The Company	12 Months Ended
Dec. 31, 2012
The Company
The Company	Note 1 — The Company We are the largest provider of interactive media and connectivity services to the hospitality industry in the United States, Canada and Mexico. Our primary offerings include guest-paid entertainment, such as on-demand movies, advertising services and hotel-paid services, including cable television programming, Internet access services and interactive applications through our Envision and Mobile platforms. Going Concern - During 2012, the Company faced increasing liquidity challenges as a result of several business trends and debt servicing issues that have negatively impacted our liquidity position. During 2012, the Company experienced a significant decrease in total revenue. Although significant declines were experienced in the first six months of 2012, the decline in revenue experienced during the third quarter of 2012 was even greater than what we had previously estimated. The decline in revenue during the third and fourth quarters of 2012 and the payment terms of our vendor forbearance agreements created liquidity constraints on our operations and related financial results. The rate of decline in our movie revenue per room for 2011 was approximately 6% versus 2010. The decline accelerated in 2012 and the annual rate of decline has more than doubled to approximately 13% versus the prior year. Historically, the Company followed a practice of reducing outstanding debt under our Credit Facility by making prepayments on our debt. These additional debt payments contributed to our historical debt covenant compliance. However, during 2012, our practice of making additional debt payments was achieved in part by delaying certain payments to our vendors, including major vendors such as DirecTV and HBO. During the third quarter of 2012, each of these vendors required us to enter into payment plans. In order to maintain continued service from these vendors, we entered into forbearance agreements with each of them. As of September 30, 2012, we were in violation of the leverage covenant in our Credit Facility, as well as certain other non-financial covenants. Effective October 15, 2012, we entered into a Forbearance Agreement and Second Amendment (the “Forbearance Agreement”) to the Credit Facility, as more fully described in Note 8, pursuant to which the lenders agreed not to exercise their default-related rights and remedies through the period ending December 17, 2012. Through a series of amendments, the forbearance agreements with each of these vendors and lenders were extended until the filing of our prepackaged plan of reorganization under Chapter 11. On January 27, 2013, we filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The bankruptcy case was filed in order to effect the Company’s plan of reorganization, which is based on the recapitalization in which a syndicate of investors led by Colony Capital, LLC (“Colony Capital”) agreed to invest $60.0 million. The plan was voted on and accepted by the holders of in excess of two-thirds in amount of the Company’s secured debt and a majority of such holders, which satisfies the Bankruptcy Code voting requirements for confirmation of the plan. On March 7, 2013, the Bankruptcy Court entered an order confirming the plan. The plan provides that it will become effective upon the completion of certain conditions precedent, including closing conditions under the investment agreement with the Colony Syndicate. See Note 18 for further details, including a summary of the plan. These liquidity constraints, our non-compliance with certain of our debt covenants and our bankruptcy case under Chapter 11 of the Bankruptcy Code have resulted in there being substantial doubt about our ability to continue as a going concern. Despite these factors, the accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and the amount of liabilities that might be necessary should we be unable to continue as a going concern. As a result of our non-compliance with our debt covenants, our liquidity constraints and our bankruptcy case under Chapter 11 of the Bankruptcy Code, we classified our outstanding debt obligations, contractually due in April 2014, as current in our consolidated balance sheet as of December 31, 2012. In December 2012, we announced that we entered into an investment agreement with a syndicate formed by an affiliate of Colony Capital, LLC (the “Colony Syndicate”) pursuant to which the Colony Syndicate agreed to provide $60.0 million of new capital to support a proposed recapitalization of the Company. The investment agreement contains certain conditions precedent, including closing conditions which are described in more detail below, and terminates on April 30, 2013. In addition, our lenders have agreed to restructure our existing $346.4 million secured credit facility to a new five year term loan. This transaction is being implemented through the Chapter 11 bankruptcy process, mentioned above. Pursuant to the completion of the Chapter 11 process, holders of the preferred and common stock will have their interests cancelled and will not receive any distributions. The primary conditions necessary for the closing of the Colony transaction and bankruptcy proceedings include matters that are not fully with in the Company’s control. These agreements include the execution of an expected new credit agreement, a new revolving credit facility agreement and certain agreements with key vendors.

Note 1 — The Company

We are the largest provider of interactive media and connectivity services to the hospitality industry in the United States, Canada and Mexico. Our primary offerings include guest-paid entertainment, such as on-demand movies, advertising services and hotel-paid services, including cable television programming, Internet access services and interactive applications through our Envision and Mobile platforms.

Going Concern - During 2012, the Company faced increasing liquidity challenges as a result of several business trends and debt servicing issues that have negatively impacted our liquidity position. During 2012, the Company experienced a significant decrease in total revenue. Although significant declines were experienced in the first six months of 2012, the decline in revenue experienced during the third quarter of 2012 was even greater than what we had previously estimated. The decline in revenue during the third and fourth quarters of 2012 and the payment terms of our vendor forbearance agreements created liquidity constraints on our operations and related financial results. The rate of decline in our movie revenue per room for 2011 was approximately 6% versus 2010. The decline accelerated in 2012 and the annual rate of decline has more than doubled to approximately 13% versus the prior year.

Historically, the Company followed a practice of reducing outstanding debt under our Credit Facility by making prepayments on our debt. These additional debt payments contributed to our historical debt covenant compliance. However, during 2012, our practice of making additional debt payments was achieved in part by delaying certain payments to our vendors, including major vendors such as DirecTV and HBO. During the third quarter of 2012, each of these vendors required us to enter into payment plans. In order to maintain continued service from these vendors, we entered into forbearance agreements with each of them. As of September 30, 2012, we were in violation of the leverage covenant in our Credit Facility, as well as certain other non-financial covenants. Effective October 15, 2012, we entered into a Forbearance Agreement and Second Amendment (the “Forbearance Agreement”) to the Credit Facility, as more fully described in Note 8, pursuant to which the lenders agreed not to exercise their default-related rights and remedies through the period ending December 17, 2012. Through a series of amendments, the forbearance agreements with each of these vendors and lenders were extended until the filing of our prepackaged plan of reorganization under Chapter 11.

On January 27, 2013, we filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The bankruptcy case was filed in order to effect the Company’s plan of reorganization, which is based on the recapitalization in which a syndicate of investors led by Colony Capital, LLC (“Colony Capital”) agreed to invest $60.0 million. The plan was voted on and accepted by the holders of in excess of two-thirds in amount of the Company’s secured debt and a majority of such holders, which satisfies the Bankruptcy Code voting requirements for confirmation of the plan. On March 7, 2013, the Bankruptcy Court entered an order confirming the plan. The plan provides that it will become effective upon the completion of certain conditions precedent, including closing conditions under the investment agreement with the Colony Syndicate. See Note 18 for further details, including a summary of the plan.

These liquidity constraints, our non-compliance with certain of our debt covenants and our bankruptcy case under Chapter 11 of the Bankruptcy Code have resulted in there being substantial doubt about our ability to continue as a going concern. Despite these factors, the accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and the amount of liabilities that might be necessary should we be unable to continue as a going concern. As a result of our non-compliance with our debt covenants, our liquidity constraints and our bankruptcy case under Chapter 11 of the Bankruptcy Code, we classified our outstanding debt obligations, contractually due in April 2014, as current in our consolidated balance sheet as of December 31, 2012.

In December 2012, we announced that we entered into an investment agreement with a syndicate formed by an affiliate of Colony Capital, LLC (the “Colony Syndicate”) pursuant to which the Colony Syndicate agreed to provide $60.0 million of new capital to support a proposed recapitalization of the Company. The investment agreement contains certain conditions precedent, including closing conditions which are described in more detail below, and terminates on April 30, 2013. In addition, our lenders have agreed to restructure our existing $346.4 million secured credit facility to a new five year term loan. This transaction is being implemented through the Chapter 11 bankruptcy process, mentioned above. Pursuant to the completion of the Chapter 11 process, holders of the preferred and common stock will have their interests cancelled and will not receive any distributions.

The primary conditions necessary for the closing of the Colony transaction and bankruptcy proceedings include matters that are not fully with in the Company’s control. These agreements include the execution of an expected new credit agreement, a new revolving credit facility agreement and certain agreements with key vendors.