 per share, of this Corporation authorized hereby is "Cumulative Convertible Redeemable Preferred Stock, Series D" (the "Series D Preferred Stock"). The aggregate number of shares constituting the Series D Preferred Stock shall be 60,000. The shares of Series D Preferred Stock will be issuable only pursuant to and in accordance with the terms and provisions of the Preferred Stock Purchase Agreement, dated June 29, 2001, between this Corporation and Ascent Entertainment Group, Inc.

        (b)  The shares of Series D Preferred Stock shall be issuable in three separate subseries. The designation of each subseries of Series D Preferred Stock and the number of authorized shares of such subseries are as follows:

Subseries Designation	Authorized Number of Shares of Subseries
Cumulative Convertible Redeemable Preferred Stock, Series D-1 (the "Series D-1 Preferred Stock")	20,000
Cumulative Convertible Redeemable Preferred Stock, Series D-2 (the "Series D-2 Preferred Stock")	20,000
Cumulative Convertible Redeemable Preferred Stock, Series D-3 (the "Series D-3 Preferred Stock")	20,000

        2.    Certain Definitions.    Unless the context otherwise requires, the terms defined in this paragraph 2 shall, for all purposes of this Certificate of Designations, have the meanings herein specified:

        "Board of Directors": The Board of Directors of this Corporation and, to the extent permitted by law, unless the context indicates otherwise, any committee thereof authorized with respect to any

particular matter to exercise the power of the Board of Directors of this Corporation with respect to such matter.

        "Business Day": Any day other than a Saturday, Sunday or a day on which banking institutions in Denver, Colorado are not required to be open.

        "Capital Stock": Any and all shares, interests, participations or other equivalents (however designated) of corporate stock.

        "Closing Price": Of any security for any day, the last reported sale price of such security regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the composite tape, or if such security is not quoted on the composite tape, on the principal United States securities exchange registered under the Exchange Act on which such security is listed or admitted to trading, or if such security is not listed or admitted to trading on any such exchange, the last reported sale price (or the average of the quoted closing bid and asked prices if there were no reported sales) on The Nasdaq Stock Market or any comparable quotation system, or if such security is not quoted on The Nasdaq Stock Market or any comparable system, the average of the closing bid and asked prices as furnished by any member of the National Association of Securities Dealers, Inc. selected from time to time by this Corporation for that purpose or, in the absence of such quotations, such other method of determining market value as the Board of Directors shall from time to time deem to be fair.

        "Common Stock": The Common Stock, par value $.01 per share, of this Corporation as such exists on the date of this Certificate of Designations, which term shall include, where appropriate, in the case of any reclassification, recapitalization or other change in the Common Stock, or in the case of a consolidation or merger of this Corporation with or into another person affecting the Common Stock, such Capital Stock to which a holder of Common Stock shall be entitled upon the occurrence of such event.

        "Conversion Date": Of a Share, the date on which the requirements for conversion of such Share set forth in paragraph 5(m) have been satisfied by the holder thereof.

        "Conversion Rate": The kind and amount of securities, cash or other assets that as of any date are issuable or deliverable upon conversion of a Share. The Conversion Rate of a Share shall initially be as set forth in paragraph 5(b), subject to adjustment as set forth in paragraph 5 of this Certificate of Designations. In the event that pursuant to paragraph 5 the Series D Preferred Stock becomes convertible into more than one class or series of Capital Stock of this Corporation, the term Conversion Rate, when used with respect to any such class or series, shall mean the number or fraction of shares or other units of such Capital Stock that as of any date would be issued upon conversion of a Share.

"Convertible Securities" Any or all options, warrants, securities and rights which are convertible into or exercisable or exchangeable for Common Stock at the option of the holder thereof, or which otherwise entitle the holder thereof to subscribe for, purchase or otherwise acquire Common Stock.

        "Credit Agreement": The Credit Agreement among the Corporation and the lenders signatory thereto, Toronto Dominion (Texas), Inc. and Fleet National Bank, as the documentation agents, Bank Of America, N.A., as the syndication agent, The Bank Of New York Company, Inc., as the Swingline Lender (as defined therein), and The Bank Of New York, as the Issuing Bank (as defined therein) and as the administrative agent for the lenders, dated as of July 18, 2000, as amended by Amendment No. 1 thereto dated as of March 27, 2001, as the same may be further amended, supplemented, modified, substituted, increased, replaced or extended from time to time.

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        "Current Market Price": For the purpose of any computation under paragraph 5(d) or 5(e), the average of the daily Closing Prices for a share of Common Stock for the ten (10) consecutive Trading Days before the Determination Date in question.

        "Default": The occurrence of any of the following events:

        a)    there shall be entered a decree or order for relief in respect of the Corporation under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator, or similar official of the Corporation or of any substantial part of its properties, or ordering the winding-up or liquidation of the affairs of the Corporation or an involuntary petition shall be filed against the Corporation and a temporary stay entered, and (i) such petition and stay shall not be diligently contested, or (ii) any such petition and stay shall continue undismissed for a period of sixty (60) consecutive days; or

        b)    the Corporation shall file a petition, answer, or consent seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or the Corporation shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment or taking of possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator, or other similar official, of the Corporation or of any substantial part of its properties, or the Corporation shall fail generally to pay its debts as they become due, or shall take any action in furtherance of any such action.

        "Determination Date": For any issuance of rights, warrants, or options or any distribution to which paragraph 5(d) or 5(e) applies, the earlier of (i) the record date for the determination of stockholders entitled to receive the rights, warrants, options or the distribution to which such paragraph applies and (ii) the Ex-Dividend Date for such rights, warrants, options or distribution.

        "Dividend Payment Date": The last day of March, June, September and December of each calendar year, commencing, with respect to the Shares of each subseries of Series D Preferred Stock, on the first such date following the Issue Date of Shares of such subseries of Series D Preferred Stock, or the next succeeding Business Day if any such date is not a Business Day.

        "Dividend Period": With respect to a Share of any subseries of Series D Preferred Stock, the period from and including the Issue Date with respect to the Shares of such subseries to but excluding the first Dividend Payment Date with respect to the Shares of such subseries and, thereafter, each three-month period from and including a Dividend Payment Date to but excluding the next Dividend Payment Date.

        "Dividend Rate": 8% per annum of the Liquidation Preference of a Share.

        "Exchange Act": The Securities Exchange Act of 1934, as amended.

        "Exchange Offer": An issuer tender offer (within the meaning of Rule 13e-4(a)(2) of the rules and regulations promulgated by the Securities and Exchange Commission under the Exchange Act, as such Rule is in effect on the date hereof), including, without limitation, one that is effected through the distribution of rights, warrants or options, made to holders of Common Stock (or to holders of other Capital Stock of this Corporation receivable by a holder of Shares upon conversion thereof (or upon conversion of securities receivable by a holder of Shares upon conversion of such Shares)), to issue Capital Stock of this Corporation or of a Subsidiary of this Corporation and/or other property to a tendering stockholder in exchange for shares of Common Stock (or such other Capital Stock) validly tendered pursuant to such issuer tender offer.

        "Exchange Preferred Stock": Shares of one or more series or subseries of convertible preferred stock of this Corporation, having terms, conditions, designations, dividend rights, voting powers, rights on liquidation and other preferences and relative, participating, optional or other special rights, and

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qualifications, limitations or restrictions thereof that are identical, or as nearly so as is practicable in the judgment of the Board of Directors, to those of the shares of the subseries of Series D Preferred Stock for which such Exchange Preferred Stock is exchanged, except that (i) the liquidation preference will be determined as provided in paragraph 5(g) or 5(h), as applicable, (ii) the running of any time periods pursuant to the terms of the Series D Preferred Stock shall be tacked to the corresponding time periods in the Exchange Preferred Stock and (iii) the Exchange Preferred Stock will not be convertible into, and the holders will have no conversion rights thereunder with respect to, (x) in the case of a redemption of Redeemable Capital Stock, the Redeemable Capital Stock redeemed, or the Redemption Securities issued, in the Redemption Event, and (y) in the case of a Spin Off, the Spin Off Securities.

        "Exchange Securities": Capital Stock of this Corporation or of a Subsidiary of this Corporation that is issued in exchange for shares of Common Stock (or other Capital Stock of this Corporation receivable by a holder of Shares upon conversion thereof (or upon conversion of securities receivable by a holder of Shares upon conversion of such Shares)) pursuant to an Exchange Offer.

        "Ex-Dividend Date": The date on which "ex-dividend" trading commences for a dividend, an issuance of rights, warrants or options or a distribution to which paragraph 5(c), 5(d) or 5(e) applies in the over-the-counter market or the principal exchange on which the Common Stock is then quoted or listed.

        "Indebtedness": Any: (i) liability, contingent or otherwise, of this Corporation (x) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of this Corporation or only to a portion thereof), (y) evidenced by a note, debenture or similar instrument (including a purchase money obligation) given other than in connection with the acquisition of inventory or similar property in the ordinary course of business, or (z) for the payment of money relating to an obligation under a lease that is required to be capitalized for financial accounting purposes in accordance with generally accepted accounting principles; (ii) liability of others described in the preceding clause (i) which this Corporation has guaranteed or which is otherwise its legal liability; (iii) obligations secured by a mortgage, pledge, lien, charge or other encumbrance to which the property or assets of this Corporation are subject whether or not the obligations secured thereby shall have been assumed by or shall otherwise be this Corporation's legal liability; and (iv) any amendment, renewal, extension or refunding of any liability of the types referred to in clauses (i), (ii) and (iii) above.

        "Initial Conversion Date": December 31, 2002.

        "Initial Issue Date": June 29, 2001, such date being the first date on which any shares of any subseries of Series D Preferred Stock are first issued.

        "Issue Date": means, with respect to the (i) Series D-1 Preferred Stock, the date on which shares of Series D-1 Preferred Stock are first issued, (ii) Series D-2 Preferred Stock, the date on which shares of Series D-2 Preferred Stock are first issued and (iii) Series D-3 Preferred Stock, the date on which shares of Series D-3 Preferred Stock are first issued.

        "Junior Securities": All shares of Common Stock, the Convertible Participating Preferred Stock, Series A, par value $.01 per share (the "Series A Preferred Stock"), and any other class or series of Capital Stock of this Corporation, whether now existing or hereafter created, to the extent that it ranks junior to the Series D Preferred Stock as to dividend rights, rights on redemption or rights on liquidation, as the case may be. A class or series of Capital Stock shall rank junior to the Series D Preferred Stock as to dividend rights, rights on redemption or rights on liquidation if the holders of shares of Series D Preferred Stock shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon liquidation, dissolution or winding up of the affairs of this Corporation, as the case may be, in preference or priority to the holders of shares of such class or series.

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        "Liquidation Preference": Measured per Share as of any date in question (the "Relevant Date") shall mean an amount equal to the sum of (a) the Stated Value of such Share, plus (b) an amount equal to all dividends accrued on such Share which pursuant to paragraph 3(c) of this Certificate of Designations have been added to and remain a part of the Liquidation Preference as of the Relevant Date, plus (c) for purposes of paragraph 4, paragraph 5(g), paragraph 5(h), paragraph 6 and paragraph 7 of this Certificate of Designations and the definition of Redemption Price, 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 (or the Issue Date of such Share if the Relevant Date is on or prior to the first Dividend Payment Date) to but excluding the Relevant Date, and, in the case of clauses (b) and (c) hereof, whether or not such unpaid dividends have been declared or there are any unrestricted funds of the Corporation legally available for the payment of dividends. In connection with the determination of the Liquidation Preference of a Share upon redemption, or upon liquidation, dissolution or winding up of the Corporation or upon a conversion of Shares or pursuant to paragraph 5(f)(ii), the Relevant Date shall be the applicable date of redemption or the date of distribution of amounts payable to stockholders in connection with any such liquidation, dissolution or winding up or the applicable Conversion Date or the effective time of the Acquisition Transaction.

        "Mirror Preferred Stock": Convertible preferred stock issued by (a) in the case of a redemption of Redeemable Capital Stock, the issuer of the applicable Redemption Securities, (b) in the case of a Spin Off, the issuer of the applicable Spin Off Securities, and (c) in the case of an Exchange Offer, the issuer of the applicable Exchange Securities, and having terms, conditions, designations, dividend rights, voting powers, rights on liquidation and other preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof that are identical, or as nearly so as practicable in the judgment of the Board of Directors, to those of the shares of the subseries of Series D Preferred Stock for which such Mirror Preferred Stock is exchanged, except that (i) the liquidation preference will be determined as provided in paragraph 5(g), 5(h) or 6, as applicable, (ii) the running of any time periods pursuant to the terms of the Series D Preferred Stock shall be tacked to the corresponding time periods in the Mirror Preferred Stock, and (iii) the Mirror Preferred Stock shall be convertible into the kind and amount of Redemption Securities, Spin Off Securities or Exchange Securities, as applicable, and other securities and property that the holder of a Share of the subseries of the Series D Preferred Stock in respect of which such Mirror Preferred Stock is issued pursuant to the terms hereof would have received (x) in the case of the redemption of Redeemable Capital Stock, upon such redemption had such Share been converted immediately prior to the effective date of the Redemption Event, (y) in the case of a Spin Off, in such Spin Off had such Share been converted immediately prior to the record date for such Spin Off and (z) in the case of an Exchange Offer, upon consummation thereof had such Share that such holder elects to tender pursuant to paragraph 6 been converted and the shares of Common Stock received upon such conversion been tendered in full pursuant to such Exchange Offer prior to the expiration thereof and the same percentage of such tendered shares had been accepted for exchange as the percentage of validly tendered shares of Common Stock were accepted for exchange pursuant to such Exchange Offer, as the case may be.

        "Parity Securities": All shares of Cumulative Redeemable Preferred Stock, Series B, par value $.01 per share (the "Series B Preferred Stock"), Cumulative Redeemable Preferred Stock, Series C, par value $.01 per share (the "Series C Preferred Stock") and any other class or series of Capital Stock of this Corporation, whether now existing or hereafter created, ranking on a parity basis with the Series D Preferred Stock with respect to dividend rights, rights on redemption or rights on liquidation, as the case may be. Each subseries of Series D Preferred Stock shall rank on a parity with, and constitute Parity Securities with respect to, each other subseries of Series D Preferred Stock as to dividend rights, rights on redemption or rights on liquidation, as the case may be. A class or series of Capital Stock shall rank on a parity basis with the Series D Preferred Stock as to dividend rights, rights on

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redemption or rights on liquidation, whether or not the dividend rates, dividend payment dates, redemption or liquidation prices per share, or sinking fund or mandatory redemption provisions, if any, are different from those of the Series D Preferred Stock, if the holders of shares of such class or series shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon liquidation, dissolution or winding up of the affairs of the Corporation, as the case may be, in proportion to their respective accumulated and accrued and unpaid dividends, redemption prices or liquidation prices, respectively, without preference or priority, one over the other, as between the holders of shares of such class or series and the holders of Series D Preferred Stock. No class or series of Capital Stock that ranks junior to the Series D Preferred Stock as to rights on liquidation shall rank or be deemed to rank on a parity basis with the Series D Preferred Stock as to dividend rights or rights of redemption, unless the instrument creating or evidencing such class or series of Capital Stock otherwise expressly provides.

        "person": A natural person, corporation, limited liability company, partnership or other legal entity.

        "Record Date": For the dividends payable on any Dividend Payment Date, the fifteenth (15^th) day of the month during which such Dividend Payment Date shall occur or the next succeeding Business Day, if any such date is not a Business Day.

        "Redeemable Capital Stock": A class or series of Capital Stock of this Corporation that provides by its terms a right in favor of this Corporation to call, redeem, exchange or otherwise acquire all of the outstanding shares or units of such class or series.

        "Redemption Date": As to any Share, the date, which shall be a Business Day, fixed for redemption of such Share as specified in the notice of redemption given in accordance with paragraph 7(c), provided that no such date will be a Redemption Date unless the applicable Redemption Price is actually paid on such date or the consideration sufficient for the payment thereof, and for no other purpose, has been set apart, and if the Redemption Price is not so paid in full or the consideration sufficient therefor so set apart, then the Redemption Date will be the date, which shall be a Business Day, on which such Redemption Price is fully paid or the consideration sufficient for the payment thereof, and for no other purpose, has been set apart.

        "Redemption Price": As to any Share that is to be redeemed on any Redemption Date, (a) the Liquidation Preference of such Share as in effect on such Redemption Date plus (b) the applicable of (i) if the Redemption Date is prior to the Initial Conversion Date, an amount equal to the difference between (x) the Liquidation Preference of such Share as of the Redemption Date calculated as if the Dividend Rate applicable to such Share were 12% per annum and (y) the Liquidation Preference of such Share as in effect on such Redemption Date, or (ii) if the Redemption Date is on or after June 30, 2005, the percentage set forth below opposite the applicable period in which the Redemption Date occurs of the 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	%

        "Redemption Securities": With respect to the redemption of any Redeemable Capital Stock, Capital Stock of a Subsidiary of this Corporation that is distributed by this Corporation in payment, in whole or in part, of the redemption price of such Redeemable Capital Stock.

        "Senior Securities": Any class or series of Capital Stock of this Corporation hereafter created, ranking senior to the Series D Preferred Stock with respect to dividend rights, rights of redemption or

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rights on liquidation. A class or series of Capital Stock of this Corporation shall rank senior to the Series D Preferred Stock as to dividend rights, rights of redemption or rights on liquidation if the holders of shares of such class or series shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon dissolution, liquidation or winding up of the affairs of this Corporation, as the case may be, in preference or priority to the holders of shares of Series D Preferred Stock. No class or series of Capital Stock of this Corporation that ranks on a parity basis with or junior to the Series D Preferred Stock as to rights on liquidation shall rank or be deemed to rank prior to the Series D Preferred Stock as to dividend rights or rights on redemption, notwithstanding that the dividend rate, dividend payment dates, sinking fund provisions, if any, or mandatory redemption provisions thereof are different from those of the Series D Preferred Stock, unless the instrument creating or evidencing such class or series of Capital Stock otherwise expressly provides.

        "Share": An issued and outstanding share of Series D-1 Preferred Stock, Series D-2 Preferred Stock or Series D-3 Preferred Stock, as applicable.

        "Spin Off": The distribution of Capital Stock of a Subsidiary of this Corporation as a dividend to all holders of Common Stock (or to holders of other Capital Stock of this Corporation receivable by a holder of Shares upon conversion thereof (or upon conversion of securities receivable by a holder of Shares upon conversion of such Shares)).

        "Spin Off Securities": Capital Stock of a Subsidiary of this Corporation that is distributed to holders of Common Stock (or to holders of other Capital Stock of this Corporation receivable by a holder of Shares upon conversion thereof (or upon conversion of securities receivable by a holder of Shares upon conversion of such Shares)) in a Spin Off.

        "Stated Value": Of a Share, $1,000.

        "Subsidiary": With respect to any person, any corporation, limited liability company, partnership or other legal entity more than 50% of whose outstanding voting securities or membership, partnership or other ownership interests, as the case may be, are directly or indirectly owned by such person.

"Trading Day" shall mean any day on which the securities in question are traded on The Nasdaq National Market, or if such securities are not listed or quoted thereon, on the principal securities market on which such securities are listed, quoted or traded.

        3.    Dividends.

        (a)  Subject to the prior preferences and other rights of any Senior Securities, the holders of Series D Preferred Stock shall be entitled to receive cumulative dividends, in preference to dividends on any Junior Securities, which shall accrue as provided herein. Dividends on each Share will accrue on a daily basis at the Dividend Rate from and including the applicable Issue Date for shares of such subseries of Series D Preferred Stock, to but excluding the date on which the Liquidation Preference or Redemption Price of such Share is made available pursuant to paragraph 4 or 7, respectively, of this Certificate of Designations or the Conversion Date of such Share pursuant to paragraph 5 hereof, as applicable. Dividends shall accrue as provided herein whether or not such dividends have been declared and whether or not there are any unrestricted funds of this Corporation legally available for the payment of dividends. Accrued dividends on the Series D Preferred Stock shall be payable on each Dividend Payment Date to the holders of record of the Series D Preferred Stock as of the close of business on the applicable Record Date. For purposes of determining the amount of dividends "accrued" on a Share (i) as of the first Dividend Payment Date with respect to such Share and as of any date that is not a Dividend Payment Date, such amount shall be calculated on the basis of the Dividend Rate for the actual number of days elapsed from and including the applicable Issue Date (in the case of the first Dividend Payment Date with respect to shares of such subseries and any date prior to the first Dividend Payment Date) or the last preceding Dividend Payment Date with respect to

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shares of such subseries (in the case of any other date) to but excluding the date as of which such determination is to be made, based on a 365-day year, and (ii) as of any Dividend Payment Date after the first Dividend Payment Date with respect to shares of such subseries, such amount shall be calculated on the basis of the Dividend Rate based on a 360-day year of twelve 30-day months.

        (b)  Except as otherwise provided in paragraph 5 in connection with the conversion of a Share, all dividends payable with respect to the Shares shall be declared and paid in cash. Payment of such dividends as provided herein shall be deemed to have been made when such payment has been delivered to the record holders of the Series D Preferred Stock entitled to receive the same by wire transfer of immediately available funds in accordance with the instructions of such holders delivered in writing to the Corporation at least two Business Days prior to any Dividend Payment Date (or if no such instructions are received, by check delivered by certified mail, return receipt requested, to the address of such record holder on the books of the Corporation). All dividends paid with respect to the shares of Series D Preferred Stock pursuant to this paragraph 3 shall be paid pro rata to all the holders of Shares outstanding on the applicable Record Date or Special Record Date, as the case may be.

        (c)  If on any Dividend Payment Date this Corporation, pursuant to applicable law or otherwise, shall be prohibited or restricted from paying the full dividends to which holders of Series D Preferred Stock, and any Parity Securities ranking on a parity basis with the Series D Preferred Stock with respect to the right to receive dividend payments, shall be entitled, the amount available for such payment pursuant to applicable law and which is not otherwise restricted (if any) shall be distributed among the holders of Series D Preferred Stock and any such Parity Securities ratably in proportion to the full amounts to which they would otherwise be entitled. On each Dividend Payment Date, all dividends that have accrued on each Share during the Dividend Period ending on such Dividend Payment Date shall, to the extent not paid on such Dividend Payment Date for any reason (whether or not such unpaid dividends have been declared or there are any unrestricted funds of this Corporation legally available for the payment of dividends), be added cumulatively to the Liquidation Preference of such Share and will remain a part thereof until such dividends and all dividends accrued thereon are paid. That portion of the Liquidation Preference of a Share that consists of accrued unpaid dividends, together with all dividends accrued in respect thereof, may be declared and paid at any time (subject to the rights of any Senior Securities and to the concurrent satisfaction of any dividend arrearages then existing with respect to any Parity Securities that rank on a parity basis with the Series D Preferred Stock as to the payment of dividends), without reference to any regular Dividend Payment Date, to holders of record as of the close of business on such date, not more than twenty (20) days nor less than ten (10) days preceding the payment date thereof, as may be fixed by the Board of Directors (the "Special Record Date"). Notice of each Special Record Date shall be given, not more than twenty (20) days nor less than ten (10) days prior thereto, to the holders of record of the Shares. Any dividend payment made on a Share shall first be credited against the earliest accrued but unpaid dividend due with respect to such Share.

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        (d)  If at any time this Corporation shall have failed to pay, or declare and set aside the consideration sufficient to pay, full cumulative dividends on each Share for all Dividend Periods ending on or before the immediately preceding Dividend Payment Date, and until full cumulative dividends on each Share for all Dividend Periods ending on or before the immediately preceding Dividend Payment Date are paid, or declared and the consideration sufficient to pay the same in full is set aside so as to be available for such purpose and no other purpose, (i) this Corporation shall not redeem, or discharge any sinking fund obligation with respect to, any shares of Series D Preferred Stock, Parity Securities or Junior Securities, or set aside any money or assets for any such purpose, unless all then outstanding Shares are redeemed pursuant to the terms hereof, (ii) this Corporation shall not declare or pay any dividend on or make any distribution with respect to any Junior Securities or Parity Securities or set aside any money or assets for any such purpose, except that this Corporation may declare and pay a dividend on any Parity Securities ranking on a parity basis with the Shares with respect to the right to receive dividend payments, contemporaneously with the declaration and payment of a dividend on the Shares, provided that such dividends are declared and paid pro rata so that the amount of dividends declared and paid on each Share and on each Parity Security shall in all cases bear to each other the same ratio that accumulated and accrued and unpaid dividends per share on such Share and such Parity Security bear to each other, and (iii) neither this Corporation nor any Subsidiary thereof shall purchase or otherwise acquire any Shares, Parity Securities or Junior Securities.

        Nothing contained in the preceding paragraph of this paragraph 3(d) shall prevent (x) the payment of dividends on any Junior Securities solely in shares of Junior Securities or the redemption, purchase or other acquisition of Junior Securities solely in exchange for shares of Junior Securities, (y) the payment of dividends on any Parity Securities solely in shares of Junior Securities or the redemption, exchange, purchase or other acquisition of Series D Preferred Stock or Parity Securities solely in exchange for (together with a cash adjustment for fractional shares, if any) shares of Junior Securities; or (z) the purchase or acquisition of Shares pursuant to a purchase or exchange offer or offers made to all holders of outstanding shares of Series D Preferred Stock, provided that the terms of the purchase or exchange offer shall be identical with respect to the shares of each subseries of the Series D Preferred Stock and all accrued dividends on the shares of each such subseries of Series D Preferred Stock shall have been paid or shall have been declared and irrevocably set apart in trust for the benefit of the holders of shares of Series D Preferred Stock and for no other purpose. The provisions of this paragraph 3(d) are for the benefit of all holders of Series D Preferred Stock and accordingly the provisions of this paragraph 3(d) shall not restrict any redemption or purchase by this Corporation or a Subsidiary thereof of Shares held by any holder, provided that all other holders of shares of Series D Preferred Stock shall have waived in writing the benefits of this provision with respect to such redemption.

        4.    Liquidation.    Upon any liquidation, dissolution or winding up of this Corporation, whether voluntary or involuntary, the holders of Series D Preferred Stock shall be entitled to be paid an amount in cash equal to the aggregate Liquidation Preference at the date of payment of all Shares outstanding, which amounts shall be paid (x) before any distribution or payment upon any such liquidation, dissolution or winding up of this Corporation is made upon any Junior Securities, (y) on a pari passu basis with any such payment made to the holders of any Parity Securities, and (z) after any such payment is made upon any Senior Securities. Payments to the holders of shares of a subseries of the Series D Preferred Stock shall be made on a pari passu basis with any such payment made to the holders of shares of the other subseries of the Series D Preferred Stock. The holders of Series D Preferred Stock shall be entitled to no other or further distribution of or participation in any remaining assets of this Corporation after receiving the full preferential amounts provided for in the preceding sentence. If upon such liquidation, dissolution or winding up, the assets of this Corporation to be distributed among the holders of Series D Preferred Stock and to all holders of Parity Securities are insufficient to permit payment in full to such holders of the aggregate preferential amounts which they are entitled to be paid, then the entire assets of this Corporation to be distributed to such holders shall

9

be distributed ratably among them based upon the full preferential amounts to which the shares of the applicable subseries of the Series D Preferred Stock and such Parity Securities would otherwise respectively be entitled. Upon any such liquidation, dissolution or winding up, after the holders of Series D Preferred Stock and Parity Securities have been paid in full the amounts to which they are entitled, the remaining assets of this Corporation may be distributed to the holders of Junior Securities. This Corporation shall mail written notice of such liquidation, dissolution or winding up to each record holder of Series D Preferred Stock not less than twenty (20) days prior to the payment date stated in such written notice. Neither the consolidation or merger of this Corporation into or with any other corporation or corporations, nor the sale, transfer or lease by this Corporation of all or any part of its assets, shall be deemed to be a liquidation, dissolution or winding up of this Corporation within the meaning of this paragraph 4.

        5.    Conversion.

        (a)  Except as provided below in this paragraph 5(a) with respect to Shares previously called for redemption as provided in paragraph 7 hereof, the Series D Preferred Stock may be converted at any time or from time to time, on or after the Initial Conversion Date at the option of the holder thereof, in such manner and upon such terms and conditions as hereinafter provided in this paragraph 5 into fully paid and non-assessable full shares of Common Stock. In the case of Shares called for redemption by this Corporation pursuant to paragraph 7(a) hereof, the conversion right provided by this paragraph 5 shall terminate at the close of business on the Redemption Date. In case securities, cash or other assets other than Common Stock shall be payable, deliverable or issuable upon conversion as provided herein, then all references to Common Stock in this paragraph 5 shall be deemed to apply, so far as appropriate and as nearly as may be, to such securities, cash or other assets.

        (b)  Subject to the provisions for adjustment hereinafter set forth in this paragraph 5, the Series D Preferred Stock may be converted into Common Stock at the initial conversion rate of 132.4503 fully paid and non-assessable shares of Common Stock for one Share, which rate was determined by dividing the Stated Value of a Share by $7.55 (the "initial conversion price"). If on any Conversion Date, the Liquidation Preference of a Share is greater than the Stated Value of such Share (the amount of such difference, the "Differential Amount"), then the number of shares of Common Stock or units of securities, cash or other assets otherwise issuable or deliverable upon conversion of such Share shall be increased by an amount determined by dividing the Differential Amount by the Effective Conversion Price of such Share. The "Effective Conversion Price" of a Share as of a Conversion Date means the quotient obtained by dividing the Stated Value of such Share by the Conversion Rate then in effect before giving effect to the adjustment contemplated by the preceding sentence.

        (c)  In case this Corporation shall, on or after the Initial Issue Date, (i) pay a dividend or make a distribution on its then outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide the then outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine the then outstanding shares of Common Stock into a smaller number of shares of Common Stock, (iv) pay a dividend or make a distribution on its then outstanding shares of Common Stock in shares of its Capital Stock, or (v) issue by reclassification of its then outstanding shares of Common Stock (other than a reclassification by way of merger or binding share exchange that is subject to paragraph 5(f)) any shares of any other class or series of Capital Stock of this Corporation, then, subject to the following sentence and to paragraph 5(k), the conversion privilege and the Conversion Rate in effect immediately prior to the opening of business on the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted so that the holder of a Share thereafter surrendered for conversion shall be entitled to receive the number and kind of shares of Capital Stock of this Corporation that such holder would have owned or been entitled to receive immediately following such action had such Share been converted immediately prior to the record date for, or effective date of, as the case may be, such event

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        An adjustment made pursuant to this paragraph 5(c) for a dividend or distribution shall become effective immediately after the record date for the dividend or distribution and an adjustment made pursuant to this paragraph 5(c) for a subdivision, combination or reclassification shall become effective immediately after the effective date of the subdivision, combination or reclassification. Such adjustment shall be made successively whenever any action listed above shall be taken.

        Any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the time of the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under paragraph 5(d) below.

        (d)  In case this Corporation shall, on or after the Initial Issue Date, distribute any rights, warrants or options to all holders of shares of Common Stock entitling them (for a period expiring within 45 days after the record date for the determination of stockholders entitled to receive such rights, warrants or options) to subscribe for or purchase shares of Common Stock (or Convertible Securities) at a price per share of Common Stock (or having an initial exercise price or conversion price per share after adding thereto an allocable portion of the exercise price of the right, warrant or option to purchase such Convertible Securities, computed on the basis of the maximum number of shares of Common Stock issuable upon conversion of such Convertible Securities) less than the Current Market Price per share of Common Stock on the Determination Date, the number of shares of Common Stock into which each Share shall thereafter be convertible shall be determined by multiplying the number of shares of Common Stock into which such Share was theretofore convertible immediately prior to the opening of business on such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered for subscription or purchase (or which Convertible Securities so offered are initially convertible into or exercisable or exchangeable for) and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate initial conversion or exercise price of the Convertible Securities so offered, after adding thereto the aggregate exercise price of the rights, warrants or options to purchase such Convertible Securities) would purchase at the Current Market Price per share of Common Stock on the Determination Date. Such adjustment shall be made successively whenever any such rights, warrants or options are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, warrants or options. In the event that all of the shares of Common Stock (or Convertible Securities) subject to such rights, warrants or options have not been issued when such rights, warrants or options expire (or, in the case of rights, warrants or options to purchase Convertible Securities which have been exercised, all of the shares of Common Stock issuable upon conversion, exercise or exchange of such Convertible Securities have not been issued prior to the expiration of the conversion, exercise or exchange right thereof), then the Conversion Rate shall be readjusted retroactively to be the Conversion Rate which would then be in effect had the adjustment upon the issuance of such rights, warrants or options been made on the basis of the actual number of shares of Common Stock (or Convertible Securities) issued upon the exercise of such rights, warrants or options (or the conversion, exercise or exchange of such Convertible Securities); but such subsequent adjustment shall not affect the number of shares of Common Stock issued upon the conversion of any Share prior to the date such subsequent adjustment is made. No adjustment shall be made under this paragraph 5(d) if the adjusted Conversion Rate would be lower than the Conversion Rate in effect immediately prior to such adjustment.

        (e)  In case this Corporation, on or after the Initial Issue Date, shall distribute (by reclassification or otherwise) to all holders of shares of Common Stock any evidences of its indebtedness or assets, any Convertible Securities, or any rights, warrants or options to purchase shares of Capital Stock or Convertible Securities (excluding (x) dividends or distributions referred to in paragraph 5(c), distributions of rights, warrants or options referred to in paragraph 5(d), distributions of Spin Off

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Securities referred to in paragraph 5(h) and distributions of rights, warrants or options exercisable for Exchange Securities (which shall be governed by paragraph 6) and (y) cash dividends or distributions unless such cash dividends or cash distributions are Extraordinary Cash Dividends), then in each such case the number of shares of Common Stock into which each Share shall thereafter be convertible shall be determined by multiplying the number of shares of Common Stock into which such Share was theretofore convertible immediately prior to the opening of business on (A) the record date for the determination of stockholders entitled to receive the distribution or (B) in the case of a reclassification, the effective date of such reclassification, by a fraction of which the numerator shall be the Current Market Price per share of the Common Stock on the Determination Date and of which the denominator shall be such Current Market Price per share of Common Stock less the fair market value (as determined by the Board of Directors of this Corporation, whose determination shall be conclusive) on such record date or effective date of the portion of the assets or evidences of indebtedness, Convertible Securities or rights, warrants or options so to be distributed applicable to one share of Common Stock; provided, however, that in the event the denominator of the foregoing fraction is zero or negative, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of a Share shall have the right to receive upon conversion of such Share, in addition to the shares of Common Stock to which the holder is entitled, the assets or evidences of indebtedness, Convertible Securities or rights, warrants or options such holder would have received had such holder converted such Share immediately prior to the record date for such distribution or effective date of such reclassification. Such adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution or effective date of such reclassification. No adjustment shall be made under this paragraph 5(e) if the adjusted Conversion Rate would be lower than the Conversion Rate in effect immediately prior to such adjustment.

        For purposes of this paragraph 5(e), the term "Extraordinary Cash Dividend" shall mean any cash dividend with respect to the Common Stock the amount of which, together with the aggregate amount of cash dividends on the Common Stock to be aggregated with such cash dividend in accordance with the following provisions of this paragraph, equals or exceeds the threshold percentage set forth below in the following sentence. If, upon the date prior to the Ex-Dividend Date with respect to a cash dividend on the Common Stock, the aggregate of the amount of such cash dividend together with the amounts of all cash dividends on the Common Stock with Ex-Dividend Dates occurring in the 365 consecutive day period ending on the date prior to the Ex-Dividend Date with respect to the cash dividend to which this provision is being applied (other than any such other cash dividends with Ex-Dividend Dates occurring in such period for which a prior adjustment in the Conversion Rate was previously made under this paragraph 5(e)) equals or exceeds on a per share basis 10% of the average of the Closing Prices during the period beginning on the date after the first such Ex-Dividend Date in such period and ending on the date prior to the Ex-Dividend Date with respect to the cash dividend to which this provision is being applied (except that if no other cash dividend has had an Ex-Dividend Date occurring in such period, the period for calculating the average of the Closing Prices shall be the period commencing 365 days prior to the date immediately prior to the Ex-Dividend Date with respect to the cash dividend to which this provision is being applied), such cash dividend together with each other cash dividend with an Ex-Dividend Date occurring in such 365-day period that is aggregated with such cash dividend in accordance with this paragraph shall be deemed to be an Extraordinary Cash Dividend.

        (f)    (i) Except as otherwise provided in subparagraph (ii) below, if this Corporation consolidates with any other entity or merges into another entity, or in case of any sale or transfer to another entity (other than by mortgage or pledge) of all or substantially all of the properties and assets of this Corporation, or if the Corporation is a party to a merger or binding share exchange which reclassifies or changes its outstanding Common Stock (any such transaction, an "Acquisition Transaction"), this Corporation (or its successor in such transaction) or the purchaser of such properties and assets shall

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make appropriate provision so that on the effective date of such transaction each share of Series D-1 Preferred Stock, Series D-2 Preferred Stock and Series D 3 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 (taking into account for this purpose (to the extent applicable) the valid exercise by such holder of any rights of election made available to holders of Common Stock, which rights of election shall simultaneously be made available to holders of Shares on the same basis as if such Shares had theretofore been converted into shares of Common Stock), and the holders of the Series D Preferred Stock shall have no other conversion rights under these provisions; provided that effective provision shall be made, in the Articles or Certificate of Incorporation of the resulting or surviving corporation or the Acquiror (as appropriate) or otherwise or in any contracts of sale or transfer, so that the provisions set forth herein for the protection of the conversion rights of the Series D Preferred Stock shall thereafter be made applicable, as nearly as reasonably may be, to any such other securities and other assets deliverable upon conversion of the Series D Preferred Stock remaining outstanding or other convertible preferred stock or other convertible securities received by the holders of Series D Preferred Stock in place thereof; and provided, further, that any such resulting or surviving corporation or the Acquiror (as appropriate) or purchaser shall expressly assume the obligation to deliver, upon the exercise of the conversion privilege, such securities, cash or other assets as the holders of the shares of Series D Preferred Stock remaining outstanding, or other convertible preferred stock or other convertible securities received by the holders in place thereof, shall be entitled to receive pursuant to the provisions hereof, and to make provision for the protection of the conversion rights as above provided.

        (ii)  Notwithstanding the provisions of subparagraph (i) above, in the event that any such Acquisition Transaction is consummated prior to the Initial Conversion Date, then each share of Series D-1 Preferred Stock, Series D-2 Preferred Stock and Series D-3 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.

        (g)  Subject to paragraph 5(k) and to the remaining provisions of this paragraph 5(g), in the event that a holder of a Share would be entitled to receive upon conversion thereof pursuant to this paragraph 5 any Redeemable Capital Stock and this Corporation redeems, exchanges or otherwise acquires all of the outstanding shares or other units of such Redeemable Capital Stock (such event being a "Redemption Event"), then, from and after the effective date of such Redemption Event, the holders of Shares then outstanding shall be entitled to receive upon conversion of such Shares, in lieu of shares or units of such Redeemable Capital Stock, the kind and amount of securities, cash and other assets receivable upon the Redemption Event by a holder of the number of shares or units of such Redeemable Capital Stock into which such Shares could have been converted immediately prior to the effective date of such Redemption Event (assuming, to the extent applicable, that such holder failed to exercise any rights of election with respect thereto and received per share or unit of such Redeemable Capital Stock the kind and amount of securities, cash and other assets received per share or unit by a plurality of the non-electing shares or units of such Redeemable Capital Stock), and (from and after the effective date of such Redemption Event) the holders of the Series D Preferred Stock shall have no other conversion rights under these provisions with respect to such Redeemable Capital Stock.

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        Notwithstanding the foregoing, if the redemption price for the shares of such Redeemable Capital Stock is paid in whole or in part in Redemption Securities, and the Mirror Preferred Stock Condition is met, a Share shall not be convertible into such Redemption Securities and, from and after the applicable redemption date, the holders of any shares of Series D Preferred Stock that have not been exchanged for Mirror Preferred Stock and Exchange Preferred Stock shall have no conversion rights under these provisions except for any conversion right that may have existed immediately prior to the effective date of the Redemption Event with respect to any securities (including the Common Stock), cash or other assets other than the Redeemable Capital Stock so redeemed. This Corporation shall use all commercially reasonable efforts to ensure that the Mirror Preferred Stock Condition is satisfied. The "Mirror Preferred Stock Condition" will be satisfied in connection with a redemption of any Redeemable Capital Stock into which the Series D Preferred Stock is then convertible if appropriate provision is made so that the holders of the Series D Preferred Stock have the right to exchange their shares of Series D Preferred Stock on the effective date of the Redemption Event for Exchange Preferred Stock of this Corporation and Mirror Preferred Stock of the issuer of the Redemption Securities. The sum of the initial liquidation preferences of the shares of Exchange Preferred Stock and Mirror Preferred Stock delivered in exchange for a Share will equal the Liquidation Preference of that Share on the effective date of the Redemption Event. The Mirror Preferred Stock issuable in respect of each subseries of Series D Preferred Stock will have an aggregate initial liquidation preference equal to the product of the aggregate Liquidation Preference of the Shares of such subseries exchanged therefor and the quotient of (x) the product of the Conversion Rate for the Redeemable Capital Stock to be redeemed (determined immediately prior to the effective date of the Redemption Event) and the average of the daily Closing Prices of the Redeemable Capital Stock for the period of ten (10) consecutive trading days ending on the third trading day prior to the effective date of the Redemption Event, divided by (y) the sum of the amount determined pursuant to clause (x), plus the fair value of the securities (other than the Redeemable Capital Stock being redeemed), cash or other assets that would have been receivable by a holder of Series D Preferred Stock upon conversion thereof immediately prior to the effective date of the Redemption Event (such fair value to be determined in the case of stock or other securities with a Closing Price in the same manner as provided in clause (x) and otherwise by the Board of Directors in the exercise of its good faith judgment). The shares of Exchange Preferred Stock issuable in respect of a subseries of Series D Preferred Stock will have an aggregate initial liquidation preference equal to the difference between the aggregate Liquidation Preference of the Shares of such subseries exchanged therefor and the aggregate initial liquidation preference of the Mirror Preferred Stock issuable in respect of such subseries of Series D Preferred Stock.

        (h)  If this Corporation effects a Spin Off, this Corporation shall make appropriate provision so that the holders of Shares of each subseries of Series D Preferred Stock have the right to exchange their Shares on the effective date of the Spinoff for Exchange Preferred Stock of this Corporation and Mirror Preferred Stock of the issuer of the Spin Off Securities. The sum of the initial liquidation preferences of the shares of Exchange Preferred Stock and Mirror Preferred Stock delivered in exchange for a Share will equal the Liquidation Preference of such Share on the effective date of the Spin Off. The shares of Mirror Preferred Stock issuable in respect of a subseries of Series D Preferred Stock will have an aggregate liquidation preference equal to the product of the aggregate Liquidation Preference of the Shares of such subseries exchanged therefor and the quotient of (x) the product of the number (or fraction) of Spin Off Securities that would have been receivable upon such Spin Off by a holder of the number of shares of Common Stock issuable upon conversion of a Share of such subseries immediately prior to the record date for the Spin Off and the average of the daily Closing Prices of the Spin Off Securities for the period of ten (10) consecutive Trading Days commencing on the tenth Trading Day following the effective date of the Spin Off, divided by (y) the sum of the amount determined pursuant to clause (x), plus the fair value of the shares of Common Stock and other securities (other than Spin Off Securities), cash or other assets that would have been receivable

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by a holder of a Share of such subseries upon conversion thereof immediately prior to the record date for the Spin Off (such fair value to be determined in the case of Common Stock or other securities with a Closing Price in the same manner as provided in clause (x) and otherwise by the Board of Directors in the exercise of its good faith judgment). The shares of Exchange Preferred Stock issuable in respect of a subseries of Series D Preferred Stock will have an aggregate initial liquidation preference equal to the difference between the aggregate Liquidation Preference of the Shares of such subseries exchanged therefor and the aggregate initial liquidation preference of the Mirror Preferred Stock issuable in respect of such subseries of Series D Preferred Stock. From and after the effective date of the Spin Off the holders of any Shares of any subseries that have not been exchanged for Mirror Preferred Stock and Exchange Preferred Stock as provided above shall have no conversion rights under these provisions with respect to such Spin Off Securities.

        (i)    In the event that this Corporation or any Subsidiary of this Corporation consummates a tender or exchange offer (other than an odd-lot tender offer) for all or any portion of the outstanding shares of Common Stock in which the amount of cash and/or the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and shall be described in a resolution of the Board of Directors) of any other consideration included in the amount payable per share of Common Stock as of the last time (the "Expiration Time") that tenders or exchanges may be made pursuant to such tender or exchange offer (as amended), exceeds the first reported sale price per share of Common Stock on The Nasdaq National Market on the Trading Day next succeeding the Expiration Time, then the number of shares of Common Stock into which each Share shall thereafter be convertible shall be determined by multiplying the number of shares of Common Stock into which such Share was theretofore convertible immediately prior to the Expiration Time by a fraction (i) the numerator of which shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) as of the close of business on the day on which the Effective Time occurs (the "Expiration Day") and the first reported sale price of the Common Stock on the Trading Day next succeeding the Expiration Day, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) as of the close of business on the Expiration Day multiplied by the first reported sale price of the Common Stock on the Trading Day next succeeding the Expiration Day, such adjustment to become effective immediately prior to the opening of business on the first Business Day following the Expiration Time. No adjustment shall be made under this paragraph 5(i) if the adjusted Conversion Rate would be lower than the Conversion Rate in effect immediately prior to such adjustment.

        (j)    Whenever the Conversion Rate or the conversion privilege shall be adjusted as provided in this paragraph 5, this Corporation shall promptly cause a notice to be mailed to the holders of record of shares of each subseries of the Series D Preferred Stock describing the nature of the event requiring such adjustment, the Conversion Rate of the applicable subseries of Series D Preferred Stock in effect immediately thereafter and the kind and amount of Capital Stock or other securities or cash or other assets into which each subseries of the Series D Preferred Stock shall be convertible after such event. Where appropriate, such notice may be given in advance and included as a part of a notice required to be mailed under the provisions of paragraph 5(l).

        (k)  This Corporation may, but shall not be required to, make any adjustment of the Conversion Rate if such adjustment would require an increase or decrease of less than 1% in such Conversion Rate; provided, however, that any adjustments which by reason of this paragraph 5(k) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 5 shall be made to the nearest cent or the nearest 1/1000th of a

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share, as the case may be. In any case in which this paragraph 5(k) shall require that an adjustment shall become effective immediately after a record date for such event, the Corporation may defer until the occurrence of such event (x) issuing to the holder of any Shares converted after such record date and before the occurrence of such event the additional shares of Common Stock or other Capital Stock issuable upon such conversion by reason of the adjustment required by such event over and above the shares of Common Stock or other Capital Stock issuable upon such conversion before giving effect to such adjustment and (y) paying to such holder cash in lieu of any fractional interest to which such holder is entitled pursuant to paragraph 5(p); provided, however, that, if requested by such holder, this Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares of Common Stock or other Capital Stock, and such cash, upon the occurrence of the event requiring such adjustment.

        To the extent the shares of Series D Preferred Stock become convertible into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash.

        (l)    In case at any time:

        (i)    this Corporation shall take any action which would require an adjustment in the Conversion Rate pursuant to this paragraph 5;

        (ii)  there shall be any capital reorganization or reclassification of the Common Stock (other than a change in par value), or any consolidation, merger or binding share exchange to which the Corporation is a party and for which approval of any stockholders of this Corporation is required, or any sale, transfer or lease of all or substantially all of the assets of the Corporation, or a tender offer for shares of Common Stock of any series representing at least a majority of the total voting power represented by the outstanding shares of Common Stock of such series which has been recommended by the Board of Directors as being in the best interests of the holders of Common Stock; or

        (iii)  there shall be a voluntary or involuntary dissolution, liquidation or winding up of this Corporation;

then, in any such event, this Corporation shall give written notice, in the manner provided in the first sentence of paragraph 7(c) hereof, to the holders of the Series D Preferred Stock at their respective addresses as the same appear on the books of the Corporation, at least twenty (20) days (or ten (10) days in the case of a recommended tender offer as specified in clause (ii) above) prior to any record date for such action, dividend or distribution or the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other assets, if any, deliverable upon such reorganization, reclassification, consolidation, merger, binding share exchange, sale, transfer, lease, tender offer, dissolution, liquidation or winding up; provided, however, that any notice required by any event described in clause (ii) of this paragraph 5(l) shall be given in the manner and at the time that such notice is given to the holders of Common Stock. Without limiting the obligations of this Corporation to provide notice of corporate actions hereunder, the failure to give the notice required by this paragraph 5(l) or any defect therein shall not affect the legality or validity of any such corporate action of the Corporation or the vote upon such action.

        (m)  Before any holder of Series D Preferred Stock shall be entitled to convert the same into Common Stock, such holder shall surrender the certificate or certificates for such Series D Preferred Stock at the office of this Corporation or at the office of the transfer agent for the Series D Preferred Stock, which certificate or certificates, if this Corporation shall so request, shall be duly endorsed to this Corporation or in blank or accompanied by proper instruments of transfer to this Corporation or in blank (such endorsements or instruments of transfer to be in form satisfactory to this Corporation), and shall give written notice to this Corporation at said office that it elects to convert all or a part of the Shares represented by said certificate or certificates in accordance with the terms of this

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paragraph 5, and shall state in writing therein the name or names in which such holder wishes the certificates for Common Stock to be issued. Every such notice of election to convert shall constitute a contract between the holder of such Series D Preferred Stock and the Corporation, whereby the holder of such Series D Preferred Stock shall be deemed to subscribe for the amount of Common Stock which such holder shall be entitled to receive upon conversion of the number of shares of each subseries of Series D Preferred Stock to be converted, and, in satisfaction of such subscription, to deposit the shares of each such subseries of Series D Preferred Stock to be converted, and thereby this Corporation shall be deemed to agree that the surrender of the shares of Series D Preferred Stock to be converted shall constitute full payment of such subscription for Common Stock to be issued upon such conversion. This Corporation will as soon as practicable after such deposit of a certificate or certificates for Series D Preferred Stock, accompanied by the written notice and the statement above prescribed, issue and deliver at the office of this Corporation or of said transfer agent to the person for whose account such Series D Preferred Stock was so surrendered, or to his nominee(s) or, subject to compliance with applicable law, transferee(s), a certificate or certificates for the number of full shares of Common Stock to which such holder shall be entitled, together with cash or its check in lieu of any fraction of a share as hereinafter provided. If surrendered certificates for Series D Preferred Stock are converted only in part, this Corporation will issue and deliver to the holder, or to his nominee(s), without charge therefor, a new certificate or certificates representing the aggregate of the unconverted shares of such subseries of Series D Preferred Stock.

        The person or persons entitled to receive the Common Stock issuable upon conversion of such Series D Preferred Stock shall be treated for all purposes as the record holder or holders of such Common Stock on the Conversion Date. Notwithstanding the foregoing, this Corporation shall not be required to convert any Shares, and no surrender of Series D Preferred Stock shall be effective for that purpose, while the stock transfer books of this Corporation are closed for any purpose; but such surrender shall be effective (assuming all other requirements of this paragraph 5(m) have been satisfied) for conversion, and to constitute the person or persons entitled to receive the Common Stock issuable upon such conversion as the record holder(s) of such shares of Common Stock, for all purposes immediately upon the reopening of such books. Upon conversion of Shares, the rights of the holder of the Shares so converted, as a holder thereof, will cease; provided, however, that if the Board of Directors declares any dividend on the Series D Preferred Stock pursuant to paragraph 3(a) of this Certificate of Designations and the Conversion Date for any Shares occurs after the Record Date and before the Dividend Payment Date for such dividend, then the holder of such Shares on such Record Date shall be entitled to receive such dividend on such Dividend Payment Date as if such Conversion Date had not occurred.

        The issuance of certificates for shares of Common Stock upon conversion of Shares shall be made without charge for any issue, stamp or other similar tax in respect of such issuance; provided, however, if any such certificate is to be issued in a name other than that of the registered holder of the Share or Shares converted, the person or persons requesting the issuance thereof shall pay to this Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of this Corporation that such tax has been paid.

        (n)  This Corporation shall at all times reserve and keep available, solely for the purpose of issuance upon conversion of the outstanding shares of Series D Preferred Stock, such number of shares of Common Stock (or other Capital Stock) as shall be issuable upon the conversion of all outstanding Shares, provided that nothing contained herein shall be construed to preclude this Corporation from satisfying its obligations in respect of the conversion of the outstanding shares of Series D Preferred Stock by delivery of shares of Common Stock (or such other Capital Stock) which are held in the treasury of this Corporation. This Corporation shall take all such corporate and other actions as from time to time may be necessary to insure that all shares of Common Stock (or other Capital Stock) issuable upon conversion of shares of Series D Preferred Stock from time to time will, upon issue, be

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duly and validly authorized and issued, fully paid and nonassessable and free of any preemptive or similar rights.

        (o)  All shares of Series D Preferred Stock received by this Corporation upon conversion thereof into Common Stock shall be retired and shall be restored to the status of authorized and unissued shares of Preferred Stock (and may be reissued as part of another series of the Preferred Stock of this Corporation, but such shares shall not be reissued as Series D Preferred Stock).

        (p)  This Corporation shall not be required to issue fractional shares of Common Stock or scrip upon conversion of the Series D Preferred Stock. As to any final fraction of a share of Common Stock which a holder of shares of Series D Preferred Stock would otherwise be entitled to receive upon conversion of Shares in the same transaction, this Corporation shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Closing Price of a full share of Common Stock on the Trading Day immediately preceding the Conversion Date.

        (q)  This Corporation shall not, by amendment of this Certificate of Designations or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, other than as expressly permitted by this Certificate of Designations or approved by the requisite vote or written consent of the holders of Series D Preferred Stock taken or given in accordance with this Certificate of Designations, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this paragraph 5 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of Series D Preferred Stock against impairment.

        6.    Exchange Option.

        (a)  In the event an Exchange Offer is commenced by this Corporation or a Subsidiary thereof (the applicable of the foregoing being the "Offeror"), the Offeror shall concurrently therewith make an equivalent offer to the holders of Series D Preferred Stock pursuant to which such holders may tender Shares in lieu of tendering outstanding shares of Common Stock (or other Capital Stock of this Corporation) (based upon the number of shares of Common Stock into which such tendered Shares are then convertible (or other Capital Stock of this Corporation receivable by a holder of tendered Shares upon conversion thereof (or upon conversion of securities receivable by a holder of Shares upon conversion of such tendered Shares))), together with such other consideration as may be required to be tendered pursuant to such Exchange Offer, and receive in exchange therefor, in lieu of Exchange Securities (and other property, if applicable), Mirror Preferred Stock with an aggregate liquidation preference equal to the aggregate Liquidation Preference of the Shares of the subseries of Series D Preferred Stock exchanged therefor. Whether or not a holder of Shares elects to accept such offer and tender Shares, no adjustment to the Conversion Rate of the Shares will be made pursuant to paragraph 5 in connection with the Exchange Offer, other than as provided in paragraph 5(i).

        (b)  If an Exchange Offer is made as discussed above, the Offeror shall, concurrently with the distribution of the offering circular or prospectus and related documents to holders of Common Stock, provide each holder of Series D Preferred Stock with a notice setting forth the offer described in paragraph 6(a) above and describing the Exchange Offer, the Exchange Securities and the Mirror Preferred Stock. Such notice shall be accompanied by the offering circular, prospectus or similar document provided to holders of Common Stock in respect of the Exchange Offer and a copy of the certificate of designations (or similar document) proposed to be filed by the Offeror in order to establish the Mirror Preferred Stock. No failure to mail the notice contemplated by this paragraph 6(b) or any defect therein or in the mailing thereof shall affect the validity of the applicable Exchange Offer.

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        7.    Redemption.

        (a)  Subject to paragraph 7(g), the shares of Series D Preferred Stock may be redeemed out of funds legally available therefor, at the option of this Corporation by action of the Board of Directors on any Business Day (i) during the period from the Initial Issue Date to (but not including) the Initial Conversion Date and (ii) occurring on or after June 30, 2005, in each case at the Redemption Price applicable to the Shares to be redeemed as of the applicable Redemption Date. Subject to the foregoing, the shares of Series D Preferred stock may be redeemed in whole or from time to time in part; provided, that in the event that less than all outstanding shares of Series D Preferred Stock are to be redeemed on any Redemption Date, (x) this Corporation shall be required to redeem all and not less than all of the shares of each subseries of Series D Preferred Stock called for redemption on such Redemption Date, and (y) all shares of Series D-1 Preferred Stock shall be redeemed prior to any shares of Series D-2 Preferred Stock being called for redemption, and all shares of Series D-2 Preferred Stock shall be redeemed prior to any shares of Series D-3 Preferred Stock being called for redemption.

        Shares called for redemption subsequent to the Initial Conversion Date may be converted pursuant to paragraph 5 at any time prior to the applicable Redemption Date.

        (b)  Subject to the rights of any Parity Securities and the provisions of paragraph 7(g) and subject to any prohibitions or restrictions contained in the Credit Agreement, at any time on or after a Default has occurred and during the continuance thereof, any holder of shares of Series D Preferred Stock shall have the right, at such holder's option, to require redemption by this Corporation at the applicable Redemption Price per Share as of the applicable Redemption Date of all or any portion of such holder's shares of Series D Preferred Stock, by written notice to this Corporation stating the number of shares of each subseries of the Series D Preferred Stock to be redeemed. This Corporation shall redeem, out of funds legally available therefor and not restricted in accordance with the first sentence of this paragraph 7(b), the Shares so requested to be redeemed on such date within ten (10) days following this Corporation's receipt of such notice as this Corporation shall state in its notice given pursuant to paragraph 7(c). If the funds of this Corporation legally available for redemption of Shares and not restricted in accordance with the first sentence of this paragraph 7(b) are insufficient to redeem the total number of Shares required to be redeemed pursuant to this paragraph 7(b), then those funds which are legally available for redemption of such Shares and not so restricted will be used to redeem the maximum possible number of such Shares ratably among the holders who have required Shares to be redeemed under this paragraph 7(b). At any time thereafter when additional funds of this Corporation are legally available and not so restricted for such purpose, such funds will immediately be used to redeem the Shares this Corporation failed to redeem on such Redemption Date until the balance of such Shares are redeemed. Further, if the funds of this Corporation legally available for redemption of Shares are sufficient to pay the Redemption Price of the Shares requested to be redeemed in full, then any portion of such Redemption Price not paid when due as provided in this paragraph 7(b), notwithstanding that payment thereof is restricted pursuant to the Credit Agreement in accordance with the first sentence of this paragraph 7(b), shall constitute indebtedness of this Corporation for borrowed money, the payment of which indebtedness the holders requesting such redemption shall be entitled to enforce by the exercise of any and all rights at law or in equity.

        (c)  Notice of any redemption pursuant to this paragraph 7 shall be mailed, first class, postage prepaid, not less than five (5) days nor more than thirty (30) days prior to the Redemption Date, to the holders of record of the shares of Series D Preferred Stock to be redeemed, at their respective addresses as the same appear upon the books of this Corporation or are supplied by them in writing to this Corporation for the purpose of such notice; but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of the Series D Preferred Stock. Such notice shall set forth the Redemption Price applicable to each subseries of the Series D Preferred Stock, the Redemption Date, the number of shares of each

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subseries of Series D Preferred Stock to be redeemed and the place at which the Shares called for redemption will, upon presentation and surrender of the stock certificates evidencing such Shares, be redeemed. In case fewer than the total number of shares of Series D Preferred Stock represented by any certificate are redeemed, a new certificate representing the number of unredeemed shares of such subseries of Series D Preferred Stock will be issued to the holder thereof without cost to such holder.

        (d)  If notice of any redemption by this Corporation pursuant to this paragraph 7 shall have been mailed as provided in paragraph 7(c) and if on or before the Redemption Date specified in such notice the consideration necessary for such redemption shall have been set apart so as to be available therefor and only therefor, then after the close of business on the Redemption Date, the Shares called for redemption, notwithstanding that any certificate therefor shall not have been surrendered for cancellation, shall no longer be deemed outstanding, and all rights with respect to such Shares shall forthwith cease and terminate, except the right of the holders thereof to receive upon surrender of their certificates the consideration payable upon redemption thereof.

        (e)  All shares of Series D Preferred Stock redeemed, retired, purchased or otherwise acquired by this Corporation shall be retired and shall be restored to the status of authorized and unissued shares of preferred stock (and may be reissued as part of another series of the preferred stock of this Corporation, but such shares shall not be reissued as Series D Preferred Stock).

        (f)    Subject to the rights of any Senior Securities, the terms of the Credit Agreement and the provisions of paragraph 7(g), this Corporation shall redeem, out of funds legally available therefor, on June 30, 2011 (or, if such day is not a Business Day, on the first Business Day thereafter) all shares of Series D Preferred Stock remaining outstanding at the Redemption Price on such date. If the funds of this Corporation legally available for such redemption of shares of the Series D Preferred Stock and any Parity Securities then required to be redeemed are insufficient to redeem the total number of such shares remaining outstanding, those funds which are legally available shall, subject to the rights of any Senior Securities, the terms of the Credit Agreement and the provisions of paragraph 7(g), be used to redeem the maximum possible number of shares of Series D Preferred Stock and each such other class or series of Parity Securities. Subject to the rights of any Senior Securities, the terms of the Credit Agreement and the provisions of paragraph 7(g), at any time and from time to time thereafter when additional funds of this Corporation are legally available for such purpose, such funds shall immediately be used to redeem the shares of Series D Preferred Stock and of each such other class or series of Parity Securities which were required to be redeemed pursuant to the provisions of this paragraph 7(f) that this Corporation failed to redeem until the balance of such shares have been redeemed. The selection of shares to be redeemed pursuant to the two immediately preceding sentences shall be made, as nearly as practicable, on a pro rata basis as among the different classes, series or subseries and as among the holders of shares of a particular class, series or subseries.

        (g)  If and so long as this Corporation shall fail to redeem on a Redemption Date pursuant to this paragraph 7 all shares of Series D Preferred Stock required to be redeemed on such date, this Corporation shall not redeem, or discharge any sinking fund obligation with respect to, any other shares of Series D Preferred Stock, Junior Securities or Parity Securities, or set aside any money or assets for any such purpose, unless all then outstanding Shares required to be redeemed are redeemed pursuant to the terms hereof, and shall not declare or pay any dividend on or make any distribution with respect to any Junior Securities or set aside any money or assets for any such purpose, and neither this Corporation nor any Subsidiary thereof shall purchase or otherwise acquire (except upon conversion thereof into Junior Securites in accordance with their terms) any Shares, Parity Securities or Junior Securities. Nothing contained in this paragraph 7(g) shall prevent the purchase or acquisition of Shares pursuant to a purchase or exchange offer or offers made to all holders of outstanding Shares, provided that the terms of the purchase or exchange offer shall be identical for all Shares of each subseries and all accrued dividends on such Shares shall have been declared and irrevocably set apart in trust for the benefit of the holders of such Shares and for no other purpose. The provisions of this

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paragraph 7(g) are for the benefit of holders of Series D Preferred Stock and accordingly the provisions of this paragraph 7(g) shall not restrict any redemption or purchase by this Corporation or a Subsidiary thereof of Shares held by any holder, provided that all other holders of Shares shall have waived in writing the benefits of this provision with respect to such redemption.

        8.    Voting Rights.

        (a)  The holders of the Series D Preferred Stock shall have no voting rights whatsoever, except as required by law, as provided in paragraph 11 and as provided in this paragraph 8. For so long as any shares of Series D Preferred Stock remain outstanding, this Corporation will not, either directly or indirectly, without the consent of the holders of record of at least 66²/3% of the number of shares of Series D Preferred Stock then outstanding (and, to the extent that one or more subseries of the Series D Preferred Stock are affected in a manner different from the manner in which each other subseries of Series D Preferred Stock is so affected, such affected subseries, voting together as a separate class), take any action (including by merger, consolidation or statutory share exchange with any other corporation or entity) to amend, alter or repeal (i) any of the provisions hereof, or (ii) any of the provisions of the Amended and Restated Certificate of Incorporation of this Corporation so as to affect adversely any preference or any relative or other right given to the Series D Preferred Stock. In addition, the affirmative vote of the holders of 66²/3% of the shares of Series D Preferred Stock outstanding shall be required in order for this Corporation to take any action to authorize an Acquisition Transaction consummated prior to the Initial Conversion Date unless the Acquiror specifically undertakes, in a written instrument signed by the Acquiror and this Corporation, to pay to the holders of Series D Preferred Stock the amounts required pursuant to paragraph 5(f)(ii).

        (b)  In addition to the rights set forth in paragraph 8(a), following the Initial Conversion Date, in connection with any matter as to which the holders of Common Stock are entitled to vote including, but not limited to, the election of directors, each share of Series D Preferred Stock issued and outstanding as of the Record Date for such meeting shall have (and the holder of record 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 Common Stock (or other Capital Stock) immediately prior to the Record Date for the determination of the stockholders entitled to vote upon such matter. Except as provided in paragraph 11 and this paragraph 8 and except as otherwise may be required by law, the holders of Common Stock, the holders of Series D Preferred Stock and the holders of any other class or series of Preferred Stock entitled to vote thereon shall be entitled to notice of and to attend any meeting of stockholders and to vote together as a single class.

        9.    Waiver.    Any provision of this Certificate of Designations which, for the benefit of the holders of Series D Preferred Stock, prohibits, limits or restricts actions by the Corporation, or imposes obligations on the Corporation, including but not limited to provisions relating to the obligation of the Corporation to redeem or convert such Shares, may be waived in whole or in part, or the application of all or any part of such provision in any particular circumstance or generally may be waived, in each case by the affirmative vote or with the consent of the holders of record of at least 66²/3% of the number of Shares then outstanding (or such greater percentage thereof as may be required by this Certificate of Designations, applicable law or any applicable rules of any national securities exchange or national interdealer quotation system), either in writing or by vote at an annual meeting or a special meeting called for such purpose at which the holders of Series D Preferred Stock shall vote as a separate class.

        10.    Preemptive Rights.    The holders of the Series D Preferred Stock will not have any preemptive right to subscribe for or purchase any shares of stock or any other securities which may be issued by this Corporation.

        11.    Senior or Parity Securities.    The Series D Preferred Stock shall not rank junior to any other classes or series of Capital Stock of this Corporation in respect of the right to receive dividends, rights

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of redemption or the right to participate in any liquidation, dissolution or winding up of this Corporation. Without the prior consent of the holders of record of at least 66²/3% of the number of Shares then outstanding, this Corporation shall not issue any Senior Securities or Parity Securities other than shares of any other subseries of Series D Preferred Stock.

        12.    Claims.    In the event of any action at law or suit in equity with respect to the Series D Preferred Stock, this Corporation, in addition to all other sums which it may be required to pay, will pay a reasonable sum for attorney's fees incurred by the holders of the Series D Preferred Stock in connection with such action or suit and all other costs of collection. The Corporation shall not assert its right to trial by jury in any action, suit or proceeding arising from or related to this Series D Preferred Stock.

        13.    Exclusion of Other Rights.    Except as may otherwise be required by law and for the equitable rights and remedies that may otherwise be available to holders of Series D Preferred Stock, the shares of Series D Preferred Stock shall not have any designations, preferences, limitations or relative rights, other than those specifically set forth in these resolutions (as such resolutions may, subject to paragraph 8, be amended from time to time) and in the Amended and Restated Certificate of Incorporation of this Corporation.

        14.    Headings.    The headings of the various paragraphs and subparagraphs hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

        FURTHER RESOLVED, that the appropriate officers of this Corporation are hereby authorized to execute and acknowledge a certificate setting forth these resolutions and to cause such certificate to be filed and recorded, in accordance with the requirements of Section 151(g) of the General Corporation Law of the State of Delaware."

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        The undersigned has signed this Certificate of Designations on this 29th day of June, 2001.

/s/ William D. Myers Name:William D. Myers
Title: Executive Vice President

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CERTIFICATE OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ON COMMAND CORPORATION

Series C Preferred Stock

Series D Preferred Stock

ON COMMAND CORPORATION CERTIFICATE OF DESIGNATIONS
SETTING FORTH A COPY OF A RESOLUTION CREATING AND AUTHORIZING THE ISSUANCE OF A SERIES OF PREFERRED STOCK DESIGNATED AS "CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK, SERIES D" ADOPTED BY THE BOARD OF DIRECTORS OF ON COMMAND CORPORATION

EX-10.9

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EXHIBIT 10.9

SEPARATION AND RELEASE AGREEMENT

        THIS SEPARATION AND RELEASE AGREEMENT dated as of April 25, 2001 ("this Agreement"), is entered into between Jerome H. Kern ("Executive") and On Command Corporation (the "Company").

RECITALS

        Executive and the Company desire to provide for termination of Executive's employment with the Company and the voluntary resolution of all issues relating to Executive's relationship with the Company and its affiliates.

AGREEMENT

        In consideration of the mutual covenants set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties, intending to be legally bound hereby, agree as follows:

        1.    Termination of Employment. As of the close of business on April 27, 2001, Executive will cease to be an officer or employee of any of the Company and any subsidiary of the Company (collectively, the "Employers") and, except as provided in this Agreement, Executive's work responsibilities and duties to any of the foregoing will cease, all as of the date hereof. Executive will continue to serve as Chairman of the Board of Directors of the Company (the "Board") until June 1, 2001 and thereafter until a successor is appointed by the Board (at which date Executive will resign as a member of the Board) or until Executive resigns from the Board (such date, the "Termination Date"). Until the Termination Date, Executive will perform the duties of Chairman of the Board diligently and in good faith.

        2.    Severance Pay and Other Consideration. Executive will receive the following severance pay and other consideration (all payments described in this paragraph 2 will be subject to all applicable federal, state and local withholding requirements):

        (a)  Until the Termination Date, Executive will be (i) paid salary at the rate currently being paid to him, (ii) entitled to all employee benefits to which he is currently entitled and (iii) entitled to the use of an office at the Company's headquarters and the services of his assistant.

        (b)  Executive acknowledges that no money or other consideration, other than that set forth in this paragraph 2, will be payable or owed by the Company or any of its subsidiaries to Executive as of and after the Termination Date, other than reimbursement for travel and other expenses owed to Executive in accordance with the Company's policies provided, however, that Executive will be entitled to expense reimbursement only to the extent that such expenses are incurred in connection with services provided to or on behalf of the Company which have been specifically requested by the Company and approved by Carl Vogel.

        (c)  Except as provided in paragraph 1, effective as of the date hereof, Executive will resign from all offices, directorships and similar positions held with any of the Employers and any of their subsidiaries and all directorships or other positions held as the representative of any of the Employers or any of their subsidiaries or affiliates in any other corporation or other entity in which any of the Employers has an interest.

        3.    Benefits.

        (a)  To the extent required by COBRA, Executive and his dependents may elect 18 months (or such other term as permitted by COBRA) of COBRA continuation coverage, at their own

1

expense, without any reimbursement or payment by the Company. The Company and Executive will accept, and will not challenge in any way, any reasonable interpretation of the COBRA rights of Executive or eligible dependents made under the relevant plan.

        (b)  Except to the extent provided herein, all employment benefits provided to Executive or his dependents by any of the Employers or by virtue of Executive's employment with any of the Employers will terminate on the Termination Date.

        4.    Preferred Stock. Pursuant to Section 12 of the Stock Purchase and Loan Agreement (the "Purchase Agreement") dated as of August 4, 2000, by and between the Executive and the Company, the Company has the right, under certain circumstances, to repurchase all or a portion of certain "Unvested Shares" (as defined in the Purchase Agreement). To the extent that the Company has the right to purchase such shares under Section 12 of the Purchase Agreement as a result of the termination of employment set forth in this Agreement, the Company waives such right to purchase any Unvested Shares. Executive also agrees that Section 24 of the Purchase Agreement is hereby amended to provide that to the extent the Executive has the right to vote any shares of stock acquired pursuant to the Purchase Agreement as a separate class, Executive will cause the Preferred Shares (as defined in the Purchase Agreement) to be voted in the manner as recommended by the Company's Board of Directors.

        5.    Releases.

        (a)  Executive, for himself and his heirs, successors and assigns, hereby forever waives, and releases and discharges the Employers, and their respective present or former directors, officers, shareholders, owners, managers, supervisors, employees, partners, attorneys, agents and representatives, and their respective successors, heirs and assigns (collectively, "Company Releasees") from, any and all actions, causes of action, claims, charges, demands, losses, damages, costs, attorneys' fees, judgments, liens, indebtedness and liabilities of every kind and character, whether known or unknown, suspected or unsuspected ("Claims"), that Executive may have or claim to have, in any way relating to or arising out of any event or act of omission or commission related to Executive's employment or other association with any of the Employers occurring from the beginning of time through the Termination Date, except (i) any Claim based on or arising from a breach by the Company of its obligations under this Agreement and (ii) any Claim for indemnification that Executive may have under (A) the certificate of incorporation, operating agreement or bylaws of any of the Employers arising from his employment or performance of services as a director, officer or employee of any of them or of any entity in which any of them or any subsidiary of any of them owns an interest or (B) paragraph 5(c) below. Without limiting the generality of the foregoing, Executive waives, and releases and discharges the Company Releasees from, the following:

•

Claims arising under any stock option, stock bonus, stock appreciation right or other incentive plan or agreement;



•

Claims arising under federal, state, or local laws prohibiting age, sex, race, disability, handicap, religion, or any other form of discrimination, such as the Age Discrimination in Employment Act, as amended, 29 U.S.C. ' 621 et seq., the Civil Rights Act, 42 U.S.C. ' 1981, the Equal Pay Act, 29 U.S.C. ' 206(d), the Americans With Disabilities Act, 42 U.S.C. ' 12101, and Title VII of the 1964 Civil Rights Act, as amended, 42 U.S.C. ' 2000e et seq.;



•

Claims arising under the Fair Labor Standards Act, 29 U.S.C. ' 201 et seq.;



•

Claims arising under the Employee Retirement Income Security Act, 29 U.S.C. ' 1001 et seq.;

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•

Claims arising under the National Labor Relations Act, 29 U.S.C. ' 151 et seq.;



•

Tort Claims;



•

Express or implied contract, quasi contract, or promissory estoppel Claims;



•

Retaliatory discharge Claims;



•

Wrongful discharge Claims;



•

All other legal and equitable Claims regarding Executive's employment or the termination of that employment.

        (b)  The Company, for itself and the other Employers, hereby forever waives, and releases and discharges Executive and his heirs, successors and assigns (collectively, "Executive Releasees" and collectively with Company Releasees, "Releasees") from, any and all Claims that any of the Employers may have or claim to have, in any way relating to or arising out of any event or act of omission or commission occurring from the beginning of time through the Termination Date (and the Company will indemnify Executive against any such Claim against Executive by another Employer), except any claim based on or arising from a breach by Executive of his obligations under this Agreement.

        (c)  The Company will indemnify and hold harmless Executive to the fullest extent permitted by applicable law, in respect of any liability, damage, cost or expense (including reasonable attorneys' fees) incurred in connection with the defense of any claim, action, suit or proceeding ("Proceeding") to which he is a party, or threat thereof, by reason of his being or having been an employee, officer or director of, or a consultant to, the Company or any subsidiary of the Company, or his serving or having served at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, business organization, enterprise, or other entity, including service with respect to employee benefit plans (each, a "Represented Entity") other than any Proceeding by or in the right of the Company, subsidiary or Represented Entity in which Executive is charged with improper personal benefit (whether or not involving action in an official capacity) and, in a Final Determination, is adjudged liable on the basis that personal benefit was improperly received. For purposes of this paragraph 6(c), "Final Determination" shall mean a decision or order of any court, arbitrator, governmental agency or other tribunal having jurisdiction over the Proceeding, which decision or order is final and non-appealable. Without limiting the generality of the foregoing, the Company will pay the expenses (including reasonable attorneys' fees) of defending any such Proceeding in advance of its final disposition, upon receipt of an undertaking by Executive to repay all amounts advanced if it should be ultimately determined that Executive is not entitled to be indemnified under this paragraph 5(c).

        (d)  By signing this Agreement, Executive and the Company represent to each other that such party has not filed any complaint, charge or lawsuit against any Releasee of the other party, and has not raised any Claim with a court or other governmental authority against any such Releasee. Executive and the Company each agrees not to pursue (and the Company will cause each other Employer not to pursue) with or before any court or governmental authority any Claim against any Releasee of the other relating to any of the matters released hereby, and further, that such party is not entitled to any remedy or relief if he or it were to pursue any such Claim. If the release by Executive or the Company set forth in this paragraph 5 is deemed to be invalid, unenforceable or illegal, then the court making such determination will reduce the effect of the release to the extent necessary to preserve the enforceability of the remainder of the release.

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        6.    Authority to Release. Executive and the Company each warrants to the other that such party has not assigned or transferred to any person or entity all or any portion of any Claim that is released, waived and discharged in this Agreement.

        7.    Return and Protection of Employer's Property; Restrictive Covenants.

        (a)  Within seven days after the Termination Date, Executive will return to the Company any and all property of any of the Employers in Executive's possession.

        (b)  Executive will not use, distribute or disclose to third parties any proprietary or confidential information, or any trade secrets of any of the Employers.

        (c)  If Executive breaches in any material respect any of the Executive's covenants in this paragraph 7 or any other representation, warranty, covenant or agreement set forth in this Agreement, the Company will have no further obligation to pay any amounts pursuant to this Agreement. Such right to terminate payment will be in addition to, and not in lieu of, any other remedy to which the Company may be entitled pursuant to this Agreement or otherwise.

        (d)  Executive acknowledges that the restrictive covenants set forth in this paragraph 7 are reasonable and that irreparable injury would result to the Company in the event of any breach by Executive of the covenants, and that such covenants are an essential condition of this Agreement. If any of such covenants is breached, the Company will be entitled, in addition to any other remedies and damages available, to injunctive relief from a court to restrain the violation of such covenants by Executive or by any person acting for or with Executive in any capacity whatsoever.

        (e)  If, notwithstanding Executive's acknowledgment as to the reasonableness of the covenants set forth in this paragraph, any of such covenants is held to be unenforceable by a court of competent jurisdiction, the parties direct that such court order the enforcement of such covenants, with such changes as the court deems reasonable, to the maximum extent permitted by law.

        8.    Non-Admission of Liability or Wrongdoing. By entering into this Agreement, neither Executive nor the Company admits any impropriety, wrongdoing or liability of any kind whatsoever, and on the contrary, expressly denies the same. Executive and the Company expressly agree that this Agreement has no precedential effect, value or impact whatsoever as to any person not a party to this Agreement.

        9.    Confidentiality. Executive will keep the terms of this Agreement confidential, and will not in any way disclose the same to any person for any reason whatsoever, unless (a) the disclosure is to an attorney or accountant for Executive and is necessary for the rendition of legal or tax advice by Executive's attorney or accountant (in which event Executive will be responsible for his attorney's or accountant's compliance with the restrictions stated in this paragraph), (b) the communication or disclosure is to Executive's spouse (in which event Executive will be responsible for his spouse's compliance with the restrictions stated in this paragraph), (c) the communication or disclosure is compelled by law, or (d) the communication or disclosure is in accordance with the provisions of paragraph 10.

        10.  Press Release. The Company and Executive will cooperate in the preparation of any press release or public announcement concerning the subject matter of this Agreement and neither the Company nor the Executive will issue any press release or public announcement without the consent of the other and neither the Company nor Executive will withhold its or his consent unreasonably.

        11.  Entire Agreement; Modification. This Agreement sets forth the entire agreement and understanding of the parties concerning the subject matter hereof, and supersedes all prior agreements, arrangements and understandings relative to that subject matter. No term or provision hereof may be modified or extinguished, in whole or in part, except by a writing which is dated and signed by the parties to this Agreement. No waiver of any of the provisions or conditions of this Agreement or of any of the rights, powers or privileges of a party will be effective or binding unless in writing and signed by

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the party claimed to have given or consented to such waiver. No representation, promise or inducement has been made to or relied upon by or on behalf of either party concerning the subject matter hereof which is not set forth in this Agreement. In particular, Executive will receive no salary, vacation pay, sick leave, benefit, payment, bonus, incentive compensation, stock award, performance award or other compensation related to his employment with any of the Employers other than the consideration set forth herein, and Executive hereby agrees that he is not entitled to the same.

        12.  Acknowledgments. Executive acknowledges that (a) Executive received from the Company a draft of this Agreement on April 22, 2001, (b) the final version of this Agreement was reached through discussions between the Company and Executive occurring between April 22, 2001 and April 26, 2001, (c) Executive was offered a period of time (through April 26, 2001) in which to consider this Agreement, and (d) Executive has been invited and advised to consult with an attorney regarding this Agreement before signing it. Executive voluntarily signs this Agreement, and—personally or through his attorney—returns this executed Agreement to Greg Armstrong, On Command Corporation, 7900 East Union Avenue, Denver, Colorado 80237, the authorized representative of the Company, by hand-delivery or certified mail, on or before April 26, 2001. By so returning this executed Agreement, Executive voluntarily waives the balance of the 21-day period provided by the Older Worker Benefit Protection Act, 29 U.S.C. ' 626(f)(1)(F)(i), and acknowledges that the requirements of 29 U.S.C. ' 626(f)(1)(F)(i) have been fully satisfied.

        Executive further acknowledges that Executive may revoke this Agreement by arranging for the delivery, by hand-delivery or certified mail, to Greg Armstrong, the authorized representative of the Company, (y) a written notice of revocation and (z) the payments provided by the Company to Executive pursuant to paragraph 2 of this Agreement (if previously paid to Executive), within the seven-day period following the Company's receipt of the executed Agreement, as provided by the Older Worker Benefit Protection Act, 29 U.S.C. ' 626(f)(1)(G). If the Company does not receive a written notice of revocation and the return of such payments provided by the Company to Executive, on a timely basis, this Agreement will take effect on the eighth day following the Company's receipt of the executed Agreement.

        13.  No Mistake. The parties forever waive all rights to assert that this Agreement was the result of a mistake of law or fact.

        14.  Notices. All notices, claims, requests, demands and other communications required hereunder will be in writing and will be deemed to be duly given if: (a) personally delivered (including delivery by Federal Express or other nationally recognized overnight courier) or (b) sent by telecopy as follows:

If to the Company, to:	On Command Corporation 7900 East Union Avenue Denver, Colorado 80237 Attn: President Telecopy No.: (720) 873-3399
With a copy similarly addressed:	Attn: General Counsel Telecopy No.: (720) 873-3397
If to Executive:	Jerome H. Kern 31 Albion Place Castle Rock, Colorado 80104

or to such other address or addresses as the party to whom notice is to be given may have previously furnished to the other in writing in the manner set forth above. Notices will be deemed given and received at the time of such personal delivery or telecopying.

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        15.  Governing Law. This Agreement will be governed and construed in accordance with the laws of Colorado without giving effect to rules regarding conflicts of laws.

        16.  Venue; Waiver of Jury Trial. The parties hereby irrevocably submit to the jurisdiction of, and agree that any action pertaining to this Agreement, the interpretation or enforcement hereof or the rights or obligations of the parties hereunder will be brought only in, the courts of the State of Colorado or the federal district court of the United States of America located in the State of Colorado. The parties consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that delivery of process or other papers in connection with any such action or proceeding in the manner provided in paragraph 14 or in such other manner as may be permitted by law will be valid and sufficient service thereof. Each party hereby irrevocably and unconditionally waives any right that such party may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement, or the transactions contemplated by this Agreement. Each party certifies and acknowledges that (i) no representative, agent or attorney of any other party has represented, expressly or otherwise, that such party would not, in the event of litigation, seek to enforce the foregoing waiver, (ii) each party understands and has considered the implications of this waiver, (iii) each party makes this waiver voluntarily and (iv) each party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this paragraph 16.

ON COMMAND CORPORATION
By:	/s/ Bertran Perkel
Title:	Sr. V.P. & General Counsel
Date:	4/26/01
/s/ Jerome H. Kern Jerome H. Kern
Date:	4/26/01

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SEPARATION AND RELEASE AGREEMENT
RECITALS
AGREEMENT

EX-10.10

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Dear                        :

        Effective                        ("End Date"), your position with On Command Corporation (the "Company") will be terminated. The purpose of this letter is to offer you severance benefits on the terms and conditions set forth in the attached Summary Plan Description for the On Command Corporation 2001 Severance Pay Plan ("SPD") and Waiver and Release Agreement.

        Please review the SPD carefully. If you sign the attached Waiver and Release Agreement, you will receive severance pay in the amount set forth in the Waiver and Release Agreement and you will, in return, relinquish all legal rights to sue or bring charges against the Company.

        THE ATTACHED WAIVER AND RELEASE AGREEMENT HAS BINDING LEGAL EFFECT AND CAN BE ENFORCED IN COURT ONCE YOU SIGN IT. YOU ARE INVITED AND ADVISED TO CONSULT AN ATTORNEY BEFORE YOU SIGN IT.

        Under the Older Workers' Benefit Protection Act ("OWBPA"), you must be offered at least forty-five (45) days after your last day of work to consider the Waiver and Release Agreement. Please feel free to take the full 45 days to consider the Waiver and Release Agreement. If you do not wish to take advantage of the full 45-day consideration period, please sign and return the Waiver of OWBPA 45-day Waiting Period form. YOU CANNOT SIGN AND RETURN EITHER THE WAIVER AND RELEASE AGREEMENT OR THE WAIVER OF OWBPA 45-DAY WAITING PERIOD FORM UNTIL AFTER YOUR END DATE. At the appropriate time, the documents should be returned to Kim Getman, Human Resources Department, On Command Corporation, 7900 East Union Avenue, Denver, CO 80237.

        FURTHER, AFTER YOU SIGN THE WAIVER AND RELEASE AGREEMENT, YOU WILL HAVE A SEVEN (7) DAY GRACE PERIOD WITHIN WHICH YOU MAY REVOKE YOUR SIGNATURE TO THE AGREEMENT BY GIVING WRITTEN NOTICE, AND THE AGREEMENT WILL NOT BE EFFECTIVE OR ENFORCEABLE UNTIL THE SEVEN (7) DAY REVOCATION PERIOD HAS EXPIRED. YOU WILL NOT RECEIVE ANY SEVERANCE PAY UNTIL ALL APPLICABLE WAITING PERIODS HAVE ELAPSED.

        IF THE COMPANY DOES NOT RECEIVE THE FULLY-EXECUTED WAIVER AND RELEASE AGREEMENT ON OR BEFORE THE FORTY-NINTH (49^TH) DAY AFTER YOUR END DATE, THIS SEVERANCE OFFER WILL BE REVOKED AND ALL TERMS AND CONDITIONS SET FORTH IN THE AGREEMENT WILL BE NULL AND VOID.

        If you choose not to sign the Waiver and Release Agreement, please be assured that the Company will not engage in retaliation of any kind, by reason of your decision not to sign, or to revoke your acceptance. Of course, the Company reserves its right to defend itself to the fullest against any lawsuit, claim or charge that you may bring in the future, and to assert any available counterclaims against you as permitted by law.

        To acknowledge your receipt of this letter, the attached SPD, and the Waiver and Release Agreement, please sign the Employee's Acknowledgment in the space provided, enter the date, and return a copy of this letter to Kim Getman, Human Resources Department, On Command Corporation, 7900 East Union Avenue, Denver, CO 80237.

        If you have any questions regarding this letter, please contact me at 720/873-3403.

ON COMMAND CORPORATION

Kim Getman
Corporate Human Resources Manager

EMPLOYEE'S ACKNOWLEDGMENT

        I have read and I understand this letter, and I acknowledge receipt of a Summary Plan Description for the On Command Corporation 2001 Severance Pay Plan, dated May 18, 2001 and a Waiver and Release Agreement.

Employee Signature:	Date Received:
	Date Signed:

WAIVER AND RELEASE AGREEMENT

        I,                        , do freely and voluntarily enter into this Waiver and Release Agreement ("Agreement"), intending to be legally bound according to the terms set forth below.

        I acknowledge that On Command Corporation ("Employer") has agreed to pay me the sum of                        Dollars ($                        ), less applicable tax withholding, in exchange for my agreements set forth below in this Agreement. I acknowledge that this sum represents an additional payment to me, over and above all compensation (including salary, wages, bonuses, or benefits) to which I am entitled due to my employment.

        For this valuable consideration, I hereby agree and state as follows:

1.

I, individually and on behalf of my successors, heirs and assigns, release, waive and discharge Employer and any of its parents, subsidiaries, or otherwise affiliated corporations, partnerships or business enterprises, and their respective present and former directors, shareholders, employees, and assigns (hereinafter "Released Parties"), from any and all causes of action, claims, charges, demands, losses, damages, costs, attorneys' fees and liabilities of any kind that I may have or claim to have, in any way relating or arising out of any act of commission or omission from the beginning of time through the date of my execution of this Agreement. This release includes, but is not limited to:

a.

Claims under federal, state, or local laws prohibiting age, sex, race, national origin, disability, religion, retaliation, or any other form of discrimination, such as the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, Civil Rights Act of 1991, 42 U.S.C. §1981, §1985, §1986 and the Americans with Disabilities Act.

b.

Intentional infliction of emotional distress and other tort claims;

c.

Breach of express or implied contract claims;

d.

Promissory estoppel claims;

e.

Retaliatory discharge claims;

f.

Wrongful discharge claims;

g.

Breach of the express or implied covenant of good faith and fair dealing;

h.

Constructive discharge; and

i.

Other legal and equitable claims relating to my original offer of employment, my employment, and the termination of my employment.

2.

I hereby warrant and represent that I have not filed or caused to be filed any charge or claim against any Released Party with any administrative agency, court of law or other tribunal. I agree not to pursue or bring before any federal, state or other governmental authority or court any claim, complaint, or charge against any of the Released Parties, relating to any of the matters

2

released hereby, and further, I agree that I am not entitled to any remedy or relief if I were to pursue any such claim, complaint or charge.

3.

I acknowledge that to the extent that I have been granted options to purchase Employer's stock, the vesting of such options will not accelerate as a result of the termination of my employment and any options that were vested on the last day of my employment will terminate                         months after the last day of my employment.

4.	I acknowledge that my last day of employment with Employer was	.	Initial:
		[Fill In Date]	Employer
			Employee

5.

I hereby declare that this Agreement constitutes the entire and final agreement between me and the Released Parties, superseding any and all prior agreements, and that the Released Parties have not made any promise or offered any other agreement, except those expressed in this document, to induce or persuade me to enter into this Agreement.

6.

I hereby acknowledge that I am forty (40) years of age or over.

7.

BY SIGNING THIS AGREEMENT, I ACKNOWLEDGE THAT EMPLOYER HAS ADVISED ME TO DISCUSS THIS WAIVER AND RELEASE AGREEMENT WITH AN ATTORNEY BEFORE SIGNING THIS AGREEMENT. I acknowledge and agree that the Released Parties are not responsible for any of my costs, expenses, and attorney's fees, if any, incurred in connection with any claim or the review and signing of this Agreement.

8.

I acknowledge and state that I have been given a period of at least forty-five (45) days in which to consider the terms of this Agreement.

9.

I UNDERSTAND THAT I HAVE THE RIGHT TO REVOKE THIS AGREEMENT AT ANY TIME WITHIN SEVEN (7) DAYS AFTER SIGNING IT, BY PROVIDING WRITTEN NOTICE TO KIM GETMAN, HUMAN RESOURCES DEPARTMENT, ON COMMAND CORPORATION, 7900 EAST UNION AVENUE, DENVER, CO 80237, AND THIS AGREEMENT IS NOT EFFECTIVE OR ENFORCEABLE UNTIL THE SEVEN (7) DAY REVOCATION PERIOD HAS EXPIRED.

10.

I acknowledge that, pursuant to the Age Discrimination in Employment Act, I have had at least forty-five (45) days to consider the information provided by Employer in Exhibit A attached to this Agreement which:

a.

identifies all employees, by age and job title, to whom this severance arrangement has been offered; and

b.

identifies all employees, by age and job title, who were eligible for this severance arrangement.

11.

I acknowledge that the Summary Plan Description for the On Command Corporation 2001 Severance Pay Plan, a copy of which has been provided to me, describes the individuals covered by the severance arrangement, the eligibility requirements for the severance arrangement, and the time limits applicable to the severance arrangement.

12.

I acknowledge that my Agreement Regarding Proprietary Information and Inventions and my Confidentiality Agreement remain in effect. Further, I agree not to disclose confidential and proprietary information of any Released Party to any third party, except in response to a valid Order of a court or other governmental body of the United States, and only after providing

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Released Parties notice and an opportunity to respond to such third parties regarding such disclosure. Confidential and proprietary information includes, but is not limited to, identity of customers, vendors and suppliers, marketing methods, prices and business strategies, intellectual property, system designs, computer software, compensation and benefits of employees and other items of employment.

13.

I represent and warrant that I have returned all documents and equipment relating to my employment with Employer, including without limitation, all files, training materials, policies and procedures, notebooks, handbooks, customer lists, mailing lists, account information, credit cards, phone cards, cellular phones, automobiles, computers and all other tangible or intangible property belonging to Employer, and relating to my employment. I further warrant and represent that I have not retained copies of such property.

14.

I agree to cooperate fully with the Released Parties concerning any business or legal matters about which I had knowledge during my employment.

15.

I agree that this Agreement is a compromise of claims and charges and/or potential claims and charges which may be in dispute, and that this Agreement does not constitute an admission of liability or an admission against interest of any Released Party.

16.

In the event I violate or otherwise breach this Agreement, I shall be subject to legal and injunctive relief and shall be liable for the reasonable costs and expenses (including attorneys' fees) incurred by the Released Parties in connection with enforcement of this Agreement.

17.

This Agreement shall be governed by the laws of the State of Colorado without effect to conflicts of law principles.

18.

THIS AGREEMENT BECOMES NULL AND VOID AND OF NO FURTHER FORCE OR EFFECT IF EMPLOYER DOES NOT RECEIVE THE EXECUTED AGREEMENT ON OR BEFORE THE FORTY-NINTH (49^TH) DAY AFTER MY END DATE AS SET BY EMPLOYER.

IN WITNESS WHEREOF, I have placed my signature this            of                        , 2002.

	EMPLOYEE
Witness
STATE OF
	)
	)ss:
COUNTY OF	)

        On this            day of                        , 2002, before me,                         , the undersigned, personally appeared                        , known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and acknowledged that he/she executed the same for the purposes therein contained.

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        IN WITNESS WHEREOF, I hereunto set my hand and official seal.

	Notary Public
[SEAL]	My commission expires:

Date Received:
	Human Resources
Date Approved:
	Human Resources

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EXHIBIT A

6

WAIVER OF OWBPA 45 DAY WAITING PERIOD

        I acknowledge that on or about                        , my Employer gave me a Waiver and Release Agreement as part of the On Command Corporation 2001 Severance Pay Plan and advised me to consult an attorney before I signed it and further advised me that I had forty-five (45) days from my End Date to consider that Agreement.

        Although forty-five (45) days from my End Date have not passed, I have considered the Agreement, and:

have consulted an attorney. OR although advised to, have decided not to have an attorney review the Agreement.

[Circle one of the above]

        Therefore, I waive any remaining portion of the forty-five (45) day review period and request that the seven (7) day revocation period during which I may revoke my acceptance of the Agreement, begin. I UNDERSTAND THAT I MAY NOT WAIVE THE SEVEN (7) DAY REVOCATION PERIOD. I further authorize the Employer to release to me the severance payment less applicable tax withholdings upon the expiration of the seven (7) day revocation period.

Date

NOTE:    This Waiver cannot be executed prior to your End Date!

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EMPLOYEE'S ACKNOWLEDGMENT
WAIVER AND RELEASE AGREEMENT
EXHIBIT A
WAIVER OF OWBPA 45 DAY WAITING PERIOD

EX-10.16

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ON COMMAND CORPORATION
AMENDMENT NO. 2

        AMENDMENT NO. 2 (this "Amendment"), dated as of November 14, 2001, to the Credit Agreement, dated as of July 18, 2000, by and among ON COMMAND CORPORATION, a Delaware corporation (the "Borrower"), the Lenders party thereto, TORONTO DOMINION (TEXAS), INC. and FLEET NATIONAL BANK, as the Documentation Agents, BANK OF AMERICA, N.A., as the Syndication Agent, THE BANK OF NEW YORK COMPANY, INC., as the Swingline Lender, and THE BANK OF NEW YORK, as the Issuing Bank and as the Administrative Agent for the Lenders thereunder, as amended by Amendment No. 1, dated as of March 27, 2001 (the "Credit Agreement").

RECITALS

        I.    Except as otherwise provided herein, capitalized terms used herein that are not defined herein shall have the meanings set forth in the Credit Agreement.

        II.    The parties hereto wish to amend and restate the Credit Agreement on the terms and conditions set forth herein.

        NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby

acknowledged, and pursuant to Section 9.8 of the Credit Agreement, the parties hereto hereby agree as follows:

        1.    The Credit Agreement is hereby amended and restated in its entirety so as to read as presently set forth therein with the following exceptions:

        2.    Section 1.1 of the Credit Agreement is amended to amend and restate the defined term "Applicable Margin" in its entirety, effective for the period from and after November 14, 2001, to read as follows:

        "Applicable Margin" shall mean, for any day, with respect to any Eurodollar Loan or any ABR Loan, the percentage set forth below under the caption "Eurodollar Margin" or "ABR Margin", as the case may be, based upon the Leverage Ratio, then in effect for purposes hereof:

Leverage Ratio	Eurodollar Margin		ABR Margin
Category 1
Greater than or equal to 4.50 to 1.00	2.750	%	1.750	%
Category 2
Greater than or equal to 4.00 to 1.00 but less than 4.50 to 1.00	2.500	%	1.500	%
Category 3
Greater than or equal to 3.50 to 1.00 but less than 4.00 to 1.00	2.000	%	1.000	%
Category 4
Greater than or equal to 3.00 to 1.00 but less than 3.50 to 1.00	1.950	%	0.950	%
Category 5
Greater than or equal to 2.50 to 1.00 but less than 3.00 to 1.00	1.750	%	0.750	%
Category 6
Greater than or equal to 2.00 to 1.00 but less than 2.50 to 1.00	1.550	%	0.550	%
Category 7
Greater than or equal to 1.00 to 1.00 but less than 2.00 to 1.00	1.325	%	0.3250	%
Category 8
Less than 1.00 to 1.00	1.100	%	0.100	%

Except as set forth below, the Leverage Ratio utilized for purposes of determining the Applicable Margin shall be that in effect as of the last day of the most recent fiscal quarter of the Borrower in respect of which financial statements have been delivered pursuant to this Agreement. The Applicable Margin from time to time in effect shall be based on the Leverage Ratio from time to time in effect, and each change in the Applicable Margin resulting from a change in (or the initial establishment of) the Leverage Ratio shall be effective with respect to all Loans, the Revolving Loan Commitment and Letters of Credit outstanding on and after the date of delivery to the Administrative Agent of the financial statements and certificates required by Section 5.4(a) or (b) indicating such change to and including the date immediately preceding the next date of delivery of such financial statements and certificates indicating another such change. Notwithstanding the foregoing, at all times during which the Borrower has failed to deliver the

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financial statements and certificates required by Section 5.4(a) or (b) and at all times after the occurrence and during the continuance of an Event of Default, the Leverage Ratio shall, in each case, be deemed to be in Category 1 above.

        1.    Section 1.1 of the Credit Agreement is amended to amend and restate the defined term "Change in Control" in its entirety to read as follows:

        (a)  the failure of Liberty Media Corporation, at all times, to own, directly or indirectly, at least 37.5% of the issued and outstanding Capital Stock of the Borrower and (ii) at least 37.5% of the issued and outstanding Voting Securities of the Borrower, or

        (b)  the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), other than Liberty Media Corporation or its Subsidiaries, of shares representing more than the percentage owned, directly or indirectly, at such time by Liberty Media Corporation or Affiliates of Liberty Media Corporation) of the issued and outstanding Capital Stock or Voting Securities of the Borrower.

        2.    Section 1.1 of the Credit Agreement is amended to amend and restate the defined term "EBITDA" in its entirety, effective for the period from and after September 30, 2001, to read as follows:

        "EBITDA" shall mean, for any period, the consolidated net income of the Borrower and the Restricted Subsidiaries for such period, computed on a consolidated basis in accordance with GAAP, plus, to the extent deducted in computing such consolidated net income and without duplication, the sum of (a) income tax expense, (b) interest expense, (c) depreciation, amortization and stock based compensation expense, (d) allocation of income to minority interests in earnings of consolidated Subsidiaries, (e) extraordinary losses (including restructuring provisions) and all other non-operating losses during such period, (f) expenses incurred during the fiscal years ending December 31, 2000 and December 31, 2001 in connection with the relocation of the Borrower's executive offices to the Denver, Colorado metropolitan area in a maximum aggregate amount of $16,100,000, (g) legal expenses incurred on or prior to December 31, 2000 with respect to the MagiNet settlement in an aggregate amount not exceeding $1,500,000, and (h) legal expenses incurred during the fiscal year ending December 31, 2001 with respect to the MagiNet settlement in an aggregate amount not exceeding $500,000, plus with respect to any determination of EBITDA for the four fiscal quarter period ending September 30, 2001, $10,800,000, for the four fiscal quarter period ending December 31, 2001, $7,200,000, and for the four fiscal quarter period ending March 31, 2002, $3,600,000, minus, to the extent added in computing such consolidated net income and without duplication, (i) extraordinary gains and all other non-operating gains during such period and (ii) allocation of losses to minority interests in earnings of consolidated Subsidiaries. EBITDA shall be calculated in accordance with GAAP as in effect and applied by the Borrower on the date of this Agreement and, accordingly, shall exclude the effects of any changes in GAAP or its application by the Borrower after the date hereof.

        3.    Section 1.1 of the Credit Agreement is amended to add a new defined term "Excess Cash Flow 2002" to read as follows:

        "Excess Cash Flow 2002" shall mean, for the Borrower and the Subsidiaries on a consolidated basis, EBITDA for the fiscal year ending December 31, 2002, minus the sum of (i) Consolidated Cash Interest Expense, (ii) consolidated cash taxes paid and (iii) consolidated Capital Expenditures made, in each case for such fiscal year, and minus the increase (plus the decrease) of the change in working capital (current assets (excluding cash and cash equivalents) over current liabilities, in

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each case for the Borrower and the Subsidiaries on a consolidated basis) between the first day of such fiscal year and the last day of such fiscal year.

        4.    Section 1.1 of the Credit Agreement is amended to amend and restate the defined term "Revolving Loan Commitment" in its entirety to read as follows:

        "Revolving Loan Commitment" shall mean $275,000,000, (a) as the same may be reduced from time to time pursuant to Section 2.10 hereof and (b) with respect to each Lender, the commitment of the Lenders to make Revolving Loans hereunder in its Pro Rata Percentage of the Revolving Loan Commitment as set forth in Schedule 1.1 as the same may be reduced from time to time pursuant to Section 2.20 hereof, or in any Assignment and Acceptance executed in accordance with this Agreement, as applicable.

        5.    Section 1.1 of the Credit Agreement is amended by amending the defined term "Revolving Loan Maturity Date" to replace the date July 18, 2005 contained therein with the date July 18, 2004.

        6.    Section 2.6(b) of the Credit Agreement is amended and restated in its entirety, effective for the period from and after November 14, 2001, to read as follows:

        (b)  Subject to Section 9.9, on the last day of March, June, September and December of each year on and until the date on which the Revolving Loan Commitment shall be terminated as provided herein, the Borrower shall pay, in arrears, to the Administrative Agent, for the account of the Lenders, facility fees (the "Facility Fees") on the average daily amount of the Revolving Loan Commitment at a per annum rate (the "facility fee rate") based on the Leverage Ratio for the most recently completed full fiscal quarter as set forth below:

Leverage Ratio	Facility Fee Rate
Category 1
Greater than or equal to 4.50 to 1.00	0.500	%
Category 2
Greater than or equal to 4.00 to 1.00 but less than 4.50 to 1.00	0.500	%
Category 3
Greater than or equal to 3.50 to 1.00 but less than 4.00 to 1.00	0.500	%
Category 4
Greater than or equal to 3.00 to 1.00 but less than 3.50 to 1.00	0.300	%
Category 5
Greater than or equal to 2.50 to 1.00 but less than 3.00 to 1.00	0.250	%
Category 6
Greater than or equal to 2.00 to 1.00 but less than 2.50 to 1.00	0.200	%
Category 7
Greater than or equal to 1.00 to 1.00 but less than 2.00 to 1.00	0.175	%
Category 8
Less than 1.00 to 1.00	0.150	%

Except as set forth below, the Leverage Ratio utilized for purposes of determining the facility fee rate shall be that in effect as of the last day of the most recent fiscal quarter of the Borrower in respect of which financial statements have been delivered pursuant to this Agreement. The facility fee rate from time to time in effect shall be based on the Leverage Ratio from time to time in effect, and each change in the facility fee rate resulting from a change in (or the initial establishment of) the Leverage Ratio shall be effective with respect to the facility fee rate

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outstanding on and after the date of delivery to the Administrative Agent of the financial statements and certificates required by Section 5.4(a) or (b) indicating such change to and including the date immediately preceding the next date of delivery of such financial statements and certificates indicating another such change. Notwithstanding the foregoing, at all times during which the Borrower has failed to deliver the financial statements and certificates required by Section 5.4(a) or (b) and at all times after the occurrence and during the continuance of an Event of Default, the Leverage Ratio shall, in each case, be deemed to be in Category 1 above. Subject to Section 9.9 and Applicable Law, all Facility Fees shall be computed on the basis of the actual number of days elapsed in a year of 365 or 366 days, as applicable.

        1.    Section 2.10 of the Credit Agreement is amended to re-letter subsection (f) as subsection (g) and to add a new subsection (f) to read as follows:

        (f)    Revolving Loan Commitment Mandatory Reduction. On March 31, 2003, the Revolving Loan Commitment shall be automatically and permanently reduced by an amount equal to the lesser of (i) 75% of Excess Cash Flow 2002 and (ii) $15,000,000.

        2.    Section 2.22 of the Credit Agreement is amended to replace the date January 18, 2005 with the date January 18, 2004.

        3.    Section 6.9 of the Credit Agreement is amended and restated in its entirety to read as follows:

        SECTION 6.9 Leverage Ratio. The Borrower will not permit the Leverage Ratio at any time during any period set forth below to be more than the ratio set forth below for such period:

Period	Ratio
November 14, 2001 through September 29, 2002	4.75 to 1.00
September 30, 2002 through December 30, 2002	4.50 to 1.00
December 31, 2002 through March 29, 2003	4.25 to 1.00
March 30, 2003 through December 31, 2003	3.50 to 1.00
Thereafter	3.00 to 1.00

Notwithstanding anything to the contrary in any Loan Document, in the event that the Borrower shall complete, directly or through a Restricted Subsidiary, a permitted acquisition or disposition hereunder, or any Subsidiary is designated as an Unrestricted Subsidiary hereunder, the Leverage Ratio shall be determined thereafter, to the extent necessary, by computing such ratio on a pro forma basis as if (i) in the case of such acquisition or disposition, such acquisition or disposition, as the case may be, had been completed on the first day of the period of four consecutive fiscal quarters ending on the relevant dates indicated above occurring after the date of such acquisition or disposition, as the case may be, and (ii) in the case of such designation, the relevant Subsidiary had been disposed of on the first day of the period of four consecutive fiscal quarters ending on the relevant dates indicated above occurring after the date of such designation.

        1.    Section 6.10 of the Credit Agreement is amended and restated in its entirety, effective for the period from and after September 30, 2001, to read as follows:

        SECTION 6.10 Coverage Ratio. The Borrower will not permit the Coverage Ratio as of the last day of any fiscal quarter ending during any period set forth below to be less than:

Period	Ratio
September 30, 2001 through September 29, 2002	2.25 to 1.00
September 30, 2002 through December 30, 2002	2.50 to 1.00
Thereafter	2.75 to 1.00

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        1.    Section 6.12 of the Credit Agreement is amended and restated in its entirety to read as follows:

        SECTION 6.12. Capital Expenditures. The Borrower will not permit Capital Expenditures made or obligated to be made by the Borrower and the Restricted Subsidiaries to exceed:

        (i)    $14,000,000 in respect of the fourth quarter of fiscal year 2001;

        (ii)  $60,000,000 in respect of fiscal year 2002 plus the unused amount of Capital Expenditures permitted under clause (i) above, provided that such Capital Expenditures do not exceed $20,000,000 in any fiscal quarter; and

        (iii)  $125,000,000 in respect of the fiscal year 2003.

        2.    Section 9.1(a) of the Credit Agreement is amended and restated in its entirety to read as follows:

        (a)  if to the Borrower, to it at:

On Command Corporation
7900 East Union Avenue
Denver, Colorado 80237
Attention: William Myers
Telephone No.: (720) 873-3420
Telecopy No.: (720) 873-3393;

        With a copy to:

Sherman & Howard L.L.C.
633 Seventeenth Street
Denver, Colorado 80202
Attention: Steven D. Miller, Esq.
Telephone No.: (303) 299-8144
Telecopy No.: (303) 298-0940 and;

        3.    Paragraphs 1-14 of this Amendment shall not become effective until:

        (a)  the Administrative Agent shall have received the financial statements for the fiscal quarter ending September 30, 2001 and accompanying certificate, dated the date hereof (and prepared after giving effect to this Amendment for purposes of calculating compliance with Sections 6.9, 6.10, and 6.12), of a Financial Officer of the Borrower pursuant to Sections 5.4(b) and 5.4(c)(ii) of the Credit Agreement;

        (b)  the Total Exposure shall not exceed the Revolving Loan Commitment as reduced pursuant to this Amendment;

        (c)  the Administrative Agent shall have received counterparts of this Amendment duly executed by the Borrower, the Guarantors, the Administrative Agent and the Required Lenders;

        (d)  the Administrative Agent shall have received a certificate, dated the date hereof, of the Secretary or an Assistant Secretary of each Obligor (i) attaching a true and complete copy of the resolutions of its Board of Directors or other authorizing documents and of all documents evidencing all necessary corporate or other action (in form and substance reasonably satisfactory to the Administrative Agent) taken by it to authorize the execution, delivery and performance of this Amendment and the transactions contemplated hereby and thereby;

        (e)  the Administrative Agent shall have received a favorable opinion of Sherman & Howard L.L.C. addressed to the Administrative Agent and the Lenders in form and substance satisfactory

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to the Administrative Agent. It is understood that such opinion is being delivered to the Administrative Agent and the Lenders upon the direction of the Borrower and the other Obligors and that the Administrative Agent and the Lenders may and will rely upon such opinion;

        (f)    the Administrative Agent shall have received for the account of the Lenders, payment of the accrued Facility Fees on the amount of the reduction of the Revolving Loan Commitment made pursuant to this Amendment;

        (g)  the Administrative Agent shall have received for the account of each Lender executing and delivering (without condition) this Amendment to the Administrative Agent before 11:00 a.m. (New York City time) on November 14, 2001, a structuring fee equal to 0.250% of such Lender's Revolving Loan Commitment on such date after giving effect to this Amendment; and

        (h)  the Administrative Agent shall have received payment, or confirmation of payment, of all legal fees and expenses of counsel to the Administrative Agent in connection with the Credit Agreement and this Amendment to the extent an invoice has been presented to the Borrower.

        4.    In all other respects the Credit Agreement and other Loan Documents shall remain in full force and effect.

        5.    In order to induce the Administrative Agent and the Required Lenders to execute and deliver this Amendment, the Borrower and the other Obligors each (a) certifies that, immediately before and after giving effect to this Amendment, all representations and warranties contained in the Loan Documents to which it is a party shall be true and correct in all respects with the same effect as though such representations and warranties had been made on the date hereof, except as the context otherwise requires or as otherwise permitted by the Loan Documents or this Amendment, (b) certifies that, immediately before and after giving effect to this Amendment, no Default or Event of Default shall exist under the Loan Documents, as amended, and (c) agrees to pay all of the reasonable fees and disbursements of counsel to the Administrative Agent incurred in connection with the preparation, negotiation and closing of this Amendment.

        6.    Each of the Borrower and the other Obligors (a) reaffirms and admits the validity, enforceability and continuing effect of all Loan Documents to which it is a party, and its obligations thereunder, and (b) agrees and admits that as of the date hereof it has no valid defenses to or offsets against any of its obligations to the Administrative Agent or any Lender under any Loan Document to which it is a party.

        7.    This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Amendment by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Amendment.

        8.    This Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.

        9.    The parties have caused this Amendment to be duly executed as of the date first written above.

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ON COMMAND CORPORATION
AMENDMENT NO. 2 TO CREDIT AGREEMENT

ON COMMAND CORPORATION
By:	/s/  WILLIAM D. MYERS
Name:	William D. Myers
Title:	Executive Vice President and CFO
AGREED AND CONSENTED:
ON COMMAND VIDEO CORPORATION ON COMMAND DEVELOPMENT CORPORATION SPECTRADYNE INTERNATIONAL, INC. SPECTRAVISION, INC. HOTEL DIGITAL NETWORK, INC.
By:	/s/  WILLIAM D. MYERS
Name:	William D. Myers
Title:	Executive Vice President and CFO
THE BANK OF NEW YORK, as Issuing Bank and as Administrative Agent
By:	/s/  STEPHEN M. NETTLER
Name:	Stephen M. Nettler
Title:	Vice President
THE BANK OF NEW YORK COMPANY, INC., as Lender and as Swingline Lender
By:	/s/  JOHN C. LAMBERT
Name:	John C. Lambert
Title:	Authorized Signer
BANK OF AMERICA, N.A.
By:	/s/  MATTHEW KOENIG
Name:	Matthew Koenig
Title:	Managing Director

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FLEET NATIONAL BANK
By:	/s/  SRBUI SEFERIAN
Name:	Srbui Seferian
Title:	Assistant Vice President
TORONTO DOMINION (TEXAS), INC.
By:	/s/  ANN S. SLANIS
Name:	Ann S. Slanis
Title:	Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:	/s/  CARL-ERIC BENZINGER
Name:	Carl-Eric Benzinger
Title:	Senior Vice President & Senior Deputy General Manager
U.S. BANK NATIONAL ASSOCIATION
By:	/s/  MELISSA S. FORBIS
Name:	Melissa S. Forbis
Title:	Vice President
BNP PARIBAS
By:	/s/  SERGE DESRAYAUD
Name:	Serge Desrayaud
Title:	Head of Asset Management Media & Telecommunications Group
By:	/s/  ERICK CAUSSOU
Name:	Erick Caussou
Title:	Associate

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CREDIT LYONNAIS NEW YORK BRANCH
By:	/s/  BRUCE M. YEAGER
Name:	Bruce M. Yeager
Title:	Senior Vice President
THE BANK OF NOVA SCOTIA
By:	/s/  P. A. WEISSENBERGER
Name:	P. A. Weissenberger
Title:	Authorized Signatory

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ON COMMAND CORPORATION AMENDMENT NO. 2
ON COMMAND CORPORATION AMENDMENT NO. 2 TO CREDIT AGREEMENT

EX-10.17

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PREFERRED STOCK PURCHASE AGREEMENT

        This Preferred Stock Purchase Agreement (this "Agreement") is made and entered into on March 5, 2001 by and among On Command Corporation, a Delaware corporation (the "Company"), and Ascent Entertainment Group, Inc., a Delaware corporation ("Buyer").

        WHEREAS, the Company desires to issue and sell, and Buyer desires to buy shares of a newly designated series of the Company's Preferred Stock, par value $0.01 per share, subject to the terms and conditions set forth herein; and

        NOW, THEREFORE, for and in consideration of the mutual promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

        1.    Purchase and Sale.

        1.1.    Sale of Purchased Shares.    At the Closing, upon the terms and conditions contained herein, the Company shall issue, sell and deliver to Buyer 15,000 shares (the "Purchased Shares") of the Company's Cumulative Redeemable Preferred Stock, Series B, par value $.01 per share (the "Series B Preferred Shares"). Such issuance, sale and delivery shall be effected by the delivery to Buyer at the Closing of (i) the certificate or certificates representing the Purchased Shares, issued in the name of Buyer or its designee and (ii) such other documents or instruments which may be necessary, or which Buyer may reasonably request, in order to effectively vest in Buyer good and marketable title to the Purchased Shares, free and clear of all Liens and Restrictions other than Permitted Restrictions.

        1.2.    Purchase of Purchased Shares.    At the Closing, upon the terms and conditions set forth in this Agreement, Buyer shall purchase all, but not less than all, of the Purchased Shares for a total purchase price (the "Purchase Price") equal to Fifteen Million Dollars ($15,000,000). The Purchase Price shall be paid by wire transfer of immediately available funds to an account designated by the Company in writing.

        1.3.    Closing.    The closing of the purchase and sale of the Purchased Shares (the "Closing") shall be held at the offices of Buyer, 9197 South Peoria Street, Englewood, Colorado 80112, or at such other place as the parties may agree, at 1:00 p.m., local time, on March 5, 2001, or at such other date and time as the parties may agree. (The date on which the Closing occurs is referred to as the "Closing Date").

        2.    Representations and Warranties of the Company.    The Company represents and warrants to Buyer as follows:

        2.1.    Authority.    (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite power and authority to conduct its business as now being conducted and to enter into this Agreement and to perform its obligations hereunder. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company.

        (b)  The Certificate of Designations establishing the rights and preferences of the Series B Preferred Shares (the "Certificate of Designations") has been approved by the Company's Board of Directors in accordance with the Company's Amended and Restated Certificate of Incorporation and Delaware law and, prior to the Closing will have been duly filed and become effective under Delaware law.

        2.2.    Issuance of Shares.    The Purchased Shares, upon issuance and delivery against payment therefor in accordance with the terms and conditions of this Agreement will be duly authorized, validly issued, fully paid and non-assessable, will possess all of the rights, privileges and preferences provided therefor in the Certificate of Designations, will be free of all Liens and Restrictions other than Permitted Restrictions, and will not be issued in violation of any preemptive rights.

        2.3.    Binding Agreement.    This Agreement has been duly executed and delivered by the Company and is a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except insofar as enforceability may be limited by principles governing the availability of equitable remedies.

        2.4.    Capitalization.    At the date hereof, the authorized capital stock of Company consists of (a) 50,000,000 shares of common stock, par value $.01 per share ("Common Stock"), and (b) 10,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"). As of the close of business on December 31, 2000, (i) 30,554,388 shares of Common Stock were issued and outstanding, (ii) 13,500 shares of Preferred Stock were issued and outstanding, all of which had been designated as "Convertible Participating Preferred Stock, Series A, par value, $.01 per share" ("Series A Preferred Stock"), and (iii) an aggregate of 12,843,429 shares of Common Stock were reserved for issuance upon the exercise, exchange or conversion of securities which are convertible into (including the Series A Preferred Stock) or exercisable or exchangeable for Common Stock, and no shares of Common Stock were held (x) by the Company in its treasury or (y) by any Subsidiary of Company. Except as specified in this Section 2.4, there are no subscriptions, options, warrants, calls, rights, commitments or any other agreements of any character to or by which the Company is a party or is bound which, directly or indirectly, obligate Company to issue, sell or deliver or cause to be issued, sold or delivered any shares of Common Stock or Preferred Stock or any other capital stock or equity interest of Company or any securities convertible into, or exercisable or exchangeable for, or evidencing the right to subscribe for, any such shares or interests, or obligating Company to grant, extend or enter into any such subscription, option, warrant, call or right. All issued and outstanding shares of Common Stock and Series A Preferred Stock have been validly issued and are fully paid and nonassessable, are not subject to and have not been issued in violation of any preemptive rights and have not been issued in violation of any Federal or state securities laws.

        2.5.    No Violation.    None of the execution or delivery by the Company of this Agreement, the performance by the Company of its obligations hereunder, nor the consummation of the transactions contemplated hereby (i) has resulted or will result (with or without notice, lapse of time or otherwise) in a breach of the terms or conditions of, a default under, a conflict with, or the acceleration of (or the creation in any person of any right to cause the acceleration of) any performance or any increase in any payment required by, or the termination, suspension, modification, impairment or forfeiture (or the creation in any person of any right to cause the termination, suspension, modification, impairment or forfeiture) of any material rights or privileges of the Company under (A) the certificate of incorporation, bylaws or other constituent documents of the Company, (B) any agreement, contract, arrangement or understanding, written or oral (collectively, "Contract"), or any judgment, writ, order or decree (collectively, "Judgment") to which the Company is a party or by or to which the Company, its properties, assets or business or any of the Purchased Shares being sold by the Company are or may be subject, bound or affected or (C) any applicable law, rule or regulation (collectively, "Law"); (ii) has resulted or will result (with or without notice, lapse of time or otherwise) in the creation, imposition, or foreclosure of or right to exercise or foreclose any Lien or Restriction of any nature whatsoever upon or in any of (A) the assets of the Company (other than the Purchased Shares being sold by the Company) or (B) the Purchased Shares; or (iii) assuming that the issuance, sale and delivery to Buyer of the Purchased Shares is a transaction exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and from qualification or registration under applicable state securities laws, requires or will require the Company to make any filing with, to give any notice to or to obtain any permit, authorization, consent or approval of any person.

        2.6.    Proceedings.    Except as set forth in the Company SEC Reports, there is no action, suit, investigation or proceeding, governmental or otherwise ("Proceeding"), pending or, to the Company's knowledge, threatened against the Company or its affiliates, directors, officers, employees or agents, nor is there any basis for such Proceeding known to the Company.

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        2.7.    No Brokers.    None of the Company, its affiliates or any of their respective directors, officers, employees or agents, as such have entered into any Contract with any person which will result in the obligation of Buyer to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby.

        2.8.    SEC Filings; Financial Statements.

        (a)  The Company has filed all forms, reports and documents required to be filed by it with the Securities and Exchange Commission (the "SEC") since December 31, 1999, and has heretofore made available to Buyer, in the form filed with the SEC (excluding any exhibits thereto), (i) its Annual Reports on Form 10-K for the fiscal year ended December 31, 1999, (ii) its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000, June 30, 2000 and September 30, 2000, (iii) all proxy statements relating to the Company's meetings of stockholders (whether annual or special) held on or after December 31, 1999, and (iv) all other forms, reports and other registration statements, including any and all amendments or supplements to any of the items referred to herein, filed by the Company with the SEC since December 31, 1999 (the forms, reports and other documents referred to in clauses (i), (ii), (iii) and (iv) above being referred to herein, collectively, as the "Company SEC Reports"). The Company SEC Reports (x) were prepared in accordance with the requirements of the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the case may be, and the rules and regulations thereunder, and (y) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

        (b)  Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the Company SEC Reports was prepared in accordance with United States generally accepted accounting principles applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto), and each fairly presented the consolidated financial position, results of operations and cash flows of the Company and its consolidated Subsidiaries as at the respective dates thereof and for the respective periods indicated therein (subject, in the case of unaudited statements, to normal and recurring year-end adjustments which were not and are not expected, individually or in the aggregate, to be material in amount). Since December 31, 1999, there has been no change in any of the significant accounting (including tax accounting) policies, practices or procedures of the Company or any of its Subsidiaries.

        (c)  Except as and to the extent set forth in the Company SEC Reports filed with the SEC prior to the date of this Agreement, the Company and its Subsidiaries have not incurred any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise), other than liabilities and obligations which have been incurred in the ordinary course of business.

        2.9.    Absence of Certain Changes and Events.    Except as disclosed in the Company SEC Reports, since December 31, 1999, (a) the Company and the its Subsidiaries have conducted their respective businesses only in the ordinary course and (b) there has not been any material adverse change in the business, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole.

        3.    Representations, Warranties and Covenants of Buyer.    Buyer represents and warrants to the Company as follows:

        3.1.    Authority.    Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to conduct its business and operations as now being conducted and to enter into this Agreement and to perform its obligations

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hereunder. The execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Buyer.

        3.2.    Binding Agreement.    This Agreement has been duly executed and delivered by Buyer and is a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms, except insofar as enforceability may be limited by principles governing the availability of equitable remedies.

        3.3.    No Violations.    Except, as to clauses (ii), (iii), and (iv) below, as would not have, individually or in the aggregate, a material adverse effect on the transactions contemplated hereby (including, without limitation, on Buyer's ability to perform its obligations hereunder), none of the execution or delivery by Buyer of this Agreement, the performance by Buyer of its obligations hereunder or the consummation of the transactions contemplated hereby will (i) violate or conflict with any term or provision of the certificate of incorporation or bylaws (or other constituent documents) of Buyer, (ii) violate any provision of any Law or Judgment applicable to Buyer or by which any of its properties or assets are bound or affected, (iii) require any consent, approval, filing or notice under any provision of any Law or Judgment applicable to Buyer, or (iv) require any consent, approval or notice under, or violate, or be in conflict with, or constitute a breach of or default under (with or without the giving of notice or the lapse of time or both), or permit the termination of any provision of, or result in the acceleration of (or give anyone the right to accelerate) the maturity or performance of any obligation of Buyer under, any note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument or other agreement or commitment to which Buyer is a party or by which Buyer, or any of its assets or properties are bound or encumbered.

        3.4.    No Brokers.    None of Buyer, its affiliates or any of their respective directors, officers, employees or agents, as such have entered into any Contract with any person which will result in the obligation of the Company to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby.

        3.5.    Investment Representations and Covenants.

        (a)  Buyer acknowledges that it is acquiring the Purchased Shares solely for Buyer's own account, for investment purposes, and not with a view to, or for resale in connection with, any distribution of the Purchased Shares. Buyer understands that the Purchased Shares have not been registered under the Securities Act or registered or qualified under any state securities laws by reason of specific exemptions under the provisions thereof which depend in part upon Buyer's investment intent and on the other representations made by Buyer in this Purchase Agreement. Buyer understands that the Company is relying upon Buyer's representations and agreements contained in this Purchase Agreement for the purpose of determining whether this transaction meets the requirements for such exemptions.

        (b)  Buyer agrees that (i) Buyer will not sell, assign, pledge, give, transfer or otherwise dispose of the Purchased Shares or any interest therein, or make any offer or attempt to do any of the foregoing, unless such transaction is pursuant to a registration of the Purchased Shares under the Securities Act and all applicable state securities laws or a transaction that is exempt from the registration provisions of the Securities Act and all applicable state securities laws, (ii) the certificate(s) representing the Purchased Shares bear a legend making reference to the foregoing restrictions, and (iii) the Company and any transfer agent for the Purchased Shares shall not be required to register or give effect to any purported transfer of the Purchased Shares except upon evidence of compliance with the foregoing restrictions.

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        4.    Indemnification.

        4.1.    Mutual Indemnification.

        (a)  Subject to written notice of such claim for indemnification being given to such party within the appropriate survival period referred to in Section 4.2 and further subject to the proviso set forth in clause (ii) below, the Company covenants and agrees to indemnify, defend and hold harmless Buyer and its affiliates and their respective stockholders, directors, officers, employees, agents, successors and assigns, and Buyer covenants and agrees to indemnify, defend and hold harmless the Company and its affiliates and their respective stockholders, directors, officers, employees, agents, successors and assigns from and against:

(i)

all losses, damages, liabilities, deficiencies, obligations, costs and expenses resulting from or arising out of any misrepresentation or breach of warranty or any nonperformance or breach of any covenant or agreement of such indemnifying party contained in this Agreement; and



(ii)

all claims, actions, suits, proceedings, demands, Judgments, assessments, fines, interest, penalties, costs and expenses (including, without limitation, settlement costs and reasonable legal, accounting, experts and other fees, costs and expenses) incident or relating to or resulting from any of the foregoing.

        (b)  Any party entitled to indemnification under Section 4.1(a) (an "indemnified party") seeking indemnification from a party obligated to indemnify such party under Section 4.1(a) (an "indemnifying party") shall give prompt notice to the indemnifying party of any claim as to which indemnification is sought and will give the indemnifying party the right to participate in and, if it so desires, to control, at its own expense, the conduct of the defense of any such claim and any litigation arising out of such claim, with counsel reasonably satisfactory to the indemnified party. Notwithstanding an indemnifying party's election to assume control of the defense of such claim, the indemnified party shall have the right to employ separate counsel and to participate in the defense of such claim, and the indemnifying party shall bear the reasonable fees and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such claim include both the indemnifying party and the indemnified party, and the indemnified party shall have reasonably concluded that there may be legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such claim on behalf of the indemnified party) or (iii) the indemnifying party has failed to retain counsel reasonably satisfactory to the indemnified party within a reasonable time of the notice of the claim. An indemnifying party shall not be liable for any settlement of any action or claim effected without its consent, which consent shall not be unreasonably withheld. If an indemnifying party assumes the defense of a claim, no settlement thereof may be effected without the indemnified party's consent unless the sole relief is monetary damages that are to be paid in full by the indemnifying party and there is no finding or admission of any violation of law.

        4.2.    Survival of Representations and Warranties.    The representations and warranties contained in this Agreement shall survive the Closing and remain in full force and effect for a period of twelve (12) months after the Closing Date; provided that the Company's representations and warranties set forth in Sections 2.1, 2.2 and 2.3 shall survive indefinitely.

        5.    Miscellaneous.

        5.1.    Governing Law.    This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to principles of conflicts of laws.

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        5.2.    Definitions.    As used in this Agreement, the following terms have the following meanings:

        (a)  "person" shall mean and include any individual, partnership, joint venture, corporation, trust, unincorporated organization or association or any other entity or association of any kind and any governmental or regulatory authority, federal, state, local or foreign government, any political subdivision of any thereof and any court, panel, judge, board, bureau, commission, agency or other entity or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

        (b)  "Lien" shall mean any security interest, lien, claim, charge, restrictive agreement, pledge, adverse interest or other encumbrance of any kind.

        (c)  "Permitted Restriction", with respect to the Purchased Shares, as the case may be, shall mean Restrictions (i) on the transfer of such shares under applicable federal and state securities laws or (ii) applicable to such shares created by Purchaser.

        (d)  "Restriction", with respect to any capital stock or other security, shall mean any voting or other trust or agreement, option, warrant, escrow arrangement, proxy, buy-sell agreement, power of attorney, stockholders' agreement or other Contract, any Judgment or any Law which, conditionally or unconditionally, (i) grants to any person the right to purchase or otherwise acquire, or obligates any person to sell or otherwise dispose of or issue, or otherwise results or, whether upon the occurrence of any event or with notice or lapse of time or both or otherwise, may result in any person acquiring (A) any of such capital stock or other security, (B) any of the proceeds of, or any distributions paid or which are or may become payable with respect to, any of such capital stock or other security, or (C) any interest in such capital stock or other security or any such proceeds or distributions; (ii) restricts or, whether upon the occurrence of any event or with notice or lapse of time or both or otherwise, may restrict the transfer or voting of, or the exercise of any rights or the enjoyment of any benefits arising by reason of ownership of, any of such capital stock or other security or any such proceeds or distributions; or (iii) creates or, whether upon the occurrence of any event or with notice or lapse of time or both or otherwise, may create a Lien or purported Lien affecting such capital stock or other security, proceeds or distributions.

        (e)  "Subsidiary" means, with respect to any person, (i) a corporation a majority of the voting power of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such person, by a subsidiary of such person, or by such person and one or more subsidiaries of such person, (ii) a partnership in which such person or a subsidiary of such person is, at the date of determination, a general partner of such partnership and has the power to direct the policies and management of such partnership or (iii) any other person in which such person, a subsidiary of such person or such person and one or more subsidiaries of such person, directly or indirectly, at the date of determination thereof, has (A) at least a majority ownership interest or (B) the power to elect or direct the election of a majority of the members of the board of directors or other governing body of such person.

        5.3.    Expenses.    The Company agrees to pay all expenses incurred by Buyer in connection with the negotiation and execution of this Agreement and the consummation of the transactions contemplated hereby, including all fees and disbursements of its legal counsel and the payment of any stock transfer or stamp taxes.

        5.4.    Counterparts.    This Agreement may be executed in several counterparts and as so executed shall constitute one agreement binding on the parties hereto.

        5.5.    Further Actions After the Closing.    If, subsequent to the Closing Date, further documents are reasonably requested in order to carry out the provisions and purposes of this Agreement, the parties hereto shall execute and deliver such further documents.

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        5.6.    Severability.    In the event that any part or parts of this Agreement shall be held to be unenforceable to its or their full extent, then it is the intention of the parties hereto that such part or parts shall be enforced to the full extent permitted under the laws, and, in any event, that all other parts of this Agreement shall remain valid and fully enforceable as if the unenforceable part or parts had never been a part hereof.

        5.7.    Amendments.    This Agreement may be amended only by written instrument signed by all parties.

        5.8.    Notices.    Any notice or other communication required or contemplated by the terms of this Agreement shall be delivered in person or sent by telecopy, overnight courier, or registered or certified mail, postage prepaid, return receipt requested. Any such notice or other communication shall be addressed to the intended recipient at the address set forth below such party's signature on the signature page hereof, or at such other address of which such party shall have given notice as herein provided. Notice shall be deemed given on the date of delivery, in the case of personal delivery or telecopy, or on the delivery or refusal date, as specified on the return receipt, in the case of overnight courier or registered or certified mail.

        5.9.    Entire Agreement.    The provisions of this Agreement set forth the complete understanding and intention of the parties with respect to the subject matter hereof and supersede all prior agreements or understandings, whether written or oral, relating to the subject matter hereof.

[SIGNATURE PAGE FOLLOWS]

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        IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first written above.

ON COMMAND CORPORATION
By:	/s/ Bertram Perkel Name: Bertam Perkel Title: Senior Vice President
Address for Notices:
7900 East Union Avenue Tower III Denver, CO 80237 Attention: Bertram Perkel
ASCENT ENTERTAINMENT GROUP, INC.
/s/ Gary S. Howard Name: Gary S. Howard Title: Exec. Vice President, COO & Director
Address for Notices:
c/o Liberty Media Corporation 9197 South Peoria Street Englewood, Colorado 80112 Attention: Elizabeth M. Markowski

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PREFERRED STOCK PURCHASE AGREEMENT

EX-21.1

EXHIBIT 21.1

Subsidiaries of On Command Corporation		State of Incorporation	Other Business Names
Hotel Digital Network, Inc.		California	Instant Media Network
On Command Development Corporation		Delaware	None
On Command Video Corporation		Delaware	None
	OCV Iberia S.A.	Spain	None
	On Command Europe Limited	England and Wales	On Command Video Limited
Spectradyne International, Inc		Delaware	None
	On Command Argentina S.R.L.	Argentina	None
Spectravision, Inc.		Texas	Spectradyne, Inc.
	On Command Canada, Inc.	Ontario, Canada	None

EX-23.1

EXHIBIT 23.1

The Board of Directors and Stockholders
On Command Corporation:

We consent to incorporation by reference in the registration statement (No. 333-33149) on Form S-8 of On Command Corporation (a majority-owned subsidiary of Ascent Entertainment Group, Inc.) of our reports relating to the consolidated balance sheets of On Command Corporation and subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 2001, and the related schedule, which reports appear in the December 31, 2001, Annual Report on Form 10-K of On Command Corporation.

KPMG LLP

Denver, Colorado
March 22, 2002

EX-23.2

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EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Amendment No. 1 to Registration Statement No. 333-33149 on Form S-8 of On Command Corporation (a majority-owned subsidiary of Ascent Entertainment Group, Inc.) of our report dated March 3, 2000 appearing in this Annual Report on Form 10-K of On Command Corporation for the year ended December 31, 2001.

DELOITTE & TOUCHE LLP

San Jose, California
March 22, 2002

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EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS