-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HSHCL/O+/hDNWh52DVnh3sP/gOk6TP98HVTsKsn2fVQ4Ye6Jicdgd17lNo1+RNrP n6h24tSwaMIPhoyn0nBJbg== 0000927356-00-000575.txt : 20000329 0000927356-00-000575.hdr.sgml : 20000329 ACCESSION NUMBER: 0000927356-00-000575 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASCENT ENTERTAINMENT GROUP INC CENTRAL INDEX KEY: 0001002666 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 521930707 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-27192 FILM NUMBER: 580336 BUSINESS ADDRESS: STREET 1: 1225 17TH ST STREET 2: SUITE 1800 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3033087000 MAIL ADDRESS: STREET 1: 1200 SEVENTEENTH ST STREET 2: SUITE 2800 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: COMSAT ENTERTAINMENT GROUP INC DATE OF NAME CHANGE: 19951025 10-K405 1 FORM 10-K405 DATED DECEMBER 31ST 1999 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NO. 0-27192 ASCENT ENTERTAINMENT GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 52-1930707 (State of other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1225 Seventeenth Street, Suite 1800 Denver, Colorado 80202 (Address and Zip Code of principal executive offices) Registrant's telephone number, including area code: (303) 308-7000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of Each Exchange on which Registered - ------------------- ----------------------------------------- Common Stock, par value $.01 NASDAQ National Market 11 7/8% Senior Secured Discount Notes Due 2004 None Securities registered pursuant to Section 12(g) of the Act: None. 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 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. [X] Yes No 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. [X] Aggregate market value of voting stock held by non-affiliates of the Registrant was $253,051,519 based on a price of $15.125 per share, which was the average of the bid and asked prices of such stock on March 20, 2000, as reported on the NASDAQ National Market reporting system. 29,755,600 shares of Common Stock were outstanding on March 20, 2000. DOCUMENTS INCORPORATED BY REFERENCE None. TABLE OF CONTENTS PAGE PART I - ------- ITEM 1. GENERAL INFORMATION.................................... 1 MULTIMEDIA DISTRIBUTION................................ 2 ON COMMAND CORPORATION................................. 2 GENERAL.......................................... 2 INDUSTRY OVERVIEW................................ 3 OCC OPERATING AND GROWTH STRATEGY................ 3 PLATFORMS........................................ 3 SERVICES......................................... 5 SALES AND MARKETING.............................. 6 INSTALLATION AND SERVICE OPERATIONS.............. 7 HOTEL CONTRACTS.................................. 7 TECHNOLOGY....................................... 7 SUPPLIERS........................................ 7 COMPETITION...................................... 8 INTERNATIONAL MARKETS............................ 9 INVESTMENT IN OCC................................ 9 NETWORK SERVICES....................................... 9 ASCENT NETWORK SERVICES.......................... 9 DISCONTINUED OPERATIONS................................10 REGULATION.............................................11 PATENTS, TRADEMARKS AND COPYRIGHTS.....................11 EMPLOYEES..............................................12 ITEM 2. PROPERTIES.............................................12 ITEM 3. LEGAL PROCEEDINGS......................................12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....13 PART II - ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....................................14 ITEM 6. SELECTED FINANCIAL DATA................................14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................16 ITEM 7A. QUALITIATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK............................................23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............25 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................48 PART III - -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....49 ITEM 11. EXECUTIVE COMPENSATION.................................51 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................................59 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........61 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................................62 i PART I CERTAIN OF THE STATEMENTS THAT FOLLOW ARE FORWARD-LOOKING AND RELATE TO ANTICIPATED FUTURE OPERATING RESULTS. STATEMENTS WHICH LOOK FORWARD IN TIME ARE BASED ON MANAGEMENT'S CURRENT EXPECTATIONS AND ASSUMPTIONS, WHICH MAY BE AFFECTED BY SUBSEQUENT DEVELOPMENTS AND BUSINESS CONDITIONS, AND NECESSARILY INVOLVE RISKS AND UNCERTAINTIES. THEREFORE, THERE CAN BE NO ASSURANCE THAT ACTUAL FUTURE RESULTS WILL NOT DIFFER MATERIALLY FROM ANTICIPATED RESULTS. ALTHOUGH THE COMPANY HAS ATTEMPTED TO IDENTIFY SOME OF THE IMPORTANT FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED, THOSE FACTORS SHOULD NOT BE VIEWED AS THE ONLY FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS. ITEM 1. BUSINESS GENERAL INFORMATION Ascent Entertainment Group, Inc. ("Ascent" or the "Company") operates diversified media and entertainment production and distribution businesses characterized by well-known franchises. The Company conducts its business in two reportable segments, Multimedia Distribution and Network Services. In the Company's Multimedia Distribution segment, the Company's approximately 56.6% owned publicly traded subsidiary, On Command Corporation ("On Command" or "OCC"), is the leading provider (by number of hotel rooms served) of in-room on- demand video entertainment and information services to the domestic lodging industry. The Company's Network Services segment is comprised of the Company's Ascent Network Services ("ANS") division. ANS is the primary provider of satellite distribution support services that link the National Broadcasting Company ("NBC") television network with 181 of its affiliated stations nationwide. The Company's discontinued operations are comprised of the results of the Company's former entertainment segment, which included the Denver Nuggets, the Colorado Avalanche and Ascent Arena Company (the "Arena Company"), the owner and manager of the Pepsi Center, (collectively the "Sports-related businesses"), which the Company has announced its intentions to sell. In addition, discontinued operations include the results of the Company's former subsidiary, Beacon Communications, LLC ("Beacon"), in which a 90% interest was sold on January 20, 1999. Beacon, (an independent motion picture and television production company) was sold to an investment group which included Armyan Bernstein, Beacon's Chairman and Chief Executive Officer. The Company began accounting for Beacon as a discontinued operation as of December 31, 1998 and for the Sports-related businesses as a discontinued operation during the first quarter of 1999. Accordingly, the accompanying financial information included in the Annual Report has been restated to conform to the discontinued operations presentation of the Company's Sports-related businesses. The Company is a Delaware corporation and was incorporated in 1995. The Company was formed by COMSAT Corporation ("COMSAT") to organize COMSAT's multimedia distribution and entertainment assets under one management group. An initial public offering (the "Ascent IPO") of Ascent's common stock was completed in December 1995. As a result of the Ascent IPO, COMSAT owned 80.67% of the Company's common stock. COMSAT originally became involved in the entertainment industry through its acquisition of the multimedia distribution businesses, ANS and On Command Video Corporation ("OCV"), and its initial acquisition of an interest in the Nuggets. COMSAT expanded the Company by acquiring complementary entertainment businesses, including increasing its investment in OCV and the Nuggets and acquiring the Avalanche, Beacon, and other related interests. In 1996, the Company formed OCC to combine OCV and the assets and certain liabilities of Spectravision, Inc. ("SpectraVision"), at the time the second largest provider of in-room on-demand video entertainment services to the domestic lodging industry (the "Spectravision Acquisition"). In connection with the Offering, the Company and COMSAT entered into a Services Agreement, pursuant to which COMSAT provided certain services to the Company; a Corporate Agreement, which provided COMSAT with certain control rights, including with respect to the Company's board of directors, equity securities, and Certificate of Incorporation and Bylaws; and a Tax Sharing Agreement related to the treatment of Ascent as part of COMSAT's consolidated tax group (See Notes 7 and 12 to the Company's Consolidated Financial Statements). On June 27, 1997, COMSAT consummated the distribution of all of its ownership interest in Ascent to the COMSAT shareholders on a pro-rata basis in a transaction that was tax-free for federal income tax purposes (the "Distribution") pursuant to a Distribution Agreement dated June 3, 1997, between Ascent and COMSAT. The Distribution was intended, among other things, to afford Ascent more flexibility in obtaining debt financing to meet 1 its growing needs. The Distribution Agreement terminated the Corporate Agreement, the Tax Sharing Agreement and the Services Agreement. In addition, pursuant to the Distribution Agreement, certain restrictions were put into place to protect the tax-free status of the Distribution. Among the restrictions, Ascent was not allowed to issue, sell, purchase or otherwise acquire stock or instruments which afford a person the right to acquire the stock of Ascent until July 1998. Finally, as a result of the Distribution, Ascent is no longer part of COMSAT's consolidated tax group and accordingly, Ascent may be unable to recognize future tax benefits and will not receive cash payments from COMSAT resulting from Ascent's operating losses in 1999 and 1998 and anticipated operating losses thereafter. (See Notes 7 and 12 to the Company's Consolidated Financial Statements.) MERGER AGREEMENT On February 22, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Liberty Media Corporation ("Liberty") and Liberty AEG Acquisition, Inc. ("Merger Sub"), an indirect wholly-owned subsidiary of Liberty. Pursuant to the Merger Agreement, Merger Sub commenced a Tender Offer (the "Offer") offering Ascent stockholders $15.25 in cash for each share of Ascent common stock. Liberty commenced the offer on February 29, 2000 and under its terms and subject to its conditions, the Offer will expire on March 27, 2000, unless extended pursuant to the Merger Agreement. The Offer is conditioned on the tender of at least a majority of the Ascent shares as well as other customary conditions. Under the Merger Agreement and subject to the terms thereof, following the Offer, Merger Sub will be merged with and into Ascent (the "Merger") and all shares not purchased in the Offer (other than Shares held by Liberty, Merger Sub or Ascent, or shares held by dissenting stockholders) will be converted into the right to receive $15.25 per Share in cash. MULTIMEDIA DISTRIBUTION ON COMMAND CORPORATION GENERAL OCC is a holding company whose principal assets are OCV, SpectraVision and On Command Development Corporation, each of which operates as a separate, wholly owned subsidiary of On Command Corporation. OCC is the leading provider (by number of hotel rooms served) of in-room, on-demand video entertainment and information services to the domestic lodging industry. OCC has experienced rapid growth in the past seven years, increasing its base of installed rooms from approximately 37,000 rooms at the end of 1992 to approximately 956,000 rooms at December 31, 1999, of which approximately 884,000 rooms are served by on-demand systems. OCC provides in-room video entertainment and information services on three technology platforms, the recently developed OCX video system, the On Command Video ("OCV") System and the SpectraVision systems. The OCX video system provides enhanced multimedia applications, including an improved graphical interface for movies and games, TV-based Internet with a wireless keyboard and other guest services. At December 31, 1999, OCC had installed the OCX systems in approximately 34,000 hotel rooms, 30,000 with Internet capability. The OCV System is a patented video selection and distribution technology platform that allows hotel guests to select at any time movies and games through the television sets in their hotel rooms. At December 31, 1999, OCC had approximately 749,000 rooms installed with the OCV platform. There are variations of the SpectraVision Video Systems still installed in hotels including tape based scheduled and on-demand systems. The SpectraVision Video System generally offers fewer movie choices than the OCV or OCX systems. At December 31, 1999, OCC had 177,000 rooms installed with SpectraVision equipment. In addition to movies, OCC's platforms provide for in-room viewing of programming of select cable channels (such as HBO, Showtime, ESPN, CNN and Disney Channel) and other interactive and information services, which includes high speed Internet access through the OCX platform. OCC primarily provides its services under long-term contracts to hotel chains, hotel management companies, and individually owned and franchised hotel properties, predominantly in the deluxe, luxury, and upscale hotel categories serving business travelers, such as Marriott, Hilton, Hyatt, Wyndham, Starwood, Doubletree, Fairmont, Embassy Suites, Four Seasons, and other select hotels. At December 31, 1999, approximately 87% of OCC's 956,000 installed rooms were located in the United States, with the balance located primarily in Canada, the Caribbean, Australia, Europe, Latin America and the Asia-Pacific region. In addition to installing systems in hotels served by OCC, OCC sells its systems to certain other providers of in-room entertainment, including Hospitality Network, Inc., which is licensed to use OCCs system to provide on-demand, in-room entertainment and information services to certain gaming-based, hotel properties and ALLIN Communications, Inc., which is licensed to install OCC's systems in cruise ships. 2 INDUSTRY OVERVIEW Providing in-room entertainment and information services to the lodging industry includes offering pay-per-view motion pictures and Internet connectivity, free-to-guest programming of select pay cable channels, and an increasing array of interactive programs and information services. Pay-per-view movies 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 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 OCV's patented video switch) enabled providers of pay-per- view services to offer scheduling flexibility to the viewer. Changes in technology have also led to the ability to provide a number of on-demand interactive services such as guest folio review, automatic checkout, survey completion, guest messaging, video games and Internet service. 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, telecommunications companies, laptop connectivity companies and others. See "Competition." OPERATING AND GROWTH STRATEGY On Command Corporation's operating and growth strategy is to: (i) increase revenues and create new revenue sources through an expanding range of interactive and information services offered to the lodging industry through the OCX platform, including @Hotel TV-based Internet; (ii) increase its installed hotel customer base by obtaining contracts with business and luxury hotels and select mid-priced hotels without current service, converting hotels currently served by other providers whose contracts are expiring, and servicing hotels which are acquired or constructed by existing customers; (iii) expand its room base in underserved foreign markets; and (iv) increase revenues and decrease costs in certain hotels acquired in the SpectraVision acquisition by installing more current technology offering greater reliability, broader selection, and more viewing flexibility. OCC has been actively pursuing the renewal or extension of most of the contracts with hotel customers with SpectraVision equipment by offering these customers the opportunity to obtain OCV or OCX on-demand pay-per-view movies and related services. As of December 31, 1999, OCC had converted approximately 181,000 rooms previously served by SpectraVision's systems to OCC's on-demand system. Management expects to have a substantial majority of the remaining SpectraVision rooms converted to OCC's on-demand system by the end of 2001. PLATFORMS OCX Platform OCX is a multimedia platform that can be used to modify existing OCC installations or can incorporate digital content storage in new installations. At December 31, 1999, OCC had installed the OCX system in 34,000 hotel rooms, 30,000 of which have Internet capability. The platform currently provides interactive, multimedia menus, high-speed, TV-based Internet service, e-mail access over the Internet, Sony PlayStation games, as well as more choices and higher-quality video (with digital content storage) for OCC's on-demand movie services. Potential offerings using the digital platform include flexible pricing and packaging, non-theatrical short videos (such as business, lifestyle, and sports videos) and special events, including out-of-market sports events. On July 1, 1999, OCC launched its OCX platform which is now being supported by OCC using standard procedures. Over the next several months, OCC will be implementing new systems and procedures to better service and support the existing OCX properties and improve the operational efficiencies of the OCX platform. OCC has been actively marketing OCX and as of December 31, 1999, had already signed contracts to install OCX an additional 75,000 rooms. OCC is outfitting all major metropolitan areas with sufficient technical staff to support the increasing demand for OCX. OCX provides enhanced multimedia applications and @Hotel Internet access using a customized version of Microsoft's Internet Explorer, adapted for use over the TV in conjunction with a wireless keyboard. @Hotel Internet 3 service is available to guests for a daily fee and includes complete web access and e-mail capability. OCC has also partnered with several Internet content providers to organize hotel-friendly Internet sites. OCX operates by means of several client computers that serve multiple guest rooms and are located outside of the actual rooms. The OCX platform supports a high degree of interactivity and customization, including a powerful and compelling multimedia user interface. The OCX platform is a standards-based, client-server architecture utilizing Windows NT in the "back end" and a customized NTSC version of Internet Explorer running on Windows 98 PC clients in the "front end." HTML-based menus allow integration of content and navigational elements, and video content is provided via a digital file server or an array of video cassette players. A key component of the OCX platform is the "Site Manager" software application that controls the system, interfaces with the hotel Property Management System, and acts as the system's overall resource manager (including user session management and resource allocation). In its design and functionality, this application reflects OCC's years of operational experience and provides a key strategic advantage in serving the lodging industry. The OCX platform provides a significant increase in the breadth of possible services and in the efficiency of providing them. While the platform itself may be extended to support extensive product offerings, early implementations will include video-on-demand, @Hotel TV-based Internet access, Sony's PlayStation video games and a rich multimedia user interface. With the OCX 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, the Company can begin to transition to network delivery of content. OCC undertakes a significant investment when it installs its system in a hotel property, sometimes rewiring part of the hotel. Depending on the size of the hotel property, the quality of the cabling and antenna system at the hotel, and the configuration of the system installed, the installation cost of a new, OCV on-demand system with movies, guest services and video game capabilities, including the head-end equipment averages from approximately $375 to $450 per room. If the Company provides televisions, the cost can increase by $200 to $325 per room depending on the size of the TV. The installation cost of a full OCX system, including digital content storage and Internet capability with a wireless keyboard is approximately $75 per room higher than the OCV system in the same size hotel. In addition, the OCV system can be modified to enable OCX functionality for movies, games, Internet, and guest services. The cost of this modification is between $175 to $300 per room depending on the required wiring in the hotel. Most installations undertaken by OCC today use the OCX platform. Due to constraints placed on OCC by most movie studios, OCX is only installed with video cassette players in certain international markets. OCV Platform The On Command Video system was patented by OCV 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 OCV'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 equipment and system are limited to changing videocassettes once per month and are all handled by OCC's service personnel who also update the system's movie titles screens. OCV's information system is capable of generating regular reports of guests' entertainment selections, permitting OCV 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. OCV provides more copies of the most popular programming to hotels. The high-speed, two-way digital communications capability of the OCV system enables OCC 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 system also enables hotel owners to broadcast informational and promotional messages and to monitor room availability. 4 For example, in a typical hotel with 400 rooms, the central head-end video rack would consist of approximately 120 videocassette recorders containing up to ten copies of the most popular movies and a total of up to 50 different titles. The OCV system includes a computerized in-room on-screen menu that offers to guests a list of only those movie selections available to the guest at that time. As a result, even though the on-screen menu may not include a list of all titles available in the particular hotel, the list includes all movies currently available to the guest, thus eliminating the possibility of a guest being disappointed when the guest's selection is not available. SpectraVision Platform In comparison with OCX and OCV systems, hotels still equipped with SpectraVision technology generally offer fewer choices if served by SpectraVision on-demand systems, or only offer hotel guests eight to twelve movies per day at scheduled times, or some combination thereof. SpectraVision originated a tape-based system which typically offered a hotel guest eight movies per day at predetermined times. In 1991, SpectraVision introduced the Guest Choice system to provide hotel guests with on-demand viewing of videotapes based upon proprietary equipment and software. In 1994, SpectraVision introduced a digital video on-demand service, called Digital Guest Choice. The Digital Guest Choice system provides on-demand viewing of digitally stored movies that reside on high capacity disk arrays. OCC has converted the Digital Guest Choice systems in the United States to its OCV on-demand systems although some units of Digital Guest Choice equipment continue to be used in Asia. SERVICES Pay-Per-View Movie Services Through its OCV and SpectraVision subsidiaries, OCC provides on-demand and, in some cases, scheduled in-room television viewing of major motion pictures and independent non-rated motion pictures 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 up to 50 different movies with an on- demand system, or from eight to twelve movies with a scheduled system. OCC 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 gross revenues generated by the pay-per-view system. Typically, OCC 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. OCC attempts to license pictures as close as possible to motion pictures theatrical release date to benefit from the studios' advertising and promotional efforts. OCC also obtains independent motion pictures, most of which are non-rated and are intended for mature audiences, for a one-time flat fee that is nominal in relation to the licensing fees paid for major motion pictures. OCC provides service under contracts with hotels that generally provide for a term of five to seven years. Under these contracts, OCC installs its system into the hotel at OCC's cost, and OCC retains ownership of all its equipment used in providing the service. Traditionally, the hotel provides its own televisions, however, based on certain economic evaluations, OCC may provide televisions to hotels in exchange for other contractual consideration. OCC's contracts with hotels generally provide that OCC will be the exclusive provider of in-room, pay-per-view video entertainment services to the hotel and generally permit OCC to set the movie price. The hotels collect movie-viewing charges from their guests and retain a commission equal to a percentage of the total pay-per-view revenue that varies depending upon the size and profitability of the system. Some contracts also require OCC 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, OCC generally seeks to extend the agreement on terms that are based upon the competitive situation in the market. The revenue generated from OCC'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, over time, based on seasonal factors 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 and the business of OCC is closely related to the performance of the business and luxury hotel segments of the lodging industry. Movie price levels are established by OCC and are set based on the guest mix profile at each property and overall economic 5 conditions. Currently, OCC's movie prices typically range from $8.95 to $9.95 for a purchase by the hotel guest. The current price for OCC's pay-per-day service is $15.99 per day. Free-To-Guest Services OCC also markets free-to-guest services pursuant to which a hotel may elect to receive one or more programming channels, such as HBO, Showtime, CNN, ESPN, TBS, Disney Channel, Discovery Channel, and other cable networks. OCC provides hotels free-to-guest services through a variety of arrangements, including having the hotel pay the company a fixed monthly fee per room for each programming channel selected or having the price of such programming included in the Company's other offerings. Internet Services Beginning in 1997, OCC 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, OCC commercially released its OCX platform which enables guest use of the @Hotel Internet service over the TV at December 31, 1999, OCC had installed the internet service approximately 30,000 rooms. As an adjunct to the OCX multimedia platform, OCC has also installed high-speed laptop connectivity for hotel rooms, and high-bandwidth services for conference spaces. OCC's goal is to provide a variety of services that leverage the connectivity infrastructure that it has or will establish in its client hotels. Game Services At December 31, 1999, On Command offered games in approximately 186,000 rooms. Both the OCV and OCV platforms support Sony Playstation games. Kids, families, and business travelers can entertain themselves with the most popular video game titles available on the market. There are approximately between 8 and 16 titles available in most game rooms at a guest price of $5.99/hour. Other Hotel and Guest Services In addition to entertainment services, OCC provides other guest services to the lodging industry. These services use the two-way interactive communications capability of OCC's equipment and room availability monitoring. Among the guest services provided are video check-out, room service ordering and guest satisfaction surveys. Guest services are also currently available in Spanish, French and certain other foreign languages. In most cases, the guest services are made a part of the contract for pay-per-view services which typically runs for a term of five to seven years. OCC is also testing shorter and more targeted non-movie programming on a lower cost pay-per-view basis. The initial categories of content include business, lifestyle and kids-only. In addition, OCC is in the process of long-term testing of a new sports category of programming that provides hotel guests with a selection of out-of-market sports not televised nationally, or subject to local blackout restrictions. SALES AND MARKETING Substantially all of OCV's growth to date has been derived from obtaining contracts with hotels in the United States not under contract with existing vendors or served by other vendors as the contracts covering such hotels expired. OCC believes that, as a result of the acquisition of SpectraVision, opportunities for additional growth in the United States are more limited than in the past. Therefore, OCC has broadened its strategy for obtaining new hotel customers to both smaller hotels and international markets. OCC believes that both smaller hotels in the United States and hotels in many international markets are underserved by the in-room entertainment industry. OCC's marketing efforts have historically been primarily focused on business and leisure hotels with approximately 150 rooms or more. Management believes that such hotels consistently generate the highest revenues per room in the lodging industry and have the highest potential for new service revenue growth. OCC also targets smaller deluxe, luxury and upscale hotels and select mid-priced hotels serving business travelers that meet its profitability criteria. As mentioned above, OCC has recently begun to employ additional engineering, development and marketing efforts to target hotels under 150 rooms. On Command intends to continue targeting established hotel chains, certain business and leisure hotel management companies, and selected independent hotels. OCC markets its services to hotel guests by means of on-screen advertising that highlights the services and motion picture selections of the month as well as an in-room entertainment guide distributed to more than 817,000 hotel rooms each month. 6 INSTALLATION AND SERVICE OPERATIONS At December 31, 1999, OCC's installation and service organization consisted of approximately 368 installation and service personnel in the United States and Canada. OCC installation and service personnel are responsible for all of the hotel rooms served by OCC in the United States and Canada, including system maintenance and distribution of videocassettes. OCC'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. OCC also uses local installation subcontractors supervised by full-time OCC personnel to install its systems. OCC 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, OCV and SpectraVision systems enables the technician to identify and resolve a majority of the reported system malfunctions from OCC's service control center without visiting the hotel property. Should a service visit be required, the modular design of the OCX, OCV and SpectraVision systems generally permits installation and service personnel to replace defective components at the hotel site. HOTEL CONTRACTS OCC typically negotiates and enters into a separate contract with each hotel for the services provided. However, for some of OCC's large hotel management customers, OCC negotiates and enters into a single master contract for the provision of services for all of the corporate-managed hotels of such management company. In the case of franchised or independently owned hotels, the contracts are generally negotiated separately with each hotel. Existing contracts generally have a term of five or seven years from the date the system becomes operational. At expiration, OCC typically seeks to extend the term of the contract on terms competitive in the market. At December 31, 1999, approximately 10% of the pay-per-view hotels served by OCC have contracts that have expired and are on a month-to-month basis. Approximately 10% of the pay- per-view hotels served by OCC have contracts expiring in 2000. However, some of the SpectraVision hotel contracts, which OCC classified internally as expired, have two-year automatic renewal provisions under certain conditions and may continue to be in effect. As a result, the expiration rates set forth above may overstate the actual number of hotel contracts that are expiring. TECHNOLOGY - RESEARCH AND DEVELOPMENT On Command Development Corporation, a wholly-owned subsidiary of OCC, develops technologies to be used by OCV and SpectraVision to support and enhance OCV's and SpectraVision's operations and to develop new applications to be marketed by OCV and SpectraVision. OCC's product development philosophy is to design high quality entertainment and information systems which incorporate features allowing OCC to add system enhancements as they become commercially available and economically viable. The high speed, two-way digital communications capability of the OCX system enables OCC to provide advanced interactive features such as video games and Internet 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, televisions, amplifiers, and computers. Because the Company's systems generally use industry standard interfaces, OCC can integrate new technologies as they become economically viable. SUPPLIERS OCC contracts directly with various electronics firms for the manufacture and assembly of its systems hardware, the design of which is controlled by On Command Development Corporation. Historically, these suppliers have been dependable and able to meet delivery schedules on time. OCC believes that, in the event of a termination of any of its sources, alternate suppliers could be located without incurring significant costs or delays. However, certain electronic component parts used with the Company's products are available from a limited number of suppliers and can be subject to temporary shortages because of general economic conditions and the demand and supply for such component parts. In addition, some of the SpectraVision systems currently installed in hotels require a high level of service and repair. As these systems become older, servicing replacement parts will become more difficult. If OCC were to experience a shortage of any given electronic part, OCC believes that alternative parts could be obtained or system design changes could be made. In such event, OCC could experience a temporary reduction in the rate of new installations and/or an increase in the cost of such installations. 7 The head-end electronics are assembled at OCC's facilities for testing prior to shipping. Following assembly and testing of equipment designed specifically for a particular hotel, the system is shipped to each location, where OCC-employed and trained technicians install the system, typically assisted by independent contractors. For those hotels for which OCC supplies televisions, On Command purchases such televisions from a small 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. OCC, through its OCV and SpectraVision subsidiaries, maintains direct contractual relations with various suppliers of pay-per-view and free-to-guest programming, including the motion picture studios and/or their domestic and international distributors and programming networks. OCC believes its relationships with all suppliers are good. In addition, OCC receives satellite signal transport services for much of its domestic cable television programming from DIRECTV, Inc. OCC believes that its relationship with DIRECTV, Inc. is good. However, an interruption in DIRECTV's satellite service could interfere with OCC's ability to serve many of its hotel customers' free-to-guest cable programming requirements. COMPETITION In the U.S., taking into account the various providers of cable television services, there are numerous providers of in-room video entertainment to the lodging industry, at least three of which provide on-demand pay-per-view, free- to-guest programming, and guest services by means of the in-room television. Internationally, there are more companies competing in the pay-per-view lodging industry than in the United States. Pay-per-view, the most profitable component of the services offered, competes for a guest's time and entertainment resources with broadcast television, free-to-guest programming, and cable television services. In addition, there are a number of competitors that are developing ways to use their existing infrastructure to provide in-room entertainment and/or information services to the lodging industry, including cable companies (including wireless cable), telecommunications companies, Internet and high- speed connectivity companies, and direct-to-home and direct broadcast satellite companies. Some of these competitors have been providing free-to-guest services to hotels and are beginning to provide video-on-demand, Internet and high speed connectivity to hotels. OCC is the leading provider (by number of hotel rooms served) of in-room video entertainment services to the United States lodging industry. OCC is also the leading provider (by number of hotel rooms served) of in-room on-demand video entertainment services to the lodging industry on a worldwide basis. Domestically, OCC competes on a national scale primarily with LodgeNet Entertainment Corporation ("LodgeNet") and on a domestic and international regional basis with certain other smaller entities. Based on publicly available information, OCC estimates that, at December 31, 1999, LodgeNet serves approximately 4,900 lodging properties, of which 661,700 rooms are equipped with on-demand service. At December 31, 1999, OCC served approximately 956,000 rooms, of which approximately 884,000 are on-demand rooms. Competition with respect to in-room video entertainment and information contracts 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 already receiving in-room entertainment services, the current provider may have certain informational and installation cost advantages compared to outside competitors. Furthermore, while the Company is addressing the likelihood of increased demand for Internet services in the hotel guestroom, OCC may face additional competition in this area from traditional as well as new competitors. Some of these competitors may be better funded from both public capital and/or private venture capital markets and have access to additional capital resources which OCC does not have. OCC believes its competitive advantages include (i) technological leadership represented by its superior on-demand capability and range of services offered, (ii) system reliability and high quality service and (iii) its presence and ability to offer its service inmost markets around the world. OCC believes that its growth (including OCV's growth prior to the acquisition of SpectraVision) reflects the strong competitive position of its products and services. OCC also competes with local cable television operators by customizing packages of programming to provide only those channels desired by the hotel subscriber, which typically reduces the overall cost of the service provided. 8 On Command Corporation anticipates substantial competition in obtaining new contracts with major hotel chains. OCC believes that hotels view the provision of in-room on-demand entertainment and information both as a revenue source and as a source of competitive advantage in that sophisticated hotel guests are increasingly demanding a greater range of quality entertainment and information alternatives. At the same time, OCC 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 OCC believes its competitive advantages will enable OCC to continue to offer financial arrangements that are attractive to hotels, its competitors may attempt to maintain or gain market share at the expense of profitability. OCC 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 OCC's operations unless OCC is able to provide equivalent services at competitive prices. International Markets In addition to its operations in the fifty United States, OCC offers its services in canada, Latin America, Puerto Rico, the U.S. Virgin Islands, Hong Kong, Singapore, Thailand, Australia, the Bahamas, Europe, and elsewhere in the Asia-Pacific region. The Company historically experienced higher international revenues 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 expenditure and operating costs outside the United States. Additionally, the effect of the Asian economic crisis contributed to a decline in revenues from that region in 1998 and 1999. At December 31, 1999, the Company services 423 hotels with a total of approximately 126,000 rooms located outside the United States. The competition to provide pay-per-view services to hotels is even more dispersed in international markets, than in the United States. Expansion of OCC'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 OCC's efforts to grow its base of hotel rooms in foreign markets. INVESTMENT IN OCC The Company made its initial investment in OCV in 1991 and owned approximately 84% of OCV (78.4% on a fully diluted basis) prior to the acquisition of SpectraVision. In connection with the acquisition of OCV by OCC, each stockholder of OCV received (i) 2.84 shares of OCC common stock for each share of OCV common stock previously held and (ii) Series A Warrants to purchase, on a cashless basis, 18.607% of a share of OCC common stock for each share of OCV common stock previously held. Of the 21,750,000 shares of OCC common stock and Series A Warrants to purchase 1,425,000 shares of OCC common stock distributed to the OCV stockholders, Ascent received 17,149,766 shares of OCC common stock and Series A Warrants to purchase 1,123,823 shares of OCC common stock. Hilton Hotels Corporation, a current minority stockholder of OCC and a significant customer of OCC, received approximately 2,331,986 shares of OCC common stock and Series A Warrants to purchase approximately 152,786 shares. OCC currently has no agreements or understandings with respect to the minority stockholders of OCC or OCC, other than a letter agreement dated April 19, 1996 with Gary Wilson Partners that provides that Gary Wilson Partners will, so long as (a) it owns any shares of OCC common stock received upon exercise of the Series C Warrant that it received for advisory and other services that it provided in connection with the acquisition of Spectravision and (b) the Company continues to own 20% of the outstanding shares of OCC common stock, vote its shares of OCC common stock in accordance with the instructions of the Company. NETWORK SERVICES ASCENT NETWORK SERVICES ANS merged with and into the Company on May 30, 1997. Prior thereto, ANS was a wholly-owned subsidiary of Ascent. ANS, as a division of the Company, principally operates a nationwide network (excluding satellite transponders) for satellite distribution of NBC's national television programming to the majority of NBC's affiliate stations nationwide, as well as an installation, field service and maintenance support business relating to such network. ANS also provides satellite distribution field service and maintenance support for networks operated by other customers. ANS has operated its satellite distribution network for NBC since 1984 under the NBC Agreement, a 10-year agreement that was extended in 1994 through the end of 1999. On August 1, 1999, the Company completed negotiations and entered into a three-year extension through the end of 2002 of the NBC Agreement, under which Ascent provides satellite service, maintenance and support of NBC's national television network. Management of the Company does not anticipate any significant capital expenditures will be incurred in connection with the extension agreement. ANS has historically been a stable source of revenues and operating cash flows for the Company, generating approximately $20 million of revenues and $10 million of EBITDA annually since 1995. Ascent's strategy for maintaining and expanding this source of cash flow is to renew and extend the NBC Agreement once the current extension expires in 2002, and to be engaged for and complete successfully the full digital upgrade of the NBC satellite distribution network. The NBC Agreement was initially entered into in 1984, in connection with ANS's construction, service and support of NBC's master earth station and receiver earth stations at NBC affiliates. Pursuant to such contract, ANS designed, built and continues to operate a Ku-band satellite distribution network, for which the network control center is located in Florida. The Company owns and operates the network (excluding the satellite transponders, which are leased by NBC) and receives yearly payments from NBC in connection with such operations. The network consists of the 9 network control center, two master earth stations, eight transmit/receive stations, 174 receive earth stations at NBC affiliates, 56 portable uplink antennas, and six transportable transmit/receive trucks. Management continues to believe that at the end of such extension period, it is possible that NBC will engage ANS to complete a full upgrade of the NBC distribution network to digital technology. No assurance can be provided that a full digital upgrade will occur or that ANS will be engaged to complete the digital upgrade on terms as favorable to the Company as the current agreement. In 1998, NBC issued a request for information from ANS and certain of its other vendors with respect to an upgrade of each component of the NBC distribution network to digital technology. In August 1996, ANS and NBC executed a letter of intent pursuant to which ANS has procured and installed certain of such digital equipment to provide MSNBC, LLC, a partnership between NBC and Microsoft Corporation ("MSNBC") with network service, maintenance and support. The partial digital upgrade service is being provided for a 10 year term and is currently governed by the underlying NBC Agreement. The Company anticipates finalizing a service agreement with MSNBC separate from the underlying NBC Agreement in the first half of 2000 for the partial digital upgrade service. The network service, maintenance and support provided to MSNBC are related to and dependent upon the original NBC distribution network. DISCONTINUED OPERATIONS SPORTS-RELATED BUSINESSES The Company owns and operates franchises in two major professional sports leagues, the Colorado Avalanche in the NHL and the Denver Nuggets in the NBA. Both of these franchises are located in Denver, Colorado where residents have historically supported successful local sports franchises. The Arena Company was formed for the purpose of developing plans for the Pepsi Center as a privately financed arena in Denver for the Avalanche, the Nuggets and other entertainment events, including among other things, concerts, college sporting events, ice and dance performances, comedy shows and circuses. The Company believes that the construction of the Pepsi Center enhanced the asset value of its sports franchises, allows the Company to take advantage of the growing popularity of the NHL and NBA, and augments the revenues and operating cash flows of the two sports franchises. The Pepsi Center was completed in the fall of 1999 and commenced operations in September 1999. On July 27, 1999, the Company entered into a definitive Purchase and Sale Agreement (the "Sports Sale Agreement") to sell its Sports-related businesses to a group of entities controlled by Donald L. Sturm ("The Sturm Group") for $321.0 million in cash (of which Liberty Denver Arena LLC, an unrelated third party, was to receive up to $20.5 million), subject to further adjustment for cash balances and receipts received by the Company prior to closing, which related to the Nuggets and Avalanche 1999/2000 playing seasons. In conjunction with the sale, the approximate $140.0 million in non-recourse Arena Note obligations were to remain the obligation of an entity to be acquired. On December 1, 1999, the Company terminated the Sports Sale Agreement with The Sturm Group. As a result of the termination of the Sports Sale Agreement with The Sturm Group, Ascent continues to consider commencing litigation against The Sturm Group, and Mr. Sturm personally, as a result of their actions in connection with the termination of the Sports Sale Agreement. In December 1999, Ascent announced that it would continue to pursue the sale of these businesses or other strategic alternatives with respect to these businesses, as discussed below. The Company began accounting for the Nuggets, the Avalanche and the Arena Company (collectively, the "Sports-related businesses" as a discontinued operation as of March 31, 1999, pursuant to guidance contained in Emerging Issues Task Force Issues (EITF) No. 95-18, "Accounting and Reporting for Discontinued Business Segment when the Measurement Date occurs after the Balance Sheet Date but before the Issuance of the Financial Statements." That is, in conjunction with the Company entering into an agreement on April 25, 1999 to sell its Sports-related businesses, the Sports-related businesses met the conditions for classification as discontinued operations contained in EITF 95- 18. While the agreement dated April 25, 1999 was terminated and the Sports Sale Agreement to sell the Sports-related businesses to The Sturm Group was terminated on December 1, 1999, it continues to be the Company's intent to sell its Sports-related businesses. In doing so, the Company has engaged two investment banking firms who are actively engaged in the sales process. Accordingly, the Company has continued to classify the net assets and operations of its Sports-related businesses as discontinued operations. A Summary of the significant business conditions of the Company's Sports- related businesses follows: The NHL and the NHL Players' Association entered into a seven-year NHL Collective Bargaining Agreement on August 11, 1995 that took retroactive effect as of September 6, 1993. Though the NHL Collective Bargaining Agreement originally expired September 15, 2000, both the NHL and NHL Players' Association had the right to 10 reopen negotiations at the end of the 1997-1998 season. However, both parties have agreed to waive the right to reopen negotiations in connection with an agreement that allowed NHL players to participate in the 1998 Winter Olympics. In 1997, the NHL Collective Bargaining Agreement was extended through the 2002- 2003 season. The Company believes that the NHL Collective Bargaining Agreement renders unlikely any player labor disruptions in the near future. On January 6, 1999, after a 189 day work stoppage, the NBA Players' Association approved a new NBA Collective Bargaining Agreement, which was subsequently ratified by the NBA owners on January 7, 1999. The NBA Collective Bargaining Agreement has a six year term, with an option for a seventh year, exercisable in the sole discretion of the NBA. The agreement provides for, among other things, maximum and minimum total team salaries, with certain exceptions, maximum and minimum individual player salaries, an escrow system providing for a reduction of player salaries to the extent player salaries and benefits exceed a pre-determined percentage of basketball related income ("BRI") and an escrow "back-up" tax applicable to teams whose total team salaries exceed the salary cap in years that total player benefits and salaries exceed a pre- determined percentage of BRI. Development and construction costs of the Pepsi Center totaled approximately $200.0 million, including financing costs. On July 29, 1998, the Company completed the offering of approximately $140 million of single A rated asset backed taxable notes (the "Arena Notes"). The Arena Notes, were sold by the Denver Arena Trust (the "Trust"), a bankruptcy remote entity 100% beneficially owned by the Arena Company, bear an interest rate of 6.94% and have a final maturity of twenty-one years with an average life of ten years. The revenue streams that are securitized in connection with the Arena Notes are contractually obligated fees under the arena naming rights agreement with Pepsi, the founding sponsorship agreements with Coors and US West and 89 of the Pepsi Center's luxury suite licenses. BEACON Acquired in 1994, Beacon produced feature-length motion pictures for theatrical distribution and television programming. On January 20, 1999, the Company sold ninety percent of the membership interests in Beacon to an investment group which included Armyan Bernstein, Beacon's Chairman and Chief Executive Officer. The purchase price for the 90% interest was $19 million in cash, net of certain adjustments, after which Ascent received approximately $15.9 million at closing. During the second and third quarters of 1999, the Company attempted to collect the remaining balance due under the Purchase Agreement of approximately $900,000. In turn, Beacon filed a claim against the Company seeking an adjustment to the purchase price . Pursuant to the Purchase Agreement, any disputes or disagreements among the parties were to be settled pursuant to a binding arbitration in the State of California. The arbitration commenced in November of 1999 and on February 21, 2000, the arbitrator issued his opinion awarding the buyers approximately $3.5 million. Accordingly, the Company recorded a $3.5 million expense during the fourth quarter of 1999, resulting in the Company's recognition of a $.2 million loss from the sale of its 90% interest in Beacon. After the sale Ascent has no obligations to fund any of Beacon's liabilities or film development or production commitments. The 10% interest in Beacon being retained by Ascent is now subject to purchase and sale options between Ascent and the buyers at a price proportionate to the initial purchase price of $21.0 million, which Ascent intends to exercise in the near future. The Company began accounting for Beacon as a discontinued operation as of December 31, 1998 ( See Note 3 to the Company's Consolidated Financial Statements). REGULATION The Federal Communications Commission (the "FCC") has broad jurisdiction over electronic communications. The FCC does not directly regulate On Command Corporation's pay-per-view or free-to-guest services. However, the FCC's jurisdiction does encompass certain aspects of ANS's satellite delivery operations. On February 1, 1996, Congress passed The Telecommunications Act of 1996 (the "Telecommunications Act"), which was signed into law on February 8, 1996. The Telecommunications Act has and will continue to alter federal, state, and local laws and regulations for telecommunications providers and services, and may affect the Company. There are numerous rulemakings to be undertaken by the FCC that will interpret and implement the Telecommunications Act. It is not possible at this time to predict the outcome of such rulemakings. PATENTS, TRADEMARKS AND COPYRIGHTS The Company uses a number of trademarks for its products and services, including "Ascent," "On Command," "OCX," "OCV," "SpectraVision," "Denver Nuggets," "Colorado Avalanche" and others. Many of these trademarks are registered by the Company, and those trademarks that are not registered are protected by common law and state unfair competition laws. Because the Company believes that these trademarks are significant to the Company's business, the 11 Company has taken affirmative legal steps to protect its trademarks in the past and intends to actively protect these trademarks in the future. The Company believes that its trademark position is adequately protected. The Company also believes that its trademarks are generally well recognized by consumers of its products and are associated with a high-level of quality and value. On Command Development Corporation, OCV and SpectraVision own or have applied for a number of patents and patent licenses covering various aspects of OCC's pay-per-view and interactive systems. Although OCC maintains and protects these valuable assets, OCC believes that the design, innovation and quality of its products and their relationships with its customers are at least as important, if not more so, to the maintenance and growth of OCC. EMPLOYEES The Company had approximately 1,000 employees at December 31, 1999, excluding the Company's Sports-related businesses. The Company considers its relations with its employees to be good. ITEM 2. PROPERTIES The Company currently leases its principal offices in Denver, Colorado under a lease which expires on May 31, 2000. The Company's Network Service segment, which includes ANS, leases facilities from COMSAT in Maryland and also leases its principal facilities which are located in Palm Bay, Florida. The Company's Multimedia Distribution segment, which includes OCC, entered into a lease in December 1996 for facilities in San Jose, California and relocated its headquarters and OCV's manufacturing facilities to that location. In connection with the acquisition of SpectraVision, OCC acquired SpectraVision's headquarters building in Plano, Texas and directed SpectraVision to assume certain leases for office space throughout the United States, Canada, Mexico, Puerto Rico, Hong Kong and Australia for its customer support operations. On October 31, 1997, OCC sold the SpectraVision headquarters building for $4.5 million in cash. ITEM 3. LEGAL PROCEEDINGS The Company is a party to certain legal proceedings in the ordinary course of its business. However, the Company does not believe that any such legal proceedings will have a material adverse effect on the Company's financial position or results of operations. In addition, through its ownership of the Avalanche and the Nuggets, the Company is a defendant along with other NHL and NBA owners in various lawsuits incidental to the operations of the two professional sports leagues. The Company will generally be liable, jointly and severally, with all other owners of the NHL or NBA, as the case may be, for the costs of defending such lawsuits and any liabilities of the NHL or NBA which might result from such lawsuits. The Company does not believe that any such lawsuits, singly or in the aggregate, will have a material adverse effect on the Company's financial condition or results of operations. The Nuggets, along with three other teams, have also agreed to indemnify the NBA, its member teams and other related parties against certain American Basketball Association related obligations and litigation, including costs to defend such actions. The Company ves that the ultimate disposition and the costs of defending these or any other incidental NHL or NBA legal matters or of reimbursing related costs, if any, will not have a material adverse effect on the Company's financial condition or results of operations. On September 11, 1998, OCC reached an agreement with LodgeNet to settle all pending litigation between the companies. As a result the companies have dismissed all pending litigation between the parties in the United States federal District Courts in California and South Dakota, with no admission of liability by either party. The terms of the confidential settlement include a cross-license of each company's patented technologies at issue to the other party and a covenant not to engage in patent litigation against the other party for a period of five years. Each party is responsible for its own legal costs and expenses, and in connection with the multiple cross-licenses, OCC expects to receive royalty payments, net of legal fees and expenses, in an aggregate amount of approximately $10.8 million. OCC received the first payment of approximately $2.9 million (net of expenses) in September 1998, received the second payment of $3.9 million (net of expenses) in July 1999 and expects to receive the final payment of approximately $3.9 million (net of expenses) in July 2000. OCC has been and will be recognizing the royalty revenue when payments are received. In September 1998, OCV filed suit against MagiNet, alleging a breach by MagiNet of a license agreement between OCV and MagiNet, and terminating the license agreement. OCV has also demanded the payment of license fees from MagiNet which OCC believes were due and payable under the license agreement and have not been paid by 12 MagiNet. MagiNet has counter-claimed against OCV, alleging that OCV breached the license agreement, and alleging various torts by OCV in its relationship with MagiNet. While the outcome of MagiNet's counterclaim cannot be predicted with certainty, the Company intends to defend itself vigorously and expects that any liability, to the extent not provided by insurance or otherwise, will not have a material adverse effect on the financial condition of the Company. In June 1999, the Company and certain of its present and former directors were named as defendants in lawsuits filed by shareholders (the "Shareholder lawsuits") in June 1999 in the Delaware Court of Chancery. These proposed class actions asserted that the Company's agreement to sell the Company's Sports- related businesses to entities controlled by William and Nancy Laurie constituted a sale of substantially all assets of the Company, thereby requiring a shareholder vote, and resulted from breaches of fiduciary duties by the director defendants (see Note 3 of Notes to Consolidated Financial Statements). On June 23, 1999, the Company, the director defendants and the Laurie-controlled purchasing entities that were also named as defendants, entered into an agreement with the shareholder plaintiffs to settle the lawsuits. Under the settlement agreement, the Company, the director defendants, and the Laurie- controlled entities agreed, among other things, to amend the terms of the proposed sale to the Laurie entities to permit the Company to conduct a new process in which the Company would solicit additional offers for the purchase of the Sports-related businesses. The Company and the director defendants also agreed, among other things, to engage an additional investment banker to assist in the new auction process, and to add Peter W. May to the Company's Board of Directors. On July 27, 1999, as a result of the new auction process, the Company entered into a definitive agreement to sell the Sports-related businesses to The Sturm Group. The settlement of the Shareholder lawsuits is subject to the approval of the Delaware Court of Chancery after a hearing that is anticipated to occur during the second quarter of 2000. If approved by the Court, the settlement would result in, among other things, the dismissal with prejudice of the claims asserted in the Shareholder lawsuits and the payment by the Company of plaintiff attorney fees and expenses in an amount to be approved by the Court. For the year ended December 31, 1999, the Company has incurred legal and related expenses of approximately $820,000 in connection with the Shareholder lawsuits. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 13 PART II ITEM 5. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. As of March 15, 2000, there were approximately 28,131 record holders of shares of Common Stock, $.01 par value, of the Company ("Common Stock"). Ascent's Common Stock trades on the Nasdaq Stock Market, under the symbol "GOAL." The Company's Transfer Agent and Registrar is The Bank of New York, 101 Barclay Street, New York, New York. The Company has not declared or paid any dividends on the Common Stock and does not intend to do so in the foreseeable future. For a description of certain restrictions on the Company's payment of dividends, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 6 to the Company's Consolidated Financial Statements. The following table sets forth, for each of the periods indicated, the high and low sales quotations per share as reported by the Nasdaq National Market based on published financial sources. Year Ended December 31, 1998: - ----------------------------- First Quarter............................... $11 $9-11/16 Second Quarter.............................. $12-3/4 $10-5/16 Third Quarter............................... $11-5/16 $5-7/8 Fourth Quarter.............................. $9-3/16 $5-11/16 Year Ended December 31, 1999: - ----------------------------- First Quarter............................... $12-3/8 $7-1/4 Second Quarter.............................. $14-3/16 $8-3/4 Third Quarter............................... $15 $12-3/4 Fourth Quarter.............................. $17-1/2 $11-1/2 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements and schedules and accompanying notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" presented elsewhere in this document. The Company began accounting for Beacon as a discontinued operation as of December 31, 1998 and for the Sports-related businesses as a discontinued operation during the first quarter of 1999. Accordingly, the accompanying 1998, 1997, 1996 and 1995 financial information have been restated to conform to the Company's discontinued operations. 14 FIVE YEAR FINANCIAL SUMMARY (Amounts in thousands, except per share and room data information)
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Statement of Operations Data: - ----------------------------- Revenues.......................... $275,379 $261,276 $242,043 (1)$167,976 $ 135,782 Operating expenses (excluding depreciation and amortization)... 213,463 185,913 183,588 125,198 108,373 Loss from continuing operations... (51,118) (31,926) (10,162) (33,338) (10,146) Net Loss.......................... (77,577) (49,725) (41,514) (36,034) (21,023) Basic and diluted net Loss per common share: Loss from continuing operations................ (1.72) (1.07) (1.13) (.34) (.42) Net loss....................... (2.61) (1.67) (1.40) (1.21) (.87) Weighted average number of Common shares outstanding (2)..... 29,756 29,756 29,755 29,753 24,217 Other Financial Data: - --------------------- Capital Expenditures.............. $ 86,080 $ 86,633 $ 93,914 $ 78,791 $ 82,903 Cash Flow Data: Net cash provided by operating activities of continuing operations....... $ 64,117 $ 72,326 $ 22,239 $ 25,160 $ 62,954 Net cash used in investing Activities................... (68,429) (83,534) (83,846) (82,009) (182,221) Net cash provided by Financing activities......... 15,532 30,000 77,248 82,988 124,406 EBITDA (3)........................ $ 61,916 $ 75,363 $ 58,455 $ 42,778 $ 27,409 Cash dividends per share $ -- $ -- $ -- $ -- $ -- Balance Sheet Data (at end of period): Total assets $581,301 $623,624 $656,386 $ 637,155 $ 433,935 Total long-term debt 339,922 305,537 259,958 50,000 70,000 Stockholder's equity 99,721 176,526 227,698 269,585 301,269 Room Data: Total Number of Guest-pay total rooms (at end of period): On-Demand...................... 884,000 829,000 765,000 709,000 361,000 Scheduled only (4)............. 72,000 100,000 128,000 208,000 51,000 -------- -------- -------- ------------ --------- Total rooms........... 956,000 929,000 893,000 917,000 412,000 ======== ======== ======== ============ =========
15 (1) Includes $24.1 million in revenues from SpectraVision. The results of operations for the fourth quarter of 1996 include the results from SpectraVision's assets that were acquired on October 8, 1996. (2) Gives effect to the 24,000-for-1 stock split of the outstanding Common Stock effected upon consummation of the Ascent IPO. (3) EBITDA represents earnings from continuing operations before interest expense, income taxes, depreciation and amortization, other income (expense) and non-cash charges related to stock based compensation. The most significant difference between EBITDA and cash provided from operating activities is changes in working capital. 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 and discussed in Item 7 under Liquidity and Capital Resources. See the Consolidated Financial Statements and the Notes thereto appearing elsewhere in this document. EBITDA for the year ended December 31, 1995 excludes the provision for restructuring during such period. The Company's method for calculating EBITDA may be different than other companies. (4) Historically, the Company through its Satellite Cinema division, provided satellite delivered (scheduled only) pay-per-view movies to the lodging industry prior to its ownership of OCV. Effective October 8, 1996, the Company, through OCC, acquired the assets and certain liabilities of SpectraVision, which assets included a certain number of scheduled only pay-per-view rooms. In the third quarter of 1997, OCC assigned to Skylink operating rights and sold assets associated with approximately 26,500 rooms in the United States and Canada. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto and other financial information included elsewhere in this Annual Report. Certain of the statements that follow are forward-looking and relate to anticipated future operating results. Statements which look forward in time are based on management's current expectations and assumptions, which may be affected by subsequent developments and business conditions, and necessarily involve risks and uncertainties. Therefore, there can be no assurance that actual future results will not differ materially from anticipated results. Although the Company has attempted to identify some of the important factors that may cause actual results to differ materially from those anticipated, those factors should not be viewed as the only factors which may affect future operating results. OVERVIEW The Company operates in two reportable segments: Multimedia Distribution, which consists of OCC; and Network Services, which consists of Ascent Network Services. Multimedia Distribution - ----------------------- The Company made its initial investment in OCC in 1991 and owned approximately 84% of OCV prior to the acquisition of SpectraVision. As a result of consummating the SpectraVision Acquisition, the Company owned approximately 56.6% (approximately 46% on a fully diluted basis) of the outstanding common stock of OCC. It is expected that the Company will continue to derive a majority of its consolidated revenues from OCC. Revenue and income growth are anticipated from the continued installation of OCX systems for new hotel customers and to replace OCV and SpectraVision systems serving existing customers. The primary sources of revenues of OCC (which are more fully discussed below) are movie rentals, video games, free-to-guest services and video system sales. 16 The Company projects that the conversion of hotel rooms to OCC's new OCX technology, as well as the continued upgrading and expansion of the products and services offered by OCC, may require capital expenditures of approximately $90.0 million to $110.0 million during 2000. In conjunction with the acquisition of SpectraVision, OCC acquired video systems and equipment. These assets, which were recorded at their estimated fair market value of approximately $41,800,000 in October 1996, were depreciated over 3 years. As a result, OCC's 1999 fourth quarter operating results were impacted from a reduction in depreciation and amortization expense charges relating to these SpectraVision assets. Network Services - ---------------- Through ANS, the Company provides satellite distribution support services, principally to the NBC television network for which it is the primary provider. In 1984, ANS entered into the ten-year NBC Agreement to design, build, operate and support its satellite distribution network. In 1994, ANS and NBC extended the term of the NBC Agreement to 1999. On August 1, 1999, the Company completed negotiations and entered into a three-year extension through the end of 2002 of the NBC Agreement, under which Ascent provides satellite service, maintenance and support of NBC national television network. Management of the Company does not anticipate any significant capital expenditures will be incurred in connection with the extension agreement. In addition, in August 1996, the Company and NBC executed a letter of intent pursuant to which the Company has procured and installed certain digital technology equipment and has agreed to provide MSNBC, LLC, a joint venture between NBC and Microsoft Corporation ("MSNBC"), with network service, maintenance and support. This partial digital upgrade service, governed by the underlying NBC Agreement, is provided for under a 10-year term. ANS and MSNBC currently anticipate finalizing a service agreement separate from the underlying NBC Agreement in the first half of 1999 for the MSNBC partial digital upgrade service. The network service, maintenance and support provided to MSNBC are related to and dependent upon the original NBC distribution network. The Company anticipates that ANS will assist NBC in completing the upgrade of the NBC distribution network to digital technology, although no assurance can be provided in this regard. Such a digital upgrade, if awarded to ANS, would not commence until 2002 or 2003. In connection with the NBC Agreement, ANS depreciated the equipment relating to the Network distribution system over the term of the original agreement, which expired in December 1999. Accordingly, the operating results for ANS during fiscal years 2000-2002 will be impacted from a reduction in depreciation expense relating to such equipment, as such equipment was fully depreciated at December 31, 1999. Merger Agreement with Liberty Media Corporation - ----------------------------------------------- On February 22, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Liberty Media Corporation ("Liberty") and Liberty AEG Acquisition, Inc. ("Merger Sub"), an indirect wholly-owned subsidiary of Liberty. Pursuant to the Merger Agreement, Merger Sub commenced a tender offer (the "Offer") offering Ascent stockholders $15.25 in cash for each share of Ascent common stock. Liberty commenced the Offer on February 29, 2000 and under its terms and subject to its conditions, the Offer will expire on March 27, 2000, unless extended pursuant to the Merger Agreement. The Offer is conditioned on the tender of at least a majority of the Ascent shares as well as other customary conditions. Under the Merger Agreement and subject to the terms thereof, following the Offer, Merger Sub will be merged with and into Ascent (the "Merger") and all shares not purchased in the Offer (other than shares held by Liberty, Merger Sub or Ascent, or shares held by dissenting stockholders) will be converted into the right to receive $15.25 per share in cash. Seasonality, Variability and Other - ---------------------------------- The Company's businesses are subject to the effects of both seasonality and variability. The Multimedia Distribution segment revenues are influenced principally by hotel occupancy rates and the "buy rate" or percentage of occupied rooms at hotels that buy movies or other services at the property. Higher revenues are generally realized during the summer months and lower revenues realized during the winter months due to business and vacation travel patterns which impact the lodging industry's occupancy rates. 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. As a result of the operating losses expected to be incurred by OCC, the Company expects to incur operating losses on a consolidated basis during 2000. However, the Company expects to record positive earnings before income taxes, depreciation and amortization and to reflect positive cash flows from operating activities during this period. 17 Results of Operations - --------------------- Consolidated Operations - ----------------------- The Company's continuing operations are comprised of the results of On Command Corporation, Ascent Network Services and the parent company, Ascent Entertainment Group, Inc. The Company's discontinued operations are comprised of the results of the Company's former entertainment segment, which included the Denver Nuggets, the Colorado Avalanche and the Arena Company which the Company has announced its intentions to sell (see Note 2 of Notes to the Consolidated Financial Statement). In addition, discontinued operations include the results of the Company's former subsidiary, Beacon Communications, LLC ("Beacon"), in which a 90% interest was sold on January 20, 1999. The accompanying 1998 and 1997 financial information has been restated to conform to the discontinued operations presentation of the former entertainment segment and Beacon. The consolidated financial statements have been restated for all periods presented to reflect the former entertainment segment and Beacon's results of operations and net assets as discontinued operations. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 - --------------------------------------------------------------------- The following table sets forth certain data as a percentage of revenues for the period indicated:
1999 1998 ---- ---- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in thousands) Revenues..................................................... $275,379 100.0% $261,276 100.0% Cost of services............................................. 187,302 68.0 178,262 68.2 Depreciation and amortization................................ 104,283 37.9 98,194 37.6 General and administrative................................... 26,161 9.5 7,651 2.9 -------- ------ -------- ------ Loss from operations......................................... (42,367) (15.4) (22,831) (8.7) Interest and other income (expense), net..................... 5,531 2.0 1,942 0.7 Interest expense, net........................................ (29,265) (10.6) (24,473) (9.4) Income tax benefit........................................... 2,277 0.8 2,248 0.9 Minority interest............................................ 2,706 4.6 11,188 4.3 -------- ------ -------- Loss from continuing operations.............................. (51,118) (18.6) (31,926) (12.2) Loss from discontinued operations, net....................... (26,243) (9.6) (17,799) (6.8) Loss from sale of discontinued operations, net............... (216) 0.0 -- -- -------- ------ -------- ------ Net loss..................................................... $(77,577) (28.2)% $(49,725) (19.0)% ======== ====== ======== ======
Continuing Operations - --------------------- Revenues - -------- Revenues for the year ended December 31, 1999 were $275.4 million, an increase of $14.1 million, or 5.4%, as compared to $261.3 million in revenues for the year ended December 31, 1998. This increase is attributable to a $14.1 million increase in revenues in the Company's Multimedia Distribution segment, which includes OCC. The increase in revenues at OCC is primarily attributable to continued conversions of SpectraVision properties to the superior performing OCX and OCC systems, an increase in cable programming revenues, an increase in the net royalty payment from LodgeNet Entertainment Corporation, continued reductions in movie denial rates and an increase in game and equipment sales. Revenues from the Company's Network Services segment, which includes the operations of the Company's Ascent Network Services division, were relatively flat with 1998. Cost of Services - ---------------- Cost of services for the year ended December 31, 1999 were $187.3 million, an increase of $9.0 million, or 5.0%, compared to $178.3 million for the year ended December 31, 1998. Cost of services at OCC increased by $10.3 million. This increase in costs at OCC is primarily due to increased direct costs associated with the increase in movie revenues at OCC (primarily hotel commissions and movie royalties) and equipment sales and cable programming revenues. 18 Depreciation and Amortization - ----------------------------- Depreciation and amortization for the year ended December 31, 1999 was $104.3 million, an increase of $6.1 million or 6.2% compared to $98.2 million for the year ended December 31, 1998. Depreciation and amortization at OCC was $96.9 million in 1999 compared to $90.5 million during 1998, an increase of $6.4 million. This increase is primarily attributable to the following (i) the continuing installation of on-demand video systems and the conversion of hotels previously served by SpectraVision equipment at OCC and the resulting increase in depreciation, (ii) accelerated depreciation on certain end-of-life assets at OCC, and (iii) the recognition by OCC of a non-cash expense associated with accounting for cashless stock options of $1.1 million in an executive compensation agreement reflecting the increased share price of OCC's stock. These increases were partially offset by the termination of amortization of SpectraVision equipment in October 1999. Depreciation and amortization for Network Services was $7.3 million during 1999 compared to $7.5 million during 1998. General and Administrative Expenses - ----------------------------------- General and administrative expenses, which include only those costs incurred by the parent company (Corporate), were $26.2 million for the year ended December 31, 1999, an increase of $18.5 million compared to $7.7 million for the year ended December 31, 1998. This increase principally reflects expenses recognized during the year ended December 31, 1999 of $3.7 million for the Company's stock appreciation rights due to increases in the Company's stock price, $1.9 million in expenses recognized for severance payments made to the Company's former President and Chief Executive Officer, costs of $.8 million incurred in conjunction with the settlement of a shareholder lawsuit, and costs of $13.3 million in connection with the Company's unsuccessful efforts in 1999 to sell its Sports-related business and have its continuing operations acquired by Liberty in a stock-for-stock merger (see Notes 2 and 3 of Notes to Condensed Consolidated Financial Statements). Interest and Other Income (Expense) - ----------------------------------- Interest and other income (expense) increased by $3.6 million in the year ended December 31, 1999 as compared to the year ended December 31, 1998. This increase is primarily attributable to the recognition of a $1.8 million gain at Corporate from the sale of investment securities and to an increase in interest income recognized on Corporate's cash and cash equivalent balances during 1999. Interest Expense - ---------------- Interest expense increased $4.8 million in the year ended December 31, 1999 as compared to the year ended December 31, 1998. This increase is attributable to additional borrowings incurred during 1999 by OCC for capital expenditures combined with an increase in borrowing costs at Corporate, primarily those costs related to the Company's 11.875% Senior Notes. Income Tax Benefit - ------------------ The Company recorded an income tax benefit from continuing operations of $2.3 million, or 4.3% of losses from continuing operations, during the year ended December 31, 1999 as compared to an income tax benefit of $2.2 million, or 6.9% of losses from continuing operations, during the year ended December 31, 1998. The decrease in the Company's 1999 benefit rate as compared to 1998 is primarily due to uncertainties regarding the Company's ability to realize a portion of benefits associated with the future deductible temporary differences (deferred tax assets) and net operating loss carry forwards. Minority Interest - ----------------- Minority interest reflects the losses attributable to the minority interest in the Company's 56.6% owned subsidiary, OCC. Discontinued Operations - ----------------------- The combined loss from discontinued operations totaled $26.2 million during the year ended December 31, 1999 as compared to a loss of $17.8 million during 1998. The increased loss is primarily due to the operations of the Denver Nuggets and the Arena Company, partially offset by an improvement in the operations of the Colorado Avalanche and the absence of operating losses from Beacon. Specifically, while revenues for the Nuggets increased in 1999 over 1998 due, in part, to the NBA work stoppage during the fourth quarter of 1998, operating expenses increased due to a reserve taken on 19 receivables due from NBA Properties, the merchandising affiliate of the NBA, an increase in player salaries over 1998 and the incurrence of contract termination costs for a former coach. While the Arena Company has realized improved financial results since opening in September 1999, its operating losses have increased over 1998 due to the recognition of both depreciation and interest costs attributable to the Pepsi Center since it commenced operations. Previously such costs were capitalized as part of the construction cost of the Pepsi Center project. The improvement in operating results for the Avalanche during 1999 is primarily attributable to the team's participation in three rounds of the NHL playoffs, compared to one round in 1998. The $0.2 million loss from sale of discontinued operations, net of taxes, during the year ended December 31, 1999 reflects the loss from the sale of 90% of the Company's interest in Beacon. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 - --------------------------------------------------------------------- The following table sets forth certain data as a percentage of revenues for the period indicated:
1998 1997 ---- ---- Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in thousands) Revenues......................................................... $261,276 100.0% $242,043 100.0% Cost of services................................................. 178,262 68.2 175,184 72.4 Depreciation and amortization.................................... 98,194 37.6 88,737 36.6 General and administrative....................................... 7,651 2.9 8,404 3.5 -------- ------ -------- ------ Loss from operations............................................. (22,831) (8.7) (30,282) (12.5) Interest and other income (expense), net......................... 1,942 0.7 (382) (.1) Interest expense, net............................................ (24,473) (9.4) (20,059) (8.3) Income tax benefit............................................... 2,248 0.9 3,066 1.2 Minority interest................................................ 11,188 4.3 14,319 5.9 -------- ------ -------- ------ Loss from continuing operations.................................. (31,926) (12.2) (33,338) (13.8) Loss from discontinued operations, net........................... (17,799) (6.8) (8,176) (3.4) -------- ------ -------- ------ Net loss......................................................... $(49,725) (19.0)% $(41,514) (17.2)% ======== ====== ======== ======
Continuing Operations - --------------------- Revenues - -------- Revenues for the year ended December 31, 1998 were $261.3 million, an increase of $19.3 million, or 8.0%, as compared to $242.0 million in revenues for the year ended December 31, 1997. This increase is attributable to increases in revenue of $16.7 million and $2.6 million within the Multimedia Distribution segment and Network Services segment. The increase in revenues at OCC is primarily attributable to increases in its on-demand movie business from stronger buy rates in its core movie product, the non-recurrence of the interruption in satellite service to a number of SpectraVision hotels which occurred during the first quarter of 1997, and the receipt of the LodgeNet royalty payments during the third quarter of 1998. The increase in Network Services revenues is attributable to an increase in service and maintenance revenues from NBC affiliates and other private networks. Cost of Services - ---------------- Cost of services for the year ended December 31, 1998 were $178.3 million, an increase of $3.1 million, or 1.8%, as compared to $175.2 million in cost of services for the year ended December 31, 1997. This increase reflects additional operating costs at both OCC and ANS. OCC experienced an increase in hotel commissions and free-to-guest expenses, both associated with the increase in room revenue, and increased expenditures in research and development and costs related to new products and initiatives. Offsetting these increased costs at OCC is a decline in certain non-recurring costs; those costs associated with the termination of satellite movie service related to SpectraVision rooms and the non-recurrence of costs associated with the interruption of satellite service which occurred during the first quarter of 1997. The increase in cost of services at ANS is attributable to an increase in material costs associated with the increased sales revenues during 1998. 20 Depreciation and Amortization - ----------------------------- Depreciation and amortization for the year ended December 31, 1998 was $98.2 million, an increase of $9.5 million, or 10.7%, as compared to $88.7 million in depreciation and amortization for the year ended December 31, 1997 Depreciation and amortization at OCC was $90.5 million in 1998 million compared to $81.0 million during 1997. The increase is primarily attributable to a higher installed room base and the conversion of hotels served by SpectraVision equipment to OCC equipment. Depreciation and amortization for Network Services was $7.5 million in 1998, compared to $7.6 million during 1997. General and Administrative Expenses - ----------------------------------- General and administrative expenses (which include only those costs incurred by the parent company, Ascent Entertainment Group, Inc.), for the year ended December 31, 1998 were $7.7 million, as compared to $8.4 million in general and administrative expenses for the year ended December 31, 1997. This decrease is attributable to a reduction in expense associated with the Company's stock appreciation rights and the non-reccurrence of charges from COMSAT and costs associated with the Distribution, partially offset by increased compensation costs in 1998. In addition, the year-to-date results for 1997 reflect a favorable expense settlement. Interest and Other Income (Expense) - ----------------------------------- Interest and other income (expense) for the year ended December 31, 1998 was $1.9 million, as compared to an expense of $382,000 for the year ended December 31, 1997. This increase is primarily attributable to an increase in interest income recognized on the Company's cash and cash equivalent balances. Interest Expense - ---------------- Interest expense, net of amounts capitalized, for the year ended December 31,1998 was $24.5 million, as compared to $20.1 million for the year ended December 31, 1997. This increase is attributable to additional borrowings incurred during 1998 combined with an increase in borrowing costs at Ascent, primarily those costs related to the Company's 11.875% Senior Notes issued in December 1997. Income Tax Benefit - ------------------ The Company recorded a $2.2 million income tax benefit from continuing operations, or 6.9% of losses from continuing operations, during the year ended December 31, 1998 as compared to an income tax benefit of $3.1 million, or 9.3% of losses from continuing operations, during the year ended December 31, 1997. The decline in the Company's effective tax benefit in 1998 is due to the Company's inability to recognize tax benefits from its operating losses due to uncertainties regarding its ability to realize a portion of the benefits associated with future deductible temporary differences (deferred tax assets) and net operating loss carryforwards, prior to their expiration. Prior to the Distribution on June 27, 1997, the Company was able to recognize tax benefits from its taxable losses as a result of a tax sharing agreement with COMSAT so long as Ascent was a member of the consolidated tax group of COMSAT. Minority Interest - ----------------- Minority interest reflects the losses attributable to the minority interest in the Company's 57% owned subsidiary, OCC. Discontinued Operations - ----------------------- The combined loss from discontinued operations totaled $17.8 million during the year ended December 31, 1998 as compared to a loss of $8.2 million during 1997. The increased loss is primarily due to the operations of the Colorado Avalanche and operating losses from Beacon partially offset by improved operating results at the Nuggets. While the Avalanche realized increased revenues from their regional broadcasting agreement with Fox Sports, the receipt of NHL expansion proceeds and from regular season ticket sales and sponsorship sales in spite of playing fewer home games in 1998 as compared to 1997, these increases were entirely offset by a decline in playoff revenues of $4.4 million. Specifically, the Avalanche had five fewer home playoff games as a result of playing in only one playoff round as compared to three rounds of the playoffs in 1997. In addition, operating costs for the Avalanche increased in 1998 over 1997 due to an increase in player salaries. The operating losses of Beacon totaled $3.9 million in 1998 as compared to income of $1.9 million during 1997. The increased loss in 1998 is primarily attributable to a decline in 21 revenues at Beacon. In 1998, Beacon had no movie releases as compared to 3 movies releases in 1997. This increase in operating losses was partially offset by improved operating results at the Nuggets which was the result of increased revenues during the first half of 1998 combined with a reduction in costs during the second half of the year, primarily player cost savings from the NBA lockout. Liquidity and Capital Resources Cash and cash equivalents increased by $15.8 million since December 31, 1998 to $60.3 million at December 31, 1999. The primary sources of cash during the 1999 were cash from continuing operating activities of $64.1 million, proceeds of $15.9 million from the sale of 90% of the Company's interest in Beacon and borrowings under the OCC Credit Facility of $17.0 million. Cash was expended primarily for property and equipment at OCC, specifically $85.5 million of capital expenditures were incurred at OCC to support continued hotel installations with the OCX and OCV systems, conversions of SpectraVision systems and fixed asset purchases. Long-term debt totaled $339.9 million at December 31, 1999 as compared to $305.5 million at December 31, 1998. The increase in long-term debt is attributable to additional borrowings of $17.0 million under the OCC Credit Facility and the accretion of interest on the Company's 11.875% Senior Secured Discount Notes ("the Senior Notes"). The Arena Revenue Backed Notes of $136.2 million (the "Arena Notes") which were issued by the Arena Company's beneficially owned trust are classified in the Company's consolidated balance sheet in the net assets of discontinued operations. The Arena Notes are non- recourse to the Arena Company but the Arena Company is obligated to the noteholders to operate the Pepsi Center in a first-class manner, as defined. Based on borrowings at December 31, 1999, the Company had access to $42.5 million of long-term financing under the Ascent credit facility and OCC had access to $20 million of long-term financing under its credit facility, subject to certain covenant restrictions, (see Note 6 of the Company's 1999 Consolidated Financial Statements.) The Company's cash requirements during 2000 are expected to include (i) the continuing conversion and installation by OCC of on-demand in-room video entertainment systems, (ii) funding the operating requirements of Ascent and its subsidiaries (including the operations of the Sports-related businesses), (iii) the payment of interest under the OCC Credit Facility and the Ascent Credit Facility, if such facility is utilized and (iv) the payment of transaction costs relating to the Liberty merger, if completed. The Company anticipates capital expenditures in connection with the continued installation and conversion by OCC of on-demand service will be approximately $90.0 to $110.0 million during 2000. The Company anticipates that OCC's funding for its operating requirements and capital expenditures for the continued conversion and installation by OCC of on- demand services will be funded primarily through cash flows from OCC's operations and financed under the OCC Credit Facility. On Command expects that the available cash, cash flows from operations and funds currently available under the OCC Credit Facility will be sufficient to finance its expected investment in in-room video systems through at least the first half of 2000. On Command anticipates capital expenditures in connection with the continued installation and conversion of hotel rooms will be approximately $26 to $28 million per month through June 30, 2000. Management of On Command expects to need additional financing in 2000 and is currently considering financing alternatives, including obtaining additional financing and renegotiating the covenants contained in the OCC Credit Facility. If OCC is unable to raise additional financing, OCC would need to reduce its capital spending well below the levels stated above during fiscal 2000, which would impact its ability for growth. Management of the Company believes that the available cash, cash flows from operating activities and funds available under the Ascent Credit Facility, will be sufficient for the Company, the Sports-related businesses and its Ascent Network Services Division to satisfy their growth and finance their working capital requirements during 2000. Management of the Company continues to focus its efforts on the operations of OCC and OCC's strategies to successfully upgrade and expand OCC's technology and service offerings and to convert hotel rooms to OCC's OCX system. On August 1, 1999, the Company completed previously disclosed negotiations and entered into a three-year extension through the end of 2002 of the NBC Service Agreement, under which Ascent provides satellite service, maintenance and support of NBC's national television network. Management of the Company does not anticipate any significant capital expenditures will be incurred in connection with the extension agreement. Management continues to believe that at the end of such extension period, it is possible that NBC will engage ANS to complete a full upgrade of the NBC distribution network to digital technology. No assurance can be provided that a full digital upgrade will occur or that ANS will be engaged to complete the digital upgrade on terms as favorable to the Company as the current agreement. The Company previously determined that no cash interest would be payable on the Senior Notes until June 2003. Thereafter, the Company's ability to pay interest on the Senior Notes and to satisfy its other debt obligations will depend upon the future performance of the Company and, in particular, on the successful implementation of OCC's strategy, including the installation of OCX systems and the upgrade and expansion of OCC's technology and service 22 offerings, On Command's ability to obtain additional financing and the conversion of the hotel rooms acquired in the acquisition of SpectaVision, to OCC's on-demand technology. In addition, the Company's future performance would also be dependent on the operating results of the Company's Sports-related assets, the proceeds from the sale of the Sports-related assets, if consummated, and the ability to attain significant and sustained growth in the Company's cash flow. There can be no assurance that OCC will successfully implement its strategy or that the Company will be able to generate sufficient cash flow from operating activities to meet its long-term debt service obligations and working capital requirements. Based on the Company's current expectation with respect to its existing businesses, the Company does not expect to have cash flows after capital expenditures sufficient to repay all of the Senior Notes at maturity and, accordingly, may have to refinance the Senior Notes at or before their maturity. There can be no assurance that any such financing could be obtained on terms that are acceptable to the Company, or at all. In the absence of such financing, the Company could be forced to sell assets. Accordingly, on December 21, 1999, the Company's Board of Directors announced that it was continuing to seek a qualified buyer for Company's Sports- related businesses and that Allen & Company Incorporated and Wasserstein Perella & Co. would continue to represent the Company in the sale process. Ascent also announced that the Company was exploring other strategic alternatives involving the whole company in response to the termination of the Company's stock-for- stock merger agreement with Liberty on November 29, 1999 (see Note 2 of Notes to the Consolidated Financial Statements) and that Donaldson Lufkin & Jenrette would continue to represent Ascent in these alternatives. As a result of this exploration of strategic alternatives, in February 2000 the Company entered into the Liberty Merger Agreement (see Note 2 of Notes to the Consolidated Financial Statements). Assuming the consummation of the Merger Agreement with Liberty, of which there can be no assurances, (See Note 2), and as a result of the terms of the Senior Notes, the Company will be required to offer to redeem the Senior Notes at 101% of their accreted value within 60 to 90 days after the Change in Control. In addition, the consummation of the Merger Agreement with Liberty would also result in an event of default under the terms of the Ascent Credit Facility. The Company intends to negotiate with the lenders under the Ascent Credit Facility regarding possible amendments upon consummation of the Merger Agreement. Inflation - --------- Inflation has not significantly impacted the Company's financial position or operations. Information Systems and The Year 2000 - ------------------------------------- The Company and its subsidiaries had developed formal plans to identify, evaluate and implement changes to its computer systems as necessary to address the Year 2000 issue. Through the date of this report, there have been no adverse effects on the Company's business, results of operations or financial condition as a result of Year 2000 problems with its computer systems and operations. In addition, the Company has not encountered any Year 2000 problems with any of its vendors or customers. Although the Company has made reasonable efforts to identify and protect itself with respect to external Year 2000 problems, there can be no assurance that the Company will not be affected by such problems. The Company will consider the necessity of implementing a formal contingency plan to mitigate any adverse effects associated with the Year 2000 issue, should one arise. ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk. The Company's exposure to market risk for changes in -------------------- interest rates relate primarily to the Company's investment portfolio, including restricted investments, and long-term debt obligations. The Company does not use derivative financial instruments in its investment portfolio. The Company places its investments with high credit quality issuers and, by policy and debt restrictions, limits the amount of credit exposure to any one issuer. As stated in its policy, the Company is averse to principal loss and ensures the safety and preservation of its invested funds by limiting default risk and market risk. The Company mitigates default risk by investing in only the safest and highest credit quality securities. The portfolio includes only short-term investment securities with active secondary or resale markets to ensure portfolio liquidity. At December 31, 1999, the weighted average interest rate on the Company's cash and cash equivalent balance of $60.3 million was 6.0% consisting of fixed rate short-term investments. The Company does have cash flow exposure due to rate changes for portions of its debt obligations. Specifically, no cash flow exposure exists on the Company's Senior Secured Discount Notes as they represent fixed-rate obligations. (See Note 5 to the 1999 Consolidated Financial Statements). However, revolving loans extended under the OCC Credit Facility generally bear an interest rate that is variable and based on the London Interbank Offering Rate ("LIBOR") and on certain operating ratios at OCC. At December 31, 1999, OCC had $180.0 million outstanding, on the OCC Credit Facility and the weighted average interest rate on the OCC Credit Facility was 6.74%. Assuming no increase or decrease in the amount outstanding a hypothetical immediate 100 basis point increase (or decrease) in interest rates would have increased (or decreased) the Company's annual interest expense and cash outflow by $1.8 million and $1.6 million during the years ended December 31, 1999 and 1998 respectively. The estimated fair value of Company's Senior Secured Discount Notes was $157,248,000 and $139,305,000 at December 31, 1999 and 1998, respectively. This Value was estimated by obtaining a yield-adjusted price as of December 31, 1999, for each obligation from an investment banker. The fair values of the Company's remaining long-term liabilities and other financial instruments approximate their carrying values. The book value of the Company's Senior Secured Discount Notes was $159,922,000 and $142,537,000 at December 31, 1999 and 1998 respectively. 23 Foreign Currency Risk. The Company, through OCC, transacts business in ---------------------- various foreign currencies, primarily in Canada, Asia and in certain European countries. The Company believes the risks of foreign exchange rate fluctuations on its present operations are not material to the Company's overall financial condition. However, should the Company's international operations continue to grow, the Company will consider using foreign currency contracts, swap arrangements, or other financial instruments designed to limit exposure to foreign exchange rate fluctuations. 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT To the Board of Directors of Ascent Entertainment Group, Inc.: We have audited the accompanying consolidated balance sheets of Ascent Entertainment Group, Inc. and its subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules 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 Ascent Entertainment Group, Inc. and its subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects, the information set forth therein. Deloitte & Touche LLP Denver, Colorado March 10, 2000 25 ASCENT ENTERTAINMENT GROUP, INC. CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 (in thousands, except par value amounts)
1999 1998 ---- ---- ASSETS Current assets: Cash and cash equivalents.......................................................... $ 60,349 $ 44,576 Receivables, net (Note 4).......................................................... 33,492 36,414 Prepaid expenses................................................................... 1,253 2,939 Deferred income taxes (Note 7)..................................................... -- 417 Income taxes receivable (Note 7)................................................... 2,050 -- Other current assets............................................................... 289 43 Net assets of discontinued operations (Note 3)..................................... 82,216 -- --------- --------- Total current assets.............................................................. 179,649 84,389 --------- --------- Property and equipment, net (Note 5)............................................... 294,498 296,513 Goodwill, net...................................................................... 90,086 96,502 Other investments.................................................................. 364 1,493 Deferred income taxes (Note 7)..................................................... 9,320 3,866 Other assets, net.................................................................. 7,384 8,717 Net assets of discontinued operations (Note 3)..................................... -- 132,144 --------- --------- Total assets.......................................................................... $ 581,301 $ 623,624 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt (Note 6)...................................... $ -- $ -- Accounts payable................................................................... 32,038 23,668 Deferred income.................................................................... 788 2,412 Other taxes payable................................................................ 5,476 7,480 Accrued compensation............................................................... 10,715 7,588 Other accrued liabilities (Note 7)................................................. 15,140 14,348 Current portion of capital lease obligations (Note 8).............................. 2,533 -- Income taxes payable (Note 7)...................................................... 1,680 1,821 --------- --------- Total current liabilities......................................................... 68,370 57,317 --------- --------- Long-term debt (Note 6)............................................................ 339,922 305,537 Obligations under capital leases and other long-term liabilities (Notes 7 and 8)... 2,082 2,298 --------- --------- Total liabilities.............................................................. 410,374 365,152 --------- --------- Minority interest.................................................................. 71,206 81,946 Commitments and contingencies (Notes 2, 5, 6 and 8)................................ -- -- Stockholders' equity (Note 9): Preferred stock, par value $.01 per share, 5,000 shares authorized, none outstanding....................................................................... Common stock, par value $.01 per share, 60,000 shares authorized, 29,756 shares issued and outstanding............................................................. 297 297 Additional paid-in capital......................................................... 307,873 306,358 Accumulated deficit................................................................ (208,449) (130,872) Accumulated other comprehensive income............................................. -- 743 --------- --------- Total stockholders' equity..................................................... 99,721 176,526 --------- --------- Total liabilities and stockholders' equity............................................ $ 581,301 $ 623,624 ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
26 ASCENT ENTERTAINMENT GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1999, 1998 and 1997 (in thousands, except per share amounts)
1999 1998 1997 ---- ---- ---- Revenues (Notes 8 and 11, and Note 12 for related party revenues)............ $275,379 $261,276 $242,043 -------- -------- -------- Operating expenses: Cost of services...................................................... 187,302 178,262 175,184 Depreciation and amortization......................................... 104,283 98,194 88,737 General and administrative (Notes 2 and 3)............................ 26,161 7,651 8,404 -------- -------- -------- Total operating expenses...................................... 317,746 84,107 272,325 -------- -------- -------- Operating loss............................................................... (42,367) (22,831) (30,282) Interest and other income (expense), net (Note 3)............................ 5,531 1,942 (382) Interest expense, net (Notes 6 and 12)....................................... (29,265) (24,473) (20,059) -------- -------- -------- Loss from continuing operations before taxes and minority interest........... (66,101) (45,362) (50,723) Income tax benefit (Note 7).................................................. 2,277 2,248 3,066 -------- -------- -------- Loss from continuing operations before minority interest..................... (63,824) (43,114) (47,657) Minority interest............................................................ 12,706 11,188 14,319 -------- -------- -------- Loss from continuing operations.............................................. (51,118) (31,926) (33,338) Loss from discontinued operations, net of taxes (Note 3)..................... (26,243) (17,799) (8,176) Loss from sale of discontinued operations, net of taxes...................... (216) -- -- -------- -------- -------- Net loss..................................................................... $(77,577) $(49,725) $(41,514) ======== ======== ======== Basic and diluted net loss per common share: Loss from continuing operations............................................. $ (1.72) $ (1.07) $ (1.13) Discontinued operations..................................................... (.89) (.60) (.27) -------- -------- -------- Basic and diluted net loss per common share.................................. $ (2.61) $ (1.67) $ (1.40) ======== ======== ======== Weighted average number of common shares outstanding......................... 29,756 29,756 29,755 ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
27 ASCENT ENTERTAINMENT GROUP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Years ended December 31, 1999, 1998, and 1997 (in thousands)
1999 1998 1997 ---- ---- ---- Net loss.............................................. $(77,577) $(49,725) $(41,514) -------- -------- -------- Other comprehensive income (loss): Unrealized loss on securities....................... (1,143) (857) (80) Income tax benefit related to items of other comprehensive loss......................... 400 300 28 -------- -------- -------- Other comprehensive loss, net of tax................ (743) (557) (52) -------- -------- -------- Comprehensive loss.................................... $(78,320) $(50,282) $(41,566) ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
28 ASCENT ENTERTAINMENT GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1999, 1998 and 1997 (in thousands)
Accumulated Additional Other Total Common Paid-in Accumulated Comprehensive Stockholder's Stock Capital Deficit Income Equity ----- ------- ------- ------ ------ Balance at January 1, 1997................ $ 297 $307,569 $ (39,633) $ 1,352 $ 269,585 Net loss...................... -- -- (41,514) -- (41,514) Other comprehensive loss, net................. -- -- -- (52) (52) Other......................... -- (321) -- -- (321) ------ -------- ----------- --------- ---------- Balance at December 31, 1997.............. 297 307,248 (81,147) 1,300 227,698 Net loss...................... -- -- (49,725) -- (49,725) Other comprehensive loss, net. -- -- -- (557) (557) Other......................... -- (890) -- -- (890) ------ -------- ----------- --------- ---------- Balance at December 31, 1998.............. 297 306,358 (130,872) 743 176,526 Net loss...................... -- -- (77,577) -- (77,577) Other comprehensive loss, net. -- -- -- (743) (743) Other......................... -- 1,515 -- -- 1,515 ------ -------- ----------- --------- ------------ Balance at December 31, 1999 $ 297 $307,873 $ (208,449) $ -- $ 99,721 ====== ======== =========== ========= ============
The accompanying notes are an integral part of these consolidated financial statements. 29 ASCENT ENTERTAINMENT GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1999, 1998 and 1997 (in thousands)
1999 1998 1997 ---------- ---------- ---------- OPERATING ACTIVITIES: Net loss.................................................................................... $(77,577) $(49,725) $ (41,514) Adjustments to reconcile net loss to net cash provided by continuing operations: Depreciation and amortization............................................................. 104,283 98,194 88,737 Minority interest in losses of subsidiaries............................................... (12,706) (11,188) (14,319) Loss from discontinued operations.................................................. 26,243 17,799 8,176 Loss from sale of discontinued operations.......................................... 216 -- -- Gain on sale of investments........................................................... (1,758) -- -- Accretion of discount on Senior Secured Discount Notes.................................... 17,385 15,579 294 Provision for loss on investments......................................................... -- 856 387 (Gain)Loss on disposals of property and equipment.......................................... -- 72 (1,016) Changes in operating assets and liabilities: Current assets........................................................................... 2,730 4,972 6,476 Current liabilities...................................................................... (8,277) 6,988 6,694 Noncurrent assets........................................................................ 11,053 (4,509) (5,066) Noncurrent liabilities................................................................... 2,525 (6,712) (26,608) Other.................................................................................... -- -- (2) -------- -------- --------- Net cash provided by operating activities of continuing operations.......................... 64,117 72,326 22,239 Net cash provided by discontinued operations............................................... 4,553 2,186 779 -------- -------- --------- Net cash provided by operating activities................................................... 68,670 74,512 23,018 -------- -------- --------- INVESTING ACTIVITIES: Proceeds from sale of discontinued operations............................................. 15,893 -- -- Proceeds from notes and other long-term receivable........................................ -- 2,703 2,951 Proceeds from sale of investments......................................................... 1,758 396 1,920 Purchase of property and equipment........................................................ (86,080) (86,633) (93,914) Proceeds from sale of property and equipment.............................................. -- -- 4,459 Distributions from partnerships and joint ventures........................................ -- -- 738 -------- -------- --------- Net cash used in investing activities....................................................... (68,429) (83,534) (83,846) -------- -------- --------- FINANCING ACTIVITIES: Proceeds from borrowings under credit facilities.......................................... 17,000 30,000 133,000 Payments on capital lease obligations..................................................... (1,468) -- -- Net proceeds from issuance of Senior Secured Discount Notes................................................................................... -- -- 122,231 Proceeds from borrowings under former credit facilities................................... -- -- 59,000 Repayment of borrowings under former credit facilities.................................... -- -- (252,000) Proceeds from issuance of subsidiary's equity instruments................................. -- -- 15,000 Common stock issued....................................................................... -- -- 17 -------- -------- --------- Net cash provided by financing activities................................................... 15,532 30,000 77,248 -------- -------- --------- Net increase in cash and cash equivalents................................................... 15,773 20,978 16,420 Cash and cash equivalents, beginning of year................................................ 44,576 23,598 7,178 -------- -------- --------- Cash and cash equivalents, end of year...................................................... $ 60,349 $ 44,576 $ 23,598 ======== ======== ========= Supplemental cash flow information: Interest paid............................................................................... $ 9,843 $ 9,856 $ 16,712 ======== ======== ========= Income taxes paid........................................................................... $ 2,721 $ 581 $ 2,447 ======== ======== ========= Non-cash investing and financing activities: Reversal of accrual made in OCC purchase price allocation................................. $ -- $ -- $ 3,000 ======== ======== ========= Capitalized lease obligations incurred at OCC............................................. $ 5,760 $ -- $ -- ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 30 ASCENT ENTERTAINMENT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 Note 1 - Organization and Summary of Significant Accounting Policies: The accounting and reporting practices of Ascent Entertainment Group, Inc. (the "Company" or "Ascent") and its majority owned subsidiaries conform to generally accepted accounting principles and prevailing industry practices. The following is a summary of the Company's significant accounting and reporting policies. Basis of Presentation and Principles of Consolidation. The accompanying consolidated financial statements include the accounts of Ascent and its majority-owned subsidiary, On Command Corporation ("OCC"). Ascent Network Services, Inc. ("ANS"), formerly a wholly owned subsidiary of Ascent, was merged into Ascent and became an operating division of Ascent on May 30, 1997. The Company's discontinued operations are comprised of the results of the Company's former entertainment segment, which included the Denver Nuggets, the Colorado Avalanche and Ascent Arena Company (the "Arena Company"), the owner and manager of the Pepsi Center, (collectively the "Sports-related businesses"), which the Company has announced its intentions to sell (see Note 3). In addition, discontinued operations include the results of the Company's former subsidiary, Beacon Communications, LLC ("Beacon"), in which a 90% interest was sold on January 20, 1999. The accompanying 1998 and 1997 financial information has been restated to conform to the discontinued operations presentation of the former entertainment segment and Beacon. All significant intercompany transactions have been eliminated. OCC provides video distribution and pay-per-view video entertainment services to the lodging industry and has operating subsidiaries or branches in the United States, Canada, Mexico, Hong Kong, Singapore, Thailand, the United Kingdom, Spain and Australia. Effective October 8, 1996, OCC acquired the assets, properties and certain liabilities of SpectraVision, Inc. (the "SpectraVision Acquisition"), a leading provider of in-room video entertainment services to the lodging industry. Prior to the acquisition of SpectraVision, On Command Video Corporation ("OCV"), formerly an 84% owned subsidiary of Ascent, was merged with a subsidiary of OCC and became a wholly owned subsidiary of OCC pursuant to an Agreement and Plan of Merger. ANS provides video distribution services to the National Broadcasting Company ("NBC") television network and other private networks. Ascent executed an initial public offering (the "Ascent IPO") of its common stock on December 18, 1995. Prior to the Offering, Ascent was a wholly owned subsidiary of COMSAT Corporation ("COMSAT"). Until June 27, 1997 COMSAT continued to own a majority (80.67%) of Ascent's common stock and control Ascent. On June 27, 1997, COMSAT consummated the distribution of its 80.67% ownership interest in Ascent to the COMSAT shareholders on a pro-rata basis in a transaction that was tax-free for federal income tax purposes (the "Distribution"). Ascent and COMSAT entered into a Distribution Agreement and a Tax Disaffiliation Agreement, both dated as of June 3, 1997 (see Notes 7 and 12) in connection with the Distribution. As a result of the Distribution, Ascent became an independent publicly held corporation. All costs incurred by Ascent during 1997 which were directly associated with the Distribution have been charged to expense. Cash and Cash Equivalents. Ascent considers highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Property and Equipment. Property and equipment is stated at cost, less accumulated depreciation and amortization. Installed video systems consist of video system equipment and related costs of installation at hotel locations. Distribution systems to networks consist of equipment at network affiliates and the related costs of installation. Capitalized leases are recorded at the present value of future lease payments. Construction in progress consists of purchased and manufactured parts of partially constructed video systems at OCC. Depreciation and amortization are calculated using the straight-line method over the estimated service life of each asset. The service lives for property and equipment are: installed video systems, 3 to 7 years; distribution systems, 10 to 15 years; furniture, fixtures and equipment, 3 to 10 years; and buildings and leasehold improvements, 3 to 20 years. Video systems and equipment acquired in the acquisition of SpectraVision (see Note 5) were depreciated over 3 years. Goodwill. The consolidated balance sheets include goodwill related to the acquisitions of On Command Video Corporation and SpectraVision by OCC. Goodwill is amortized over 10 to 25 years. Accumulated goodwill amortization was $27,657,000 and $21,241,000 at December 31, 1999 and 1998, respectively. 31 Evaluation of Long-Lived Assets. The Company evaluates the potential impairment of long-lived assets and long-lived assets to be disposed of in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." As of December 31, 1999 and 1998, management believes that there was not any impairment of the Company's long-lived assets or any other such identifiable intangibles. Other Investments. Other investments at December 31, 1999 consist of OCC's investment in Maginet Corporation (MagiNet), a private company (see Notes 8 and 12) and the Company's 10% ownership interest in Beacon Communications, LLC (see Note 3). Other investments are accounted for at cost, net of appropriate reserves for declines in value based on management's evaluation. At December 31, 1998, other investments consisted of the Company's investment in MagiNet and certain other marketable equity securities. The Company's investment in marketable equity securities was sold in 1999 for a net gain of $1.8 million which is included in other income in the accompanying financial statements. Debt Issuance Costs. Costs associated with the issuance of the Company's Senior Secured Discount notes and 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. Revenue and Cost Recognition. OCC installs pay-per-view video systems in hotels, generally under five to seven-year agreements, whereby revenues are recognized at the time of viewing. Revenue from the sale of video systems is recognized when the equipment is shipped, except for systems requiring installation by OCC, which is recognized upon completion of the installation and acceptance by the customer. Revenues from royalties are recognized when earned. Revenue from other services is recorded as services are provided. General and administrative expense. General and administrative expenses include only those costs incurred by the parent company, Ascent Entertainment Group, Inc. Similar costs incurred by the Company's division and majority-owned subsidiaries are included in the cost of services in the accompanying consolidated statements of operations. For the years ended December 31, 1999, 1998, and 1997, the Company's subsidiaries incurred related costs of $26,130,000, $24,448,000 and $22,672,000 respectively. Research and Development Costs. Research and development costs are charged to operations as incurred. These costs are included in cost of services in the consolidated statements of operations. The amounts charged were $8,479,000, $7,537,000 and $6,912,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Income Taxes. A current or deferred income tax liability or asset is recognized for temporary differences which exist due to the recognition of certain income and expense items for financial reporting purposes in periods different than for tax reporting purposes. The provision for income taxes is based on the amount of current and deferred income taxes at the date of the financial statement as measured by the provisions of current tax laws. Net Loss Per Share. The Company computes and presents its net loss per share in accordance with SFAS No. 128 "Earnings Per Share". Net loss per share is calculated using the income available to common stockholders divided by the weighted average number of common shares outstanding in the respective years. Basic and dilutive shares were 29,756,000, 29,756,000 and 29,755,000, for the years ended December 31, 1999, 1998, and 1997, respectively. The Company has not presented diluted loss per share, which would include the impact of potential dilutive common shares in the respective periods, because their inclusion would have been antidilutive in all periods presented. Use of Estimates, Significant Risks and Uncertainties. The preparation of 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such management estimates include the allowance for doubtful accounts receivable, the estimated useful lives of video systems and property and equipment, intangible assets, including goodwill, and the amounts of certain accrued liabilities. The Company participates in the highly competitive multimedia distribution and network services businesses and believes that changes in any of the following areas could have a material adverse effect on the Company's future financial position or results of operations: declines in hotel occupancy as a result of general business, economic, seasonal or other factors; loss of one or more of its major hotel chain customers; and risks of technological obsolescence. 32 Recently Issued Accounting Standards. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which defines derivatives, requires that all derivatives be carried at fair value, and provides for hedging accounting when certain conditions are met. SFAS No. 133, which has been amended by SFAS 137, is effective for the Company's fiscal year ending December 31, 2000. The Company does not believe adoption of SFAS No. 133 will have a material impact on the Company's financial position, results of operations or cash flows. In 1998, OCC early adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which provides guidance on accounting for the costs of computer software developed or obtained for internal use. During the years ended December 31, 1999 and 1998, OCC capitalized $5,700,000 and $4,100,000 of costs , respectively, in accordance with this SOP. The SOP had no effect on the other Ascent businesses. Reclassifications. Certain reclassifications have been made to the 1998 and 1997 financial statements to conform with the current year's presentation, most notably the classification of the Company's Sports-related businesses (see Note 3) as discontinued operations. Note 2 - Proposed Business Combinations Merger Agreement - On February 22, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Liberty Media Corporation ("Liberty") and Liberty AEG Acquisition, Inc. ("Merger Sub"), an indirect wholly-owned subsidiary of Liberty. Pursuant to the Merger Agreement, Merger Sub commenced a tender offer (the "Offer) offering Ascent stockholders $15.25 in cash for each share of Ascent common stock. Liberty commenced the offer on February 29, 2000 and under its terms and subject to its conditions, the Offer will expire on March 27, 2000, unless extended pursuant to the Merger Agreement. The Offer is conditioned on the tender of at least a majority of the Ascent shares as well as other customary conditions. Under the Merger Agreement and subject to the terms thereof, following the Offer, Merger Sub will be merged with and into Ascent (the "Merger") and all shares not purchased in the Offer (other than shares held by Liberty, Merger Sub or Ascent, or shares held by dissenting stockholders) will be converted into the right to receive $15.25 per share in cash. Terminated Merger Agreement - Previously, on October 20, 1999, the Company entered into an Agreement and Plan of Merger with AT&T Corp., and Liberty. Pursuant to that Merger Agreement, upon consummation of the merger, each share of Ascent common stock would be converted into .4626 shares of Liberty Media Group Class A Common Stock. That Merger Agreement was conditioned upon, among other things, the sale of the Company's Sports-related businesses pursuant to the Sports Sale Agreement (as defined in Note 3 below). On November 29, 1999, Liberty terminated the Agreement and Plan of Merger due to Company's amendment of the Sports Sale Agreement and inability to renegotiate the terms of the merger agreement with Liberty. (See Note 3 of Notes to Consolidated Financial Statements). Costs incurred in conjunction with the terminated Merger Agreement of approximately $1.3 million, primarily investment banker fees and attorney fees, have been expensed and are included in General and Administrative Expenses in the accompanying statement of operations for the year ended December 31, 1999. Note 3 -- Discontinued Operations: Beacon - On January 20, 1999, the Company sold 90% of its interest in Beacon to an investor group controlled by Beacon's management and venture capital investors (the "Buyers") pursuant to a Purchase and Sale Agreement (the "Purchase Agreement"). The purchase price for the 90% interest was $19.0 million in cash, net of certain adjustments. At closing, approximately $15.9 million in cash was received. After the sale of the 90% interest, the Company has no future obligations to fund any of Beacon's liabilities or film development or production commitments. The 10% interest in Beacon retained by the Company is subject to purchase and sale options between the Company and the Buyers at a price proportionate to the purchase price which the Company intends to exercise in the near future. During the first quarter of 1999, the Company reported a gain of $3.2 million on the sale of 90% of its interest in Beacon. During the second and third quarters of 1999, the Company attempted to collect the remaining balance due under the Purchase Agreement of $900,000. In turn, Beacon filed a claim against the Company seeking an adjustment to the purchase price. Pursuant to the Purchase Agreement, any disputes or disagreements among the parties were to be settled pursuant to binding arbitration in the State of California. The arbitration commenced in November 1999 and on February 21, 2000, the arbitrator issued his opinion awarding Beacon approximately $3.5 million. Accordingly, the Company recorded a $3.5 million expense during the fourth quarter of 1999, resulting in the Company's recognition of 33 a $0.2 million loss (net of the gain recognized during the first quarter of 1999) from the sale of its 90% interest in Beacon. Sports-related businesses - On July 27, 1999, the Company entered into a definitive Purchase and Sale agreement (the "Sports Sale Agreement") to sell its Sports-related businesses to a group of entities controlled by Donald L. Sturm ("The Sturm Group") for $321.0 million in cash (of which Liberty Denver Arena LLC, an unrelated third party, was to receive up to $20.5 million), subject to further adjustment for cash balances and receipts received by the Company prior to closing, which related to the Nuggets and Avalanche 1999/2000 playing seasons. In conjunction with the sale, the approximate $140.0 million in non- recourse Arena Note obligations were to remain the obligation of an entity to be acquired. On December 1, 1999, the Company terminated the Sports Sale Agreement with The Sturm Group. As a result of the termination of the Sports Sale Agreement with The Sturm Group, Ascent is considering commencing litigation against The Sturm Group, and Mr. Sturm personally, as a result of their actions in connection with the termination of the Sports Sale Agreement, and has announced that it will continue to pursue the sale of these businesses or other steps with respect to these businesses. There can be no assurances that any actions taken by Ascent would result in transactions that would have value to Ascent's stockholders that would be equal to the terminated sale of the Sports- related businesses to The Sturm Group, or that any transactions would occur in the near future. Transaction costs, totaling $12.0 million, which include investment banker and attorney fees and expenses, fees payable to William and Nancy Laurie in conjunction with the termination of the previous agreement between Ascent and the Lauries, which was entered into on April 25, 1999 and other costs associated with the Company's attempts to sell its Sports-related businesses have been expensed and are included in general and administrative expenses in the accompanying statement of operations for the year ended December 31, 1999. Fees totaling approximately $1.7 million were paid to Allen & Company, an investment banking firm in which a Director of the Company is employed. The Company began accounting for Beacon as a discontinued operation as of December 31, 1998 and for the Sports-related businesses as a discontinued operation as of March 31, 1999, pursuant to guidance contained in Emerging Issues Task Force Issue No. 95-18, "Accounting and Reporting for Discontinued Business Segment when the Measurement Date occurs after the Balance Sheet Date but before the Issuance of the Financial Statements." Accordingly, the consolidated financial statements have been restated for all prior periods presented to reflect the results of operations and net assets of Beacon and the Sports-related businesses as discontinued operations. The loss from discontinued operations of Beacon and the Sports-related businesses, net of taxes, for the years ended December 31, 1999, 1998 and 1997 is composed of the following:
Years Ended December 31, 1999 and 1998 ---------------------------------------------- 1999 1998 ----------- --------------------------------- Sports Sports Related Related 1998 Businesses Businesses Beacon Total ----------- ----------- --------- --------- (in thousands) Revenues.................................. $125,125 $ 82,353 $ 28,195 $110,548 ======== ======== ======== ======== Loss from discontinued operations before taxes............................. (28,134) $(17,155) $ (4,798) $(21,953) Income tax benefit........................ 1,891 3,264 890 4,154 -------- -------- -------- -------- Loss from discontinued operations......... $(26,243) $(13,891) $ (3,908) $(17,799) ======== ======== ======== ======== Year Ended December 31, 1997 -------------------------------- Sports Related 1997 Businesses Beacon Total -------------------------------- (in thousands) Revenues.................................. $ 93,532 $ 92,939 $186,471 ======== ======== ======== Income/loss from discontinued operations before taxes............................. (14,746) $ (1,820) $(12,926) Income tax benefit........................ 4,627 123 4,750 -------- -------- -------- Loss from discontinued operations......... $(10,119) $ 1,943 $ (8,176) ======== ======== ========
34 The net assets of the discontinued operations included in the consolidated balance sheets as of December 31, 1999 and December 31, 1998, consist of the following:
12/31/99 12/31/98 --------- -------------------------------------- Sports Sports Related Related Businesses Businesses Beacon Total ---------- ---------- ------------- --------- (in thousands) Current assets...................................... $ 61,997 $ 38,194 $ 3,062 $ 41,256 Property and equipment, net......................... 194,823 92,249 -- 92,249 Restricted cash held in trust (1)................... 30,915 112,47 -- 112,478 Film inventory...................................... -- -- 8,457 48,457 Franchise rights, net............................... 87,745 92,559 -- 92,559 Other assets........................................ 21,685 24,453 10,651 35,104 Current liabilities, including current portion of Arena Notes (1), (2)........................... (154,680) (70,222) (5,763) (75,985) Non-recourse Arena Notes and other obligations (1).. (126,685) (136,170) (35,079) (171,249) Other long term liabilities (3)..................... (33,584) (33,725) (9,000) (42,725) --------- --------- --------- --------- Net assets of discontinued operations............... $ 82,216 $ 119,816 $ 12,328 $ 132,144 ========= ========= ========= =========
A summary of significant matters relating to the Sports-related businesses follows: (1) Non-Recourse Arena Notes - On July 29, 1998, the Denver Arena Trust (the "Trust" - a wholly owned subsidiary of the Arena Company) issued and sold $139,835,000 principal amount of 6.94% Arena Revenue Backed Notes (the "Arena Notes") due November 2019. The proceeds from the sale of the Arena Notes were used by the Trust to purchase from the Company revenue contracts related to the naming rights, suite licensing and certain corporate sponsorships of the Company, and the underlying rights related to such contracts (collectively, the "Revenue Rights"). The Arena Notes are non- recourse to the Company, but the Company is obligated to the noteholders to operate the Pepsi Center in a first-class manner. Should a payment default occur absent a default in the Company's obligations to operate the Pepsi Center, the noteholders will have no recourse to the assets of the Company. Conversely, the Revenue Rights are not available to the creditors of the Company. To secure the Company's obligations to operate the new arena, the Company has pledged to the Trust substantially all of the Company's assets, including the Pepsi Center itself. These assets, if necessary, could be pledged to a subsequent lender that agreed to an appropriate intercreditor agreement with the Trust. The Arena Notes provide for semi-annual payments of interest on May 15 and November 15 of each year and annual payments of principal on November 15 of each year commencing November 15, 1999. The amount of principal payable will be equal to the lesser of the targeted principal distribution amount or the cash available for such payment after application to all prior payment priorities. The targeted principal distribution amount has been calculated so that based on the projected revenues contractually obligated to be paid under the Revenue Rights, the Arena Notes will be paid in full by November 2014. Pursuant to the Arena Notes, the Trust established restricted cash investment accounts which, among other things, receive the proceeds from the Revenue Rights, disburse funds for the development and construction of the Pepsi Center, disburse required principal and interest payments and establish debt service principal and interest reserve balances on behalf of the noteholders. Total minimum payments on the Non-Recourse Arena Notes for the years subsequent to December 31, 1999 are as follows (in thousands): 2000 .................................... $ 9,485 2001 .................................... 5,075 2002 .................................... 5,600 2003 .................................... 6,155 2004 .................................... 6,855 Thereafter .............................. 103,000 -------- Total ................................... $136,170 ======== 35 (2) Concession Agreements - On April 3, 1998, the Arena Company entered into two separate ten year management agreements with Ogden Entertainment, Inc. ("Ogden") and Levy Premium Food Service, Inc. ("Levy") pursuant to which Ogden agreed to manage all the concession operations at the new arena, except for suites, the club seats, the restaurants and floor seats (collectively, the premium areas), which are being managed by Levy. Pursuant to the management agreements, the Arena Company is contingently liable for the unamortized portion of such manager contributions, plus other reasonable damages, if the Company should terminate the management agreements. As of December 31, 1999, the Company has received payments of $4,500,000 and $2,700,000 from Ogden and Levy, respectively and has included this balance in deferred revenue, net of revenues recognized, in the net assets of discontinued operations presented above. (3) Sponsorships Agreements - The Arena Company entered into long-term sponsorship agreements with the Pepsi-Cola Company, the Coors Brewing Company, the Denver Post, US West, Inc. and other corporations which grant exclusive sponsorship and promotional rights for certain categories of advertising at the Pepsi Center. In addition, the Avalanche and the Nuggets have entered into various long-term sponsorship agreements with these and other sponsors. At December 31, 1999, the Arena Company, the Avalanche and the Nuggets have received payments under these long-term sponsorship agreements of $17,500,000 and have included this balance in deferred revenue, net of revenues recognized, in the net assets of discontinued operations presented above. (4) Employment and Consulting Agreements - At December 31, 1999, the Avalanche and the Nuggets have consulting agreements with certain of their executive officers, coaches, and players. Virtually all of the contracts with players provide for guaranteed payments, which must be paid to the player even if he is injured or released. Other contracts provide for payments contingent upon the fulfillment of certain terms and conditions. Amounts required to be paid under such contracts for years subsequent to December 31, 1999, including deferred compensation to be earned in the future, but excluding option years under such agreements, are as follows: Nuggets Avalanche ------- --------- (in thousands) 2000....................................... $ 44,785 $ 35,770 2001....................................... 40,409 21,882 2002....................................... 28,786 8,097 2003....................................... 28,819 2,125 2004....................................... 20,215 1,000 Thereafter................................. 20,612 1,250 -------- ------- Total...................................... $183,626 $70,124 ======== ======= Note 4 -- Receivables: Receivables consist of the following at December 31, 1999 and 1998: 1999 1998 -------- ------- (in thousands) Trade receivables.................................... $ 36,557 $33,834 Current portion of notes and long-term receivables... -- 4,081 Less allowance for doubtful accounts............... 3,065 1,501 ------- ------- Receivables, net................................... $ 33,492 $36,414 ======= ======= Ascent generates a substantial portion of its revenues from OCC and from hotel guests' usage of OCC pay-per-view video systems located in various hotels primarily throughout the United States, Canada, Mexico, Europe, Australia, and the Far East. OCC performs periodic credit evaluations of its installed hotel locations and generally requires no collateral. While the Company does maintain allowances for potential credit losses, actual bad debts have not been significant. The Company invests its cash in high-credit quality instruments and/or institutions. These instruments are short-term in nature and, therefore, bear minimal interest rate or credit risk. 36 Note 5 -- Property and Equipment: Property and equipment consists of the following at December 31, 1999 and 1998:
1999 1998 -------------- ------------- (in thousands) Buildings and leasehold improvements........................................... $ 1,687 $ 1,462 Installed video systems........................................................ 546,618 482,360 Distribution systems to networks............................................... 93,641 100,363 Leased vehicles under capital leases........................................... 2,675 -- Furniture, fixtures and equipment.............................................. 28,323 22,342 -------- -------- Total...................................................................... 672,944 606,527 Less accumulated depreciation and amortization................................. 429,144 357,823 -------- -------- Net property and equipment in service.......................................... 243,800 248,704 Construction-in-progress....................................................... 50,698 47,809 -------- -------- Property and equipment, net................................................. $294,498 $296,513 ======== ========
Vehicles acquired under capital leases had a cost basis of $2,675,000 at December 31, 1999, less accumulated amortization of 453,900. Note 6 -- Long-term debt: Long-term debt consists of the following at December 31, 1999 and 1998:
1999 1998 ---------------- -------------- (in thousands) OCC Credit Facility, variable rate; due 2000............................................... $180,000 $163,000 Senior Secured Discount Notes, 11.875%, due 2004 net of unamortized discount of $65,078 and $82,463............................................................................... 159,922 142,537 -------- -------- Total long-term debt $339,922 $305,537 ======== ========
OCC Credit Facility. OCC currently has a $200.0 million credit facility (the "OCC Credit Facility"). The OCC Credit Facility matures in November 2002 and, subject to certain conditions, can be renewed for two additional years. At December 31, 1999, there was $20.0 million of available borrowings under the OCC Credit Facility, subject to certain covenant restrictions. Revolving loans extended under the OCC Credit Facility generally will bear interest at LIBOR plus a spread that may range from 0.375% to 0.75% depending on certain operating ratios of OCC. At December 31, 1999, the weighted average interest rate on the OCC Credit Facility was 6.74%. In addition, a fee ranging from .1875% to .25% per annum is charged on the unused portion of the OCC Credit Facility, depending on certain OCC operating ratios. The OCC Credit Facility contains customary covenants, including, among other things, compliance by OCC with certain financial covenants. Senior Secured Discount Notes. On December 22, 1997, Ascent completed the sale of $225,000,000 principal amount at maturity of Senior Secured Discount Notes due 2004 (the "Senior Notes"). The Senior Notes, which mature on December 15, 2004, were sold at a discount for an aggregate price of $126,663,750, representing a yield to maturity of 11.875% computed on a semi-annual bond equivalent basis from the date of issuance. Cash interest will not be payable on the Senior Notes prior to December 15, 2002. Commencing December 15, 2002, cash interest on the senior notes will accrue and thereafter will be payable on June 15 and December 15 of each year (commencing June 15, 2003) at a rate of 11.875% per annum. The Senior Notes are redeemable, at the option of Ascent, in whole or in part, on or after December 15, 2001, at specified redemption prices plus accrued and unpaid interest. In addition, at any time prior to December 15, 2000, Ascent may redeem up to 35% of the originally issued principal amount at maturity of the Senior Notes with the net cash proceeds of one or more sales of its capital stock at a redemption price equal to 111.875% of the accreted value thereof to the redemption date. The Senior Notes are senior secured indebtedness of Ascent, secured by a pledge of all of the capital stock of OCC, now owned or hereafter acquired by Ascent. The Senior Notes rank senior to all existing and future subordinated indebtedness of Ascent and pari passu in right of payment to all unsubordinated indebtedness of Ascent. The Senior Notes contain covenants, which restrict, including, among other things, the Company's ability to pay dividends, incur additional indebtedness and the making of loans, investments and other defined payments. The net proceeds from the offering and sale of the Senior Notes of approximately $121.0 million, after deducting debt issuance costs, were used to repay outstanding indebtedness under Ascent's former credit facility. 37 Assuming the consummation of the Merger Agreement with Liberty, of which there can be no assurances, (see Note 2), and as a result of the terms of the Senior Notes, the Company will be required to offer to redeem the Senior Notes at 101% of their accreted value within 60 to 90 days after the change in control. Ascent Credit Facility. Concurrently with the sale of the Senior Notes, the Company and a bank entered into a second amended and restated loan and security agreement (the "Ascent Credit Facility") to decrease the maximum amount of borrowings under the Company's previous credit facility from $140.0 million to $50.0 million and restate other terms and conditions of the previous agreement. Available borrowings under the Ascent Credit Facility, as amended, were reduced to $42.5 million as a result of the sale of Beacon and will be permanently reduced commencing in March 2000 and on a quarterly basis thereafter in varying amounts through December 2002 when the facility will terminate. The Ascent Credit facility requires the Company to repay and permanently reduce the available borrowings thereunder with 100% of the net cash proceeds from the issuance and sale of additional shares of the Company's capital stock and with the net cash proceeds from sales of assets of the Company or its subsidiaries (other than OCC), unless there exists no event of default and such proceeds are reinvested in similar assets within 120 days. In addition, the Ascent Credit Facility includes restrictions, on among other things, the Company's ability to pay dividends and to make loans and investments. At December 31, 1999, there was $42.5 million of available borrowings under the Ascent Credit Facility. In conjunction with sale of its membership interests in Beacon (see Note 2), the Company and the Bank amended the Ascent Credit facility to amend certain terms and conditions of the agreement relating to Beacon. The Ascent Credit Facility is secured by first priority pledges of, and liens on, the capital stock and/or partnership or membership interests in all of the Company's subsidiaries other than OCC (collectively, the "Credit Facility Guarantors"), and a negative pledge on all of the assets of the Credit Facility Guarantors, with limited exceptions. The obligations of the Company under the Ascent Credit Facility are guaranteed by the Credit Facility Guarantors. At the Company's option, interest rates under the Ascent Credit Facility will be a fluctuating rate of interest equal to either (i) an adjusted London Interbank Offering Rate ("LIBOR") plus an applicable borrowing margin or (ii) the greater of the Federal Funds Effective Rate plus .5% plus an applicable borrowing margin, or the bank's prime rate plus an applicable borrowing margin. The applicable borrowing margin will be 2.75% (for LIBOR borrowing) and 1.50% (for Base Rate borrowings, as defined) until December 31, 2000. Thereafter, the applicable borrowing margin will range from 2.00% to 2.75% for LIBOR borrowings or 0.75% to 1.50% for Base Rate borrowings, based upon certain financial ratios of the Company. In addition, a fee of .50% per annum is charged on the unused portion of the Ascent Credit Facility. The Ascent Credit Facility also contains customary events of default requiring Ascent to maintain certain financial covenants and events of default specifically related to Ascent's sports teams. Total minimum payments on long-term debt for the years subsequent to December 31, 1999, assuming the Senior Notes are not redeemed prior to maturity and the OCC Credit Facility is not extended, are as follows (in thousands):
2000 ..................................................................................... -- 2001 ..................................................................................... -- 2002 ..................................................................................... $180,000 2003 ..................................................................................... -- 2004 ..................................................................................... 225,000 Thereafter ............................................................................... -- -------- Total .................................................................................... $405,000 ========
Note 7 -- Income Taxes Through June 27, 1997, the date of the Distribution, Ascent was a member of COMSAT's consolidated tax group for federal income tax purposes. Accordingly, Ascent prepared its tax provision based on Ascent's inclusion in COMSAT's consolidated tax return pursuant to the tax sharing agreement entered into in connection with the Offering (see Note 1). Such tax provision, up to the Distribution, was calculated as if prepared on a separate return basis. Pursuant to the tax sharing agreement and the tax disaffiliation agreement, taxes payable or receivable with respect to periods that Ascent 38 was included in COMSAT's consolidated tax group are settled with COMSAT annually. At December 31, 1999 and 1998, Ascent's federal income tax receivable from COMSAT was $1,196,000. The balance due from COMSAT at December 31, 1999 is included in other long-term assets in the accompanying financial statements. As a result of the Distribution (see Notes 1 and 12), the Company ceased being a member of COMSAT's consolidated tax group. Additionally, in conjunction with the SpectraVision Acquisition, Ascent's ownership in OCC decreased to approximately 57% and OCC began filing a separate return commencing on October 9, 1996. The components of income tax expense (benefit) attributable to continuing operations for the years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ----------------- ----------------- ---------------- Federal: (in thousands) Current................................................ $ -- $ 851 $(1,387) Deferred............................................... (2,477) (2,815) (2,675) State and local.......................................... 162 (175) 408 Foreign.................................................. 38 (109) 588 ------- ------- ------- Total.................................................. $(2,277) $(2,248) $(3,066) ======= ======= =======
The difference between the Company's income tax benefit computed at the statutory federal tax rate and Ascent's effective tax rate for the years ended December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997 ----------------- ---------------- --------------- (in thousands) Federal income tax benefit computed at the statutory rate........ $(23,135) $(15,877) $(17,753) State income tax benefit, net of federal income tax benefit...... (689) (1,194) (1,110) Goodwill amortization............................................ 2,404 2,542 2,464 Foreign taxes.................................................... 38 (109) 588 Changes in valuation allowance................................... 26,839 15,815 10,620 Valuation allowance attributable to losses from -------- -------- -------- discontinued operations....................................... (9,276) -- -- Other............................................................ 1,542 (3,425) 1,125 -------- -------- -------- Income tax benefit from continuing operations................... $ (2,277) $ (2,248) $ (4,066) ======== ======== ========
The net current and net non-current components of deferred tax assets and liabilities as shown on the balance sheets at December 31, 1999 and 1998 are:
1999 1998 ----------------- --------------- (in thousands) Current deferred tax asset................................................ $ -- $ 417 Non-current deferred tax asset (liability)................................ 9,320 3,866 ------ ------ Net deferred tax asset................................................. $9,320 $4,283 ====== ======
39 The deferred tax assets and liabilities at December 31, 1999 and 1998 are:
1999 1998 ----------------- ---------------- (in thousands) Assets: Net operating loss carryforwards......................................... $ 67,073 $ 38,426 Alternative minimum tax credit carryforwards............................. 9,320 11,123 Other accrued liabilities................................................ 19,071 16,361 Other.................................................................... 3,970 2,850 Valuation allowance...................................................... (82,039) (55,200) -------- -------- Total deferred tax assets................................................ 17,395 13,560 -------- -------- Liabilities: Property and equipment, net............................................ (6,642) (6,945) Other.................................................................. (1,433) (2,332) -------- -------- Total deferred tax liabilities......................................... (8,075) (9,277) -------- -------- Net deferred asset........................................................ $ 9,320 $ 4,283 ======== ========
The Company has federal net operating loss carryforwards of approximately $18.7 million which expire beginning in 2019. In addition, the Company has state net operating loss carryforwards of approximately $105.0 million which expire beginning in 2006. The Company also has alternative minimum tax credit carryforwards of approximately $9.2 million available to offset future regular federal tax liabilities. OCC has federal net operating loss carryforwards of approximately $151.0 million which expire beginning in 2010. However, because of the acquisition of SpectraVision by OCC, the pre-ownership change net operating loss carryforwards (approximately $43.0 million) are subject under Section 382 of the Internal Revenue Code to an annual limitation estimated to be approximately $6.0 million. In addition, OCC has state net operating loss carryforwards of approximately $111.0 million which expire beginning in 2000 and may be subject to limitation in the event of certain defined changes in stock ownership. OCC's alternative minimum tax credit carryforwards of approximately $1,595,000 and $251,000 are available to offset future regular federal and state tax liabilities, respectively. Note 8 -- Commitments and Contingencies Facility and Equipment Leases. Ascent continues to lease other facilities used by ANS from COMSAT under a three year lease. Total rental payments to COMSAT were approximately $46,000, $46,000 and $62,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company's operating lease for its corporate headquarters expires in May 2000 and ANS' lease for its principal facility expires in February 2005. OCC leases its principal facilities under a non-cancelable operating lease which expires in June 2004. Rental payments under this lease were $1,690,000, $1,553,000 and $1,303,000 for years ended December 31, 1999, 1998 and 1997, respectively. In 1997, the owner of this facility was a minority stockholder of OCC. In addition to lease payments, OCC is responsible for taxes, insurance and maintenance of the leased premises. OCC also leases certain other office space under non-cancelable operating leases expiring from 2000-2004 from unrelated parties. The Company and its subsidiaries also lease equipment under non-cancelable operating leases which extend through 2004. Rental expense under all non- cancelable leases was approximately $2,726,000, $5,714,000 and $6,358,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The future minimum rental commitments under the Company's facility and equipment leases at December 31, 1999 are as follows (in thousands): 2000.................................................................................... $ 2,568 2001.................................................................................... 2,287 2002.................................................................................... 2,259 2003.................................................................................... 2,214 2004.................................................................................... 1,318 Thereafter.............................................................................. 33 ------- Total................................................................................ $10,679 =======
40 Capital Leases - During 1999, OCC amended certain of its operating lease agreements, primarily for vehicles and equipment, that qualify such amended leases as capitalized leases. Certain of these leases contain restrictions including maintenance of certain operating ratios. Following is a summary of future minimum lease payments for OCC's capital lease obligations:
Year's ending December 31 (in thousands): 2000 $ 2,819 2001 1,820 ------- Total future minimum lease payments 4,639 Less amounts representing interest (348) ------- Present value of future minimum lease payments 4,291 Less current portion 2,533 ------- Long-term portion of capital lease obligations $ 1,758 =======
Purchase Commitments - The Company has non-cancelable commitments for the purchase of video systems and office equipment totaling $9,500,000 as of December 31, 1999. Employment and Consulting Agreements. Ascent has employment and consulting agreements with certain officers. These agreements provide severance pay benefits if there is a change in control of the Company. At December 31, 1999, the maximum contingent liability under those agreements providing severance pay benefits was approximately $5,300,000. Other contracts provide for payments upon the fulfillment of their contractual terms and conditions, which generally relate only to normal performance of employment duties. Litigation. On September 11, 1998, OCC reached an agreement with LodgeNet Entertainment Corporation ("LodgeNet") to settle all pending litigation between the companies. As a result, the two providers of in-room entertainment and information services to the lodging industry have dismissed all pending litigation between the parties in United States Federal District Courts in California and South Dakota, with no admission of liability by either party. The terms of the confidential settlement include a cross-license of each company's patented technologies at issue to the other party and a covenant not to engage in patent litigation against the other party for a period of five years. Each company is responsible for its own legal costs and expenses, and in connection with the multiple cross-licenses, OCC expects to receive royalty payments, net of legal fees and expenses, in an aggregate amount of approximately $10,800,000. OCC received the first payment of approximately $2,900,000 (net of expenses) in September 1998 and received the second payment of approximately $3,950,000 (net of expenses) in July 1999. OCC expects to receive the final payment of approximately $3,900,000 (net of expenses) in July 2000 although no assurance can be given in this regard. OCC has been and will be recognizing the royalty revenue when payments are received. In September 1998, OCV filed suit against MagiNet(see Note 12), alleging a breach by MagiNet of a license agreement between OCV and MagiNet, and terminating the license agreement. OCV has also demanded the payment of license fees from MagiNet which OCC believes were due and payable under the License Agreement and have not been paid by MagiNet. MagiNet has counter-claimed against OCV, alleging that OCV breached the license agreement, and alleging various torts by OCV in its relationship with MagiNet. While the outcome of MagiNet's counterclaim cannot be predicted with certainty, the Company intends to defend itself vigorously and expects that any liability, to the extent not provided by insurance or otherwise, will not have a material adverse effect on the financial condition of the Company. In June 1999, the Company and certain of its present and former directors were named as defendants in lawsuits filed by shareholders (the "Shareholder lawsuits") in June 1999 in the Delaware Court of Chancery. These proposed class actions asserted that the Company's agreement to sell the Company's Sports- related businesses to entities controlled by William and Nancy Laurie constituted a sale of substantially all assets of the Company, thereby requiring a shareholder vote, and resulted from breaches of fiduciary duties by the director defendants (see Note 3 of Notes to Condensed Consolidated Financial Statements). On June 23, 1999, the Company, the director defendants and the Laurie-controlled purchasing entities that were also named as defendants, entered into an agreement with the shareholder plaintiffs to settle the lawsuits. Under the settlement agreement, the Company, the director defendants, and the Laurie-controlled entities agreed, among other things, to amend the terms of the proposed sale to the Laurie entities to permit the Company to 41 conduct a new process in which the Company would solicit additional offers for the purchase of the Sports-related businesses. The Company and the director defendants also agreed, among other things, to engage an additional investment banker to assist in the new auction process, and to add Peter W. May to the Company's Board of Directors. On July 27, 1999, as a result of the new auction process, the Company entered into a definitive agreement to sell the Sports- related businesses to The Sturm Group. The settlement of the Shareholder lawsuits is subject to the approval of the Delaware Court of Chancery after a hearing that is anticipated to occur after the closing of the sale of the Sports-related businesses during the second quarter of 2000. If approved by the Court, the settlement would result in, among other things, the dismissal with prejudice of the claims asserted in the Shareholder lawsuits and the payment by the Company of plaintiff attorney fees and expenses in an amount to be approved by the Court. For the year ended December 31, 1999, the Company incurred and expensed legal fees and related expenses of approximately $820,000 in connection with the Shareholder lawsuits. The Company is a party to certain additional legal proceedings in the ordinary course of its business. However, the Company does not believe that any such legal proceedings will have a material adverse effect on the Company's financial position or results of operations. In connection with its ownership of the Nuggets and the Avalanche, the Company is a defendant along with other NBA and NHL owners in various lawsuits incidental to the operations of the two professional sports leagues. The Company will generally be liable, jointly and severally, with all other owners of the NBA or NHL, as the case may be, for the costs of defending such lawsuits and any liabilities of the NBA or NHL which might result from such lawsuits. The Company does not believe that any such lawsuits, individually or in the aggregate, will have a material adverse effect on the Company's financial position or results of operations. The Nuggets, along with three other teams, have also agreed to indemnify the NBA, its member teams and other related parties against certain American Basketball Association ("ABA") related obligations and litigation, including costs to defend such actions. Management of Ascent believes that the ultimate disposition and the costs of defending these or any other incidental NBA or NHL legal matters or of reimbursing related costs, if any, will not have a material adverse effect on the financial statements of the Company. Note 9 -- Stockholders' Equity Stockholders' Rights Plan. On June 27, 1997, the Company adopted a Rights Plan (the "Plan") and, in accordance with the Plan, declared a dividend of one preferred share purchase right for each outstanding share of common stock, payable July 10, 1997 to stockholders of record on that date. The Plan is intended to enable all Ascent stockholders to realize the long term value of their investment in the Company. The Plan will not prevent a takeover, but should encourage anyone seeking to acquire the Company to negotiate with the Board of Directors prior to attempting a takeover. In connection with the Merger Agreement with Liberty (See Note 2), the Plan was amended to provide that the Merger Agreement was exempt from the operation of the Plan. The rights become exercisable after a person or group acquires 15% or more of the Company's common stock or announces an offer, the consummation of which would result in the ownership of 15% or more of the Company's common stock. Once exercisable, each right will entitle the holder other than the person or group that has acquired 15% of the Company's shares to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $.01, at a price of $40.00, subject to adjustment. If a person or group acquires 15% or more of Ascent's outstanding common stock, each right will entitle its holder to purchase a number of shares of the Company's common stock having a market value of two times the exercise price of the right. In the event a merger or other business combination transaction is effected after a person or group has acquired 15% or more of the Company's common stock, each right will allow its holder to purchase a number of the resulting company's common shares having a market value of two times the exercise price of the right. Following the acquisition by a person or group of 15% or more of the Company's common stock but prior to the acquisition of a 50% ownership interest, the Company may exchange the rights at an exchange ratio of one share of common stock per right. The Company may also redeem the rights at $.01 per right at any time prior to a 15% acquisition. The rights, which do not have voting power and are not entitled to dividends until such time as they become exercisable, expire on July 2007. Stock Option Plans. Ascent adopted the 1995 Key Employee Stock Plan (the "Employee Plan") and the 1995 Non-Employee Directors Stock Plan (the "Director Option Plan") contemporaneously with the Offering. The Employee Plan provides for the issuance of stock options, restricted stock awards, stock appreciation rights and other stock based awards and the Director Option Plan provided for the issuance of stock options and common stock. Options granted under the Employee or Director Option Plans generally expire 10 years from the date of grant. For each of the plans, options are generally granted at prices not less than the fair market value of the Company's common stock at the date of grant. In order for the Distribution to be tax-free (see Notes 1 and 12), the Distribution Agreement required Ascent to cancel substantially all of the outstanding options, and not to have any plans or agreements to issue stock. Therefore, in connection with the Distribution, the Director Option Plan was terminated as it only provided for the issuance of common stock and stock options. In addition, substantially all of the stock options previously granted under the Employee Plan (1,283,750 options) were canceled and, in exchange, option holders were issued stock appreciation rights ("SARs"), payable only in cash, with an exercise price equal to $9.53 per share, based on the average trading price of the Ascent 42 common stock for five days commencing with the date of the Distribution. In June 1997, the Company also adopted the 1997 Non-employee Directors Stock Appreciation Rights Plan (the "Directors SAR Plan") approved by the stockholders in April 1998, pursuant to which each non-employee director was granted a SAR with respect to 100,000 shares of Ascent common stock with a three year vesting period. The exercise price for the non-employee directors SARs granted in 1997 is $8.27 per share, the market price on the date of the Distribution. Under the Employee Plan, 120,000 SARs (exercise price of $9.53) were granted to certain officers and key employees of the Company in June 1997 and 22,000 SARs (exercise price of $9.63) were granted to other employees in October 1997. During the year ended December 31, 1999, an additional 100,000 SARs (exercise price of $13.82) were granted to a director of the Company under the Directors SAR Plan (see Note 8) and, in January 2000, 240,000 options (exercise price of $11.91) were granted to certain executives of the Company under the Employee Plan. The Company's SARs permit the optionee to surrender the SAR, in whole or in part, on any date that the fair market value of the Company's common stock exceeds the exercise price for the SAR and receive payment in cash. Payment would be equal to the excess of the fair market value of the shares reflected by the surrendered SAR over the exercise price for such shares. The SARs vest over either a three year or five year period from the date of grant of the SAR or option for which they were exchanged.. The change in value of SARs is reflected in the Company's statement of operations based upon the market value of the common stock. During the years ended December 31, 1999, 1998 and 1997 the Company recorded an expense (benefit) of $3,512,000, ($424,000), and $424,000 relating to the SARs, respectively. The weighted average remaining contractual life of the outstanding options under the Director Option Plan at December 31, 1999 is approximately 7 years. The following is a summary of changes in shares under the Company's Stock Plans:
Options Outstanding ------------------- Options Weighted Available for Number of Average Grant Shares Exercise Price ----- --------- -------------- Balances, January 1, 1997................................... 266,750 1,343,250 $ 15.93 Conversion of options to SARs............................. -- (1,283,750) 15.92 Canceled/Expired.......................................... -- (14,500) 15.00 Options granted........................................... (8,000) 8,000 10.50 ------- ---------- ------ Balances, December 31, 1997................................. 258,750 53,000 15.31 Exercised................................................. -- -- -- Canceled/Expired.......................................... -- (32,000) 16.31 Options granted........................................... -- -- -- ------- ---------- ------ Balances, December 31, 1998................................. 258,750 21,000 13.79 Conversion of options to SARs............................. -- (5,000) 15.00 Canceled/Expired.......................................... -- -- -- Options granted........................................... -- -- -- ------- ---------- ------ Balances, December 31, 1999................................. 258,750 16,000 $13.41 ======= ========== ======
In 1996, the Company adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost was recognized for the options granted under the Ascent Stock Option Plans in 1996 and 1997. Had compensation cost for the Director Option Plan in 1998 and 1997 and, both the Director and Employee Plans in 1996 been determined based on the fair value at the grant date for awards made in those years consistent with the provisions of SFAS No. 123, the Company's net loss and loss per common share would have been increased to the pro forma amounts as indicated below (in thousands, except per share information):
1999 1998 1997 ---------------- ----------------- ---------------- Net loss as reported............................................ $(77,577) $(49,725) $(41,514) Net loss pro forma.............................................. $(77,606) $(49,740) $(41,571) Basic and diluted loss per share as reported.................... $( 2.61) $( 1.67) $( 1.40) Basic and diluted loss per share pro forma...................... $( 2.61) $( 1.67) $( 1.40)
Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly 43 affect the calculated values and in which the Company has no significant history or established trends. The Company's calculations for 1998 and 1997 were made using the Black-Scholes option pricing model with the following weighted average assumptions for 1998 and 1997, respectively: expected life, 12-24 months following the last vesting date of the award; stock volatility, 55.8% and 47.2% risk free interest rates, 4.6% and 5.3%; and no dividends during expected term. The Company's calculations are based on an option valuation approach and forfeitures are recognized as they occur. For 1999, the Company's calculations utilized a value of $15.25 for each option, which reflects the cash value of a share of the Company's common stock pursuant to the Merger Agreement with Liberty (see Note 2). OCC Stock Option Plans. OCC has also adopted a stock incentive plan (the "OCC Plan"), expiring in 2006, under which employees of OCC may be granted stock options, restricted stock awards, stock appreciation rights and other stock based awards. Under the OCC Plan options generally are granted at fair market value on the date of grant. At December 31, 1999, the OCC Plan has 2,772,531 shares reserved for issuance and options to purchase 2,285,079 shares of OCC stock were outstanding. In addition, OCC has also adopted a stock option plan for its independent directors (the "OCC Directors Plan"). The OCC Directors Plan authorizes the granting of an annual award of 400 shares of OCC's common stock and a one-time grant of a non-qualified option to purchase 50,000 shares of OCC's common stock (a "Director Option") to each Independent Director on an annual basis. In 1999, 200,000 options were granted. In 1998, 12,000 options were granted. No options were granted in 1997. During the year ended December 31, 1999, OCC recognized $1.1 million as stock-based compensation expense due to the cashless exercise feature of such options. No such expense was recorded in prior periods as the exercise price of such options exceeded the fair market value of the Company's common stock. OCC has also adopted the disclosure only provisions of SFAS 123. The Company's share of OCC's pro forma compensation cost for 1999, 1998 and 1997 would be approximately $1,011,000, $1,652,000 and $2,326,000 or an additional loss of $.04, $.06, and $.08 per share to the respective proforma amounts above. On Command Warrants. In connection with the SpectraVision Acquisition, OCC also issued warrants representing the right to purchase a total of 7,500,000 shares of OCC common stock (20% of the outstanding common stock of OCC, after exercise of the warrants). The warrants have a term of 7 years and an exercise price of $15.27 per share. Series A Warrants to purchase on a cashless basis up to 1,425,000 shares of OCC common stock were issued to former OCV shareholders, of which Ascent received warrants to purchase 1,123,823 shares; Series B warrants to purchase for cash an aggregate of 2,625,000 shares of OCC common stock were issued to the SpectraVision bankruptcy estate for distribution to creditors; and Series C warrants were issued to OCC's investment advisors to purchase for cash an aggregate of 3,450,000 shares of OCC common stock in consideration for certain banking and advisory services provided in connection with the transactions. COMSAT Stock Incentive Plans. COMSAT has stock incentive plans which provide for the issuance of stock options, restricted stock awards, stock appreciation rights and restricted stock units. Qualifying employees of the Company have been participants of these plans. The amount of expense charged to the Company for participation in these plans in 1999, 1998 and 1997 was $34,000, $437,000, and $688,000, respectively. Note 10 -- Employee Benefit Plans OCC, ANS and Ascent Corporate each participate in various 401(k) plans for qualifying employees. A portion of employee contributions is matched by the respective entity. Matching contributions for the years ended December 31, 1999, 1998 and 1997 were $1,121,000, $906,000, and $831,000, respectively. Note 11 -- Business Segment Information The Company implemented SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", during the fourth quarter of 1998. In accordance with SFAS No. 131, the Company initially classified its businesses into 3 reporting segments: multimedia distribution, network services and entertainment. The multimedia distribution segment includes the video distribution and on-demand video entertainment services provided by OCC to the lodging industry. The network services segment includes the results of ANS and the video distribution services it provides to the NBC television network and other private networks. The entertainment segment included three operating businesses, the Denver Nuggets and the Colorado Avalanche franchises in the NBA and NHL, respectively, 44 and the Arena Company, the owner and manager of the new arena. As discussed in Note 2, the entertainment segment's results are included in discontinued operations. Information as to the operations of the Company is set forth below based on the nature of the products and services offered. The Company evaluates performance based on several factors, of which the primary financial measure is business segment operating income (loss) before depreciation and amortization, corporate expenses and interest expense ("EBITDA"). The Company's income taxes are not evaluated at the segment level and, therefore, are not included herein. The accounting policies of the business segments are the same as those described in the Summary of Significant Accounting Policies (see Note 1).
Years ended December 31, ------------------------------ 1999 1998 1997 ---------- ---------- --------- Revenue (from external customers): (in thousands) Multimedia Distribution (1).......................................... $252,948 $238,820 $222,103 Network Services..................................................... 22,431 22,456 19,940 -------- -------- -------- Total................................................................ $275,379 $261,276 $242,043 ======== ======== ======== Operating income (loss): Multimedia Distribution (1).......................................... $(20,947) $(18,493) $(25,446) Network Services..................................................... 4,893 3,462 3,701 Corporate............................................................ (26,313) (7,800) (8,537) -------- -------- -------- Total................................................................ $(42,367) $(22,831) $(30,282) ======== ======== ======== Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA): Multimedia Distribution.............................................. $ 75,912 $ 72,045 $ 55,579 Network Services..................................................... 12,165 10,970 11,280 Corporate............................................................ (26,161) (7,652) (8,404) -------- -------- -------- Total EBITDA......................................................... $ 61,916 $ 75,363 $ 58,455 -------- -------- -------- Less reconciling item -depreciation and amortization...................... 104,283 98,194 88,737 -------- -------- -------- Total operating income (loss)............................................. $(42,367) $(22,831) $(30,282) ======== ======== ======== Interest income: Multimedia Distribution.............................................. $ 520 $ 489 $ 153 Network Services..................................................... 133 386 671 Corporate............................................................ 2,985 1,067 346 -------- -------- -------- Total................................................................ $ 3,638 $ 1,942 $ 1,170 ======== ======== ======== Interest expense, net: Multimedia Distribution.............................................. $ 10,888 $ 9,834 $ 7,612 Corporate............................................................ 18,377 14,442 12,447 -------- -------- -------- Total................................................................ $ 29,265 $ 24,473 $ 20,059 ======== ======== ======== Capital expenditures: Multimedia Distribution.............................................. $ 85,478 $ 83,208 $ 91,796 Network Services..................................................... 570 2,071 1,859 Corporate............................................................ 32 1,354 259 -------- -------- -------- Total................................................................ $ 86,080 $ 86,633 $ 93,914 ======== ======== ======== Depreciation and leasehold amortization: Multimedia Distribution.............................................. $ 87,345 $ 81,808 $ 72,430 Network Services..................................................... 7,272 7,508 7,579 Corporate............................................................ 152 151 133 -------- -------- -------- Total................................................................ $ 94,769 $ 89,467 $ 80,142 ======== ======== ======== Amortization of intangible assets - Multimedia Distribution (1).......................................... $ 9,514 $ 8,727 $ 8,595 ======== ======== ========
45 As of December 31, ------------------- 1999 1998 -------- -------- Identifiable assets: Multimedia Distribution......................... $419,706 $421,797 Network Services................................ 10,021 19,506 Corporate....................................... 69,358 50,177 Net Assets of Discontinued Operations........... 82,216 132,144 -------- -------- Total....................................... $581,301 $623,624 ======== ======== (1) The Multimedia Distribution segment's operating results reflect the allocation of intangible asset amortization incurred by Ascent relating to the acquisition of OCV by Ascent (see Note 1). Significant customers. OCC has one customer, Marriott Corporation, which accounted for 21%, 17%, and 14%, of consolidated revenues in 1999, 1998, and 1997, respectively. In 1999, Hilton and its affiliates (See Note 12) accounted for 17% of consolidated revenues. No other customers accounted for more than 10% of consolidated revenues during 1999, 1998 and 1997. Geographic Operating Information. The following represents total revenues for the years ended December 31, 1999, 1998 and 1997 and long-lived assets (excluding goodwill) as of December 31, 1999 and 1998 by geographic territory (in thousands):
1999 1998 1997 --------------------------------- ---------------------------- ---------- Total Long Lived Total Long Lived Total Revenues (1) Assets Revenues(1) Assets Revenues(1) United States $250,335 $275,614 $237,510 $414,243 $217,026 Canada 13,034 21,021 12,690 17,984 13,251 All other foreign 12,010 14,931 11,076 10,506 11,766 -------- -------- -------- -------- -------- Total $275,379 $311,566 $261,276 $442,733 $242,043 ======== ======== ======== ======== ========
(1)- Net revenues are attributed to countries based on invoicing location of customer. Note 12 -- Related Party Transactions and Agreements with COMSAT In connection with the Distribution, Ascent and COMSAT executed the Distribution Agreement, dated June 3, 1997. The Distribution Agreement provided, among other things, that COMSAT would distribute all of its holdings of Ascent common stock to COMSAT shareholders on a pro-rata basis. COMSAT consummated the Distribution on June 27, 1997 (see Note 1). In addition, while COMSAT has received a ruling from the IRS that the Distribution will not be taxable to COMSAT or its shareholders, such a ruling is based on the representations made by COMSAT in the IRS ruling documents. Accordingly, in order to maintain the tax-free status of the Distribution, Ascent is subject to numerous restrictions under the Distribution Agreement, most of which have expired. The most significant restriction still in place is that Ascent shall not take any action, nor fail or omit to take any action, that would cause the Distribution to be taxable or cause any representation made in the ruling documents to be untrue in a manner which would have an adverse effect on the tax-free status of the Distribution. Pursuant to the Distribution Agreement, Ascent will indemnify COMSAT against any tax related losses incurred by COMSAT to the extent such losses are caused by any breach by Ascent of its representations, warranties or covenants made in the Distribution Agreement. In turn, COMSAT will indemnify Ascent against any tax related losses incurred by Ascent to the extent such losses are caused by any COMSAT action causing the Distribution to be taxable. To the extent that tax related losses are attributable to subsequent tax legislation or regulation, such losses will be borne equally by COMSAT and Ascent. Prior to the Distribution, Ascent was charged by COMSAT for certain general and administrative services. In 1996, charges for these services from COMSAT were determined pursuant to an Intercompany Services Agreement ("Services Agreement"). The Services Agreement, which was amended in December 1996 to reflect a reduced level of services to be provided effective January 1, 1997, was terminated on June 27, 1997 in connection with the Distribution. Total charges incurred under the Services Agreement were approximately $173,000 for the year ended December 31, 1997. 46 During the year ended December 31, 1997, Ascent paid COMSAT $245,000 in interest relating to intercompany obligations between the two entities. No interest was paid during the years ended December 31, 1999 and 1998 to COMSAT. In conjunction with the Acquisition of SpectraVision, Ascent and OCC entered into a Corporate Agreement (the "OCC Corporate Agreement"), pursuant to which, among other things, OCC has agreed not to incur any indebtedness without Ascent's prior consent, other than indebtedness under OCC's Credit Facility (see Note 6), and indebtedness incurred in the ordinary course of operations which together shall not exceed $200.0 million through June 30, 2000; provided, however, that such indebtedness may only be incurred in compliance with the financial covenants contained in OCC's credit facility, with any amendments to such covenants subject to the written consent of Ascent. OCC earned revenues of approximately $47,895,000, $22,955,000 and $22,000,000 for the years ended December 31, 1999, 1998, and 1997, respectively, from Hilton and its affiliates. Accounts receivable from Hilton and its affiliates at December 31, 1999 and 1998 were approximately $1,600,000 and $1,400,000, respectively. Hilton is a minority stockholder of OCC. OCC earned revenues of $83,000 and $901,000 for the years ended December 31, 1998 and 1997 respectively, from MagiNet Corporation, which is a related party by virtue of OCC's investment in its preferred stock (see Note 3). No revenues were recognized from sales to MagiNet in 1999. Accounts receivable from MagiNet at December 31, 1999 and 1998 were insignificant. Note 13 - Financial Instruments and Off-Balance Sheet Risks: Fair Value of Financial Instruments. The fair value of cash and cash equivalents, receivables, other current assets, accounts payable and other accrued liabilities approximate their carrying value due to the short-term nature of these financial instruments. The fair value of certain long-term investments (the Company's investment in MagiNet and Beacon Communications, LLC) approximates their carrying value. The estimated fair value of Company's Senior Secured Discount Notes was $157,248,000 and $139,305,000 at December 31, 1999 and 1998, respectively. This value was estimated by obtaining a yield-adjusted price as of December 31, 1999, for each obligation from an investment banker. The fair Value of the OCC credit facility at December 31, 1999 and 1998 was approximately $187,000,000 and $160,000,000 respectfully, based on the current rate offered to the Company for debt of the same remaining maturities. The fair values of the Company's remaining long-term liabilities and other financial instruments approximate their carrying values. Note 14 -- Quarterly Results of Operations (Unaudited): The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1999 and 1998:
Dec. 31 Sept. 30 June 30 March 31 -------- -------- ------- -------- (In thousands, except per share data) 1998(1) Revenues................................................................... $ 66,009 $ 68,611 $ 65,925 $ 60,731 Operating expenses......................................................... 46,869 46,008 48,899 44,137 Depreciation and amortization.............................................. 25,225 24,750 24,273 23,946 Operating loss from continuing operations.................................. (8,013) (5,226) (9,751) (8,936) Loss from discontinued operations. (1,241) (4,346) (8,264) (3,948) Net loss................................................................... (9,254) (9,572) (18,015) (12,884) Basic and diluted net loss per common share................................ (.31) (.32) (.61) (.43) 1999 Revenues................................................................... $ 67,636 $ 73,147 $ 68,268 $ 66,328 Operating expenses......................................................... 62,359 51,163 51,781 48,160 Depreciation and amortization.............................................. 25,035 27,220 26,778 25,250 Operating loss from continuing operations.................................. (21,752) (9,436) (10,076) (9,854) Loss from discontinued operations.......................................... (12,669) (4,557) 225 (9,242) Loss from sale of discontinued operations.................................. (3,453) -- -- 3,237 Net loss................................................................... (37,874) (13,993) (9,851) (15,859) Basic and diluted net loss per common share................................ (1.28) (.47) (.33) (.53)
(1) Quarterly results for 1999 and 1998 have been restated to reflect the results of operations of the Company's Sports-related businesses as discontinued operations (see Note 3). 47 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 48 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Executive Officers of the Registrant
Positions And Offices Principal Occupations and Name Age With Ascent Employment During Past 5 Years - ---- --- -------------------------- --------------------------------- Arthur M. Aaron 42 Executive Vice President, Mr. Aaron has been Executive Vice Business Affairs President, Business Affairs of the Company since January 2000, prior to which he was Vice President, Business and Legal Affairs and Secretary of the Company since April 1995. Prior thereto, he was a General Attorney at COMSAT Corporation since July 1993. Mr. Aaron has also served as Acting General Counsel of On Command Corporation since April 1998. David A. Holden 40 Executive Vice President, Mr. Holden has been Executive Vice Finance and Chief President, Finance and Chief Financial Financial Officer Officer of the Company since January 2000, prior to which he was Vice President, Finance and Controller of the Company since May 1996. Prior thereto, he was employed by Deloitte & Touche LLP for more than five years. David Ehrlich 34 Vice President, Mr. Ehrlich has been Vice President, General Counsel and Secretary General Counsel and Secretary of the Company since January 2000, prior to which he was Assistant General Counsel of the Company since June 1996. Prior thereto, he was an associate at the Denver law firm, Sherman & Howard, L.L.C. since February 1995. Donald Elliman 55 President, Ascent Sports Mr. Elliman has been President of Holdings, Inc. Ascent Sports Holdings, Inc. since January 2000. Prior thereto he was Executive Vice President of Time, Inc. from 1995 through 1999 and President of Sports Illustrated from 1995 through 1997. Allan Goodson 42 Executive Vice President Mr. Goodson has been Executive Vice and Chief Operating President and Chief Operating Officer of Officer of On Command OCC since January 2000. Prior thereto, Corporation Mr. Goodson served as a founding partner and Chief Operating Officer of STC Cable Corp. from April 1998 to June 1999. Prior thereto that he held the position of Executive Vice President and Chief Operating Officer for TCI Great Lakes, Inc. from August 1992 to November 1995.
49 Directors of the Registrant Charles M. Neinas, 67, has been President of Neinas Sports Services, Inc. since July 1997. Mr. Neinas became Chairman in June 1999 and from August 1999 through December 1999, Mr. Neinas served as Acting President and Chief Executive Officer of the Company. Prior thereto, Mr. Neinas was Executive Director of the College Football Association from 1980 through June 1997. Mr. Neinas served as a member of the Board of Directors of the National Association of Collegiate Directors of Athletics from 1990 to 1993. Paul Gould, 54, has been Managing Director and Executive Vice President of Allen & Company, Incorporated, an investment banking firm, for over 10 years. Mr. Gould has been with Allen & Company for over 25 years and is a director of Liberty Media Corporation and Sunburst Hospitality Corporation. Charles M. Lillis, 57, is Chairman and Chief Executive Officer of MediaOne Group. Prior thereto, Mr. Lillis was President and Chief Executive Officer of MediaOne Group from April 1995 to May 1997, and prior to that time was President of US WEST Diversified Group from 1991 to 1994 and was Executive Vice President and Chief Planning Officer of US WEST, Inc. from 1987 to 1991. Mr. Lillis joined US WEST in 1985 as Vice President of Strategic Marketing. Mr. Lillis is a member of the board of directors of SuperValu, Inc. Peter May, 57, is currently President and Chief Operating Officer of Triarc Companies, Inc. Mr. May was President and Chief Operating Officer of Triangle Industries, Inc. from 1983 to December 1988. Mr. May is a Trustee of the University of Chicago and a member of the Advisory Council on the Graduate School of Business of the University of Chicago. OTHER INFORMATION CONCERNING DIRECTORS Committees As of March 2000, the Board has two standing committees, described below. The Audit Committee consists of Messrs. Lillis (Chairman) and May. The Audit Committee makes recommendations to the Board concerning the selection of independent public accountants; reviews with the independent accountants the scope of their audit; reviews the financial statements with the independent accountants; reviews with the independent accountants and the Company's management the Company's accounting and audit practices and procedures, its internal controls and its compliance with laws and regulations; and reviews the Company's policies regarding community and governmental relations, conflicts of interest, business conduct, ethics and other social, political and public matters, and the administration of such policies. In addition, the Audit Committee considers and makes recommendations to the Board with respect to the financial affairs of the Company, including matters relating to capital structure and requirements, financial performance, dividend policy, capital and expense budgets and significant capital commitments, and such other matters as may be referred to it by the Board, the Chairman of the Board or the Chief Executive Officer. The Audit Committee met two times in 1999. The Compensation Committee consists of Messrs. Gould (Chairman) and Neinas. The Compensation Committee approves long-term compensation for senior executives; considers and makes recommendations to the Board with respect to: programs for human resources development and management organization and succession; salary and bonus for senior executives; and compensation matters and policies and employee benefit and incentive plans; and exercises authority granted to it to administer such plans. In addition, the Compensation Committee recommends to the Board qualified candidates for election as directors and as Chairman of the Board, and considers, acts upon or makes recommendations to the Board with respect to such other matters as may be referred to it by the Board, the Chairman of the Board or the Chief Executive Officer. The Compensation Committee will consider candidates for election as directors recommended by stockholders, if the recommendations are submitted in writing to the Secretary of the Company. The Compensation Committee met two times during 1999. Directors Compensation The Company does not pay its current directors any cash compensation. Directors who were not employees of the Company or its subsidiaries have been granted stock appreciation rights ("SARs") with respect to 100,000 shares of Ascent Common Stock pursuant to the 1997 Non-Employee Directors Stock Appreciation Rights Plan. These SARs will vest 25% on the first anniversary of grant, and 25% and 50%, respectively, on the second and third anniversaries. 50 Prior to May 1997, the Company granted Common Stock and options to its non- employee directors pursuant to the 1995 Non-Employee Directors Stock Plan. Pursuant to this plan, Mr. Neinas was granted options to purchase 12,000 shares of Ascent Common Stock at exercise prices ranging from $10.50 to $17.625, and Mr. Lillis was granted options to purchase 4,000 shares of Ascent Common Stock at an exercise price of $10.50. The 1995 Non-employee Directors Stock Plan was canceled on May 13, 1997. Compensation Committee Interlocks and Insider Participation Mr. Paul Gould, a director of the Company, is a Managing Director and Executive Vice President of Allen & Company Incorporated, an investment banking firm that has performed financial advisory services for the Company since 1995, including (i) serving as the managing underwriter for the Company's initial public offering in 1995; (ii) advising the Company with respect to the acquisition of SpectraVision in 1996; and (iii) serving as financial advisor to the Company in connection with the Company's disposition of its sports and arena related assets. Mr. Charles Neinas, a director of the Company and former Chairman of the Compensation Committee, served as Acting Chief Executive Officer and President of the Company from June 1999 through December 1999. Mr. Neinas did not serve on the compensation committee during this period. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires the Company's directors and officers and persons who own more than 10% of the common stock of the Company to file initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company with the SEC and Nasdaq Stock Market and to furnish the Company with copies of all Section 16(a) reports they file. Based on its review of the copies of such reports received by it, the Company believes that during 1999, its directors, officers and ten percent beneficial owners complied with all applicable reporting requirements. ITEM 11. EXECUTIVE COMPENSATION The following table shows the compensation received by the Company's former President and Chief Executive Officer and former Acting Chief Executive Officer and the other four most highly compensated executive officers of the Company (the "Named Executive Officers") for the three fiscal years ended December 31, 1999. SUMMARY COMPENSATION TABLE
Name and Principal Position (1) Year Salary($) Bonus Other Annual Restricted Securities All Other - ------------------------------- ---- --------- ----- ------------ -------------- ---------- --------- ($)(2) Compensation Stock Awards(s) Underlying Compensation ----- ------------ --------------- ---------- ------------ ($)(3) ($) Options/SARs ($)(5) ------ --- ------------ ------ (#)(4) ------ Annual Compensation Long-Term Compensation ------------------- ---------------------- Charles Lyons....................... 1999 $408,653 (5) (5) 0 0 $3,633,118 Chairman, President and Chief 1998 623,557 $ 350,000 $ 64,831 0 0 138,726 Executive Officer 1997 500,000 350,000 19,530 0 297,500* 70,649 Charles M. Neinas................... 1999 $216,346 0 0 0 0 13,798 Chairman, Acting President and Acting Chief Executive Officer James A. Cronin, III................ 1999 500,000 200,000 0 0 0 33,699 Former Executive Vice President, 1998 498,846 375,000 0 0 0 16,069 Chief Financial Officer and 1997 400,000 350,000 0 0 297,500* 13,177 Chief Operating Officer Brian A.C. Steel.................... 1999 360,833 156,791 -0- -0- 0 18,365 President and Chief Operating 1998 294,617 250,000 -0- -0- 0 6,320 Officer, OCC 1997 290,000 203,000 172,467 -0- 0 483,894 Arthur M. Aaron..................... 1999 200,000 100,000 0 0 0 21,136 Executive Vice President, 1998 196,009 95,000 0 0 0 8,403 Business Affairs 1997 175,000 61,250 0 0 100,000* 8,992 Timothy J. Romani................... 1999 220,000 213,000 0 0 0 20,814
51
President, Ascent Arena 1998 202,615 260,000 0 0 0 28,769 Company, LLC 1997 159,999 200,000 0 0 50,000** 2,291
___________ (1) Mr. Lyons resigned as Chairman, CEO and President of the Company effective August 17, 1999. Mr. Neinas served as Acting CEO and President of the Company from June 1999 through December 1999 and has received (i) a grant of 100,000 SARs; (ii) three grants of 400 shares of Ascent common stock; and (iii) and three grants of 4,000 options to purchase Ascent common stock as compensation for his role as a director of the Company since 1995. Mr. Cronin resigned from the Company on January 28, 2000. Mr. Steel resigned from OCC on August 6, 1999. Mr. Aaron became Executive Vice President, Business Affairs of the Company on January 28, 2000. (see "Employment and Severance Arrangements" on page 53). (2) For 1998, Mr. Aaron's bonus includes his annual bonus of $70,000 and a special bonus paid in recognition of his efforts on the arena financing. For 1998 and 1999 Mr. Romani's bonus includes his annual bonus compensation of $60,000 and $63,000, respectively, with the remainder of the bonus compensation related to the achievement of certain benchmarks set out in Mr. Romani's employment agreement in connection with the construction of the Pepsi Center. (3) Other Annual Compensation shown for 1997, 1998 and 1999 does not include perquisites and other personal benefits because the aggregate amount of such compensation does not exceed the lesser of (i) $50,000 or (ii) 10 percent of individual combined salary and bonus for the Named Executive Officer in each year. Other Annual Compensation in 1998 for Mr. Lyons includes membership fees and insurance premium related tax reimbursements and in 1997 includes for Mr. Lyons and Mr. Steel amounts reimbursed in each case for the payment of taxes associated with relocation expenses. (4) Ascent Stock appreciation rights (SARs) that were issued in exchange for Ascent employee stock options are marked with a (*) and other Ascent SARs are marked with a (**). (See "Employment and Severance Arrangements" below). (5) All Other Compensation for 1999 includes the following elements: (i) unused credits under the Company's cafeteria plan that were paid in cash to the Named Executive Officers; (ii) contributions on behalf of the Named Executive Officers by the Company to the Company's 401(k) Plan, and in the case of Mr. Steel, by OCC to OCV's 401(k) Plan; (iii) automobile allowance; and (iv) above-market interest accrued for Mr. Lyons and Mr. Romani under Ascent's Deferred Compensation Plan and for Mr. Steel and Mr. Lyons the payment of life insurance premiums.
Unused 401(k) Plan Automobile Insurance Total ------------ ---------------- ---------------- ----------------- ----------------- Credits Contribution Allowance Premium ------------ ---------------- ----------------- ----------------- Mr. Lyons $16,754 $4,875 $ 9,807 $3,890 $35,326 Mr. Neinas 13,798 0 0 0 13,798 Mr. Aaron 8,199 4,384 8,999 0 21,136 Mr. Romani 8,814 0 12,000 0 20,814 Mr. Steel 0 5,000 13,200 165 18,365 Mr. Cronin 20,500 0 13,199 0 33,699
All Other Compensation for 1999 for Mr. Lyons includes $3,600,000 paid by the Company to Mr. Lyons pursuant to a settlement agreement between Mr. Lyons and the Company effective August 17, 1999. Option/SAR Grants There were no SARS or options granted to the Named Executive Officers in 1999. Option Exercises and Fiscal Year-End Values The following table sets forth information on (1) options exercised by the Named Executive Officers in 1999, and (2) the number and value of their unexercised options or SARs as of December 31, 1999. 52
AGGREGATED OPTION/SAR EXERCISES IN 1999, AND 12/31/99 OPTION/SAR VALUES Name Shares Value Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($) - ------------------- Underlying Realized ($) --------------- ----------------- --------------- ----------------- Options -------------- Exercised (#) --------------- Number of Securities Value of Unexercised Underlying Unexercised In-The-Money Options/SARs at 12/31/1999 Options/SARs at 12/31/1999 -------------------------- -------------------------- Ascent Options/SARs Charles Lyons -0- -0- -0- -0- -0- -0- Charles Neinas -0- -0- 62,000 50,000 $370,000 $350,000 Arthur M. Aaron -0- -0- 75,000 25,000 $237,225 $ 79,075 Timothy J. Romani -0- -0- 30,000 20,000 $ 94,890 $ 63,260 Brian A.C. Steel -0- -0- -0- -0- -0- -0- James A. Cronin, III -0- -0- 148,750 148,750 $470,496 $470,496 On Command Options Brian A.C. Steel 175,000 $511,000 73,851 -0- -0- -0-
Employment and Severance Arrangements In connection with the resignation of Mr. Neinas as Acting Chief Executive Officer and President of the Company, the resignation of Mr. Cronin as Executive Vice President, Chief Financial Officer and Chief Operating Officer of the Company and the continued efforts by the Company to explore its strategic alternatives regarding a disposition of its assets, in January 2000 the Company amended and restated Messrs. Aaron and Holden's employment agreements. The Company's subsidiary Ascent Sports Holdings, Inc. ("ASH"), also entered into an employment agreement with Mr. Elliman in January 2000. Under his amended and restated employment agreement: (i) Mr. Aaron's base salary was increased to $300,000 per year, subject to increases at the discretion of the Ascent Board of Directors (for 1998 and 1999 his base salary was $200,000); (ii) Mr. Aaron is eligible for an annual bonus based on performance measures determined by Ascent's Compensation Committee with a target bonus equal to 50% of his base salary; (iii) the term of the agreement was extended by one year to expire June 27, 2003; (iv) Mr. Aaron will be promoted to the position of Executive Vice President, Business Affairs for the term of the agreement; and (v) the provisions regarding severance and change-of-control were revised, as described further below. Mr. Holden's amended and restated employment agreement is on substantially the same terms as Mr. Aaron's, other than (iv) above in that Mr. Holden was promoted to the position of Executive Vice President, Finance and Chief Financial Officer and except that Mr. Holden's base salary under his amended and restated agreement was increased to $250,000 (for 1998 and 1999 his base salary was $165,000). Mr. Aaron's and Mr. Holden's agreements also each set forth the terms of their additional grant on January 28, 2000, of options to purchase 100,000 shares each of Ascent's common stock. Mr. Elliman's employment agreement expires on August 31, 2000. Pursuant to the agreement, Mr. Elliman's base salary for 2000 is $50,000 per month. Mr. Elliman will report directly to the Company's Board of Directors and, except as otherwise provided in existing employment agreements, all other employees of the Company's sports-related businesses, the Colorado Avalanche, Denver Nuggets and the Pepsi Center, and their respective subsidiaries, will report directly or indirectly to Mr. Elliman. Mr. Elliman's agreement does not contain "change-of- control" provisions. In addition, Mr. Elliman's agreement provides that if Mr. Elliman is terminated without "cause" (as defined in his agreement) or upon Mr. Elliman's death or physical or mental incapacity, then Mr. Elliman will receive a lump sum payment from the Company equal to the lesser of three months salary or the aggregate base salary otherwise payable to Mr. Elliman through the end of the term of the agreement. 53 The employment agreements for each of Messrs. Aaron and Holden (each an "executive") contain provisions related to change-of-control and severance. If an executive is terminated without "cause" (as defined in the agreements) or upon certain events defined in the agreements which have the effect of a constructive termination (including a "Change of Control Event") then: (i) there shall be no forfeiture of any rights or interests related to fringe benefits granted under the agreement, including, without limitation, any stock-based incentives, all of which will fully vest, to the extent not previously vested, immediately upon such termination becoming effective and final; (ii) the executive shall receive current base salary, fringe benefits and the annual bonus outlined in the agreement for the longer of (a) the remainder of the employment period under the agreement or (b) three years following the date of such termination, with no obligation to seek other employment and no offset to the amounts paid by the Company if other employment is obtained, provided that each of the executives and the Company shall explore alternatives to minimize any excise tax pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended, that would otherwise be payable; and (iii) all other benefits provided pursuant to the agreement shall be received by the executive. The Company is obligated to fund a "rabbi" trust no later than one day prior to a Change of Control Event with amounts sufficient to pay its obligations under these employment agreements, and severance amounts must be paid in a lump sum following the executive's termination for any reason, including, at the election of the executive, during the 180 day-period following a Change of Control Event. For purposes of the employment agreements, a "Change of Control Event" shall mean and include either the occurrence of any of the following with respect to Ascent, or any of the following becoming highly likely to occur, in the determination of the Board: (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this clause (i), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from or by the Company, (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (3) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of clause (iii) below; or (ii) individuals who, as of the date of the agreements, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to January 27, 2000, whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 75% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. On January 7, 2000, On Command and Alan Goodson entered into an employment agreement that expires on January 7, 2002. Pursuant to the agreement, Mr. Goodson's initial base salary under the agreement is $300,000 per year, subject to increases at the discretion of the Board of Directors of OCC. Under the agreement, Mr. Goodson is eligible 54 for annual bonuses based on performance measures determined by the OCC Compensation Committee with a target bonus equal to 70% of Mr. Goodson's base salary for achieving 100% of the target level for the performance measures. In addition, Mr. Goodson has been granted options to purchase 100,000 shares of OCC Common Stock, exercisable at a per-share price equal to $15.90625. The options vest 50% on January 7, 2001 and 50% on January 2002. The options will expire at the earlier of (i) three months after the date upon which Mr. Goodson is terminated for "cause" (as defined in the employment agreement); (ii) one year after Mr. Goodson's employment agreement is terminated as a result of death or (iii) on January 7, 2010. Mr. Goodson's agreement does not contain "change-of- control" provisions. In addition, Mr. Goodson's agreement provides that if Mr. Goodson is terminated without "cause" (as defined in the agreement) or upon any substantial reduction (except in connection with the termination of his employment voluntarily by Mr. Goodson, or by the Company for "cause") by the Company of Mr. Godson's responsibilities as Executive Vice President and Chief Operating Officer of the Company, or the Company is in material default of the agreement, then: (i) there shall be no forfeiture of any rights or interests related to fringe benefits granted under the agreement, including, without limitation, the SARs and any other stock-based incentives, except that half of his 100,000 options will vest, to the extent not previously vested, and the other half of which will be canceled, immediately upon such termination becoming effective and final; (ii) the executive shall receive current base salary, fringe benefits and the annual bonus outlined in the agreement for the longer of (a) the remainder of the employment period under the agreement or (b) one year following the date of such termination, with no obligation to seek other employment and no offset to the amounts paid by the Company if other employment is obtained; and (iii) all other benefits provided pursuant to the agreement shall be received by the executive. On December 28, 1998, On Command and Mr. Steel entered into an amendment to Mr. Steel's employment agreement. Pursuant to the amendment, Mr. Steel assumed the title of President and Chief Operating Officer of OCC through September 11, 2000, while reporting directly to the Chief Executive Officer and Board of Directors of OCC, and if there was no Chief Executive Officer, then to the Chairman. In addition, under the terms of the amendment (i) Mr. Steel's base salary was increased to $375,000 per year and (ii) if OCC failed to review Mr. Steel's compensation prior to June 1, 1999 or revise such compensation prior to August 1, 1999, then Mr. Steel would be entitled to terminate his employment with OCC and receive (a) his then base salary for a year from such termination, (b) a pro-rated annual bonus for the year in which employment was terminated and (iii) a pro-rated portion of the options previously granted to Mr. Steel under OCC's stock option plans that were scheduled to vest during the year of such termination, which shall vest as of the date of such termination. Although OCC and Mr. Steel entered into negotiations regarding his position and compensation at OCC during the above time periods, Mr. Steel's compensation was not revised prior to August 1 and on August 6, 1999, Mr. Steel resigned from OCC pursuant to the terms of his amended employment agreement. On January 28, 2000, Mr. Cronin terminated his employment agreement and resigned as director, Executive Vice President, Chief Financial Officer and Chief Operating Officer of the Company. In March 2000, the Board of Directors authorized the payment of $200,000 as an annual bonus to Mr. Cronin for his efforts on behalf of the Company in 1999. Finally, on August 22, 1999, Mr. Lyons and the Company executed a Settlement Agreement pursuant to which Mr. Lyons received $3,677,347 in full settlement of the provisions of the Settlement Agreement and all outstanding obligations of the Company to Mr. Lyons. Compensation Committee Report on Executive Compensation The Compensation Committee is responsible for establishing and administering the Company's executive compensation philosophy. Through June 1999, the Compensation Committee was composed of Mr. Gould and Mr. Neinas as Chairman of the Committee. In June 1999 when Mr. Neinas was elected Chairman of the Board and Acting President and Chief Executive Officer, he left the Compensation Committee, Peter Barton was elected to the Committee and Mr. Gould became Chairman of the Committee. In December 1999, Mr. Neinas resigned as Acting President and Chief Executive Officer of the Company and again became a member of the Committee. For a description of each of Mr. Gould's and Mr. Neinas' relationship to the Company, see "Compensation Committee Interlocks and Insider Participation." Set forth below is the Committee's report on the 1999 compensation of the Named Executive Officers. This report shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. 55 Compensation Philosophy and Guiding Principles. The Company or its subsidiaries has or had employment agreements with each of Messrs. Aaron, Cronin, Holden, Elliman, Goodson, Lyons, Romani and Steel. The Compensation Committee has determined that the executive compensation philosophy of the Company should be consistent with such agreements and guided by the following principles: Attract and retain talented management; Closely align management's interests and actions with those of stockholders through the establishment and/or enhancement of appropriate equity incentive programs; Appropriately reward employees for enhancing stockholder value through improvement in financial performance and pursuit of strategic alternatives; Emphasize risk-based performance incentives as a key component of both annual and long term compensation. Pursuit of Strategic Alternatives and Operating Improvements During 1999, the company's Board of Directors was evaluating and pursuing various strategic alternatives for the purpose of enhancing shareholder value, and at the same time continuing to seek improvements in the operating performance of the Company's subsidiaries. This resulted in several agreements during 1999. In January 1999, the Company sold 90% of its Beacon motion picture production subsidiary to an investor group that included Beacon management. In April 1999, Ascent entered into an agreement to sell the Colorado Avalanche, Denver Nuggets and the Pepsi Center (the "sports-related businesses") to a third party for $400 million and the Board agreed to permit Mr. Lyons to participate with the buyers and leave the Company upon consummation of the sale. That sale was challenged by shareholders in a lawsuit filed against the Company in May 1999 seeking an injunction preventing the sale. The Company settled the shareholder litigation and, as one of the conditions to the settlement, conducted a public auction for the sports-related businesses. In July 1999, the auction resulted in a new buyer agreeing to purchase the sports-related businesses for $461 million. However, this new buyer did not obtain the necessary consents and releases from the City and County of Denver, and on December 1, 1999, the Company terminated that agreement. Finally, in October 1999, Ascent entered into an Agreement and Plan of Merger with AT&T Corp. and Liberty Media Corporation ("Liberty"), pursuant to which each share of Ascent Common Stock would be converted into .4626 shares of Liberty stock. The merger was conditioned upon, among other things, the consummation of the sale of the Company's sports-related businesses. When the agreement to sell the sports- related businesses was terminated, AT&T and Liberty exercised their right to terminate the Agreement and Plan of Merger because the condition to closing (the sale of the sports-related businesses on the terms and conditions set forth in the sale agreement) was incapable of being satisfied. In December 1999, the Ascent Board announced that it would continue to seek qualified purchasers for the sports-related businesses and, in response to the termination by Liberty of its merger agreement with the Company, would continue to examine the Company's strategic alternatives, which alternatives could include a sale of the Company's majority interest in On Command and its Ascent Network Services division, other transactions involving On Command or other transactions involving the entire company. In January 2000, the Company, through its subsidiary ASH, entered into an employment agreement with Mr. Elliman to act as President of ASH, with primary operational responsibility for the Company's sports-related businesses. Subsequently, On Command entered into an employment agreement with Allan Goodson to act as Executive Vice President and Chief Operating Officer with primary operational responsibility for On Command. Then, on January 25, 2000, in connection with the resignations of Mr. Neinas as Acting President and Chief Executive Officer and Mr. Cronin as Executive Vice President, Chief Operating Officer and Chief Financial Officer of the Company, the Ascent Board promoted Mr. Aaron to the position of Executive Vice President, Business Affairs and Mr. Holden to the position of Executive Vice President, Finance and Chief Financial Officer of the Company. Mr. Aaron and Mr. Holden have primary executive responsibility for managing the Company's ownership of its operating entities and evaluation of its strategic alternatives. (See "Employment and Severance Arrangements"). 56 Annual Compensation. None of the Named Executive Officers or Mr. Holden received salary increases in 1999 other than Messrs.Steel and Romani. Mr. Steel's salary increase was approved by the on Command Board of Directors in connection with an amendment to his employment agreement, and Mr. Romani's salary increase for 1999 was as set forth in his employment agreement. In recognition of their efforts during 1999 in the management of the Company's operating entities and in the evaluation and pursuit of the Company's strategic alternatives and in recognition of their increased role in both areas in the year 2000, the Compensation Committee recommended and the Board approved an annual bonus for 1999 of $100,000 each for Messrs. Aaron and Holden. On March 10, 2000, the Board approved a $200,000 bonus payable to Mr. Cronin for his efforts on behalf of the Company in 1999. Under the terms of his amended employment agreement and his severance arrangement with On Command, Mr. Steel is entitled to receive a pro-rata annual bonus for 1999 in an amount to be determined by the On Command Board of Directors. In connection with his service to the Company as Acting Chief Executive Officer and President, Mr. Neinas' salary for 1999 was based on Mr. Lyons' salary for such positions in 1999 on a pro-rated basis. The Compensation Committee did not consider a bonus for Mr. Neinas in light of his membership on the Compensation Committee. Long Term Compensation During 1999, none of the Named Executive Officers or Mr. Holden were granted any additional equity incentives. In August of 1999 in connection with his resignation from the Company, Mr. Lyons' outstanding SARs were terminated. Pursuant to the terms of his amended employment agreement and in connection with his resignation from On Command in August of 1999, Mr. Steel retained 369,257 of his 385,312 On Command options with one year from his resignation date to exercise such options. As a result of Mr. Cronin's resignation from Ascent, the 223,125 SARs that will remain outstanding for ninety days are expected to vest and be paid in connection with the tender offer for the Company made by Liberty. In January 2000 each of Messrs. Aaron and Holden were granted options to purchase 100,000 shares of the Company's common stock and Mr. Goodson received options to purchase 100,000 shares of On Command common stock. In each case the grant reflected the intention of the Company (and On Command in Mr. Goodson's case) to align senior management's interests with those of stockholders through appropriate equity incentives and reflected the Company's recognition of the participation required of each of Messrs. Aaron, Holden and Goodson in the managing of the Company's operating entities and continuing process of evaluating and pursuing the Company's strategic alternatives. Deductibility of Executive Compensation. Section 162(m) of the Internal Revenue Code of 1986, as amended, and the U.S. Treasury Regulations relating thereto (collectively, "Section 162(m)") restricts publicly traded companies from claiming or receiving a tax deduction on compensation paid to certain executive officers in excess of $1 million, unless such compensation is performance based. The Company's policy with respect to the deductibility limit of Section 162(m) is generally to preserve the deductibility of compensation paid when it is appropriate and in the best interests of the Company and its stockholders. Compensation Committee Paul Gould, Chairman Charles M. Neinas 57 SHAREHOLDER RETURN PERFORMANCE GRAPH The following graph and chart compare the cumulative total shareholder return on the Company's common stock, including the reinvestment of dividends, with the return on the NASDAQ Index and the Standard & Poor's Entertainment Index. On December 18, 1995, the Company's common stock began publicly trading. The performance graph sets forth the return on $100 invested in Ascent Entertainment Group, Inc. common stock and the two stock indices from December 18, 1995 to December 31, 1999. [PERFORMANCE GRAPH] 58 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT COMMON STOCK OWNERSHIP OF FIVE PERCENT HOLDERS As of March 20, 2000, the record date, 29,755,600 shares of Common Stock were outstanding. To the knowledge of the Company, based upon Schedules 13G or 13D filed with the Securities and Exchange Commission (the "SEC" or "Commission"), the following persons were the only beneficial owners of more than five percent of the Company's Common Stock as of December 31, 1999: % of Shareholder Voting #of Shares Class ----------- ------ ---------- ----- Gabelli Asset Management , Inc.(1) 14.86% 4,421,112 Common One Corporate Center Rye, New York 10580 Snyder Capital Management, LP(2) 13.7% 4,069,690 Common 350 California Street San Francisco, CA 94104 Ascent Acquisition Group, LLC(3) 9.4% 2,782,700 Common 280 Park Avenue New York, NY 10017 Leon G. Cooperman(4) 5.9% 1,746,900 Common 88 Pine Street Wall Street Plaza, 31st Floor New York, NY 10005 - -------- (1) Based on information contained in Schedule 13D filed with the Commission and dated March 15, 2000. The aggregate number and percentage of Common Stock which Gabelli Asset Management, Inc. and its subsidiaries beneficially owns is 4,421,112 shares (14.86%) of Common Stock, as follows: (a) Gabelli Funds, LLC, as agent, 1,364,230 shares (4.58%) of Common Stock (sole voting power: 1,364,230 shares; sole dispositive power: 1,364,230 shares; and shared voting or dispositive power: none); (b) GAMCO Investors, Inc., as agent, 2,669,482 shares (8.97%) of Common Stock (sole voting power: 2,669,482 shares; sole dispositive power: 2,669,482 shares; and shared voting and dispositive power: none); (c) Gemini Capital Management Limited, 82,000 shares (0.28%) of Common Stock (sole voting power: 82,000 shares; sole dispositive power: 82,000 shares; and shared voting and dispositive power: none); (d) Gabelli International II Limited, 5,000 shares (0.02%) of Common Stock (sole voting power: 5,000 shares; sole dispositive power: 5,000 shares; and shared voting and dispositive power: none); (e) Gabelli Associates Fund, 157,600 shares (0.53%) of Common Stock (sole voting power: 157,600 shares; sole dispositive power: 157,600 shares; and shared voting and dispositive power: none.); and (f) MJG Associates, Inc., 142,800 shares (0.48%) of Common Stock (sole voting power: 142,800 shares; sole dispositive power: 142,800 shares; and shared voting and dispositive power: none). (2) Based on information contained in Schedule 13D/A filed with the Commission and dated June 1, 1999, Snyder Capital Management, LP ("SCMLP") and Snyder Capital Management, Inc. ("SCMI") are the beneficial owners of 4,069,690 shares (13.7%) of Common Stock (sole voting power: none; sole dispositive power: none; shared voting power: 3,597,590 shares; and shared dispositive power: 4,069,690 shares). SCMI is the sole general partner of SCMLP, and both entities are wholly-owned by Nvest Companies, Inc., a publicly traded limited partnership. All voting and investment decisions regarding advisory accounts managed by SCMLP are made by SCMI and SCMLP and accordingly, SCMI and SCMLP do not consider Nvest Companies or any entity controlling Nvest Companies to have any direct or indirect control over the securities held in managed accounts. (3) Based on information contained in Schedule 13D/A jointly filed with the Commission and dated June 28, 1999 by Triarc Companies Inc. ("Triarc"), CP International Management Services Ltd. ("CP"), Consolidated Press International 59 Holdings Limited ("CPI") and Ascent Acquisition Group, LLC ("AAG). Peter May, a director of the Company is also director, President and Chief Operating Officer of Triarc. Mr. May's disclaims beneficial ownership of the 2,782,700 shares of Ascent common stock which are directly held by Ascent Acquisition Group, LLC, an entity which is 50% owned by Triarc. (4) Based on information contained in Schedule 13G filed with the Commission and dated on February 8, 2000. Mr. Cooperman is the Managing Member of Omega Associates, L.L.C. ("Associates"). Associates is the general partner of Omega Capital Partners, L.P. ("Capital LP"), Omega Institutional Partners, L.P. ("Institutional LP"), and Omega Capital Investors, L.P. ("Investors LP"). Mr. Cooperman is also the President and majority stockholder of Omega Advisors, Inc. ("Advisors"), and Advisors serves as the investment manager to Omega Overseas Partners, Ltd. ("Overseas"). Advisors also serves as a discretionary investment advisor to a limited number of institutional clients (the "Managed Accounts"). Capital LP owns 545,318 shares, Institutional LP owns 30,376 shares, Investors LP owns 62,560 shares, Overseas owns 660,259 shares and Managed Accounts owns 448,387 shares. Mr. Cooperman has the sole power as to all of these shares other than those owned by Managed Accounts, as to which Mr. Cooperman possesses shared power. COMMON STOCK OWNERSHIP OF MANAGEMENT The following table sets forth information regarding the beneficial ownership of the Company's Common Stock and the Common Stock of On Command Corporation, as of March 20, 2000, by all directors and nominees, by each of the "named executive officers" and by all directors and executive officers as a group. Under the rules of the SEC, beneficial ownership includes any shares over which an individual has sole or shared voting power or investment power, and also any shares that the individual has the right to acquire within 60 days through the exercise of any stock option or other right.
Name(1) - ------- On Command Ascent Shares Shares* Amount Amount and Nature and Nature of of Beneficial Beneficial Ownership(2) Ownership ------------------ ----------------- Arthur M. Aaron............................................................................. 1,519 0 Timothy J. Romani........................................................................... 0 0 Charles Lyons(3)............................................................................ 19,551 0 Paul Gould.................................................................................. 0 0 Brian A.C. Steel(4)......................................................................... 0 73,851 Charles M. Lillis........................................................................... 4,000 0 Peter May(5)................................................................................ 0 0 Charles M. Neinas........................................................................... 12,000 0 James A. Cronin, III(6)..................................................................... 0 0 All directors and executive officers as a group (9 persons)................................. 37,070 73,851
___________ * On Command is a subsidiary of the Company, based on the Company's beneficial ownership of approximately 57% of the currently issued and outstanding shares of On Command, including shares which may be purchased on the exercise of warrants. (1) Unless otherwise indicated, each person has sole voting and investment power over the shares listed, and no director or executive officer beneficially owns more than 1.0% of the Common Stock of the Company or OCC. (2) Each number in this column has been rounded down to the nearest whole share. Beneficial ownership of Ascent common stock includes 12,000 shares that may be acquired by Mr. Neinas and 4,000 shares that may be acquired by Mr. Lillis, each within 60 days after March 31, 2000, through the exercise of stock options. (3) Mr. Lyons resigned as Chairman, President and Chief Executive Officer of the Company effective August 17, 1999. (4) Beneficial ownership of On Command common stock includes 73,851 shares that may be acquired by Mr. Steel within 60 days after March 31, 2000, through the exercise of stock options. Mr. Steel resigned from On Command on August 6, 1999. 60 (5) Mr. May's disclaims beneficial ownership of 2,876,700 shares of Ascent common stock which are directly held by Ascent Acquisition Group, LLC, an entity which is 50% owned by Triarc Companies, Inc. ("Triarc"). Mr. May is a director, President and Chief Operating Officer of Triarc. (6) Mr. Cronin resigned as director, Executive Vice President, Chief Financial Officer and Chief Operating Officer of the Company on January 28, 2000. Mr. Cronin has continued in his role as Chairman of On Command Corporation. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Paul Gould, a director of the Company, is a Managing Director and Executive Vice President of Allen & Company Incorporated, an investment banking firm that has performed financial advisory services for the Company since 1995, including (i) serving as the managing underwriter for the Company's initial public offering in 1995; (ii) advising the Company with respect to the acquisition of SpectraVision in 1996 and (iii) serving as financial advisor to the Company in connection with the Company's disposition of its sports and arena related assets. Mr. Charles Neinas, a director of the Company and Chairman of the Compensation Committee, served as Chief Executive Officer of the Company from June 1999 through December 1999. 61 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report. Page (1) Consolidated Financial Statements and Supplementary Data of Registrant Independent Auditors' Report 25 Consolidated Balance Sheets as of December 31, 1999 and 1998 26 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 27 Consolidated Statements of Comprehensive Loss for the years ended December 31, 1999, 1998 and 1997 28 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 29 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 30 Notes to Consolidated Financial Statements 31-47
(2) Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the years ended December 31,1999, 1998 and 1997 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. (b) REPORTS ON FORM 8-K. (1) The Registrant filed with the Commission on February 24, 2000 a Form 8-K describing that (1) the Company had entered into an Agrement and Plan of Merger with Liberty Media Corporation and AEG Acquisition, Inc and, (ii) that consummation of the Merger Agreement is conditioned on the tender of at least a majority of the Ascent shares and other customary conditions. (2) The Registrant filed with Comission on November 10, 1999 a Form 8-K describing that the Company had amended the Purchase and Sale Agreement dated as of July 27, 1999 (the "Sports Sale Agreement") (the "Third Amendment") to extend the Drop Dead Date, as defined in the Sports Sale Agreement, from November 10, 1999 to November 15, 1999. (3) The Registrant filed with the Commission on November 1, 1999 a Form 8-K describing the following: (i) the Company had entered into two amendments to the Sports Sale Agreement and, (ii) that, as a result of the second amendment to the Sports Sale Agreement, that certain conditions to the consummation of Company's previously announced Agreement and Plan of Merger (the "Merger Agreement") with AT&T Corp., Ranger Acquisitions Corp. and Liberty Media Corp. ("Liberty") are incapable of being satisfied and that Liberty and the Company have agreed to negotiate through November 30, 1999 toward an amendment to the Merger Agreement. (4) The Registrant filed with the Commission on October 21, 1999, a Form 8-K describing the following: (i) The Company had entered into an Agreement and Plan of Merger with Liberty, AT&T Corp. and Ranger Acquisition Corp. ("Merger Sub") whereby Merger Sub would merge with and into the Company with the Company surviving as a wholly owned subsidiary of AT&T and, (ii) that consummation of the Merger Agreement is subject to the approval of the Company's shareholder's and appropriate governmental and 62 regulatory authorities. (c) EXHIBITS: The following exhibits are listed according to the number assigned in the table in Item 601 of Regulation S-K. 3.1(a) Amended and Restated Certificate of Incorporation of Ascent Entertainment Group, Inc. (as amended through December 12, 1995) (Incorporated by reference to Exhibit 3.1 to Registrant's Amendment No. 4 to Registration Statement on Form S-1, Commission File No. 33-98502). 3.1(b) Amended and Restated Bylaws of Ascent Entertainment Group, Inc. (as amended through June 27, 1997). (Incorporated by reference to Exhibit 3.1 to the Company's current report on Form 8-K filed on July 8, 1997 as amended by a Form 8-K/A filed on July 11, 1997). 4.1 Rights Agreement, dated as of June 27, 1997, between Ascent Entertainment Group, Inc. and The Bank of New York. (Incorporated by reference to Exhibit 4.1 to the Company's current report on Form 8-K filed on July 8, 1997 as amended by a Form 8-K/A filed on July 11, 1997). 4.2 Amendment to Rights Agreement dated as of February 22, 2000 between Ascent Entertainment Group, Inc. and the Bank of New York (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 24, 2000). 4.3 Indenture between the Registrant and The Bank of New York, as Trustee, dated December 22, 1997. (Incorporated by reference from the exhibit of the same number to Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (No. 333-44461) filed on January 28, 1998.) 4.4 Indenture between the Denver Arena Trust and The Bank of New York, as Indenture Trustee, dated July 29, 1998 (incoroprated by reference to Exhibit 4.3 to the 1998 Annual Report). 10(a) Distribution Agreement between Ascent and COMSAT dated June 3, 1997. (Incorporated by reference to Exhibit 10(a) to the Company's current report on Form 8-K filed on June 19, 1997). 10(b) Tax Disaffiliation Agreement between Ascent and COMSAT dated June 3, 1997. (Incorporated by reference to Exhibit 10(b) to the Company's current report on Form 8-K filed on June 19, 1997). 10.1 Amended and Restated Employment Agreement by and between Ascent Entertainment Group, Inc. and Charles Lyons. (Incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed on July 8, 1997 as amended by a Form 8-K/A filed on July 11, 1997). * 10.2 Amended and Restated Employment Agreement by and between Ascent Entertainment Group, Inc. and James A. Cronin, III. (Incorporated by reference to Exhibit 10.2 to the Company's current report on Form 8-K filed on July 8, 1997 as amended by a Form 8-K/A filed on July 11, 1997). * 10.3 Amended and Restated Employment Agreement by and between Ascent Entertainment Group, Inc. and Arthur M. Aaron.* 10.4 Amended and Restated Employment Agreement by and between Ascent Entertainment Group, Inc. and David A. Holden.* 10.5 Second Amended and Restated $50,000,000 Credit Agreement dated as of December 22, 1997 among the Registrant, the lenders named therein and NationsBank of Texas, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (No. 333-44461) filed on January 28, 1998.) 10.6 First Amendment to Second Amended and Restated $50,000,000 Credit Agreement dated as of December 22, 1997 among the Registrant, the lenders named therein and NationsBank of Texas, N.A., as administrative agent, dated July 16, 1998. (Incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (the "1998 Annual Report"). 10.7 Second Amendment to Second Amended and Restated $50,000,000 Credit Agreement dated as of December 22, 1997 among the Registrant, the lenders named therein and NationsBank of Texas, N.A., as administrative agent, dated January 20, 1999. (Incorporated by reference to Exhibit 10.7 to the 1998 Annual Report. 63 10.8 $200,000,000 Credit Agreement dated as of November 24, 1997 among On Command Corporation, the lenders named therein and NationsBank of Texas, N.A., as administrative agent. (Incorporated by reference to the exhibit of the same number to Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (No. 333-44461) filed on January 28, 1998.) 10.9 Employment Agreement by and between Ascent Entertainment Group, Inc. and David B. Ehrlich. * 10.10 Ascent Entertainment Group, Inc. 1997 Directors and Executives Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.8 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, Commission File No. 0-27192). * 10.11 Employment Agreement by and between OCC and Allan Goodson * 10.12 Agreement and Plan of Merger dated as of February 22, 2000 by and among Ascent Entertainment Group, Inc., Liberty Media Corporation and Liberty AEG Acquisition, Inc. (Incorporated by reference to the Company's Current Report on Form 8-K filed February 24, 2000). 10.13 Amendment No. 1 to Employment Agreement between On Command Corporation and Brian A.C. Steel dated December 28, 1998. (Incorporated by reference to Exhibit 10.13 to the 1998 Annual Report) * 10.14 Sale and Servicing Agreement dated as of July 29, 1998 among Denver Arena Trust and Ascent Arena Company, LLC and The Bank of New York as Indenture Trustee. (Incorporated by reference to Exhibit 10.14 to the 1998 Annual Report) 10.15 Corporate Agreement dated as of October 8, 1997, between the Registrant and On Command Corporation. (Incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.16 Master Services Agreement, dated as of August 3, 1993 by and between Marriott International, Inc., Marriott Hotel Services, Inc. and On Command Video. (Incorporated by reference to Exhibit 10.6 to Amendment No. 2 to Registrant's Registration Statement on Form S-1 (No. 33-98502) filed on November 13, 1995.) (Confidential treatment granted). 10.17 Ascent Entertainment Group, Inc. 1995 Key Employee Stock Plan. (Incorporated by reference to Exhibit 10.16 to Registrant's Annual Report on Form 10-K (No. 0-27192) filed March 29, 1996.)* 10.18 Ascent Entertainment Group, Inc. 1997 Non-Employee Director Stock Appreciation Rights Plan (Incorporated by reference to Exhibit 10.18 to the 1998 Annual Report) * 10.19 Agreement for the Purchase and Sale of an Interest in Beacon Communications, LLC dated January 20, 1999. (Incorporated by reference to Exhibit 10.21 to the 1998 Annual Report). 10.20 Employment Agreement between Donald Elliman and Ascent Sports Holdings, Inc. dated January 1, 2000 21 Subsidiaries of Ascent Entertainment Group, Inc. 23.1 Consent of Deloitte & Touche LLP * Compensatory plan or arrangement. 64 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 on March 27, 2000. ASCENT ENTERTAINMENT GROUP, INC. By: /s/ Arthur M. Aaron ---------------------------------- Arthur M. Aaron Executive Vice President, Business Affairs Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on March 27, 2000. By: /s/ Arthur M. Aaron --------------------------- Arthur M. Aaron Executive Vice President, Business Affairs (Principal Executive Officer) By: /s/ David A. Holden --------------------------- David A. Holden Executive Vice President, Finance and Chief Financial Officer (Principal Finance and Accounting Officer) By: /s/ Charles M. Lillis --------------------------- Charles M. Lillis (Director) By: /s/ Charles M. Neinas --------------------------- Charles M. Neinas (Director) By: /s/ Paul A. Gould --------------------------- Paul A. Gould (Director) By: /s/ Peter May --------------------------- Peter May (Director) 65 ASCENT ENTERTAINMENT GROUP, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
Balance at Charged Charged Balance Beginning To To other At end Of year Expenses Accounts Deductions Of Year ---------- -------- --------- ----------- ------- 1997: Allowance for loss on accounts receivable $1,958 $1,002 $(1,245) $(68) $1,647 1998: Allowance for loss on accounts receivable $1,647 $ 982 $(1,119) $ (9) $1,501 1999: Allowance for loss on accounts receivable $1,501 $2,087 $ (523) $ - $3,065
66 EX-10.3 2 EMPLOYMENT AGREEMENT WITH ARTHUR M. AARON AMENDED AND RESTATED EMPLOYMENT AGREEMENT ----------------------------------------- This AMENDED AND RESTATED AGREEMENT made as of June 27, 1997, and amended and restated as of January 25, 2000, by and between Ascent Entertainment Group, Inc., a Delaware corporation ("Ascent" or the "Company"), and Arthur M. Aaron, a resident of the State of Colorado(the "Executive"). WHEREAS, Ascent desires to employ the Executive as Executive Vice President, Business Affairs of Ascent, and the Executive desires to accept such employment, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and intending to be legally bound hereby, Ascent and the Executive agree as follows: 1. Employment; Duties. ------------------ (a) Employment and Employment Period. Ascent shall employ the -------------------------------- Executive to serve as Executive Vice President, Business Affairs of Ascent or its successor entity for a period (the "Employment Period") commencing on January 25, 2000 (the "Effective Date") and continuing thereafter until June 27, 2003 unless terminated in accordance with the provisions of this Agreement. Each 12 month period ending on the anniversary date of the Effective Date is sometimes referred to herein as a "year of the Employment Period." (b) Offices, Duties and Responsibilities. The Executive shall report ------------------------------------ directly to the chief executive officer of Ascent, if there is one (the "CEO"), and otherwise directly to the Board of Directors of Ascent (the "Board"). The Executive shall have all duties and authority customarily accorded a senior business affairs officer, and such other duties as determined by the CEO or the Board from time to time. (c) Devotion to Interests of Ascent. During the Employment Period, ------------------------------- the Executive shall render his business services solely in the performance of his duties hereunder. The Executive shall use his best efforts to promote the interests and welfare of Ascent. Notwithstanding the foregoing, the Executive shall be entitled to undertake such outside activities (e.g., charitable, ---- educational, personal interests, board of directors membership, and so forth, that do not compete with the business of Ascent as do not unreasonably or materially interfere with the performance of his duties hereunder as reasonably determined by the Board in consultation with the Executive. 1 2. Compensation and Fringe Benefits. -------------------------------- (a) Base Compensation. Ascent shall pay the Executive a base salary ----------------- ("Base Salary") at the rate of $300,000 per year during the Employment Period with payments made in installments in accordance with Ascent's regular practice for compensating executive personnel, provided that in no event shall such -------- payments be made less frequently than twice per month. The Base Salary for the Executive shall be reviewed each year during the Employment Period commencing the second year of the Employment Period. Any Base Salary increases shall be approved by the Board in its sole discretion. (b) Bonus Compensation. The Executive will be eligible to receive ------------------ bonuses ("Annual Bonus") during the Employment Period in accordance with the following parameters: (i) the target bonus for each year during the Employment Period shall be 50% of Base Salary for achieving 100% of the target level for the performance measures; and (ii) the performance measures, the relative weight to be accorded each performance measure and the amount of bonus payable in relation to the target bonus for achieving more or less than 100% of the target level for the performance measures shall be determined for each year during the Employment Period by the Compensation Committee after consultation with the Board and the Executive. (c) Fringe Benefits. The Executive also shall be entitled to --------------- participate in group health, dental and disability insurance programs, and any group profit sharing, deferred compensation, supplemental life insurance or other benefit plans as are generally made available by Ascent to the senior executives of Ascent on a favored nations basis. Such benefits shall include reimbursement of documented expenses reasonably incurred in connection with travel and entertainment related to Ascent's business and affairs. All benefits described in the foregoing sentence that are reportable as earned or unearned income will be "grossed up" by Ascent in connection with federal and state tax obligations to provide Executive with appropriate net tax coverage so that the benefits received by the Executive from the foregoing sentence shall be net of income and employment taxes thereon. Ascent reserves the right to modify or terminate from time to time the fringe benefits provided to the senior management group, provided that the fringe benefits provided to the Executive -------- shall not be materially reduced on an overall basis during the Employment Period. 2 (d) Stock Appreciation Rights. On June 27, 1997, Ascent granted to ------------------------- Executive stock appreciation rights ("SARs"), exercisable only for cash, with respect to 100,000 shares of Ascent's common stock, par value $0.01 per share, each such SAR exercisable at the per-share price equal to $9.5250. The SARs shall be exercisable by Executive according to the following schedule: (i) 10% of the SARs on or after June 27, 1997; (ii) 15% of the SARs on or after December 18, 1997; (iii) 25% of the SARs on or after December 18, 1998; (iv) 25% of the SARs on or after December 18, 1999; (v) 25% of the SARs on or after December 18, 2000. Notwithstanding the foregoing, 100% of the SARs shall immediately vest and become immediately exercisable, without any further action by the Executive, upon the occurrence of any "Change of Control Event" as defined in Section 7(a) below, or upon the occurrence of any event that results in Ascent's Common Stock no longer being traded on any of the New York Stock Exchange, American Stock Exchange or NASDAQ National Market System (including, without limitation, as a result of any so-called "going private" transaction with Ascent). Such SARs shall be represented by a SAR agreement containing appropriate terms consistent with the provisions of this Agreement. The SARs, to the extent they remain unexercised, shall automatically and without further notice terminate and become of no further force and effect only at the time of the earliest of the following to occur: (x) Three months after the date upon which a termination for cause by Ascent (as provided in Section 5(b)) shall have become effective and final; or (y) December 18, 2005. In the event of any stock split, stock dividend, spin-off, reclassification, recapitalization, merger, consolidation, subdivision, combination or other change which affects the character or amount of Ascent's common stock after the Effective Date and prior to the exercise and/or expiration of all of the SARs, the number and exercise price of and/or the formula for determining the value of such unissued or unexercised SARs shall be adjusted in order to make such SARs, as nearly as may be practicable, equivalent in nature and value to the SARs that would have existed had such change not taken place. In addition, if Ascent adopts a stock-based 3 incentive plan that in Executive's sole judgment provides for any term(s) more favorable to the grantee than any term(s) set forth above, Executive will be entitled to the benefit of such more favorable term(s) with respect to the SARs, other than with respect to the vesting schedule thereof, but in no event will any term(s) applicable to the SARs be less favorable to Executive than those set forth above. During the Employment Period, the Executive shall be granted additional stock-based incentives as determined by the Compensation Committee in its sole discretion. Notwithstanding any other provision of this Agreement except Section 5(b), the Compensation Committee may in its discretion provide that any stock- based incentives granted to the Executive which have not vested prior to his termination of employment shall continue to vest in accordance with their original terms as if the Executive's employment had not terminated. (e) Stock Options. Ascent hereby grants to Executive options ------------- ("Options") to purchase 100,000 shares of Ascent's common stock, par value $0.01 per share, each such Option exercisable at the per-share price equal to $11.9063. The Options shall be exercisable by Executive according to the following schedule: (i) 50,000 Options on or after January 25, 2001; (ii) an additional 50,000 Options on or after January 25, 2002. Notwithstanding the foregoing, 100% of the Options shall immediately vest and become immediately exercisable, without any further action by the Executive, upon the occurrence of any "Change of Control Event" as defined in Section 7(a) below, or upon the occurrence of any event that results in Ascent's Common Stock no longer being traded on any of the New York Stock Exchange, American Stock Exchange or NASDAQ National Market System (including, without limitation, as a result of any so-called "going private" transaction with Ascent). Such Options shall be represented by a Option agreement containing appropriate terms consistent with the provisions of this Agreement. The Options, to the extent they remain unexercised, shall automatically and without further notice terminate and become of no further force and effect only at the time of the earliest of the following to occur: (x) Three months after the date upon which a termination for cause by Ascent (as provided in Section 5(b)) shall have become effective and final; or 4 (y) January 25, 2010. In the event of any stock split, stock dividend, spin-off, reclassification, recapitalization, merger, consolidation, subdivision, combination or other change which affects the character or amount of Ascent's common stock after the Effective Date and prior to the exercise and/or expiration of all of the Options, the number and exercise price of and/or the formula for determining the value of such unissued or unexercised Options shall be adjusted in order to make such Options, as nearly as may be practicable, equivalent in nature and value to the Options that would have existed had such change not taken place. In addition, if Ascent adopts a stock-based incentive plan that in Executive's sole judgment provides for any term(s) more favorable to the grantee than any term(s) set forth above, Executive will be entitled to the benefit of such more favorable term(s) with respect to the Options, other than with respect to the vesting schedule thereof, but in no event will any term(s) applicable to the Options be less favorable to Executive than those set forth above. During the Employment Period, the Executive may be granted additional stock-based incentives as determined by the Compensation Committee in its sole discretion. Notwithstanding any other provision of this Agreement except Section 5(b), the Compensation Committee may in its discretion provide that any stock- based incentives granted to the Executive which have not vested prior to his termination of employment shall continue to vest in accordance with their original terms as if the Executive's employment had not terminated. (f) Conflicting Provisions. Solely to the extent of any conflict ---------------------- between the provisions of this Agreement and the provisions of any agreement between Executive, on the one hand, and Ascent and any of its affiliated or related entities, on the other hand, relating to stock-based incentives (including the SARs and Options), life insurance, health insurance, any other employee equity participation, profit sharing or retirement plan, group health plan or other employee benefits (individually and collectively referred to herein as the "Fringe Benefits"), the provisions of this Agreement will control. 3. Trade Secrets; Return of Documents and Property. ----------------------------------------------- (a) Executive acknowledges that during the course of his employment he will receive secret, confidential and proprietary information ("Trade Secrets") of Ascent and of other companies with which Ascent does business on a 5 confidential basis and that Executive will create and develop Trade Secrets for the benefit of Ascent. Trade Secrets shall include, without limitation, (a) literary, dramatic or other works, screenplays, stories, adaptations, scripts, treatments, formats, "bibles," scenarios, characters, titles of any kind and any rights therein, custom databases, "know-how," formulae, secret processes or machines, inventions, computer programs (including documentation of such programs) (collectively, "Technical Trade Secrets"), and (b) matters of a business nature, such as customer data and proprietary information about costs, profits, markets and sales, customer databases, and other information of a similar nature to the extent not available to the public, and plans for future development (collectively, "Business Trade Secrets"). All Trade Secrets disclosed to or created by Executive shall be deemed to be the exclusive property of Ascent (as the context may require). Executive acknowledges that Trade Secrets have economic value to Ascent due to the fact that Trade Secrets are not generally known to the public or the trade and that the unauthorized use or disclosure of Trade Secrets is likely to be detrimental to the interests of Ascent and its subsidiaries. Executive therefore agrees to hold in strict confidence and not to disclose to any third party any Trade Secret acquired or created or developed by Executive during the term of this Agreement except (i) when Executive is required to use or disclose any Trade Secret in the proper course of the Executive's rendition of services to Ascent hereunder, (ii) when such Trade Secret becomes public knowledge other than through a breach of this Agreement, or (iii) when Executive is required to disclose any Trade Secret pursuant to any valid court order in which the Executive is compelled to disclose such Trade Secret. The Executive shall notify Ascent immediately of any such court order in order to enable Ascent to contest such order's validity. For a period of two (2) years after termination of the Employment Period for all Business Trade Secrets and for a period of five (5) years after termination of the Employment Period for all Technical Trade Secrets, the Executive shall not use or otherwise disclose Trade Secrets unless such information (x) becomes public knowledge or is generally known in the entertainment or sports industry among executives comparable to the Executive other than through a breach of this Agreement, (y) is disclosed to the Executive by a third party who is entitled to receive and disclose such Trade Secret, or (z) is required to be disclosed pursuant to any valid court order, in which case the Executive shall notify Ascent immediately of any such court order in order to enable Ascent to contest such order's validity. (b) Upon the effective date of notice of the Executive's or Ascent's election to terminate this Agreement, 6 or at any time upon the request of Ascent, the Executive (or his heirs or personal representatives) shall deliver to Ascent (i) all documents and materials containing or otherwise relating to Trade Secrets or other information relating to Ascent's business and affairs, and (ii) all documents, materials and other property belonging to Ascent, which in either case are in the possession or under the control of the Executive (or his heirs or personal representatives). The Executive shall be entitled to keep his personal records relating to Ascent's business and affairs except to the extent those contain documents or materials described in clause (i) or (ii) of the preceding sentence, in which case Executive may retain copies for his personal and confidential use. 4. Discoveries and Works. All discoveries and works made or conceived by --------------------- the Executive during his employment by Ascent pursuant to this Agreement, jointly or with others, that relate to Ascent's activities ("Discoveries and Works") shall be owned by Ascent. Discoveries and Works shall include, without limitation, literary, dramatic or other works, screenplays, stories, adaptations, scripts, treatments, formats, "bibles," scenarios, characters, titles of any kind and any rights therein, other works of authorship, inventions, computer programs (including documentation of such programs), technical improvements, processes and drawings. The Executive shall (i) promptly notify, make full disclosure to, and execute and deliver any documents reasonably requested by, Ascent to evidence or better assure title to such Discoveries and Works in Ascent, (ii) assist Ascent in obtaining or maintaining for itself at its own expense United States and foreign copyrights, trade secret protection or other protection of any and all such Discoveries and Works, and (iii) promptly execute, whether during his employment by Ascent or thereafter, all applications or other endorsements necessary or appropriate to maintain copyright and other rights for Ascent and to protect their title thereto. Any Discoveries and Works which, within sixty days after the termination of the Executive's employment by Ascent, are made, disclosed, reduced to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to work performed by the Executive while with Ascent and COMSAT, shall, as between the Executive and Ascent and COMSAT, be presumed to have been made during the Executive's employment by Ascent. 5. Termination. This Agreement shall remain in effect during the ----------- Employment Period, and this Agreement and Executive's employment with Ascent may be terminated only as follows: 7 (a) By the Executive (an "Executive Election") at any time upon sixty (60) days advance written notice to Ascent upon an "Executive Election Event" (as defined below). In such event or if the Executive's employment is terminated by Ascent without "cause" (as defined below), there will be no forfeiture, penalty, reduction or other adverse effect upon any rights or interests relating to any Fringe Benefits, including, without limitation, the SARs, the Options and any other stock-based compensation, all of which will fully vest, to the extent not previously vested, immediately upon such termination becoming effective and final. Without limiting the foregoing, in the event of an Executive Election or if the Executive's employment is terminated without "cause," the Executive shall be entitled to receive the following benefits through the longer of (x) the remainder of the Employment Period as if this Agreement had remained in effect until the end of such five-year Employment Period and (y) three years following the date of such termination (the "Duration Period"): (i) his then current Base Salary; (ii) an Annual Bonus equal to fifty percent (50%) of his then current Base Salary; and (iii) all other benefits provided pursuant to Sections 2(c) and (d) of this Agreement. The Executive shall have no obligation to seek other employment in the event of his termination pursuant to this paragraph (a), and there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that he may obtain. Ascent shall have the option at any time during the Duration Period to pay to the Executive in a lump sum the amounts remaining under clauses (i) and (ii) of this paragraph (a). If Ascent exercises such option, Ascent shall have no further compensation payment obligations under clauses (i) and (ii) above. Upon any termination of the Executive's employment under this Section 5(a), Ascent shall establish a "rabbi" trust, i.e., a trust for the benefit of the Executive which is irrevocable by Ascent, but whose assets will be available to Ascent's general creditors upon Ascent's insolvency, with terms and provisions reasonably acceptable to the Executive, and shall contribute to such trust an amount equal to the sum of all payments to be made to the Executive by reason of such termination of employment, including, but not limited to, the amounts set forth in Sections 5(a)(i), (ii) and (iii), and the amount which the Executive would receive if he exercised all of his SARs, Options and stock-based incentives on the date of his termination of employment. Ascent shall at all times remain liable to carry out its obligations under this Agreement, but such obligations may be satisfied with the assets of such trust distributed pursuant to the terms of the trust, and any such distribution shall reduce Ascent's obligations under this Agreement. In all circumstances of termination under this Section 5(a), Ascent shall remain 8 obligated under clause (iii) and all stock-based incentives(including the SARs and Options) will remain exercisable for the maximum period provided in each applicable grant. An "Executive Election Event" shall be any of the following: (I) any substantial reduction (except in connection with the termination of his employment voluntarily by the Executive or by Ascent for "cause" as defined below) by Ascent, without the Executive's express written consent, of his responsibilities as Executive Vice President, Business Affairs of Ascent; (II) any change in the reporting structure set forth in Section 1(b) above; (III) any requirement that Executive perform material services of lesser stature than those typically performed by the senior business affairs officer of comparable companies; (IV) a "Change of Control Event" (as defined in Section 7(a) below); provided that in such event, the amounts payable to the Executive under this - -------- Section 5(a) will be contributed to the "rabbi" trust as provided above no later than one day before such change of control becomes effective, whether or not the Executive has given notice of termination at such time, and payable to the Executive in a lump sum upon the effectiveness of his termination as a result of a Change in Control Event; and provided, further, the Executive and the Company -------- ------- shall explore alternatives to minimize any excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended as of the Effective Date (the "Code") that would otherwise be payable; (V) any other material default of this Agreement which continues for ten (10) business days following Ascent's receipt of written notice from the Executive specifying the manner in which Ascent is in default of this Agreement; (VI) the Board's requiring Executive to be based at any office location other than the principal offices of Ascent, or the relocation, without Executive's consent, of such principal offices to a location outside the greater Denver area; or (VII) any purported termination of Executive's employment otherwise than as expressly permitted by the Agreement. (b) By Ascent at any time for "cause." For purposes of this Agreement, Ascent shall have "cause" to terminate the Executive's employment hereunder upon (i) the continued and deliberate failure of the Executive to perform his material duties, in a manner substantially consistent with the manner reasonably prescribed by the CEO or the Board and in accordance with the terms of this Agreement (other than any such failure resulting from his incapacity due to physical or mental illness), which failure continues for ten (10) business days following the Executive's receipt of written notice from the CEO or the Board specifying the manner in which the Executive is in default of his duties, (ii) the engaging by 9 the Executive in intentional serious misconduct that is materially and demonstrably injurious to Ascent or its reputation, which misconduct, if it is reasonably capable of being cured, is not cured by the Executive within ten (10) business days following the Executive's receipt of written notice from the CEO or the Board specifying the serious misconduct engaged in by the Executive, (iii) the conviction of the Executive of commission of a felony involving a crime of moral turpitude, whether or not such felony was committed in connection with Ascent's business, or (iv) any material breach by the Executive of Section 8 hereof. If Ascent shall terminate the Executive's employment for "cause," there will be no forfeiture, penalty, reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits. In such event, Ascent, in full satisfaction of all of Ascent's obligations under this Agreement and in respect of the termination of the Executive's employment with Ascent, shall pay the Executive his Base Salary, a prorated Annual Bonus and all other compensation, benefits and reimbursement through the date of termination of his employment, provided that the SARs, the Options and any other stock options -------- granted to the Executive under the Ascent option or any successor plan shall terminate three months after the date of termination of his employment for "cause". 6. Disability; Death. ----------------- (a) If, prior to the expiration or termination of the Employment Period, the Executive shall be unable to perform substantially his duties by reason of disability or impairment of health for at least six consecutive calendar months, Ascent shall have the right to terminate this Agreement by giving sixty (60) days written notice to the Executive to that effect, but only if at the time such notice is given such disability or impairment is still continuing. Following the expiration of the notice period, the Employment Period shall terminate, and Ascent's payment obligations to the Executive under Section 2(a) and (b) shall terminate with the payment of the Executive's Base Salary for the month in which the Employment Period terminates and a prorated Annual Bonus through such month, and there will be no forfeiture, penalty, reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits; provided that the SARs, the Options and any other stock options -------- granted to the Executive under the Ascent option plan or any successor plan shall become fully vested and shall terminate in accordance with their terms, but in no event less than one year after such termination, notwithstanding the limitations of Sections 2(d) and (e) of this Agreement. In the event of a dispute as to whether the Executive is disabled within the meaning of this paragraph (a), or the duration of any 10 disability, either party may request a medical examination of the Executive by a doctor appointed by the Chief of Staff of a hospital selected by mutual agreement of the parties, or as the parties may otherwise agree, and the written medical opinion of such doctor shall be conclusive and binding upon the parties as to whether the Executive has become disabled and the date when such disability arose. The cost of any such medical examinations shall be borne by Ascent. (b) If, prior to the expiration or termination of the Employment Period, the Executive shall die, Ascent shall pay to the Executive's estate his Base Salary and a prorated Annual Bonus through the end of the month in which the Executive's death occurred, at which time the Employment Period shall terminate without further notice and there will be no forfeiture, penalty, reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits; provided that the SARs, the Options and any other stock -------- options granted to the Executive under the Ascent option plan or any successor plan shall become fully vested and shall terminate one year after the date of termination of the Executive's employment for death, notwithstanding the limitations of Section 2(d) and (e) of this Agreement. (c) Nothing contained in this Section 6 shall impair or otherwise affect any rights and interests of the Executive under any compensation plan or arrangement of Ascent which may be adopted by the Board. 7. Change of Control. ----------------- (a) If, prior to the termination of the Employment Period, there is a "Change of Control Event" (as hereinafter defined in this paragraph (a)), the Executive shall have the right to exercise his Executive Election in accordance with Section 5(a) by giving notice either prior to such Change of Control Event becoming effective or up to 180 days following such Change of Control Event, but termination pursuant to such notice shall not take effect in accordance with Section 5(a) in any event prior to 120 days following such Change of Control Event, provided, however, payment to the Executive shall be made as set forth in Section 5(a)(IV). The expiration of such 180-day period shall not affect the Executive's right to give notice under Section 5(a) with respect to any other Executive Election Event. A "Change of Control Event" shall mean and include either the occurrence of any of the following with respect to Ascent, or any of the following becoming highly likely to occur, in the determination of the Board: (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, 11 as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this clause (i), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of clause (iii) below; or (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 75% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, 12 (2) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (b) In the event that Ascent adopts any "change of control" provisions applicable to any Ascent benefits plans, respectively, providing for the accelerated vesting and/or payment of any benefits for its senior management group, solely to the extent that such provisions give Executive greater rights than those provided in paragraph (a) above, such better provisions shall apply to the Executive to the same extent as other Ascent senior executives on a favored nations basis with respect to the benefits affected by such Ascent provisions, respectively. 8. Non-Competition. --------------- (a) As an inducement for Ascent to enter into this Agreement, the Executive agrees that for a period commencing as of the Effective Date and running through the earlier of (i) the end of the Employment Period if the Executive remains employed by Ascent for the entire Employment Period or (ii) one year following termination of the Executive's employment by Ascent for "cause" as defined in Section 5(b) hereof, or by the Executive for any reason (other than an Executive Election Event, in which case the provisions of this paragraph (a) shall not apply) (the "Non-Competition Period"), the Executive shall not, without the prior written consent of the Board, engage or participate, directly or indirectly, as principal, agent, employee, employer, consultant, stockholder, partner or in any other individual capacity whatsoever, in the conduct or management of, or own any stock or any other equity investment in or debt of, any business which is competitive with any business conducted by Ascent. For the purpose of this Agreement, a business shall be considered to be competitive with any business of Ascent only if such business is engaged in providing services or 13 products (i) substantially similar to (A) any service or product currently provided by Ascent during the Employment Period; (B) any service or product which directly evolves from or directly results from enhancements in the ordinary course during the Non-Competition Period to the services or products provided by Ascent as of the date hereof or during the Employment Period; or (C) any future service or product of Ascent as to which the Executive materially and substantially participated in the development or enhancement, and (ii) to customers, distributors or clients served by Ascent during the Non-Competition Period. (b) Non-Solicitation of Employees. During the Non-Competition Period, ----------------------------- the Executive will not (for his own benefit or for the benefit of any person or entity other than Ascent) solicit, or assist any person or entity other than Ascent to solicit, any officer, director, executive or employee (other than an administrative or clerical employee) of Ascent to leave his or her employment. (c) Reasonableness; Interpretation. The Executive acknowledges and ------------------------------ agrees, solely for purposes of determining the enforceability of this Section 8 (and not for purposes of determining the amount of money damages or for any other reason), that (i) the markets served by Ascent are national and international and are not dependent on the geographic location of executive personnel or the businesses by which they are employed; (ii) the length of the Non-Competition Period is linked to the term of the Employment Period and the severance benefit provided for in Section 5(a); and (iii) the above covenants are reasonable as an inducement to Ascent to enter into this Agreement, and the parties expressly agree that such restrictions have been designed to be reasonable and no greater than is required for the protection of Ascent. In the event that the covenants in this Section 8 shall be determined by any court of competent jurisdiction in any action to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, they shall be interpreted to extend only over the maximum period of time for which they may be enforceable, and/or over the maximum geographical area as to which they may be enforceable and/or to the maximum extent in all other respects as to which they may be enforceable, all as determined by such court in such action. (d) Investment. Nothing in this Agreement shall be deemed to prohibit ----------- the Executive from owning equity or debt investments in any corporation, partnership or other entity which is competitive with Ascent, provided that such -------- investments (i) are passive investments and constitute five 14 percent (5%) or less of the outstanding equity securities of such an entity the equity securities of which are traded on a national securities exchange or other public market, or (ii) are approved by the Board. 9. Indemnification; Liability Insurance. The Executive shall be entitled ------------------------------------ to indemnification and coverage under Ascent's liability insurance policy for directors and officers to the same extent as other officers of Ascent. During and after the term of employment, Ascent hereby agrees to indemnify and hold Executive harmless against any and all claims arising from or in connection with his employment by or service to Ascent to the full extent permitted by law and, in connection therewith, to advance the expenses of Executive incurred in defending against such claims subject to such limitations as may actually be required by law. 10. Enforcement. The Executive acknowledges that a breach of the ----------- covenants or provisions contained in Sections 3, 4 and 8 of this Agreement will cause irreparable damage to Ascent, the exact amount of which will be difficult to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that if the Executive breaches or threatens to breach any of the covenants or provisions contained in Sections 3, 4 and 8 of this Agreement, in addition to any other remedy which may be available at law or in equity, Ascent shall be entitled to seek specific performance and injunctive relief. 11. Arbitration. ----------- (a) Subject to Ascent's right to enforce Sections 3, 4 and 8 hereof by an injunction issued by a court having jurisdiction (which right shall prevail over and supersede the provisions of this Section 11), any dispute relating to this Agreement, including the enforceability of this Section 11, arising between the Executive and Ascent shall be settled by arbitration which shall be conducted in Denver, Colorado, or any other location where the Executive then resides at Ascent's request, before a single arbitrator in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA"). Within 90 days after the Effective Date, the parties shall mutually agree upon three possible arbitrators, one of whom shall be selected by the AAA within 2 days after notice of a dispute to be arbitrated under this Section 11. The parties shall instruct the arbitrator to use his or her best efforts to conclude the arbitration within 60 days after notice of the dispute to AAA. (b) The award of any such arbitrator shall be final. Judgment upon such award may be entered by the 15 prevailing party in any federal or state court sitting in Denver, Colorado or any other location where the Executive then resides at Ascent's request. (c) The parties will bear their own costs associated with arbitration and will each pay one-half of the arbitration costs and fees of AAA; however, the arbitrator may in his sole discretion determine that the costs of the arbitration proceedings, including attorneys' fees, shall be paid entirely by one party to the arbitration if the arbitrator determines that the other party is the prevailing party in such arbitration. 12. Severability. Should any provision of this Agreement be determined to ------------ be unenforceable or prohibited by any applicable law, such provision shall be ineffective to the extent, and only to the extent, of such unenforceability or prohibition without invalidating the balance of such provision or any other provision of this Agreement, and any such unenforceability or prohibition in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13. Assignment. The Executive's rights and obligations under this ---------- Agreement shall not be assignable by the Executive. Ascent's rights and obligations under this Agreement shall not be assignable by Ascent except as incident to the transfer, by merger or otherwise, of all or substantially all of the business of Ascent. In the event of any such assignment by Ascent, all rights of Ascent hereunder shall inure to the benefit of the assignee. 14. Notices. All notices and other communications which are required or ------- may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic or digital transmission method, provided that in such case it shall also be sent by certified or registered mail, return receipt requested; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal ---- Express); and upon receipt, if sent by certified or registered mail, return receipt requested. Unless otherwise changed by notice, in each case notice shall be sent to: If to Executive, addressed to: Arthur M. Aaron 5911 E. Crestline Dr. Greenwood Village, Colorado 80111 16 If to Ascent, addressed to: Ascent Entertainment Group, Inc. 1225 Seventeenth Street Denver, Colorado 80202 Attention: David A. Holden Telecopier No. (303) 308-0490 With a copy to: Ascent Entertainment Group 1200 Seventeenth Street Denver, Colorado 80202 Attention: David Ehrlich Telecopier No. (303) 308-0489 16. Miscellaneous. This Agreement constitutes the entire agreement, and ------------- supersedes all prior agreements, of the parties hereto relating to the subject matter hereof, and there are no written or oral terms or representations made by either party other than those contained herein. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. The validity, interpretation, performance and enforcement of the Agreement shall be governed by the laws of the State of Colorado. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. /s/ Arthur M. Aaron -------------------------------- Arthur M. Aaron, Executive ASCENT ENTERTAINMENT GROUP, INC. By: /s/ Charles M. Neinas ----------------------------- Title: Chairman 17 EX-10.4 3 EMPLOYMENT AGREEMENT WITH DAVID A. HOLDEN AMENDED AND RESTATED EMPLOYMENT AGREEMENT ----------------------------------------- This AMENDED AND RESTATED AGREEMENT originally made as of June 27, 1997 and amended and restated as of January 25, 2000, by and between Ascent Entertainment Group, Inc., a Delaware corporation ("Ascent" or the "Company"), and David A. Holden, a resident of the State of Colorado(the "Executive"). WHEREAS, Ascent desires to employ the Executive as Executive Vice President, Finance and Chief Financial Officer of Ascent, and the Executive desires to accept such employment, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and intending to be legally bound hereby, Ascent and the Executive agree as follows: 1. Employment; Duties. ------------------ (a) Employment and Employment Period. Ascent shall employ the -------------------------------- Executive to serve as Executive Vice President, Finance and Chief Financial Officer of Ascent or its successor entity for a period (the "Employment Period") commencing on January 25, 2000 (the "Effective Date") and continuing thereafter until June 27, 2003 unless terminated in accordance with the provisions of this Agreement. Each 12 month period ending on the anniversary date of the Effective Date is sometimes referred to herein as a "year of the Employment Period." (b) Offices, Duties and Responsibilities. The Executive shall report ------------------------------------ directly to the chief executive officer of Ascent, if there is one (the "CEO") and otherwise directly to the Board of Directors of Ascent (the "Board"). The Executive shall have all duties and authority customarily accorded a chief financial officer, and such other duties as determined by the CEO or the Board from time to time. (c) Devotion to Interests of Ascent. During the Employment Period, ------------------------------- the Executive shall render his business services solely in the performance of his duties hereunder. The Executive shall use his best efforts to promote the interests and welfare of Ascent. Notwithstanding the foregoing, the Executive shall be entitled to undertake such outside activities (e.g., charitable, ---- educational, personal interests, board of directors membership, and so forth, that 1 do not compete with the business of Ascent as do not unreasonably or materially interfere with the performance of his duties hereunder as reasonably determined by the Board in consultation with the Executive. 2. Compensation and Fringe Benefits. -------------------------------- (a) Base Compensation. Ascent shall pay the Executive a base salary ----------------- ("Base Salary") at the rate of $250,000 per year during the Employment Period with payments made in installments in accordance with Ascent's regular practice for compensating executive personnel, provided that in no event shall such -------- payments be made less frequently than twice per month. The Base Salary for the Executive shall be reviewed each year during the Employment Period commencing the second year of the Employment Period. Any Base Salary increases shall be approved by the Board in its sole discretion. (b) Bonus Compensation. The Executive will be eligible to receive ------------------ bonuses ("Annual Bonus") during the Employment Period in accordance with the following parameters: (i) the target bonus for each year during the Employment Period shall be 50% of Base Salary for achieving 100% of the target level for the performance measures; and (ii) the performance measures, the relative weight to be accorded each performance measure and the amount of bonus payable in relation to the target bonus for achieving more or less than 100% of the target level for the performance measures shall be determined for each year during the Employment Period by the Compensation Committee after consultation with the Board and the Executive. (c) Fringe Benefits. The Executive also shall be entitled to --------------- participate in group health, dental and disability insurance programs, and any group profit sharing, deferred compensation, supplemental life insurance or other benefit plans as are generally made available by Ascent to the senior executives of Ascent on a favored nations basis. Such benefits shall include reimbursement of documented expenses reasonably incurred in connection with travel and entertainment related to Ascent's business and affairs, which shall be deemed to include expenses related to Executive's membership in a Denver area country club on substantially the same basis as paid by Ascent on the date hereof. All benefits described in the foregoing sentence that are reportable as earned or unearned income will be "grossed up" by Ascent in connection with federal and state tax obligations to provide 2 Executive with appropriate net tax coverage so that the benefits received by the Executive from the foregoing sentence shall be net of income and employment taxes thereon. Ascent reserves the right to modify or terminate from time to time the fringe benefits provided to the senior management group, provided that -------- the fringe benefits provided to the Executive shall not be materially reduced on an overall basis during the Employment Period. (d) Stock Appreciation Rights. On June 27, 1997, Ascent granted to ------------------------- Executive stock appreciation rights ("SARs"), exercisable only for cash, with respect to 50,000 shares of Ascent's common stock, par value $0.01 per share, each such SAR exercisable at the per-share price equal to $9.5250. The SARs shall be exercisable by Executive according to the following schedule: (i) 2,500 SARs on or after June 27, 1997; (ii) an additional 2,500 SARs on or after April 1, 1998; (iii) an additional 10,000 SARs on or after June 27, 1998; (iv) an additional 5,000 SARs on or after April 1, 1999; (v) an additional 10,000 SARs on or after June 27, 1999; and (vi) an additional 20,000 SARs on or after June 27, 2000. Notwithstanding the foregoing, 100% of the SARs shall immediately vest and become immediately exercisable, without any further action by the Executive, upon the occurrence of any "Change of Control Event" as defined in Section 7(a) below, or upon the occurrence of any event that results in Ascent's Common Stock no longer being traded on any of the New York Stock Exchange, American Stock Exchange or NASDAQ National Market System (including, without limitation, as a result of any so-called "going private" transaction with Ascent). Such SARs shall be represented by a SAR agreement containing appropriate terms consistent with the provisions of this Agreement. The SARs, to the extent they remain unexercised, shall automatically and without further notice terminate and become of no further force and effect only at the time of the earliest of the following to occur: 3 (x) Three months after the date upon which a termination for cause by Ascent (as provided in Section 5(b)) shall have become effective and final; or (y) December 18, 2005. In the event of any stock split, stock dividend, spin-off, reclassification, recapitalization, merger, consolidation, subdivision, combination or other change which affects the character or amount of Ascent's common stock after the Effective Date and prior to the exercise and/or expiration of all of the SARs, the number and exercise price of and/or the formula for determining the value of such unissued or unexercised SARs shall be adjusted in order to make such SARs, as nearly as may be practicable, equivalent in nature and value to the SARs that would have existed had such change not taken place. In addition, if Ascent adopts a stock-based incentive plan that in Executive's sole judgment provides for any term(s) more favorable to the grantee than any term(s) set forth above, Executive will be entitled to the benefit of such more favorable term(s) with respect to the SARs, other than with respect to the vesting schedule thereof, but in no event will any term(s) applicable to the SARs be less favorable to Executive than those set forth above. During the Employment Period, the Executive shall be granted additional stock-based incentives as determined by the Compensation Committee in its sole discretion. Notwithstanding any other provision of this Agreement except Section 5(b), the Compensation Committee may in its discretion provide that any stock- based incentives granted to the Executive which have not vested prior to his termination of employment shall continue to vest in accordance with their original terms as if the Executive's employment had not terminated. (e) Stock Options. Ascent hereby grants to Executive options ------------- ("Options") to purchase 100,000 shares of Ascent's common stock, par value $0.01 per share, each such Option exercisable at the per-share price equal to $11.9063. The Options shall be exercisable by Executive according to the following schedule: (i) 50,000 Options on or after January 25, 2001; (ii) an additional 50,000 Options on or after January 25, 2002. 4 Notwithstanding the foregoing, 100% of the Options shall immediately vest and become immediately exercisable, without any further action by the Executive, upon the occurrence of any "Change of Control Event" as defined in Section 7(a) below, or upon the occurrence of any event that results in Ascent's Common Stock no longer being traded on any of the New York Stock Exchange, American Stock Exchange or NASDAQ National Market System (including, without limitation, as a result of any so-called "going private" transaction with Ascent). Such Options shall be represented by a Option agreement containing appropriate terms consistent with the provisions of this Agreement. The Options, to the extent they remain unexercised, shall automatically and without further notice terminate and become of no further force and effect only at the time of the earliest of the following to occur: (x) Three months after the date upon which a termination for cause by Ascent (as provided in Section 5(b)) shall have become effective and final; or (y) January 25, 2010. In the event of any stock split, stock dividend, spin-off, reclassification, recapitalization, merger, consolidation, subdivision, combination or other change which affects the character or amount of Ascent's common stock after the Effective Date and prior to the exercise and/or expiration of all of the Options, the number and exercise price of and/or the formula for determining the value of such unissued or unexercised Options shall be adjusted in order to make such Options, as nearly as may be practicable, equivalent in nature and value to the Options that would have existed had such change not taken place. In addition, if Ascent adopts a stock-based incentive plan that in Executive's sole judgment provides for any term(s) more favorable to the grantee than any term(s) set forth above, Executive will be entitled to the benefit of such more favorable term(s) with respect to the Options, other than with respect to the vesting schedule thereof, but in no event will any term(s) applicable to the Options be less favorable to Executive than those set forth above. During the Employment Period, the Executive may be granted additional stock-based incentives as determined by the Compensation Committee in its sole discretion. Notwithstanding any other provision of this Agreement except Section 5(b), the Compensation Committee may in its discretion 5 provide that any stock-based incentives granted to the Executive which have not vested prior to his termination of employment shall continue to vest in accordance with their original terms as if the Executive's employment had not terminated. (f) Conflicting Provisions. Solely to the extent of any conflict ---------------------- between the provisions of this Agreement and the provisions of any agreement between Executive, on the one hand, and Ascent and/or any of its affiliated or related entities, on the other hand, relating to stock-based incentives (including the SARs and the Options), life insurance, health insurance, any other employee equity participation, profit sharing or retirement plan, group health plan or other employee benefits (individually and collectively referred to herein as the "Fringe Benefits"), the provisions of this Agreement will control. 3. Trade Secrets; Return of Documents and Property. ----------------------------------------------- (a) Executive acknowledges that during the course of his employment he will receive secret, confidential and proprietary information ("Trade Secrets") of Ascent and of other companies with which Ascent does business on a confidential basis and that Executive will create and develop Trade Secrets for the benefit of Ascent. Trade Secrets shall include, without limitation, (a) literary, dramatic or other works, screenplays, stories, adaptations, scripts, treatments, formats, "bibles," scenarios, characters, titles of any kind and any rights therein, custom databases, "know-how," formulae, secret processes or machines, inventions, computer programs (including documentation of such programs) (collectively, "Technical Trade Secrets"), and (b) matters of a business nature, such as customer data and proprietary information about costs, profits, markets and sales, customer databases, and other information of a similar nature to the extent not available to the public, and plans for future development (collectively, "Business Trade Secrets"). All Trade Secrets disclosed to or created by Executive shall be deemed to be the exclusive property of Ascent (as the context may require). Executive acknowledges that Trade Secrets have economic value to Ascent due to the fact that Trade Secrets are not generally known to the public or the trade and that the unauthorized use or disclosure of Trade Secrets is likely to be detrimental to the interests of Ascent and its subsidiaries. Executive therefore agrees to hold in strict confidence and not to disclose to any third party any Trade Secret acquired or created or developed by Executive during 6 the term of this Agreement except (i) when Executive is required to use or disclose any Trade Secret in the proper course of the Executive's rendition of services to Ascent hereunder, (ii) when such Trade Secret becomes public knowledge other than through a breach of this Agreement, or (iii) when Executive is required to disclose any Trade Secret pursuant to any valid court order in which the Executive is compelled to disclose such Trade Secret. The Executive shall notify Ascent immediately of any such court order in order to enable Ascent to contest such order's validity. For a period of two (2) years after termination of the Employment Period for all Business Trade Secrets and for a period of five (5) years after termination of the Employment Period for all Technical Trade Secrets, the Executive shall not use or otherwise disclose Trade Secrets unless such information (x) becomes public knowledge or is generally known in the entertainment or sports industry among executives comparable to the Executive other than through a breach of this Agreement, (y) is disclosed to the Executive by a third party who is entitled to receive and disclose such Trade Secret, or (z) is required to be disclosed pursuant to any valid court order, in which case the Executive shall notify Ascent immediately of any such court order in order to enable Ascent to contest such order's validity. (b) Upon the effective date of notice of the Executive's or Ascent's election to terminate this Agreement, or at any time upon the request of Ascent, the Executive (or his heirs or personal representatives) shall deliver to Ascent (i) all documents and materials containing or otherwise relating to Trade Secrets or other information relating to Ascent's business and affairs, and (ii) all documents, materials and other property belonging to Ascent, which in either case are in the possession or under the control of the Executive (or his heirs or personal representatives). The Executive shall be entitled to keep his personal records relating to Ascent's business and affairs except to the extent those contain documents or materials described in clause (i) or (ii) of the preceding sentence, in which case Executive may retain copies for his personal and confidential use. 4. Discoveries and Works. All discoveries and works made or conceived by --------------------- the Executive during his employment by Ascent pursuant to this Agreement, jointly or with others, that relate to Ascent's activities ("Discoveries and Works") shall be owned by Ascent. Discoveries and Works shall include, without limitation, literary, dramatic or other 7 works, screenplays, stories, adaptations, scripts, treatments, formats, "bibles," scenarios, characters, titles of any kind and any rights therein, other works of authorship, inventions, computer programs (including documentation of such programs), technical improvements, processes and drawings. The Executive shall (i) promptly notify, make full disclosure to, and execute and deliver any documents reasonably requested by, Ascent to evidence or better assure title to such Discoveries and Works in Ascent, (ii) assist Ascent in obtaining or maintaining for itself at its own expense United States and foreign copyrights, trade secret protection or other protection of any and all such Discoveries and Works, and (iii) promptly execute, whether during his employment by Ascent or thereafter, all applications or other endorsements necessary or appropriate to maintain copyright and other rights for Ascent and to protect their title thereto. Any Discoveries and Works which, within sixty days after the termination of the Executive's employment by Ascent, are made, disclosed, reduced to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to work performed by the Executive while with Ascent shall, as between the Executive and Ascent, be presumed to have been made during the Executive's employment by Ascent. 5. Termination. This Agreement shall remain in effect during the ----------- Employment Period, and this Agreement and Executive's employment with Ascent may be terminated only as follows: (a) By the Executive (an "Executive Election") at any time upon sixty (60) days advance written notice to Ascent upon an "Executive Election Event" (as defined below). In such event or if the Executive's employment is terminated by Ascent without "cause" (as defined below), there will be no forfeiture, penalty, reduction or other adverse effect upon any rights or interests relating to any Fringe Benefits, including, without limitation, the SARs, the Options and any other stock-based compensation, all of which will fully vest, to the extent not previously vested, immediately upon such termination becoming effective and final. Without limiting the foregoing, in the event of an Executive Election or if the Executive's employment is terminated without "cause," the Executive shall be entitled to receive the following benefits through the longer of (x) the remainder of the Employment Period as if this Agreement had remained in effect until the end of such Employment Period and (y) three years following the date of such termination (the "Duration Period"): (i) his 8 then current Base Salary; (ii) an Annual Bonus equal to fifty percent (50%) of his then current Base Salary; and (iii) all other benefits provided pursuant to Sections 2(c) and (d) of this Agreement. The Executive shall have no obligation to seek other employment in the event of his termination pursuant to this paragraph (a), and there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that he may obtain. Ascent shall have the option at any time during the Duration Period to pay to the Executive in a lump sum the amounts remaining under clauses (i) and (ii) of this paragraph (a). If Ascent exercises such option, Ascent shall have no further compensation payment obligations under clauses (i) and (ii) above. Upon any termination of the Executive's employment under this Section 5(a), Ascent shall establish a "rabbi" trust, i.e., a trust for the benefit of the Executive which is irrevocable by Ascent, but whose assets will be available to Ascent's general creditors upon Ascent's insolvency, with terms and provisions reasonably acceptable to the Executive, and shall contribute to such trust an amount equal to the sum of all payments to be made to the Executive by reason of such termination of employment, including, but not limited to, the amounts set forth in Sections 5(a)(i), (ii) and (iii), and the amount which the Executive would receive if he exercised all of his SARs, Options and stock-based incentives on the date of his termination of employment. Ascent shall at all times remain liable to carry out its obligations under this Agreement, but such obligations may be satisfied with the assets of such trust distributed pursuant to the terms of the trust, and any such distribution shall reduce Ascent's obligations under this Agreement. In all circumstances of termination under this Section 5(a), Ascent shall remain obligated under clause (iii) and all stock-based incentives(including the SARs and Options) will remain exercisable for the maximum period provided in each applicable grant. An "Executive Election Event" shall be any of the following: (I) any substantial reduction (except in connection with the termination of his employment voluntarily by the Executive or by Ascent for "cause" as defined below) by Ascent, without the Executive's express written consent, of his responsibilities as Executive Vice President, Finance and Chief Financial Officer of Ascent; (II) any change in the reporting structure set forth in Section 1(b) above; (III) any requirement that Executive perform material services of lesser stature than those typically performed by the principal 9 financial officers of comparable companies; (IV) a "Change of Control Event" (as defined in Section 7(a) below); provided that in such event, the amounts payable -------- to the Executive under this Section 5(a) will be contributed to the "rabbi" trust as provided above no later than one day before such change of control becomes effective, whether or not the Executive has given notice of termination at such time, and payable to the Executive in a lump sum upon the effectiveness of his termination as a result of a Change in Control Event; and provided, -------- further, the Executive and the Company shall explore alternatives to minimize - ------- any excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended as of the Effective Date (the "Code") that would otherwise be payable; (V) any other material default of this Agreement which continues for ten (10) business days following Ascent's receipt of written notice from the Executive specifying the manner in which Ascent is in default of this Agreement; (VI) the Board's requiring Executive to be based at any office location other than the principal offices of Ascent, or the relocation, without Executive's consent, of such principal offices to a location outside the greater Denver area; or (VII) any purported termination of Executive's employment otherwise than as expressly permitted by the Agreement. (b) By Ascent at any time for "cause." For purposes of this Agreement, Ascent shall have "cause" to terminate the Executive's employment hereunder upon (i) the continued and deliberate failure of the Executive to perform his material duties, in a manner substantially consistent with the manner reasonably prescribed by the CFO and in accordance with the terms of this Agreement (other than any such failure resulting from his incapacity due to physical or mental illness), which failure continues for ten (10) business days following the Executive's receipt of written notice from the CEO or the Board specifying the manner in which the Executive is in default of his duties, (ii) the engaging by the Executive in intentional serious misconduct that is materially and demonstrably injurious to Ascent or its reputation, which misconduct, if it is reasonably capable of being cured, is not cured by the Executive within ten (10) business days following the Executive's receipt of written notice from the CEO or the Board specifying the serious misconduct engaged in by the Executive, (iii) the conviction of the Executive of commission of a felony involving a crime of moral turpitude, whether or not such felony was committed in connection with Ascent's business, or (iv) any material breach by the Executive of Section 8 hereof. If Ascent shall terminate the Executive's employment for "cause," there will be no forfeiture, penalty, 10 reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits. In such event, Ascent, in full satisfaction of all of Ascent's obligations under this Agreement and in respect of the termination of the Executive's employment with Ascent, shall pay the Executive his Base Salary, a prorated Annual Bonus and all other compensation, benefits and reimbursement through the date of termination of his employment, provided that the SARs, the -------- Options and any other stock options granted to the Executive under the Ascent option or any successor plan shall terminate three months after the date of termination of his employment for "cause". 6. Disability; Death. ----------------- (a) If, prior to the expiration or termination of the Employment Period, the Executive shall be unable to perform substantially his duties by reason of disability or impairment of health for at least six consecutive calendar months, Ascent shall have the right to terminate this Agreement by giving sixty (60) days written notice to the Executive to that effect, but only if at the time such notice is given such disability or impairment is still continuing. Following the expiration of the notice period, the Employment Period shall terminate, and Ascent's payment obligations to the Executive under Section 2(a) and (b) shall terminate with the payment of the Executive's Base Salary for the month in which the Employment Period terminates and a prorated Annual Bonus through such month, and there will be no forfeiture, penalty, reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits; provided that the SARs, the Options and any other stock options -------- granted to the Executive under the Ascent option plan or any successor plan shall become fully vested and shall terminate in accordance with their terms, but in no event less than one year after such termination, notwithstanding the limitations of Sections 2(d) and (e) of this Agreement. In the event of a dispute as to whether the Executive is disabled within the meaning of this paragraph (a), or the duration of any disability, either party may request a medical examination of the Executive by a doctor appointed by the Chief of Staff of a hospital selected by mutual agreement of the parties, or as the parties may otherwise agree, and the written medical opinion of such doctor shall be conclusive and binding upon the parties as to whether the Executive has become disabled and the date when such disability arose. The cost of any such medical examinations shall be borne by Ascent. 11 (b) If, prior to the expiration or termination of the Employment Period, the Executive shall die, Ascent shall pay to the Executive's estate his Base Salary and a prorated Annual Bonus through the end of the month in which the Executive's death occurred, at which time the Employment Period shall terminate without further notice and there will be no forfeiture, penalty, reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits; provided that the SARs, the Options and any other stock -------- options granted to the Executive under the Ascent option plan or any successor plan shall become fully vested and shall terminate one year after the date of termination of the Executive's employment for death, notwithstanding the limitations of Sections 2(d) and (e) of this Agreement. (c) Nothing contained in this Section 6 shall impair or otherwise affect any rights and interests of the Executive under any compensation plan or arrangement of Ascent which may be adopted by the Board. 7. Change of Control. ----------------- (a) If, prior to the termination of the Employment Period, there is a "Change of Control Event" (as hereinafter defined in this paragraph (a)), the Executive shall have the right to exercise his Executive Election in accordance with Section 5(a)(IV) by giving notice either prior to such Change of Control Event becoming effective or up to 180 days following such Change of Control Event, but termination pursuant to such notice shall not take effect in accordance with Section 5(a) in any event prior to 120 days following such Change of Control Event, however payment to the Executive shall be made as set forth in Section 5(a)(IV). The expiration of such 180-day period shall not affect the Executive's right to give notice under Section 5(a) with respect to any other Executive Election Event. A "Change of Control Event" shall mean and include either the occurrence of any of the following with respect to Ascent, or any of the following becoming highly likely to occur, in the determination of the Board: (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting 12 power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this clause (i), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of clause (iii) below; or (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 75% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any corporation resulting from such 13 Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (b) In the event that Ascent adopts any "change of control" provisions applicable to any Ascent benefits plans, respectively, providing for the accelerated vesting and/or payment of any benefits for its senior management group, solely to the extent that such provisions give Executive greater rights than those provided in paragraph (a) above, such better provisions shall apply to the Executive to the same extent as other Ascent senior executives on a favored nations basis with respect to the benefits affected by such Ascent provisions, respectively. 8. Non-Competition. --------------- (a) As an inducement for Ascent to enter into this Agreement, the Executive agrees that for a period commencing as of the Effective Date and running through the earlier of (i) the end of the Employment Period if the Executive remains employed by Ascent for the entire Employment Period or (ii) one year following termination of the Executive's employment by Ascent for "cause" as defined in Section 5(b) hereof, or by the Executive for any reason (other than an Executive Election Event, in which case the provisions of this paragraph (a) shall not apply) (the "Non-Competition Period"), the Executive shall not, without the prior written consent of the Board, engage or participate, directly or indirectly, as principal, agent, employee, employer, consultant, stockholder, partner or in any other individual capacity whatsoever, in the conduct or management of, or own any stock or any other equity investment in or debt of, any business which is competitive with any business conducted by Ascent. 14 For the purpose of this Agreement, a business shall be considered to be competitive with any business of Ascent only if such business is engaged in providing services or products (i) substantially similar to (A) any service or product currently provided by Ascent during the Employment Period; (B) any service or product which directly evolves from or directly results from enhancements in the ordinary course during the Non-Competition Period to the services or products provided by Ascent as of the date hereof or during the Employment Period; or (C) any future service or product of Ascent as to which the Executive materially and substantially participated in the development or enhancement, and (ii) to customers, distributors or clients served by Ascent during the Non-Competition Period. (b) Non-Solicitation of Employees. During the Non-Competition Period, ----------------------------- the Executive will not (for his own benefit or for the benefit of any person or entity other than Ascent) solicit, or assist any person or entity other than Ascent to solicit, any officer, director, executive or employee (other than an administrative or clerical employee) of Ascent to leave his or her employment. (c) Reasonableness; Interpretation. The Executive acknowledges and ------------------------------ agrees, solely for purposes of determining the enforceability of this Section 8 (and not for purposes of determining the amount of money damages or for any other reason), that (i) the markets served by Ascent are national and international and are not dependent on the geographic location of executive personnel or the businesses by which they are employed; (ii) the length of the Non-Competition Period is linked to the term of the Employment Period and the severance benefit provided for in Section 5(a); and (iii) the above covenants are reasonable as an inducement for Ascent to enter into this Agreement, and the parties expressly agree that such restrictions have been designed to be reasonable and no greater than is required for the protection of Ascent. In the event that the covenants in this Section 8 shall be determined by any court of competent jurisdiction in any action to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, they shall be interpreted to extend only over the maximum period of time for which they may be enforceable, and/or over the maximum geographical area as to which they may be enforceable and/or to the maximum extent in all other 15 respects as to which they may be enforceable, all as determined by such court in such action. (d) Investment. Nothing in this Agreement shall be deemed to prohibit ---------- the Executive from owning equity or debt investments in any corporation, partnership or other entity which is competitive with Ascent, provided that such -------- investments (i) are passive investments and constitute five percent (5%) or less of the outstanding equity securities of such an entity the equity securities of which are traded on a national securities exchange or other public market, or (ii) are approved by the Board. 9. Indemnification; Liability Insurance. The Executive shall be entitled ------------------------------------ to indemnification and coverage under Ascent's liability insurance policy for directors and officers to the same extent as other directors and officers of Ascent. During and after the term of employment, Ascent hereby agrees to indemnify and hold Executive harmless against any and all claims arising from or in connection with his employment by or service to Ascent to the full extent permitted by law and, in connection therewith, to advance the expenses of Executive incurred in defending against such claims subject to such limitations as may actually be required by law. 10. Enforcement. The Executive acknowledges that a breach of the ----------- covenants or provisions contained in Sections 3, 4 and 8 of this Agreement will cause irreparable damage to Ascent, the exact amount of which will be difficult to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that if the Executive breaches or threatens to breach any of the covenants or provisions contained in Sections 3, 4 and 8 of this Agreement, in addition to any other remedy which may be available at law or in equity, Ascent shall be entitled to seek specific performance and injunctive relief. 11. Arbitration. ----------- (a) Subject to Ascent's right to enforce Sections 3, 4 and 8 hereof by an injunction issued by a court having jurisdiction (which right shall prevail over and supersede the provisions of this Section 11), any dispute relating to this Agreement, including the enforceability of this Section 11, arising between the Executive and Ascent shall be settled by arbitration which shall be conducted in Denver, Colorado, or any other location where the Executive then resides at Ascent's request, before a single arbitrator in accordance 16 with the commercial arbitration rules of the American Arbitration Association ("AAA"). Within 90 days after the Effective Date, the parties shall mutually agree upon three possible arbitrators, one of whom shall be selected by the AAA within 2 days after notice of a dispute to be arbitrated under this Section 11. The parties shall instruct the arbitrator to use his or her best efforts to conclude the arbitration within 60 days after notice of the dispute to AAA. (b) The award of any such arbitrator shall be final. Judgment upon such award may be entered by the prevailing party in any federal or state court sitting in Denver, Colorado or any other location where the Executive then resides at Ascent's request. (c) The parties will bear their own costs associated with arbitration and will each pay one-half of the arbitration costs and fees of AAA; however, the arbitrator may in his sole discretion determine that the costs of the arbitration proceedings, including attorneys' fees, shall be paid entirely by one party to the arbitration if the arbitrator determines that the other party is the prevailing party in such arbitration. 12. Severability. Should any provision of this Agreement be determined to ------------ be unenforceable or prohibited by any applicable law, such provision shall be ineffective to the extent, and only to the extent, of such unenforceability or prohibition without invalidating the balance of such provision or any other provision of this Agreement, and any such unenforceability or prohibition in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13. Assignment. The Executive's rights and obligations under this ---------- Agreement shall not be assignable by the Executive. Ascent's rights and obligations under this Agreement shall not be assignable by Ascent except as incident to the transfer, by merger or otherwise, of all or substantially all of the business of Ascent. In the event of any such assignment by Ascent, all rights of Ascent hereunder shall inure to the benefit of the assignee. 14. Notices. All notices and other communications which are required or ------- may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if 17 transmitted by telecopy, electronic or digital transmission method, provided that in such case it shall also be sent by certified or registered mail, return receipt requested; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal ---- Express); and upon receipt, if sent by certified or registered mail, return receipt requested. Unless otherwise changed by notice, in each case notice shall be sent to: If to Executive, addressed to: David A. Holden 5220 South Flower Street Littleton, Colorado 80123 If to Ascent, addressed to: Ascent Entertainment Group, Inc. 1225 Seventeenth Street Denver, Colorado 80202 Attention: Arthur M. Aaron Telecopier No. (303) 308-0489 With a copy to: Ascent Entertainment Group 1225 Seventeenth Street Denver, Colorado 80202 Attention: David Ehrlich Telecopier No. (303) 308-0489 16. Miscellaneous. This Agreement constitutes the entire agreement, and ------------- supersedes all prior agreements, of the parties hereto relating to the subject matter hereof, and there are no written or oral terms or representations made by either party other than those contained herein. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. The validity, interpretation, performance and enforcement of the Agreement shall be governed by the laws of the State of Colorado. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 18 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. /s/ David A. Holden ---------------------------------- David A. Holden, Executive ASCENT ENTERTAINMENT GROUP, INC. By: /s/ Charles M. Neinas -------------------------------- Title: Chairman 19 EX-10.9 4 EMPLOYMENT AGREEMENT WITH DAVID B. EHRLICH EMPLOYMENT AGREEMENT -------------------- This AGREEMENT made as of January 25, 2000, by and between Ascent Entertainment Group, Inc., a Delaware corporation ("Ascent" or the "Company"), and David Ehrlich, a resident of the State of Colorado(the "Executive"). WHEREAS, Ascent desires to employ the Executive as Vice President and General Counsel and Corporate Secretary of Ascent, and the Executive desires to accept such employment, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and intending to be legally bound hereby, Ascent and the Executive agree as follows: 1. Employment; Duties. ------------------ (a) Employment and Employment Period. Ascent shall employ the -------------------------------- Executive to serve as Vice President and General Counsel and Corporate Secretary of Ascent or its successor entity for a period (the "Employment Period") commencing on January 25, 2000 (the "Effective Date") and continuing thereafter for a term of two years until January 25, 2002 unless terminated in accordance with the provisions of this Agreement. Each 12 month period ending on the anniversary date of the Effective Date is sometimes referred to herein as a "year of the Employment Period." (b) Offices, Duties and Responsibilities. The Executive shall report ------------------------------------ directly to either the Executive Vice President, Business Affairs or, if there is one, the Chief Executive Officer of Ascent (the "CEO"). The Executive shall have all duties and authority customarily accorded a senior legal officer, general counsel and corporate secretary. (c) Devotion to Interests of Ascent. During the Employment Period, the ------------------------------- Executive shall render his business services solely in the performance of his duties hereunder. The Executive shall use his best efforts to promote the interests and welfare of Ascent. Notwithstanding the foregoing, the Executive shall be entitled to undertake such outside activities (e.g., charitable, ---- educational, personal interests, board of directors membership, and so forth, that do not compete with the business of Ascent as do not unreasonably or materially interfere with the performance of his duties hereunder as reasonably determined by the CEO or the Board in consultation with the Executive. 2. Compensation and Fringe Benefits. -------------------------------- 1 (a) Base Compensation. Ascent shall pay the Executive a base salary ----------------- ("Base Salary") at the rate of $150,000 per year during the Employment Period with payments made in installments in accordance with Ascent's regular practice for compensating executive personnel, provided that in no event shall such -------- payments be made less frequently than twice per month. The Base Salary for the Executive shall be reviewed each year during the Employment Period commencing the second year of the Employment Period. Any Base Salary increases shall be approved by the Board in its sole discretion. (b) Bonus Compensation. The Executive will be eligible to receive ------------------ bonuses ("Annual Bonus") during the Employment Period in accordance with the following parameters: (i) the target bonus for each year during the Employment Period shall be 25% of Base Salary for achieving 100% of the target level for the performance measures; and (ii) the performance measures, the relative weight to be accorded each performance measure and the amount of bonus payable in relation to the target bonus for achieving more or less than 100% of the target level for the performance measures shall be determined for each year during the Employment Period by the Compensation Committee. (c) Fringe Benefits. The Executive also shall be entitled to --------------- participate in group health, dental and disability insurance programs, and any group profit sharing, deferred compensation, supplemental life insurance or other benefit plans as are generally made available by Ascent to the senior executives of Ascent on a favored nations basis. Such benefits shall include reimbursement of documented expenses reasonably incurred in connection with travel and entertainment related to Ascent's business and affairs. All benefits described in the foregoing sentence that are reportable as earned or unearned income will be "grossed up" by Ascent in connection with federal and state tax obligations to provide Executive with appropriate net tax coverage so that the benefits received by the Executive from the foregoing sentence shall be net of income and employment taxes thereon. Ascent reserves the right to modify or terminate from time to time the fringe benefits provided to the senior management group, provided that the fringe benefits provided to the Executive -------- shall not be materially reduced on an overall basis during the Employment Period. 2 (d) Stock Options. Ascent hereby grants to Executive as of the ------------- Effective Date options to purchase ("Options") 40,000 shares of Ascent's common stock, par value $0.01 per share, each such SAR exercisable at the per-share price equal to $11.9063 per share. The Options shall be exercisable by Executive according to the following schedule: (i) 50% of the Options on or after January 25, 2001; and (ii) 50% of the Options on or after January 25, 2002. Notwithstanding the foregoing, 100% of the Options shall immediately vest and become immediately exercisable, without any further action by the Executive, upon the occurrence of any "Change of Control Event" as defined in Section 7(a) below, or upon the occurrence of any event that results in Ascent's Common Stock no longer being traded on any of the New York Stock Exchange, American Stock Exchange or NASDAQ National Market System (including, without limitation, as a result of any so-called "going private" transaction with Ascent). Such Options shall be represented by an Option agreement containing appropriate terms consistent with the provisions of this Agreement. The Options, to the extent they remain unexercised, shall automatically and without further notice terminate and become of no further force and effect only at the time of the earliest of the following to occur: (x) Three months after the date upon which a termination for cause by Ascent (as provided in Section 5(b)) shall have become effective and final; or (y) January 25, 2010. In the event of any stock split, stock dividend, spin-off, reclassification, recapitalization, merger, consolidation, subdivision, combination or other change which affects the character or amount of Ascent's common stock after the Effective Date and prior to the exercise and/or expiration of all of the Options, the number and exercise price of and/or the formula for determining the value of such unissued or unexercised Options shall be adjusted in order to make such Options, as nearly as may be practicable, equivalent in nature and value to the Options that would have existed had such change not taken place. In addition, if Ascent adopts a stock-based incentive plan that in Executive's sole judgment provides for any term(s) more favorable to the grantee than any term(s) set forth above, Executive will be entitled to the 3 benefit of such more favorable term(s) with respect to the Options, other than with respect to the vesting schedule thereof, but in no event will any term(s) applicable to the Options be less favorable to Executive than those set forth above. During the Employment Period, the Executive may be granted additional stock-based incentives as determined by the Compensation Committee in its sole discretion. Notwithstanding any other provision of this Agreement except Section 5(b), the Compensation Committee may in its discretion provide that any stock- based incentives granted to the Executive which have not vested prior to his termination of employment shall continue to vest in accordance with their original terms as if the Executive's employment had not terminated. (e) Conflicting Provisions. Solely to the extent of any conflict ---------------------- between the provisions of this Agreement and the provisions of any agreement between Executive, on the one hand, and Ascent and any of its affiliated or related entities, on the other hand, relating to stock-based incentives (including the Options), life insurance, health insurance, any other employee equity participation, profit sharing or retirement plan, group health plan or other employee benefits (individually and collectively referred to herein as the "Fringe Benefits"), the provisions of this Agreement will control. 3. Trade Secrets; Return of Documents and Property. ----------------------------------------------- (a) Executive acknowledges that during the course of his employment he will receive secret, confidential and proprietary information ("Trade Secrets") of Ascent and of other companies with which Ascent does business on a confidential basis and that Executive will create and develop Trade Secrets for the benefit of Ascent. Trade Secrets shall include, without limitation, (a) literary, dramatic or other works, screenplays, stories, adaptations, scripts, treatments, formats, "bibles," scenarios, characters, titles of any kind and any rights therein, custom databases, "know-how," formulae, secret processes or machines, inventions, computer programs (including documentation of such programs) (collectively, "Technical Trade Secrets"), and (b) matters of a business nature, such as customer data and proprietary information about costs, profits, markets and sales, customer databases, and other information of a similar nature to the 4 extent not available to the public, and plans for future development (collectively, "Business Trade Secrets"). All Trade Secrets disclosed to or created by Executive shall be deemed to be the exclusive property of Ascent (as the context may require). Executive acknowledges that Trade Secrets have economic value to Ascent due to the fact that Trade Secrets are not generally known to the public or the trade and that the unauthorized use or disclosure of Trade Secrets is likely to be detrimental to the interests of Ascent and its subsidiaries. Executive therefore agrees to hold in strict confidence and not to disclose to any third party any Trade Secret acquired or created or developed by Executive during the term of this Agreement except (i) when Executive is required to use or disclose any Trade Secret in the proper course of the Executive's rendition of services to Ascent hereunder, (ii) when such Trade Secret becomes public knowledge other than through a breach of this Agreement, or (iii) when Executive is required to disclose any Trade Secret pursuant to any valid court order in which the Executive is compelled to disclose such Trade Secret. The Executive shall notify Ascent immediately of any such court order in order to enable Ascent to contest such order's validity. For a period of two (2) years after termination of the Employment Period for all Business Trade Secrets and for a period of five (5) years after termination of the Employment Period for all Technical Trade Secrets, the Executive shall not use or otherwise disclose Trade Secrets unless such information (x) becomes public knowledge or is generally known in the entertainment or sports industry among executives comparable to the Executive other than through a breach of this Agreement, (y) is disclosed to the Executive by a third party who is entitled to receive and disclose such Trade Secret, or (z) is required to be disclosed pursuant to any valid court order, in which case the Executive shall notify Ascent immediately of any such court order in order to enable Ascent to contest such order's validity. (b) Upon the effective date of notice of the Executive's or Ascent's election to terminate this Agreement, or at any time upon the request of Ascent, the Executive (or his heirs or personal representatives) shall deliver to Ascent (i) all documents and materials containing or otherwise relating to Trade Secrets or other information relating to Ascent's business and affairs, and (ii) all documents, materials and other property belonging to Ascent, which in either case are in the possession or under the control of the Executive (or his heirs or personal representatives). The 5 Executive shall be entitled to keep his personal records relating to Ascent's business and affairs except to the extent those contain documents or materials described in clause (i) or (ii) of the preceding sentence, in which case Executive may retain copies for his personal and confidential use. 4. Discoveries and Works. All discoveries and works made or conceived by --------------------- the Executive during his employment by Ascent pursuant to this Agreement, jointly or with others, that relate to Ascent's activities ("Discoveries and Works") shall be owned by Ascent. Discoveries and Works shall include, without limitation, literary, dramatic or other works, screenplays, stories, adaptations, scripts, treatments, formats, "bibles," scenarios, characters, titles of any kind and any rights therein, other works of authorship, inventions, computer programs (including documentation of such programs), technical improvements, processes and drawings. The Executive shall (i) promptly notify, make full disclosure to, and execute and deliver any documents reasonably requested by, Ascent to evidence or better assure title to such Discoveries and Works in Ascent, (ii) assist Ascent in obtaining or maintaining for itself at its own expense United States and foreign copyrights, trade secret protection or other protection of any and all such Discoveries and Works, and (iii) promptly execute, whether during his employment by Ascent or thereafter, all applications or other endorsements necessary or appropriate to maintain copyright and other rights for Ascent and to protect their title thereto. Any Discoveries and Works which, within sixty days after the termination of the Executive's employment by Ascent, are made, disclosed, reduced to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to work performed by the Executive while with Ascent and COMSAT, shall, as between the Executive and Ascent and COMSAT, be presumed to have been made during the Executive's employment by Ascent. 5. Termination. This Agreement shall remain in effect during the ----------- Employment Period, and this Agreement and Executive's employment with Ascent may be terminated only as follows: (a) By the Executive (an "Executive Election") at any time upon sixty (60) days advance written notice to Ascent upon an "Executive Election Event" (as defined below). In such event or if the Executive's employment is terminated by Ascent without "cause" (as defined below), there will be no 6 forfeiture, penalty, reduction or other adverse effect upon any rights or interests relating to any Fringe Benefits, all of which will fully vest, to the extent not previously vested, immediately upon such termination becoming effective and final. Without limiting the foregoing, in the event of an Executive Election or if the Executive's employment is terminated without "cause," the Executive shall be entitled to receive the following benefits for a period equal to eighteen months following the date of such termination (the "Duration Period"): (i) his then current Base Salary; (ii) an Annual Bonus equal to twenty-five percent (25%) of his then current Base Salary; and (iii) all other benefits provided pursuant to Sections 2(c) and (d) of this Agreement. The Executive shall have no obligation to seek other employment in the event of his termination pursuant to this paragraph (a), and there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that he may obtain. Ascent shall have the option at any time during the Duration Period to pay to the Executive in a lump sum the amounts remaining under clauses (i) and (ii) of this paragraph (a). If Ascent exercises such option, Ascent shall have no further compensation payment obligations under clauses (i) and (ii) above. Upon any termination of the Executive's employment under this Section 5(a), Ascent shall establish a "rabbi" trust, i.e., a trust for the benefit of the Executive which is irrevocable by Ascent, but whose assets will be available to Ascent's general creditors upon Ascent's insolvency, with terms and provisions reasonably acceptable to the Executive, and shall contribute to such trust an amount equal to the sum of all payments to be made to the Executive by reason of such termination of employment, including, but not limited to, the amounts set forth in Sections 5(a)(i), (ii) and (iii), and the amount which the Executive would receive if he exercised all of his Options and stock-based incentives on the date of his termination of employment. Ascent shall at all times remain liable to carry out its obligations under this Agreement, but such obligations may be satisfied with the assets of such trust distributed pursuant to the terms of the trust, and any such distribution shall reduce Ascent's obligations under this Agreement. In all circumstances of termination under this Section 5(a), Ascent shall remain obligated under clause (iii) and all stock-based incentives(including the Options) will remain exercisable for the maximum period provided in each applicable grant. 7 An "Executive Election Event" shall be any of the following: (I) any substantial reduction (except in connection with the termination of his employment voluntarily by the Executive or by Ascent for "cause" as defined below) by Ascent, without the Executive's express written consent, of his responsibilities as Vice President and General Counsel of Ascent; (II) any change in the reporting structure set forth in Section 1(b) above; (III) any requirement that Executive perform material services of lesser stature than those typically performed by the general counsel of comparable companies; (IV) a "Change of Control Event" (as defined in Section 7(a) below); provided that in -------- such event, the amounts payable to the Executive under this Section 5(a) will be contributed to the "rabbi" trust as provided above no later than one day before such change of control becomes effective, whether or not the Executive has given notice of termination at such time, and payable to the Executive in a lump sum upon the effectiveness of his termination as a result of a Change in Control Event; and provided, further, the Executive and the Company shall explore -------- ------- alternatives to minimize any excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended as of the Effective Date (the "Code") that would otherwise be payable; (V) any other material default of this Agreement which continues for ten (10) business days following Ascent's receipt of written notice from the Executive specifying the manner in which Ascent is in default of this Agreement; (VI) the Board's requiring Executive to be based at any office location other than the principal offices of Ascent, or the relocation, without Executive's consent, of such principal offices to a location outside the greater Denver area; or (VII) any purported termination of Executive's employment otherwise than as expressly permitted by the Agreement. (b) By Ascent at any time for "cause." For purposes of this Agreement, Ascent shall have "cause" to terminate the Executive's employment hereunder upon (i) the continued and deliberate failure of the Executive to perform his material duties, in a manner substantially consistent with the manner reasonably prescribed by the Executive Vice President, Business Affairs or CEO and in accordance with the terms of this Agreement (other than any such failure resulting from his incapacity due to physical or mental illness), which failure continues for ten (10) business days following the Executive's receipt of written notice from the Executive Vice President, Business Affairs or CEO specifying the manner in which the Executive is in default of his duties, (ii) the 8 engaging by the Executive in intentional serious misconduct that is materially and demonstrably injurious to Ascent or its reputation, which misconduct, if it is reasonably capable of being cured, is not cured by the Executive within ten (10) business days following the Executive's receipt of written notice from the Executive Vice President, Business Affairs or CEO specifying the serious misconduct engaged in by the Executive, (iii) the conviction of the Executive of commission of a felony involving a crime of moral turpitude, whether or not such felony was committed in connection with Ascent's business, or (iv) any material breach by the Executive of Section 8 hereof. If Ascent shall terminate the Executive's employment for "cause," there will be no forfeiture, penalty, reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits. In such event, Ascent, in full satisfaction of all of Ascent's obligations under this Agreement and in respect of the termination of the Executive's employment with Ascent, shall pay the Executive his Base Salary, a prorated Annual Bonus and all other compensation, benefits and reimbursement through the date of termination of his employment, provided that the Options and -------- any other stock options granted to the Executive under the Ascent option or any successor plan shall terminate three months after the date of termination of his employment for "cause". 6. Disability; Death. ----------------- (a) If, prior to the expiration or termination of the Employment Period, the Executive shall be unable to perform substantially his duties by reason of disability or impairment of health for at least six consecutive calendar months, Ascent shall have the right to terminate this Agreement by giving sixty (60) days written notice to the Executive to that effect, but only if at the time such notice is given such disability or impairment is still continuing. Following the expiration of the notice period, the Employment Period shall terminate, and Ascent's payment obligations to the Executive under Section 2(a) and (b) shall terminate with the payment of the Executive's Base Salary for the month in which the Employment Period terminates and a prorated Annual Bonus through such month, and there will be no forfeiture, penalty, reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits; provided that the Options and any other stock options granted to the -------- Executive under the Ascent option plan or any successor plan shall become fully vested and shall terminate in accordance 9 with their terms, but in no event less than one year after such termination, notwithstanding the limitations of Section 2(d) of this Agreement. In the event of a dispute as to whether the Executive is disabled within the meaning of this paragraph (a), or the duration of any disability, either party may request a medical examination of the Executive by a doctor appointed by the Chief of Staff of a hospital selected by mutual agreement of the parties, or as the parties may otherwise agree, and the written medical opinion of such doctor shall be conclusive and binding upon the parties as to whether the Executive has become disabled and the date when such disability arose. The cost of any such medical examinations shall be borne by Ascent. (b) If, prior to the expiration or termination of the Employment Period, the Executive shall die, Ascent shall pay to the Executive's estate his Base Salary and a prorated Annual Bonus through the end of the month in which the Executive's death occurred, at which time the Employment Period shall terminate without further notice and there will be no forfeiture, penalty, reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits; provided that the Options and any other stock options -------- granted to the Executive under the Ascent option plan or any successor plan shall become fully vested and shall terminate one year after the date of termination of the Executive's employment for death, notwithstanding the limitations of Section 2(d) of this Agreement. (c) Nothing contained in this Section 6 shall impair or otherwise affect any rights and interests of the Executive under any compensation plan or arrangement of Ascent which may be adopted by the Board. 7. Change of Control. ----------------- (a) If, prior to the termination of the Employment Period, there is a "Change of Control Event" (as hereinafter defined in this paragraph (a)), the Executive shall have the right to exercise his Executive Election in accordance with Section 5(a) by giving notice either prior to such Change of Control Event becoming effective or up to 180 days following such Change of Control Event, but termination pursuant to such notice shall not take effect in accordance with Section 5(a) in any event prior to 120 days following such Change of Control Event, provided, however, payment to the Executive shall be made as set forth in Section 5(a)(IV). The 10 expiration of such 180-day period shall not affect the Executive's right to give notice under Section 5(a) with respect to any other Executive Election Event. A "Change of Control Event" shall mean and include either the occurrence of any of the following with respect to Ascent, or any of the following becoming highly likely to occur, in the determination of the Board: (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this clause (i), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of clause (iii) below; or (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business 11 Combination beneficially own, directly or indirectly, more than 75% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (b) In the event that Ascent adopts any "change of control" provisions applicable to any Ascent benefits plans, respectively, providing for the accelerated vesting and/or payment of any benefits for its senior management group, solely to the extent that such provisions give Executive greater rights than those provided in paragraph (a) above, such better provisions shall apply to the Executive to the same extent as other Ascent senior executives on a favored nations basis with respect to the benefits affected by such Ascent provisions, respectively. 8. Non-Competition. --------------- (a) As an inducement for Ascent to enter into this Agreement, the Executive agrees that for a period commencing as of the Effective Date and running through the earlier of (i) the end of the Employment Period if the Executive remains 12 employed by Ascent for the entire Employment Period or (ii) one year following termination of the Executive's employment by Ascent for "cause" as defined in Section 5(b) hereof, or by the Executive for any reason (other than an Executive Election Event, in which case the provisions of this paragraph (a) shall not apply) (the "Non-Competition Period"), the Executive shall not, without the prior written consent of the Board, engage or participate, directly or indirectly, as principal, agent, employee, employer, consultant, stockholder, partner or in any other individual capacity whatsoever, in the conduct or management of, or own any stock or any other equity investment in or debt of, any business which is competitive with any business conducted by Ascent. For the purpose of this Agreement, a business shall be considered to be competitive with any business of Ascent only if such business is engaged in providing services or products (i) substantially similar to (A) any service or product currently provided by Ascent during the Employment Period; (B) any service or product which directly evolves from or directly results from enhancements in the ordinary course during the Non-Competition Period to the services or products provided by Ascent as of the date hereof or during the Employment Period; or (C) any future service or product of Ascent as to which the Executive materially and substantially participated in the development or enhancement, and (ii) to customers, distributors or clients served by Ascent during the Non-Competition Period. (b) Non-Solicitation of Employees. During the Non-Competition Period, ----------------------------- the Executive will not (for his own benefit or for the benefit of any person or entity other than Ascent) solicit, or assist any person or entity other than Ascent to solicit, any officer, director, executive or employee (other than an administrative or clerical employee) of Ascent to leave his or her employment. (c) Reasonableness; Interpretation. The Executive acknowledges and ------------------------------ agrees, solely for purposes of determining the enforceability of this Section 8 (and not for purposes of determining the amount of money damages or for any other reason), that (i) the markets served by Ascent are national and international and are not dependent on the geographic location of executive personnel or the businesses by which they are employed; (ii) the length of the Non-Competition Period is linked to the term of the Employment Period and the severance benefit provided for in Section 5(a); and (iii) the 13 above covenants are reasonable as an inducement to Ascent to enter into this Agreement, and the parties expressly agree that such restrictions have been designed to be reasonable and no greater than is required for the protection of Ascent. In the event that the covenants in this Section 8 shall be determined by any court of competent jurisdiction in any action to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, they shall be interpreted to extend only over the maximum period of time for which they may be enforceable, and/or over the maximum geographical area as to which they may be enforceable and/or to the maximum extent in all other respects as to which they may be enforceable, all as determined by such court in such action. (d) Investment. Nothing in this Agreement shall be deemed to prohibit ---------- the Executive from owning equity or debt investments in any corporation, partnership or other entity which is competitive with Ascent, provided that such -------- investments (i) are passive investments and constitute five percent (5%) or less of the outstanding equity securities of such an entity the equity securities of which are traded on a national securities exchange or other public market, or (ii) are approved by the Board. 9. Indemnification; Liability Insurance. The Executive shall be entitled ------------------------------------ to indemnification and coverage under Ascent's liability insurance policy for directors and officers to the same extent as other officers of Ascent. During and after the term of employment, Ascent hereby agrees to indemnify and hold Executive harmless against any and all claims arising from or in connection with his employment by or service to Ascent to the full extent permitted by law and, in connection therewith, to advance the expenses of Executive incurred in defending against such claims subject to such limitations as may actually be required by law. 10. Enforcement. The Executive acknowledges that a breach of the ----------- covenants or provisions contained in Sections 3, 4 and 8 of this Agreement will cause irreparable damage to Ascent, the exact amount of which will be difficult to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that if the Executive breaches or threatens to breach any of the covenants or provisions contained in Sections 3, 4 and 8 of this Agreement, in addition to any other remedy which may be 14 available at law or in equity, Ascent shall be entitled to seek specific performance and injunctive relief. 11. Arbitration. ----------- (a) Subject to Ascent's right to enforce Sections 3, 4 and 8 hereof by an injunction issued by a court having jurisdiction (which right shall prevail over and supersede the provisions of this Section 11), any dispute relating to this Agreement, including the enforceability of this Section 11, arising between the Executive and Ascent shall be settled by arbitration which shall be conducted in Denver, Colorado, or any other location where the Executive then resides at Ascent's request, before a single arbitrator in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA"). Within 90 days after the Effective Date, the parties shall mutually agree upon three possible arbitrators, one of whom shall be selected by the AAA within 2 days after notice of a dispute to be arbitrated under this Section 11. The parties shall instruct the arbitrator to use his or her best efforts to conclude the arbitration within 60 days after notice of the dispute to AAA. (b) The award of any such arbitrator shall be final. Judgment upon such award may be entered by the prevailing party in any federal or state court sitting in Denver, Colorado or any other location where the Executive then resides at Ascent's request. (c) The parties will bear their own costs associated with arbitration and will each pay one-half of the arbitration costs and fees of AAA; however, the arbitrator may in his sole discretion determine that the costs of the arbitration proceedings, including attorneys' fees, shall be paid entirely by one party to the arbitration if the arbitrator determines that the other party is the prevailing party in such arbitration. 12. Severability. Should any provision of this Agreement be determined to ------------ be unenforceable or prohibited by any applicable law, such provision shall be ineffective to the extent, and only to the extent, of such unenforceability or prohibition without invalidating the balance of such provision or any other provision of this Agreement, and any such unenforceability or prohibition in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 15 13. Assignment. The Executive's rights and obligations under this ---------- Agreement shall not be assignable by the Executive. Ascent's rights and obligations under this Agreement shall not be assignable by Ascent except as incident to the transfer, by merger or otherwise, of all or substantially all of the business of Ascent. In the event of any such assignment by Ascent, all rights of Ascent hereunder shall inure to the benefit of the assignee. 14. Notices. All notices and other communications which are required or ------- may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic or digital transmission method, provided that in such case it shall also be sent by certified or registered mail, return receipt requested; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal ---- Express); and upon receipt, if sent by certified or registered mail, return receipt requested. Unless otherwise changed by notice, in each case notice shall be sent to: If to Executive, addressed to: David Ehrlich 758 Franklin Street Denver, Colorado 80218 If to Ascent, addressed to: Ascent Entertainment Group, Inc. 1225 Seventeenth Street Denver, Colorado 80202 Attention: Arthur M. Aaron Telecopier No. (303) 308-0489 With a copy to: Ascent Entertainment Group 1225 Seventeenth Street Denver, Colorado 80202 Attention: David Holden Telecopier No. (303) 308-0490 15. Miscellaneous. This Agreement constitutes the entire agreement, and ------------- supersedes all prior agreements, of the parties hereto relating to the subject matter hereof, and there are no written or oral terms or representations made by either party other than those contained herein. No amendment, 16 supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. The validity, interpretation, performance and enforcement of the Agreement shall be governed by the laws of the State of Colorado. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. /s/ David Ehrlich ----------------------------------- David Ehrlich, Executive ASCENT ENTERTAINMENT GROUP, INC. By: /s/ David A. Holden -------------------------------- Title: Executive Vice President and Chief Financial Officer 17 EX-10.11 5 EMPLOYMENT AGREEMENT WITH ALLAN GOODSON EMPLOYMENT AGREEMENT -------------------- This AGREEMENT made as of January 7, 2000, by and between On Command Corporation, a Delaware corporation (the "Company"), and Allan Goodson (the "Executive"). WHEREAS, the Company desires to employ the Executive as Executive Vice President and Chief Operating Officer, and the Executive desires to accept such employment, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and intending to be legally bound hereby, The Company and the Executive agree as follows: 1. Employment; Duties. ------------------ (a) Employment and Employment Period. The Company shall employ the -------------------------------- Executive to serve as Executive Vice President and Chief Operating Officer of the Company or its successor entity for a period (the "Employment Period") commencing on January 7, 2000 (the "Effective Date") and continuing thereafter for a term of two years until January 7, 2002 unless terminated in accordance with the provisions of this Agreement. Each 12 month period ending on the anniversary date of the Effective Date is sometimes referred to herein as a "year of the Employment Period." (b) Offices, Duties and Responsibilities. The Executive shall report ------------------------------------ to the President or Chief Executive Officer of the Company (the "CEO"). The Executive shall have all duties and authority customarily accorded a chief operating officer. (c) Devotion to Interests of The Company. During the Employment ------------------------------------ Period, the Executive shall render his business services solely in the performance of his duties hereunder. The Executive shall use his best efforts to promote the interests and welfare of the Company. Notwithstanding the foregoing, the Executive shall be entitled to undertake such outside activities (e.g., charitable, educational, personal interests, board of directors membership, and so forth, that do not compete with the business of the Company as do not unreasonably or materially interfere with the performance of his duties hereunder as reasonably determined by the CEO in consultation with the Executive. 2. Compensation and Fringe Benefits. -------------------------------- (a) Base Compensation. The Company shall pay the Executive a base ----------------- salary ("Base Salary") at the rate of $300,000 per year during the Employment Period with payments made in installments in accordance with the Company's regular practice for compensating executive personnel. (b) Bonus Compensation. The Executive will be eligible to receive ------------------ bonuses ("Annual Bonus") during the Employment Period in accordance with the following parameters: (i) the target bonus for each year during the Employment Period shall be 70% of Base Salary for achieving 100% of the target level for the performance measures; and (ii) the performance measures, the relative weight to be accorded each performance measure and the amount of bonus payable in relation to the target bonus for achieving more or less than 100% of the target level for the performance measures shall be determined for each year during the Employment Period by the Compensation Committee of the Company's Board of Directors after consultation with the CEO and the Executive. (c) Fringe Benefits. The Executive also shall be entitled to --------------- participate in group health, dental and disability insurance programs, and any group profit sharing, deferred compensation, supplemental life insurance or other benefit plans as are generally made available by the Company to the senior executives of the Company. Such benefits shall include reimbursement of documented expenses reasonably incurred in connection with travel and entertainment related to the Company's business and affairs. The Company reserves the right to modify or terminate from time to time the fringe benefits provided to the senior management group. (d) Stock Options. The Company hereby grants to the Executive as of ------------- the Effective Date options (the "Options") to purchase 100,000 shares of the Company's common stock, par value $0.01 per share, exercisable at the per-share price equal to $15.90625 (the "Exercise Price"). The Options shall be exercisable by Executive according to the following schedule: (i) 50,000 of the Options after January 7, 2001; and (ii) 50,000 of the Options after January 7, 2002; provided that if the Executive's employment is terminated by the Company at any time prior to January 7, 2 2001 other than for "cause" (as provided in Section 5(b)), then 50,000 Options will become exercisable and the remaining 50,000 Options shall be cancelled. The Options, to the extent they remain unexercised, shall automatically and without further notice terminate and become of no further force and effect only at the time of the earliest of the following to occur: (x) Three months after the date upon which a termination for cause by the Company (as provided in Section 5(b)) or a termination by the Executive other than pursuant to an Executive Election Event (as provided in Section 5(a)) shall have become effective and final; or (y) January 7, 2010. (e) Conflicting Provisions. Solely to the extent of any conflict ---------------------- between the provisions of this Agreement and the provisions of any agreement between Executive, on the one hand, and the Company and any of its affiliated or related entities, on the other hand, relating to stock-based incentives (including the Options), life insurance, health insurance, any other employee equity participation, profit sharing or retirement plan, group health plan or other employee benefits (individually and collectively referred to herein as the "Fringe Benefits"), the provisions of this Agreement will control. 3. Trade Secrets; Return of Documents and Property. (a) Executive ----------------------------------------------- acknowledges that during the course of his employment he will receive secret, confidential and proprietary information ("Trade Secrets") of the Company and of other companies with which the Company does business on a confidential basis and that Executive will create and develop Trade Secrets for the benefit of the Company. Trade Secrets shall include, without limitation, custom databases, "know-how," formulae, secret processes or machines, inventions, computer programs (including documentation of such programs), customer data and proprietary information about costs, profits, markets and sales, customer databases, and other information of a similar nature to the extent not available to the public, and plans for future development. All Trade Secrets disclosed to or created by Executive shall be deemed to be the exclusive property of the Company (as the context may require). Executive acknowledges that Trade Secrets have economic value to the Company due to the fact that Trade Secrets are not generally known to the public or the trade and that the unauthorized use or disclosure of Trade Secrets is likely to be detrimental to the interests of the Company and its subsidiaries. Executive therefore agrees to hold in strict confidence and not to disclose to any third party any Trade Secret acquired or created or developed by Executive during the term of this Agreement except (i) when Executive is required to use or disclose any Trade Secret in the proper course of the Executive's 3 rendition of services to the Company hereunder, (ii) when such Trade Secret becomes public knowledge other than through a breach of this Agreement, or (iii) when Executive is required to disclose any Trade Secret pursuant to any valid court order in which the Executive is compelled to disclose such Trade Secret. The Executive shall notify the Company immediately of any such court order in order to enable the Company to contest such order's validity. The Executive shall not use or otherwise disclose Trade Secrets unless such information (x) becomes public knowledge or is generally known in the entertainment or sports industry among executives comparable to the Executive other than through a breach of this Agreement, (y) is disclosed to the Executive by a third party who is entitled to receive and disclose such Trade Secret, or (z) is required to be disclosed pursuant to any valid court order, in which case the Executive shall notify the Company immediately of any such court order in order to enable the Company to contest such order's validity. (b) Upon the effective date of notice of the Executive's or the Company's election to terminate this Agreement, or at any time upon the request of the Company, the Executive (or his heirs or personal representatives) shall deliver to the Company (i) all documents and materials containing or otherwise relating to Trade Secrets or other information relating to the Company's business and affairs, and (ii) all documents, materials and other property belonging to the Company, which in either case are in the possession or under the control of the Executive (or his heirs or personal representatives). The Executive shall be entitled to keep his personal records relating to the Company's business and affairs except to the extent those contain documents or materials described in clause (i) or (ii) of the preceding sentence, in which case Executive may retain copies for his personal and confidential use. 4. Discoveries and Works. All discoveries and works made or conceived by --------------------- the Executive during his employment by the Company pursuant to this Agreement, jointly or with others, that relate to the Company's activities ("Discoveries and Works") shall be owned by the Company. Discoveries and Works shall include, without limitation, works of authorship, inventions, computer programs (including documentation of such programs), technical improvements, processes and drawings. The Executive shall 4 (i) promptly notify, make full disclosure to, and execute and deliver any documents reasonably requested by, the Company to evidence or better assure title to such Discoveries and Works in the Company, (ii) assist the Company in obtaining or maintaining for itself at its own expense United States and foreign copyrights, trade secret protection or other protection of any and all such Discoveries and Works, and (iii) promptly execute, whether during his employment by the Company or thereafter, all applications or other endorsements necessary or appropriate to maintain copyright and other rights for the Company and to protect their title thereto. Any Discoveries and Works which, within sixty days after the termination of the Executive's employment by the Company, are made, disclosed, reduced to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to work performed by the Executive while with the Company, shall, as between the Executive and the Company, be presumed to have been made during the Executive's employment by the Company. 5. Termination. This Agreement and Executive's employment with the ----------- Company may be terminated as follows: (a) By the Executive either at any time for any reason upon ninety (90) days advance written notice to the Company, or upon an "Executive Election Event" (as defined below) upon thirty (30) days advance written notice to the Company. Upon an Executive Election Event or if the Executive's employment is terminated by the Company without "cause" (as defined below), the Executive shall be entitled to receive the following benefits through the longer of (x) the remainder of the Employment Period as if this Agreement had remained in effect until the end of such two-year Employment Period and (y) one year following the date of such termination (the "Duration Period"): (i) his Base Salary; (ii) an Annual Bonus equal to seventy percent (70%) of one year's Base Salary; and (iii) all other benefits provided pursuant to Sections 2(c) of this Agreement. The Executive shall have no obligation to seek other employment in the event of his termination pursuant to this paragraph (a), and there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that he may obtain. The Company shall have the option at any time during the Duration Period to pay to the Executive in a lump sum the amounts remaining under clauses (i) and (ii) of this paragraph (a). If the Company exercises such option, the Company shall have no further compensation payment obligations under clauses (i) and (ii) above. 5 An "Executive Election Event" shall be any any substantial reduction (except in connection with the termination of his employment voluntarily by the Executive or by the Company for "cause" as defined below) by the Company, without the Executive's express written consent, of his responsibilities as Executive Vice President and Chief Operating Officer of the Company, or any other material default of this Agreement which continues for ten (10) business days following the Company's receipt of written notice from the Executive specifying the manner in which the Company is in default of this Agreement. (b) By the Company at any time for "cause." For purposes of this Agreement, the Company shall have "cause" to terminate the Executive's employment hereunder upon (i) the continued and deliberate failure of the Executive to perform his material duties, in a manner substantially consistent with the manner reasonably prescribed by the CEO and in accordance with the terms of this Agreement (other than any such failure resulting from his incapacity due to physical or mental illness), which failure continues for ten (10) business days following the Executive's receipt of written notice from the CEO specifying the manner in which the Executive is in default of his duties, (ii) the engaging by the Executive in intentional serious misconduct that is materially injurious to the Company or its reputation, which misconduct, if it is reasonably capable of being cured, is not cured by the Executive within ten (10) business days following the Executive's receipt of written notice from the CEO specifying the serious misconduct engaged in by the Executive, (iii) the conviction of the Executive of commission of a felony, whether or not such felony was committed in connection with the Company's business, or (iv) any material breach by the Executive of Section 8 hereof. If the Company shall terminate the Executive's employment for "cause," there will be no forfeiture, penalty, reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits. In such event, the Company, in full satisfaction of all of the Company's obligations under this Agreement and in respect of the termination of the Executive's employment with the Company, shall pay the Executive his Base Salary and all other benefits and reimbursement through the date of termination of his employment, provided that the Options and -------- any other stock options granted to the Executive under the Company's option plan shall terminate three months after the date of termination of his employment for "cause". 6 6. Disability; Death. ----------------- (a) If, prior to the expiration or termination of the Employment Period, the Executive shall be unable to perform substantially his duties by reason of disability or impairment of health for at least six consecutive calendar months, the Company shall have the right to terminate this Agreement by giving sixty (60) days written notice to the Executive to that effect, but only if at the time such notice is given such disability or impairment is still continuing. Following the expiration of the notice period, the Employment Period shall terminate, and the Company's payment obligations to the Executive under Section 2(a) and (b) shall terminate with the payment of the Executive's Base Salary for the month in which the Employment Period terminates and a prorated Annual Bonus through such month, and there will be no forfeiture, penalty, reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits; provided that the Options and any other stock options -------- granted to the Executive under the Company option plan or any successor plan shall become fully vested and shall terminate in accordance with their terms, but in no event less than one year after such termination, notwithstanding the limitations of Section 2(d) of this Agreement. In the event of a dispute as to whether the Executive is disabled within the meaning of this paragraph (a), or the duration of any disability, either party may request a medical examination of the Executive by a doctor appointed by the Chief of Staff of a hospital selected by mutual agreement of the parties, or as the parties may otherwise agree, and the written medical opinion of such doctor shall be conclusive and binding upon the parties as to whether the Executive has become disabled and the date when such disability arose. The cost of any such medical examinations shall be borne by the Company. (b) If, prior to the expiration or termination of the Employment Period, the Executive shall die, the Company shall pay to the Executive's estate his Base Salary and a prorated Annual Bonus through the end of the month in which the Executive's death occurred, at which time the Employment Period shall terminate without further notice and there will be no forfeiture, penalty, reduction or other adverse effect upon any vested rights or interests relating to any Fringe Benefits; provided that the Options and any other stock options -------- granted to the Executive under the Company option plan or any successor plan shall become fully vested and shall terminate one year after the date of termination of the Executive's employment for death, notwithstanding the limitations of Section 2(d) of this Agreement. 7 (c) Nothing contained in this Section 6 shall impair or otherwise affect any rights and interests of the Executive under any compensation plan or arrangement of the Company which may be adopted by the Board. 7. Non-Competition. --------------- (a) As an inducement for the Company to enter into this Agreement, the Executive agrees that for a period commencing as of the Effective Date and running through the earlier of (i) the end of the Employment Period if the Executive remains employed by the Company for the entire Employment Period or (ii) one year following termination of the Executive's employment by the Company for "cause" as defined in Section 5(b) hereof, or by the Executive for any reason (other than an Executive Election Event, in which case the provisions of this paragraph (a) shall not apply) (the "Non-Competition Period"), the Executive shall not, without the prior written consent of the Board, engage or participate, directly or indirectly, as principal, agent, employee, employer, consultant, stockholder, partner or in any other individual capacity whatsoever, in the conduct or management of, or own any stock or any other equity investment in or debt of, any business which is competitive with any business conducted by the Company. For the purpose of this Agreement, a business shall be considered to be competitive with any business of the Company only if such business is engaged in providing services or products (i) substantially similar to (A) any service or product currently provided by the Company during the Employment Period; (B) any service or product which directly evolves from or directly results from enhancements in the ordinary course during the Non-Competition Period to the services or products provided by the Company as of the date hereof or during the Employment Period; or (C) any future service or product of the Company as to which the Executive materially and substantially participated in the development or enhancement, and (ii) to customers, distributors or clients served by the Company during the Non-Competition Period. (b) Non-Solicitation of Employees. During the Non-Competition Period, ----------------------------- the Executive will not (for his own benefit or for the benefit of any person or entity other than the Company) solicit, or assist any person or entity other than the Company to solicit, any officer, director, executive or employee (other than an administrative or clerical employee) of the Company to leave his or her employment. 8 (c) Reasonableness; Interpretation. The Executive acknowledges and ------------------------------ agrees, solely for purposes of determining the enforceability of this Section 8 (and not for purposes of determining the amount of money damages or for any other reason), that (i) the markets served by the Company are national and international and are not dependent on the geographic location of executive personnel or the businesses by which they are employed; (ii) the length of the Non-Competition Period is linked to the term of the Employment Period and the severance benefit provided for in Section 5(a); and (iii) the above covenants are reasonable as an inducement to the Company to enter into this Agreement, and the parties expressly agree that such restrictions have been designed to be reasonable and no greater than is required for the protection of the Company. In the event that the covenants in this Section 8 shall be determined by any court of competent jurisdiction in any action to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, they shall be interpreted to extend only over the maximum period of time for which they may be enforceable, and/or over the maximum geographical area as to which they may be enforceable and/or to the maximum extent in all other respects as to which they may be enforceable, all as determined by such court in such action. (d) Investment. Nothing in this Agreement shall be deemed to prohibit ---------- the Executive from owning equity or debt investments in any corporation, partnership or other entity which is competitive with the Company, provided that -------- such investments (i) are passive investments and constitute five percent (5%) or less of the outstanding equity securities of such an entity the equity securities of which are traded on a national securities exchange or other public market, or (ii) are approved by the Board. 8. Liability Insurance. The Executive shall be covered under the ------------------- Company's liability insurance policy for directors and officers to the same extent as other officers of the Company. 9. Enforcement. The Executive acknowledges that a breach of the ----------- covenants or provisions contained in Sections 3, 4 and 8 of this Agreement will cause irreparable damage to the Company, the exact amount of which will be difficult to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that if the Executive breaches or threatens to breach any of the covenants or provisions contained in Sections 3, 4 and 8 of this Agreement, in addition to any other remedy which may be available at law or in equity, the Company 9 shall be entitled to seek specific performance and injunctive relief. 10. Arbitration. ----------- (a) Subject to the Company's right to enforce Sections 3, 4 and 8 hereof by an injunction issued by a court having jurisdiction (which right shall prevail over and supersede the provisions of this Section 11), any dispute relating to this Agreement, including the enforceability of this Section 11, arising between the Executive and the Company shall be settled by arbitration which shall be conducted in Denver, Colorado, or any other location where the Executive then resides at the Company's request, before a single arbitrator in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA"). Within 90 days after the Effective Date, the parties shall mutually agree upon three possible arbitrators, one of whom shall be selected by the AAA within 2 days after notice of a dispute to be arbitrated under this Section 11. The parties shall instruct the arbitrator to use his or her best efforts to conclude the arbitration within 60 days after notice of the dispute to AAA. (b) The award of any such arbitrator shall be final. Judgment upon such award may be entered by the prevailing party in any federal or state court sitting in Denver, Colorado or any other location where the Executive then resides at the Company's request. (c) The parties will bear their own costs associated with arbitration and will each pay one-half of the arbitration costs and fees of AAA; however, the arbitrator may in his sole discretion determine that the costs of the arbitration proceedings, including attorneys' fees, shall be paid entirely by one party to the arbitration if the arbitrator determines that the other party is the prevailing party in such arbitration. 11. Severability. Should any provision of this Agreement be determined to ------------ be unenforceable or prohibited by any applicable law, such provision shall be ineffective to the extent, and only to the extent, of such unenforceability or prohibition without invalidating the balance of such provision or any other provision of this Agreement, and any such unenforceability or prohibition in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 12. Assignment. The Executive's rights and obligations under this ---------- Agreement shall not be assignable by the Executive. The Company's rights and obligations under 10 this Agreement shall not be assignable by the Company except as incident to the transfer, by merger or otherwise, of all or substantially all of the business of the Company. In the event of any such assignment by the Company, all rights of the Company hereunder shall inure to the benefit of the assignee. 13. Notices. All notices and other communications which are required or ------- may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic or digital transmission method, provided that in such case it shall also be sent by certified or registered mail, return receipt requested; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal ---- Express); and upon receipt, if sent by certified or registered mail, return receipt requested. Unless otherwise changed by notice, in each case notice shall be sent to: If to Executive, addressed to: Allan Goodson 824 Woodburn Drive Brentwood, Tennessee 37027 If to the Company, addressed to: On Command Corporation 6331 San Ignacio San Jose, California 95119 Attention: President and CEO Telecopier No. (408) 360-4701 With a copy to: Ascent Entertainment Group 1225 Seventeenth Street Denver, Colorado 80202 Attention: General Counsel Telecopier No. (303) 308-0489 14. Miscellaneous. This Agreement constitutes the entire agreement, and ------------- supersedes all prior agreements, of the parties hereto relating to the subject matter hereof, and there are no written or oral terms or representations made by either party other than those contained herein. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. The validity, interpretation, performance and enforcement of the Agreement shall be governed by the laws of the State of California. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. /s/ Allan Goodson -------------------------------- Allan Goodson, Executive ON COMMAND CORPORATION By: /s/ James A. Cronin, III ----------------------------- Title: Chairman and Acting Chief Executive Officer 12 EX-10.20 6 EMPLOYMENT AGREEMENT WITH DONALD M. ELLIMAN EMPLOYMENT AGREEMENT -------------------- AGREEMENT made and entered into effective January 1, 2000, by and between Ascent Sports Holdings, Inc., a Delaware corporation (the "Company"), and Donald M. Elliman Jr. (the "Executive"). W I T N E S S E T H : WHEREAS, the Company is a wholly owned subsidiary of Ascent Entertainment Group, Inc., a Delaware corporation ("Ascent"), and was formed to own and operate Ascent's sports-related businesses, the Denver Nuggets Limited Partnership, Colorado Avalanche, LLC and Ascent Arena Company, LLC; WHEREAS, the Company desires to employ the Executive as President of the Company, and the Executive desires to accept such employment, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Term. The Company hereby agrees to employ the Executive as ---- President of the Company and the Executive agrees to be so employed for a period commencing January 1, 2000 and ending August 31, 2000 (the "Term"). 2. Performance and Scope. During the Term hereof, the Executive agrees --------------------- to devote his full time and best efforts in the discharge of his duties for the Company. The Executive shall report directly to the Sports Businesses Committee of the Board of Directors of Ascent (the "Committee"). Except as otherwise provided in existing employment agreements, all other employees of the Company and its subsidiaries shall report, directly or indirectly, to the Executive. The parties hereto understand that the Executive shall at all times be subject to the authority and direction of the Committee and the Board of Directors of Ascent. 3. Compensation. ------------ a. As remuneration for the full-time services to be rendered to the Company during the Term, Executive shall be paid total compensation consisting of (i) a monthly base salary of $50,000 and (ii) benefits provided by Section 3(b) hereof. The base salary shall not be decreased during the Term. b. During the Term, in addition to his base salary, the Executive shall receive such benefits as may be extended to other senior executives of Ascent and Ascent's affiliates, including, if applicable, group life and health insurance benefits, retirement benefits, deferred compensation benefits, and expense reimbursements. 4. Termination of Employment. Notwithstanding the provisions of ------------------------- Section 1 hereof, Employee's employment hereunder may be terminated prior to the expiration of the Term upon the occurrence of any of the events described in clauses (i) through (v) of this Section 4. If the termination event is described in clause (i), (ii) or (iii), the Company shall pay to the Executive (or the Employee's estate, in the case of clause (ii)), within the five days immediately following the date of such termination of employment, a lump sum amount equal to the lesser of three-months base salary or the aggregate base salary otherwise payable to the Executive through the end of the Term. If the termination event is described in clause (iv) or (v), the Executive shall forfeit his right to any and all compensation and benefits he would have been entitled to receive with respect to any employment period which would otherwise have followed the date of such termination, but he shall not forfeit any rights or benefits he would otherwise receive or retain in the absence of this Agreement. The events of termination are as follows: (i) At any time by the Committee, without "Cause" (as defined in Section 4(v) hereof); or (ii) In the event of Employee's death; or 2 (iii) By the Committee in the event Executive is unable to perform his services hereunder for a continuous period of thirty (30) days by reason of his physical or mental illness or incapacity, as determined in good faith by the Committee; or (iv) At the option of Executive at any time upon ninety (90) days prior written notice to the Committee; or (v) At any time by the Committee, for "Cause", which, for purposes of this Agreement, shall mean (x) the continued and deliberate failure of the Executive to perform his material duties in a manner substantially consistent with the manner reasonably prescribed by the Committee and in accordance with the terms of this Agreement (other than any such failure resulting from his incapacity due to physical or mental illness), which failure continues for ten (10) business days following the Executive's receipt of written notice from the Committee specifying the manner in which the Executive is in default of his duties, (y) the engaging by the Executive in intentional serious misconduct that is materially and demonstrably injurious to the Company, Ascent or their affiliates, or (z) any material breach by the Executive of Section 7 hereof. 5. Liability Insurance. The Executive shall be covered under the ------------------- liability insurance policy for directors and officers of Ascent and its affiliates to the same extent as other officers of Ascent and its affiliates. 6. No Mitigation. The Executive shall have no duty to mitigate his ------------- damages, if any, arising from any termination of his employment hereunder. 7. Noncompetition and Other Covenants. ---------------------------------- a. Trade Secrets; Return of Documents and Property. The Executive acknowledges that during the course of his employment he will receive secret, confidential and proprietary information ("Trade Secrets") of 3 the Company, Ascent and their affiliates and of other companies with which the Company, Ascent and their affiliates do business on a confidential basis and that the Executive will create and develop Trade Secrets for the benefit of the Company, Ascent and its affiliates. Trade Secrets shall include, without limitation, architectural and engineering data, customer and other marketing data, custom databases, "know-how," formulae, secret processes or machines, inventions, computer programs (including documentation of such programs) and other information of a similar nature to the extent not available to the public, and plans for future development. All Trade Secrets disclosed to or created by the Executive during his employment hereunder shall be deemed to be the exclusive property of the Company. The Executive acknowledges that Trade Secrets have economic value to the Company due to the fact that Trade Secrets are not generally known to the public or the trade and that the unauthorized use or disclosure of Trade Secrets is likely to be detrimental to the interests of the Company, Ascent and their affiliates. The Executive therefore agrees to hold in strict confidence and not to disclose to any third party any Trade Secret acquired or created or developed by the Executive during the Term of this Agreement except (i) when the Executive is required to use or disclose any Trade Secret in the proper course of the Executive's rendition of services to the Company, Ascent or their affiliates hereunder, (ii) when such Trade Secret becomes public knowledge other than through a breach of this Agreement, or (iii) when the Executive is required to disclose any Trade Secret pursuant to any valid court order in which the Executive is required to disclose such Trade Secret. The Executive shall notify the Company immediately of any such court order in order to enable the Company to contest such order's validity. After termination of this Agreement, the Executive shall not use or otherwise disclose Trade Secrets unless such information (x) becomes public knowledge or is generally known in the sports industry among executives comparable to the Executive other than through a breach of this Agreement, (y) is disclosed to the Executive by a third party who is entitled to receive and disclose such Trade Secret, or (z) is required to be disclosed pursuant to any valid court order, in which case the Executive shall notify the Company immediately of any such court order in order to enable the Company to contest such order's validity. 4 b. Discoveries and Works. All discoveries and works made or --------------------- conceived by the Executive in connection with and during his employment by the Company pursuant to this Agreement, jointly or with others, that relate to the activities of the Company, Ascent or their affiliates ("Discoveries and Works") shall be owned by the Company. Discoveries and Works shall include, without limitation, architectural and engineering developments, marketing plans and proposals, and other works of authorship, inventions, computer programs (including documentation of such programs), technical improvements, processes and drawings. The Executive shall (i) promptly notify, make full disclosure to, and execute and deliver any documents requested by, the Company to evidence or better assure title to such Discoveries and Works in the Company, (ii) assist the Company in obtaining or maintaining for itself at its own expense United States and foreign copyrights, trade secret protection or other protection of any and all such Discoveries and Works, and (iii) promptly execute, whether during his employment by the Company or thereafter, all applications or other endorsements necessary or appropriate to maintain copyright and other rights for the Company and to protect its title thereto. c. Non-Competition. As an inducement for the Company to enter --------------- into this Agreement, the Executive agrees that for a period commencing as of the Effective Date and running through December 31, 2000 (the "Non-Competition Period"), the Executive shall not, without the prior written consent of the Committee, engage or participate, directly or indirectly, as principal, agent, employee, employer, consultant, stockholder, partner or in any other individual capacity whatsoever, in the conduct or management of, or own any stock or any other equity investment in or debt of, any business which is or could reasonably expected to be competitive with any business conducted or intended to be conducted by the Company, Ascent or their affiliates. For the purpose of this Agreement, a business shall be considered to be competitive with any business of the Company, Ascent or their affiliates only if such business is engaged in providing services or products (i) substantially similar to (A) any service or product provided by the Company, Ascent or their affiliates during his period of employment hereunder; (B) any service or product which directly evolves from or directly results from enhancements in the 5 ordinary course during the Non-Competition Period to the services or products provided by the Company, Ascent or their affiliates as of the date hereof or during his employment hereunder; or (C) any future service or product of the Company, Ascent or their affiliates as to which the Executive materially and substantially participate in the development or enhancement, and (ii) to customers, distributors or clients served by the Company, Ascent and their affiliates during the Non-Competition Period. d. Non-Solicitation of Employees. For a period commencing as of ----------------------------- the Effective Date and running through the first anniversary of the termination of the Executive's employment hereunder for any reason (the "Non-Solicitation Period"), the Executive will not (for his own benefit or for the benefit of any person or entity other than the Company, Ascent or their affiliates) solicit, or assist any person or entity other than the Company, Ascent or their affiliates to solicit, any officer, director, executive or employee (other than an administrative or clerical employee) of the Company, Ascent or their affiliates to leave his or her employment. e. Reasonableness; Interpretations. The Executive acknowledges ------------------------------- and agrees, solely for purposes of determining the enforceability of this Section 7, that (i) the markets served by the Company, Ascent and its affiliates are national and international and are not dependent on the geographic location of executive personnel or the businesses by which they are employed; (ii) the length of the Non-Competition Period and the lengtho of the Non-Solicitation Period are linked to the term of the Employment Period and the post-employment payment provided for in Section 4; and (iii) the above covenants are reasonable as an inducement for the Company to enter into this Agreement, and the parties expressly agree that such restrictions have been designed to be reasonable and no greater than is required for the protection of the Company. In the event that the covenants in this Section 7 shall be determined by any court of competent jurisdiction in any action to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, they shall be interpreted to extend only over the maximum period of time for which 6 they may be enforceable and/or to the maximum extent in all other respects as to which they may be enforceable, all as determined by such court in such action. f. Investment. Nothing in this Agreement shall be deemed to ---------- prohibit the Executive from owning equity or debt investments in any corporation, partnership or other entity which is competitive with the Company, Ascent or their affiliates, provided that such investments (i) are passive investments and constitute five percent (5%) or less of the outstanding equity securities of such an entity the equity securities of which are traded on a national securities exchange or other public market, or (ii) are approved by the Committee. 8. Enforcement. The Executive acknowledges that a breach of the ----------- covenants or provisions contained in Section 7 of this Agreement will cause irreparable damage to the Company, Ascent and their affiliates, the exact amount of which will be difficult to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that if the Executive breaches or threatens to breach any of the covenants or provisions contained in Section 7 of this Agreement, in addition to any other remedy which may be available at law or in equity, the Company shall be entitled to specific performance and injunctive relief, without posting bond. 9. Notices. All notices and other communications which are required ------- or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic or digital transmission method, provided that in such case it shall also be sent by certified or registered mail, return receipt requested; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal ---- Express); and upon receipt, if sent by certified or 7 registered mail, return receipt requested. Unless otherwise changed by notice, in each case notice shall be sent to: If to the Executive, addressed to: Donald M. Elliman Jr. [ ] [ ] If to the Company, addressed to: Ascent Entertainment Group Sports Business Committee 1225 Seventeenth Street Denver, Colorado 80202 Attention: Paul Gould and Chuck Neinas Telecopier No. (303) 308-0490 With a copy to: Ascent Entertainment Group 1225 Seventeenth Street Denver, Colorado 80202 Attention: General Counsel Telecopier No. (303) 308-0489 10. Severability. Subject to the last sentence of Section 7(e) hereof, ------------ if any provision of this Agreement shall be determined to be unenforceable or prohibited by any applicable law, such provision shall be ineffective to the extent, and only to the extent, of such unenforceability or prohibition without invalidating the balance of such provision or any other provision of this Agreement, and any such unenforceability or prohibition in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11. Miscellaneous. This Agreement constitutes the entire agreement, ------------- and supersedes all prior understandings or agreements relating to the subject matter hereof between Executive and the Company, Ascent or any affiliate thereof (or any predecessor of any such entity). No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. The validity, interpretation, performance and enforcement of the Agree- 8 ment shall be governed by the laws of the State of Colorado. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 12. Continuing Liability. Unless this Agreement or Employee's -------------------- employment hereunder is terminated in accordance with the express provisions hereof, the parties shall have no right to terminate this Agreement or the Employee's employment hereunder. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EXECUTIVE ASCENT SPORTS HOLDINGS, INC. /s/ Donald Elliman /s/ Charles M. Neinas - --------------------------- --------------------------------- Donald Elliman, By: Charles M. Neinas Executive Title: Chairman 9 EX-21 7 SUBSIDIARIES OF THE COMPANY Exhibit 21 Subsidiaries of the Company On Command Corporation On Command Development Corporation On Command Video Corporation SpectraVision, Inc. Spectradyne International, Inc. On Command Hong Kong Limited On Command Australia Pty Limited On Command (Thailand) Limited Spectradyne Singapore Pfc Limited On Command Canada, Inc. Kalevision Systems, Inc. Canada Spectradyne International, Inc. Sucursal en Mexico Ascent Sports Holdings, Inc. Ascent Sports LLC Ascent Arena and Development Corporation Ascent Arena Company, LLC Ascent Arena Operating Company, LLC The Denver Arena Trust The Denver Nuggets Limited Partnership The Colorado Avalanche LLC Ascent Beacon Corporation EX-23.1 8 CONSENT OF DELOITTE Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-09067 and 33-09053 of Ascent Entertainment Group, Inc. on Form S-8 of our report dated March 10, 2000, appearing in this Annual Report on Form 10-K of Ascent Entertainment Group, Inc. for the year ended December 31, 1999. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Denver, Colorado March 24, 2000 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 60,349 0 33,492 0 0 179,649 294,498 0 581,301 68,370 339,922 0 0 297 99,424 581,301 0 275,379 0 187,302 130,444 0 29,265 (48,841) 2,277 (51,118) (26,459) 0 0 (77,577) (2.61) (2.61)
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