-----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, Md48Ty65Jy+mHKcX8eUlPavzfOoLEBiC5Lg/kCuuQLP0PxE4RCTvq3CS2XcaHYcq RKwGRcPY9Lep9dxBjk775w== 0000927356-99-000502.txt : 19990330 0000927356-99-000502.hdr.sgml : 19990330 ACCESSION NUMBER: 0000927356-99-000502 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 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: 99576603 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 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, 1998 COMMISSION FILE NO. 0-27192 ASCENT ENTERTAINMENT GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 52-1930707 (State or 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 $302,212,751 based on a price of $10.1565 per share, which was the average of the bid and asked prices of such stock on March 15, 1999, as reported on the NASDAQ National Market reporting system. 29,755,600 shares of Common Stock were outstanding on March 15, 1999. DOCUMENTS INCORPORATED BY REFERENCE The registrant's definitive proxy statement with respect to its annual meeting of stockholders is incorporated herein to Part III of this document by reference. TABLE OF CONTENTS
Page Part I Item 1. Business.............................................. 4 General Information................................... 4 Multimedia Distribution............................... 5 On Command Corporation................................ 5 General............................................... 5 OCC Operating and Growth Strategy..................... 6 Services and Products................................. 6 Technology............................................ 8 Sales and Marketing................................... 8 Installation and Service Operations................... 9 Hotel Contracts....................................... 9 Suppliers............................................. 9 Competition........................................... 10 International Markets................................. 11 Investment in OCC..................................... 11 Entertainment......................................... 11 Colorado Avalanche and Denver Nuggets................. 11 General............................................... 11 Sources of Revenue.................................... 12 Ticket Sales.......................................... 12 Television, Cable and Radio Broadcasting.............. 13 Sponsorships.......................................... 13 Other Sources......................................... 13 NBA and NHL Governance................................ 14 Collective Bargaining................................. 14 Competition........................................... 15 Broadcast Operations.................................. 15 The Pepsi Center...................................... 15 Network Services...................................... 17 Ascent Network Services............................... 17 Discontinued Operations............................... 17 Regulation............................................ 18 Patents Trademarks and Copyrights..................... 18 Employees............................................. 18 Item 2. Properties............................................ 18 Item 3. Legal Proceedings..................................... 19 Item 4. Submission of Matters to a Vote of Security Holders... 19 Executive Officers of the Registrant.............................. 19 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................................... 21 Item 6. Selected Financial Data............................... 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 24 Item 7A. Qualitative and Quantitative Disclosures about Market Risk........................................... 35 Item 8. Financial Statements and Supplementary Data........... 36 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 61
2 Part III Item 10. Directors and Executive Officers of the Registrant.... 61 Item 11. Executive Compensation................................ 61 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................ 61 Item 13. Certain Relationships and Related Transactions........ 61 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................. 61 3 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 three reportable segments, Multimedia Distribution, Entertainment and Network Services. In the Company's Multimedia Distribution segment, the Company's approximately 57% 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 Entertainment segment is comprised of two professional sports franchises - the National Hockey League ("NHL") Colorado Avalanche (the "Avalanche") and the National Basketball Association ("NBA") Denver Nuggets (the "Nuggets") and the Pepsi Center, a new state-of-the-art sports and entertainment center in downtown Denver that the Company is constructing through its subsidiary Ascent Arena Company, LLC. The Company believes that the construction of the Pepsi Center will enhance the asset value of its sports franchises, allow the Company to take advantage of the growing popularity of the NHL and NBA, and augment the revenues and operating cash flows of the two sports franchises. The Pepsi Center is scheduled to be completed by the fall of 1999 and available for use in the 1999-2000 NHL and NBA seasons. 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. Finally, on January 20, 1999, the Company sold a 90% interest in its subsidiary Beacon Communications, LLC, the successor in interest to Beacon Communications Corp. ("Beacon"), an independent motion picture and television production company whose most recently produced films include AIR FORCE ONE, A THOUSAND ACRES and PLAYING GOD, to an investment group which included Armyan Bernstein, Beacon's Chief Executive Officer. The Company began accounting for Beacon as a discontinued operation as of December 31, 1998. (See Note 2 to the Company's Consolidated Financial Statements). 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 "Offering") of Ascent's common stock was completed in December 1995. As a result of the Offering, 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. 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 4 COMSAT's consolidated tax group (See Note 13 to the 1998 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 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 1998 and anticipated operating losses thereafter. (See Note 13 to the 1998 Consolidated Financial Statements.) MULTIMEDIA DISTRIBUTION On Command Corporation General 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, according to a report published by Paul Kagan Associates, Inc., an industry analyst. The Company believes that OCC's leading market position results from a combination of its extensive installed room base, the quality of its proprietary technology and its focus on customer service. OCC generally provides its in-room video entertainment services pursuant to exclusive long- term contracts, primarily with large national business and luxury hotel chains such as Marriott, Hilton, Hyatt, Doubletree, Fairmont, Embassy Suites, The Four Seasons and Holiday Inn. These hotels generally have higher occupancy rates than economy and budget hotels, which is an important factor contributing to higher buy rates for pay-per-view service. As of December 31, 1998, OCC had an installed room base of approximately 929,000 rooms (of which 829,000 were served by on-demand pay-per-view systems and 100,000 were only served by scheduled pay- per-view systems) in approximately 3,220 hotels worldwide. In addition to installing OCV systems in hotels served by OCV, OCV sells its systems to certain other providers of in-room entertainment, including Hospitality Network, Inc., which is licensed to use OCV's system to provide on- demand, in-room entertainment and information services to certain gaming-based, hotel properties, and, through September, 1998, MagiNet Corporation ("Maginet") (formerly Pacific Pay Video Limited), which had been licensed to use OCV's system to provide on-demand in-room entertainment in the Asia-Pacific region. In September 1998, On Command revoked Maginet's license to use the OCV system for violations of the license agreement and filed suit to recover past due license fees. (See Item 3, Legal Proceedings.) In October 1996, OCC acquired the assets and certain liabilities of SpectraVision (the "Acquisition"). Immediately prior to the Acquisition, OCV, formerly an 84% (78.4% on a fully diluted basis) owned subsidiary of the Company, was merged with a subsidiary of OCC, On Command Merger Corporation, and OCV as the surviving corporation became a wholly owned subsidiary of OCC (the "Merger" and with the Acquisition, the "OCC Transactions"). Additionally, 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. The Acquisition enhanced OCC's position as the leading provider of on- demand in-room video entertainment services to the domestic lodging industry and approximately doubled the number of installed rooms served by OCC. Through December 31, 1998, OCC had converted approximately 137,000 hotel rooms previously served by SpectraVision systems to OCC's on-demand system, resulting in higher average room revenues and lower operating costs. The Acquisition also increased OCC's international base of rooms better positioning it to expand further into international markets, which represent a significant growth opportunity for OCC. As of December 31, 1998, approximately 13.4% of OCC's hotel rooms served, or 124,000 rooms, are located in international markets. 5 OCC's primary on-demand system currently is the OCV system, a patented video selection and distribution system that allows guests to select at any time up to 50 motion pictures on computer-controlled television sets located in their rooms. By comparison, hotels still equipped with SpectraVision technology generally offer fewer choices if served by SpectraVision on-demand systems or only offer hotel guests eight movies per day at scheduled times, or some combination thereof. Management expects to have a substantial majority of SpectraVision rooms converted to OCV's on-demand system by 2000. OCC also provides in-room viewing of free-to-guest programming of select cable channels (such as HBO, Showtime, ESPN, CNN, WTBS and the Disney Channel) and other interactive services. The high speed, two-way digital communications capability of the OCV system enables OCC to provide advanced interactive features, such as video games, in addition to basic interactive services such as video checkout and guest surveying. In addition to the design innovation and quality of its products, OCC considers a focus on customer satisfaction as central to the maintenance and growth of its business. OCC Operating and Growth Strategy The Company believes that the superior on-demand capability and range of services offered as well as the system reliability and high quality service of OCC's on-demand video technology, its long-term contracts primarily with national business and luxury hotel chains and high pay-per-view movie room revenue, differentiate OCC from its competitors. OCC's strategy is to increase revenues and operating cash flows through the following initiatives: (i) increase its installed hotel customer base by obtaining new 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; (ii) increase revenues and decrease costs in certain hotels acquired in the Acquisition by installing OCV technology offering greater reliability, broader selection and more viewing flexibility; (iii) create new revenue sources through an expanding range of interactive and information services offered to the lodging industry; and (iv) expand its room base in underserved foreign markets. The Company estimates that OCC may incur capital expenditures of approximately $65 to 90 million in 1999, a substantial portion of which will relate to the conversion of SpectraVision rooms to OCV's on-demand system and the upgrading of the OCC technology. These capital expenditures will be made by the Company in furtherance of its goals of increasing revenues and operating cash flows, enhancing asset value and achieving long-term growth. Services and Products OCC provides on-demand and, in some cases, scheduled in-room television viewing of major motion pictures (including new releases) and independent non- rated motion pictures for mature audiences for which a hotel guest pays on a per-view basis, and beginning in the first quarter of 1999, on a pay-per-day basis. Depending on the type of system installed and the size of the hotel, guests can choose from up to 50 different movies with an OCV on-demand system. Those rooms still equipped with SpectraVision's tape-based systems, which were acquired in the Acquisition, offer hotel guests either eight movies a day at predetermined times or on-demand selection from a library of videotapes the extent of which varies depending on the size of the hotel and the date of the technology. OCC has substantially completed the integration of SpectraVision's operating systems, financial reporting, sales, marketing and management following the Acquisition. In addition, OCC has been actively pursuing the renewal or extension of most of these contracts with hotel customers with SpectraVision equipment by offering these customers the opportunity to obtain OCC on-demand pay-per-view movie service and related services. As of December 31, 1998, OCC has converted approximately 137,000 rooms from SpectraVision's systems to OCV's on-demand system. A significant portion of the installed base of rooms acquired in the Acquisition remains to be converted. The conversion from SpectraVision to OCV technology, which is ongoing, typically offers financial benefits to OCC as a result of lower field service costs, increased revenues and reduced system down time. There can be no assurance however, that the conversion process will be completed on schedule or that the desired financial improvements will continue to be realized. The inability to complete the conversion process on schedule or to continue to realize such financial improvements could have a material adverse effect on the results of operations of OCC. OCC obtains non-exclusive rights to show 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 a motion 6 picture's 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 services under contracts with hotels that generally have 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 equipment utilized in providing the service. Traditionally, the hotel provides and owns the televisions; however, based on certain economic evaluations, OCC has provided televisions to certain hotels. OCC undertakes a significant investment when it installs its system in a property, sometimes rewiring part of the hotel. Depending on the size of the hotel property and the configuration of the system installed, the installed cost of a new on-demand system with interactive and video game services capabilities, including the head-end equipment, averages from approximately $375 to $750 per room. If OCC does not provide televisions to the hotel property, the average costs are $375 to $450 per room. OCC's contracts with hotels generally provide that OCC will be the exclusive provider of in-room, pay-per-view television 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 on the size and profitability of the system. Certain contracts 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 term of the contract based on the competitive situation in the market. Among its primary customers, Marriott, Holiday Inn and Hilton accounted for approximately 24%, 11% and 10%, respectively, of OCC's revenues for the year ended December 31, 1998. The loss of any of these customers, or the loss of a significant number of other hotel chain customers, could have a material adverse effect on OCC's results of operations or financial condition. The revenues generated from OCC's pay-per-view service are dependent upon 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 by property based on the property's location and competitive position within its 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 conditions. Currently, OCV's movie prices typically range from $8.95 to $9.95 for the first purchase by the hotel guest and, in certain hotels with OCV systems, $4.95 for each subsequent buy by the same guest on the same day. The hotels equipped with SpectraVision systems do not discount second buys. The current price for OCC's pay-per-day service is $15.99 per day. OCC has experienced periods of, and may continue to experience periods of, declines and increases in its movie buy-rates. While OCC takes all appropriate measures to reverse declines or continue increases, there can be no assurance that OCC's efforts to address such trends will be effective. In addition, as OCC tests and begins marketing new programming alternatives for guests, there can be no assurance that OCC's programming will timely meet market requirements, or that demand for pay-per-view movies will not be adversely impacted by new services. The hardware installed in OCV's systems 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. The in-room terminal unit may be integrated within, or located behind, the television. OCC emphasizes sales and installations of full-scale OCV video on-demand systems to business and luxury hotels. Through 1997, OCC marketed lower cost OCV VideoNOW systems to select mid-priced hotels. The VideoNOW system worked with the hotel's existing televisions and telephones, allowing guests to use their touchtone telephones to access movies and other programming. OCV has discontinued the marketing of VideoNOW systems due to OCC's development of a lower-cost scalable, on-demand system based substantially upon the OCV patented system. OCC also markets a free-to-guest service pursuant to which a hotel may elect to receive one or more programming channels, such as HBO, Showtime, CNN, ESPN, WTBS and other cable networks. OCC 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 services provided. OCC provides hotels free-to-guest services through a variety of arrangements including having the hotel pay OCC a fixed monthly fee for each service selected. Among the guest services provided are video check-out, room service ordering and guest satisfaction survey. Guest services are also currently made available in Spanish, French and certain other foreign languages. In most cases, the guest services are made part of the contract for pay-per-view services which typically runs for a term of five to seven years. 7 OCC is testing and selectively deploying several new services to complement its existing offerings and strengthen its growth strategy by creating new potential revenue sources. New technology and services include a digital server technology and high-speed, TV based and laptop connectivity internet offering which has been in a technical and marketing test phase for several months and, as noted above, a pay-per-day viewing option. OCC is also testing shorter and more targeted non-movie programming on a lower cost pay-per-view basis. The initial categories of content will include business, lifestyle, and kids-only. In addition, OCC is in the process of testing a new sports category of programming which provides hotel guests with a selection of out-of-market NBA games not already being televised nationally. Other professional sports being evaluated for this category are football, baseball and hockey. Finally, OCC plans to expand its video game offerings and plans to include such interactive innovations as PC-based games. Technology Technology in the entertainment and communications industry is continuously changing as new technologies and developments continue to be introduced, including developments arising in the cable (including wireless cable), telecommunications and direct-to-home and direct broadcast satellite industries. 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 OCV's system enables OCC to provide advanced interactive features, such as video games, in addition to basic interactive services such as video checkout and guest surveying. There can be no assurance however, that future technological advances will not result in improved equipment or software systems that could adversely affect OCC's competitive position. In order to remain competitive, OCC must maintain the programming enhancements, engineering and technical capability and flexibility to respond to customer demands for new or improved versions of its systems and new technological developments, and there can be no assurance that OCC will have the financial or technological resources to be successful in doing so. OCC's systems incorporate proprietary communications system designs with commercially manufactured components and hardware such as video cassette players, amplifiers and computers. Because systems generally use industry standard interfaces, OCC can integrate new technologies as they become economically viable. Sales and Marketing Prior to the Acquisition, substantially all of OCV's growth was 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, opportunities for additional growth in the United States will be more limited than in the past. Therefore, OCC intends to focus its sales and marketing efforts on (i) renewing and extending current contracts, (ii) unserved domestic hotels, and (iii) new hotel customers in international markets. OCC believes it has been successful at renewing its hotel contracts due to its large capital investment in wiring infrastructure of the hotel and its high quality service record. Further, OCC believes that, relative to the United States, many international markets are under-served by the in-room entertainment industry. OCC's marketing efforts are primarily focused on business and luxury hotels with approximately 150 rooms or more, as OCC 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. In connection with such smaller hotel segments, OCC has recently begun to employ additional engineering development and marketing efforts to target hotels with under 150 guest rooms. OCC intends to continue targeting established hotel chains and certain business and luxury 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 804,000 hotel rooms each month. 8 Installation and Service Operations At December 31, 1998, OCC's installation and service organization consisted of approximately 381 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. Installation and service personnel are responsible for system maintenance and distribution of video cassettes. OCC's installation personnel 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 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. When a service visit is required, the modular design of the OCV and SpectraVision systems generally permits installation and service personnel to replace defective components at the hotel site. Hotel Contracts OCC typically enters into a separate contract with each hotel for the services provided. Contracts with the corporate-managed hotels in any one chain generally are negotiated by that chain's corporate management, and the hotels subscribe at the direction of the corporate management. 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, 1998, 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 8% of the pay-per-view hotels served by OCC have contracts expiring in 1999. However, some of the SpectraVision hotel contracts, which OCC classified internally as expiring, have two year automatic renewal provisions 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. Suppliers OCC contracts directly with various electronics firms for the manufacture and assembly of its systems hardware, the design of which is controlled by OCC. 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 OCC'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 implemented. In such event, OCC could experience a temporary reduction in the rate of new room installations and/or an increase in the cost of such installations. 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 it is installed by OCC-employed and trained technicians, typically assisted by independent contractors. For those hotels for which OCC supplies televisions, OCC purchases such televisions from a small number of television vendors. In the event of a significant price increase for televisions by such vendors, OCC could face additional, unexpected capital expenditure costs. OCC also maintains direct contractual relations with various suppliers of pay-per-view and free-to-guest programming, including the motion picture studios and programming networks. OCC obtains its free-to-guest programming pursuant to multi-year license agreements and pays its programming suppliers a monthly fee based upon the number of rooms offering the service. OCC believes its relationships with all suppliers are good. 9 In addition, OCC receives satellite signal transmission services for much of its domestic cable television programming from DirecTV, Inc. ("DirecTV"). While OCC believes that its relationship with DirecTV is good, 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 There are several providers of in-room video entertainment to the domestic lodging industry, several of which provide on-demand pay-per-view and free-to-guest programming and other interactive services over the hotel 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 potential competitors that could utilize their existing infrastructure to provide in-room entertainment to the lodging industry, including major hotel chains themselves, cable companies (including wireless cable), telecommunications companies, and direct-to-home and direct broadcast satellite companies. Some of these potential competitors are already providing free-to-guest services to hotels and testing video-on-demand. OCC is the leading provider (by number of hotel rooms served) of in-room video entertainment and information services to the United States lodging industry. OCC is also the leading provider (by number of hotels rooms served) of in-room on-demand video entertainment and information services to the United States lodging industry. OCC competes on a national scale primarily with LodgeNet Entertainment Corporation ("LodgeNet") and on a regional basis with certain other smaller entities. Based on publicly filed information, OCC estimates that, at December 31, 1998, LodgeNet served approximately 597,000 pay-per-view rooms, of which 582,000 are equipped with on-demand service. At December 31, 1998, OCC served approximately 929,000 rooms, of which approximately 829,000 are on-demand rooms. Competition with respect to new pay-per-view 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 as compared to outside competitors. The Company believes that OCC's competitive advantages include (i) technological leadership represented by its superior on-demand capability and range of services offered, and (ii) system reliability and high quality service. OCC believes that its growth (including OCV's growth over the previous four years) reflects the strong competitive position of OCC's products and services. The OCC system offers an expansive library of on-demand movies and will allow OCC to upgrade and add new features to the OCC system during the terms of the pay-per-view contracts. OCC anticipates substantial competition in obtaining new contracts with major hotel chains. The Company believes that hotels view the provision of in- room on-demand entertainment 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 informational 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 pay-per-view service provider. While the Company believes its competitive advantages will enable OCC to continue to offer financial arrangements that are attractive to hotels, its competitors may attempt to gain or maintain market share at the expense of profitability. OCC may not always be willing to match the incentives provided by its competitors. In addition, while the Company is addressing the likelihood of increased demand for internet services in the hotel guest room, OCC may face additional competition for guest time and resources from traditional as well as new competitors. Some of these competitors may be better funded from both public capital or private venture capital markets and have access to additional capital resources which OCC does not have. 10 The communications industry is subject to rapid technological change. New technological developments could adversely affect OCC's operations unless it 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, Mexico, Puerto Rico, the U.S. Virgin Islands, Hong Kong, Singapore, Thailand, Australia, the Bahamas, Europe, and elsewhere in the Asia- Pacific region. OCC 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. The effect of the Asian economic crisis has contributed to a decline in revenues from that region. In addition, OCC generally incurs greater capital expenditures and operating costs outside of the United States. At December 31, 1998, OCC serviced 421 hotels with a total of 124,000 rooms located outside the United States. The competition to provide pay-per-view services to international hotels is even more dispersed 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. In connection with the OCC Transactions, 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 former minority stockholder of OCV that is unaffiliated with the Company but is 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. The Company currently has no agreements or understandings with respect to the minority stockholders of the Company 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 OCC Transactions 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. ENTERTAINMENT Colorado Avalanche and Denver Nuggets General 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. With the success of the NHL and NBA over the past two decades as shown in higher ticket sales, increased average attendance, increased merchandising sales and licensing fees, more profitable national and local broadcast packages and increased expansion fees, NHL and NBA sports franchises have increased in value and revenue generation over that period. The Company believes that the NHL in general has grown in popularity as evidenced by aggregate league-wide ticket sales of approximately 15.7 million and record revenues from ticket sales of approximately $613 million during the 1997-1998 season (a 3% decrease in number of tickets sold and a 3.3% increase in revenues from the 11 prior season). This popularity is further evidenced by the increase in the expansion fee paid for an NHL expansion team from $6 million paid in 1979 to $80 million paid in 1998 and to be paid in 1999 and 2000 by each of the new NHL expansion teams to be located in Nashville, Tennessee, Atlanta, Georgia, Columbus, Ohio and Minneapolis-St. Paul, Minnesota, as approved by the NHL Board of Governors in June 1997. The increased popularity of the NHL resulted in 1998 in a new five-year national broadcasting television rights agreement with the ESPN and ABC television networks commencing in the 1999-2000 season with aggregate license fees of $600 million compared to the five year television rights agreement with FOX television network and a five year cable television agreement with ESPN which provided for fees of $220 million over the same number of seasons. In addition, in 1998, the NHL completed an exclusive four-year broadcast agreement extension with its Canadian broadcaster through the 2001- 2002 season for aggregate license fees of approximately $192 million. The NBA is a professional sports enterprise that has experienced a significant rise in popularity over the past decade. The popularity of the NBA is evidenced by the doubling of NBA ticket sales over the past decade to approximately 16.9 million and record revenues from ticket sales of $651 million during the 1997-1998 season (average game attendance increased by over 50% to approximately 14,240 for the 1997-1998 season and league-wide ticket revenues increased 9.6%). The NBA's popularity is further evidenced by the increase in the expansion fee paid for an NBA expansion team in the last two decades from $12 million paid in 1980 to $125 million paid in 1995. The current national television contracts with NBC and Turner Sports, which commenced with the 1998- 1999 season, provide for $2.6 billion in aggregate fixed revenues to NBA member teams over the four-year term of such contracts and such contracts also provide for revenue sharing. Due to labor difficulties, the scheduled start of the 1998-1999 NBA regular season was delayed until February 5, 1999. Consequently, the Nuggets' 1998-1999 season will consist of 50 games, 25 of which will be played at the Nuggets home arena. Additionally, the two exhibition games that the Nuggets participated in prior to the beginning of the 1998-1999 NBA season produced no revenue to the team. However, the impact to the Company of the decreases in revenue at the Nuggets due to the delay of the 1998-1999 NBA season was partially offset by the reduction in costs for the Nuggets for the 1998-1999 season, primarily a reduction in player salaries. (See Note 9 of the Company's Consolidated Financial Statements and Management's Discussion and Analysis.) In August 1997, the Company capitalized on the growing demand for popular branded regional sports programming by entering into a license agreement with Fox Sports Rocky Mountain ("Fox Sports"), a partnership between Liberty Media Corporation ("Liberty") and Fox News Corporation (the "Fox Sports Agreement") for the local television rights (over-the-air and cable) for the Nuggets and the Avalanche. The Fox Sports Agreement has a term of seven years, and commenced with the 1997-1998 playing season. The agreement provides for license fees that may exceed $100 million if paid over the life of the agreement and significantly increases revenues to the Company from these rights as compared to prior years. As a result of the Fox Sports Agreement, Avalanche and Nuggets games will continue to be distributed to over 2.7 million viewers in the seven states served by Fox Sports. The Company believes that it can achieve growth in revenues and operating cash flow from the Avalanche and the Nuggets. The three key elements of the Company's strategy to realize such growth are to: (i) complete the construction of the Pepsi Center for the 1999-2000 season; (ii) continue the strong performance of the Avalanche and take steps to improve the Nuggets' on-court performance; and (iii) build on the existing base of the Company's sports franchise assets and the recent Fox Sports Agreement through complementary entertainment and distribution opportunities in the Rocky Mountain region. Sources of Revenues The Avalanche and the Nuggets derive a significant amount of their revenues from the sale of tickets to home games, the licensing of local market television, cable network and radio rights and from distributions under revenue- sharing arrangements with the NBA and NHL, as well as other ancillary sources. Ticket Sales. Each of the Avalanche and the Nuggets play an equal number of - ------------- home games and away games during the 82-game NBA and 82-game NHL regular seasons. In addition, the teams play approximately eight exhibition games prior to the commencement of the regular season. As noted previously, for the 1998- 1999 NBA season, the Nuggets will play 50 games, split equally between home and away and will play no exhibition games which generate ticket revenue. The Avalanche and the Nuggets receive all revenues from the sale of tickets to regular season home games (subject, in the case of the Nuggets, to an NBA gate assessment) and no revenues from the sale of tickets to regular season away games. Generally, the Avalanche and the Nuggets retain all revenues from the sale of tickets to home exhibition games played in Denver and the Rocky Mountain region (less appearance fees 12 paid to the visiting team), and receive appearance fees for exhibition games played elsewhere. If the Avalanche or the Nuggets compete successfully during the regular season and make the playoffs in their respective league, the team receives revenues from the sale of tickets to home playoff games, although a portion of such ticket revenue is shared with the respective league. From the 1995-1996 season to the present, average ticket prices to the Avalanche games have increased by 74.6%, and, from the1991-1992 season to the present, average ticket prices to the Nugget games have increased by 87.2%. In the 1998-1999 season, average ticket prices for the Avalanche and Nuggets represented 118% and 76% of the average NHL and NBA ticket prices. The seating capacity of Denver's McNichols Arena is approximately 17,000 for Nuggets basketball games and approximately 16,000 for the Avalanche hockey games, including 18 executive suites containing a total of 284 seats. The policy of the Avalanche and the Nuggets is to limit the number of season tickets so that approximately 25% of the tickets are available on a per game basis. For the 1998-1999 season, the Avalanche have sold 12,000 season tickets and the Nuggets have sold approximately 5,600 season tickets. The Avalanche currently enjoys the longest consecutive record of sell-out games in the NHL (over 170 games as of the date of this Annual Report on Form 10-K). Television, Cable and Radio Broadcasting. The NHL and NBA, as agents for their - ----------------------------------------- respective members, license the national television rights for Avalanche and Nuggets games, respectively. In 1998, the NHL entered into a new five-year national television contract commencing in the 1999-2000 season with ESPN and ABC with aggregate license fees of $600 million. In addition, in 1998, the NHL completed an exclusive four-year extension of its broadcast agreement with its Canadian broadcaster through the 2001-2002 season for aggregate license fees of approximately $192 million. The NBA's current national television contracts with NBC and Turner Sports commenced with the 1998-1999 season and provide for $2.6 billion in aggregate fixed revenues to NBA member teams over the four-year term of such contracts and such contracts also provide for revenue sharing. Each NHL or NBA member team shares equally in the license fees from their respective national television contracts, except that pursuant to an agreement entered into when the Nuggets and the other former American Basketball Association ("ABA") teams joined the NBA, a portion of the NBA national television revenues otherwise payable to each of the former ABA teams is paid to a group that owned an ABA franchise that was not admitted to the NBA. In August 1997, the Company capitalized on the growing demand for popular branded regional sports programming by entering into the Fox Sports Agreement. The Fox Sports Agreement has a term of seven years, commencing with the 1997- 1998 playing season, provides for license fees that may exceed $100 million if paid over the life of the agreement and significantly increases revenues to the Company from these rights as compared to prior years. In addition, both the Nuggets and the Avalanche license the local rights to broadcast all games on radio under agreements with KKFN, 950 AM. Sponsorships. In 1998 each of the Avalanche and the Nuggets entered into long- - ------------- term sponsorship agreements with the Pepsi-Cola Company ("Pepsi"), the Coors Brewing Company ("Coors"), The Denver Post (the "Post") and US West, Inc. ("USWest"). The Pepsi sponsorship agreement is for a twenty year term and grants Pepsi exclusive sponsorship and promotional rights in the non-alcoholic beverage category. The Coors sponsorship agreement is for a ten year term and provides Coors with exclusive sponsorship and promotional rights in the malt beverage category. The Post sponsorship agreement is for a ten year term and grants the Post sponsorship and promotional rights as the exclusive newspaper sponsor for the teams. The US West sponsorship agreement is for a fifteen year term and provides US West with exclusive sponsorship and promotional rights in the telecommunications services category. Each of the foregoing agreements significantly increases revenues to the Company from these rights as compared to prior years and each agreement is subject to existing and future NBA and NHL rules, regulations and sponsorship and licensing arrangements, as applicable. Other Sources. Other sources of revenues for each of the Nuggets and the - -------------- Avalanche include their pro rata share of franchise fees to be paid by expansion teams upon entry to the NBA or NHL and promotional and novelty revenues, including royalties from marketing and merchandising conducted by each of the NBA and NHL. In 1995, the Nuggets recorded $9.2 million in revenues in connection with the admission of two new franchises into the NBA. In connection with obtaining the NHL's consent to the Company's acquisition of the Avalanche franchise and relocation of the Avalanche to Denver, the Company agreed that up to $2 million of the Avalanche's share of expansion fees from each of the next four expansion teams will be retained by the NHL. In connection with the NHL expansion described above, the Avalanche received $944,000 in 1998 and are entitled to receive distributions out of such expansion fees from the NHL of approximately $1.1 million in 1999 and $2.2 million in 2000. 13 The Avalanche and the Nuggets also derive additional revenues through the sale of signage, promotions and program advertising space to corporate sponsors, arena concessions and parking and sales generated by team stores that sell NHL, Avalanche, NBA and Nuggets branded goods. Each member of the NBA and NHL assigns to its respective league the exclusive rights to the merchandising of its team name, insignia and other similar properties, subject to certain restrictions and limitations. Each of the leagues then pay royalties to each of their respective teams in consideration of the receipt of such rights. This assignment is subject to the Nuggets' and the Avalanche's right to use their insignia and symbols in connection with the promotion of the team in their home territory and retail sales in their home arena and team owned stores. Each of the NBA and NHL licenses other companies to manufacture and sell official NBA and NHL items such as warm-up jackets and sweatshirts, as well as certain non-sports items. NBA and NHL Governance The NBA and the NHL are generally responsible for regulating the conduct of their member teams. The NBA and the NHL establish the regular season and playoff schedules for the teams. They also negotiate, on behalf of their members, the leagues' national over-the-air and cable television contracts and collective bargaining agreements with the NBA and NHL Players' Associations. Because the NBA and NHL are joint ventures, each of their members generally has joint and several liability for the league's liabilities and obligations and shares in its profits. Any failure of other members of the NBA or the NHL to pay their pro rata share of any such obligations could adversely affect the Nuggets or the Avalanche, as the case may be. The success of the NBA and NHL and their member teams depends in part on the competitiveness of the other teams in their respective leagues and their ability to maintain fiscally sound franchises. Certain NBA and NHL teams have at times encountered financial difficulties, including the Pittsburgh Penguins who have filed for federal bankruptcy protection, and there can be no assurance that the NBA or the NHL and their respective members will continue to be able to operate on a fiscally stable and effective basis. Under the terms of the constitution and by-laws of the NBA and the NHL, league approval is required under certain circumstances, including in connection with the sale or relocation of a member team. Each of the NBA and the NHL is governed by a Board of Governors, which consists of one representative from each member team. The Board of Governors of each league selects the league Commissioner who administers the daily affairs of the league, including dealings with the Players' Association, interpretations of playing rules and arbitration of conflicts among members. The Commissioner also has the power to impose sanctions, including fines and suspensions, for violations of league rules. The Commissioner of each of the NBA and NHL has the exclusive power to interpret the constitution, by-laws, rules and regulations of their respective league, and their interpretations are final and binding on the Company, the Nuggets, the Avalanche and their personnel. In addition, member clubs of the NBA and NHL may not resort to the courts to enforce or maintain rights or claims against other member clubs, or to seek resolution of any dispute or controversy between member clubs, but instead all such matters must be submitted for final and binding determination to the respective Commissioner of such league without any right of appeal to the courts or otherwise. Finally, each of the NHL and the NBA prohibits the acquisition of 5% or more of the direct or indirect ownership interests in a member club owned by a publicly traded company without the respective league's prior consent. Neither the NBA nor the NHL, nor any of their respective member clubs, nor any officer or employee of either league or its member clubs, other than the Company, has reviewed in advance the information being provided in this report, or assumes any responsibility for the accuracy of any representations made by the Company to any potential investors. Collective Bargaining 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 does not expire until September 15, 2000, both the NHL and NHL Players' Association had the right to 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. 14 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. Competition The Nuggets and the Avalanche compete for sports fans' entertainment dollars not only with each other and other major league sports, but also with minor league sports, college athletics, other sports entertainment and non- sports entertainment such as the Colorado Symphony, the Colorado Opera and the Colorado Ballet, movies, local theater and recreational activities such as skiing. During portions of their respective seasons, the Nuggets and the Avalanche will experience competition from each other, professional football (the Denver Broncos) and professional baseball (the Colorado Rockies). In addition, the colleges and universities in the Rocky Mountain region, as well as public and private schools, offer a full schedule of athletic events throughout the year. The Nuggets and the Avalanche compete with other United States and foreign teams, professional and otherwise, for available players and the upcoming NHL expansion will increase the competition for talented players among NHL teams. In this regard, there can be no assurance that the Avalanche will be able to retain all of its key players in the event of an expansion draft or that the rules regarding the expansion draft will not change to the detriment of the Company. Ultimately, the success of each of the Nuggets and Avalanche will depend upon each team's continued ability to retain and attract talented, healthy players. Broadcast Operations In addition to its Denver sports franchises, the Company also owns a one- third interest in Colorado Studios, a Denver television production company that owns and operates mobile television production facilities. On behalf of Fox Sports, Colorado Studios produces and transmits to the Rocky Mountain region Nuggets and Avalanche games. Colorado Studios is equally owned by the Company, Fox Sports and Norac, Inc., a Denver-based television production company. The Pepsi Center The Nuggets and the Avalanche currently play in McNichols Arena, one of the oldest arenas in use in either the NBA or the NHL, with seating capacity and configuration and other revenue generating attributes significantly less advantageous than those of more modern facilities. The Company has entered into the 1997 Denver Arena Agreement (the "Arena Agreement") with the City and County of Denver ("City") setting forth the terms on which the Company, through Ascent Arena Company, LLC (the "Arena Company"), will construct, own and manage the new Pepsi Center in downtown Denver. Management believes that moving to the Pepsi Center in the 1999-2000 NHL and NBA seasons will increase the revenues, operating cash flows and asset value of the Company's two sports franchises. The Pepsi Center will also create incremental revenue sources and cash flows from other entertainment events and retail merchandising. Under current plans, the Pepsi Center will increase seating capacity for the Avalanche and the Nuggets from 16,000 and 17,000 seats, respectively, at McNichols Arena to 18,100 and 19,300 seats, respectively. For other events, seating capacity will be as high as 20,000, depending on the configuration. The Pepsi Center will have 93 luxury suites available for lease (compared to 18 suites at McNichols Arena), all of which have lease commitments with terms of five to ten years (at lease amounts from $90,000 to $180,000 per year). The Pepsi Center will also have over 1,854 club seats, approximately 1,400 of which have license commitments with terms of two to five years, at license amounts from approximately $5,000 to $8,000 per year, (compared to none at McNichols Arena) and enhanced concessions, retail and restaurant facilities, including a 236-seat club level restaurant (which McNichols Arena does not have). The Company anticipates that the added luxury suites, club seats and increased seating capacity, combined with naming rights, founding sponsor arrangements and enhanced facilities, will result in significantly increased revenues to the Company. However, although construction of the Pepsi Center is underway and currently on schedule for completion in the fourth quarter of 1999, completion of construction does entail significant risks including regulatory and licensing requirements, shortages of materials or skilled labor, unforeseen engineering, environmental or geological problems, work stoppages, weather interference, unanticipated cost increases and challenges from local residents. No assurance can 15 be given as to whether or when the proposed Pepsi Center will be completed or, if completed, that the budgeted costs of the Pepsi Center will not be exceeded. In addition, no assurance can be given that, once the Pepsi Center is completed, attendance for the Pepsi Center events or revenues generated by the Pepsi Center will achieve projected levels. 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. On March 28, 1996, Ascent purchased from The Anschutz Corporation ("TAC") all of TAC's interests in the proposed arena development project, including, among other things, all of TAC's interest in the Arena Company, for $6.6 million in cash and, contingent on the construction and occupancy of the new arena, an additional payment of $5 million on a non-interest bearing basis plus a paid- up suite license. The Company paid TAC the final installment on the $5 million payment on July 15, 1998, and has no further cash payment obligation to TAC in connection with the Pepsi Center. On November 13, 1997, Ascent entered into the Arena Agreement with the City. The Arena Agreement sets forth the terms whereby Ascent, through the Arena Company, will construct, own and manage the Pepsi Center. These terms include: (i) the Nuggets and the Avalanche would be released from their existing leases at McNichols Arena upon the completion of the Pepsi Center; (ii) in consideration for such release and other consideration from the City, upon completion of the Pepsi Center, the land associated with the Pepsi Center will be transferred to the City and the City will lease the land back to the Arena Company for a period of 23 years (with a possible extension for two years), after which the City will contribute the land back to the Arena Company; (iii) the Arena Company will be entitled to rebates on property taxes for a 23-year term (with a possible extension for two years), and rebates on sales and use taxes during the construction of the Pepsi Center; and (iv) the City will be entitled to annual payments out of sales taxes generated at the Pepsi Center and other Company revenues in the aggregate amount of $1 million per year during the first five years of operation, and subsequently increasing at a rate depending on attendance. Pursuant to a Land Purchase Agreement with Southern Pacific Transportation Company ("SPT"), on November 14, 1997, the Arena Company purchased approximately 50 acres of undeveloped land in downtown Denver, a portion of which will serve as the site for the proposed Pepsi Center and related parking. The land not used for the Pepsi Center and related parking will be developed by Ascent into restaurant, retail and office facilities. The Land Purchase Agreement provides for the Arena Company and SPT to effect a State- approved voluntary environmental remediation plan on the site with SPT responsible for substantially all of the costs thereof, and for SPT to provide continuing indemnification with regard to certain other environmental liabilities through 2022 on a declining percentage basis. However, there can be no assurance that SPT will meet its obligation to fund the construction period work under the voluntary cleanup plan or provide indemnification for other environmental liabilities or that, after implementation of the voluntary remediation plan, governmental authorities will not order the Arena Company to perform additional remediation. Development and construction of the Pepsi Center will cost approximately $169.1 million. 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. In addition to the proceeds of the Arena Notes offering, development and construction of the Pepsi Center is expected to require $30 to $60 million in equity investments, $15 million of which has been invested by a subsidiary of Liberty, $15 million of which has already been invested by the Company and the remainder of which, as required, is expected to be invested by the Company. In connection with Liberty's investment, Liberty's subsidiary will receive an ownership interest in the Arena Company that includes an interest in the capital of the Arena Company and a profits interest of approximately 6.5% representing the right to receive distributions from the Arena Company measured by reference to each of the Nuggets and the Avalanche. Liberty will not have any management or operating rights with respect to the Arena Company, the Nuggets or the Avalanche. In addition, Liberty was granted put rights beginning in July 2005 to require the Company to purchase from Liberty its then current ownership interest at its fair market value. Likewise, the Company has a call right beginning in July 2005 to purchase Liberty's interest at its then fair market value. The Board of Governors for both the NBA and NHL have approved the Liberty investment. 16 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. The Company is currently in negotiations with NBC regarding an extension for an additional three years through the end of 2002. Management believes the NBC Agreement will be renewed for such three year period and that NBC, at the end of such renewal, is likely to engage ANS to complete a full upgrade of the NBC distribution network to digital technology. No assurance can be provided however, that such renewal will be consummated, or that NBC will engage ANS to complete a full digital upgrade at the end of such renewal or that such renewal or full upgrade will be on terms as favorable to the Company as the current 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 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. 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 1999 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 Acquired in 1994, Beacon produced feature-length motion pictures for theatrical distribution and television programming. Since its inception in 1990, Beacon has produced nine motion pictures, including AIR FORCE ONE, A THOUSAND ACRES, PLAYING GOD and THE COMMITMENTS. 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 Chief Executive Officer. The purchase price for the 90% interest was $19 million in cash, net of certain adjustments, after which Ascent received approximately $16 million at closing. Ascent has also received cash consideration of approximately $1 million in the first quarter of 1999, post closing. 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 subject to limited purchase and sale options between Ascent and the buyers at a price proportionate to the initial purchase price. The Company began accounting for Beacon as a discontinued operation as of December 31, 1998. See Note 2 to the Company's Consolidated Financial Statements. 17 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, other than certain select SpectraVision hotels. However, the FCC's jurisdiction does encompass certain aspects of ANS's satellite delivery operations. Patents, Trademarks and Copyrights The Company uses a number of trademarks for its products and services, including "Ascent," "On Command," "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 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. OCV and SpectraVision own a number of patents and patent licenses covering various aspects of OCC's pay-per-view and interactive systems. Although OCV and SpectraVision maintain and protect these valuable assets, OCC believes that the design, innovation and quality of OCV's and SpectraVision's products and their relationships with their customers are at least as important, if not more so, to the maintenance and growth of OCC. Employees The Company had approximately 1,040 employees at December 31, 1998, excluding Beacon. The Company is subject to the NBA Collective Bargaining Agreement and the NHL Collective Bargaining Agreement, relating to the players for the Nuggets and the Avalanche, respectively. 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 also leases facilities for ANS from COMSAT in Maryland and for ANS in Palm Bay, Florida. In December 1996 OCC entered into a lease for facilities in San Jose, California and relocated its headquarters and OCV's manufacturing facilities to that location. In connection with the Acquisition, 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. The Avalanche and the Nuggets currently play their home games in Denver's McNichols Arena, an indoor sports arena located in downtown Denver. McNichols Arena is owned by the City and is made available to the Nuggets under a lease agreement which extends until the conclusion of the 2005-2006 season. McNichols Arena is made available to the Avalanche under a lease agreement which extends until the conclusion of the 1998-1999 season. The Nuggets and the Avalanche have an agreement with the City for use of McNichols Arena as well as offices and training rooms. The lease, as modified by the Arena Agreement (see Notes 5 and 9 of Notes to the Consolidated Financial Statements), extends through the completion of the new arena and requires annual maximum rental payments of $350,000 and $400,000 per year for the Nuggets and Avalanche, respectively. The City is generally responsible for maintaining McNichols Arena and providing administrative personnel such as ushers, electricians, janitors, technicians and engineers. The Avalanche and the Nuggets are responsible for providing police and fire safety personnel, announcers, timers, scorers and statisticians. The Avalanche and the Nuggets also share in revenue from food and beverage concessions and parking rights at McNichols Arena. 18 Construction of the Pepsi Center is underway and currently on schedule for completion in the fourth quarter of 1999. Under the terms of the Arena Agreement with the City, upon completion of construction of the Pepsi Center, the Avalanche and the Nuggets will be released from their existing leases at McNichols Arena, and the Nuggets and the Avalanche will be obligated to play in the Pepsi Center for a term of 23 years (with a possible extension of two years). See "Business-Entertainment-The Pepsi Center. 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 ABA-related obligations and litigation, including costs to defend such actions. The Company believes 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 and expects to receive an additional two payments of approximately $3.9 million (net of expenses) in each of July 1999 and July 2000. OCC will recognize the additional royalty revenue as the cash 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 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. EXECUTIVE OFFICERS OF THE REGISTRANT In accordance with General Instruction G to the Annual Report on Form10- K, included herein is the following table, which sets forth the names, ages at March 3, 1999 and titles of the executive officers of the Company, and biographical information with respect to such officers.
Name Age Office - ---- --- ------ Charles Lyons 44 Chairman of the Board, President and Chief Executive Officer James A. Cronin, III 44 Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director Brian A.C. Steel 39 President and Chief Operating Officer, On Command Corporation
19 Arthur M. Aaron 41 Vice President, Business and Legal Affairs and Secretary David A. Holden 39 Vice President, Finance and Controller Timothy Romani 36 President, Ascent Arena Company, LLC There is no family relationship between an officer and any other officer or director and no arrangement or understanding between an officer and any other person pursuant to which he was selected as an officer. MR. LYONS has been President, Chief Executive Officer and a director of the Company and its predecessors since February 1992 and Chairman since June 1997. Mr. Lyons is Chairman of the Board of OCC. MR. CRONIN has been Executive Vice President, Chief Operating Officer, Chief Financial Officer and a director of the Company since June 1997. Prior thereto he was Executive Vice President, Finance and Chief Operating Officer of the Company since June 1996. From July to October 1996 Mr. Cronin was Executive Vice President-Finance, acting Chief Financial Officer and acting Chief Operating Officer of OCC. Mr. Cronin served as a financial and management consultant from 1992 through June 1996. Mr. Cronin is a director of OCC and Landair Services, Inc. MR. STEEL has been President and Chief Operating Officer of OCC since December 31, 1998. Prior thereto, Mr. Steel was Executive Vice President, Chief Operating Officer and Chief Financial Officer of OCC since September 1996. He has been a director of OCC since September 1996. Mr. Steel was Executive Vice President Strategic Development, and Chief Financial Officer of TELE-TV, a video services partnership among several regional telephone companies, from August 1995 to August 1996. Prior thereto, Mr. Steel was Vice President, Strategic Development of Pacific Telesis Enhanced Services, of Pacific Telesis Group from January 1994 to July 1995. MR. AARON has been Vice President, Business and Legal Affairs of the Company since April 1995. Prior thereto, he was a General Attorney in the Office of the General Counsel of COMSAT since July 1993. Mr. Aaron has been Acting General Counsel of OCC since April 1998. MR. HOLDEN has been Vice President, Finance since June 1997 and Controller of the Company since April 1996. Prior thereto, Mr. Holden was a Senior Manager at Deloitte & Touche LLP ("Deloitte") from 1987 through 1996. MR. ROMANI has been President of Ascent Arena Company, LLC since 1995. Prior thereto, Mr. Romani was the Executive Director of the Illinois Sports Facilities Authority from 1987 to 1995. 20 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. As of March 15, 1999, there were approximately 29,489 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 high and low closing prices for the Company's Common Stock for the two fiscal years ended December 31, 1998 are as follows:
Quarter Ended High Low ------------- ---- --- December 31, 1998 $ 7.75 $ 7.00 September 30, 1998 $ 8.00 $ 6.25 June 30, 1998 $ 11.25 $ 11.00 March 31, 1998 $10.437 $10.187 December 31, 1997 $10.375 $ 9.938 September 30, 1997 $11.625 $11.313 June 30, 1997 $ 9.375 $ 8.250 March 31, 1997 $ 11.00 $ 10.00
21 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 Conditions and Results of Operations" presented elsewhere in this document. FIVE YEAR FINANCIAL SUMMARY (Amounts in thousands, except per share and room data information)
Years ended December 31, ------------------------------------------------------------------ 1998 1997 1996 1995 1994 --------- --------- -------------- -------------- ------------ Statement of Operations Data: - ---------------------------- Revenues...................................... $343,629 $333,575 (1) $252,333 (2) $195,352 $ 165,476 Operating Expenses............................ 277,766 282,146 215,088 200,787 (3) 154,913 Income (loss) from continuing operations.................................. (39,993) (44,116) (34,650) (16,301) 10,563 Net Income (loss)............................. (49,725) (41,514) (36,034) (21,023) 5,600 Basic and diluted net income (loss) per common share: Loss from continuing operations............. (1.54) (1.47) (.97) (.67) .44 Net loss.................................... (1.67) (1.40) (1.21) (.87) .23 Weighted average number of Common shares outstanding (4)............... 29,756 29,755 29,753 24,217 24,000 Other Financial Data: - --------------------- Capital Expenditures.......................... $141,893 $119,046 $ 88,833 $ 85,097 $ 90,053
Cash Flow Data: Net cash provided by continuing operations activities...................... $ 85,151 $ 46,389 $ 23,798 $ 62,954 $ 39,093 Net cash used in investing activities....... (250,905) (108,978) (92,051) (180,027) (119,975) Net cash provided by financing activities................................. 166,607 77,248 82,988 124,406 81,554 EBITDA (5).................................... $ 65,863 $ 53,429 $ 37,245 $ 45,679 $ 49,124 Cash dividends per share...................... $ -- $ -- $ -- $ -- $ -- Balance Sheet Data (at end of period): Total assets................................ $ 863,741 $ 728,926 $689,020 $ 496,679 $ 342,549 Total long-term debt........................ 441,707 259,958 50,000 70,000 207 Stockholder's equity........................ 176,526 227,698 269,585 301,269 268,197
Room Data: Total Number of Guest-pay rooms (at end of period): On-Demand................................... 829,000 765,000 709,000 361,000 248,000 Scheduled only (6).......................... 100,000 128,000 208,000 51,000 194,000 ------- ------- ------- ------- ------- Total rooms................................ 929,000 893,000 917,000 412,000 442,000 ======= ======= ======= ======= =======
(1) Includes $24.1 million in revenues from SpectraVision. The results of operations for the fourth quarter of 1996 include the results from SpectraVision assets that were acquired on October 8, 1996. See Note 3 of Notes to the Consolidated Financial Statements. (2) Includes $9.2 million of NBA expansion fee revenue recorded in the second quarter of 1995. In addition, the results of operations for the second and third quarter of 1995 include the results of the Avalanche that was acquired on July 1, 1995. 22 (3) Includes a $10.9 million restructuring charge resulting from the discontinuation of Satellite Cinema's lower margin, scheduled, satellite delivered pay-per-view service. (4) Gives effect to the 24,000-for-1 stock split of the outstanding Common Stock effected upon consummation of the Offering. (5) EBITDA represents earnings from continuing operations before interest expense, income taxes, depreciation and amortization and other income (expense). 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. (6) 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. During the third quarter of 1995, management of the Company decided to discontinue Satellite Cinema's scheduled movie operations and focus solely on the business and luxury hotels served by OCV's on-demand technology. 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. 23 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 three reportable segments: Multimedia Distribution, which consists of OCC; Entertainment, which consists of three operating segments, the Denver Nuggets, the Colorado Avalanche and the Arena Company; and Network Services, which consists of Ascent Network Services. The financial information which follows has been restated to conform with the Company's new segment classifications as required under Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" which was implemented during the fourth quarter of 1998 (see Note 12 to the 1998 Consolidated Financial Statements). Multimedia Distribution - ----------------------- The Company made its initial investment in OCC in 1991 and owned approximately 84% of OCV prior to the Acquisition. As a result of consummating the Acquisition, the Company owned approximately 57% (approximately 46% on a fully diluted basis) of the outstanding common stock of OCC. Prior to the Acquisition, OCV had experienced rapid growth in the prior three and one half years, increasing its base of installed rooms from approximately 37,000 rooms in approximately 90 hotels at the end of 1992 to approximately 441,000 rooms in approximately 1,585 hotels at October 1996. Conversely, SpectraVision, as a result of financial constraints and its bankruptcy filing in June 1995, had experienced deterioration in its room base over the same period. SpectraVision's room base, including both pay-per-view and free-to-guest, had decreased from approximately 1,059,000 installed rooms in approximately 2,543 hotels at the end of 1992 to approximately 484,000 rooms, including both pay- per-view and free-to-guest, in approximately 1,632 hotels at October 1996. During the third quarter of 1995, management of the Company decided to discontinue Satellite Cinema's scheduled movie operations and focus primarily on the business and luxury hotels served by OCV's on-demand technology. In December 1995, certain assets and contracts relating to Satellite Cinema customers were sold by OCV to Skylink Communications ("Skylink"). 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 rooms (see Note 3 to the 1998 Consolidated Financial Statements). During the third quarter of 1997, OCC assigned to Skylink operating rights and sold assets associated with approximately 26,500 SpectraVision rooms located in the U.S. and Canada. The following table sets forth information with regard to pay-per-view rooms installed as of December 31:
1998 1997 1996 ----------------- ----------------- ----------------- Rooms Percent Rooms Percent Rooms Percent ------- -------- ------- -------- ------- -------- On-Demand................ 829,000 89.2% 765,000 85.7% 709,000 77.3% Scheduled................ 100,000 10.8% 128,000 14.3% 208,000 22.7% ------- ----- ------- ----- ------- ----- 929,000 100.0% 893,000 100.0% 917,000 100.0% ======= ===== ======= ===== ======= =====
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 on-demand systems for new hotel customers and systems serving existing SpectraVision 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. The Company projects that the conversion of hotel rooms acquired in the Acquisition to OCC's on-demand technology, 24 as well as the continued upgrading and expansion of the products and services offered by OCC, may require capital expenditures of approximately $65.0 million to $90.0 million during 1999. In conjunction with the Acquisition, OCC acquired, among other assets, video systems and equipment. These specific assets, which were recorded at their estimated fair market value of approximately $41,800,000 in October 1996, are being depreciated over 36 months. Accordingly, OCC's 1999 fourth quarter operating results will be impacted from a reduction in depreciation and amortization expense charges relating to these specific assets. Entertainment - ------------- The Company made its initial investment in the Nuggets, one of 29 franchises in the NBA, in 1989 with the acquisition of a 62.5% interest in a limited partnership that acquired the Nuggets. In 1991 and 1992, the Company acquired the remaining interests in the partnership. In July of 1995, the Company acquired the Avalanche, one of 26 franchises in the NHL. The Company moved the franchise to Denver to share Denver's McNichols Arena with the Nuggets, where the team commenced play under the Colorado Avalanche name in the 1995-1996 season. The financial performance of the Nuggets and the Avalanche are, to a large extent, dependent on their performance in their respective leagues. In addition, due to the limitation of the facilities available at McNichols Arena, the Company expects the Avalanche and the Nuggets to continue to experience operating losses as long as both teams play in McNichols Arena. On November 13, 1997, the Arena Company entered into the Arena Agreement with the City, pursuant to which Ascent will construct, own and operate the Pepsi Center in which the Nuggets and Avalanche would play beginning in the 1999-2000 NHL and NBA playing seasons. As a result of the Nuggets and the Avalanche playing in the Pepsi Center and Ascent operating the Pepsi Center for other live events, completion of the Pepsi Center is expected to result in increased revenues and improved operating results for the Company's Entertainment segment. 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. During the first half of 1999, ANS anticipates the finalization of an agreement with NBC to extend the term of the NBC Agreement through the end of 2002. 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. 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. The Entertainment segment revenues are influenced by various factors. Revenues for the Nuggets and the Avalanche correspond to the NBA and NHL playing seasons, which extend from the fall to late spring depending on the extent of each team's post-season playoff participation. Accordingly, the Company realizes the vast majority of its revenues from the Nuggets and the Avalanche during such period. 25 The 1998 fourth quarter financial results were significantly impacted by the recently concluded NBA lockout. Specifically, on January 6, 1999, after a 189 day work stoppage, the NBA Players Association approved a new Collective Bargaining Agreement (the "CBA of 1999") which was subsequently ratified by the NBA owners on January 7, 1999 and signed on January 20, 1999. The CBA of 1999 has a six year term, with an option for seventh year, exercisable at the sole discretion of the NBA. The agreement provides for, among other things, maximum and minimum total team salaries, subject to various exceptions, and maximum and minimum individual player salaries. As a result of the work stoppage, the 1998/99 season will consist of 50 games, versus a normal 82 game schedule, 25 of which will be played at the Nuggets home arena. The Nuggets results of operations as compared to prior years operations have and will continue to be affected by the absence of games during the fourth quarter of 1998 and the increase in the number of games during the first half of 1999. However, the impact to the Company of the decreases in revenue due to the delay of the 1998/99 NBA season was partially offset by a reduction in costs, primarily player salaries. The impact to the Company of the increases in revenues during the first half of 1999 will likewise be offset by an increase in costs, again primarily player salaries. As a result of the operating losses expected to be incurred by OCC, the Avalanche and the Nuggets, the Company expects to incur operating losses on a consolidated basis during 1999. However, the Company expects to record positive earnings before income taxes, depreciation and amortization and positive operating cash flows during this period. Results of Operations - --------------------- Consolidated Operations The Company sold a controlling interest in its Beacon Communications subsidiary on January 20, 1999 and, as a result, the Company has classified the operating results of Beacon as discontinued operations as of December 31, 1998. The consolidated financial statements have been restated for all periods presented to reflect Beacon's results of operations and net assets as discontinued operations. 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............................................................................ $343,629 100.0% $335,575 100.0% Cost of services.................................................................... 270,114 78.6 273,742 81.5 Depreciation and amortization....................................................... 105,856 30.8 97,545 29.1 General and administrative.......................................................... 7,652 2.2 8,404 2.5 -------- ------ -------- ------ Loss from operations................................................................ (39,993) (11.6) (44,116) (13.1) Other income (expense), net......................................................... 1,942 .5 (382) (.1) Interest expense, net............................................................... (24,489) (7.1) (20,971) (6.2) Income tax benefit.................................................................. 5,512 1.6 7,693 2.2 Minority interest................................................................... 11,211 3.3 14,319 4.2 -------- ------ -------- ------ Loss from continuing operations..................................................... (45,817) (13.3) (43,457) (13.0) Income (loss) from discontinued operations, net..................................... (3,908) (1.1) 1,943 .6 -------- ------ -------- ------ Net loss............................................................................ $(49,725) (14.4)% $(41,514) (12.4)% ======== ====== ======== ======
Revenues - -------- Revenues for the year ended December 31, 1998 were $343.6 million, an increase of $8.0 million or 2.4%, as compared to $335.6 million in revenues for the year ended December 31, 1997. This increase is attributable to increases in revenue of $16.7 million and $2.5 million within the Multimedia Distribution segment and Network Services segment, respectively, offset by a $11.2 million decrease in revenues within the Entertainment 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 decrease in revenues in the Entertainment segment is primarily attributable to a decrease in revenues of $3.0 and $8.2 million at the Avalanche and Nuggets, respectively. While the Avalanche realized increased revenues from regular season ticket and sponsorship sales, the receipt of NHL expansion proceeds and increased 26 regional broadcast revenues, these increases were substantially offset by a decline in playoff revenues of $4.4 million. During the year ended December 31, 1998, the Nuggets realized increased distributions from the NBA's national television contract and an increase in distributions under their regional broadcasting agreement. These increases have been entirely offset from the decline in revenues due to the NBA lockout which occurred during the second half 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 $270.1 million, a decrease of $3.6 million or 1.3%, as compared to $273.7 million in cost of services for the year ended December 31, 1997. This decrease is attributable to lower operating costs at the Nuggets. Specifically, the Nuggets experienced a decrease in cost of services of $10.5 million in 1998 as compared to 1997; substantially all of which is attributable to the reduction in player costs during the fourth quarter of 1998 during the NBA lockout. Partially offsetting these decreases in cost of services at the Nuggets are increased operating costs at the Avalanche (principally player salaries), 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. Depreciation and Amortization - ----------------------------- Depreciation and amortization for the year ended December 31, 1998 was $105.9 million, an increase of $8.4 million or 8.6%, as compared to $97.5 million in depreciation and amortization for the year ended December 31, 1997. Depreciation and amortization for Multimedia Distribution was $90.5 million compared to $81.0 million for the year ended December 31, 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 Entertainment was $7.7 million compared to $8.8 million for the year ended December 31, 1997. This decrease is primarily attributable to a decline in amortization costs associated with player acquisition costs of the Avalanche. Depreciation and amortization for Network Services was $7.5 million for the year ended December 31, 1998, compared to $7.6 million for the year ended December 31, 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-occurrence 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. Other Income (Expense) - ---------------------- Other income 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 $21.0 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 issuance of the Company's 11.875% Senior Secured Discount Notes in December 1997. 27 Income Tax Benefit - ------------------ The Company recorded a $5.5 million income tax benefit from continuing operations during the year ended December 31, 1998 as compared to an income tax benefit of $7.7 million during the year ended December 31, 1997. The decline in the Company's effective tax benefit in 1998 is due to 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. In addition, 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 (see Note 8 to the 1998 Consolidated Financial Statements). Minority Interest - ----------------- Minority interest reflects the losses attributable to the minority interest in the Company's 57% owned subsidiary, OCC. Discontinued Operations - ----------------------- The Company's discontinued operations are comprised of the results of Beacon Communications LLC. The loss from discontinued operations, net of taxes, totaled $3.9 million during 1998 as compared to income of $1.9 million during 1997. The increased loss in 1998 is primarily attributable to a decline in revenues at Beacon. In 1997, Beacon had three movie releases as compared to none in 1998. Net Loss - -------- On a consolidated basis, including discontinued operations, the net loss for the year ended December 31, 1998 was $50.7 million as compared to a net loss of $41.5 million for the year ended December 31, 1997. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 - --------------------------------------------------------------------- The following table sets forth certain data as a percentage of revenues for the period indicated:
1997 1996 ------------------- ------------------- Amount Percent Amount Percent --------- -------- --------- -------- (Dollars in thousands) Revenues................................................................................ $335,575 100.0% $252,333 100.0% Cost of services........................................................................ 273,742 81.5 205,410 81.4 Depreciation and amortization........................................................... 97,545 29.1 71,895 28.5 General and administrative.............................................................. 8,404 2.5 9,678 3.8 -------- ------ -------- ------ Loss from operations.................................................................... (44,116) (13.1) (34,650) (13.7) Other income (expense), net............................................................. (382) (.1) 533 .2 Interest expense, net................................................................... (20,971) (6.2) (10,715) (4.2) Income tax benefit...................................................................... 7,693 2.2 9,114 3.6 Minority interest....................................................................... 14,319 4.2 6,812 2.6 -------- ------ -------- ------ Loss from continuing operations......................................................... (43,457) (13.0) (28,906) (11.5) Income (loss) from discontinued operations.............................................. 1,943 .6 (6,794) (2.7) Extraordinary loss, net................................................................. -- -- (344) (.1) -------- ------ -------- ------ Net loss................................................................................ $(41,514) (12.4)% $(36,034) (14.3)% ======== ====== ======== ======
28 Revenues - -------- Revenues for the year ended December 31, 1997 were $335.6 million, an increase of $83.3 million, or 33.0%, from $252.3 million for the year ended December 31, 1996. This increase in revenues is attributable to a revenue increase of $74.6 million within the MultiMedia Distribution segment and a $9.2 million increase within the Entertainment segment, partially offset by a minimal decrease in revenues in the Network Services segment. The significant increase in revenues at OCC was due to a larger number of hotel rooms served, resulting primarily from the acquisition of SpectraVision in October 1996. OCC's revenues in 1997 were also affected by a satellite outage in January of 1997 affecting certain SpectraVision properties and the termination and sale of approximately 40,000 rooms during the second-half of 1997 that were receiving satellite only delivered movies. Management of OCC believes these two events reduced Multimedia Distribution revenues in 1997 by approximately $3.0 million to $4.0 million. Entertainment revenues increased by $9.2 million in 1997 primarily as a result of increases at the Avalanche. The Avalanche realized increased revenues of $10.0 million from regular season ticket sales, sponsorship sales, local broadcast revenues, and increased playoff and preseason revenues in spite of playing fewer home games as compared to 1996. However, the increases in revenues from the Avalanche were partially offset by declining revenues from the Nuggets as compared to 1996. The decrease in Network Services' revenues is attributable to a decrease in ancillary service revenues from NBC affiliates during 1997. Cost of Services - ---------------- Cost of services for the year ended December 31, 1997 were $273.7 million, an increase of $68.3 million, or 33.3%, as compared to $205.4 million for the year ended December 31, 1996. The overall increase in cost of services is attributable to increased costs at OCC due to the overall increase in number of rooms served, resulting primarily from the acquisition of SpectraVision in October 1996. The increase in cost of services at OCC is also due to higher royalties on feature movies, higher hotel commission expenses on SpectraVision rooms, and an increase in field service costs in order to support the acquired SpectraVision equipment. In addition, OCC incurred additional costs in 1997 in the development of its new digital technologies, for activities to integrate SpectraVision and OCC's operational systems and the expansion of its international presence. In addition, higher costs of services were incurred by the Avalanche, resulting primarily from increased player costs. Depreciation and Amortization - ----------------------------- Depreciation and amortization for the year ended December 31, 1997 was $97.5 million, an increase of $25.6 million or 35.6%, as compared to $71.9 million for the year ended December 31, 1996 Depreciation and amortization for Multimedia Distribution was $81.0 million for the year ended December 31, 1997, compared to $55.3 million for the year ended December 31, 1996. The increase is attributable to a higher installed room base and the resulting increase in depreciation at OCC, combined with the incremental depreciation and amortization of the intangible assets acquired in connection with the Acquisition in October 1996. Depreciation and amortization for Entertainment was $8.8 million for the year ended December 31, 1997, compared to $ 9.6 million for the year ended December 31, 1996. This decrease is attributable to a decline in amortization costs associated with player acquisition costs at the Avalanche. Depreciation and amortization for Network Services was $7.6 million for the year ended December 31, 1997, compared to $6.9 million for the year ended December 31, 1996. This increase is attributable to an increase in capital expenditures at ANS in 1997 for the partial digital upgrade of the NBC satellite distribution network to support the MSNBC network. General and Administrative - -------------------------- General and administrative expenses, (which include only those costs incurred by the parent company, Ascent Entertainment Group, Inc.), for the year ended December 31, 1997 were $8.4 million, as compared to general and administrative expenses of $9.7 million for the year ended December 31, 1996. This decrease primarily reflects the reduction of approximately $1.8 million in certain general and administrative service charges from COMSAT and the non- recurrence of moving, relocation and other travel costs incurred in 1996 offset by increased professional services costs associated with the Distribution, the recognition of expense during 1997 for the Company's stock appreciation rights, and an increase in employment related costs necessary to support the Company's continued growth. From January through June 1997, COMSAT provided only limited administrative and support services to the Company and, since July 1997 has provided none. 29 Other Income (Expense) - ---------------------- Other income (expense) was an expense of $382,000 the year ended December 31, 1997 as compared to $533,000 of other income during the year ended December 31, 1996. The increase in other expenses during 1997 is attributable to OCC's recognition of a $917,000 loss on its investment in MagiNet during the fourth quarter of 1997. While the Company recognized $2.3 million in losses on its limited partnership investment in Elitch Gardens during 1996, these losses were substantially offset by a gain of $1.9 million from the sale of investment securities and other interest income recognized during 1996. Elitch Gardens, a Denver amusement park, was sold in October 1996. Interest Expense - ---------------- Interest expense, net of amounts capitalized, for the year ended December 31,1997 was $21.0 million as compared to $10.7 million during the year ended December 31, 1996. This increase is attributable to the additional borrowings incurred during the fourth quarter of 1997 (primarily the assumption of debt in the Acquisition) and throughout 1997 for capital expenditures, investment requirements and the funding of operating requirements of the Company and its subsidiaries; and to a lesser degree, an increase in financing costs as a result of the amendment to the former Ascent Credit Facility in March 1997. Income Tax Benefit - ------------------ The Company recorded an income tax benefit from continuing operations of $7.7 million during the year ended December 31, 1997 as compared to an income tax benefit of $9.1 million for the year ended December 31, 1996. This decline in the Company's effective tax benefit in 1997 is due to the Company's inability to recognize tax benefits from its operating losses. Up to and until the Distribution from COMSAT on June 27, 1997, the Company was able to recognize tax benefits from its operating losses as part of its inclusion as a member of the consolidated tax group of COMSAT. Accordingly, the Company recognized a tax benefit of $8.6 million from its operating losses during the first half of 1997. However, this benefit was partially offset by the Company's recognition of tax expense of $800,000 to reflect OCC's tax on its income from foreign jurisdictions during 1997. Furthermore, OCC, which files a separate return, recognized no tax benefit 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 carry forwards, prior to their expiration. (See Note 8 to the 1998 Consolidated Financial Statements.) Minority Interest - ----------------- Minority interest reflects the losses attributable to the minority interest in the Company's 57% owned subsidiary, OCC. Discontinued Operations - ----------------------- The Company's discontinued operations are comprised of the results of Beacon Communications Corp. Income from discontinued operations, net of taxes, of Beacon totaled $1.9 million during 1997 as compared to a loss of $6.8 million during 1997. The improved operating results in 1997 were primarily attributable to a significant increase in revenues at Beacon and specifically, the revenues recognized and operating margin realized from the motion picture "Air Force One". In 1997, Beacon had three movie releases as compared to none in 1996. Net Loss - -------- On a consolidated basis, including discontinued operations and the extraordinary item, the net loss for the year ended December 31, 1997 was $41.5 million as compared to a net loss of $36.0 million for the year ended December 31, 1996. Business Segments Ascent implemented SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", during the fourth quarter of 1998. The Company has classified its businesses into 3 reportable segments: Multimedia Distribution, Entertainment and Network Services. The Multimedia Distribution segment includes the video distribution and on-demand video entertainment services provided by OCC to the lodging industry. The Entertainment Segment includes 3 operating segments consisting of the Denver Nuggets, the 30 Colorado Avalanche and Ascent Arena Company, the owner and manager of the new arena. The Network Services segment includes the results of Ascent Network Services and the video distribution services it provides to the NBC television network and other private networks. The financial information below has been restated to conform with the discontinued operations presentation of Beacon and the Company's new segment classifications as required by SFAS 131. The information set forth below is based on the nature of the products and services offered by the Company. The Company evaluates performance based on several factors of which the primary financial measure is business segment operating income (loss) before interest, depreciation and amortization, commonly referred to as EBITDA.
1998 1997 1996 ----------- ----------- ---------- (in Thousands, except other data) Revenues: - --------- Multimedia Distribution...................................................... $238,820 $222,103 $147,469 Entertainment................................................................ 82,353 93,532 84,357 Network Services............................................................. 22,456 19,940 20,507 -------- -------- -------- Total...................................................................... $343,629 $335,575 $252,333 ======== ======== ======== Earnings Before Interest, Taxes and - ----------------------------------- Depreciation (EBITDA): ---------------------- Multimedia Distribution...................................................... $ 72,045 $ 55,579 $ 41,804 Entertainment................................................................ (9,500) (5,026) (5,533) Network Services............................................................. 10,970 11,280 10,652 Corporate.................................................................... (7,652) (8,404) (9,678) -------- -------- -------- Total...................................................................... $ 65,863 $ 53,429 $ 37,425 ======== ======== ======== Other Data: - ----------- Number of OCC Rooms.......................................................... 929,000 893,000 917,000 Number of Regular Season Home Games: ------------------------------------ Avalanche................................................................... 37 41 45 Nuggets..................................................................... 28 40 43 Number of Playoff Home Games: ----------------------------- Avalanche.................................................................. 4 9 11
Multimedia Distribution - ----------------------- For 1998, the Multimedia Distribution segment's revenues were $238.8 million versus $222.1 million in 1997, an increase of 7.5%. This increase is primarily due to increases in On Command's on-demand movie business from new hotel installations, continued conversions of hotels served by SpectraVision equipment to OCC equipment, strong buy rates in On Command's core movie product, the non-recurrence of the satellite outage experienced at SpectraVision properties during the first quarter of 1997 and the receipt of the LodgeNet royalty payment during the third quarter of 1998. During the third quarter of 1998, OCC received the first of three payments due from LodgeNet Entertainment Corporation. The payments result from the litigation settlement and cross- licensing agreement between the two companies. Net of legal costs and expenses, OCC expects to receive $10.8 million of aggregate royalty payments. OCC received the first payment of $2.9 million and expects to receive an additional two payments of approximately $3.95 million in each of July 1999 and 2000. The Multimedia Distribution segment revenues were $222.1 million in 1997 versus $147.5 million in 1996, an increase of 50.6%. The increase in revenues at OCC in 1997 was due to a larger number of hotel rooms served, resulting primarily from the SpectraVision acquisition in October 1996. OCC's revenues in 1997 were also affected by a satellite outage during the first quarter affecting certain SpectraVision properties. The Multimedia Distribution segment's EBITDA for 1998 was $72.0 million versus $55.6 million in 1997, an increase of 29.5%. The MultiMedia Distribution segment's EBITDA margin, as a percentage of revenues, also improved from 25.0% in 1997 to 30.2% in 1998. The increase in both EBITDA and EBITDA margin for 1998 is primarily attributable to the increase in OCC's revenues for the year, including the receipt of the LodgeNet royalty payment, and the non-recurrence of the satellite outage that occurred during the first quarter of 1997. The improvement is also attributable to the termination of expensive satellite transmission of movies and lower per room free-to-guest costs due to negotiated improvements in certain vendor contracts. The Multimedia Distribution segments EBITDA was $55.6 million in 1997 versus $41.8 million in 1996, an increase of 33.0%. The increase in 31 EBITDA at OCC in 1997 was primarily attributable to the increase in OCC's revenues during the year. While EBITDA did improve, the EBITDA margin, as a percentage of revenues, declined from 28.3% in 1996 to 25.0% in 1997. This decline in EBITDA margin at OCC during 1997 is due an increase in costs (primarily higher royalties, hotel commissions and field service costs) and a lower recovery of free-to-guest programming costs. In addition, higher costs were incurred in connection with the integration of SpectraVision's and OCV's accounting and operational systems. At December 31, 1998, OCC's installed room base was approximately 929,000 as compared to 893,000 at the end of 1997 and 917,000 at the end of 1996. In 1998, On Command installed its OCV on-demand system in 125,000 rooms, of which approximately 70,000 rooms were conversions of SpectraVision properties, and approximately 55,000 were new hotel installations. In 1997, OCC installed its OCV on-demand system in 112,000 rooms, of which approximately 67,000 rooms were conversions of SpectraVision properties, and approximately 45,000 were new hotel installations. The decline in the 1997 year-end installed room total was due primarily to the transfer of rooms to Skylink Cinema Corporation and losses attributed to the termination of satellite broadcast movies services. The hotels included in the transfer and termination of service consisted primarily of rooms that did not adequately fit OCC's target economic profile. Entertainment - ------------- For 1998, revenues for the Entertainment segment were $82.4 million as compared to 1997 revenues of $93.5 million. While the Avalanche realized increase 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. 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. Revenues at the Nuggets declined by $8.2 million in 1998 as compared to 1997. While the Nuggets experienced an increase in revenues during the first half of the year from improvements in distributions from the NBA national television contract and increased revenues from their regional broadcasting agreement with Fox Sports, these increases have been entirely offset from the impact of the NBA lockout during the fourth quarter of 1998. Specifically, the lockout resulted in decreased revenues of $11.6 million as compared to the fourth quarter of 1997. The Entertainment segment revenues were $93.5 million in 1997 versus $84.4 million in 1996, an increase of 10.8%. This increase in revenues was primarily attributable to the Avalanche. The Avalanche realized a $10.0 million increase in revenues from regular season ticket sales, sponsorship sales, local broadcast revenues, and increased playoff and pre-season revenues, in spite of playing fewer home games as compared to 1996. The Entertainment segments EBITDA for 1998 was ($9.5 million) compared to ($5.0 million) in 1997. This decrease in the EBITDA is primarily attributable to the decline in Avalanche playoff revenues, a reduction in the number of home games for the Avalanche combined with an increase in player salaries. This decrease was partially offset by improved operating results at the Nuggets which are 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. The Entertainment segments EBITDA for 1997 was ($5.0 million) versus $(5.5 million) in 1996, an increase of 9.1%. This improvement in EBITDA is primarily attributable to improved operating results at the Avalanche from higher revenues, partially offset by increased team costs at Nuggets, primarily contract terminations. Network Services - ---------------- For 1998, the Network Services segment's revenues were $22.5 million versus $19.9 million in 1997, an increase of 13.1%. The increased revenues for 1998 are attributable to an increase in equipment sales and service revenues from NBC affiliates and other private networks. The Network Services segments revenues were $19.9 million in 1997 versus $20.5 million in 1996, a decrease of 3.0%. The decrease in revenues during 1997 is attributable to a decline in sales of ancillary services to NBC and its affiliate networks. The Network Services segment EBITDA for 1998 was $11.0 million versus $11.3 million in 1997. While revenues for the year increased primarily from low margin equipment sales, EBITDA decreased during 1998 due to increased costs, primarily those relating to the NBC contract of $400,000 in 1998, at ANS. The Network Services segment EBITDA for 1997 was $11.3 million versus $10.7 million in 1996, an increase of 5.6%. This increase was attributable to a reduction in operating costs during 1997. 32 Liquidity and Capital Resources - ------------------------------- The primary sources of cash and cash equivalents during the year ended December 31, 1998 were cash from operating activities of $101.9 million, borrowings under OCC's credit facility of $30.0 million and the collection of $2.7 million on notes and other long-term receivables. In addition, while the Company generated net cash proceeds from the Arena Note offering of $136.6 million, this cash was invested in restricted cash investment accounts pursuant to an amended and restated Trust Agreement(see Note 6 to the 1998 Consolidated Financial Statements.) Cash was expended primarily for property and equipment as the Company continued to make investments to support business growth. Specifically, capital expenditures of $83.2 million were made by OCC for the continuing installation and conversion of on-demand systems and $54.6 million was expended by the Arena Company for construction costs at the Pepsi Center. Cash and cash equivalents have increased by $17.6 million since December 31, 1997 to $42.4 million at December 31, 1998. However, included in cash and cash equivalents at December 31, 1998 is $21.1 million of cash received by the Avalanche and the Nuggets relating to ticket sales for their 1998/99 playing seasons. Long-term debt of the Company at December 31, 1998 consists primarily of the Company's Senior Secured Discount Notes (the "Senior Notes") totaling $142.5 million, $163.0 million outstanding under OCC's Credit Facility and $139.8 million outstanding on the non-recourse Arena Notes (see Note 6 to the 1998 Consolidated Financial Statements). The Company's cash requirements during 1999 are expected to include (i) the continuing conversion and installation by OCC of on-demand in-room video entertainment systems, (ii) funding the construction costs of the Pepsi Center, (iii) funding the operating requirements of Ascent and its subsidiaries, (iv) the payment of interest under the Ascent credit facility, if such facility is utilized, and the OCC credit facility, and (vi) the payment of interest and principal due under the Arena Notes. The Company anticipates capital expenditures in connection with the continued installation and conversion by OCC of on-demand service may be approximately $65.0 to $90.0 million in 1999. 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. The expenditures for construction of the Pepsi Center, estimated to be approximately $90.0 to $100.0 million in 1999, will be funded from the proceeds of the Arena Notes, and as necessary, additional advances from the Company as discussed in Note 6 to the Company's 1998 Consolidated Financial Statements. Management of the Company believes that the available cash, cash flows from operating activities, and funds available under the Ascent credit facility and the OCC credit facility (see Note 6 to the 1998 Consolidated Financial Statements), together with the proceeds from the Arena Notes will be sufficient for the Company and its subsidiaries to satisfy their growth and finance working capital requirements during 1999. However, it is the Company's expectation that cash flows from operations will be insufficient to cover planned capital expenditures during 1999 and 2000 and, accordingly, the Company 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 the Company's strategy, including conversion of the hotel rooms acquired in the acquisition of SpectraVision, Inc. to OCC's on-demand technology, the upgrade and expansion of OCC's technology and service offerings, the construction of the Pepsi Center in Denver, and the ability to attain significant and sustained growth in the Company's cash flow. There can be no assurance that the Company 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. As previously discussed, on June 27, 1997, COMSAT completed the Distribution of the Ascent common stock held by COMSAT as a tax-free dividend to COMSAT's shareholders. The Distribution was intended, among other things, to afford Ascent more flexibility in obtaining debt financing to meet its growing needs. The Distribution Agreement between Ascent and COMSAT, (see Note 13 to the 1998 Consolidated Financial Statements) terminated the Corporate Agreement between Ascent and COMSAT which imposed restrictions on Ascent to ensure compliance with certain capital structure and debt financing restrictions imposed on COMSAT by 33 the Federal Communications Commission. As a result, Ascent's financial leverage has increased and will increase in the future for numerous reasons. In addition, pursuant to the Distribution Agreement, certain restrictions have been put in place to protect the tax-free status of the Distribution. Among the restrictions, Ascent is not allowed to sell, transfer or otherwise dispose of assets that, in the aggregate, constitute more than 60% of its gross assets as of the Distribution, other than in the ordinary course of business until July 1999 (see Note 13 to the 1998 Consolidated Financial Statements). 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 tax benefits and will not receive cash payments from COMSAT resulting from Ascent's anticipated operating losses during 1998 and thereafter. Inflation - --------- Inflation has not significantly impacted the Company's financial position or operations. Information Systems and The Year 2000 General - The Year 2000 issue is the result of certain computer programs and ------- firmware having been developed using two digits rather than four digits to define the application year, such that computer programs that are date sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inablity to process transactions or engage in normal business activities for the Company and its subsidiaries and their customers who rely on their products. The Company and its subsidiaries are actively engaged, but have not yet completed, reviewing, correcting and testing all of their Year 2000 compliance issues. Based on the current review and remediation, the primary Year 2000 compliance issue facing the Company is that OCC will be required to modify or replace some of its internally developed information technology software products. OCC utilizes embedded technology in all of its hotel systems design. OCC's engineering department has completed the majority of its evaluation process and is currently developing solutions to this and other Year 2000 issues affecting its hotel systems. In addition, both OCC and the Company's other subsidiaries have determined that they will be required to modify and/or replace certain third-party software so that it will function properly with respect to dates in the Year 2000 and thereafter. The Company presently believes that with the proper modifications to its products and third-party software and the replacement of non-compatible hardware, the Year 2000 issue will not pose significant operation problems for the Company's subsidiaries or its customers. The Company and its subsidiaries are currently on schedule to complete all Year 2000 issues by June 1999. However, if such modifications and replacements are not made, or completed timely, the Year 2000 issue could have a material impact on the Company, its subsidiaries and their customers. Costs - The total cost associated with required modification to become Year ----- 2000 compliant is not expected to be material to the Company's consolidated financial position. The total cost to address the Year 2000 issues is estimated to be less than $1.3 million. The total amount expended on Year 2000 through December 31, 1998 was approximately $300,000. The costs of Year 2000 compliance and the date on which the Company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions, including third parties' Year 2000 readiness and other factors. Risks - The Company has and will continue to have communications with its ----- significant suppliers and customers to determine the extent to which the Company may be vulnerable in the event that those parties fail to address their own Year 2000 issues. The Company has taken steps to monitor the progress made by those parties, and intends to test critical systems interfaces, as the year 2000 approaches. Specifically, there is some unknown level of risk at OCC with respect to its hotel customers and conditions that would make a hotel unable to register guests which, in turn, could affect OCC's revenue. A large number of OCC's systems are interfaced with the hotel's property management system. If this interface fails, all movie charges would require manual processing. Processes to perform manual processing are in place in all of OCC's customers' hotels and are occasionally utilized at times when the property management system interface is not functioning. This typically causes a slightly higher number of lost charges, which could be material if applied to a large number of hotel customers. Contingency Plans - While the Company has not completed a formal contingency ----------------- plan for the Year 2000 problem, it has evalauted several anticipated scenarios for failures affecting its critical business systems, including 34 third-party hotel systems which could impact OCC as discussed above. Currently, it is OCC's opinion that any of the potential scenarios can be managed by manual means, although less efficient, while the necessary corrective actions are taken. However, there can be no guarantee that the systems of third parties on which the Company and its subsidiaries rely will be corrected in a timely manner, that manual processing of OCC's movie charges would be accomplished, or that the failure to properly convert by another company would not have a material adverse effect on the Company or its subsidiaries. ITEM 7A. 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, 1998, the weighted average interest rate on the Company's cash and cash equivalent balance of $42.4 million was 4.8% consisting of fixed rate short-term investments. In addition, the Company's weighted average interest rate on its restricted cash investments held in trust at December 31, 1998 of $112.5 million was 5.6%. These restricted investments are primarily variable rate money market instruments. 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 Arena Notes and Senior Secured Discount Notes as they represent fixed- rate obligations. (See Note 6 to the 1998 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 of OCC. At December 31, 1998, OCC had $163.0 million outstanding, on the OCC Credit Facility and the weighted average interest rate on the OCC Credit Facility was 5.9%. 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 $1.6 million during the year ended at December 31, 1998. Foreign Currency Risk. The Company, through OCC, transacts business in various - ---------------------- foreign currencies, primarily in Canada, Asia and in certain European countries. However, 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. 35 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITOR'S 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, 1998 and 1997, 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, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. Deloitte & Touche LLP Denver, Colorado February 24, 1999 36 ASCENT ENTERTAINMENT GROUP, INC. CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997 (in thousands, except par value amounts)
1998 1997 ---------- ---------- ASSETS Current assets: Cash and cash equivalents............................................................... $ 42,425 $ 24,837 Receivables, net (Note 4)............................................................... 62,911 59,354 Prepaid expenses........................................................................ 16,436 15,839 Deferred income taxes (Note 8).......................................................... 417 2,577 Income taxes receivable (Note 8)........................................................ - 8,212 Other current assets.................................................................... 394 1,462 Net assets of discontinued operations (Note 2).......................................... 12,328 -- --------- -------- Total current assets 134,911 112,281 --------- -------- Property and equipment, net (Note 5).................................................... 388,762 336,805 Restricted cash held in trust(Note 6)................................................... 112,478 -- Goodwill, net........................................................................... 103,120 109,979 Franchise rights, net................................................................... 92,559 97,373 Investments (Note 3).................................................................... 5,533 5,979 Deferred income taxes (Note 8).......................................................... 3,866 -- Other assets, net....................................................................... 22,512 32,098 Net assets of discontinued operations (Note 2).......................................... -- 34,411 --------- -------- Total assets.............................................................................. $ 863,741 $728,926 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt (Note 6)........................................... $ 3,665 $ -- Accounts payable........................................................................ 32,551 24,182 Deferred income......................................................................... 50,941 46,727 Other taxes payable..................................................................... 7,890 10,875 Accrued compensation.................................................................... 9,229 12,130 Other accrued liabilities (Note 7)...................................................... 21,441 16,161 Income taxes payable (Note 8)........................................................... 1,821 2,213 --------- -------- Total current liabilities............................................................. 127,538 112,288 --------- -------- Long-term debt (Note 6)................................................................. 441,707 259,958 Other long-term liabilities (Note 7).................................................... 34,312 32,115 Deferred income taxes (Note 8).......................................................... -- 1,699 --------- -------- Total liabilities..................................................................... 603,557 406,060 --------- -------- Minority interest (Note 3).............................................................. 83,658 95,168 Commitments and contingencies (Notes 5, 6, and 9)....................................... -- -- Stockholders' equity (Note 10): 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.............................................................. 306,358 307,248 Accumulated deficit..................................................................... (130,872) (81,147) Accumulated other comprehensive income.................................................. 743 1,300 --------- -------- Total stockholders' equity............................................................ 176,526 227,698 --------- -------- Total liabilities and stockholders' equity................................................ $ 863,741 $728,926 ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 37 ASCENT ENTERTAINMENT GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1998, 1997 and 1996 (in thousands, except per share amounts)
1998 1997 1996 --------- --------- --------- Revenues (Notes 9 and 12, and Note 13 for related party revenues).................................. $343,629 $335,575 $252,333 -------- -------- -------- Operating expenses: Cost of services................................................................................. 270,114 273,742 205,410 Depreciation and amortization.................................................................... 105,856 97,545 71,895 General and administrative....................................................................... 7,652 8,404 9,678 -------- -------- -------- Total operating expenses........................................................................ 383,622 379,691 286,983 -------- -------- -------- Loss from continuing operations.................................................................... (39,993) (44,116) (34,650) Other income (expense), net........................................................................ 1,942 (382) 533 Interest expense, net (Notes 6 and 13)............................................................. (24,489) (20,971) (10,715) -------- -------- -------- Loss from continuing operations before taxes, minority interest and extraordinary item................................................................................ (62,540) (65,469) (44,832) Income tax benefit (Note 8)........................................................................ 5,512 7,693 9,114 -------- -------- -------- Loss from continuing operations before minority interest and extraordinary item................................................................................ (57,028) (57,776) (35,718) Minority interest.................................................................................. 11,211 14,319 6,812 -------- -------- -------- Loss from continuing operations before extraordinary item.......................................... (45,817) (43,457) (28,906) Income(loss) from discontinued operations, net of taxes(Note 2).................................... (3,908) 1,943 (6,794) -------- -------- -------- Loss before extraordinary item..................................................................... (49,725) (41,514) (35,700) Extraordinary item-loss on early extinguishment of debt, net of taxes.............................. -- -- (334) -------- -------- -------- Net loss........................................................................................... $(49,725) $(41,514) $(36,034) ======== ======== ======== Basic and diluted net loss per common share: Loss from continuing operations before extraordinary item......................................... $(1.54) $(1.47) $ (.97) Discontinued operations........................................................................... (.13) .07 (.23) Extraordinary loss on early extinguishment of debt, net of taxes.................................. -- -- (.01) -------- -------- -------- Basic and diluted net loss per share............................................................... $(1.67) $(1.40) $ (1.21) ======== ======== ======== Weighted average number of common shares outstanding............................................... 29,756 29,755 29,753 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 38 ASCENT ENTERTAINMENT GROUP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Years ended December 31, 1998, 1997, and 1996 (in thousands)
1998 1997 1996 --------- --------- --------- Net Loss.......................................................................................... $(49,725) $(41,514) $(36,034) -------- -------- -------- Other comprehensive income (loss)................................................................. Unrealized gain (loss) on securities............................................................ (857) (80) 2,080 Income tax (expense) benefit related to items of other comprehensive income (loss).................................................................... 300 28 (728) -------- -------- -------- Other comprehensive income (loss), net of tax................................................... (557) (52) 1,352 -------- -------- -------- Comprehensive loss................................................................................ $(50,282) $(41,566) $(34,682) ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 39 ASCENT ENTERTAINMENT GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1998, 1997 and 1996 (in thousands)
Accumulated Additional Other Total Common Paid-in Accumulated Comprehensive Stockholder's Stock Capital Deficit Income Equity ------ ----------- ------------ -------------- -------------- Balance at January 1, 1996.................... $297 $304,571 $( 3,599) -- $ 301,269 -- -- -- -- -- Net loss.................................... -- -- ( 36,034) -- ( 36,034) Adjustment of OCC investment (Note3)........ -- 1,178 -- -- 1,178 Capital Contribution from COMSAT (Note 13).................................. -- 1,820 -- -- 1,820 Other comprehensive income (loss), net...... -- -- -- $1,352 1,352 ------ -------- --------- ------ --------- Balance at December 31, 1996.................. 297 307,569 ( 39,633) 1,352 269,585 Net loss.................................... -- -- ( 41,514) -- (41,514) Other comprehensive income(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 income(loss), net....... -- -- -- (557) (557) Other....................................... -- (890) -- -- (890) ------ -------- --------- ------ --------- Balance at December 31, 1998.................. $297 $306,358 $(130,872) $ 743 $ 176,526 ====== ======== ========= ====== =========
The accompanying notes are an integral part of these consolidated financial statements. 40 ASCENT ENTERTAINMENT GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1998, 1997 and 1996 (in thousands)
1998 1997 1996 ---------- ---------- ------- OPERATING ACTIVITIES: Net loss........................................................................... $ (49,725) $ (41,514) $ (36,034) Adjustments to reconcile net loss to net cash provided by continuing operations: Depreciation and amortization..................................................... 105,856 97,545 71,895 Minority interest in losses of subsidiaries....................................... (11,211) (14,319) (6,812) (Income)Loss from discontinued operations......................................... 3,908 (1,943) 6,794 Equity in earnings of unconsolidated partnerships and joint ventures............. (1,106) (612) (346) Accretion of discount on Senior Secured Notes..................................... 15,579 294 -- Provision for loss on investments................................................. 856 1,125 2,310 (Gain)Loss on disposals of property and equipment................................. 72 (1,016) 11 Extraordinary loss on extinguishment of debt, net................................. -- -- 334 Changes in operating assets and liabilities:...................................... Current assets................................................................... 7,286 (3,945) (6,675) Current liabilities.............................................................. 13,245 19,698 (11,542) Noncurrent assets................................................................ 1,858 (13,623) (3,740) Noncurrent liabilities........................................................... (1,467) 4,701 7,031 Other............................................................................ -- (2) 572 --------- --------- --------- Net cash provided by operating activities of continuing operations................ 85,151 46,389 23,798 Net cash provided by (used in) discontinued operations............................ 16,735 6,536 (21,865) --------- --------- --------- Net cash provided by operating activities......................................... 101,886 52,925 1,933 --------- --------- --------- INVESTING ACTIVITIES: Purchase of restricted cash investments........................................... (149,043) -- -- Sales of restricted cash investments.............................................. 36,565 -- -- Proceeds from notes and other long-term receivable................................ 2,704 2,951 6,684 Proceeds from sale of investments................................................. 396 1,920 3,608 Purchase of property and equipment................................................ (141,893) (119,046) (88,833) Proceeds from sale of property and equipment...................................... -- 4,459 187 Investment in unconsolidated businesses........................................... -- -- (4,125) Distributions from partnerships and joint ventures................................ 366 738 -- Net cash paid in acquisition of SpectraVision..................................... -- -- (9,572) --------- --------- --------- Net cash used in investing activities............................................. (250,905) (108,978) (92,051) --------- --------- --------- FINANCING ACTIVITIES: Net proceeds from issuance of Arena Notes......................................... 136,607 -- -- Net proceeds from issuance of Senior Secured Discount Notes....................... -- 122,231 -- Proceeds from borrowings under former credit facilities........................... -- 59,000 75,000 Repayment of borrowings under former credit facilities............................ -- (252,000) (145,000) Proceeds from borrowings under credit facilities.................................. 30,000 133,000 205,537 Payments under revolving credit loans and other notes payable..................... -- -- (15,207) Payment of SpectraVision debt..................................................... -- -- (40,000) Capital Contribution from COMSAT.................................................. -- -- 1,820 Proceeds from issuance of subsidiary's equity instruments......................... -- 15,000 2,587 Common stock issued............................................................... -- 17 -- Other............................................................................. -- -- (1,749) --------- --------- --------- Net cash provided by financing activities......................................... 166,607 77,248 82,988 --------- --------- --------- Net increase (decrease) in cash and cash equivalents.............................. 17,588 21,195 (7,130) Cash and cash equivalents, beginning of year....................................... 24,837 3,642 10,772 --------- --------- --------- Cash and cash equivalents, end of year............................................. $ 42,425 $ 24,837 $ 3,642 ========= ========= ========= Supplemental cash flow information: Interest paid..................................................................... $ 12,713 $ 16,712 $ 8,851 ========= ========= ========= Income taxes paid................................................................. $ 581 $ 2,447 $ -- ========= ========= ========= Non-cash investing and financing activities: Reversal of accrual made in OCC purchase price allocation......................... $ -- $ 3,000 $ -- ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 41 ASCENT ENTERTAINMENT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 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 subsidiaries which include On Command Corporation ("OCC"), the Denver Nuggets Limited Partnership (the "Nuggets"), the Colorado Avalanche, LLC (the "Avalanche"), and Ascent Arena Company, LLC (the "Arena Company"). 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. Beacon Communications LLC. ("Beacon") is accounted for as a discontinued operation (See Note 2). 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. ANS provides video distribution services to the National Broadcasting Company ("NBC") television network and other private networks. The Nuggets own a franchise in the National Basketball Association ("NBA"). The Avalanche own a franchise in the National Hockey League ("NHL"). The Arena Company owns and is managing the construction of a new arena in Downtown Denver. Ascent executed an initial public offering (the "Offering") of its common stock on December 18, 1995. Prior to the Offering, Ascent was a wholly owned subsidiary of COMSAT Corporation ("COMSAT"). In addition, Ascent's relationship with COMSAT was governed by three agreements entered into in connection with the Offering: an Intercompany Services Agreement, a Corporate Agreement and a Tax Sharing Agreement. 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 8 and 13) in connection with the Distribution. Ascent and COMSAT also terminated the Intercompany Services Agreement and Corporate Agreement entered into in connection with the Offering resulting in, among other things, the termination of the restriction on Ascent's incurring indebtedness without the consent of COMSAT. 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. Restricted Cash Held in Trust. Restricted cash investments consist of investment grade money market instruments with maturities of less than one year. These investments are carried at amortized cost, which approxiamates fair value, and are restricted as to withdrawal (see Note 6). Restricted investments are held in the Company's name and held in a trust at a major financial institution. 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. Construction in progress consists of construction and pre-operating expenditures on the Denver Arena Project (see Note 5) and purchased and manufactured parts of partially constructed video systems at OCC. The Company capitalizes interest incurred on funds used to construct the Denver arena project (see Note 5). The capitalized interest is recorded as part of the asset to which it relates and will be amortized over the asset's estimated useful life, once the arena is operational. During the years ended December 31, 1998 and 1997, $4,184,000 and $222,000 of interest costs were capitalized respectively. No interest was capitalized in 1996. 42 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 3) are being depreciated over 36 months. Goodwill. The consolidated balance sheets include goodwill related to the acquisitions of On Command Video Corporation and the Nuggets by Ascent, and SpectraVision by OCC (see Note 3). Goodwill is amortized over 10 to 25 years. Accumulated goodwill amortization was $24,238,000 and $17,380,000 at December 31, 1998 and 1997, respectively. Franchise Rights. Franchise rights were recorded in connection with the purchases of the Nuggets beginning in 1989 and the Avalanche beginning in 1995. Such rights are being amortized over 25 years. The amounts shown on the consolidated balance sheets are net of accumulated amortization of $27,801,000 and $22,988,000 at December 31, 1998 and 1997, respectively. 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, 1998 and 1997, management believes that there was not any impairment of the Company's long-lived assets or any other such identifiable intangibles. Debt Issuance Costs. Costs associated with the issuance of the Company's Senior Secured Discount notes, the Arena 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. Deferred Compensation Costs. Certain current and former players of the Nuggets and the Avalanche have contracts that provide for deferred compensation and bonuses. Ascent records a charge to operations equal to the present value of the future guaranteed payments in the period in which the compensation is earned. In addition, certain players' contracts provide for guaranteed compensation payments. (See Note 7). 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. Revenues from royalties are recognized when earned. The Nuggets and Avalanche game admission and broadcasting revenues are recognized as earned per home game during the teams' pre-season, regular season, and potential post-season, which is generally from September to May of the following calendar year. Certain team and game costs, principally gate assessments, arena rentals and user fees, are recorded and expensed on the same basis. Player salaries, related fringe benefits and insurance, are recognized on a per-day basis during the teams' regular playing seasons. Advance ticket sales and advance payments received on television, radio, concessionaire and marketing contracts, and advance payments for team and game expenses, are recorded as deferred revenues and deferred game expenses, respectively, and amortized ratably as regular season games are played. Sponsor and concessionaire contracts exceeding one year in length are deferred and amortized over the life of the contract. Sponsor contracts one year in length are recognized as the services are performed during the playing season. 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 statements of operations. For the years ended December 31, 1998, 1997, and 1996, the Company's subsidiaries incurred related costs of $30,735,000, $28,298,000, and $18,988,000, respectively. 43 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 $7,537,000, $6,912,000 and $4,628,000 for the years ended December 31, 1998, 1997 and 1996, 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 payable or refundable 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. Dilutive shares were 29,756,000, 29,755,000 and 30,012,200, for the years ended December 31, 1998, 1997, and 1996, 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 franchise rights, the reduction in construction in progress to its net realizable value and the amounts of certain accrued liabilities. The Company participates in the highly competitive multimedia distribution, network services and entertainment industries 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; a decline in ticket sales and other revenues by the sports franchises; ability to obtain additional capital to finance capital expenditures; ability to retain senior management and key employees, including players; ability to convert operational computer software to be year 2000 compliant; and risks of technological obsolescence. 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 will be effective for the Company's fiscal year ending December 31, 2000. Although the Company has not fully assessed the implications of SFAS No. 133, 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. In 1998, the OCC capitalized $4,100,000 of costs in accordance with this SOP. Reclassifications. Certain reclassifications have been made to the 1997 and 1996 financial statements to conform with the current year's presentation. Note 2 -- Discontinued Operations: 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"). The purchase price for the 90% interest was $19,000,000 in cash, net of certain adjustments, after which the Company received approximately $16,000,000 at closing. The Company is entitled to receive future cash consideration of approximately $1,000,000, which the Company expects to receive in the first quarter of 1999. After the sale of its 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 limited purchase and sale options between the Company and the Buyers at a price proportionate to the purchase price. The Company's remaining investment in Beacon will be accounted for using the cost method. In the first quarter of 1999, the Company expects to report a gain on the sale of its 90% interest in Beacon. 44 The Company began accounting for Beacon as a discontinued operation as of December 31, 1998 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 years presented to reflect the results of operations and net assets of Beacon as discontinued operations. The income (loss) of Beacon, net of tax, for the three years ended December 31, 1998 is composed of the following:
1998 1997 1996 -------------- -------- --------- (in thousands) Revenues...................................................................... $28,195 $92,939 $ 5,787 ======= ======= ======= Income (loss) from discontinued operations before taxes....................... $(4,798) $ 1,820 $(9,637) Income tax benefit............................................................ 890 123 2,843 ------- ------- ------- Income (loss) from discontinued operations.................................... $(3,908) $ 1,943 $(6,794) ======= ======= =======
The net assets of the discontinued operations included in the consolidated balance sheets as of December 31, 1998 and 1997, consist of the following:
1998 1997 --------- -------------- (in thousands) Current Assets (primarily receivables)................................................................ $ 3,062 $12,296 Film inventory, net................................................................................... 48,457 17,442 Intangible and other assets........................................................................... 10,651 14,732 Current liabilities................................................................................... (5,763) (4,726) Non-recourse film financing........................................................................... (35,079) -- Other long term liabilities........................................................................... (9,000) (5,333) -------- ------- Net assets of discontinued operations................................................................. $ 12,328 $34,411 ======== =======
Note 3 -- Acquisition and Other Investments: Acquisition. Effective October 8, 1996, Ascent through its newly formed - ----------- subsidiary, OCC, acquired the assets, properties and certain liabilities of SpectraVision, Inc. (the "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. At the Closing Date, Ascent and the minority stockholders of OCV received 21,750,000 shares of OCC common stock (Ascent received 17,149,766 of these shares.) In consideration of the acquisition of the assets and properties of SpectraVision by OCC, 8,041,618 shares of OCC common stock were issued to the SpectraVision bankruptcy estate for distribution to SpectraVision's creditors. An additional 208,382 shares, which were held in reserve pursuant to the Acquisition Agreement, were subsequently distributed primarily to the SpectraVision bankruptcy estate for the benefit of SpectraVision's creditors. Ascent owns approximately 57% of the common stock of OCC as of December 31, 1998. In connection with the 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. The acquisition of SpectraVision was accounted for under the purchase method and, accordingly, the results of operations of SpectraVision are included in the consolidated financial statements from the date of acquisition. The aggregate purchase consideration was allocated to the acquired assets and assumed liabilities of SpectraVision, based on their respective fair market values. The fair value of tangible assets acquired and liabilities assumed was approximately $66,000,000 and $64,000,000, respectively. In addition, $2,000,000 of the purchase 45 price was allocated to purchased technology. The balance of the purchase price, $87,636,000, was recorded as goodwill and is being amortized over twenty years on a straight-line basis. The assets acquired and liabilities assumed are as follows (in thousands): Estimated fair value of assets acquired (including intangibles of $92,636).............................................................................. $155,916 Liabilities assumed................................................................................................ (64,282) -------- Net assets acquired at estimated fair value........................................................................ 91,634 Cash paid (net of cash received of $257)........................................................................... (9,572) -------- Common stock and warrants issued................................................................................... $ 82,062 ========
The following unaudited pro forma consolidated results of operations for the year ended December 31, 1996 is presented as if the SpectraVision acquisition had been made at the beginning of 1996. The unaudited pro forma information is not necessarily indicative of either the results of operations that would have occurred had the purchase been made at the beginning of 1996 or the future results of the combined operations.
(in thousands, except per share information): Revenues................................................................................................................ $337,633 Net loss................................................................................................................ $(42,982) Basic and diluted loss per common share................................................................................. $ (1.45)
In connection with this transaction, the Company recorded an increase in additional paid-in capital of $1,178,000 as a result of the exchange of its investment in OCV for its investment in OCC. Other Investments. Other Investments consist of the following at December 31, - ----------------- 1998 and 1997:
1998 1997 -------------- ------ (in thousands) Marketable equity securities............................................................................ $1,145 $2,001 Investment in MagiNet Corporation....................................................................... 348 348 Investments in partnerships and joint ventures: Elitch Gardens....................................................................................... -- 330 NBA partnerships..................................................................................... 2,966 2,438 Colorado Studios..................................................................................... 1,071 862 Other................................................................................................ 3 -- ------ ------ Total other investments $5,533 $5,979 ====== ======
At December 31, 1998 and 1997, the Company's investment in marketable equity securities consists of its investment in MetroMedia International Group. This investment is considered to be available-for-sale and accordingly, the net unrealized holding gain or loss, net of deferred income taxes, is reported in accumulated other comprehensive income. In 1996, the gross realized gain from the sale of a portion of these available-for-sale securities was $1,892,000 and is included in other income (expense) in the accompanying financial statements. The Company's investment in MagiNet Corporation (MagiNet), a private company, is accounted for at cost (see Notes 9 and 13). In the fourth quarter of 1997, OCC recorded a loss of $917,000 on its investment in MagiNet due to a dilution of its ownership interest in MagiNet. The Company's investments in partnerships and joint ventures are accounted for using the equity method. In September 1996, the Company recorded a $1,800,000 loss on its limited partnership investment in Elitch Gardens, an amusement park in Denver, Colorado, based on the announced sale of the amusement park to Premier Parks, Inc. The Company's share of proceeds from the sale, which closed on October 30, 1996, were subject to certain future adjustments. In December 1996 and June 1997, the Company recorded additional losses of $510,000 and $129,000, respectively, on its investment due to concerns over the liquidation of the partnership. The Company received cash distributions, including a final distribution in December 1998, of $396,000, $1,900,000 and $1,716,000 in 1998, 1997 and 1996, respectively, in connection with the sale of Elitch Gardens. 46 Note 4 -- Receivables and Concentration of Credit Risk: Receivables consist of the following at December 31, 1998 and 1997:
1998 1997 -------------- ------- (in thousands) Trade receivables.................................................................................... $60,539 $56,648 Current portion of notes and long-term receivables................................................... 4,281 4,468 Less allowance for doubtful accounts................................................................. 1,909 1,762 ------- ------- Receivables, net................................................................................. $62,911 $59,354 ======= =======
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. Note 5 -- Property and Equipment: Property and equipment consists of the following at December 31, 1998 and 1997:
1998 1997 -------------- -------- (in thousands) Land.......................................................................................... $ 20,533 $ 20,533 Buildings and leasehold improvements.......................................................... 1,863 1,922 Installed video systems....................................................................... 482,350 406,574 Distribution systems to networks.............................................................. 100,363 98,341 Furniture, fixtures and equipment............................................................. 26,631 18,419 -------- -------- Total...................................................................................... 631,750 545,789 Less accumulated depreciation and amortization................................................ 360,677 275,711 -------- -------- Net property and equipment in service......................................................... 271,073 270,078 Construction-in-progress...................................................................... 117,689 66,727 -------- -------- Property and equipment, net................................................................. $388,762 $336,805 ======== ========
Denver Arena Project. On May 7, 1997, the Arena Company entered into a Land Purchase Agreement (the "Land Purchase Agreement") with Southern Pacific Transportation Company ("SPT") pursuant to which on November 14, 1997 the Arena Company purchased approximately 49 acres in Denver as the site for the construction of an arena for a total purchase price of $20,533,000. The Land Purchase Agreement provides for the Arena Company and SPT to effect a State- approved voluntary environmental remediation plan on the site with SPT responsible for substantially all of the costs thereof, and for SPT to provide continuing indemnification with regard to certain other environmental liabilities through 2022 on a declining percentage basis. On November 13, 1997, Ascent and the Arena Company entered into a definitive agreement (the "Arena Agreement") with the City and County of Denver (the "City"). The Arena Agreement provides for Ascent to construct, own and manage a new arena in the City through its subsidiary, the Arena Company. The Arena Agreement also provides for the Arena Company to benefit from certain tax incentives and for the release of the Nuggets and Avalanche from their existing leases at the City's current arena, McNichols Arena, upon the completion of the new arena. In addition, upon completion of the new arena, Ascent is to transfer to the City the land associated with the arena and the City will lease the land back to Ascent for a 25 year term. At the end of such term the City will contribute the land back to Ascent. On November 14, 1997, Liberty Denver Arena, LLC ("LDA") a subsidiary of Liberty Media Corporation, invested $15,000,000 in the Arena Company. Pursuant to the Operating Agreement between Ascent and LDA, LDA received an ownership interest in the Arena Company that includes an interest in the capital of the Arena Company and a profits interest of approximately 6.5% representing the right to receive distributions from the Arena Company measured by the amount of distributions received by the Company, as defined, from each of the Nuggets and 47 Avalanche. LDA will not have any management or operating rights with respect to the Arena Company, the Nuggets or the Avalanche. In addition, LDA was granted put rights beginning in July 2005 to require the Company to purchase from LDA its then current ownership interest at its fair market value. Likewise, the Company has a call right beginning in July 2005 to purchase the LDA ownership interest at its then fair market value. In connection with this transaction, the Company recorded an increase in other long-term liabilities of $13,000,000 reflecting LDA's right to receive future distributions, if any, from the Nuggets and Avalanche. Development and construction of the new arena will cost approximately $169.1 million, including $5.7 million for construction cost overruns and other contingencies. Ascent is financing a portion of the total costs of the new arena from the net proceeds of the offering of the Arena Notes (see Note 6), with the remaining costs to be funded from equity investments and intercompany loans to the Arena Company from Ascent and LDA. Other. On October 31, 1997, OCC sold the land and the building which housed the SpectraVision spare part depot in Richardson, Texas for $4,500,000 in cash. Note 6 -- Long-Term Debt: Long-Term Debt consists of the following at December 31, 1998 and 1997:
1998 1997 -------- -------------- (in thousands) OCC Credit Facility, variable rate, due 2002................................................... $163,000 $133,000 Senior Secured Discount Notes, 11.875%, due 2004, net of unamortized discount of $82,463 and $98,042....................................................................... 142,537 126,958 Arena Notes, 6.94%, due 2019................................................................... 139,835 -- -------- -------- Total...................................................................................... 445,372 259,958 Less: Current maturities of long-term debt..................................................... 3,665 -- -------- -------- Total long-term debt....................................................................... $441,707 $259,958 ======== ========
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, 1998, there was $37.0 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, 1998, the weighted average interest rate on the OCC Credit Facility was 5.9%. 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 accrue 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 restrictions, 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. Arena Notes. On July 29, 1998, the Arena Company's beneficially owned trust, - ----------- The Denver Arena Trust (the "Trust") issued and sold $139,835,000 principal amount of 6.94% Arena Revenue Backed Notes (the "Arena 48 Notes") due November 2019. The proceeds from the sale of the Arena Notes were used by the Trust to purchase from the Arena Company revenue contracts related to the naming rights, suite licensing and certain corporate sponsorships of the Arena Company, and the underlying rights related to such contracts (collectively, the "Revenue Rights.") The Arena Company will use the net proceeds together with equity investments and intercompany loans from the Company to fund the construction of the new arena, to be called the Pepsi Center. The Arena Notes are non-recourse to the Arena Company but the Arena Company is obligated to the noteholders to construct and operate the Pepsi Center. Should a payment default occur absent a default in the Arena Company's obligations to construct and 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 Ascent and/or the Arena Company. To secure the Arena Company's obligations to construct and operate the new arena, the Arena Company has pledged to the Trust substantially all of the Arena 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, received the proceeds from the Revenue Contracts, 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. The Arena Notes also provide that, if the aggregate cash available in these restricted cash accounts exceeds the required principal, interest and other payments due, including the required reserve balances, the balance of such excess cash available may be distributed to the Arena Company, subject to certain covenant restrictions. The net proceeds from the offering of $136.6 million, combined with initial deposits from certain corporate sponsorships of $5.0 million, deposits from suite licensing agreements of $5.9 million and additional advances from the Company of $1.6 million were used to purchase restricted cash investments. Subsequently, through December 31, 1998, the Trust has sold $36.6 million of such investments to fund the construction of the Arena. 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 existing 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, 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, 1998, there was $50.0 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 restate 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) until December 31, 2000. Thereafter, the applicable borrowing margin will range from 49 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 and the construction of the arena. In October 1996, upon the closing of the Company's previous credit facility with the bank, Ascent extinguished borrowings of $145.0 million outstanding under its then existing $175.0 million credit facility with a different bank. The Company utilized funds received from OCC of $39.3 million and borrowed $110.0 million under its new credit facility to extinguish its outstanding bank obligations, including accrued interest, and other Ascent obligations. The Company recorded an extraordinary loss of approximately $334,000, net of taxes, of $157,000 during the fourth quarter of 1996 in connection with the extinguishment of its previous credit facility. Total minimum payments on long-term debt for the years subsequent to December 31, 1998, assuming the Senior Notes are not redeemed prior to maturity and the OCC Credit facility is not extended, are as follows (in thousands): 1999........................................................................................ $ 3,665 2000........................................................................................ 9,485 2001........................................................................................ 5,075 2002........................................................................................ 168,600 2003........................................................................................ 6,155 Thereafter.................................................................................. 334,855 -------- Total................................................................................... $527,835 ========
Note 7 -- Deferred Compensation and Other Obligations Deferred compensation and other obligations, which are included in other long-term liabilities on the accompanying balance sheet, consists of the following at December 31, 1998 and 1997:
1998 1997 -------------- ------- (in thousands) Severance and other employment obligations, at varying interest rates, payable through 2013........................................................................ $10,484 $ 8,595 Deferred compensation contracts, at varying interest rates, payable ------- ------- through 2021....................................................................................... 7,119 8,183 ------- ------- Total........................................................................................... 17,603 16,778 Less: Imputed interest.............................................................................. 2,596 3,005 Current maturities (included in other accrued liabilities).......................................... 6,521 4,314 ------- ------- Total........................................................................................... $ 8,486 $ 9,459 ======= =======
Total annual payments on long-term deferred compensation and other obligations for the years subsequent to December 31, 1998 are as follows (in thousands): 1999........................................................................................ $ 6,521 2000........................................................................................ 4,346 2001........................................................................................ 1,490 2002........................................................................................ 973 2003........................................................................................ 367 Thereafter.................................................................................. 3,906 ------- Total................................................................................. $17,603 =======
Note 8 -- 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 50 periods that Ascent was included in COMSAT's consolidated tax group are settled with COMSAT annually. At December 31, 1998 and 1997, Ascent's federal income tax receivable from COMSAT was $1,196,000 and $7,945,000, respectively. The balance due from COMSAT at December 31, 1998 is included in other long-term assets in the accompanying financial statements. As a result of the Distribution (see Notes 1 and 13), 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) on continuing operations for the years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996 -------------- --------- --------- Federal: (in thousands) Current................................................................. $ 851 $(6,014) $(12,852) Deferred................................................................ (6,079) (2,675) 3,130 State and local........................................................... (175) 408 110 Foreign................................................................... (109) 588 498 ------- ------- -------- Total................................................................. $(5,512) $(7,693) $ (9,114) ======= ======= ========
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, 1998, 1997 and 1996 is as follows:
1998 1997 1996 -------------- --------- --------- (in thousands) Federal income tax benefit computed at the statutory rate.............................. $(21,889) $(22,121) $(15,690) State income tax benefit, net of federal income tax benefit............................ (1,194) (1,110) (573) Goodwill amortization.................................................................. 2,542 2,464 860 Foreign taxes.......................................................................... (109) 588 498 Changes in valuation allowance......................................................... 15,815 10,620 5,333 Other.................................................................................. (677) 1,866 458 -------- -------- -------- Income tax benefit $ (5,512) $ (7,693) $ (9,114) ======== ======== ========
The net current and net non-current components of deferred tax assets and liabilities as shown on the balance sheets at December 31, 1998 and 1997 are:
1998 1997 -------------- -------- (in thousands) Current deferred tax asset.................................................................... $ 417 $ 2,577 Non-current deferred tax asset (liability).................................................... 3,866 (1,699) ------ ------- Net deferred tax asset................................................................... $4,283 $ 878 ====== =======
The deferred tax assets and liabilities at December 31, 1998 and 1997 are:
1998 1997 -------------- --------- (in thousands) Assets: Net operating loss carryforwards....................................................... $ 38,426 $ 26,995 Alternative minimum tax credit carryforwards........................................... 11,123 10,202 Other accrued liabilities.............................................................. 13,124 9,464 Amortization of intangibles............................................................ 4,079 6,479 Contract revenue....................................................................... 3,237 1,954 Other.................................................................................. 2,850 1,269 Valuation allowance.................................................................... (55,200) (39,385) -------- -------- Total deferred tax assets.............................................................. 17,639 16,978 -------- -------- Liabilities: Property and equipment................................................................. (21) (909) Franchise rights....................................................................... (11,003) (12,255) Other.................................................................................. (2,332) (2,936) -------- -------- Total deferred tax liabilities......................................................... (13,356) (16,100) -------- -------- Net deferred asset $ 4,283 $ 878 ======== ========
51 OCC has federal net operating loss carryforwards of approximately $ 100.0 million which expire beginning in 2010. However, because of the acquisition of Spectra Vision 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 $ 66.0 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. The Company also has alternative minimum tax credit carryforwards of approximately $9.5 million available to offset future regular federal tax liabilities. Note 9 -- Commitments and Contingencies Employment and Consulting Agreements. Ascent has employment and consulting - ------------------------------------ agreements with certain officers and entertainment talent. Virtually all of the player agreements provide for guaranteed payments. Other contracts provide for payments upon the fulfillment of their contractual terms and conditions, which generally relate only to normal performance of employment duties. Amounts required to be paid under such agreements (including approximately $195,522,000 relating to player agreements) are as follows at December 31, 1998 (in thousands): 1999..................................................................................................... $ 65,541 2000..................................................................................................... 57,469 2001..................................................................................................... 37,319 2002..................................................................................................... 21,337 2003..................................................................................................... 21,430 Thereafter............................................................................................... 15,417 -------- Total............................................................................................... $218,513 ========
Facility and Equipment Leases. Ascent leased its Corporate headquarters from - ----------------------------- COMSAT through June 1996 and continues to lease other facilities used by ANS under a three year lease. Total rental payments to COMSAT were approximately $46,000, $62,000 and $373,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The Company has entered into an operating lease for its corporate headquarters which expires in May 2000. OCC leases its principal facilities under a non-cancelable operating lease which expires in December 2003. Rental payments under this lease were $1,553,000, $1,303,000 and $538,000 for years ended December 31, 1998, 1997 and 1996, respectively. In 1997 and 1996, 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 1999-2004 from unrelated parties. The Nuggets and the Avalanche have an agreement with the City and County of Denver (the "City") for use of the City's playing facility, McNichols Arena, as well as offices and training rooms. The lease, as modified by the Arena Agreement (see Note 5), extends through the completion of the new arena and requires annual maximum rental payments, of $350,000 and $400,000 per year for the Nuggets and Avalanche, respectively. The total payment for McNichols Arena was $506,400, $750,000 and $700,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The Company and it's subsidiaries also lease equipment under non- cancelable operating leases which extend through 2004. Rental expense under all non-cancelable leases was approximately $6,733,000, $7,395,000 and $5,572,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The future minimum rental commitments under the Company's facility and equipment leases at December 31, 1998 are as follows (in thousands): 1999........................................................................................................ $ 7,073 2000........................................................................................................ 2,927 2001........................................................................................................ 1,970 2002........................................................................................................ 1,783 2003........................................................................................................ 1,773 Thereafter.................................................................................................. 893 ------- Total.................................................................................................. $16,419 =======
52 Purchase Commitments - Excluding costs related to the construction of the new - -------------------- arena (see Note 5), the Company has non-cancelable commitments for the purchase of video systems and office equipment totaling $7,100,000 as of December 31, 1998. Concession Agreement - 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 of the concession operations at the new arena, except for Suites, the Club Seats, the restaurants and floor seats (collectively, the premium areas), which will be managed by Levy. Pursuant to the management agreements, the Arena Company will receive $5,000,000 from Ogden and $3,000,000 from Levy during 1999 as manager contributions for the new arena. Under the terms of the management agreements, the Arena Company will be contingently liable for the unamortized portion of such manager contributions, plus other reasonable damages, if the Arena Company should terminate the management agreements. 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 expects to receive an additional two payments of approximately $3,950,000 (net of expenses) in July 1999 and July 2000. OCC will be recognizing the additional royalty revenue as the cash payments are received. In September 1998, OCV filed suit against MagiNet(see Note 3), 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. The Company is a party to certain other 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 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. NBA Collective Bargaining - Under the terms of the NBA Collective Bargaining - ------------------------- Agreement (the "CBA of 1995"), the NBA had the right to terminate the CBA of 1995 after the 1997/98 season if it was determined that the aggregate salaries and benefits paid by all NBA teams exceeded 51.8% of projected basketball related income ("BRI") for the 1997/98 season. On March 23, 1998, the Board of Governors of the NBA voted to exercise that right and reopen the CBA of 1995 effective as of June 30, 1998, as it had been determined that the aggregate salaries and benefits paid by the NBA teams for the 1997/98 season would exceed 51.8% of the projected BRI. Effective July 1, 1998, the NBA terminated the CBA of 1995 and commenced a lockout of NBA players in support of its attempt to reach a new collective bargaining agreement. On January 6, 1999, after a 189 day work stoppage, the NBA Players' Association approved a new NBA Collective Bargaining Agreement ("CBA of 1999"), which was subsequently ratified by the NBA owners on January 7, 1999, and signed on January 20, 1999. The CBA of 1999 has a six year term, with an option for a seventh year, 53 exercisable in the sole discretion of the NBA. The agreement provides for, among other things, maximum and minimum total team salaries, subject to various exceptions, and maximum and minimum individual player salaries. As a result of the lockout, the scheduled start of the 1998/99 NBA regular season was delayed until February 5, 1999. Consequently, the Nuggets' 1998/99 season will consist of 50 games versus a normal schedule of 82 games, 25 of which will be played at the Nuggets home arena. The Nuggets results of operations as compared to the prior year's operation have and will be affected by the absence of games during the fourth quarter of 1998 and the increase in the number of games during the first half of 1999. However, the impact to the Company from the decreases in revenue due to the delay of the 1998/99 NBA season was partially offset by a reduction in costs for the Nuggets, primarily player salaries during the last half of 1999. Note 10 -- 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. 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's Option Plan provides 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 13), 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 common stock for five days commencing with the date of the Distribution. In addition, under the Employee Plan, 120,000 SARs were granted to certain officers and key employees of the Company in June 1997 and 22,000 SARs were granted to other employees in October 1997. The 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 option for which they were exchanged. In June 1997, the Company also adopted the 1997 Non-employee Directors Stock Appreciation Rights 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 is $8.27 per share, the market price on the date of the Distribution. The change in value of SARs is reflected in the Company's 54 statement of operations based upon the market value of the common stock. During the years ended December 31, 1998 and 1997 the Company recorded an expense (benefit) of ($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, 1998 is approximately 7.5 years. The following is a summary of changes in shares under the Company's Stock Option Plans:
Options Outstanding --------------------------- Options Weighted Available for Number of Average Grant Shares Exercise Price -------------- ----------- -------------- Balances, January 1, 1996............................................ 661,250 948,750 $15.00 Granted (weighted average fair value of $8.63)..................... (397,500) 397,500 18.14 Exercised.......................................................... -- -- -- Canceled/expired................................................... 3,000 (3,000) 15.00 -------- ---------- ------ Balances, December 31, 1996.......................................... 266,750 1,343,250 15.93 Conversion of options to SAR's..................................... -- (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 ======== ========== ======
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's Option Plan in 1998 and 1997 and, both the Director's and Employee's 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 proforma amounts as indicated below (in thousands, except per share information):
1998 1997 1996 --------- --------- --------- Net loss as reported................................................................. $(49,725) $(41,514) $(36,034) Net loss pro forma................................................................... $(49,740) $(41,571) $(37,668) Basic and diluted loss per share as reported......................................... $ (1.67) $( 1.40) $( 1.21) Basic and diluted loss per share pro forma........................................... $ (1.67) $( 1.40) $( 1.27)
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 affect the calculated values and in which the Company has no significant history or established trends. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions for 1998, 1997 and 1996, respectively: expected life, 12-24 months following the last vesting date of the award; stock volatility, 55.8%, 47.2% and 57.6%; risk free interest rates, 4.6%, 5.3% and 5.9%; and no dividends during expected term. The Company's calculations are based on an option valuation approach and forfeitures are recognized as they occur. 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, 1998, the OCC Plan has 3,000,000 shares reserved for issuance and options to purchase 1,728,475 shares 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 award of 400 shares of the OCC's common stock and a non-qualified option to purchase 4,000 shares of OCC's common stock (a "Director Option") to each Independent Director on an annual basis. In 1998, 12,000 options were granted. No options were granted in 1997. 55 OCC has also adopted the disclosure only provisions of SFAS 123. The Company's share of OCC's pro forma compensation cost for 1998, 1997 and 1996 would be approximately $1,652,000, $2,326,000 and $476,000 or an additional loss of $.06, $.08 and $.02 per share to the respective proforma amounts above. 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 1998, 1997 and 1996 was $437,000, $688,000 and $1,064,000, respectively. Note 11 -- Employee Benefit Plans Savings Plans. OCC, ANS, the Nuggets, and the Avalanche 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, 1998, 1997 and 1996 were $1,091,000, $954,000 and $1,266,000, respectively. Nuggets. The Nuggets contribute annually to the NBA's General Manager, Coaches - -------- and Trainers Pension Plan as well as the NBA Players Association Players' Pension Plan (collectively, the "NBA Plans"). These multi-employer plans are administered by the NBA and require the Nuggets to make annual contributions to the NBA Plans equal to an amount stated pursuant to the actuarial valuation. Contributions to the General Manager, Coaches and Trainers Plan charged to expense were $223,000, $185,000 and $134,000 for the periods ended December 31, 1998, 1997 and 1996, respectively. Contributions to the Players' Plan charged to expense were $265,000, $309,000 and $159,000 for the periods ended December 1998, 1997 and 1996, respectively. The Nuggets policy is to fund pension costs determined by the NBA actuaries. The NBA, in conjunction with the NBA Players Association, has established a Pre- Pension Benefit Plan which is designed to pay benefits to players subsequent to their retirement from the NBA but prior to the age of qualification for the normal players' pension plan. There were no contributions charged to expense under this plan for the years ended December 31, 1998, 1997 and 1996. Avalanche. The Avalanche contributes monthly to the National Hockey League - --------- Pension Society ("NHL Plan") for the benefit of its players. This multi-employer plan is administered by the NHL and requires the Avalanche to make contributions to the NHL Plan for the applicable playing season equal to an amount stated pursuant to an actuarial valuation. Contributions to the NHL Plan charged to expense were $146,000, $142,000 and $210,000 for the years ended December 31, 1998, 1997, 1996, respectively. The Avalanche is also required by the NHL to provide a pension or equivalent benefit for its general manager and head coach. This benefit corresponds to an established annual amount for each year of service beginning the season following age 60. The Avalanche has chosen to fund this benefit separately from the NHL plan for its various participants. For the years ended December 31, 1998 and 1997, the amount of contributions to the General Manager and Coaches Plan charged to expense was $16,000 and $36,000, respectively. The Avalanche is also required by the NHL to provide a pension benefit to other participants, however, the Avalanche makes available an employer matching contribution in conjunction with its 401(k) plan which satisfies this funding requirement. No contributions were made to the General Manager and Coaches plan for the year ended December 31, 1996 as the 401(k) employer matching contribution satisfied the funding requirements of the plan in that year. Note 12 -- 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 has classified its businesses into 3 reporting segments: multimedia distribution, entertainment and network services. The multimedia distribution segment includes the video distribution and on- demand video entertainment services provided by OCC to the lodging industry. The entertainment segment includes three operating segments, the Denver Nuggets and the Colorado Avalanche franchises in the NBA and NHL, respectively, and the Arena Company, the owner and manager of the new arena. 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. Accordingly, the financial information which follows has been restated to conform with the Company's new segment classifications pursuant to SFAS 131. 56 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, ----------------------------------------- 1998 1997 1996 -------------- -------------- --------- (in thousands) Revenue (from external customers): Multimedia Distribution...................................................... $238,820 (1) $222,103 $147,469 Entertainment................................................................ 82,353 93,532 84,357 Network Services............................................................. 22,456 19,940 20,507 -------- ------------- -------- Total........................................................................ $343,629 $ 335,575 $252,333 ======== ============= ======== Operating income (loss): Multimedia Distribution (2).................................................. $(18,493) $ (25,446) $(15,502) Entertainment................................................................ (17,162) (13,834) (15,143) Network Services............................................................. 3,462 3,701 3,713 Corporate.................................................................... (7,800) (8,537) (7,718) -------- ------------- -------- Total........................................................................ $(39,993) $ (44,116) $(34,650) ======== ============= ======== Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA): Multimedia Distribution...................................................... $ 72,045 $ 55,579 $ 41,804 Entertainment................................................................ (9,500) (5,026) (5,533) Network Services............................................................. 10,970 11,280 10,652 Corporate.................................................................... (7,652) (8,404) (9,678) -------- ------------- -------- Total EBITDA................................................................. $ 65,863 $ 53,429 $ 37,245 -------- ------------- -------- Less reconciling item -depreciation and amortization......................... 105,856 97,545 71,895 -------- ------------- -------- Total operating income (loss) (39,993) (44,116) (34,650) ======== ============= ======== Interest revenue: Multimedia Distibution....................................................... $ 489 $ 153 $ 104 Entertainment................................................................ 122 -- -- Network Services............................................................. 386 671 975 Corporate.................................................................... 1,142 346 121 -------- ------------- -------- Total........................................................................ $ 2,139 $ 1,170 $ 1,200 ======== ============= ======== Interest expense, Net: Multimedia Distribution...................................................... $ 9,834 $ 7,612 $ 1,613 Entertainment................................................................ 140 912 1,058 Corporate.................................................................... 14,515 12,447 8,044 -------- ------------- -------- Total........................................................................ $ 24,489 $ 20,971 $ 10,715 ======== ============= ======== Capital expenditures: Multimedia Distribution...................................................... $ 83,208 $ 91,796 $ 70,545 Entertainment................................................................ 56,455 25,132 10,042 Network Services............................................................. 2,071 1,859 7,893 Corporate.................................................................... 159 259 353 -------- ------------- -------- Total........................................................................ $141,893 $ 119,046 $ 88,833 ======== ============= ======== Depreciation and leasehold amortization: Multimedia Distribution...................................................... $ 81,808 $ 72,430 $ 50,758 Entertainment................................................................ 677 642 430 Network Services............................................................. 7,508 7,579 6,939 Corporate.................................................................... 151 133 53 -------- ------------- -------- Total........................................................................ $ 90,144 $ 80,784 $ 58,180 ======== ============= ======== Amortization of intangible assets: Multimedia (2)............................................................... $ 8,730 $ 8,595 $ 4,535 Entertainment................................................................ 6,982 8,166 9,180 -------- ------------- -------- Total........................................................................ $ 15,712 $ 16,761 $ 13,715 ======== ============= ======== As of December 31, ------------------------ 1998 1997 -------- ------------- Identifiable assets: Multimedia Distribution.......................................................................... $421,797 $ 422,258 Entertainment.................................................................................... 363,813 208,144 Network Services................................................................................. 19,506 26,820 Corporate........................................................................................ 46,297 37,293 Discontinued operations.......................................................................... 12,328 34,411 -------- ------------- Total............................................................................................ $863,741 $ 728,926 ======== =============
57 (1) The Multimedia Distribution segment for 1996 reflects the acquisition of SpectraVision by OCC in October 1996 (see Note 2). (2) 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 17%, 14%, and 15% of consolidated revenues in 1998, 1997, and 1996, respectively. No other customer accounted for more than 10% of consolidated revenues during 1998, 1997, and 1996. Geographic Operating Information. The following represents total revenues for - -------------------------------- the years ended December 31, 1998, 1997 and 1996 and long-lived assets as of December 31, 1998 and 1997 by geographic territory (in thousands):
1998 1997 1996 ---- ---- ---- Total Long-Lived Total Long-Lived Total Revenues Assets Revenues Assets Revenues United States.............................................. $319,863 $700,340 $310,558 $602,919 $247,738 Canada..................................................... 12,690 17,984 13,251 6,596 2,186 All other foreign.......................................... 11,076 10,506 11,766 7,130 2,409 -------- -------- -------- -------- -------- Total...................................................... $343,629 $728,830 $335,575 $616,645 $252,333 ======== ======== ======== ======== ========
(1)- Net revenues are attributed to countries based on invoicing location of customer. Note 13 -- 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, including restrictions on the following activities: (i) 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; (ii) until July 1999, Ascent will continue the active conduct of its ANS satellite distribution, service and maintenance business; (iii) until July, 1999, Ascent will not sell, transfer or otherwise dispose of assets that, in the aggregate, constitute more than 60% of its gross assets as of the Distribution, other than in the ordinary course of business; (iv) until July, 1999, Ascent will not voluntarily dissolve or liquidate or engage in any merger, consolidation or other reorganization; and (v) until July, 1999, Ascent will not unwind the merger of ANS with and into Ascent in any way. The restrictions noted in items (ii) through (iv) above will be waived with respect to any particular transaction if (a) COMSAT or Ascent have obtained a ruling from the IRS in form and substance reasonably satisfactory to COMSAT that such transaction will not adversely affect the tax-free status of the Distribution, (b) COMSAT has determined in its sole discretion, exercised in good faith solely to preserve the tax-free status of the Distribution that such transaction could not reasonably be expected to have a material adverse effect on the tax-free status of Distribution, or (c) Ascent obtains an unqualified tax opinion in form and substance reasonably acceptable to COMSAT that such transaction will not disqualify the Distribution's tax-free status. 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 58 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 and $2,000,000 for the years ended December 31, 1997 and 1996, respectively. 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, 1998 and 1996 to COMSAT. In conjunction with the SpectraVision Acquisition (see Note 3), 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 $182.0 million through December 31, 1999; 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 $22,955,000, $22,000,000 and $18,900,000 for the years ended December 31, 1998, 1997, and 1996, respectively, from Hilton and its affiliates. Accounts receivable from Hilton and its affiliates at December 31, 1998 and 1997 were approximately $1,400,000 and $753,000, respectively. Hilton is a minority stockholder of OCC. OCC earned revenues of $83,000, $901,000 and $4,944,000 for the years ended December 31, 1998, 1997, 1996 respectively, from MagiNet Corporation, which is a related party by virtue of OCC's investment in its preferred stock (see Note 3). Accounts receivable from MagiNet at December 31, 1998 and 1997 were insignificant. Note 14 -- Financial Instruments and Off-Balance Sheet Risks: Off Balance Sheet Risks. At December 31, 1998, Ascent was contingently liable - ----------------------- to banks for $1,389,000 for outstanding letters of credit securing performance of certain contracts. These guarantees expire in 1999. 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 short-term and long-term investments approximates their carrying value. The fair value of Company's long-term debt, as shown below, was estimated by obtaining a yield-adjusted price as of December 31, 1998, for each obligation from an investment banker. Carrying value Fair value ---------------- ---------- (In thousands) Senior Secured Discount Notes, 11.875% $142,537 $139,305 Arena Notes, 6.94% 139,835 136,470 The fair values of the Company's remaining long-term liabilities and other financial instruments not itemized above approximate their carrying values. 59 Note 15 -- Quarterly Results of Operations (Unaudited): The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1998 and 1997:
Dec. 31 Sept. 30 June 30 March 31 --------------------- --------- --------- --------- (In thousands, except per share data) 1998(1) Revenues.................................................. $ 89,125 $71,897 $ 81,803 $100,804 Operating expenses........................................ 74,733 49,207 67,147 86,679 Depreciation and amortization............................. 27,109 26,599 26,279 25,869 Operating loss from continuing operations................. (12,717) (3,909) (11,623) (11,744) Income (loss) from discontinued operations................ 1,528 (2,395) (3,727) 686 Net loss.................................................. (9,254) (9,572) (18,015) (12,884) Basic and diluted loss per share.......................... (.32) (.32) (.60) (.43) 1997(1) Revenues.................................................. $100,647 $65,582 $ 79,511 $ 89,835 Operating expenses........................................ 84,012 50,156 61,454 86,524 Depreciation and amortization............................. 24,873 24,130 24,191 24,351 Operating loss from continuing operations................. (8,238) (8,704) (6,134) (21,040) Income (loss) from discontinued operations................ (4,637) 11,638 (2,615) (2,443) Net loss.................................................. (12,758) (1,361) (9,747) (17,648) Basic and diluted loss per share.......................... (.44) (.04) (.33) (.59)
(1) Quarterly results for 1998 and 1997 have been restated to reflect the results of operations of Beacon as discontinued operations (see Note 2). 60 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III Except for the portion of Item 10 relating to Executive Officers which is included in Part I of this Report, the information called for by Items 10 through 13 is incorporated by reference from the Ascent Entertainment Group, Inc. 1999 Annual Meeting of Stockholders - Notice and Proxy Statement (to be filed pursuant to Regulation 14A not later than 120 days after the close of the fiscal year) which meeting involves the election of directors, in accordance with General Instruction G to the Annual Report on Form 10-K. ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT. ITEM 11. EXECUTIVE COMPENSATION. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 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............................................ 36 Consolidated Balance Sheets as of December 31, 1998 and 1997............ 37 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996..................................................... 38 Consolidated Statements of Comprehensive Loss for the years ended December 31, 1998, 1997 and 1996........................................ 39 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996........................................ 40 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996..................................................... 41 Notes to Consolidated Financial Statements.............................. 42 (2) Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 1998, 1997 and 1996........................................ 65
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. None. 61 (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 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.) 4.3 Indenture between the Denver Arena Trust and The Bank of New York, as Indenture Trustee, dated July 29, 1998. 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 Employment Agreement by and between Ascent Entertainment Group, Inc. and Arthur M. Aaron. (Incorporated by reference to Exhibit 10.3 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). 10.4 Employment Agreement by and between Ascent Entertainment Group, Inc. and David A. Holden. (Incorporated by reference to Exhibit 10.4 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). * 10.5 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. 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. 62 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 Purchase and Sale Agreement dated May 7, 1997, between Denver Arena Company, LLC and Southern Pacific Transportation Company relating to the purchase of land for the construction of the arena. (Incorporated by reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, Commission File No. 0-27192). 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 Term Sheet for Local Television License Agreement for the Denver Nuggets and the Colorado Avalanche between the Registrant and Fox Sports Rocky Mountain. (Incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, Commission File No. 0-27192). (Confidential treatment granted). 10.12 1997 Denver Arena Agreement by and among Ascent Arena Company, LLC, The Denver Nuggets Limited Partnership, The Colorado Avalanche, LLC and the City and County of Denver dated December 12, 1997. (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.) 10.13 Amendment to Employment Agreement between On Command Corporation and Robert M. Kavner dated December 28, 1998 * 10.14 Amendment No. 1 to Employment Agreement between On Command Corporation and Brian A.C. Steel dated December 28, 1998. * 10.15 Employment Agreement between Ascent Arena Company, LLC and Tim Romani dated July 1, 1997.* 10.16 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. 10.17 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.) 10.18 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). 10.19 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.)* 10.20 Ascent Entertainment Group, Inc. 1997 Non-Employee Director Stock Appreciation Rights Plan* 10.21 Agreement for the Purchase and Sale of an Interest in Beacon Communications, LLC dated January 20, 1999 21 Subsidiaries of Ascent Entertainment Group, Inc. 23.1 Consent of Deloitte & Touche LLP * Compensatory plan or arrangement. 63 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 29, 1999. ASCENT ENTERTAINMENT GROUP, INC. By: /s/ Charles Lyons Charles Lyons President & Chief Executive Officer 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 29, 1999. /s/ Charles Lyons Charles Lyons President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) /s/ James A. Cronin, III James A. Cronin, III Executive Vice President, Chief Financial Officer, Chief Operating Officer and Director (Principal Financial Officer) /s/ David A. Holden David A. Holden Vice President, Finance and Controller (Principal Accounting Officer) /s/ Charles M. Lillis Charles M. Lillis (Director) /s/ Charles M. Neinas Charles M. Neinas (Director) /s/ Peter Barton Peter Barton (Director) /s/ Paul A. Gould Paul A. Gould (Director) 64 ASCENT ENTERTAINMENT GROUP, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998 (IN THOUSANDS)
Balance at Charged Charged Balance Beginning to to other Deductions at end of year expenses accounts(a) (b) of year ---------- -------- ----------- ----------- ------- 1996: Allowance for loss on accounts $3,240 $ 758 $(1,775) $ (87) $2,136 receivable 1997: Allowance for loss on accounts $2,136 $1,255 $(1,245) $ (384) $1,762 receivable 1998: Allowance for loss on accounts $1,762 $1,307 $ (10) $(1.150) $1,909 receivable
(a) - Recoveries of amounts previously reserved and other adjustments. (b) - Uncollectible amounts written off. 65 66 EX-4.3 2 INDENTURE B/W THE DENVER ARENA TRUST EXHIBIT 4.3 ================================================================================ INDENTURE between DENVER ARENA TRUST, as Issuer Trust and THE BANK OF NEW YORK, as Indenture Trustee Dated as of July 29, 1998 DENVER ARENA TRUST Arena Revenue Backed Notes TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.01. Definitions....................................................................... 1 Section 1.02. Rules of Construction............................................................. 1 ARTICLE II THE NOTES Section 2.01. Form.............................................................................. 2 Section 2.02. Execution, Authentication, Delivery and Dating.................................... 2 Section 2.03. Registration; Registration of Transfer and Exchange............................... 3 Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes........................................ 4 Section 2.05. Persons Deemed Note Owners........................................................ 5 Section 2.06. Distribution of Principal and Interest; Defaulted Interest........................ 5 Section 2.07. Cancellation...................................................................... 6 Section 2.08. Conditions Precedent to the Authentication of the Notes........................... 6 Section 2.09. Release of Collateral............................................................. 8 Section 2.10. Book-Entry Notes.................................................................. 8 Section 2.11. Notices to Clearing Agency........................................................ 9 Section 2.12. Definitive Notes.................................................................. 9 Section 2.13. Tax Treatment.................................................................... 11 Section 2.14. Limitations on Transfer of the Notes............................................. 11 Section 2.15. CUSIP Numbers.................................................................... 11 ARTICLE III COVENANTS Section 3.01. Distribution of Principal and Interest........................................... 12 Section 3.02. Maintenance of Office or Agency.................................................. 12 Section 3.03. Money for Distributions to be Held in Trust...................................... 12 Section 3.04. Existence........................................................................ 14 Section 3.05. Protection of Collateral......................................................... 14 Section 3.06. Annual Opinions as to Collateral................................................. 15 Section 3.07. Performance of Obligations....................................................... 15 Section 3.08. Negative Covenants............................................................... 16 Section 3.09. Annual Statement as to Compliance................................................ 17 Section 3.10. Covenants of the Issuer Trust.................................................... 18 Section 3.11. Restricted Payments.............................................................. 18
-i- Section 3.12. Notice of Events of Default...................................................... 18 Section 3.13. Further Instruments and Acts..................................................... 18 ARTICLE IV SATISFACTION AND DISCHARGE Section 4.01. Satisfaction and Discharge of Indenture.......................................... 19 Section 4.02. Application of Trust Money....................................................... 19 Section 4.03. Repayment of Moneys Held by Paying Agent......................................... 19 ARTICLE V REMEDIES Section 5.01. Events of Default................................................................ 20 Section 5.02. Acceleration of Maturity; Rescission and Annulment............................... 22 Section 5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee........ 22 Section 5.04. Remedies; Priorities............................................................. 25 Section 5.05. Optional Preservation of the Collateral.......................................... 26 Section 5.06. Limitation of Suits.............................................................. 26 Section 5.07. Unconditional Rights of Noteholders to Receive Principal and Interest............ 27 Section 5.08. Restoration of Rights and Remedies............................................... 27 Section 5.09. Rights and Remedies Cumulative................................................... 27 Section 5.10. Delay or Omission Not a Waiver................................................... 27 Section 5.11. Control by Noteholders........................................................... 28 Section 5.12. Waiver of Past Defaults.......................................................... 28 Section 5.13. Undertaking for Costs............................................................ 28 Section 5.14. Waiver of Stay or Extension Laws................................................. 29 Section 5.15. Action on Notes.................................................................. 29 Section 5.16. Performance and Enforcement of Certain Obligations............................... 29 Section 5.17. Environmental Site Assessment.................................................... 30 ARTICLE VI THE INDENTURE TRUSTEE Section 6.01. Duties of Indenture Trustee...................................................... 30 Section 6.02. Rights of Indenture Trustee...................................................... 32 Section 6.03. Individual Rights of Indenture Trustee........................................... 32 Section 6.04. Indenture Trustee's Disclaimer................................................... 32 Section 6.05. Notices of Default............................................................... 33 Section 6.06. Reports by Indenture Trustee to Holders.......................................... 33 Section 6.07. Compensation and Indemnity....................................................... 33
-ii- Section 6.08. Replacement of Indenture Trustee................................................. 34 Section 6.09. Successor Indenture Trustee by Merger............................................ 35 Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee................ 35 Section 6.11. Eligibility; Disqualification.................................................... 36 Section 6.12. Indenture Trustee's Application for Instructions from the Issuer Trust........... 36 ARTICLE VII NOTEHOLDERS' LISTS AND REPORTS Section 7.01. Issuer Trust to Furnish Indenture Trustee Names and Addresses of Noteholders..... 37 Section 7.02. Preservation of Information...................................................... 37 Section 7.03. Reports by Indenture Trustee..................................................... 37 Section 7.04. 144A Information.................................................................. 37 ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES Section 8.01. Collection of Money.............................................................. 38 Section 8.02. Trust Accounts; Distributions.................................................... 38 Section 8.03. General Provisions Regarding Accounts............................................ 38 Section 8.04. Servicer's Monthly Statements.................................................... 39 Section 8.05. Release of Collateral............................................................ 39 Section 8.06. Opinion of Counsel............................................................... 40 ARTICLE IX SUPPLEMENTAL INDENTURES Section 9.01. Supplemental Indentures Without Consent of Noteholders........................... 40 Section 9.02. Supplemental Indentures with Consent of Noteholders.............................. 41 Section 9.03. Execution of Supplemental Indentures............................................. 42 Section 9.04. Effect of Supplemental Indentures................................................ 42 Section 9.05. Reference in Notes to Supplemental Indentures.................................... 43 Section 9.06. Amendments to Trust Agreement.................................................... 43 ARTICLE X REDEMPTION OF NOTES Section 10.01. Mandatory Redemption............................................................ 43 Section 10.02. Redemption at the Option of the Issuer; Election to Redeem...................... 44
-iii- Section 10.03. Notice to Indenture Trustee; Deposits Into The Collection Account............... 44 Section 10.04. Notice of Redemption by the Indenture Trustee................................... 44 Section 10.05. Notes Payable on Optional Redemption Price or Mandatory Redemption Price........ 45 ARTICLE XI MISCELLANEOUS Section 11.01. Compliance Certificates and Opinions, etc....................................... 45 Section 11.02. Form of Documents Delivered to Indenture Trustee................................ 46 Section 11.03. Acts of Noteholders............................................................. 47 Section 11.04. Notices, etc., to Indenture Trustee, Issuer Trust and Rating Agencies........... 47 Section 11.05. Notices to Noteholders; Waiver.................................................. 48 Section 11.06. Effect of Headings and Table of Contents........................................ 48 Section 11.07. Successors and Assigns.......................................................... 48 Section 11.08. Separability.................................................................... 49 Section 11.09. Benefits of Indenture........................................................... 49 Section 11.10. Legal Holidays.................................................................. 49 Section 11.11. Governing Law................................................................... 49 Section 11.12. Counterparts.................................................................... 49 Section 11.13. Recording of Indenture.......................................................... 49 Section 11.14. Trust Obligation................................................................ 49 Section 11.15. Inspection...................................................................... 50
EXHIBITS EXHIBIT A - Form of Note EXHIBIT B-1 - Form of Rule 144A Transfer Certificate EXHIBIT B-2 - Form of Purchaser's Letter for Institutional Accredited Investor EXHIBIT B-3 - Form of Transfer Affidavit EXHIBIT C - Form of Legend SCHEDULES SCHEDULE A - Targeted Principal Payment Schedule -iv- This Indenture dated as of July 29, 1998, between DENVER ARENA TRUST, a Delaware business trust (the "Issuer Trust"), and THE BANK OF NEW YORK, a New ------------ York banking corporation (the "Indenture Trustee"). ----------------- RECITALS: -------- The Issuer Trust has duly authorized the execution and delivery of this Indenture to provide for the issuance of its secured Arena Revenue Backed Notes (the "Notes") limited in principal amount and issued as in this Indenture ----- provided; All things necessary to make this Indenture a valid agreement of the Issuer Trust in accordance with its terms have been done; As collateral security for its obligations under this Indenture and the Notes, the Issuer Trust has collaterally assigned to the Indenture Trustee all of its right, title and interest in and to the Collateral pursuant to the Security Agreement [Indenture Trustee]; The Indenture Trustee, on behalf of the Noteholders, acknowledges the Grant in the Security Agreement [Indenture Trustee], accepts the trusts hereunder and agrees to perform its duties required in this Indenture to the best of its ability to the end that the interests of the Noteholders may adequately and effectively be protected. In consideration of the recitals and mutual covenants herein contained, the Issuer Trust and the Indenture Trustee hereby agree as follows for the benefit of each of them and for the equal and ratable benefit of the holders of the Notes: ARTICLE I DEFINITIONS Section 1.01. Definitions. Except as otherwise specified herein or ----------- as the context may otherwise require, capitalized terms used in this Indenture shall have the respective meanings set forth in Appendix A to the Sale and ---------- Servicing Agreement, dated as of July 29, 1998, among the Issuer Trust, Ascent Arena Company, LLC, as Transferor and Servicer, and the Indenture Trustee. Section 1.02. Rules of Construction. Unless the context otherwise --------------------- requires: (i) a term has the meaning assigned to it; S-A-1 (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect in the United States from time to time; (iii) "or" is not exclusive; (iv) words in the singular include the plural and words in the plural include the singular; and (v) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented (as provided in such documents) and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; references to a Person are also to its permitted successors and assigns. ARTICLE II THE NOTES Section 2.01. Form. The Notes shall be designated as the "Denver ---- Arena Trust, Arena Revenue Backed Notes". The Notes shall be in substantially the form set forth in Exhibit A hereto, with such appropriate insertions, --------- omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Notes, as evidenced by their execution thereof. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note. The Definitive Notes shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods, all as determined by the officers executing such Notes, as evidenced by their execution of such Notes. Each Note shall be dated the date of its authentication. The terms of the Notes are set forth in Exhibit A hereto. The terms of each Note are part of --------- the terms of this Indenture. Section 2.02. Execution, Authentication, Delivery and Dating. The ---------------------------------------------- Notes shall be executed on behalf of the Issuer Trust by an Authorized Officer thereof. The signature of any such Authorized Officer on the Notes may be manual or facsimile. Notes bearing the manual or facsimile signature of individuals who were, at any time, Authorized Officers of the Issuer Trust shall bind the Issuer Trust, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. C-2 Subject to the satisfaction of the conditions set forth in Section ------- 2.08 hereof, the Indenture Trustee shall upon receipt of an Issuer Order - ---- authenticate and deliver the Notes for original issue in the following principal amount: $139,835,000. The aggregate principal amount of the Notes outstanding at any time may not exceed such amount. The Notes that are authenticated and delivered by the Indenture Trustee to or upon the order of the Issuer Trust on the Closing Date shall be dated July 29, 1998. All other Notes that are authenticated after the Closing Date for any other purpose under the Indenture shall be dated the date of their authentication. The Notes shall be issuable as registered Notes in the minimum denomination of $5,000 and integral multiples of $1,000 in excess thereof. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Indenture Trustee by the manual signature of one of its authorized signatories, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. Section 2.03. Registration; Registration of Transfer and Exchange. --------------------------------------------------- The Issuer Trust shall cause to be kept a register (the "Note Register") in ------------- which, subject to such reasonable regulations as it may prescribe, the Issuer Trust shall provide for the registration of Notes and the registration of transfers of Notes. The Indenture Trustee initially shall be the "Note ---- Registrar" for the purpose of registering Notes and transfers of Notes as herein - --------- provided. Upon any resignation of any Note Registrar, the Issuer Trust shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Note Registrar. If a Person other than the Indenture Trustee is appointed by the Issuer Trust as Note Registrar, the Issuer Trust will give the Indenture Trustee prompt written notice of the appointment of such Note Registrar and of the location, and any change in the location, of the Note Register, and the Indenture Trustee shall have the right to inspect the Note Register at all reasonable times and to obtain copies thereof, and the Indenture Trustee shall have the right to rely upon a certificate executed on behalf of the Note Registrar by an Executive Officer thereof as to the names and addresses of the Noteholders and the principal amounts and number of such Notes. Upon surrender for registration of transfer of any Note at the office or agency of the Issuer Trust to be maintained as provided in Section 3.02 ------------ hereof, the Issuer Trust shall execute, and the Indenture Trustee shall authenticate and the Noteholder shall obtain from the Indenture Trustee, in the name of the designated transferee or transferees, one or more new Notes in any authorized denominations, of a like aggregate principal amount as such Note or Notes. At the option of the related Noteholder, Notes may be exchanged for other Notes in any authorized denominations, of a like aggregate principal amount, upon surrender of the Notes to be exchanged at the office or agency of the Issuer Trust. Whenever any Notes C-3 are so surrendered for exchange, the Issuer Trust shall execute, and the Indenture Trustee shall authenticate and the Noteholder shall obtain from the Indenture Trustee, the Notes which such Noteholder is entitled to receive. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Issuer Trust, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by, the related Noteholder or such Noteholder's attorney duly authorized in writing. No service charge shall be made to a Noteholder for any registration of transfer or exchange of Notes, but the Issuer Trust may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 9.05 hereof not involving any transfer. ------------ The preceding provisions of this Section 2.03 notwithstanding, the ------------ Issuer Trust shall not be required to make, and the Note Registrar need not register, transfers or exchanges of Notes selected for redemption or of any Note for a period of 15 days preceding the due date for any payment with respect to such Note. Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any ------------------------------------------ mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Indenture Trustee such security or indemnity as may be required by it to hold the Issuer Trust and the Indenture Trustee harmless, then, in the absence of notice to the Issuer Trust, the Note Registrar or the Indenture Trustee that such Note has been acquired by a bona fide purchaser, an Authorized Officer of the Issuer Trust shall execute, and upon its request the Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement Note; provided, however, that if any such destroyed, lost or stolen -------- ------- Note, but not a mutilated Note, shall have become or within seven days shall be due and payable, or shall have been called for redemption, instead of issuing a replacement Note, the Issuer Trust may pay such destroyed, lost or stolen Note when so due or payable or upon the Redemption Date without surrender thereof. If, after the delivery of such replacement Note or payment of a destroyed, lost or stolen Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of the original Note in lieu of which such replacement Note was issued presents for payment such original Note, the Issuer Trust and the Indenture Trustee shall be entitled to recover such replacement Note (or such payment) from the Person to which it was delivered or any Person taking such replacement Note from such Person to which such replacement Note was delivered or any assignee of such Person, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided C-4 therefor to the extent of any loss, damage, cost or expense incurred by the Issuer Trust or the Indenture Trustee in connection therewith. Upon the issuance of any replacement Note under this Section 2.04, the ------------ Issuer Trust may require the payment by the Holder of such Note of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Indenture Trustee) connected therewith. Every replacement Note issued pursuant to this Section 2.04 in ------------ replacement of any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Issuer Trust, whether or not the mutilated, destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section 2.04 are exclusive and shall preclude ------------ (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. Section 2.05. Persons Deemed Note Owners. Prior to due presentment -------------------------- for registration of transfer of any Note, the Issuer Trust, the Indenture Trustee and any agent of the Issuer Trust or the Indenture Trustee may treat the Registered Holder as the Note Owner for the purpose of receiving payments of principal and interest, if any, on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and none of the Issuer Trust, the Indenture Trustee or any agent of the Issuer Trust or the Indenture Trustee shall be affected by notice to the contrary. Section 2.06. Distribution of Principal and Interest; Defaulted -------------------------------------- Interest . (a) The Notes shall accrue interest at the Note Interest Rate, and such interest shall be payable on each Distribution Date as specified in the form of the Notes set forth in Exhibit A hereto, subject to Section 3.01 hereof. --------- ------------ Each installment of interest or principal, if any, payable on any Note that is punctually paid or duly provided for by the Issuer Trust on the applicable Distribution Date shall be paid (i) with respect to Definitive Notes, to the Person in the name of which such Note (or one or more Predecessor Notes) is registered on the Record Date by check mailed first-class postage prepaid to such Person's address as it appears on the Note Register on such Record Date, or (ii) with respect to Book-Entry Notes, by wire transfer in immediately available funds to the account designated by the nominee (initially, Cede & Co.) of the Clearing Agency, except for the final installment of principal payable with respect to such Note on a Distribution Date or on the Rated Final Maturity Date (and except for the Optional Redemption Price or the Mandatory Redemption Price for any Note called for redemption pursuant to Section 10.01 or Section 10.02 ------------- ------------- hereof), which shall be payable as provided in Section 2.06(b) below. The funds --------------- represented by any such installment returned undelivered shall be held in accordance with Section 3.03 hereof. ------------ (b) The Targeted Principal Distribution Amount shall be payable in accordance with the Targeted Principal Payment Schedule attached hereto as Schedule A. Notwithstanding the foregoing, the entire unpaid principal amount of - ---------- the Notes shall be due C-5 and payable, if not previously paid, on the earlier of (i) the Rated Final Maturity Date, (ii) the Optional Redemption Date, (iii) the Mandatory Redemption Date, or (iv) the date on which an Event of Default shall have occurred and be continuing, if the Indenture Trustee or the Majority Noteholders shall have declared the Notes to be immediately due and payable in the manner provided in Section 5.02 hereof. - ------------ All principal payments on the Notes shall be made pro rata to the Noteholders. The Indenture Trustee shall notify the Person in the name of which a Note is registered at the close of business on the Record Date preceding the Distribution Date on which the Issuer Trust expects that the final installment of principal of and interest on such Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Distribution Date and shall specify that such final installment will be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such installment. Notices in connection with redemptions of Notes shall be mailed to Noteholders as provided in Section ------- 10.02 hereof. - ----- Section 2.07. Cancellation. All Notes surrendered for payment, ------------ registration of transfer, exchange or redemption shall, if surrendered to any Person other than the Indenture Trustee, be delivered to the Indenture Trustee and shall promptly be canceled by the Indenture Trustee. The Issuer Trust may at any time deliver to the Indenture Trustee for cancellation any Notes previously authenticated and delivered hereunder which Notes the Issuer Trust may have acquired in any manner whatsoever, and all Notes so delivered shall promptly be canceled by the Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section 2.07, except as ------------ expressly permitted by this Indenture. All canceled Notes may be held or disposed of by the Indenture Trustee in accordance with its standard retention or disposal policy as in effect at the time unless the Issuer Trust shall direct by an Issuer Order that they be returned to it; provided, however, that such -------- ------- Issuer Order is timely and the Notes have not been previously disposed of by the Indenture Trustee. Section 2.08. Conditions Precedent to the Authentication of the ------------------------------------------------- Notes. The Notes may be authenticated by the Indenture Trustee upon receipt by - ----- the Indenture Trustee of the following: (a) An Issuer Order authorizing the execution and authentication of such Notes from the Issuer Trust. (b) All of the items of Collateral specified in Section 2.04(a) of --------------- the Sale and Servicing Agreement which shall be delivered to the Indenture Trustee or its designee. (c) An executed counterpart of the Trust Agreement. (d) Opinions of Counsel addressed to the Indenture Trustee to the effect that: (i) all conditions precedent provided for in this Indenture relating to the authentication of the Notes have been complied with; C-6 (ii) the Issuer Trust has power and authority to execute, deliver and perform its obligations under each Basic Document to which it is a party and each such document is enforceable against the Owner Trustee in accordance with its terms; (iii) the Issuer Trust has been duly formed, is validly existing as a business trust under the laws of the State of Delaware, 12 Del. C. Section 3801 et seq., and has power, authority and legal right to execute and deliver this Indenture and the Sale and Servicing Agreement; (iv) assuming due authorization, execution and delivery hereof by the Indenture Trustee, the Indenture is the valid, legal and binding obligation of the Issuer Trust, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent or preferential conveyance and other similar laws of general application affecting the rights of creditors generally and to general principles of equity (regardless of whether such enforcement is considered in a Proceeding in equity or at law); (v) the Notes, when executed and authenticated as provided herein and delivered against payment therefor, will be the valid, legal and binding obligations of the Issuer Trust pursuant to the terms of this Indenture, entitled to the benefits of this Indenture, and will be enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent or preferential conveyance and other similar laws of general application affecting the rights of creditors generally and to general principles of equity (regardless of whether such enforcement is considered in a Proceeding in equity or at law); (vi) the Trust Agreement authorizes the Issuer Trust to Grant the Collateral to the Indenture Trustee as security for the Notes; (vii) no authorization, approval or consent of any governmental body having jurisdiction in the premises which has not been obtained by the Issuer Trust is required to be obtained by the Issuer Trust for the valid issuance and delivery of the Notes, except that no opinion need be expressed with respect to any such authorizations, approvals or consents as may be required under any state securities or "blue sky" laws; and (viii) any other matters as the Indenture Trustee may reasonably request. (e) An Officer's Certificate (which need not comply with the requirements of Section 11.01 hereof) stating that: ------------- (i) the Issuer Trust is not in Default under this Indenture and the issuance of the Notes applied for will not result in any breach of any of the C-7 terms, conditions or provisions of, or constitute a default under, the Trust Agreement, any indenture, mortgage, deed of trust or other agreement or instrument to which the Issuer Trust is a party or by which it is bound, or any order of any court or administrative agency entered in any Proceeding to which the Issuer Trust is a party or by which it may be bound or to which it may be subject, and that all conditions precedent provided in this Indenture relating to the authentication and delivery of the Notes applied for have been complied with; (ii) the Issuer Trust has Granted to the Indenture Trustee all of its right, title and interest in and to the Collateral, and has delivered or caused the same to be delivered to the Indenture Trustee; (iii) attached thereto are true and correct copies of letters signed by the Rating Agency confirming that the Notes have been rated "A" by Fitch; and (iv) all conditions precedent provided for in this Indenture relating to the authentication of the Notes have been complied with. Section 2.09. Release of Collateral. Except as otherwise provided --------------------- in Section 11.01 hereof and Section 2.06(c) of the Sale and Servicing Agreement, ------------- --------------- the Indenture Trustee shall release property from the lien of this Indenture only upon receipt of an Issuer Request accompanied by an Officer's Certificate and an Opinion of Counsel stating that such release would not adversely affect the rights of the Noteholders. Written notice of such release of Collateral shall be provided to the Rating Agency. Section 2.10. Book-Entry Notes. The Notes, when authorized by an ---------------- Issuer Order, will be issued in book-entry form (the "Book-Entry Notes"), to be ---------------- delivered to The Depository Trust Company, the initial Clearing Agency, by or on behalf of the Issuer Trust. The Book-Entry Notes shall be registered initially on the Note Register in the name of Cede & Co., the nominee of the Clearing Agency, and no Note Owner will receive a definitive Note representing such Note Owner's interest in such Note, except as provided in Section 2.12 hereof. ------------ Unless and until Definitive Notes have been issued to such Note Owners pursuant to Section 2.12 hereof: ------------ (i) the provisions of this Section 2.10 shall be in full force and ------------ effect with respect to such Notes; (ii) the Note Registrar and the Indenture Trustee shall be entitled to deal with the Clearing Agency for all purposes of this Indenture (including the payment of principal of and interest on the Notes and the giving of instructions or directions hereunder) as the sole Holder of the Notes, and shall have no obligation to the Note Owners; (iii) to the extent that the provisions of this Section 2.10 conflict ------------ with any other provisions of this Indenture, the provisions of this Section ------- 2.10 shall control; ---- C-8 (iv) the rights of Note Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Note Owners and the Clearing Agency and/or the Clearing Agency Participants pursuant to the Note Depository Agreement. Unless and until Definitive Notes are issued pursuant to Section 2.12 ------------ hereof, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit payments of principal of and interest on the Notes to such Clearing Agency Participants; and (v) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of Noteholders evidencing a specified percentage of the Voting Interests of the Outstanding Notes, the Clearing Agency shall be deemed to represent such percentage only to the extent that it has received instructions to such effect from Note Owners and/or Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial interest in the Notes and has delivered such instructions to the Indenture Trustee. Section 2.11. Notices to Clearing Agency. Whenever a notice or -------------------------- other communication to the Noteholders is required under this Indenture, unless and until Definitive Notes shall have been issued to such Note Owners pursuant to Section 2.12 hereof, the Indenture Trustee shall give all such notices and ------------ communications to the Clearing Agency and shall have no obligation to such Note Owners. Section 2.12. Definitive Notes. With respect to the Book-Entry ---------------- Notes, if (i) the Issuer Trust advises the Indenture Trustee in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to such Book-Entry Notes and the Issuer Trust is unable to locate a qualified successor, (ii) the Issuer Trust advises the Indenture Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency or (iii) Note Owners representing beneficial interests aggregating at least a majority of the Voting Interests of the Outstanding Book-Entry Notes advise the Clearing Agency in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of such Note Owners, then the Clearing Agency shall notify all Note Owners and the Indenture Trustee of the occurrence of such event and of the availability of Notes registered in the name of the Note Owners (the "Definitive Notes") to Note Owners requesting the same. Upon surrender to the - ----------------- Indenture Trustee of the printed Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by registration instructions, the Issuer Trust shall execute and the Indenture Trustee shall authenticate the Definitive Notes in accordance with the instructions of the Clearing Agency. None of the Issuer Trust, the Note Registrar or the Indenture Trustee shall be liable for any delay in delivery of such instructions and each of them may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Notes to such Note Owners, the Indenture Trustee shall recognize such Note Owners as Noteholders. (b) Notwithstanding the foregoing, Note Owners may transfer their Book-Entry Notes, to transferees who will hold such Notes as Definitive Notes and (ii) Noteholders C-9 may transfer their Definitive Notes to transferees who will hold such Notes as Book-Entry Notes, if the conditions set forth in this Section 2.12 are ------------ satisfied. Any and all transfers from a Note Owner of a Book-Entry Note to a transferee wishing to take delivery in the form of a Definitive Note will require the transferee to take delivery subject to the restrictions on the transfer of such Definitive Note described in the legend set forth on the face of the such Definitive Note substantially in the form of Exhibit C attached --------- hereto (the "Legend"), and such transferee agrees that it will transfer such a ------ Definitive Note only as provided therein and herein. No such transfer shall be made and the Indenture Trustee shall not register any such transfer unless such transfer is made in accordance with this Section 2.12(b) and Section 2.14. --------------- ------------ Upon acceptance for exchange or transfer of a beneficial interest in a Book-Entry Note for a Definitive Note as provided herein, the Indenture Trustee shall endorse on (or cause the endorsement of) the schedule affixed to the related Book-Entry Note (or on a continuation of such schedule affixed to the such Book-Entry Note and made a part thereof) an appropriate notation evidencing the date of such exchange or transfer. Unless determined otherwise by the Indenture Trustee in accordance with applicable law, a Definitive Note issued upon transfer of or exchange for a beneficial interest in a Book-Entry Note shall bear the Legend. If a Holder of a Definitive Note wishes at any time to transfer such Definitive Note to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Book-Entry Note, such transfer may be effected only in accordance with the applicable procedures of the Depository Institution, and in accordance with this Section 2.12(b) and Section 2.14 hereof. Upon receipt by --------------- ------------ the Indenture Trustee at the Corporate Trust Office of (1) the Definitive Note to be transferred with an assignment and transfer, (2) written instructions given in accordance with the applicable procedures from a participant directing the Indenture Trustee to credit or cause to be credited to another specified participant's account a beneficial interest in the Book-Entry Note, in an amount equal to the Principal Balance of such Definitive Note to be so transferred, (3) a written order given in accordance with the applicable procedures containing information regarding the account of the participant to be credited with such beneficial interest, and (4) transfer documentation received for a "Qualified Institutional Buyer" pursuant to Section 2.14, the Indenture Trustee shall (i) ------------ cancel such Definitive Note, (ii) execute and deliver a new Note for the Principal Balance of the Definitive Note so canceled, registered in the name of Cede & Co. (or such other nominee of the Clearing Agency), and (iii) shall instruct the Depository Institution to increase the Principal Balance of the Book-Entry Note by the Principal Balance of the Definitive Note so canceled, and to credit or cause to be credited to the account of the Person specified in such instructions a corresponding Principal Balance of the Book-Entry Note. Under no circumstances may an institutional "accredited investor" under Regulation D of the Securities Act take delivery in the form of a beneficial interest in a Book-Entry Note if such purchaser is not a "qualified institutional buyer" as defined under Rule 144A under the Securities Act. C-10 An exchange of a beneficial interest in the Book-Entry Note for one or more Definitive Notes, an exchange of one or more Definitive Notes for a beneficial interest in the Book-Entry Note and an exchange of one or more Definitive Notes for one or more other Definitive Notes (in each case, whether or not such exchange is made in anticipation of subsequent transfer, and in the case of the Book-Entry Note, so long as the Book-Entry Note remains outstanding and is held by or on behalf of the Depository Institution), may be made only in accordance with this Section 2.12(b) and Section 2.14 and in accordance with the --------------- ------------ rules of the Depository Institution. Section 2.13. Tax Treatment. The Issuer Trust has entered into ------------- this Indenture, and the Notes will be issued, with the intention that for all purposes, including federal, state and local income, single business and franchise tax purposes, the Notes will qualify as indebtedness of the Issuer Trust secured by the Collateral. The Issuer Trust, by entering into this Indenture, and each Noteholder, by its acceptance of a Note (and each Note Owner by its acceptance of an interest in the applicable Book-Entry Note), agree to treat the Notes for all purposes, including federal, state and local income, single business and franchise tax purposes, as indebtedness of the Issuer Trust. Section 2.14. Limitations on Transfer of the Notes. The Notes have ------------------------------------ not been and will not be registered under the Securities Act or any state securities law and will not be listed on any exchange. No transfer of a Definitive Note or exchange of a Definitive Note for a beneficial interest in a Book-Entry Note (or vice versa) may be made unless such transfer is made pursuant to an effective registration statement under the Securities Act and any applicable state securities laws or is exempt from the registration requirements under the Securities Act and such state securities laws. In the event that a transfer of a Definitive Note, or transfer of a beneficial interest in a Book- Entry Note to a transferee who wishes to take delivery thereof in the form of a Definitive Note, is to be made in reliance upon an exemption from the Securities Act and state securities laws, in order to assure compliance with the Securities Act and such laws, the prospective transferee shall (A) in the event that the transfer is made in reliance upon Rule 144A under the Securities Act, deliver a certification substantially in the form of Exhibit B-3 hereto and cause the ----------- transferring Noteholder to deliver a certification substantially in the form of Exhibit B-1 hereto, or (B) in the event that the transfer is made to an - ----------- institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act that is not a "qualified institutional buyer," deliver a certification substantially in the form of Exhibit B-2 hereto. - ----------- Section 2.15. CUSIP Numbers. The Issuer Trust in issuing the Notes -------------- may use "CUSIP" numbers (if then generally in use), and, if so, the Indenture Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to the Noteholders; provided that any such notice may state that no representation -------- is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Issuer Trust will promptly notify the Indenture Trustee of any change in the "CUSIP" numbers. C-11 ARTICLE III COVENANTS Section 3.01. Distribution of Principal and Interest. The Issuer -------------------------------------- Trust will duly and punctually pay (or cause to be paid) the principal of and interest on the Notes in accordance with the terms of the Notes, the Sale and Servicing Agreement and this Indenture. Without limiting the foregoing, subject to and in accordance with Section 5.01(c) of the Sale and Servicing Agreement, --------------- the Issuer Trust will cause to be distributed all amounts on deposit in the Collection Account on each Distribution Date deposited therein pursuant to the Sale and Servicing Agreement for the benefit of the Noteholders. Amounts properly withheld under the Code by any Person from a payment to any Noteholder of interest and/or principal shall be considered as having been paid by the Issuer Trust to such Noteholder for all purposes of this Indenture. The Notes shall be non-recourse obligations of the Issuer Trust and shall be limited in right of payment to amounts available from the Collateral, as provided in this Indenture. The Issuer Trust shall not otherwise be liable for payments on the Notes. If any other provision of this Indenture shall be deemed to conflict with the provisions of this Section 3.01, the provisions of this Section 3.01 ------------ ------------ shall control. Section 3.02. Maintenance of Office or Agency. The Issuer Trust will ------------------------------- maintain in the Borough of Manhattan in The City of New York an office or agency where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Issuer Trust in respect of the Notes and this Indenture may be served. The Issuer Trust hereby initially appoints the Indenture Trustee to serve as its agent for the foregoing purposes and to serve as Paying Agent with respect to the Notes. The Issuer Trust will give prompt written notice to the Indenture Trustee of the location, and of any change in the location, of any such office or agency. If at any time the Issuer Trust shall fail to maintain any such office or agency or shall fail to furnish the Indenture Trustee with the address thereof, such surrenders, notices and demands may be made or served at the Corporate Trust Office, and the Issuer Trust hereby appoints the Indenture Trustee as its agent to receive all such surrenders, notices and demands. Section 3.03. Money for Distributions to be Held in Trust. All ------------------------------------------- payments of amounts due and payable with respect to any Notes that are to be made from amounts withdrawn from the Collection Account pursuant to Section ------- 5.01(c) of the Sale and Servicing Agreement shall be made on behalf of the - ------- Issuer Trust by the Indenture Trustee, in its capacity as Paying Agent, and no amounts so withdrawn from the Collection Account for payments of Notes shall be paid over to the Issuer Trust except as provided in this Section 3.03. ------------ On or before the Business Day preceding each Distribution Date and the Redemption Date, the Paying Agent shall deposit or cause to be deposited in the Collection Account an aggregate sum sufficient to pay the amounts due on such Distribution Date or the Redemption Date under the Notes, such sum to be held in trust for the benefit of the Persons entitled thereto, and (unless the Paying Agent is the Indenture Trustee) shall promptly notify the Indenture Trustee of its action or failure so to act. C-12 Any successor or additional Paying Agent shall be appointed by an Issuer Order with written notice thereof to the Indenture Trustee. Any Paying Agent appointed by the Issuer Trust shall be a Person which would be eligible to be Indenture Trustee hereunder as provided in Section 6.11 hereof and will be, ------------ at the time of such appointment, a Depository Institution. The Issuer Trust will cause each Paying Agent to execute and deliver to the Indenture Trustee an instrument in which such Paying Agent shall agree with the Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of this Section, that such Paying Agent will: (i) hold all sums held by it for the payment of amounts due with respect to the Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and pay such sums to such Persons as herein provided; (ii) give the Indenture Trustee notice of any default by the Issuer Trust (or any other obligor upon the Notes) of which it has actual knowledge in the making of any payment required to be made with respect to the Notes; (iii) at any time during the continuance of any such default, upon the written request of the Indenture Trustee, forthwith pay to the Indenture Trustee all sums so held in trust by such Paying Agent; (iv) immediately resign as a Paying Agent and forthwith pay to the Indenture Trustee all sums held by it in trust for the payment of Notes if at any time it ceases to meet the standards required to be met by a Paying Agent at the time of its appointment; and (v) comply with all requirements of the Code with respect to the withholding from any payments made by it on any Notes of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith; provided, however, that -------- ------- with respect to withholding and reporting requirements applicable to original issue discount (if any) on the Notes, the Issuer Trust shall have first provided the calculations pertaining thereto. The Issuer Trust may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums held in trust by such Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts as those upon which the sums were held by such Paying Agent; and upon such payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be released from all further liability with respect to such money. Subject to applicable laws with respect to escheat of funds or abandoned property, any money held by the Indenture Trustee or any Paying Agent in trust for the C-13 payment of any amount due with respect to any Note and remaining unclaimed for two years after such amount has become due and payable shall be discharged from such trust and be paid to the Issuer Trust, and the related Noteholder shall thereafter, as an unsecured general creditor, look only to the Issuer Trust for payment thereof (but only to the extent of the amounts so paid to the Issuer Trust), and all liability of the Indenture Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the -------- ------- Indenture Trustee or such Paying Agent, before being required to make any such repayment, shall at the expense of the Issuer Trust cause to be published, once in a newspaper of general circulation in The City of New York customarily published in the English language on each Business Day, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Issuer Trust. The Indenture Trustee shall also adopt and employ, at the expense of the Issuer Trust, any other reasonable means of notification of such repayment (including, but not limited to, mailing notice of such repayment to Noteholder whose Notes have been called but have not been surrendered for redemption or whose right to or interest in moneys due and payable but not claimed is determinable from the records of the Indenture Trustee or of any Paying Agent, at the last address of record for each such Noteholder). Section 3.04. Existence. (a) Subject to subparagraph (b) of this --------- Section 3.04, the Issuer Trust will keep in full effect its existence, rights - ------------ and franchises as a business trust under the laws of the State of Delaware (unless it becomes, or any successor Issuer Trust hereunder is or becomes, organized under the laws of any other State or of the United States of America, in which case the Issuer Trust will keep in full effect its existence, rights and franchises under the laws of such other jurisdiction) and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Indenture, the Notes and the Collateral. (b) Any successor to the Owner Trustee appointed pursuant to Section ------- 10.2 of the Trust Agreement shall be the successor Owner Trustee under this - ---- Indenture without the execution or filing of any paper, instrument or further act to be done on the part of the parties hereto. (c) Upon any consolidation or merger of or other succession to the Owner Trustee, the Person succeeding to the Owner Trustee under the Trust Agreement may exercise every right and power of the Owner Trustee under this Indenture with the same effect as if such Person had been named as the Owner Trustee herein. Section 3.05. Protection of Collateral. Upon receipt of written ------------------------ request from the Servicer in accordance with Section 11.06 of the Sale and Servicing Agreement, the Issuer Trust will from time to time execute and deliver all such reasonable supplements and amendments hereto and all such financing statements, continuation statements, instruments of further assurance and other instruments, and will take such other action necessary or advisable to: C-14 (i) provide further assurance with respect to the Grant of all or any portion of the Collateral; (ii) maintain or preserve the lien and security interest (and the priority thereof) of this Indenture or carry out more effectively the purposes hereof; (iii) perfect, publish notice of or protect the validity of any Grant made or to be made by this Indenture; (iv) enforce any rights with respect to the Collateral; or (v) preserve and defend title to the Collateral and the rights of the Indenture Trustee and the Noteholders in such Collateral against the claims of all persons and parties. Section 3.06. Annual Opinions as to Collateral. On or before March -------------------------------- 15th in each calendar year, beginning in 1999, the Servicer on behalf of the Issuer Trust shall furnish to the Indenture Trustee an Opinion of Counsel either stating that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto, the Security Agreement [Indenture Trustee], any supplements or amendments thereto, and any other requisite documents and with respect to the execution and filing of any financing statements and continuation statements as is necessary to maintain the lien and security interest created by this Indenture and reciting the details of such action or stating that in the opinion of such counsel no such action is necessary to maintain such lien and security interest. Such Opinion of Counsel shall also describe the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto, the Security Agreement [Indenture Trustee], any supplements or amendments thereto and any other requisite documents and the execution and filing of any financing statements and continuation statements that will, in the opinion of such counsel, be required to maintain the lien and security interest of this Indenture until March 15th of the following calendar year. Upon written request of the Servicer, the Issuer Trust will file any necessary UCC-3 continuation statements. Section 3.07. Performance of Obligations. (a) The Issuer Trust -------------------------- will not take any action and will use its best efforts not to permit any action to be taken by others that would release any Person from any of such Person's material covenants or obligations under any instrument or agreement included in the Collateral or that would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such instrument or agreement, except as expressly provided in this Indenture, the Security Documents, the Arena Agreement or the Sale and Servicing Agreement. (b) The Issuer Trust may contract with or otherwise obtain the assistance of other Persons to assist it in performing its duties under this Indenture, and any performance of such duties by a Person identified to the Indenture Trustee in an Officer's Certificate of the Issuer Trust shall be deemed to be action taken by the Issuer Trust. C-15 (c) The Issuer Trust will punctually perform and observe all of its obligations and agreements contained in this Indenture, in the Basic Documents and in the instruments and agreements included in the Collateral. (d) If the Issuer Trust shall have knowledge of the occurrence of an Event of Default under the Sale and Servicing Agreement, the Issuer Trust shall promptly notify the Indenture Trustee and the Rating Agency thereof in writing, and shall specify in such notice the action, if any, the Issuer Trust is taking with respect to curing such default. If such an Event of Default shall arise from the failure of the Servicer to perform any of its duties or obligations under the Sale and Servicing Agreement, the Issuer Trust shall take all reasonable steps available to it to remedy such failure. (e) Without derogating from the absolute nature of the assignment granted to the Indenture Trustee under this Indenture or the rights of the Indenture Trustee hereunder, the Issuer Trust agrees (i) that it will not, without the prior written consent of the Indenture Trustee, amend, modify, waive, supplement, terminate or surrender, or agree to any amendment, modification, supplement, termination, waiver or surrender of, the terms of any Collateral (except to the extent otherwise provided in the Security Documents to which it is a party and the Sale and Servicing Agreement) or waive timely performance or observance by the Servicer or the Transferor of their respective obligations under the Sale and Servicing Agreement; and (ii) that any such amendment shall not (A) increase or reduce in any manner the amount of, or accelerate or delay the timing of, payments that are required to be made for the benefit of the Noteholders (except to the extent otherwise provided in the Security Agreement [Indenture Trustee] and the Sale and Servicing Agreement) or (B) reduce the aforesaid percentage of the Notes that is required to consent to any such amendment, without the consent of all of the Noteholders. If any such amendment, modification, supplement or waiver shall so be consented to by the Indenture Trustee, the Issuer Trust agrees, promptly following a request by the Indenture Trustee to do so, to execute and deliver, in its own name and at its own expense, such agreements, instruments, consents and other documents as the Indenture Trustee may deem necessary or appropriate in the circumstances. Notice of any such amendment, modification, supplement or waiver shall be delivered by the Issuer Trust to the Rating Agency. Section 3.08. Negative Covenants. So long as any Notes are ------------------ Outstanding, the Issuer Trust shall not: (i) except as expressly permitted by this Indenture, the Security Agreement [Indenture Trustee] or the Sale and Servicing Agreement, sell, transfer, exchange or otherwise dispose of any of the properties or assets of the Issuer Trust, including those included in the Collateral, unless directed to do so by the Indenture Trustee; (ii) claim any credit on, or make any deduction from the principal or interest payable in respect of, the Notes (other than amounts properly withheld from such payments under the Code) or assert any claim against any present or former Noteholder by reason of the payment of the taxes levied or assessed upon any part of the Collateral; C-16 (iii) engage in any business or activity other than as permitted by the Trust Agreement, the Security Agreement [Indenture Trustee] and the Sale and Servicing Agreement or other than in connection with, or relating to, the issuance of Notes pursuant to this Indenture, or amend the Trust Agreement as in effect on the Closing Date other than in accordance with Section 11.1 thereof; ------------ (iv) issue debt obligations under any other indenture; (v) incur or assume any indebtedness or guarantee any indebtedness of any Person, except for such indebtedness as may be incurred by the Issuer Trust in connection with the issuance of the Notes pursuant to this Indenture; (vi) dissolve or liquidate in whole or in part or merge or consolidate with any other Person; (vii) (A) permit the validity or effectiveness of this Indenture, the Arena Agreement or the Security Documents to be impaired, or permit the City Lien, the Security Documents or of this Indenture to be amended, hypothecated, subordinated, terminated or discharged except as set forth in the City Intercreditor Agreements, or permit any Person to be released from any covenants or obligations with respect to the Notes under this Indenture except as may expressly be permitted by the City Intercreditor Agreements or the Security Documents, (B) permit any lien, charge, excise, claim, security interest, mortgage or other encumbrance (other than the lien of the Security Documents, this Indenture and the City Lien) to be created on or extend to or otherwise arise upon or burden the Collateral or any part thereof or any interest therein or the proceeds thereof (other than tax liens, mechanics' liens and other liens that arise by operation of law, in each case on the Site or the New Arena Facility and which shall be promptly discharged) or (C) permit the lien of the Security Documents and of this Indenture not to constitute a valid first priority (other than with respect to any such tax, mechanics' or other lien) security interest in the Collateral, subject to the terms of the City Intercreditor Agreements; or (viii) take any other action or fail to take any action which may cause the Issuer Trust to be taxable as (a) an association pursuant to Section 7701 of the Code and the corresponding regulations or (b) as a taxable mortgage pool pursuant to Section 7701(i) of the Code and the corresponding regulations. Section 3.09. Annual Statement as to Compliance. The Issuer Trust --------------------------------- will deliver to the Indenture Trustee, within 120 days after the end of each fiscal year of the Issuer Trust (commencing in the fiscal year 1998), an Officer's Certificate stating, as to the Authorized Officer of the Issuer Trust signing such Officer's Certificate, that: (i) a review of the activities of the Issuer Trust during such year and of its performance under this Indenture has been made under such Authorized Officer's supervision; and C-17 (ii) to the best of such Authorized Officer's knowledge, based on such review, the Issuer Trust has complied with all conditions and covenants under this Indenture throughout such year (without regard to notice requirements or grace periods), or, if there has been a default in its compliance with any such condition or covenant, specifying each such default known to such Authorized Officer and the nature and status thereof. Section 3.10. Covenants of the Issuer Trust. All covenants of the ----------------------------- Issuer Trust in this Indenture are covenants of the Issuer Trust and are not covenants of the Owner Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust Agreement will be, entering into this Indenture solely as Owner Trustee under the Trust Agreement and not in its respective individual capacity, and in no case whatsoever shall the Owner Trustee or any such successor Owner Trustee be personally liable on, or for any loss in respect of, any of the statements, representations, warranties or obligations of the Issuer Trust hereunder, as to all of which the parties hereto agree to look solely to the property of the Issuer Trust. Section 3.11. Restricted Payments. The Issuer Trust shall not, ------------------- directly or indirectly, (i) pay any dividend or make any payment (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, to the Owner Trustee, the Servicer, the Transferor, or any Affiliate thereof, or any owner of a beneficial interest in the Issuer Trust or otherwise with respect to any ownership or equity interest or security in or of the Issuer Trust, (ii) redeem, purchase, retire or otherwise acquire for value any such ownership or equity interest or security or (iii) set aside or otherwise segregate any amounts for any such purpose; provided, however, that the Issuer -------- ------- Trust may make, or cause to be made, payments to the Servicer, the Indenture Trustee, the Owner Trustee, the Paying Agent, the Noteholders and the Certificateholders as contemplated by, and to the extent funds are available for such purpose under, the Sale and Servicing Agreement or the Trust Agreement. Section 3.12. Notice of Events of Default . The Issuer Trust shall --------------------------- give the Indenture Trustee and the Rating Agency prompt written notice of each Event of Default hereunder and each default on the part of the Servicer or the Transferor of their respective obligations under the Sale and Servicing Agreement. Section 3.13. Further Instruments and Acts. Upon request of the ---------------------------- Indenture Trustee, the Issuer Trust will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE IV SATISFACTION AND DISCHARGE Section 4.01. Satisfaction and Discharge of Indenture. This Indenture --------------------------------------- shall cease to be of further effect with respect to the Notes (except as to (i) Sections 3.03, 3.04 and 3.10 hereof, (ii) the rights, obligations and immunities - ------------------- ---- of the Indenture Trustee hereunder C-18 (including the rights of the Indenture Trustee under Section 6.07 hereof and the ------------ obligations of the Indenture Trustee under Section 4.02 hereof) and (iii) the ------------ rights of Noteholders as beneficiaries hereof with respect to the property so deposited with the Indenture Trustee payable to all or any of them), and the Indenture Trustee, on demand of and at the expense of the Issuer Trust, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to the Notes, when all of the following have occurred: (A) either (1) all Notes theretofore authenticated and delivered (other than Notes that have been destroyed, lost or stolen and that have been replaced or paid as provided in Section 2.04 hereof) shall have been delivered ------------ to the Indenture Trustee for cancellation; or (2) all Notes not theretofore delivered to the Indenture Trustee for cancellation shall have become due and payable, and the Issuer Trust has irrevocably deposited or caused irrevocably to be deposited with the Indenture Trustee cash or direct obligations of or obligations guaranteed by the United States of America (which will mature prior to the date such amounts are payable), in trust for such purpose, in an amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Indenture Trustee for cancellation; and (B) the latest of (a) 18 months after payment in full of all outstanding obligations under the Notes, (b) the payment in full of all unpaid Trust Fees and Expenses and (c) the date on which the Issuer Trust has paid or caused to be paid all other sums payable hereunder by the Issuer Trust; and (C) the Issuer Trust shall have delivered to the Indenture Trustee an Officer's Certificate and an Opinion of Counsel each meeting the applicable requirements of Section 11.01(a) hereof and, subject to Section 11.02 hereof, ---------------- ------------- each stating that all conditions precedent herein provided for, relating to the satisfaction and discharge of this Indenture with respect to the Notes, have been complied with. Section 4.02. Application of Trust Money. All moneys deposited -------------------------- with the Indenture Trustee pursuant to Sections 3.03 and 4.01 hereof shall be ------------- ---- held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent, as the Indenture Trustee may determine, to the Noteholders for the payment or redemption of which such moneys have been deposited with the Indenture Trustee, of all sums due and to become due thereon for principal and interest; but such moneys need not be segregated from other funds except to the extent required herein or in the Sale and Servicing Agreement or required by law. Section 4.03. Repayment of Moneys Held by Paying Agent. In connection ---------------------------------------- with the satisfaction and discharge of this Indenture with respect to the Notes, all moneys then held by any Paying Agent other than the Indenture Trustee under the provisions of this Indenture with respect to such Notes shall, upon demand of the Issuer Trust, be paid to the Indenture Trustee to be held and applied according to Section 3.03 hereof and thereupon such Paying Agent shall be ------------ released from all further liability with respect to such moneys. C-19 ARTICLE V REMEDIES Section 5.01. Events of Default. An "Event of Default," wherever used ----------------- ---------------- herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body or otherwise): (a) notwithstanding that there may be insufficient sums in the Collection Account for payment thereof on the related Distribution Date, default in the payment of any interest on any Note when the same becomes due and payable, and continuance of such default for a period of two (2) Business Days; or (b) notwithstanding that there may be insufficient sums in the Collection Account for payment thereof on the related Distribution Date, default in the payment of the principal of any Note when the same becomes due and payable on the Rated Final Maturity Date; or (c) default in the observance or performance of any covenant or agreement of the Issuer Trust made in this Indenture (other than a covenant or agreement, a default in the observance or performance of which is elsewhere in this Section specifically dealt with) or in any other Basic Document to which the Issuer Trust is a party, or any representation or warranty of the Issuer Trust made in this Indenture, any other Basic Document to which the Issuer Trust is a party or in any certificate or other writing delivered pursuant hereto or thereto or in connection herewith or therewith proving to have been incorrect in any material respect as of the time when the same shall have been made, and such default shall continue or not be cured, or the circumstance or condition in respect of which such representation or warranty was incorrect shall not have been eliminated or otherwise cured, for a period of 30 days after there shall have been given, by registered or certified mail, to the Issuer Trust by the Indenture Trustee, or to the Issuer Trust and the Indenture Trustee by the Holders of at least 25% of the Voting Interests of the Outstanding Notes, a written notice specifying such default or incorrect representation or warranty and requiring it to be remedied and stating that such notice is a notice of Default hereunder; or (d) default in the observance or performance of any material covenant or agreement of the Transferor made in the Trust Agreement, the Sale and Servicing Agreement or any other Basic Document to which it is a party or any representation or warranty of the Transferor made in the Trust Agreement, the Sale and Servicing Agreement or any other Basic Document to which it is a party, or in any certificate or other writing delivered pursuant thereto or in connection therewith proving to have been incorrect in any material respect as of the time when the same shall have been made, and such default shall continue or not be cured, or the circumstance or condition in respect of which such representation or warranty was incorrect shall not have been eliminated or otherwise cured, for a period of 30 days after there shall have been given, by registered or certified mail, to the Issuer Trust by the Indenture C-20 Trustee, or to the Issuer Trust and the Indenture Trustee by the Holders of at least 25% of the Voting Interests of the Outstanding Notes, a written notice specifying such default or incorrect representation or warranty and requiring it to be remedied and stating that such notice is a notice of Default hereunder; provided, however, that if (i) such default cannot be cured within such 30 day - -------- ------- period, (ii) such default is susceptible of being cured in the reasonable opinion of the Transferor, (iii) no other Event of Default has occurred and is continuing, (iv) the Transferor is proceeding with diligence and in good faith to cure such default, (v) the existence of such default is not reasonably likely to result in any Revenue Contractor being entitled to discontinue making payments under its respective Revenue Agreement, and (vi) the Indenture Trustee has received an Officer's Certificate of the Transferor with respect to clauses (i), (ii), (iii), (iv) and (v) above, then such 30 day period shall be extended by up to an additional 60 days as shall be necessary for the Transferor to diligently cure such default; or (e) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of the Issuer Trust or any substantial part of the Collateral in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer Trust or for any substantial part of the Collateral, or ordering the winding-up or liquidation of the Issuer Trust's affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (f) the commencement by the Issuer Trust of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the Issuer Trust to the entry of an order for relief in an involuntary case under any such law, or the consent by the Issuer Trust to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer Trust or for any substantial part of the Collateral, or the making by the Issuer Trust of any general assignment for the benefit of creditors, or the failure by the Issuer Trust generally to pay its debts as such debts become due, or the taking of any action by the Issuer Trust in furtherance of any of the foregoing; or (g) failure by the Transferor to pay the amount required to be paid by it in the event of the mandatory redemption of the Notes pursuant to clauses (iii) or (iv) of Section 10.01 hereof. ------------- The Issuer Trust shall deliver to the Indenture Trustee, within five days after the occurrence thereof, written notice in the form of an Officer's Certificate of any event which with the giving of notice and the lapse of time would become an Event of Default under clauses (c) and (d) above, the status of such event and what action the Issuer Trust is taking or proposes to take with respect thereto. Section 5.02. Acceleration of Maturity; Rescission and Annulment. If -------------------------------------------------- an Event of Default should occur and be continuing, then (i) if such Event of Default arises under Section 5.01(e) or (f) hereof, automatically and without ---------------------- any further act by the Indenture Trustee, the Issuer Trust or any other Person and without protest, presentment, demand or C-21 notice of any kind, all of which are hereby waived by the Issuer Trust, the unpaid principal amount of the Notes, together with accrued and unpaid interest shall be immediately due and payable and (ii) in all other cases, the Indenture Trustee, at the direction or upon the prior written consent of the Majority Noteholders, may declare all the Notes to be immediately due and payable, by a notice in writing to the Issuer Trust (and to the Indenture Trustee if given directly by the Majority Noteholders), and upon any such declaration the unpaid principal amount of such Notes, together with accrued and unpaid interest thereon shall become immediately due and payable. At any time after such declaration of acceleration of maturity has been made and before a judgment or decree for payment of the moneys due has been obtained by the Indenture Trustee as hereinafter in this Article V provided, the --------- Majority Noteholders, by written notice to the Issuer Trust and the Indenture Trustee, may rescind and annul such declaration and its consequences if: (a) the Issuer Trust has paid or deposited with the Indenture Trustee a sum sufficient to pay: 1. all payments of principal and interest on all Notes and all other amounts that would then be due hereunder or upon such Notes if the Event of Default giving rise to such acceleration had not occurred; and 2. all sums paid or advanced by the Indenture Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel; and (b) all Events of Default, other than the nonpayment of the principal of the Notes that has become due solely by such acceleration, have been cured or waived as provided in Section 5.12 hereof. No such rescission shall affect any ------------ subsequent default or impair any right consequent thereto. Section 5.03. Collection of Indebtedness and Suits for Enforcement by ------------------------------------------------------- Indenture Trustee. (a) The Issuer Trust covenants that if (i) default is made in - ----------------- the payment of any interest on any Note when the same becomes due and payable, and such default continues for a period of two (2) Business Days, or (ii) default is made in the payment of the principal of any Note when the same becomes due and payable on the Rated Final Maturity Date, the Issuer Trust will, upon demand of the Indenture Trustee, pay to the Indenture Trustee, for the benefit of the Noteholders, the entire amount then due and payable on such Notes for principal and interest, with interest upon the overdue principal and, to the extent payment at such rate of interest shall be legally enforceable, upon overdue installments of interest at the rate borne by the Notes and in addition thereto such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel. (b) In the event that the Issuer Trust shall fail to pay such amounts upon such demand, the Indenture Trustee may, and shall at the direction of the Majority C-22 Noteholders, institute a Proceeding for the collection of the sums so due and unpaid, and may prosecute such Proceeding to judgment or final decree, and may enforce the same against the Issuer Trust or other obligor upon such Notes and collect in the manner provided by law out of the property of the Issuer Trust or other obligor upon such Notes, wherever situated, the moneys adjudged or decreed to be payable. (c) If an Event of Default occurs and is continuing, the Indenture Trustee may, in its discretion, and shall at the direction of the Majority Noteholders, as more particularly provided in Section 5.04 hereof, proceed to ------------ protect and enforce its rights and the rights of the Noteholders by such appropriate Proceedings as the Indenture Trustee shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy or legal or equitable right vested in the Indenture Trustee by this Indenture or by law. (d) In case there shall be pending, relative to the Issuer Trust or any other obligor upon the Notes or any Person having or claiming an ownership interest in the Collateral, Proceedings under the Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Issuer Trust or its property or such other obligor or Person, or in case of any other comparable judicial Proceedings relative to the Issuer Trust or other obligor upon the Notes, or to the creditors or property of the Issuer Trust or such other obligor, the Indenture Trustee, irrespective of whether the principal of any Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Indenture Trustee shall have made any demand pursuant to the provisions of this Section, shall be entitled and empowered by intervention in such Proceedings or otherwise: (i) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee (including any claim for reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee, and its agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee, except as a result of negligence or bad faith) and of the Noteholders allowed in such Proceedings; (ii) unless prohibited by applicable law and regulations, to vote on behalf of the Noteholders in any election of a trustee, a standby trustee or Person performing similar functions in any such Proceedings; (iii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute all amounts received with respect to the claims of the Noteholders and the Indenture Trustee on their behalf; and C-23 (iv) to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee or the Noteholders allowed in any judicial proceedings relative to the Issuer Trust, its creditors and its property; and any trustee, receiver, liquidator, custodian or other similar official in any such Proceeding is hereby authorized by each of such Noteholders to make payments to the Indenture Trustee and, in the event that the Indenture Trustee shall consent to the making of payments directly to such Noteholders, to pay to the Indenture Trustee such amounts as shall be sufficient to cover reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred and all advances made by the Indenture Trustee and each predecessor Indenture Trustee except as a result of negligence or bad faith. (e) Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Noteholder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Noteholder or to authorize the Indenture Trustee to vote in respect of the claim of any Noteholder in any such Proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person. (f) All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any trial or other Proceedings relative thereto, and any such action or Proceedings instituted by the Indenture Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Indenture Trustee, each predecessor Indenture Trustee and their respective agents, attorneys and counsel, shall be for the ratable benefit of the Noteholders. (g) In any Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all the Noteholders, and it shall not be necessary to make any Noteholder a party to any such Proceedings. Section 5.04. Remedies; Priorities. -------------------- (a) If an Event of Default shall have occurred and be continuing, the Indenture Trustee may, and at the direction of the Majority Noteholders shall, do one or more of the following (subject to Section 5.05 hereof): ------------ (i) institute Proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the Notes or under this Indenture with respect thereto, whether by declaration or otherwise, enforce any judgment obtained, and collect from the Issuer Trust and any other obligor upon such Notes moneys adjudged due; C-24 (ii) institute Proceedings from time to time for the complete or partial foreclosure of this Indenture with respect to the Collateral; (iii) subject to the City Intercreditor Agreements, exercise any remedies of a secured party under the UCC and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee or the Noteholders; and (iv) sell the Collateral or any portion thereof or rights or interest therein in a commercially reasonable manner as provided in the Security Agreement [Indenture Trustee] and the other Security Documents. In determining compliance with the Security Documents, the Indenture Trustee shall obtain and rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Collateral for such purpose. (b) If the Indenture Trustee collects any money or property pursuant to this Article V, it shall pay out the money or property in the --------- following order (subject to the terms of the City Intercreditor Agreements): FIRST: to the Indenture Trustee for the Indenture Trustee Fee then due and unpaid and any costs or expenses incurred by it in connection with the enforcement of the remedies provided for in this Article V and to the Owner Trustee for the Owner Trustee Fee then due and unpaid; SECOND: any amounts due and unpaid to the City pursuant to the Lease; THIRD: to the Servicer for the Servicing Fee then due and unpaid, unless the Servicer is the initial Servicer and there shall have occurred and be continuing a Servicer Event of Default; FOURTH: to the Custodian for the Custodian Fee, if any, then due and unpaid; FIFTH: to the Noteholders for amounts due and unpaid on the Notes for interest and principal, pro rata according to the amounts due and payable on the Notes; SIXTH: to the Certificate Paying Agent, for any amounts to be distributed pro rata to the Certificateholders pursuant to the Trust Agreement and the City Intercreditor Agreements. The Indenture Trustee may schedule a record date and Distribution Date for any payment to be made to the Noteholders pursuant to this Section. At least 15 days before such record date, the Indenture Trustee shall mail to each Noteholder and the Issuer Trust a notice that states the record date, the Distribution Date and the amount to be paid. C-25 Section 5.05. Optional Preservation of the Collateral. If the --------------------------------------- Notes have been declared to be due and payable under Section 5.02 hereof ------------ following an Event of Default and such declaration and its consequences have not been rescinded and annulled, the Indenture Trustee may, but need not, elect to maintain possession of the Collateral. It is the desire of the parties hereto and the Noteholders that there be at all times sufficient funds for the payment of principal of and interest on the Notes, and the Indenture Trustee shall take such desire into account when determining whether or not to maintain possession of the Collateral. In determining whether to maintain possession of the Collateral, the Indenture Trustee may, but need not, obtain and rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Collateral for such purpose. Section 5.06. Limitation of Suits. No Noteholder shall have any ------------------- right to institute any Proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (a) such Noteholder has previously given written notice to the Indenture Trustee of a continuing Event of Default; (b) the Holders of not less than 25% of the Voting Interests of the Outstanding Notes have made written request to the Indenture Trustee to institute such Proceeding in respect of such Event of Default in its own name as Indenture Trustee hereunder; (c) such Holder or Holders have offered to the Indenture Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in complying with such request; (d) the Indenture Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, has failed to institute such Proceeding; and (e) no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by the Majority Noteholders. It is understood and intended that no Noteholder shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Noteholder or to obtain or to seek to obtain priority or preference over any other Noteholder or to enforce any right under this Indenture, except in the manner herein provided. In the event the Indenture Trustee shall receive conflicting or inconsistent requests and indemnity from two or more groups of Noteholders, each representing less than the Majority Noteholders, the Indenture Trustee in its sole discretion may determine what action, if any, shall be taken, notwithstanding any other provisions of this Indenture. C-26 Section 5.07. Unconditional Rights of Noteholders to Receive ---------------------------------------------- Principal and Interest. Notwithstanding any other provisions in this - ---------------------- Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest on such Note on or after the Rated Final Maturity Date or as otherwise provided in this Indenture (or, in the case of redemption, on or after the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. Section 5.08. Restoration of Rights and Remedies. If the Indenture ---------------------------------- Trustee or any Noteholder has instituted any Proceeding to enforce any right or remedy under this Indenture and such Proceeding has been discontinued or abandoned for any reason or has been determined adversely to the Indenture Trustee or to such Noteholder, then and in every such case the Issuer Trust, the Indenture Trustee and the Noteholders shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Indenture Trustee and the Noteholders shall continue as though no such Proceeding had been instituted. Section 5.09. Rights and Remedies Cumulative. Except as otherwise ------------------------------ set forth in the last paragraph of Section 2.04 hereof, no right or remedy ------------ herein conferred upon or reserved to the Indenture Trustee or to the Noteholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 5.10. Delay or Omission Not a Waiver. No delay or omission ------------------------------ of the Indenture Trustee or any Noteholder to exercise any right or remedy accruing upon any Default or Event of Default shall impair any such right or remedy or constitute a waiver of any such Default or Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law --------- to the Indenture Trustee or to the Noteholders may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as the case may be. Section 5.11. Control by Noteholders. The Majority Noteholders ---------------------- shall have the right to direct the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee with respect to the Notes or exercising any trust or power conferred on the Indenture Trustee; provided, however, that: - -------- ------- (a) such direction shall not be in conflict with any applicable rule of law or with this Indenture; (b) subject to the express terms of Section 5.04 hereof, any ------------ direction to the Indenture Trustee to sell or liquidate the available Collateral shall be by Noteholders representing not less than 100% of the Voting Interests of all Notes Outstanding; C-27 (c) if the conditions set forth in Section 5.05 hereof have been ------------ satisfied and the Indenture Trustee elects to retain the Collateral pursuant to such Section, then any direction to the Indenture Trustee by Noteholders representing less than 100% of the Voting Interests of all Notes Outstanding to sell or liquidate the Collateral shall be of no force and effect; and (d) the Indenture Trustee may take any other action deemed proper by the Indenture Trustee that is not inconsistent with such direction. Notwithstanding the rights of the Noteholders set forth in this Section 5.11, subject to Section 6.01 hereof, the Indenture Trustee need not - ------------ ------------ take any action that it determines might involve it in liability or might materially adversely affect the rights of any Noteholders not consenting to such action. Section 5.12. Waiver of Past Defaults. The Majority Noteholders ----------------------- may waive any past Default or Event of Default and its consequences, except a Default (a) in the payment of principal or interest on any of the Notes or (b) in respect of a covenant or provision hereof that cannot be modified or amended without the consent of each Noteholder. In the case of any such waiver, the Issuer Trust, the Indenture Trustee and the Noteholders shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. Section 5.13. Undertaking for Costs. All parties to this Indenture --------------------- agree, and each Noteholder by acceptance of the related Note (or a direct or indirect beneficial interest therein) shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted by it as Indenture Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to (a) any suit instituted by the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of Noteholders, in each case holding in the aggregate more than 10% of the Voting Interests of the Outstanding Notes or (c) any suit instituted by any Noteholder for the enforcement of the payment of principal or interest on a Note on or after the related due date expressed in such Note and in this Indenture (or, in the case of redemption, on or after the Redemption Date). Section 5.14. Waiver of Stay or Extension Laws. The Issuer Trust -------------------------------- covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead or in C-28 any manner whatsoever, claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture or the Security Agreement [Indenture Trustee], and the Issuer Trust (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Indenture Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 5.15. Action on Notes. The Indenture Trustee's right to --------------- seek and recover judgment on the Notes or under this Indenture shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture or the Security Agreement [Indenture Trustee]. Neither the lien of this Indenture or of the Security Agreement [Indenture Trustee], nor any rights or remedies of the Indenture Trustee or the Noteholders shall be impaired by the recovery of any judgment by the Indenture Trustee against the Issuer Trust or by the levy of any execution under such judgment upon any portion of the Collateral or upon any of the assets of the Issuer Trust. Any money or property collected by the Indenture Trustee shall be applied in accordance with Section 5.04(b) hereof. --------------- Section 5.16. Performance and Enforcement of Certain Obligations. -------------------------------------------------- (a) Promptly following a request from the Indenture Trustee to do so, the Issuer Trust shall take all such lawful action as the Indenture Trustee may request to compel or secure the performance and observance by the Transferor and the Servicer, as applicable, of each of their obligations to the Issuer Trust under or in connection with the Sale and Servicing Agreement, and to exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer Trust under or in connection with the Sale and Servicing Agreement to the extent and in the manner directed by the Indenture Trustee, including the transmission of notices of default on the part of the Transferor or the Servicer thereunder and the institution of legal or administrative actions or Proceedings to compel or secure performance by the Transferor or the Servicer of each of their obligations under the Sale and Servicing Agreement. (b) If an Event of Default has occurred and is continuing, the Indenture Trustee may, and at the direction (which direction shall either be in writing or by telephone confirmed in writing promptly thereafter) of the Holders of 66-2/3% of the Voting Rights of the Notes Outstanding shall, exercise all rights, remedies, powers, privileges and claims of the Issuer Trust against the Transferor or the Servicer under or in connection with the Sale and Servicing Agreement, including the right or power to take any action to compel or secure performance or observance by the Transferor or the Servicer, as the case may be, of each of their obligations thereunder and to give any consent, request, notice, direction, approval, extension, or waiver under the Sale and Servicing Agreement, and any right of the Issuer Trust to take such action shall be suspended. Section 5.17. Environmental Site Assessment. The Indenture Trustee ----------------------------- shall not commence foreclosure of any mortgage on the Property unless a Phase I (and if appropriate, Phase II) environmental site assessment of the Property is conducted at the expense of the C-29 Transferor, and no material environmental liabilities or potential material liabilities are detected thereby. ARTICLE VI THE INDENTURE TRUSTEE Section 6.01. Duties of Indenture Trustee. (a) If an Event of --------------------------- Default has occurred and is continuing, the Indenture Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent person would use under the circumstances in the exercise of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Indenture Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee; and (ii) in the absence of bad faith on its part, the Indenture Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Indenture Trustee and conforming to the requirements of this Indenture; provided, however, in the case of any such -------- ------- certificates or opinions which by any provision hereof are specifically required to be furnished to the Indenture Trustee, the Indenture Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Indenture Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section 6.01; ------------ (ii) the Indenture Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; and (iii) the Indenture Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.11 hereof. ------------ (d) Every provision of this Indenture that in any way relates to the Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this Section -------------------------------- ------- 6.01. - ---- C-30 (e) The Indenture Trustee shall not be liable for interest on any money received by it except as the Indenture Trustee may agree in writing with the Issuer Trust. (f) Money held in trust by the Indenture Trustee shall be segregated from other funds except to the extent permitted by law or the terms of this Indenture or the Sale and Servicing Agreement. (g) No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it; provided, however, that the Indenture Trustee -------- ------- shall not refuse or fail to perform any of its duties hereunder solely as a result of nonpayment of its normal fees and expenses and provided, further, that -------- ------- nothing in this Section 6.01(g) shall be construed to limit the exercise by the --------------- Indenture Trustee of any right or remedy permitted under this Indenture or otherwise in the event of the Issuer Trust's failure to pay the Indenture Trustee's fees and expenses pursuant to Section 6.07 hereof. In determining ------------ that such repayment or indemnity is not reasonably assured to it, the Indenture Trustee must consider not only the likelihood of repayment or indemnity by or on behalf of the Issuer Trust but also the likelihood of repayment or indemnity from amounts payable to it from the Collateral pursuant to Section 6.07 hereof. ------------ (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Indenture Trustee shall be subject to the provisions of this Section. (i) The Indenture Trustee shall not be required to take notice or be deemed to have notice or knowledge of any Event of Default (other than any Event of Default pursuant to Section 5.01(a) and (b) hereof) unless a Responsible ----------------------- Officer of the Indenture Trustee shall have received written notice thereof or otherwise shall have actual knowledge thereof. In the absence of receipt of notice or such knowledge, the Indenture Trustee may conclusively assume that there is no Event of Default. Section 6.02. Rights of Indenture Trustee. --------------------------- (a) The Indenture Trustee may rely conclusively on any document believed by it to be genuine and to have been signed or presented by the proper person. The Indenture Trustee need not investigate any fact or matter stated in the document. (b) Before the Indenture Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on an Officer's Certificate or Opinion of Counsel. (c) The Indenture Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a C-31 custodian or nominee and the Indenture Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (d) The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that such action or omission by the -------- ------- Indenture Trustee does not constitute willful misconduct, negligence or bad faith. (e) The Indenture Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Notes shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The rights, privileges, protections, immunities and benefits given to the Indenture Trustee, including, without limitation, its rights to be indemnified, are extended to, and shall be enforceable by, the Indenture Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. Section 6.03. Individual Rights of Indenture Trustee. The Indenture -------------------------------------- Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuer Trust or its Affiliates with the same rights it would have if it were not Indenture Trustee. Any Paying Agent, Note Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Indenture Trustee must comply with Sections 6.11 and 6.12 ------------- ---- hereof. Section 6.04. Indenture Trustee's Disclaimer'. The Indenture Trustee ------------------------------ shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, shall not be accountable for the Issuer Trust's use of the proceeds from the Notes, or responsible for any statement of the Issuer Trust in the Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Indenture Trustee's certificate of authentication. Section 6.05. Notices of Default. If a Default occurs and is ------------------ continuing and if it is known to a Responsible Officer of the Indenture Trustee, the Indenture Trustee shall mail to each Noteholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal or interest on any Note (including payments pursuant to the mandatory redemption provisions of such Note), the Indenture Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Noteholders. Section 6.06. Reports by Indenture Trustee to Holders. The --------------------------------------- Indenture Trustee shall deliver to each Noteholder such information as may be required to enable such Holder to prepare its federal and state income tax returns. C-32 Section 6.07. Compensation and Indemnity. As compensation for its -------------------------- services hereunder, the Indenture Trustee shall be entitled to receive, on each Distribution Date, the Indenture Trustee's Fee (which compensation shall not be limited by any law on compensation of a trustee of an express trust) and shall be entitled to reimbursement by the Servicer for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Indenture Trustee's agents, counsel, accountants and experts. The Issuer Trust agrees to cause the Transferor to indemnify the Indenture Trustee against any and all loss, damage, claim (whether asserted by the Issuer Trust or any Noteholder or any other Person) liability or expense (including attorneys' fees and expenses) incurred by it in connection with the administration of this trust and the performance of its duties hereunder. The Indenture Trustee shall notify the Issuer Trust and the Transferor promptly of any claim for which it may seek indemnity. Failure by the Indenture Trustee so to notify the Issuer Trust and the Transferor shall not relieve the Issuer Trust of its obligations hereunder. The Issuer Trust shall defend or cause the Transferor to defend any such claim, and shall pay or cause the Transferor to pay the reasonable fees and expenses of separate counsel obtained by the Indenture Trustee with respect hereof, which counsel shall be reasonably acceptable to the Transferor. Neither the Issuer Trust nor the Transferor need reimburse any expense or indemnify against any loss, liability or expense incurred by the Indenture Trustee through the Indenture Trustee's own willful misconduct, negligence or bad faith. The Indenture Trustee shall have a lien prior to the Notes as to all property and funds held by it hereunder for any amount owing to it or any predecessor Indenture Trustee pursuant to this Section 6.07, except with respect ------------ to funds held in trust for the benefit of the Noteholders. The Issuer Trust's payment obligations to the Indenture Trustee pursuant to this Section 6.07 shall survive the discharge of this Indenture. ------------ When the Indenture Trustee incurs expenses after the occurrence of a Default specified in Section 5.01(a) hereof with respect to the Issuer Trust, the --------------- expenses are intended to constitute expenses of administration under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or similar law. Section 6.08. Replacement of Indenture Trustee. No resignation or -------------------------------- removal of the Indenture Trustee and no appointment of a successor Indenture Trustee shall become effective until the acceptance of appointment by the successor Indenture Trustee pursuant to this Section 6.08. The Indenture ------------ Trustee may resign at any time by so notifying the Issuer Trust. The Majority Noteholders may remove the Indenture Trustee by so notifying the Indenture Trustee and may appoint a successor Indenture Trustee. The Issuer Trust shall remove the Indenture Trustee if: (a) the Indenture Trustee fails to comply with Section 6.11 hereof; ------------ (b) the Indenture Trustee is adjudged a bankrupt or insolvent; C-33 (c) a receiver or other public officer takes charge of the Indenture Trustee or its property; or (d) the Indenture Trustee otherwise becomes incapable of performing its obligations under this Indenture. If the Indenture Trustee resigns or is removed or if a vacancy exists in the office of Indenture Trustee for any reason (the Indenture Trustee in such event being referred to herein as the retiring Indenture Trustee), the Issuer Trust shall promptly appoint a successor Indenture Trustee. A successor Indenture Trustee shall deliver a written acceptance of its appointment to the retiring Indenture Trustee and to the Issuer Trust. Upon receipt of such written acceptance by the Issuer Trust, the resignation or removal of the retiring Indenture Trustee shall become effective, and the successor Indenture Trustee shall have all the rights, powers and duties of the Indenture Trustee under this Indenture and the Security Agreement [Indenture Trustee]. The successor Indenture Trustee shall mail a notice of its succession to Noteholders. The retiring Indenture Trustee shall promptly transfer all property held by it as Indenture Trustee to the successor Indenture Trustee. If a successor Indenture Trustee does not take office within 60 days after the retiring Indenture Trustee resigns or is removed, the retiring Indenture Trustee, the Issuer Trust or the Majority Noteholders may petition, at the expense of the Issuer Trust, any court of competent jurisdiction for the appointment of a successor Indenture Trustee. If the Indenture Trustee fails to comply with Section 6.11 hereof, any ------------ Noteholder may petition any court of competent jurisdiction for the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee. Notwithstanding the replacement of the Indenture Trustee pursuant to this Section 6.08, the Issuer Trust's obligations under Section 6.07 hereof ------------ ------------ shall continue for the benefit of the retiring Indenture Trustee. Section 6.09. Successor Indenture Trustee by Merger. If the Indenture ------------------------------------- Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Indenture Trustee; provided, -------- however, that such corporation or banking association shall otherwise be - ------- qualified and eligible under Section 6.11 hereof. The Indenture Trustee ------------ shall provide the Rating Agency prior written notice of any such transaction. In case at the time such successor or successors by merger, conversion or consolidation to the Indenture Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Indenture Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have C-34 been authenticated, any successor to the Indenture Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Indenture Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Indenture Trustee shall have. Section 6.10. Appointment of Co-Indenture Trustee or Separate ----------------------------------------------- Indenture Trustee. (a) Notwithstanding any other provisions of this - ----------------- Indenture, at any time, for the purpose of meeting any legal requirement of any jurisdiction in which any part of the Collateral may at the time be located, the Indenture Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co- trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Noteholders, such title to the Collateral, or any part hereof, and, subject to the other provisions of this Section, such powers, duties, obligations, rights and trusts as the Indenture Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 6.11 hereof ------------ and no notice to Noteholders of the appointment of any co-trustee or separate trustee shall be required under Section 6.08 hereof. ------------ (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such separate trustee or co- trustee jointly (it being understood that such separate trustee or co- trustee is not authorized to act separately without the Indenture Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Collateral or any portion thereof in any such jurisdiction) shall be exercised and performed solely by such separate trustee or co-trustee, pursuant to and at the direction of the Indenture Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iii) the Indenture Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Indenture and the conditions of this Article VI. Each separate trustee and co-trustee, upon ---------- its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, jointly with the Indenture Trustee, subject to all the provisions of this Indenture, specifically including every provision of this Indenture C-35 relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be filed with the Indenture Trustee. (d) Any separate trustee or co-trustee may at any time constitute the Indenture Trustee its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture and the Security Agreement [Indenture Trustee] on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 6.11. Eligibility; Disqualification. The Indenture Trustee ----------------------------- shall at all times be a corporation or a national banking association organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a commercial paper or other short term rating of the highest short term rating category of the Rating Agency and a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal or state authority. If such corporation or national banking association publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation or national banking association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Indenture Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in Section 6.08. ------------ Section 6.12. Indenture Trustee's Application for Instructions from ----------------------------------------------------- the Issuer Trust. Any application by the Indenture Trustee for written - ---------------- instructions from the Issuer Trust or the Servicer on behalf of the Issuer Trust may, at the option of the Indenture Trustee, set forth in writing any action proposed to be taken or omitted by the Indenture Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective. The Indenture Trustee shall not be liable for any action taken by, or omission of, the Indenture Trustee in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than seven (7) Business Days after the date any Officer of the Issuer Trust actually receives such application, unless any such Officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Indenture Trustee shall have received written instructions in response to such application specifying the action to be taken or omitted. C-36 ARTICLE VII NOTEHOLDERS' LISTS AND REPORTS' Section 7.01. Issuer Trust to Furnish Indenture Trustee Names and --------------------------------------------------- Addresses of Noteholders. The Issuer Trust will furnish or cause to be - ------------------------ furnished to the Indenture Trustee (a) not more than five days after the earlier of (i) each Record Date and (ii) three months after the last Record Date, a list, in such form as the Indenture Trustee may reasonably require, of the names and addresses of the Registered Holders, (b) at such other times as the Indenture Trustee may request in writing, within 30 days after receipt by the Issuer Trust of any such request, a list of similar form and content as of a date not more than 10 days prior to the time such list is furnished; provided, -------- however, that so long as the Indenture Trustee is the Note Registrar, no such - ------- list shall be required to be furnished. Section 7.02. Preservation of Information. The Indenture Trustee --------------------------- shall preserve, in as current a form as is reasonably practicable, the names and addresses of the Noteholders contained in the most recent list furnished to the Indenture Trustee as provided in Section 7.01 hereof and the names and addresses ------------ of Noteholders received by the Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may destroy any list furnished to it as provided in such Section 7.01 upon receipt of a new list so furnished. ------------ Section 7.03. Reports by Indenture Trustee. The Indenture Trustee ---------------------------- shall comply with all of its obligations as set forth in Article VI of the Sale and Servicing Agreement. Section 7.04. 144A Information. The Servicer on behalf of the Issuer ---------------- Trust shall provide to the Indenture Trustee and the Indenture Trustee shall provide to any Noteholder and any prospective transferee designated by any such Noteholder information regarding the Notes and the Collateral and such other information as shall be necessary to satisfy the condition to eligibility set forth in Rule 144A(d)(4) under the Securities Act for transfer of any such Note without registration thereof under the Securities Act pursuant to the registration exemption provided by Rule 144A under the Securities Act. Each Noteholder desiring to effect such a transfer shall, and does hereby agree to, indemnify the Issuer Trust, the Owner Trustee, the Indenture Trustee and the Company against any liability that may result if the transfer is not so exempt or is not made in accordance with federal and state securities laws. ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES Section 8.01. Collection of Money. ------------------- General. Except as otherwise expressly provided herein, the Indenture ------- Trustee may demand payment or delivery of, and shall receive and collect, directly and without intervention or assistance of any fiscal agent or other intermediary, all money and other C-37 property payable to or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply all such money received by it as provided in this Indenture. Except as otherwise expressly provided in this Indenture, if any default occurs in the making of any payment or performance under any agreement or instrument that is part of the Collateral, the Indenture Trustee may take such action as may be appropriate to enforce such payment or performance, including the institution and prosecution of appropriate Proceedings. Any such action shall be without prejudice to any right to claim a Default or Event of Default under this Indenture and any right to proceed thereafter as provided in Article V hereof. --------- Section 8.02. Trust Accounts. On or prior to the Closing Date, the -------------- Servicer shall establish and maintain, in the name of the Indenture Trustee for the benefit of the Noteholders, or on behalf of the Owner Trustee for the benefit of the Certificateholders, the Trust Accounts as provided in Article V --------- of the Sale and Servicing Agreement. The Indenture Trustee shall deposit amounts into each of the Trust Accounts in accordance with the terms of the Sale and Servicing Agreement and the Servicer's Remittance Report. Section 8.03. General Provisions Regarding Accounts. (a) So long ------------------------------------- as no Default or Event of Default shall have occurred and be continuing, all or a portion of the funds in the Trust Accounts shall be invested in Permitted Investments and reinvested by the Indenture Trustee at the specific written direction of the Servicer in accordance with the provisions of Article V of the ----------- Sale and Servicing Agreement. All income or other gain from investments of moneys deposited in the Trust Accounts, except for the Debt Service Reserve Account and the Capitalized Interest Account, shall be deposited by the Indenture Trustee into the Collection Account in accordance with the provisions of the Sale and Servicing Agreement, and any loss resulting from such investments shall be charged to such account. The Servicer will not direct the Indenture Trustee to make any investment of any funds or to sell any investment held in any of the Trust Accounts unless the security interest Granted and perfected in such account will continue to be perfected in such investment or the proceeds of such sale, in either case without any further action by any Person, and, in connection with any direction to the Indenture Trustee to make any such investment or sale, the Servicer shall deliver to the Indenture Trustee an Opinion of Counsel, acceptable to the Indenture Trustee, to such effect. The Indenture Trustee shall have no liability whatsoever for any loss, fee, tax or other charge in connection with any such investments or the liquidation thereof. (b) Subject to Section 6.01(c) hereof, the Indenture Trustee shall not --------------- in any way be held liable by reason of any insufficiency in any of the Trust Accounts resulting from any loss on any Eligible Investment included therein except for losses attributable to the Indenture Trustee's failure to make payments on such Eligible Investments issued by the Indenture Trustee, in its commercial capacity as principal obligor and not as trustee, in accordance with their terms. (c) If (i) the Servicer shall have failed to give investment directions for any funds on deposit in the Trust Accounts to the Indenture Trustee by 11:00 a.m. Eastern Time (or such other time as may be agreed by the Issuer Trust and Indenture Trustee) on any Business Day or (ii) a Default or Event of Default shall have occurred and be continuing with C-38 respect to the Notes but the Notes shall not have been declared due and payable pursuant to Section 5.02 hereof or (iii) the Notes shall have been declared due ------------ and payable following an Event of Default, but amounts collected or receivable from the Collateral are being applied in accordance with Section 5.05 hereof as ------------ if there had not been such a declaration, then the Indenture Trustee shall, to the fullest extent practicable, invest and reinvest funds in the Trust Accounts in one or more Eligible Investments. Section 8.04. Servicer's Monthly Statements'. On each Distribution ----------------------------- Date, the Indenture Trustee shall deliver the Servicer's Remittance Report with respect to such Distribution Date to the Clearing Agency, the Rating Agency and each Noteholder. Section 8.05. Release of Collateral. (a) Subject to the payment of --------------------- its fees and expenses pursuant to Section 6.07 hereof, the Indenture Trustee ------------ may, and when required by the provisions of this Indenture and the Security Agreement [Indenture Trustee] shall, execute instruments to release property from the lien of this Indenture and the Security Agreement [Indenture Trustee], or convey the Indenture Trustee's interest in the same, in a manner and under circumstances that are not inconsistent with the provisions of this Indenture and the Security Agreement [Indenture Trustee]. No party relying upon an instrument executed by the Indenture Trustee as provided in this Article VIII ------------ shall be bound to ascertain the Indenture Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any moneys. (b) The Indenture Trustee shall, at such time as there are no Notes Outstanding and all sums due to the Certificateholders pursuant to Section ------- 5.02(a) of the Sale and Servicing Agreement, or to the Servicer, the Indenture - ------- Trustee, the Owner Trustee or the Custodian pursuant to Section 5.01(c) of the --------------- Sale and Servicing Agreement, shall have been paid, release any remaining portion of the Collateral that secured the Notes from the lien of this Indenture and the Security Agreement [Indenture Trustee] and release to the Issuer Trust or any other Person entitled thereto any funds then on deposit in the Trust Accounts. The Indenture Trustee shall release property from the lien of this Indenture and the Security Agreement [Indenture Trustee] pursuant to this Subsection (b) only upon receipt of an Issuer Request accompanied by an - -------------- Officer's Certificate and an Opinion of Counsel meeting the applicable requirements of Section 11.01 hereof. ------------- Section 8.06. Opinion of Counsel. The Indenture Trustee shall ------------------ receive at least seven days' prior notice when requested by the Issuer Trust to take any action pursuant to Section 8.05(a) hereof, accompanied by copies of any --------------- instruments involved, and the Indenture Trustee shall also receive, as a condition to such action, an Opinion of Counsel, in form and substance satisfactory to the Indenture Trustee, stating the legal effect of any such action, outlining the steps required to complete the same, and concluding that all conditions precedent to the taking of such action have been complied with and such action will not materially and adversely impair the security for the Notes or the rights of the Noteholders in contravention of the provisions of this Indenture; provided, however, that such Opinion of Counsel shall not be -------- ------- required to express an opinion as to the fair value of the Collateral. Counsel rendering any such opinion may rely, without independent investigation, on the accuracy and validity of any C-39 certificate or other instrument delivered to the Indenture Trustee in connection with any such action. ARTICLE IX SUPPLEMENTAL INDENTURES Section 9.01. Supplemental Indentures Without Consent of Noteholders. ------------------------------------------------------ (A) Without the consent of any Noteholder but with prior notice to the Rating Agency, the Issuer Trust and the Indenture Trustee, when authorized by an Issuer Order, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Indenture Trustee, for any of the following purposes: (i) to correct or amplify the description of any property at any time subject to the lien of this Indenture or the Security Agreement [Indenture Trustee], or to better assure, convey and confirm unto the Indenture Trustee any property subject or required to be subjected to the lien of this Indenture or the Security Agreement [Indenture Trustee], or to subject to the lien of this Indenture and the Security Agreement [Indenture Trustee] additional property; (ii) to evidence the succession, in compliance with the applicable provisions hereof, of another person to the Issuer Trust, and the assumption by any such successor of the covenants of the Issuer Trust herein and in the Notes contained; (iii) to add to the covenants of the Issuer Trust, for the benefit of the Noteholders, or to surrender any right or power herein conferred upon the Issuer Trust; (iv) to convey, transfer, assign, mortgage or pledge any property to or with the Indenture Trustee; (v) to cure any ambiguity, to correct or supplement any provision herein or in any supplemental indenture that may be inconsistent with any other provision herein or in any supplemental indenture or to make any other provisions with respect to matters or questions arising under this Indenture or in any supplemental indenture; provided, however, that such -------- ------- action shall not adversely affect the interests of the Noteholders; or (vi) to evidence and provide for the acceptance of the appointment hereunder by a successor trustee with respect to the Notes and to add to or change any of the provisions of this Indenture as shall be necessary to facilitate the administration of the trusts hereunder by more than one trustee, pursuant to the requirements of Article VI hereof. The Indenture Trustee is hereby authorized to join in the execution of any such supplemental indenture and to make any further appropriate agreements and stipulations that may be therein contained. C-40 (b) The Issuer Trust and the Indenture Trustee, when authorized by an Issuer Order, may, also without the consent of any Noteholder but with the prior consent of the Rating Agency, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Noteholders under this Indenture; provided, however, -------- ------- that such action shall not, as evidenced by (i) an Opinion of Counsel or (ii) satisfaction of the Rating Agency Condition, adversely affect in any material respect the interests of any Noteholder. Section 9.02. Supplemental Indentures with Consent of Noteholders. --------------------------------------------------- The Issuer Trust and the Indenture Trustee, when authorized by an Issuer Order, also may, with prior consent of the Rating Agency, and with the consent of the Majority Noteholders, by Act of such Noteholders delivered to the Issuer Trust and the Indenture Trustee, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Noteholders under this Indenture; provided, however, -------- ------- that no such supplemental indenture shall, without the consent of each Noteholder: (a) change the date of payment of any installment of principal or interest on any Note, or reduce the Principal Balance thereof, the interest rate thereon or the Termination Price with respect thereto, change the provisions of this Indenture relating to the application of collections on, or the proceeds of the sale of, the Collateral to payment of principal or interest on the Notes, or change any place of payment where, or the coin or currency in which, any Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of the provisions of this Indenture requiring the application of funds available therefor, as provided in Article V hereof, to the payment of any --------- such amount due on the Notes on or after the due date thereof (or, in the case of redemption, on or after the Redemption Date); (b) reduce the percentage of the Voting Interests of the Outstanding Notes, the consent of the Holders of which is required for any such supplemental indenture, or the consent of the Holders of which is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture; (c) modify or alter the provisions of the proviso to the definition of the term "Outstanding" or "Voting Rights"; (d) reduce the percentage of the Voting Rights of the Notes required to direct the Indenture Trustee to direct the Issuer Trust to sell or liquidate the Collateral pursuant to Section 5.04 hereof; ------------ (e) modify any provision of this Section except to increase any percentage specified herein or to provide that certain additional provisions of this Indenture or the Basic Documents cannot be modified or waived without the consent of the Holder of each Outstanding Note affected thereby; C-41 (f) modify any of the provisions of this Indenture in such manner as to affect the calculation of the amount of any payment of interest or principal due on any Note on any Distribution Date or to affect the rights of the Noteholders to the benefit of any provisions for the mandatory redemption of the Notes contained herein; or (g) permit the creation of any lien ranking prior to or on a parity with the lien of this Indenture with respect to any of the Revenue Agreements or, except as otherwise permitted or contemplated herein, terminate the lien of this Indenture on any property at any time subject hereto or deprive any Noteholder of the security provided by the lien of this Indenture. In connection with requesting the consent of the Noteholders pursuant to this Section 9.02, the Indenture Trustee shall mail to the Noteholders a ------------ notice setting forth in general terms the substance of such supplemental indenture. It shall not be necessary for any Act of Noteholders under this Section 9.02 to approve the particular form of any proposed supplemental - ------------ indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 9.03. Execution of Supplemental Indentures. In executing, or ------------------------------------ permitting the additional trusts created by, any supplemental indenture permitted by this Article IX or the modification thereby of the trusts created ---------- by this Indenture, the Indenture Trustee shall be entitled to receive, and subject to Sections 6.01 and 6.02 hereof, shall be fully protected in relying ------------- ---- upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Indenture Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Indenture Trustee's own rights, duties, liabilities or immunities under this Indenture or otherwise. Section 9.04. Effect of Supplemental Indentures. Upon the --------------------------------- execution of any supplemental indenture pursuant to the provisions hereof, this Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, limitations of rights, obligations, duties, liabilities and immunities under this Indenture of the Indenture Trustee, the Issuer Trust and the Noteholders shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be, and shall be deemed to be, part of the terms and conditions of this Indenture for any and all purposes. Section 9.05. Reference in Notes to Supplemental Indentures. Notes --------------------------------------------- authenticated and delivered after the execution of any supplemental indenture pursuant to this Article IX may, and if required by the Indenture Trustee shall, ---------- bear a notation in form approved by the Indenture Trustee as to any matter provided for in such supplemental indenture. If the Issuer Trust or the Indenture Trustee shall so determine, new Notes so modified as to conform, in the opinion of the Indenture Trustee and the Issuer Trust, to any C-42 such supplemental indenture may be prepared and executed by the Issuer Trust and authenticated and delivered by the Indenture Trustee in exchange for Outstanding Notes. Section 9.06. Amendments to Trust Agreement. ----------------------------- Subject to Section 11.1 of the Trust Agreement, the Indenture Trustee ------------ shall, upon receipt of an Issuer Order, consent to any proposed amendment to the Trust Agreement or an amendment to or waiver of any provision of any other document relating to the Trust Agreement, such consent to be given without the necessity of obtaining the consent of any Noteholder upon satisfaction of the requirements set forth under Section 11.1 of the Trust Agreement. Nothing in ------------- this Section shall be construed to require that any Person obtain the consent of the Indenture Trustee to any amendment or waiver or any provision of any document where the making of such amendment or the giving of such waiver without obtaining the consent of the Indenture Trustee is not prohibited by this Indenture or by the terms of the document that is the subject of the proposed amendment or waiver. ARTICLE X REDEMPTION OF NOTES Section 10.01. Mandatory Redemption. -------------------- The Notes are subject to mandatory redemption, in whole but not in part, at the Mandatory Redemption Price, as follows: (i) in the event that Insurance Proceeds are paid in respect of substantial damage to the New Arena Facility and the Servicer has certified to the Indenture Trustee that such damage is irreparable; (ii) in the event that Condemnation Proceeds are paid in respect of a substantial portion of the New Arena Facility, and the Servicer has certified to the Indenture Trustee that such property is irreplaceable and that the remaining property is inadequate for continued use as a first class sports arena facility; (iii) subject to the receipt by the Indenture Trustee of the prior written consent of the Majority Noteholders in accordance with Section ------- 11.04, in the event that any Revenue Contractor becomes entitled to terminate - ----- its payment obligations under its respective Revenue Agreement due to any breach or termination of any User Agreement by the applicable Team Owner and the failure of the Arena Company to thereafter replace the applicable Team with another NBA or NHL team within the grace periods provided for in such Revenue Agreements; and (iv) subject to the receipt by the Indenture Trustee of the prior written consent of the Majority Noteholders in accordance with Section ------- 11.04, in the event of a failure by the Arena Company to complete construction - ----- of the New Arena Facility by the Outside Completion Date. Upon the occurrence of the events described, all available funds in the Trust Accounts on the Mandatory Redemption Date will be applied to pay the Mandatory Redemption Price. Upon the occurrence of the events described in clauses (iii) or (iv), the Transferor shall be liable to the Noteholders for any shortfall in the Mandatory Redemption Price to be paid after application of all funds available in the Collection Account. In the event of a partial casualty or condemnation, any insurance or condemnation proceeds payable to the Indenture Trustee shall be deposited in the Collection Account and paid as described in the Sale and Servicing Agreement. C-43 Section 10.02. Redemption at the Option of the Issuer; Election to --------------------------------------------------- Redeem. - ------ The Notes are subject to redemption in whole, but not in part, at the direction of the Majority Certificateholders on any Distribution Date or Monthly Distribution Date on or after the Distribution Date in July, 2001, by causing the Issuer Trust to give notice pursuant to Section 10.03 hereof. ------------- Payments of interest and Targeted Principal Payments due prior to the Redemption Date, shall continue to be payable to the Holders of the Notes called for redemption as of the relevant Record Dates according to their terms and the provisions hereof. Section 10.03. Notice to Indenture Trustee; Deposits Into the ---------------------------------------------- Collection Account. - ------------------ Upon the occurrence of the events causing a Mandatory Redemption as described in Section 10.01 and receipt of sufficient funds therefor in the ------------- Collection Account, the Indenture Trustee shall notify the Issuer Trust, the Securityholders and the Rating Agency of the Mandatory Redemption Date at least 30 days and no more than 60 days prior to the Mandatory Redemption Date. In the event of any redemption pursuant to Section 10.01 or Section ------------- ------- 10.02 hereof, the Servicer on behalf of the Issuer Trust shall, at least 30 days and no more than 60 days, prior to the Mandatory Redemption Date or the Optional Redemption Date, as applicable, notify the Indenture Trustee and the Rating Agency of such Redemption Date and shall cause to be deposited into the Collection Account on such notification date an amount equal to the aggregate of (i) Mandatory Redemption Price or the Optional Redemption Price, as applicable, (ii) any Trust Fees and Expenses due and unpaid as of the Redemption Date and (iii) any other amounts payable to the Noteholders and the Indenture Trustee under the Basic Documents. Section 10.04. Notice of Redemption by the Indenture Trustee. --------------------------------------------- Upon receipt of the notice and the deposits set forth in Section 10.03 ------------- above, the Indenture Trustee shall provide notice of redemption by first-class mail, postage prepaid, mailed no later than the Business Day following the day on which such deposit was made, to each Holder of record on the Record Date next preceding such Business Day, at such Holder's address appearing in the Note Register. All notices of redemption shall identify the Notes (including CUSIP numbers) to be redeemed and shall state: (1) the Redemption Date; (2) the Optional Redemption Price or Mandatory Redemption Price, as applicable and the amount thereof allocable to the Original Principal Balance of a Note; and C-44 (3) that on the Redemption Date, a pro rata portion of the Optional Redemption Price or the Mandatory Redemption Price, as applicable, will become due and payable upon each such Note, and that interest thereon shall cease to accrue on such date. Notice of redemption of Notes shall be given by the Indenture Trustee in the name and at the expense of the Issuer Trust. Failure to give notice of redemption, or any defect therein, to any Noteholder shall not impair or affect the validity of the redemption of any other Note. Section 10.05. Notes Payable on Optional Redemption Date or -------------------------------------------- Mandatory Redemption Date. - ------------------------- Notice of redemption having been given as provided in Section 10.04 ------------- hereof, the Notes to be redeemed shall, on the Redemption Date, become due and payable at the Optional Redemption Price or the Mandatory Redemption Price, as applicable, and on such date of redemption (unless the Issuer Trust shall default in the payment of the Optional Redemption Price), such Notes shall cease to bear interest. ARTICLE XI MISCELLANEOUS Section 11.01. Compliance Certificates and Opinions, etc. (a) Upon ----------------------------------------- any application or request by the Issuer Trust to the Indenture Trustee to take any action under any provision of this Indenture, the Issuer Trust shall furnish to the Indenture Trustee (i) an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and (ii) an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each signatory of such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein or in the Sale and Servicing Agreement relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such signatory, such signatory has made such examination or investigation as is necessary to enable C-45 such signatory to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such signatory, such condition or covenant has been complied with. Section 11.02. Form of Documents Delivered to Indenture Trustee. ------------------------------------------------ In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one Person, or that they be so certified or covered by only one document, but one Person may certify or give an opinion with respect to some matters and one or more other Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Authorized Officer of the Issuer Trust may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such officer's certificate or opinion is based are erroneous. Any such certificate of an Authorized Officer or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Servicer, the Transferor or the Issuer Trust, stating that the information with respect to such factual matters is in the possession of the Servicer, the Transferor or the Issuer Trust, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated into one instrument. Whenever in this Indenture, in connection with any application or certificate or report to the Indenture Trustee, it is provided that the Issuer Trust shall deliver any document as a condition of the granting of such application, or as evidence of the Issuer Trust's compliance with any term hereof, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in such case be conditions precedent to the right of the Issuer Trust to have such application granted or to the sufficiency of such certificate or report. The foregoing shall not, however, be construed to affect the Indenture Trustee's right to rely upon the truth and accuracy of any statement or opinion contained in any such document as provided in Article VI hereof. ---------- Section 11.03. Acts of Noteholders. (a) Any request, demand, ------------------- authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Noteholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Noteholders in person or by agents duly appointed in writing; and except as herein otherwise expressly provided, such action shall become effective C-46 when such instrument or instruments are delivered to the Indenture Trustee, and, where it is hereby expressly required, to the Issuer Trust. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Noteholders signing such instrument or --- instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01 hereof) conclusive in favor of the Indenture ------------ Trustee and the Issuer Trust, if made in the manner provided in this Section ------- 11.03. - ----- (b) The fact and date of the execution by any person of any such instrument or writing may be proved in any manner that the Indenture Trustee deems sufficient. (c) The ownership of Notes shall be proved by examination of the Note Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by any Noteholder shall bind the Holder of every Note issued upon the registration thereof or in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer Trust in reliance thereon, whether or not notation of such action is made upon such Note. Section 11.04. Notices, etc., to Indenture Trustee, Issuer Trust and ----------------------------------------------------- Rating Agency. Any request, demand, authorization, direction, notice, consent, - ------------- waiver or Act of Noteholders or other documents provided or permitted by this Indenture shall be in writing and if such request, demand, authorization, direction, notice, consent, waiver or act of Noteholders is to be made upon, given or furnished to or filed with: (i) the Indenture Trustee by any Noteholder or by the Issuer Trust shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Indenture Trustee at its Corporate Trust Office, or (ii) the Issuer Trust by the Indenture Trustee or by any Noteholder shall be sufficient for every purpose hereunder if in writing and made, given, furnished or filed with the Issuer Trust addressed to: Denver Arena Trust, c/o Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19890, or at any other address previously furnished in writing to the Indenture Trustee by the Issuer Trust. The Issuer Trust shall promptly transmit any notice received by it from the Noteholders to the Indenture Trustee. Notices required to be given to the Rating Agency by the Issuer Trust, the Indenture Trustee or the Owner Trustee shall be in writing, personally delivered or mailed by certified mail, return receipt requested, to Fitch IBCA, Inc., One State Street Plaza, New York, New York 10004, Attention: ABS Surveillance Group. Section 11.05. Notices to Noteholders; Waiver. Where this Indenture ------------------------------ provides for notice to Noteholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class, postage prepaid to each C-47 Noteholder, at the applicable address as it appears on the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Noteholders is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Noteholder shall affect the sufficiency of such notice with respect to other Noteholders, and any notice that is mailed in the manner herein provided shall conclusively be presumed to have duly been given. Where this Indenture provides for notice in any manner, such notice may be waived in writing by any Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Noteholders shall be filed with the Indenture Trustee but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such a waiver. In the event that, by reason of the suspension of regular mail service as a result of a strike, work stoppage or similar activity, it shall be impractical to mail notice of any event to Noteholders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a sufficient giving of such notice. Where this Indenture provides for notice to the Rating Agency, failure to give such notice shall not affect any other rights or obligations created hereunder, and shall not under any circumstance constitute a Default or Event of Default. Section 11.06. Effect of Headings and Table of Contents. The Article ---------------------------------------- and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 11.07. Successors and Assigns. All covenants and agreements ---------------------- in this Indenture and the Notes by the Issuer Trust shall bind its successors and assigns, whether so expressed or not. All agreements of the Indenture Trustee in this Indenture shall bind its successors, co-trustees and agents. Section 11.08. Separability. In case any provision in this Indenture ------------ or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.09. Benefits of Indenture. Nothing in this Indenture or --------------------- in the Notes, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, and the Noteholders, and any other party secured hereunder, and any other Person with an ownership interest in any part of the Collateral, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 11.10. Legal Holidays. In any case where the date on which -------------- any payment is due shall not be a Business Day, then (notwithstanding any other provision of the Notes or this Indenture) payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date on which C-48 nominally due, and no interest shall accrue for the period from and after any such nominal date. Section 11.11. GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED AND ------------- CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. Section 11.12. Counterparts. This Indenture may be executed in any ------------ number of counterparts, each of which so executed shall be deemed to be an original, and all of such counterparts shall together constitute but one and the same instrument. Section 11.13. Recording of Indenture. If this Indenture is subject ---------------------- to recording in any public recording offices, such recording is to be effected by the Issuer Trust and at its expense accompanied by an Opinion of Counsel to the effect that such recording is necessary either for the protection of the Noteholders or any other Person secured hereunder or for the enforcement of any right or remedy granted to the Indenture Trustee under this Indenture. Section 11.14. Trust Obligation. No recourse may be taken, directly ---------------- or indirectly, with respect to the obligations of the Issuer Trust, the Owner Trustee or the Indenture Trustee on the Notes or, except as expressly provided for in Article VI hereof, under this Indenture or any certificate or other ---------- writing delivered in connection herewith or therewith, against (i) the Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Issuer Trust or (iii) any partner, owner, beneficiary, agent, officer, director, employee or agent of the Indenture Trustee or the Owner Trustee in its individual capacity, any holder of a beneficial interest in the Issuer Trust, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture Trustee or the Owner Trustee in its individual capacity, except as any such Person may expressly have agreed (it being understood that the Indenture Trustee and the Owner Trustee have no such obligations in their individual capacity) and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any installment or call owing to such entity. For all purposes of this Indenture, in the performance of any duties or obligations of the Issuer Trust hereunder, the Owner Trustee shall be subject to, and be entitled to the benefits of, the terms and provisions of Articles VI, VII and VIII of the Trust Agreement. Section 11.15. Inspection. The Issuer Trust agrees that, on ---------- reasonable prior notice, it will permit any representative of the Indenture Trustee, during the Issuer Trust's normal business hours, to examine all the books of account, records, reports and other papers of the Issuer Trust, to make copies and extracts therefrom, to cause such books to be audited by Independent certified public accountants, and to discuss the Issuer Trust's affairs, finances and accounts with the Issuer Trust's officers, employees, and Independent certified public accountants, all at such reasonable times and as often as may reasonably be requested. The Indenture Trustee shall hold, and shall cause its representatives to hold, in confidence all such information except to the extent disclosure may be required by law (and all reasonable C-49 applications for confidential treatment are unavailing) and except to the extent that the Indenture Trustee may reasonably determine that such disclosure is consistent with its obligations hereunder. C-50 IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Issuer Trust, and the Indenture Trustee have caused this Indenture to be duly executed by their respective officers, thereunto duly authorized, all as of the day and year first above written. DENVER ARENA TRUST By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: /s/ Emmett R. Harmon ----------------------------------------------- Name: Emmett R. Harmon Title: Vice President THE BANK OF NEW YORK, as Indenture Trustee By: /s/ Walter N. Gitlin ----------------------------------------------- Name: Walter N. Gitlin Title: Vice President Consented to and Approved by: ASCENT ARENA COMPANY, LLC, in its capacity as Servicer under the Sale and Servicing Agreement By: Ascent Arena and Development Corporation, a Delaware corporation, as managing member By: /s/ Timothy D. Romani ------------------------------------------ Name: Timothy D. Romani Title: President C-51 EX-10.6 3 FIRST AMENDMENT TO SECOND AMENDED CREDIT AGREE EXHIBIT 10.6 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "First Amendment") is dated as of the 16th day of July, 1998, and entered into among ASCENT ENTERTAINMENT GROUP, INC., a Delaware corporation (the "Borrower"), the Lenders signatory thereto, and NATIONSBANK, N.A., (successor by merger to NationsBank of Texas, N.A.), a national banking association, individually and as Administrative Agent (in such latter capacity, the "Administrative Agent"). WITNESSETH: ---------- WHEREAS, the Borrower, the Lenders, and the Administrative Agent entered into a Second Amended and Restated Credit Agreement, dated as of December 22, 1997 (as amended, restated, waived or otherwise modified from time to time, the "Credit Agreement"); and WHEREAS, the Lenders, the Administrative Agent, and the Borrower have agreed to amend the Credit Agreement to make certain changes to the terms therein upon the terms and conditions set forth below; NOW, THEREFORE, for valuable consideration hereby acknowledged, the Borrower the Lenders and the Administrative Agent agree as follows: SECTION 1. Definitions. ----------- (a) Definitions, Generally. Unless specifically defined or redefined ---------------------- below, capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. (b) Definition of Guarantor. The definition of "Guarantor" in Article I ----------------------- on page 12 of the Credit Agreement shall be deleted in its entirety and the following shall be substituted in its stead: "Guarantors" shall mean: Ascent Sports Holdings, Ascent ---------- Sports, Ascent Arena and Development Corporation, Ascent Arena Company, LLC, Ascent Arena Operating Company, LLC, Beacon, Beacon Music Publishing, Inc., Club Pictures, Inc. and Daily Double Music Co., and all other wholly owned direct or indirect Subsidiaries of the Borrower from time to time. (c) Definition of Non-Recourse Arena Financing. The definition of "Non- ------------------------------------------ Recourse Arena Financing" in Article I on pages 17 and 18 of the Credit Agreement shall be deleted in its entirety and the following shall be substituted in its stead: "Non-Recourse Arena Financing" shall mean Indebtedness ---------------------------- incurred by Ascent Arena Company, LLC or any Subsidiary of Ascent Arena Company, LLC (including any trust or other entity in which Ascent Arena Company, LLC has a beneficial interest) in connection with the financing of the Arena/Complex (I) as to which neither the Borrower nor any other Subsidiary of the Borrower (A) provides credit support (including any undertaking, agreement or instrument which would constitute Indebtedness) or has given or made other written assurances regarding repayment (except with respect to the limited construction Guarantee permitted by Section 6.01(e) hereof), (B) is directly or indirectly personally liable (except with respect to the limited construction Guarantee permitted by Section 6.01(e) hereof) or (C) constitutes the lender and (ii) the obligees of which will have recourse solely against the assets comprising such project (including rights under contracts to which the Ascent Arena Company, LLC or any Subsidiary of Ascent Arena Company, LLC is a party, such as a lessor under leases thereto) for repayment of the principal of and interest on such Indebtedness and fees, indemnities, expense reimbursements or other amounts of whatever nature accrued or payable in connection with such Indebtedness and that has terms and provisions reasonably satisfactory in form and substance to, and approved in writing by, the Administrative Agent in respect of the matters referred to in clause (I) or clause (ii) above. (d) Definition of Operating and Management Agreement. The following ------------------------------------------------ definition of "Operating and Management Agreement" is added to Article I on page 19 of the Credit Agreement: "Operating and Management Agreement" shall mean the ---------------------------------- agreement between Ascent Arena Company, LLC and Ascent Arena Operating Company, LLC dated as of July 29, 1998, pursuant to which Ascent Arena Operating Company, LLC will provide certain management services to Ascent Arena Company, LLC with respect to the operation, maintenance and control of the Arena/Complex. SECTION 2. Amendment to Section 6.01(c) of the Credit Agreement. Section ---------------------------------------------------- 6.01(c) in Article VI on page 64 of the Credit Agreement shall be deleted in its entirety and the following Section 6.01(c) shall be substituted in its stead: (c) so long as there exists no Default or Event of Default both before and after giving effect to the incurrence of such Indebtedness, Ascent Arena Company, LLC or any Subsidiary of Ascent Arena Company, LLC may incur Non-Recourse Arena Financing; 2 SECTION 3. Amendment to Section 6.02(h) of the Credit Agreement. Section ---------------------------------------------------- 6.02(h) in Article VI on page 66 of the Credit Agreement shall be deleted in its entirety and the following Section 6.02(h) shall be substituted in its stead: (h) Liens granted by Ascent Arena Company, LLC and any Subsidiary of Ascent Arena Company, LLC securing any permitted Non-Recourse Arena Financing or the City and County of Denver's interest in the Arena/Complex, but only to the extent such Liens are limited to the realty, fixtures, equipment and other assets comprising the Arena/Complex (including rights under contracts to which the Ascent Arena Company, LLC or any Subsidiary of Ascent Arena Company, LLC is a party, such as a lessor under leases relating thereto); SECTION 4. Amendment to Section 6.04 of the Credit Agreement. Section ------------------------------------------------- 6.04 in Article VI on page 68 of the Credit Agreement shall be amended by (I) deleting subsections (f) and (g) in their entirety, (ii) substituting the following Sections 6.04(f) and (g) in their stead, and (iii) adding a new section 6.04(h) before the final two "Notwithstanding" clauses as follows: (f) in addition to those permitted Investments in (a) through (e) above, so long as there exists no Default or Event of Default both before and after giving effect to any such Investment, other Investments made by the Borrower up to a maximum amount outstanding at any one time of $10,000,000, but no such Investment under this subsection (f) shall be made in On Command Corp.; (g) so long as there exists no Default or Event of Default both before and after giving effect to any such Investment, Investments made by Ascent Arena Company, LLC that constitute loans or advances to its member that is not the Borrower or any Subsidiary of the Borrower, but only in accordance with Arena Operating Agreement; and (h) so long as there exists no Default or Event of Default both before and after giving effect to any such Investment, Investments made by Ascent Arena Company, LLC in two new Subsidiaries: Ascent Arena Operating Company, LLC and the Denver Arena Trust, a Delaware business trust in which Ascent Arena Company, LLC has the beneficial interest, created to effectuate the Non-Recourse Arena Financing. SECTION 5. Amendment to Section 6.05(b) of the Credit Agreement. Section ---------------------------------------------------- 6.05(b) in Article VI on pages 68 and 69 of the Credit Agreement shall be deleted in its entirety and the following Section 6.05(b) shall be substituted in its stead: (b) sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets (whether now owned or hereafter acquired) or any amount of Capital Stock of any Subsidiary of the Borrower, except that (I) the Borrower and any Subsidiary of the Borrower 3 may sell or dispose of inventory and obsolete equipment in the ordinary course of business, (ii) so long as there exists no Default or Event of Default both before and after giving effect thereto the Borrower or any of its Subsidiaries may (A) make an Asset Disposition, so long as (I) the cumulative aggregate consideration for all such Asset Dispositions after the date hereof shall not exceed $10,000,000, and (II) such assets are not used in the operation of the Nuggets Sub or the Avalanche Sub or the related Teams, and (B) in addition to Asset Dispositions permitted by subsection (A) above, make an Asset Disposition, so long as (I) the cumulative aggregate consideration for all such Asset Dispositions after the date hereof (but excluding the proceeds from sales of those assets described on Schedule 6.05 ------------- hereto) shall not exceed $10,000,000 and (II) such assets are not used in the operation of the Nuggets Sub or the Avalanche Sub or the related Teams, (iii) so long as there exists no Default or Event of Default both before and after giving effect thereto the Borrower or any of its Subsidiaries may sell the Capital Stock described on Schedule 6.05 hereto, (iv) so long as there exists ------------- no Default or Event of Default both before and after giving effect thereto, the Borrower, Nuggets Sub or the Ascent Arena Company, LLC may convey the real estate used for the Arena/Complex to the City and County of Denver, (v) so long as there exists no Event of Default both before and after giving effect thereto, any Wholly Owned Subsidiary of the Borrower may transfer all or any part of its assets to the Borrower, (vi) so long as there exists no Default or Event of Default both before and after giving effect thereto, the Borrower may consummate the sale leaseback transaction described on Schedule 6.03 hereto, ------------- (vii) so long as there exists no Default or Event of Default both before and after giving effect thereto, Borrower may sell, assign or otherwise dispose of those certain revenue contracts described on Schedule 6.05(b) hereto in connection with the Non-Recourse ---------------- Arena Financing, and (viii) the Borrower may consummate an On Command Corp. Stock Sale. Notwithstanding anything to the contrary herein or in any other Loan Paper, under no circumstance may the Borrower or any Subsidiary of the Borrower sell, dispose of or transfer any of the Capital Stock owned by the Borrower, any Subsidiary of the Borrower or On Command Corp. and its Subsidiaries, except the Capital Stock described on Schedule 6.05 ------------- hereto and pursuant to any On Command Corp. Stock Sale. SECTION 6. Amendment to Section 6.06 of the Credit Agreement. Section ------------------------------------------------- 6.06 in Article VI on page 69 of the Credit Agreement shall be deleted in its entirety and the following Section 6.06 shall be substituted in its stead: SECTION 6.06. Dividends and Distributions; Restrictions on -------------------------------------------- Ability of Subsidiaries to Pay Dividends. The Borrower will not, ---------------------------------------- and will not cause or permit any of its Subsidiaries to, declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any shares of its Capital Stock or directly or indirectly redeem, purchase, retire or 4 otherwise acquire for value (or permit any Subsidiary of the Borrower to purchase or acquire) any shares of any class of its Capital Stock or set aside any amount for any such purpose; provided, however, that (I) any Subsidiary of the Borrower may -------- ------- declare and pay dividends or make other distributions to another Wholly Owned Subsidiary or to the Borrower, (ii) the Borrower may declare and pay dividends or make other distributions that consist solely of common stock of the Borrower, (iii) the Borrower may make redemptions or repurchases of its Capital Stock in connection with employee stock options upon termination of such employment, for an aggregate amount of consideration paid from and after the date hereof of up to $10,000,000, in connection with any employee stock option or incentive plans, (iv) the Borrower may make dividends of Preferred Stock in accordance with the terms and provisions of Section 6.01(g) hereof, (v) so long as there exists no Default or Event of Default both before and after giving effect to any such distribution, distributions by Ascent Arena Company, LLC to its member that is not the Borrower or its Subsidiary in accordance with the Arena Operating Agreement, and (vi) so long as there exist no Default or Event of Default both before and after giving effect to any such distribution, Borrower may distribute or otherwise convey the real estate used for the Arena/Complex to the Nuggets Sub. SECTION 7. Amendment to Section 6.08 of the Credit Agreement. Section ------------------------------------------------- 6.08 in Article VI on page 70 of the Credit Agreement shall be deleted in its entirety and the following Section 6.08 shall be substituted in its stead: SECTION 6.08. Limitation on Restrictive Agreements. The Borrower ------------------------------------ will not, and will not cause or permit any of its Subsidiaries to, enter into any indenture, agreement, instrument, financing document or other arrangement which, directly or indirectly, contains any financial covenants or prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon: (a) the incurrence of Indebtedness, (b) the granting of Liens, (c) the making or granting of Guarantees, (d) the payment of dividends or distributions, (e) the purchase, redemption or retirement of any Capital Stock, (f) the making of loans or advances, (g) transfers or sales of property or assets (including Capital Stock) by the Borrower or any of its Subsidiaries, other than restrictions on the granting of Liens on, or the transfer of, assets that are encumbered by Liens permitted under clauses (b), (h) and (i) of Section 6.02 hereof with respect to the property or assets covered by such Lien only, or (h) the making of amendments, changes, waivers or consents with respect to this Agreement and the Loan Papers, provided that, notwithstanding the foregoing, (I) Nuggets Sub, Avalanche Sub, Ascent Arena Company, LLC and the Subsidiaries of Ascent Arena Company, LLC may enter into restrictive agreements relating solely to the Ascent Arena Company, LLC and the Subsidiaries of Ascent Arena Company, LLC and the Arena/Complex, each exclusively in connection with the Non-Recourse Arena Financing, the 5 Arena/Complex or the interest of the City and County of Denver in the Arena/Complex acceptable to the Administrative Agent, (ii) Ascent Arena Company, LLC may enter into the Arena Operating Agreement, (iii) Ascent Arena Company, LLC and Ascent Arena Operating Company, LLC may enter into the Operating and Management Agreement, (iv)Beacon may enter into restrictive agreements relating solely to Beacon, its Subsidiaries and the related Motion Pictures invested in by Beacon and its Subsidiaries, each exclusively in connection with Non-Recourse Film Indebtedness, (v) the Borrower may enter into any such restrictive agreements relating to any Preferred Stock permitted under Section 6.01(g) hereof so long as no such restrictive agreement shall be effective or binding on the Borrower or any of its Subsidiaries until the earlier of (A) the Maturity Date and (B) the payment in full of the Obligations and the termination of the Commitments, and (vi) the Borrower may issue the Senior Notes and enter into the Senior Notes Documentation. SECTION 8. Affirmation. The Borrower hereby acknowledges and agrees that ----------- nothing in this First Amendment shall affect the Borrower's obligations under the Credit Agreement or the other Loan Papers executed in connection therewith (except as specifically provided in this First Amendment), which remain valid, binding and enforceable, and except as amended hereby, unamended, or shall constitute a waiver by the Lenders of any of their rights or remedies, now or at any time in the future, with respect to any requirement under the Credit Agreement or the other Loan Papers or with respect to an Event of Default or Default, occurring now or at any time in the future. SECTION 9. Conditions Precedent. This First Amendment shall not be -------------------- effective until (a) all proceedings of the Borrower taken in connection with this First Amendment and the transactions contemplated hereby shall be satisfactory in form and substance to the Administrative Agent and Lenders signatory hereto, (b) Ascent Arena Operating Company, LLC shall have executed a Guaranty of the Obligations, and the Administrative Agent shall have received all other Loan Papers and documentation required by it to satisfactorily evidence the Obligations, (c) the Administrative Agent shall have received an opinion of counsel to the Borrower in form and substance acceptable to it, as to the enforceability of this First Amendment and all the Loan Papers, and as to such other matters as requested by the Administrative Agent, (d) the Administrative Agent and Lenders shall have each received such documents, instruments, and certificates, copies of resolutions, etc., each in form and substance satisfactory to the Lenders, as the Lenders shall deem necessary or appropriate in connection with this First Amendment and the transactions contemplated hereby, and 6 (e) reimbursement for Administrative Agent for Donohoe, Jameson & Carroll, P.C.'s reasonable fees and expenses rendered through the date hereof. SECTION 10. Representations and Warranties. The Borrower represents and ------------------------------ warrants to the Lenders and the Administrative Agent that (a) this First Amendment constitutes its legal, valid, and binding obligations, enforceable in accordance with the terms hereof (subject as to enforcement of remedies to any applicable bankruptcy, reorganization, moratorium, or other laws or principles of equity affecting the enforcement of creditors' rights generally), (b) there exists no Event of Default or Default under the Credit Agreement after giving effect to this First Amendment, (c) its representations and warranties set forth in the Credit Agreement and other Loan Papers are true and correct on the date hereof after giving effect to this First Amendment, (d) it has complied with all agreements and conditions to be complied with by it under the Credit Agreement and the other Loan Papers by the date hereof, (e) the Credit Agreement, as amended hereby, and the other Loan Papers remain in full force and effect, and (f) no notice to, or consent of, any Person is required under the terms of any agreement of the Borrower in connection with the execution of this First Amendment. SECTION 11. Further Assurances. The Borrower shall execute and deliver ------------------ such further agreements, documents, instruments, and certificates in form and substance satisfactory to the Administrative Agent, as the Administrative Agent or any Lender may deem reasonably necessary or appropriate in connection with this First Amendment. SECTION 12. Counterparts. This First Amendment and the other Loan Papers ------------ may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of any such agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. SECTION 13. PRIOR WAIVER; ENTIRE AGREEMENT. THIS FIRST AMENDMENT AND THE ------------------------------ OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. SECTION 14. GOVERNING LAW. (A) THIS FIRST AMENDMENT AND ALL LOAN PAPERS ------------- SHALL BE DEEMED CONTRACTS MADE UNDER THE LAWS OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO THE EXTENT FEDERAL LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF ALL OR ANY PART OF THIS FIRST AMENDMENT AND ALL LOAN PAPERS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AND EACH SUBSIDIARY AGREES THAT THE COURTS OF 7 TEXAS WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. (B) THE BORROWER AND EACH SUBSIDIARY HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON IT. IN ADDITION, THE BORROWER AND EACH SUBSIDIARY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE BORROWER AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER THE CREDIT AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON RECEIPT BY THE BORROWER. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. SECTION 15. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, -------------------- THE BORROWER, EACH SUBSIDIARY AND EACH LENDER HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS FIRST AMENDMENT, THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. ================================================================================ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ================================================================================ 8 IN WITNESS WHEREOF, this First Amendment to Credit Agreement is executed as of the date first set forth above. BORROWER: ASCENT ENTERTAINMENT GROUP, INC. By: /s/ James A.Cronin, III ---------------------------------------- Name: James A. Cronin, III Its: Executive Vice President, Chief Operating Officer and Chief Financial Officer LENDERS: NATIONSBANK, N.A. (successor by merger to NationsBank of Texas, N.A.), as Administrative Agent, and individually as a Lender By: /s/ Roselyn M. Reid ---------------------------------------- Name: Roselyn M. Reid Its: Vice President KEYBANK NATIONAL ASSOCIATION By: /s/ Richard J. Ameny, Jr. ---------------------------------------- Name: Richard J. Ameny, Jr. Its: Assistant Vice President PARIBAS (formerly BANQUE PARIBAS) By: /s/ David J. Pastre / Thomas G. Brandt --------------------------------------- Name: David J. Pastre / Thomas G. Brandt Its: Vice President / Director 9 NATEXIS BANQUE - BFCE By: /s/ Iain A. Whyte ---------------------------------------- Name: Iain A. Whyte Its: Vice President 10 EX-10.7 4 SECOND AGREEMENT TO SECOND AMEN CREDIT AGREE EXHIBIT 10.7 SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "Second Amendment") is dated as of the 15th day of January 1999, and entered into among ASCENT ENTERTAINMENT GROUP, INC., a Delaware corporation (the "Borrower"), the Lenders signatory thereto, and NATIONSBANK, N.A., (successor by merger to NationsBank of Texas, N.A.), a national banking association, individually and as Administrative Agent (in such latter capacity, the "Administrative Agent"). WITNESSETH: ---------- WHEREAS, the Borrower, the Lenders, and the Administrative Agent entered into a Second Amended and Restated Credit Agreement, dated as of December 22, 1997, as amended by that First Amendment to the Second Amended and Restated Credit Agreement dated as of July 16, 1998 (as amended, restated, waived or otherwise modified from time to time, the "Credit Agreement"); and WHEREAS, the Lenders, the Administrative Agent, and the Borrower have agreed to amend the Credit Agreement to make certain changes to the terms therein upon the terms and conditions set forth below; NOW, THEREFORE, for valuable consideration hereby acknowledged, the Borrower the Lenders and the Administrative Agent agree as follows: SECTION 1. Definitions. ----------- (a) Definitions, Generally. Unless specifically defined or redefined ---------------------- below, capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. (b) Definition of Beacon. The definition of "Beacon" on page 5 of the -------------------- Credit Agreement shall be amended in its entirety to read as follows: "Beacon" shall mean Beacon Communications, LLC, a Delaware ------ limited liability company. (c) Definition of Consolidated Total Indebtedness. The definition of --------------------------------------------- "Consolidated Total Indebtedness" on page 7 of the Credit Agreement shall be amended in its entirety to read as follows: "Consolidated Total Indebtedness" shall mean, for any ------------------------------- Person, all Indebtedness of such Person and its consolidated subsidiaries (other than Indebtedness referred to in clause (h) of the definition of such term), determined on a consolidated basis in accordance with GAAP; provided, however, that -------- ------- Consolidated Total Indebtedness of the Borrower shall not include Non-Recourse Arena Financing so long as it is incurred in compliance with the provisions of this Agreement. (d) Definition of EBITDA. The definition of "EBITDA" on page 8 of the -------------------- Credit Agreement shall be amended in its entirety to read as follows: "EBITDA" shall mean, with respect to the Borrower and its ------ Subsidiaries on a consolidated basis for any period, the consolidated net income of the Borrower and its Subsidiaries for such period, computed in accordance with GAAP, plus, to the extent deducted in computing such consolidated net income and without duplication, the sum of (a) income tax expense, (b) interest expense, (c) depreciation and amortization expense, (d) allocation of income to minority interests in earnings of consolidated subsidiaries and (e) extraordinary losses (including restructuring provisions) during such period minus, to the extent added in computing such consolidated net income and without duplication, (y) extraordinary gains during such period and (z) allocation of losses to minority interests in earnings of consolidated subsidiaries. EBITDA shall be calculated in accordance with GAAP as in effect and applied by the Borrower on the date of this Agreement and, accordingly, shall exclude the effects of any changes in GAAP or its application by the Borrower after the date hereof. (e) Definition of Film Cash Flow. The definition of "Film Cash Flow" on ---------------------------- page 11 of the Credit Agreement shall be deleted in its entirety. (f) Definition of Film Inventory. The definition of "Film Inventory" on ---------------------------- page 11 of the Credit Agreement shall be deleted in its entirety. (g) Definition of Guarantee. The definition of "Guarantee" on page 11 of ----------------------- the Credit Agreement shall be amended in its entirety to read as follows: "Guarantee" of or by any Person shall mean any obligation, --------- contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or --------------- indirectly, and including any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, 2 equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness, and (d) to guaranty the obligations, payments by or performance of, a Person that is not a wholly owned direct or indirect Subsidiary of the Borrower; provided, however, that the term Guarantee shall not include -------- ------- endorsements for collection or deposit in the ordinary course of business. (h) Definition of Guarantors. The definition of "Guarantors" on page 12 ------------------------ of the Credit Agreement shall be amended in its entirety to read as follows: "Guarantors" shall mean: Ascent Sports Holdings, Ascent ---------- Sports, Ascent Arena and Development Corporation, Ascent Arena Company, LLC, Ascent Arena Operating Company, Ascent Beacon Corporation and all other wholly owned direct or indirect Subsidiaries of the Borrower from time to time. (i) Definition of Motion Pictures. The definition of "Motion Pictures" on ----------------------------- page 15 of the Credit Agreement shall be deleted in its entirety. (j) Definition of Non-Recourse Film Indebtedness. The definition of "Non- -------------------------------------------- Recourse Film Indebtedness" on page 18 of the Credit Agreement shall be deleted in its entirety. (k) Definition of Permitted Investments. The definition of "Permitted ----------------------------------- Investments"on page 19 and 20 of the Credit Agreement shall be amended in its entirety to read as follows: "Permitted Investments" shall mean: --------------------- (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc. or from Moody's Investors Service, Inc.; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank which bank or office is organized under the Laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $250,000,000; 3 (d) fully collateralized repurchase agreements with a term of not more than 30 days for underlying securities of the type described in clause (a) above entered into with any institution meeting the qualifications specified in clause (c) above; and (e) Investments in the Capital Stock of Beacon, provided that the aggregate amount of all such Investments in the Capital Stock of Beacon for the Borrower and its Subsidiaries shall not exceed 10% of the Capital Stock of Beacon. SECTION 2. Amendment to Section 1.02. Section 1.02 of the Credit ------------------------- Agreement shall be amended in its entirety to read as follows: SECTION 1.02. Terms Generally. The definitions in Section --------------- 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that for purposes of determining compliance with the covenants contained in Article VI hereof, all accounting terms herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP as in effect on the date of this Agreement and applied on a basis consistent with the application used in the financial statements referred to in Section 3.05 hereof. All financial covenant calculations relating to Applicable Margin, Sections 6.09 and 6.10 and otherwise calculated under this Agreement shall be calculated as if all assets (a) acquired by the Borrower or any of its Subsidiaries during any period for which any financial covenants are being calculated were acquired on the first day of such period, and (b) sold by the Borrower or any of its Subsidiaries during any period for which any financial covenants are being calculated were sold on the first day of such period. SECTION 3. Amendment to Section 3.22. Section 3.22 of the Credit ------------------------- Agreement shall be amended in its entirety to read as follows: SECTION 3.22. INTENTIONALLY DELETED. SECTION 4. Amendment to Section 6.01(d). Section 6.01(d) of the Credit ---------------------------- Agreement shall be amended in its entirety to read as follows: 4 (d) INTENTIONALLY DELETED; SECTION 5. Amendment to Section 6.02(i). Section 6.02(i) of the Credit ---------------------------- Agreement shall be amended in its entirety to read as follows: (i) INTENTIONALLY DELETED; SECTION 6. Amendment to Opening Paragraph of Section 6.04. The opening ---------------------------------------------- paragraph of Section 6.04 shall be amended in its entirety to read as follows: SECTION 6.04. Investments, Acquisitions, Loans and Advances. The Borrower will not, and will not cause or permit any of its Subsidiaries to, purchase, hold or acquire any Capital Stock, evidences of indebtedness (other than restructured receivables) or other securities of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest in, or make any acquisition of assets of any other Person as a going concern (each, an "Investment"), ---------- except: SECTION 7. Amendment to Section 6.05(b). Section 6.05(b) of the Credit ---------------------------- Agreement shall be amended in its entirety to read as follows: (b) sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets (whether now owned or hereafter acquired) or any amount of Capital Stock of any Subsidiary of the Borrower or all or any substantial part of the assets of any Subsidiary of the Borrower, except that (i) the Borrower and any Subsidiary of the Borrower may sell or dispose of inventory and obsolete equipment in the ordinary course of business, (ii) so long as there exists no Default or Event of Default both before and after giving effect thereto the Borrower or any of its Subsidiaries may (A) make an Asset Disposition, so long as (I) the cumulative aggregate consideration for all such Asset Dispositions after the date hereof shall not exceed $10,000,000, and (II) such assets are not used in the operation of the Nuggets Sub or the Avalanche Sub or the related Teams, and (B) in addition to Asset Dispositions permitted by subsection (A) above, make an Asset Disposition, so long as (I) the cumulative aggregate consideration for all such Asset Dispositions after the date hereof (but excluding the proceeds from sales of those assets described on Schedule 6.05 hereto) shall not exceed ------------- $10,000,000 and (II) such assets are not used in the operation of the Nuggets Sub or the Avalanche Sub or the related Teams, (iii) so long as there exists no Default or Event of Default both before and after giving effect thereto the Borrower or any of its Subsidiaries may sell the Capital Stock described on Schedule -------- 6.05 hereto, (iv) so long as there exists no Default or Event of ---- Default both before and after giving effect thereto, the Borrower, Nuggets Sub or the Ascent Arena Company, LLC may convey the real estate used for the 5 Arena/Complex to the City and County of Denver, (v) so long as there exists no Event of Default both before and after giving effect thereto, any Wholly Owned Subsidiary of the Borrower may transfer all or any part of its assets to the Borrower, (vi) so long as there exists no Default or Event of Default both before and after giving effect thereto, the Borrower may consummate the sale leaseback transaction described on Schedule 6.03 hereto, ------------- (vii) the Borrower may consummate an On Command Corp. Stock Sale, and (viii) the Borrower and its Subsidiaries may sell all or substantially all of Beacon and all of Beacon's Subsidiaries. Notwithstanding anything to the contrary herein or in any other Loan Paper, under no circumstance may the Borrower or any Subsidiary of the Borrower sell, dispose of or transfer any of the Capital Stock owned by the Borrower, any Subsidiary of the Borrower or On Command Corp. and its Subsidiaries, except (A) the Capital Stock described on Schedule 6.05 hereto, (B) pursuant to ------------- any On Command Corp. Stock Sale and (C) all or substantially all of Beacon. SECTION 8. Amendment to Section 6.05. Section 6.05 of the Credit ------------------------- Agreement shall be amended by adding the following paragraph at the end of Section 6.05 as follows: In connection with any asset sale permitted by this Section 6.05 or otherwise consented to by the Lenders in accordance with the terms of this Agreement from time to time, the Administrative Agent is hereby authorized by each Lender to (i) execute any and all releases deemed appropriate by it to release such assets of the Borrower and its Subsidiaries (including, without limitation, Capital Stock owned by the Borrower and its Subsidiaries) constituting Collateral or otherwise, from all Liens and security interests securing all or any portion of the Obligations, (ii) return to the Borrower any such Collateral or other assets in the possession of the Administrative Agent, (iii) after the permitted sale by any Subsidiary of the Borrower of all of its assets and Properties, or after the sale by the Borrower or any of its Subsidiaries of the Capital Stock of any of their Subsidiaries, release any such sold Person who has executed a guaranty of the Obligations from the terms and conditions of such guaranty and (iv) take such other action as the Administrative Agent deems necessary or appropriate in connection with such transactions and in furtherance of the effectuation thereof. SECTION 9. Amendment to Section 6.08. Section 6.08 of the Credit ------------------------- Agreement shall be amended in its entirety to read as follows: SECTION 6.08. Limitation on Restrictive Agreements. The ------------------------------------ Borrower will not, and will not cause or permit any of its Subsidiaries to, enter into any indenture, agreement, instrument, financing document or other arrangement which, directly or indirectly, contains any financial covenants or prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon: (a) the incurrence of Indebtedness, (b) the granting of Liens, (c) the making or 6 granting of Guarantees, (d) the payment of dividends or distributions, (e) the purchase, redemption or retirement of any Capital Stock, (f) the making of loans or advances, (g) transfers or sales of property or assets (including Capital Stock) by the Borrower or any of its Subsidiaries, other than restrictions on the granting of Liens on, or the transfer of, assets that are encumbered by Liens permitted under clauses (b), (h) and (i) of Section 6.02 hereof with respect to the property or assets covered by such Lien only, or (h) the making of amendments, changes, waivers or consents with respect to this Agreement and the Loan Papers, provided that, notwithstanding the foregoing, (I) Nuggets Sub, Avalanche Sub, Ascent Arena Company, LLC and the Subsidiaries of Ascent Arena Company, LLC may enter into restrictive agreements relating solely to the Ascent Arena Company, LLC and the Subsidiaries of Ascent Arena Company, LLC and the Arena/Complex, each exclusively in connection with the Non-Recourse Arena Financing, the Arena/Complex or the interest of the City and County of Denver in the Arena/Complex acceptable to the Administrative Agent, (ii) Ascent Arena Company, LLC may enter into the Arena Operating Agreement, (iii) Ascent Arena Company, LLC and Ascent Arena Operating Company, LLC may enter into the Operating and Management Agreement, (iv) the Borrower may enter into any such restrictive agreements relating to any Preferred Stock permitted under Section 6.01(g) hereof so long as no such restrictive agreement shall be effective or binding on the Borrower or any of its Subsidiaries until the earlier of (A) the Maturity Date and (B) the payment in full of the Obligations and the termination of the Commitments, and (v) the Borrower may issue the Senior Notes and enter into the Senior Notes Documentation. SECTION 10. Amendment to Section 6.11. Section 6.11 of the Credit ------------------------- Agreement shall be amended in its entirety to read as follows: SECTION 6.11. INTENTIONALLY DELETED. SECTION 11. Addition of Section 6.13. A new Section 6.13 shall be added ------------------------ to Article VI of the Credit Agreement to read as follows: SECTION 6.13 Creation or Acquisition of New Subsidiaries. ------------------------------------------- The Borrower will not, and will not cause or permit any of its Subsidiaries to, create or acquire any new Subsidiary, unless in each case concurrently with such creation or acquisition each of the following conditions is satisfied: (a) any new Subsidiary is a 100% owned direct or indirect Subsidiary of the Borrower, (b) any new Subsidiary has executed a guaranty of the Obligations in form and substance substantially similar to the guaranties executed by the other Subsidiaries, (c) 100% of the Capital Stock of such new Subsidiary shall be subject to a first and prior pledge to the Administrative Agent on behalf of the Lenders to secure the Obligations pursuant to a pledge agreement substantially similar to the pledge agreements in existence pledging the Capital Stock of the existing Subsidiaries to the Administrative Agent, 7 (d) 100% of the Capital Stock of such new Subsidiary shall be in the possession of the Administrative Agent together with stock powers executed in blank, and (e) the Administrative Agent shall have received all resolutions, corporate documentation and other items reasonably requested by the Administrative Agent related to the formation of the new Subsidiary together with legal opinions in form and substance acceptable to Special Counsel. SECTION 12. Deletion of Schedule 1.01. Schedule 1.01 to the Credit ------------------------- Agreement shall be deleted in its entirety. SECTION 13. Deletion of Schedule 3.22. Schedule 3.22 to the Credit ------------------------- Agreement shall be deleted in its entirety. SECTION 14. Waiver. The Administrative Agent and the Lenders hereby waive ------ any provisions of the Credit Agreement necessary solely to permit the sale by the Borrower of all or substantially all of Beacon in accordance with the terms of that certain Agreement for the Purchase and Sale of an Interest in Beacon Communications, LLC, by and among Ascent Entertainment Group, Inc., Ascent Beacon Corporation, Beacon Communications, LLC and Boomtown Investments, LLC. SECTION 15. Affirmation. The Borrower hereby acknowledges and agrees that ----------- nothing in this Second Amendment shall affect the Borrower's obligations under the Credit Agreement or the other Loan Papers executed in connection therewith (except as specifically provided in this Second Amendment), which remain valid, binding and enforceable, and except as amended hereby, unamended, or shall constitute a waiver by the Lenders of any of their rights or remedies, now or at any time in the future, with respect to any requirement under the Credit Agreement or the other Loan Papers or with respect to an Event of Default or Default, occurring now or at any time in the future. SECTION 16. Conditions Precedent. This Second Amendment shall not be -------------------- effective until (a) all proceedings of the Borrower taken in connection with this Second Amendment and the transactions contemplated hereby shall be satisfactory in form and substance to the Administrative Agent and Lenders signatory hereto, (b) the Administrative Agent shall have received executed copies of all documentation related to the sale by the Borrower of 90% of its ownership interest in Beacon Communications, LLC, including all merger documentation and purchase and sale documentation, (c) the Administrative Agent shall have received an opinion of counsel to the Borrower in form and substance acceptable to it, as to the enforceability of this Second Amendment and all the Loan Papers, and as to such other matters as requested by the Administrative Agent, 8 (d) the Administrative Agent shall have received a Compliance Certificate computed after giving effect to the sale of Beacon, calculated for the remainder of the term of this Agreement and evidencing pro forma compliance with all terms and conditions of this Agreement and the other Loan Papers, (e) the Administrative Agent and Lenders shall have each received such documents, instruments, and certificates, copies of resolutions, etc., each in form and substance satisfactory to the Lenders, as the Lenders shall deem necessary or appropriate in connection with this Second Amendment and the transactions contemplated hereby, and (f) reimbursement for Administrative Agent for Donohoe, Jameson & Carroll, P.C.'s reasonable fees and expenses rendered through the date hereof. SECTION 17. Representations and Warranties. The Borrower represents and ------------------------------ warrants to the Lenders and the Administrative Agent that (a) this Second Amendment constitutes its legal, valid, and binding obligations, enforceable in accordance with the terms hereof (subject as to enforcement of remedies to any applicable bankruptcy, reorganization, moratorium, or other laws or principles of equity affecting the enforcement of creditors' rights generally), (b) there exists no Event of Default or Default under the Credit Agreement after giving effect to this Second Amendment, (c) its representations and warranties set forth in the Credit Agreement and other Loan Papers are true and correct on the date hereof after giving effect to this Second Amendment, (d) it has complied with all agreements and conditions to be complied with by it under the Credit Agreement and the other Loan Papers by the date hereof, (e) the Credit Agreement, as amended hereby, and the other Loan Papers remain in full force and effect, and (f) no notice to, or consent of, any Person is required under the terms of any agreement of the Borrower in connection with the execution of this Second Amendment. SECTION 18. Further Assurances. The Borrower shall execute and deliver ------------------ such further agreements, documents, instruments, and certificates in form and substance satisfactory to the Administrative Agent, as the Administrative Agent or any Lender may deem reasonably necessary or appropriate in connection with this Second Amendment. SECTION 19. Counterparts. This Second Amendment and the other Loan Papers ------------ may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of any such agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. SECTION 20. PRIOR WAIVER; ENTIRE AGREEMENT. THIS SECOND AMENDMENT AND THE ------------------------------ OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL 9 AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. SECTION 21. GOVERNING LAW. (A) THIS SECOND AMENDMENT AND ALL LOAN PAPERS ------------- SHALL BE DEEMED CONTRACTS MADE UNDER THE LAWS OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO THE EXTENT FEDERAL LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF ALL OR ANY PART OF THIS SECOND AMENDMENT AND ALL LOAN PAPERS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AND EACH SUBSIDIARY AGREES THAT THE COURTS OF TEXAS WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. (B) THE BORROWER AND EACH SUBSIDIARY HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL PROCESS UPON IT. IN ADDITION, THE BORROWER AND EACH SUBSIDIARY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE BORROWER AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER THE CREDIT AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON RECEIPT BY THE BORROWER. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. SECTION 22. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, -------------------- THE BORROWER, EACH SUBSIDIARY AND EACH LENDER HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS SECOND AMENDMENT, THE OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. ================================================================================ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ================================================================================ 10 IN WITNESS WHEREOF, this Second Amendment to Credit Agreement is executed as of the date first set forth above. BORROWER: ASCENT ENTERTAINMENT GROUP, INC. /s/ Arthur M. Aaron ------------------------------------------------ By: Arthur M. Aaron Its: Vice President, Business and Legal Affairs LENDERS: NATIONSBANK, N.A. (successor by merger to NationsBank of Texas, N.A.), as Administrative Agent, and individually as a Lender /s/ Roselyn Drake ------------------------------------------------ By: Roselyn Drake Its: Vice President KEYBANK NATIONAL ASSOCIATION /s/ Mary K. Young ------------------------------------------------ Name: Mary K. Young Title: Assistant Vice President PARIBAS (formerly BANQUE PARIBAS) /s/ Thomas G. Brandt / Ernie Sibal ------------------------------------------------ Name: Thomas G. Brandt / Ernie Sibal Title: Director / Assistant Vice President 11 NATEXIS BANQUE - BFCE By:_____________________________________________ Name:___________________________________________ Title:__________________________________________ 12 EX-10.13 5 AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10.13 CONFIDENTIAL AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- This AMENDMENT dated as of December 28, 1998 is made to the EMPLOYMENT AGREEMENT dated as of September 11, 1996 (the "Agreement"), by and between On Command Corporation, a Delaware corporation (the "Company"), and Robert M. Kavner, a resident of the State of California (the "Executive"). WHEREAS, the Company and the Executive desire to change the terms and conditions of the Company's employment of the Executive to 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. Change of Employment; Consulting Period. Effective December 31, 1998 --------------------------------------- (the "Effective Date"), the Executive shall resign as President, Chief Executive Officer and a director of the Company, and as an officer or director of all of the Company's subsidiaries. The Company shall retain the Executive as a non- exclusive consultant for a period commencing on the Effective Date and ending on December 31, 1999 (the "Consulting Period"). 2. Compensation and Fringe Benefits. (a) Base Compensation. As -------------------------------- ----------------- compensation for his consulting services, the Company shall pay the Executive base compensation of $350,000 for the Consulting Period, with payments to be made ratably in installments in accordance with the Company's regular practice for compensating executive personnel. (b) Bonus Compensation. As compensation for his service to the ------------------ Company during 1998, the Executive will receive a bonus of $350,000 to be paid in the first week in January 1999. (c) Fringe Benefits. During the Consulting Period, the Executive --------------- also shall be entitled to participate in group health, dental and disability insurance programs, and any group profit sharing, deferred compensation, life insurance or other benefit plans as are generally made available by the Company to the senior executives of the Company. Such benefits in all events shall include payment or reimbursement of (i) documented expenses reasonably incurred in connection with travel and entertainment related to the Company's business and affairs and performed at the request of a director or senior executive of the Company, and (ii) Executive's reasonable legal fees and costs incurred in connection with the drafting, negotiation and execution of this Amendment. All benefits described in the foregoing (i) and (ii) that are reported by the Company as earned or unearned income will be "grossed up" by the Company in connection with federal and state tax obligations to provide Executive with appropriate net tax coverage so that the benefits received by the Executive from the foregoing clauses (i) and (ii). The Company 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 Consulting Period and provided further that the benefits provided in clauses (i) and (ii) above shall not be reduced at all. (d) Stock Options. As of the Effective Date, the Executive agrees ------------- to the cancellation of any and all options ("Options") previously granted to him to purchase shares of the Company's common stock, par value $0.01 per share, whether vested or unvested, and the Executive shall surrender his original stock option agreements representing the Options upon execution of this Amendment. 3. Continuing Provisions. During the Consulting Period, Sections 3, --------------------- 4, 6, 9, 10, 11, 12, 13, 14 and 15 of the Agreement shall remain in full force and effect, and any references therein to the "Employment Period" shall be deemed references to the Consulting Period, and all other sections of the Agreement shall have no further force or effect after the execution of this Amendment. 4. Non-Competition. (a) As an inducement for the Company to enter into --------------- this Amendment, the Executive agrees that during the Consulting Period, the Executive shall not, without the prior written consent of the Board, undertake employment or services for a company engaged in a business which is or has publicly announced its intention to become directly competitive with the business then being primarily conducted by the Company, with respect to any geographic area in which the Company then engages in such business, if the loyal and complete fulfillment of the duties of the competitive employment or services would call upon Executive to reveal, to make judgments on or otherwise to use Trade Secrets of the Company (as defined in Section 3 of the Agreement) to which Executive had access by reason of his employment by the Company. (b) Non-Solicitation of Employees. During the Consulting 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. 2 (c) Reasonableness; Interpretation. The Executive acknowledges and ------------------------------ agrees, solely for purposes of determining the enforceability of this Section 4 (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 equal to the term of the Consulting Period; and (iii) the above covenants are manifestly reasonable on their face, and the parties expressly agree that such restrictions have been designed to be reasonable and no greater than is required for the protection of the Company. In the event that the covenants in this Section 4 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 Amendment 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. 5. Mutual Release. (a) In consideration for the Company entering into -------------- this Amendment and for the benefits described herein, the Executive and his successors and assigns release and absolutely discharge the Company, its affiliates and their respective shareholders, directors, employees, agents, attorneys, legal successors and assigns (the "Company Released Parties") of and ------------------------ from any and all claims, actions, and causes of actions whether now known or unknown, which the Executive now has, or at any other time had, or shall or may have against the Company Released Parties based upon or arising out of any matter, cause, fact, thing, act or omission whatsoever occurring or existing at any time to and including the Effective Date, including but not limited to, any claims under the Agreement or of breach of contract, wrongful termination or national origin, race, age, sex, sexual orientation, disability or other discrimination under the Civil Rights Act of 1964, the Age Discrimination in 3 Employment Act of 1967, the American with Disabilities Act, the Fair Employment and Housing Act or any other applicable law, all as they have or may be amended. (b) In consideration for the Executive entering into this Amendment and for the benefits to the Company described herein, the Company and its successors and assigns release and absolutely discharge the Executive and his successors and assigns (the "Executive Released Parties") of and from any and all claims, -------------------------- actions, and causes of actions whether now known or unknown, which the Company now has, or at any other time had, or shall or may have against the Executive Released Parties based upon or arising out of any matter, cause, fact, thing, act or omission whatsoever occurring or existing at any time to and including the Effective Date, including but not limited to, any claims under the Agreement or of breach of contract. (c) Each party acknowledges that he or it has read Section 1542 of the Civil Code of the State of California which states: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Each hereby waives any right or benefit which he or it has or may have under Section 1542 of the Civil Code of the State of California to the full extent that he or it may lawfully waive such rights and benefits pertaining to the subject matter of this general release of claims. 6. Press Release. Public announcements to be made by the Company ------------- announcing the changes in the Executive's offices and responsibilities reflected in this Amendment shall be subject to the mutual approval of the parties, subject to the Company's compliance with applicable laws and regulations. 4 IN WITNESS WHEREOF, the parties hereto have executed this Amendment on December 28, 1998. /s/ Robert M.Kavner ------------------------------ Robert M. Kavner, Executive ON COMMAND CORPORATION By: /s/ Charlie Lyons --------------------------- Title: Chairman 5 EX-10.14 6 AMENDMENT NO 1 TO EMPLOYMENT AGREEMENT EXHIBIT 10.14 CONFIDENTIAL AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT -------------------------------------- This AMENDMENT, dated as of December 28, 1998, is made to the EMPLOYMENT AGREEMENT dated as of September 11, 1996 (the "Agreement"), by and between On Command Corporation, a Delaware corporation (the "Company"), and Brian A. C. Steel, a resident of the State of California (the "Executive"). WHEREAS, the Company and the Executive desire to amend certain of the terms and conditions of the Agreement in connection with the Executive becoming President of the Company to 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. Definition of "NEWCO". The first parenthetical in the introductory --------------------- paragraph of the Agreement is hereby amended to read as follows: ("NEWCO" or the "Company") 2. Change in Title; Duties. ----------------------- Sections 1(a) and 1(b) of the Agreement are hereby deleted and replaced in their entirety by the following: (a) Employment and Employment Period. The Company shall employ the -------------------------------- Executive for a period (the "Employment Period") commencing on September 11, 1996 (the "Effective Date") and continuing thereafter for a term ending on September 11, 2000 unless terminated in accordance with the provisions of this Agreement. Executive shall be employed by the Company to serve as Vice President, Chief Operating Officer and Chief Financial Officer from the Effective Date to December 31, 1998, and as President and Chief Operating Officer from December 31, 1998 through the remainder of the Employment Period. In the event that the Company desires to extend the employment of the Executive, it must give written notice of such desire by September 11, 1999, and after such notice the parties shall enter into an exclusive negotiation period of not less than six months, unless otherwise mutually agreed upon by the parties in writing. Each 12 month period ending on September 11 is sometimes referred to herein as a "year of the Employment Period." (b) Offices, Duties and Responsibilities. Effective on the ------------------------------------ Effective Date, Executive shall be elected Executive Vice President, Chief Operating Officer and Chief Financial Officer of NEWCO. On December 31, 1998, Executive shall be elected President and Chief Operating Officer of the Company. The Executive shall report directly and solely to the Chief Executive Officer and the Board of Directors of the Company (the "Board"), or if there is no Chief Executive Officer, to the Chairman of the Board and the Board of Directors of the Company. The Executive's offices initially shall be located at OCV's present headquarters. Throughout the Employment Period, the Company shall cause the Executive to be a member of the Board. Until December 31, 1998, the Executive shall have all duties and authority customarily accorded a chief operating officer and chief financial officer, and from December 31, 1998, the Executive shall have all duties customarily accorded a president and chief operating officer, including, without limitation, the lead responsibility with full autonomy, subject to the customary authority and direction of the Board (and the Chairman of the Board or Chief Executive Officer, as the case may be), to direct and develop the operating capabilities and performance of the Company. The Executive shall be a member of any senior executive/management committees which may be established from time to time by the Board. The Executive shall not be required to perform services other than those comparable in scope, dignity and stature to those customarily performed by officers of the same rank at companies similar to the Company. 3. Notification of Chief Executive Search. A new Subsection (d) is hereby -------------------------------------- added to Section 1 of the Agreement to read as follows: (d) New Chief Executive Search. In the event that the Company, -------------------------- or any authorized representative of the Company, undertakes or authorizes a search for a 2 new chief executive officer or president of the Company, or solicits, or engages in any substantive discussions with, any person (or representative of any person) to become the chief executive officer or president of the Company, then and in such event, the Company will promptly notify the Executive about the existence of such search, solicitation or discussions as a courtesy to Executive, it being understood that details about the same need not be provided by the Company to the Executive. 4. Base Compensation. The following sentence is hereby added at the end ----------------- of Section 2(a) of the Agreement: Commencing December 31, 1998, the Executive's Base Salary shall be increased to $375,000 per year. 5. Bonus Compensation. The following sentence is hereby added at the end ------------------ of Section 2(b) of the Agreement: Notwithstanding anything in the foregoing to the contrary, the parties agree that the Compensation Committee will act in good faith to establish parameters or guidelines which will contemplate that the target level established for an Annual Bonus of 70% of Base Salary shall not be treated as a "cliff" target; rather, in the event the Company fails to meet 100% of the target level for a given period but nevertheless achieves a substantial part of the targeted performance, then and in such event, the parameters or guidelines will contemplate that Executive shall qualify for an Annual Bonus for such period, albeit at a level below 70% of Base Salary. 6. Fringe Benefits. Clause (v) of Section 2(c) of the Agreement is --------------- amended in its entirety to read as follows: (v) Executive's reasonable legal fees and costs incurred in connection with the drafting, negotiation and execution of this Agreement and amendments and proposed amendments hereto, including negotiations contemplated by clause (IX) of Section 5(a) of this Agreement 7. Stock Option Term. A new Clause (w) is hereby inserted immediately ----------------- prior to Clauses (x) and (y) in Section 2(e) of the Agreement to read as follows: 3 (w) One year after the date upon which a termination of employment occurs as a result of an Executive Election Event described in Clause (IX) of Section 5(a) of this Agreement; 8. Termination. The Executive Election Event set forth in Clause (IX) of ----------- Section 5(a) of the Agreement is hereby deleted and replaced in its entirety by the following: (IX) (A) the election or appointment by the Board of Directors of a Chief Executive Officer other than the Executive, or (B) the failure of the Compensation Committee of the Board, prior to June 1, 1999, to review the Executive's entire compensation package provided under this Agreement and to propose increases or other amendments thereto as determined by the Compensation Committee in its sole discretion in light of the changes occurring in Executive's employment on December 31, 1998 (it being understood that the Compensation Committee shall have no obligation to propose any such increases or other amendments), or (C) the Executive and the Company failing to execute, on or before August 1, 1999, mutually satisfactory amendments to this Agreement either incorporating the proposals made by the Compensation Committee under the immediately preceding clause (B) or containing other amendments to this Agreement that are mutually satisfactory to the Executive and the Company; (provided that in the event the Executive exercises his Executive Election as a result of any of the conditions set forth in this clause (IX), then the Executive need provide only five (5) days advance written notice in lieu of the sixty (60) days advance written notice required by the first sentence of Section 5(a) above and 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, (a) through the first anniversary of his termination, pay the Executive his Base Salary, together with fringe benefits that are described in the introductory clause and prior to the proviso of Section 2(c) of this Agreement, (b) pay the Executive an Annual Bonus for the year in which his employment is terminated at the maximum amount payable under this Agreement, prorated through the date of his termination; and (c) a pro rata portion of the Option and any other stock options granted to the Executive under the Company's option plan or any 4 successor plan that were scheduled to vest during the year of termination shall vest as of the date of such termination of his employment. 9. No Other Amendments. Except as specifically set forth in this ------------------- Amendment, all other provisions of the Agreement shall remain in full force and effect during the Employment Period and, as applicable, thereafter to the extent set forth in the Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above. By: /s/ Brian Steel ------------------------------- Brian Steel, Executive ON COMMAND CORPORATION By: /s/ Charles Lyons ------------------------------ Title: Chairman of the Board 5 EX-10.15 7 EMPLOYMENT AGREEMENT B/W ASCENT ARENA COMPANY EXHIBIT 10.15 EMPLOYMENT AGREEMENT -------------------- This AGREEMENT made as of July 1, 1997, by and between Denver Arena Company, LLC, a Colorado limited liability company (the "Company"), whose members are Ascent Entertainment Group, Inc., a Delaware corporation ("Ascent"), and Ascent Arena Corporation, a Delaware corporation and a wholly owned subsidiary of Ascent ("Arena"), and Timothy D. Romani, a resident of the State of Colorado (the "Executive"). WHEREAS, Ascent through Ascent Sports, Inc., a wholly owned subsidiary of Ascent ("Sports"), controls The Denver Nuggets Limited Partnership (the "Basketball Club"), a Delaware limited partnership which owns and operates the Denver Nuggets professional basketball team (the "Basketball Team"), a franchise of the National Basketball Association (the "NBA"); and WHEREAS, Ascent and Sports are the sole members with joint and several management authority of Colorado Avalanche, LLC, (the "Hockey Club"), a Colorado limited liability company which owns and operates the Colorado Avalanche professional hockey team (the "Hockey Team"), a franchise of the National Hockey League (the "NHL"); and WHEREAS, the Company has proposed constructing, owning and managing, possibly with other joint venture partners, a new state-of-the-art arena in the Denver metropolitan area in which the Basketball Team and the Hockey Team would play their home games (the "Arena Project"); and WHEREAS, the Company desires to employ the Executive, and the Executive desires to become an employee of the Company, 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 (i) President of the Company and General Manager of the Arena Project and (ii) such office with an affiliate of the Company as reasonably determined by the President and CEO of Ascent in connection with the sales and marketing of the proposed arena. Such employment shall be for a continuous period (the "Employment Period") commencing July 1, 1997 (the "Effective Date") and ending on July 1, 2002 with respect to the office set forth in 1 clause (i) above, and for such periods as reasonably determined by the President and CEO of Ascent with respect to the offices set forth in clause (ii) above. (b) Duties and Responsibilities. The Executive shall report to the --------------------------- President and CEO of Ascent, or its successor entity, which position is currently held by Charlie Lyons. The Executive shall have such duties and responsibilities in connection with the Arena Project as designated by the President and CEO of Ascent from time to time. The Executive shall be generally responsible for the matters set forth on Exhibit A attached hereto, and in the event that the President and CEO of Ascent proposes to add any significant duties and responsibilities which are beyond the scope of the matters set forth on Exhibit A, then prior to the Executive being required to assume such duties and responsibilities the Company agrees to negotiate in good faith with the Executive regarding whether there should be a commensurate increase in the Executive's compensation as set forth in Section 2. The Executive shall be primarily responsible for recruiting and hiring the Arena Project staff and consultants, including establishing the terms and conditions of employment or engagement, in accordance with policies and procedures of the Company and Ascent, which includes consultation with officers of Ascent as appropriate. The project staff and consultants will report directly to and be under the direct supervision of the Executive. (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 and its affiliates. Notwithstanding the foregoing, the Executive shall be entitled to undertake such outside activities as do not unreasonably interfere with the performance of his duties hereunder and are approved in advance by President and CEO of Ascent, such approval not to be unreasonably withheld. 2. Compensation and Fringe Benefits. In consideration for the services to -------------------------------- be performed and the obligations incurred by the Executive hereunder, and subject to the terms and conditions hereof, during the Employment Period the Executive shall be entitled to the following compensation and benefits. (a) Base Compensation. Effective as of January 1, 1997, the Company shall ----------------- pay the Executive a minimum annual base salary ("Base Salary") at the rates per year set forth below with 2 payments made in installments in accordance with the Company's regular practice for compensating executive personnel, provided that in no event shall such payments be made less frequently than twice per month. January 1, 1997 thru June 30, 1998 $200,000 July 1, 1998 thru June 30, 1999 $210,000 July 1, 1999 thru June 30, 2000 $220,000 July 1, 2000 thru June 30, 2001 $230,000 July 1, 2001 thru June 30, 2002 $240,000 The Base Salary for the Executive may be reviewed by the President and CEO of Ascent during the Employment Period for further increases in his sole discretion each year during the Employment Period commencing the second year of the Employment Period, subject to the approval of the Compensation Committee of the Board of Directors of Ascent (the "Compensation Committee") in its sole discretion. The Company shall include in the first paycheck prepared after the Executive executes this Agreement the amount necessary to effect the increase to $200,000 of the Executive's Base Salary as of January 1, 1997. (b) Bonus Compensation. (i) Annual Bonus. The Executive will be eligible ------------------ ------------ to receive bonuses ("Annual Bonus") during the Employment Period in accordance with the following parameters: (A) the target bonus for each year during the Employment Period shall be 30% of Base Salary for achieving 100% of the target level for the performance measures; and (B) 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 President and CEO of Ascent, after consultation with the Executive, subject to the approval of the Compensation Committee. Annual Bonuses shall be payable at such time as deemed appropriate by the President and CEO of Ascent and as approved by the Compensation Committee. (ii) Achievement Bonus. In addition, the Company shall pay the following ----------------- Executive performance bonuses in not less than the following amounts upon accomplishment of the following events, 50% of each such amount to be payable upon or within fifteen (15) days after determination that the event has been accomplished , and the remaining 50% of such amount to be deposited into a deferred compensation account to be established by Ascent and payable pursuant to the terms set forth in clause 2(f) below: 3 (A) Agreement in Principle Bonus. Bonus in a lump sum amount of ---------------------------- $100,000 upon execution by Ascent or its affiliates and the City and County of Denver (the "City") of an agreement in principle, which need not be definitive documentation, but which sets forth all of the material terms of an agreement between Ascent and the City for the construction of the Arena. (B) Groundbreaking Bonus. Bonus in a lump sum amount of -------------------- $100,000 upon groundbreaking by the Company constituting actual commencement of the construction by the Company of the Arena Project ("Groundbreaking"). (C) Suite Bonus. Bonus in a lump sum of $100,000 upon the ----------- Company, or its designee, entering into binding and enforceable agreements to lease suites, beginning the first full year of operations at the new arena and continuing for initial terms of at least five (5) years, which agreements will produce revenues totaling at least $8,500,000. (D) Completion Performance Bonus. Bonus in a lump sum of ---------------------------- $150,000 if the date on which the Arena Project is completed (the "Completion Date") occurs on or before the scheduled completion date (the "Scheduled Completion Date") set forth on the schedule attached hereto as Exhibit B, as such schedule may be amended by mutual agreement of the Executive and the President and CEO of Ascent. The bonus provided in the preceding sentence shall still be paid if the Completion Date occurs within 150 days after the Scheduled Completion Date, provided that the amount of the bonus shall decrease by $25,000 for each 30 day period following the Scheduled Completion Date in which the Completion Date actually occurs. For purposes of this Agreement, the Completion Date shall occur on such date as the architect for the Arena Project certifies that the scope of the contract has been substantially performed and completed. (E) Budget Performance Bonus. Bonus in a lump sum of $150,000 ------------------------ if the Arena Project is finally completed for an amount (the "Construction Budget") equal to or less than the projected amount of the budget for the Arena Project set forth on the budget attached hereto as Exhibit C (the "Projected Construction Budget"), as such budget may be amended by mutual agreement of the Executive and the President and CEO of Ascent. The bonus provided in the preceding sentence shall still be paid if the Construction 4 Budget exceeds the Projected Construction Budget by up to $5,000,000, provided that the amount of the bonus shall decrease by $25,000 for each $1,000,000 that the Construction Budget exceeds Projected Construction Budget. (c) Fringe Benefits. The Executive also shall be entitled to fringe --------------- benefits commensurate with those of an executive of similar management level of Ascent and its affiliates (excluding On Command Corporation), including participation in the 1995 Key Employee Stock Plan, the Ascent Savings and Profit Sharing Plan (or successor 401(k) savings plan) and health, life and disability insurance programs. In this regard, the Executive shall be able to select between the benefit programs offered by either Ascent or Sports. Additionally, the Company shall provide the Executive with a car allowance during the Employment Period equal to $1,000 per month. (d) Business Expenses. The Company shall reimburse the Executive for ----------------- (i) all reasonable expenses incurred in connection with travel and entertainment related to the Company's business and affairs, in accordance with Ascent's policies and procedures with respect to such reimbursements as in effect from time to time (which shall include, without limitation, reimbursement of cellular telephone charges relating to business usage), and (ii) Executive's reasonable legal fees and costs incurred in connection with the drafting, negotiation and execution of this Agreement; provided that such fees and costs shall not exceed $10,000. (e) Tickets. For so long as the Executive maintains his permanent ------- residence in Colorado and, in each case, Ascent controls the Basketball Team, Hockey Team or the Arena and has the authority to grant such complimentary tickets, Executive shall have the complimentary use of (i) four (4) season tickets in a prime location for both the Basketball Team and the Hockey Team and (ii) four (4) tickets in a prime location to every event held at the new arena for which the Company or its affiliates control the right to receive more than a nominal number of tickets. The Executive agrees that these tickets shall not be club seats nor suites. (f) Deferred Compensation Account. The Company shall establish a ----------------------------- deferred compensation account qualifying as a "rabbi trust" (the "Deferred Account") into which 50% of the bonuses earned by the Executive pursuant to Section 2(b)(ii) shall be deposited and held pursuant hereto. Funds deposited in the Deferred Account pursuant to this Agreement shall be invested 5 pursuant to the direction of the Executive and he shall bear all risk of loss for all such investment decisions. Amounts deposited into the Deferred Account pursuant to this Agreement shall be paid to the Executive on the earlier of(i) July 1, 2002, (ii) the date the Executive is terminated by the Company without "cause" (as defined in Section 5(d) below), for disability, as provided in Section 6(a) below, or as a result of the Executive's death, as provided in Section 6(b) below), or (iii) the date the Executive terminated his employment pursuant to Section 5(c) below, or (iv) by mutual consent of the Employee and the Company. (g) Stock Appreciation Rights. Effective on the date on which ------------------------- COMSAT Corporation ("COMSAT") distributes its interest in Ascent common stock to COMSAT shareholders (the "Distribution Date"), the Company shall cause Ascent to grant to the Executive stock appreciation rights ("SARs") under Ascent's 1995 Key Employee Stock Plan payable only in cash but based upon the appreciation of 50,000 shares of Ascent Common Stock. The exercise price of the SARs shall be equal to $9.5250, which was the average of the high and low sales price of the Ascent Common Stock for the five trading days following the Distribution Date. The SARs shall be exercisable pursuant to the following schedule: (i) 2,500 SARs on or after June 27, 1997; (ii) an additional 2,500 SARs on or after December 18, 1997; (iii) an additional 10,000 SARs on or after June 27, 1998; (iv) an additional 5,000 SARs on or after December 18, 1998; (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" as defined in Section 14(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 "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 6 the extent they remain unexercised, shall automatically and without further notice terminate and become of no further force and effect at the time of the earliest of the following to occur: (x) three months after the date upon which a termination for cause by the Company (as provided in Section 5(d)) shall have become effective and final; or (y) ten years after the Effective Date. 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 Distribution 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 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 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(d), 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. (h) 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), 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. 7 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 its affiliates and of other companies with which the Company and its affiliates do business on a confidential basis and that Executive will create and develop Trade Secrets for the benefit of the Company 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 Executive during the Employment Period 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 and its affiliates. 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 the Company or its Affiliates 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. 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 entertainment 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. 8 4. 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 Company's activities ("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 their title thereto. 5. Termination. This Agreement shall remain in effect during the ----------- Employment Period, and this Agreement and Executive's employment with the Company may be terminated as follows: (a) Subject to Section 5(c) below, this Agreement may be terminated by the Company, for any reason or for no reason, with or without notice to the Executive. (b) Prior to the Completion Date, this Agreement may be terminated by the Executive at any time upon 60 days advance written notice to the Company; after the Completion Date, this Agreement may be terminated by the Executive at any time upon 30 days advance written notice to the Company. (c) After the Groundbreaking, if this Agreement is terminated by the Company without "cause", as defined below, or by the Executive because (i) the Company, without the Executive's express written consent, substantially reduces his responsibilities as described in this Agreement, or (ii) a "Change of Control Event" (as defined in Section 14(a) below) has occurred, then the Executive shall be entitled to receive the following benefits for a period (the "Severance Period") equal to the longer of (x) one year following such termination or (y) the remaining period until July 1, 2002: (i) Base Salary determined 9 in accordance with Section 2(a); and (ii) such bonuses as are based upon the accomplishment of any of the events set forth in Section 2(b) in a percentage equal to the percentage with respect to which the Executive made contributions to the accomplishment of such events, taking into consideration the Executive's involvement on the Arena Project since March 1, 1995; and (iii) if the SARs or any other equity incentives granted during the Employment Period have not previously vested, such incentives shall vest and become exercisable or payable, as the case may be. Unless the Company provides clear and persuasive evidence to the contrary, the Executive's percentage contribution to any such event shall be based upon his total time of service since March 1, 1995 divided by the total time from March 1, 1995 to accomplishment or reasonably projected date of accomplishment of the relevant event. (d) 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 President and CEO of Ascent 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 thirty business days following the Executive's receipt of written notice from the President and CEO of Ascent 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 affiliates or their respective reputations, which misconduct, if it is reasonably capable of being cured, is not cured by the Executive within thirty business days following the Executive's receipt of written notice from the President and CEO of Ascent specifying the serious misconduct engaged in by the Executive, (iii) the conviction of the Executive of commission of a felony involving dishonesty or moral turpitude, whether or not such felony was committed in connection with the business of the Company or its affiliates, (iv) willful and intentional refusal of the Executive to conform to the rules and regulations of the NBA or the NHL which are applicable to the Executive, (v) physical or mental incapacity or death, in either case, as a result of intentional self-injury or drug or alcohol abuse, or (iv) any breach by the Executive of Section 7 hereof. If the Company shall terminate the Executive's employment for "cause," 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 10 pay the Executive his Base Salary through the date of termination of his employment, provided that any SARs or any stock options or other equity -------- incentives granted to the Executive under the Option Plan or any successor plan shall terminate three months after the date of termination of his employment for "cause". (e) The Executive has the duty to mitigate his damages, if any, arising from any termination of his employment by the Company, other than from a termination for cause, or by the Executive or the Company pursuant to Section 5(f). The Executive has a duty to seek out employment in a professional or sports management position. One hundred percent (100%) of any cash compensation the Executive received or will receive in any fiscal year of his employment by another entity or self-employment will be credited against the Company's annual Base Salary obligations under this Agreement. (f) In addition to the foregoing termination events, if the Company terminates this Agreement prior to Groundbreaking without "cause" as defined in Section 5(d), or if the Groundbreaking has not occurred prior to November 1, 1997, then either the Executive or the Company shall have the right to terminate this Agreement on 30 days prior written notice, and in the event of a termination pursuant to this clause, the Severance Period shall be equal to two years following the date of such termination. (g) In the event that the Executive terminates this Agreement pursuant to Section 5(c) above as a result of a Change in Control Event, then the Executive agrees to use his best efforts to effect an orderly transition to a new person or persons who will assume his duties and responsibilities in connection with the Arena Project, including assisting in hiring such person or persons, training related to the Arena Project, introductions to professionals working on the Arena Project, and identifying and providing all relevant documentation and information within the control of the Executive. 11 6. Disability; Death. (a) If, prior to the expiration or ----------------- termination of the Employment Period, the Executive shall be unable to perform 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 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 with the payment of the Executive's Base Salary for the month in which the Employment Period terminates; provided, however, that (i) the -------- ------- Executive shall be entitled to receive the performance bonuses determined in accordance with Section 2(b) and Section 5(c), and (ii) the SARs or any other incentives granted to the Executive 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(g) 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 through the end of the month in which the Executive's death occurred, at which time the Employment Period shall terminate without further notice; provided, however, that (i) the Executive's estate shall be entitled to -------- ------- receive the performance bonuses determined in accordance with Section 2(b) and Section 5(c), and (ii) the SARs or any other incentives granted to the Executive 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(g) 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 the Company or its affiliates. 12 7. Non-Competition. (a) The Executive acknowledges that: (i) the --------------- business of the Company (the "Business") is conducted in the State of Colorado; (ii) the reputation and goodwill of the Company, which constitutes a part of the Business, are an integral part of the success of the Business throughout the areas where the Company conducts its business; and (iii) if the Executive deprives the Company of any of the Business's reputation and goodwill or in any manner utilizes its reputation and goodwill in competition with the Business, the Company will be deprived of the benefits of its Business. Accordingly, 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 (w) the date the Company terminates the Executive's employment without cause, (x) the end of the Employment Period if the Executive remains employed by the Company for the entire Employment Period, (y) one year following termination of the Executive's employment by the Company for "cause" as defined in Section 5(d) hereof, or (z) six months following termination of the Executive's employment by the Executive for any reason (other than a substantial reduction of his responsibilities or Change in Control Event pursuant to Section 5(c) hereof or pursuant to Section 5(f) hereof, in which case the provisions of this paragraph (a) shall not apply) (the "Non-Competition Period"), the Executive shall not in the State of Colorado, without the prior written consent of the President and CEO of Ascent, 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 arena or sports complex construction, development or management business which is or could reasonably expected to be competitive with any business conducted or intended to be conducted by the Company or its Affiliates in constructing, developing or managing the Arena Project. (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 or its affiliates) solicit, or assist any person or entity other than the Company or its affiliates to solicit, any officer, director, executive or employee (other than an administrative or clerical employee) of the Company or its affiliates to leave his or her employment. 13 (c) Reasonableness; Interpretation. The Executive acknowledges ------------------------------ and agrees that (i) the markets served by the Company include the State of Colorado 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(c); 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 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 or its 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 CEO of Ascent. 8. 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. 9. Enforcement. The Executive acknowledges that a breach of the ----------- covenants or provisions contained in Sections 3, 4, and 7 of this Agreement will cause irreparable damage to the Business, the Company and its 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 Sections 3, 4, and 7 of this Agreement, in addition to any other remedy which may be available at law or in equity, the Company shall be 14 entitled to specific performance and injunctive relief, without posting bond. 10. 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. 11. Assignment. The Executive's rights and obligations under this ---------- Agreement shall not be assignable by the Executive. The Company's rights and obligations under this Agreement shall be binding on the successors and assigns of the Company; provided, however, that this Agreement shall not be assignable by the Company, except in connection with a Change in Control Event. 12. 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: Timothy D. Romani 1396 Gold Mine Lane Evergreen, CO 80439 15 If to the Company, addressed to: Charles Lyons Denver Arena Company, LLC c/o Ascent Entertainment Group, Inc. 1200 Seventeenth Street Denver, Colorado 80202 Telecopier No.: (303) 595-0127 With a copy to: Ascent Entertainment Group, Inc. Attention: Vice President, Legal Affairs 1200 Seventeenth Street Denver, Colorado 80202 Telecopier No.: (303) 595-0127 Attention: Vice President, Business/Legal Affairs 13. 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. 14. 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 terminate this Agreement in accordance with Section 5(c) by giving notice either prior to such Change in Control Event becoming effective or up to 180 days following such Change in Control Event, but termination pursuant to such notice shall not take effect in accordance with Section 5(c) in any event prior to 120 days following such Change of Control Event, however payment on behalf of the Executive shall be made as set forth in Section 5(c). The expiration of such 180-day notice period shall not affect the Executive's right to give notice otherwise under Section 5(c). A "Change of Control Event" shall mean and include either (x) Ascent no longer having beneficial ownership, directly 16 or indirectly, of at least 50% of the Company, or (y) 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 Ascent Board of Directors: (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 Ascent (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of Ascent 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 Ascent, (2) any acquisition by Ascent, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Ascent or any corporation controlled by Ascent 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 of Directors of Ascent (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 Ascent'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 Ascent (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 50% 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 17 Combination (including, without limitation, a corporation which as a result of such transaction owns Ascent or all or substantially all of Ascent'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 Ascent 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 Ascent of a complete liquidation or dissolution of Ascent. (b) In the event that Ascent adopts any "change of control" provisions applicable to any Ascent benefits plans providing for the accelerated vesting and/or payment of any benefits for its senior management group, to the extent that such provisions give Executive greater rights than those provided in paragraph (a) above, such provisions shall apply to the Executive to the same extent as other Ascent senior executives on a favored nations basis with respect to the benefits affected by such Ascent provisions. 15. Indemnification and Gross-up for Excise Taxes. --------------------------------------------- (a) The Company hereby indemnifies the Executive and holds the Executive harmless from and against any and all liabilities, costs and expenses (including, without limitation, reasonable attorneys' fees and costs) the Executive may incur as a result of the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any similar provision of state or local income tax law (the "Excise Tax"), to the end that the Executive shall be placed in the same tax position with respect to all payments under this Agreement and all other payments from the Company to the Executive in the nature of compensation as the Executive would have been in if the 18 Excise Tax had never been enacted. In furtherance of such indemnification, the Company shall pay to the Executive a payment (the "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes, including income taxes and the Excise Tax imposed on the Gross-Up Payment and any interest or penalties (other than interest and penalties imposed by reason of the Executive's failure to file timely tax returns or to pay taxes shown due on such returns and any tax liability, including interest and penalties, unrelated to the Excise Tax or the Gross-Up Amount), the Executive shall be placed in the same tax position with respect to all payments under this Agreement and all other payments from the Company to the Executive in the nature of compensation as the Executive would have been in if the Excise Tax had never been enacted. At such time or times necessary to carry out the purposes of this Section 15 in view of the withholding requirement of Section 4999(c)(1) of the Code, but in no event later than December 31 of each year in which the Executive receives a payment from the Company under this Agreement or in the nature of compensation, the Company shall pay to the Executive one or more Gross-Up Payments for all payments under this Agreement and any other payments in the nature of compensation which the Company determines are "excess parachute payments" under Section 280G(b)(1) of the Code ("Excess Parachute Payments"). If, through a determination of the Internal Revenue Service or any state or local taxing authority (a "Taxing Authority"), or a judgment of any court, the Executive becomes liable for an amount of Excise Tax not covered by the Gross-Up Payment payable pursuant to the preceding sentence, the Company shall pay the Executive an additional Gross-up Payment to make the Executive whole for such additional Excise Tax; provided, however, that, pursuant to Section 15, the Company shall have the right to require the Executive to protest, contest, or appeal any such determination or judgment. For purposes of this Section 15, any amount which the Company is required to withhold under Sections 3402 or 4999 of the Code or under any other provision of law shall be deemed to have been paid to the Executive. (b) Upon payment to the Executive of a Gross-Up Payment, the Company shall provide the Executive with a written statement showing the Company's computation of such Gross-Up Payment and the Excess Parachute Payments and Excise Tax to which it relates, and setting forth the Company's determination (which shall be reasonably determined) of the amount of gross income the Executive is required to recognize as a result of such payments and the Executive's liability for the Excise Tax. The Executive shall cause the Executive's federal, state, and local income tax returns for the period in which the Executive receives such 19 Gross-Up Payment to be prepared and filed in accordance with such statement, and upon such filing, the Executive shall certify in writing to the Company that such returns have been so prepared and filed. At the Executive's request, the Company shall furnish to the Executive, at no cost to the Executive, assistance in preparing the Executive's federal, state, and local income tax returns for the period in which the Executive receives such Gross-Up Payment in accordance with such statement. Notwithstanding the provisions of Section 15(a), the Company shall not be obligated to indemnify the Executive from and against any tax liability, cost or expense (including, without limitation, any liability for the Excise Tax or attorneys' fees or costs) to the extent such tax liability, cost or expense is attributable to the Executive's failure to comply with the provisions of the Section 15(b). (c) If any controversy arises between the Executive and a Taxing Authority with respect to the treatment on any return of the Gross-Up Amount, or of any payment the Executive receives from the Company as an Excess Parachute Payment, or with respect to any return which a Taxing Authority asserts should show an Excess Parachute Payment, including, without limitation, any audit, protest to an appeals authority of a Taxing Authority or litigation (a "Controversy"), the Company shall have the right, solely with respect to a Controversy, to direct the Executive to protest or contest any proposed adjustment or deficiency, initiate an appeals procedure with any Taxing Authority, commence any judicial proceeding, make any settlement agreement, or file a claim for refund of tax, and the Executive shall not take any of such steps without the prior written approval of the Company. If the Company elects, the Executive shall be represented in any Controversy by attorneys, accountants, and other advisors selected by the Company, and the Company shall pay the fees, costs and expenses of such attorneys, accountants, or advisors, and any tax liability the Executive may incur as a result of such payment. The Executive shall promptly notify the Company of any communication with a Taxing Authority, and the Executive shall promptly furnish to the Company copies of any written correspondence, notices, or documents received from a Taxing Authority relating to a Controversy. The Executive shall cooperate fully with the Company in the handling of any Controversy by furnishing to the Company any information or documentation relating to or bearing upon the Controversy; provided, however, that the Executive shall not be obligated to furnish to the Company copies of any portion of the Executive's tax returns which do not bear upon, and are not affected by, the Controversy. 20 (d) The Executive shall pay over to the Company, within ten (10) days after the Executive's receipt thereof, any refund the Executive receives from any Taxing Authority of all or any portion of the Gross-Up Payment or the Excise Tax, together with any interest the Executive receives from such Taxing Authority on such refund. For purposes of this Section 15(d), a reduction in the Executive's tax liability attributable to the previous payment of the Gross- Up Amount or the Excise Tax shall be deemed to be a refund. If the Executive would have received a refund of all or any portion of the Gross-Up Payment or the Excise Tax, except the a Taxing Authority offset the amount of such refund against other tax liabilities, interest, or penalties, the Executive shall pay the amount of such offset over to the Company together with the amount of interest the Executive would have received from the Taxing Authority if such offset had been an actual refund, within ten (10) days after receipt of notice from the Taxing Authority of such offset. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. /s/ Timothy D. Romani ------------------------------------- Timothy D. Romani, Executive DENVER ARENA COMPANY, LLC BY: ASCENT ENTERTAINMENT GROUP, INC. By /s/ Charlie Lyons ----------------------------------- Charlie Lyons Chairman, President and Chief Executive Officer GUARANTY Ascent Entertainment Group, Inc. hereby guarantees the performance of the obligations of Denver Arena Company, LLC (the "Company") in the Employment Agreement dated as of July 1, 1997 between the Company and Timothy D. Romani. ASCENT ENTERTAINMENT GROUP, INC. 21 By:/s/ Charlie Lyons ---------------------------------- Charlie Lyons Chairman, President and Chief Executive Officer 22 EXHIBIT A --------- DUTIES AND RESPONSIBILITIES TIMOTHY D. ROMANI President and General Manager, Arena Project (a) General responsibility for the design and construction of the Arena Project in accordance with policies and procedures of the Company and Ascent, including (i) selecting and managing all personnel and professional service contracts necessary to the project, (ii) establishing and maintaining project budgets, accounts and schedules, (iii) securing all government approvals required for project execution, (iv) in consultation with the President and CEO and Executive Vice President, Chief Operating Officer and Chief Financial Officer of Ascent, selecting and arranging for project financing, (v) coordinating all project consultants, designers and contractors for project planning and execution, (vi) determining staffing requirements, selecting and managing all administrative staff, (vii) furnishing periodic reports to the President and CEO and Executive Vice President and Chief Operating Officer of Ascent which describe the project status with specific information pertaining to budget, schedule, requisitions and forecast, and (viii) coordinating and overseeing all project pre-opening and start- up activities. (b) Upon completion of the Arena Project, general responsibility for the management and operations of the facilities, including, 23 (i) placing Arena Project in service and managing operations of the facilities including determining staffing requirements, recruitment, selection, and hiring of all staff and consultants necessary for the full usage and function of the facilities, and (ii) such other facility development or related duties as agreed upon by the Executive and the President and CEO of Ascent in accordance with this Agreement. 24 EXHIBIT B --------- COMPLETION DATE In connection with the provisions of Section 2(b)(ii)(D) of this Agreement, the Completion Date is hereby established as October 1, 1999. This Completion Date anticipates a construction start no later than October 31, 1997 and any delay to that construction start date will require an adjustment to the Completion Date to be mutually agreed upon by the parties. 25 EXHIBIT C --------- PROJECT BUDGET In connection with the provisions of Section 2(b)(ii)(E) of this Agreement, the Project Budget is hereby established at $139,250,000.00. The following itemization is intended to provide a general and flexible breakdown of the Project Budget and is not to be utilized, in any way, toward interpreting the provisions of Section 2(b)(ii)(E): Construction Hard Costs $ 94,750,000 Concession Build-out $ 7,350,000 Arena FFE 4,500,000 Scoreboard 4,500,000 Permits, Testing & Fees 1,500,000 Construction Management 4,500,000 Architectural, Engineering & Consultants 8,400,000 Legal Services 2,150,000 Start-Up Consultants 700,000 Sales & Marketing Costs 800,000 Pre-Opening Administrative Costs 1,000,000 Property Tax During Construction 850,000 Insurance Fees During Construction 2,250,000 Project Contingency $ 6,000,000 TOTAL PROJECT BUDGET $139,250,000 This budget excludes capitalized interest costs and payments made in connection with acquiring the interests of The Anschutz Corporation in the Arena Project. This budget assumes a groundbreaking on or before October 31, 1997 and a completion date of October 1, 1999. Any material revision to this construction schedule would require an adjustment to this budget, to be mutually agreed upon by the parties to this Agreement. 26 EX-10.16 8 SALE & SERVICING AGREEMENT EXHIBIT 10.16 THIS INSTRUMENT PREPARED BY AND AFTER RECORDING RETURN TO: Cadwalader, Wickersham & Taft 100 Maiden Lane New York, New York 10038 Attention: Linda Grant Williams, Esq ================================================================================ SALE AND SERVICING AGREEMENT Dated as of July 29, 1998 among DENVER ARENA TRUST (Issuer Trust) and ASCENT ARENA COMPANY, LLC (Transferor and Servicer) and THE BANK OF NEW YORK (Indenture Trustee) DENVER ARENA TRUST ARENA REVENUE BACKED NOTES ================================================================================ TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS ----------- Section 1.01 Definitions.............................................................................. 1 Section 1.02 Other Definitional Provisions............................................................ 1 ARTICLE II CONVEYANCE OF THE TRUST ASSETS ------------------------------ Section 2.01 Conveyance of the Trust Assets........................................................... 2 Section 2.02 Ownership and Possession of Contract Files............................................... 2 Section 2.03 Books and Records........................................................................ 3 Section 2.04 Delivery of Trust Asset Documents........................................................ 3 Section 2.05 Acceptance by the Indenture Trustee of the Trust Assets; Certification by the Custodian.. 4 Section 2.06 Construction and Operation of New Arena Facility......................................... 5 Section 2.07 Transferor Indemnities................................................................... 7 ARTICLE III REPRESENTATIONS AND WARRANTIES ------------------------------ Section 3.01 Representations and Warranties of the Transferor......................................... 7 Section 3.02 Representations and Warranties of the Servicer.......................................... 11 Section 3.03 Transferor's Obligation to Cure......................................................... 12 ARTICLE IV ADMINISTRATION AND SERVICING ---------------------------- Section 4.01 Duties of the Servicer.................................................................. 13 Section 4.02 Maintenance of Filings.................................................................. 15 Section 4.03 Subsequent Revenue Agreements........................................................... 16 Section 4.04 Subservicing............................................................................ 16 Section 4.05 Successor Servicers..................................................................... 18 Section 4.06 144A Information........................................................................ 18 Section 4.07 Administrative Duties of Servicer....................................................... 18
-i- ARTICLE V ESTABLISHMENT OF TRUST ACCOUNTS ------------------------------- Section 5.01 Collection Account...................................................................... 20 Section 5.02 Distributions to Certificateholders and Noteholders..................................... 23 Section 5.03 Debt Service Coverage Account, Debt Service Reserve Account, Capitalized Interest Account, Construction Fund Account, Lease Reserve Account and Paying Account..................... 24 Section 5.04 Trust Accounts; Trust Account Property.................................................. 28 ARTICLE VI STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS ---------------------------------------------------- Section 6.01 Statements.............................................................................. 30 Section 6.02 Specification of Certain Tax Matters.................................................... 32 ARTICLE VII GENERAL SERVICING PROCEDURE --------------------------- Section 7.01 Security Interest....................................................................... 33 Section 7.02 Lockbox Agreement; Lockbox Account; Lockbox Bank........................................ 33 Section 7.03 Servicing Compensation.................................................................. 34 Section 7.04 Statement as to Compliance and Financial Statements..................................... 34 Section 7.05 Independent Public Accountants Servicing Report......................................... 35 Section 7.06 Right to Examine Servicer Records....................................................... 35 Section 7.07 Reports to the Indenture Trustee; Collection Account Statements......................... 36 Section 7.08 Financial Statements.................................................................... 36 Section 7.09 Accounting and Reports.................................................................. 36 ARTICLE VIII THE SERVICER ------------ Section 8.01 Indemnification; Third Party Claims..................................................... 37 Section 8.02 Merger or Consolidation of the Servicer................................................. 39 Section 8.03 Limitation on Liability of the Servicer and Others...................................... 39 Section 8.04 Servicer Not to Resign; Assignment...................................................... 40 Section 8.05 Relationship of Servicer to Issuer Trust and the Indenture Trustee...................... 40 Section 8.06 Servicer May Own Securities............................................................. 40
-ii- ARTICLE IX DEFAULT ------- Section 9.01 Servicer Events of Default.............................................................. 41 Section 9.02 Indenture Trustee to Act; Appointment of Successor...................................... 42 Section 9.03 Waiver of Defaults...................................................................... 44 Section 9.04 Accounting Upon Termination of Servicer................................................. 44 Section 9.05 Transferor Defaults..................................................................... 44 ARTICLE X TERMINATION ----------- Section 10.01 Termination............................................................................. 45 Section 10.02 Notice of Termination................................................................... 46 ARTICLE XI MISCELLANEOUS PROVISIONS ------------------------ Section 11.01 Acts of Noteholders..................................................................... 46 Section 11.02 Amendment............................................................................... 46 Section 11.03 Recordation of Agreement................................................................ 47 Section 11.04 Duration of Agreement................................................................... 47 Section 11.05 Governing Law........................................................................... 47 Section 11.06 Notices................................................................................. 47 Section 11.07 Severability of Provisions.............................................................. 48 Section 11.08 No Partnership.......................................................................... 48 Section 11.09 Counterparts............................................................................ 48 Section 11.10 Successors and Assigns.................................................................. 48 Section 11.11 Headings................................................................................ 48 Section 11.12 Actions of Securityholders.............................................................. 49 Section 11.13 Reports to Rating Agency................................................................ 49 Section 11.14 Certificateholders...................................................................... 50 Section 11.15 Limitation of Liability................................................................. 50 Section 11.16 Third Party Beneficiaries............................................................... 50 Section 11.17 Limitation on Recourse.................................................................. 50
-iii- EXHIBITS EXHIBIT A - List of Revenue Agreements EXHIBIT B - Form of Servicer's Remittance Report to Indenture Trustee EXHIBIT C - Construction Phase Agreement EXHIBIT D - Security Agreement [Excess Collateral] EXHIBIT E - Operating and Management Agreement EXHIBIT F - Legal Description of the Property -iv- This Sale and Servicing Agreement is entered into effective as of July 29, 1998, among DENVER ARENA TRUST, a Delaware business trust (the "Issuer ------ Trust"), ASCENT ARENA COMPANY, LLC, a Colorado limited liability company as - ----- Transferor (in such capacity, the "Transferor") and Servicer (in such capacity, ---------- the "Servicer"), and THE BANK OF NEW YORK, a New York banking corporation, as -------- Indenture Trustee on behalf of the Noteholders (in such capacity, the "Indenture --------- Trustee"). - ------- W I T N E S S E T H: In consideration of the mutual agreements herein contained, the Issuer Trust, the Transferor, the Servicer and the Indenture Trustee hereby agree as follows for the benefit of each of them and for the benefit of the holders of the Notes and the Trust Certificates issued hereunder: ARTICLE I DEFINITIONS ----------- Section 1.01 Definitions. ----------- Except as otherwise expressly provided herein, capitalized terms used herein shall have the meanings assigned to such terms in Appendix A attached ---------- hereto. Section 1.02 Other Definitional Provisions. ----------------------------- (a) All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (b) As used in this Agreement and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such certificate or other document, and accounting terms partly defined in this Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms in this Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under GAAP, the definitions contained in this Agreement or in any such certificate or other document shall control. (c) The words "hereof," "herein," "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and Article, Section, Schedule and Exhibit references contained in this Agreement are references to Articles, Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified. F-1 (d) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. (e) Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; references to a Person are also to its permitted successors and assigns. ARTICLE II CONVEYANCE OF THE TRUST ASSETS ------------------------------ Section 2.01 Conveyance of the Trust Assets. ------------------------------ (a) As of the Closing Date, in consideration of the Issuer Trust's delivery of cash to be disbursed pursuant to the Construction Phase Agreement and the Trust Certificates to the Transferor or its designee, the Transferor, concurrently with the execution and delivery hereof, does hereby sell, transfer, assign, set over and otherwise convey to the Issuer Trust, without recourse, but subject to the other terms and provisions of this Agreement, all of the right, title and interest of the Transferor in and to the Trust Assets. (b) As of the Closing Date, the Issuer Trust acknowledges the conveyance to it of the Trust Assets, including all right, title and interest of the Transferor in and to the Trust Assets, receipt of which is hereby acknowledged by the Issuer Trust. Concurrently with such delivery and in exchange therefor, pursuant to the Indenture and the Security Agreement [Indenture Trustee], the Issuer Trust has collaterally assigned the Trust Estate to the Indenture Trustee, and has executed and caused the Notes to be authenticated and delivered by the Indenture Trustee to the Noteholders upon the order of the Issuer Trust. In addition, the Issuer Trust, pursuant to the instructions of the Transferor, has executed and caused the Trust Certificates to be authenticated and delivered to the Transferor or its designee, upon the order of the Transferor. Section 2.02 Ownership and Possession of Contract Files. ------------------------------------------ Upon the issuance of the Notes, the ownership of each Trust Asset and the contents of the related Indenture Trustee's Contract File shall be vested in the Issuer Trust and collaterally assigned to the Indenture Trustee for the benefit of the Noteholders, and the Custodian shall take possession of the Indenture Trustee's Contract Files as contemplated in Section 2.05 hereof. ------------ Possession of the Servicer's Contract Files on behalf of and for the benefit of the Noteholders shall remain with the Servicer. F-2 Section 2.03 Books and Records. ----------------- Each of the Servicer and the Custodian shall be responsible for maintaining, and shall maintain, a complete set of books and records for each Trust Asset which shall be clearly marked to reflect the ownership of each Trust Asset by the Issuer Trust and the pledge of each Trust Asset to the Indenture Trustee for the benefit of the Noteholders. It is the intention of the parties hereto that the transfers and assignments contemplated by this Agreement shall constitute a sale of the Trust Assets from the Transferor to the Issuer Trust and such property shall not be property of the Transferor. If the assignment and transfer of the Trust Assets to the Issuer Trust pursuant to this Agreement or the conveyance of the Trust Assets is held or deemed not to be a sale or is held or deemed to be a pledge of security for a loan, the Transferor intends that the rights and obligations of the parties shall be established pursuant to the terms of this Agreement and that, in such event, (i) the Transferor shall be deemed to have granted and does hereby grant to the Issuer Trust a first priority security interest in the entire right, title and interest of the Transferor in and to the Trust Assets and all proceeds thereof and (ii) this Agreement shall constitute a security agreement under applicable law. On the Closing Date, the Transferor shall cause to be filed UCC-1 financing statements naming the Issuer Trust as the "secured party" and describing the Trust Assets being sold by the Transferor to the Issuer Trust with the office of the Secretary of State of Colorado and in such other offices as may be required to perfect the security interests granted under this Section 2.03, within or without the State of Colorado, under the Uniform Commercial Code as in effect in the State of Colorado. Section 2.04 Delivery of Contract Files and Other Conditions to -------------------------------------------------- Closing. - ------- The parties hereby agree that the obligation of the Issuer Trust to (i) disburse the purchase price to be paid to the Transferor in accordance with the Construction Phase Agreement and (ii) issue the notes pursuant to the Indenture, is subject to the fulfillment of each of the following conditions on the Closing Date: (a) The Transferor shall deliver or cause to be delivered to the Custodian, as the designated agent of the Indenture Trustee, each of the following documents (collectively, the "Indenture Trustee's Contract Files"): ---------------------------------- (i) the originally executed version of each Revenue Agreement, including all then existing schedules and exhibits thereto, (ii) the originally executed version of each Pledged Contract, including all then existing schedules and exhibits thereto, and each Security Document (including conformed copies of the recorded Construction Phase Mortgage and Assignment of Construction Phase Mortgage, including all then existing schedules and exhibits thereto), and (iii) all Insurance Policies and the originally executed payment and performance bonds naming the Issuer Trust or the Indenture Trustee as additional insureds, loss payees or dual obligees, as applicable. The Indenture Trustee shall cause the Custodian to take and maintain continuous physical possession of the Indenture Trustee's Contract Files in the State of New York and, in connection therewith, shall act solely as agent for the Noteholders in accordance with the terms hereof and not as agent for the Transferor or any other party. F-3 (b) The Transferor shall deliver or cause to be delivered to the Servicer each of the following documents (collectively, the "Servicer's Contract ------------------- Files"): copies of the Revenue Agreements, the Pledged Contracts and the - ----- Security Documents, including all then existing schedules and exhibits attached thereto. (c) The Transferor, at its own expense, shall record this Agreement, a Declaration and Notice of Rights, the Easement Agreement [Luxury Suite License Agreements], the Easement Agreement [Major Revenue Agreements], and an Assignment and Conveyance with respect to each Revenue Agreement (which may be a blanket assignment if permitted by applicable law) in the appropriate records. The Transferor shall also record in Colorado the Construction Phase Mortgage and the other documents specified in Section 3.04 of the Construction Phase Agreement. The original of this Agreement and each Security Document recorded shall be returned to the Indenture Trustee for inclusion in the Indenture Trustee's Contract Files. In the event that any such document is lost or returned unrecorded because of a defect therein, the Transferor shall promptly prepare a substitute document or cure such defect, as the case may be, and thereafter the Transferor shall be required to submit each such document for recording. (d) All conditions precedent to the Issuer Trust's obligation to enter into the transactions contemplated herein and in the other Basic Documents and to make the initial disbursement under the Construction Phase Agreement as set forth in Article III of the Construction Phase Agreement shall have been satisfied. Section 2.05 Acceptance by the Indenture Trustee of the Trust Assets; -------------------------------------------------------- Certification by the Custodian. ------------------------------ (a) The Indenture Trustee agrees to cause the Custodian to execute and deliver on the Closing Date an acknowledgment of receipt of the Indenture Trustee's Contract Files. The Indenture Trustee declares that it will cause the Custodian to hold such documents and any amendments, replacements or supplements thereto, as well as any other assets included in the Trust Estate and delivered to the Custodian, in trust, upon and subject to the conditions set forth herein. The Indenture Trustee agrees to cause the Custodian to review the Indenture Trustee's Contract Files delivered to it and to cause the Custodian to deliver to the Transferor, the Indenture Trustee, the Issuer Trust and the Servicer, within five Business Days after the Closing Date, a certification (the "Custodian's Certification") to the effect that (i) all documents required to be ------------------------- delivered to the Indenture Trustee pursuant to Section 2.04 are in the ------------ possession of the Custodian on the Indenture Trustee's behalf, and (ii) all documents delivered by the Transferor to the Custodian pursuant to Section 2.04 ------------ hereof have been reviewed by the Custodian and have not been mutilated or damaged and appear regular on their face (handwritten additions, changes or corrections shall not constitute irregularities if initialed by the Obligor). Neither the Issuer Trust nor the Custodian shall be under any duty or obligation to inspect, review or examine any such documents, instruments, certificates or other papers to determine that they are genuine, enforceable or appropriate for the represented purpose or that they are other than what they purport to be on their face. In performing any such review, the Custodian may conclusively rely on the Transferor as to the purported genuineness of any such F-4 document and any signature thereon. Neither the Issuer Trust nor the Custodian shall have any responsibility for determining whether any document is valid and binding, whether the text of any assignment or endorsement is in proper or recordable form, whether any document has been recorded in accordance with the requirements of any applicable jurisdiction or whether a blanket assignment is permitted in any applicable jurisdiction. If a material defect in a document constituting part of the Indenture Trustee's Contract Files is discovered, then the Transferor shall comply with the cure provisions of Section 3.03 hereof. ------------ (b) The Servicer's Contract Files shall be held in the custody of the Servicer for the benefit of, and as agent for, the Noteholders and the Indenture Trustee for so long as the Indenture continues in full force and effect; after the Indenture is terminated in accordance with the terms thereof, the Servicer's Contract Files shall be held in the custody of the Servicer for the benefit of, and as agent for, the Certificateholders. The Servicer shall promptly report to the Indenture Trustee any failure by it to hold the Servicer's Contract Files as herein provided and shall promptly take appropriate action to remedy any such failure. In acting as custodian of such documents, the Servicer agrees not to assert any legal or beneficial ownership interest in the Trust Assets. The Servicer agrees to indemnify the Securityholders, the Indenture Trustee, and the Owner Trustee for any and all liabilities, obligations, losses, damages, payments, costs or expenses of any kind whatsoever which may be imposed on, incurred by or asserted against the Indenture Trustee, the Securityholders or the Owner Trustee as the result of any act or omission by the Servicer relating to the maintenance and custody of such documents which have been delivered to the Servicer; provided, however, that the Servicer will not be liable for any portion of any such amount resulting from the gross negligence or misconduct of any Securityholder, the Owner Trustee or the Indenture Trustee; and provided, further, that the Servicer will not be liable for any portion of any such amount resulting from the Servicer's compliance with any instructions or directions consistent with this Agreement issued to the Servicer by the Indenture Trustee or the Owner Trustee. The Indenture Trustee shall have no duty to monitor or otherwise oversee the Servicer's performance as custodian hereunder. Section 2.06 Construction and Operation of New Arena Facility. ------------------------------------------------ (a) The Transferor hereby agrees, for the benefit of the Issuer Trust, the Servicer, the Indenture Trustee and the Noteholders, that it shall complete the construction of the New Arena Facility in a timely manner in accordance with and pursuant to the terms and conditions of this Agreement, the Arena Agreement and the Construction Phase Agreement and shall cause the Teams to play all home games at the New Arena Facility in accordance with the Team Commitments and cause the New Arena Facility to be operated and maintained by the Operator (as defined below) in accordance with the Operating and Management Agreement, a copy of which is attached as Exhibit E hereto, the Arena Agreement --------- and the Lease. The Transferor has appointed its Affiliate, Ascent Arena Operating Company, Inc., as the Operator (the "Operator"), under the Operating and Management Agreement. (b) The Construction Phase Mortgage (and upon its release and the conveyance of the Property to the City, the Leasehold Mortgage), is being executed and F-5 delivered, and all material contracts related to the construction and operation of the New Arena Facility are being pledged by the Transferor to the Issuer Trust to secure the performance of the Transferor of its obligations under Section 2.06 (a) above pursuant to the Security Agreement [Excess Collateral] - ---------------- and the Assignment of Pledged Contracts. The Issuer Trust's interests in such Pledged Contracts together with the Issuer Trust's interests under the Construction Phase Mortgage, the Revenue Agreements and the Revenue Agreement Rights, are further pledged to the Indenture Trustee pursuant to the Security Agreement [Indenture Trustee] and the Assignment of Pledged Contracts [Indenture Trustee] to secure the Issuer Trust's obligation to repay the Notes. (c) When (i) the construction of the New Arena Facility has been completed, (ii) the Construction Consultant has so certified to the Issuer Trust and the Indenture Trustee, (iii) the Certificate of Substantial Completion has been delivered by the Transferor to the City, (iv) all conditions to conveyance of the Property as set forth in Section 3.6.1 of the Arena Agreement have been satisfied or waived by the City, (v) the Issuer Trust and the Indenture Trustee have received from a title insurance company satisfactory to them, either (A) a paid title insurance policy in respect of the Leasehold Mortgage or (B) an irrevocable agreement satisfactory to the Issuer Trust and the Construction Consultant from such company to issue a paid title insurance policy upon recordation of the Leasehold Mortgage, in either case such policy shall be in form and substance satisfactory to the Issuer Trust and the Construction Consultant, and shall contain such endorsements and reinsurance agreements as they shall require, together with an as-built ALTA survey of the real property described in Exhibit A to the Leasehold Mortgage and the New Arena Facility and --------- other improvements located thereon, and (vi) all conditions precedent to the commencement of payments under the Revenue Agreements have been satisfied, waived or are otherwise reasonably likely to be satisfied; then the Indenture Trustee and the Issuer Trust shall release and reconvey the Construction Phase Mortgage to the Transferor and Nuggets LP, and require the execution, recordation and delivery of the Leasehold Mortgage in their favor in lieu thereof. If and when the Issuer Trust has been replaced by a New Qualified Mortgagee, and such New Qualified Mortgagee has entered into the Intercreditor Agreement [New Qualified Mortgagee] then, and only then, shall the security interests in the Excess Collateral be released in whole at the Transferor's expense; otherwise, they shall remain in full force and effect. No release of the Excess Collateral other than as described herein shall be valid unless executed by the Indenture Trustee. The Indenture Trustee and the Issuer Trust, upon the Transferor's written request and at the Transferor's expense, shall deliver to the Transferor all documents reasonably necessary to evidence such release. (d) The parties hereby agree that the amount of damages that will be incurred by the Issuer Trust if the Transferor does not perform its obligations hereunder and thereby causes a Transferor Default to occur is indefinite and difficult to ascertain. Accordingly, the parties hereby agree that in the event that the Transferor does not perform such obligations, subject to Section 11.17 ------------- hereof, the Transferor shall pay to the Issuer Trust, as liquidated damages, an amount equal to the Outstanding Amount, any unpaid interest and costs and expenses of any enforcement. F-6 Section 2.07 Transferor Indemnities ---------------------- The Transferor hereby agrees that it shall be obligated to return all security deposits received by it under the Luxury Suite License Agreements and any other cash payments or deposits received by it under any of the other Revenue Agreements pursuant to the terms of such agreements and agrees to indemnify and hold harmless the Issuer Trust against any and all claims or damages with respect to such cash payments or deposits. The Transferor further agrees that to the extent it has received cash payments or deposits which are subject to return or forfeiture under any of the Pledged Contracts, or to the extent it is obligated to indemnify any Pledged Contract Obligor under any of the Pledged Contracts, the Transferor shall indemnify and hold harmless the Issuer Trust against any and all claims or damages with respect to such cash payments or deposits or such indemnity obligations. ARTICLE III REPRESENTATIONS AND WARRANTIES ------------------------------ Section 3.01 Representations and Warranties of the Transferor. ------------------------------------------------ The Transferor hereby represents and warrants to the Servicer, the Indenture Trustee, the Noteholders and the Issuer Trust that as of the Closing Date (except as otherwise specifically provided herein): (a) The Transferor is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Colorado, with full power and authority to own its assets and to conduct its business as such assets are currently owned and such business is presently conducted and has all licenses necessary to carry on its business as now being conducted, and has, and had at all relevant times, full corporate power to execute and deliver each of the Initial Revenue Agreements, the Pledged Contracts, the Construction Phase Agreement and the Security Documents to which it is a party; the Transferor has the power and authority to execute and deliver this Agreement and to perform in accordance herewith; the execution, delivery and performance of this Agreement (including all instruments of transfer to be delivered pursuant to this Agreement) by the Transferor and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action of the Transferor; this Agreement evidences the valid, binding and enforceable obligation of the Transferor; and all requisite action has been taken by the Transferor to make this Agreement valid, binding and enforceable upon the Transferor in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally or the application of equitable principles in any proceeding, whether at law or in equity; (b) The Transferor is duly qualified to do business and is in good standing, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its assets or the conduct of its business shall require such qualifications; F-7 (c) The consummation of the transactions contemplated by this Agreement will not result in (i) the breach of any terms or provisions of the articles of organization or operating agreement of the Transferor, (ii) the breach of any term or provision of, or conflict with or constitute a default under or result in the acceleration of any obligation under, any material agreement, indenture, loan or credit agreement or other material instrument to which the Transferor or its assets is subject, or (iii) the violation of any law, rule, regulation, order, judgment or decree to which the Transferor or its assets is subject; (d) The Transferor is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental agency, which default might reasonably be expected to have a materially adverse effect on the condition (financial or otherwise) or operations of the Transferor or its assets or that would reasonably be expected to have a materially adverse effect on its performance hereunder; (e) Each of the Initial Revenue Agreements, the Pledged Contracts and the Security Documents to which it is a party has been duly and validly authorized, executed and delivered by the Transferor and constitutes a legal, valid and binding obligation of the Transferor, enforceable against the Transferor in accordance with its terms subject as to enforceability to applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law); (f) There are no actions or proceedings against, or investigations of, the Transferor currently pending with regard to which the Transferor has received service of process and no action or proceeding against, or investigation of, the Transferor is, to the knowledge of the Transferor, threatened or otherwise pending before any court, administrative agency or other tribunal that (A) if determined adversely, would prohibit its entering into this Agreement or render the Notes invalid, (B) seek to prevent the issuance of the Notes or the consummation of any of the transactions contemplated by this Agreement or (C) if determined adversely, would prohibit or materially and adversely affect (i) the ability of the Transferor to perform its obligations hereunder and under the Initial Revenue Agreements, the Pledged Contracts, and the Security Documents to which it is a party, (ii) the sale of the Trust Assets to the Issuer Trust or (iii) the performance by the Transferor of its obligations under, or the validity or enforceability of, this Agreement or the Notes; (g) No consent, approval, authorization or order of any court or governmental agency or body, other than the City pursuant to the Arena Agreement, is required for: (1) the execution, delivery and performance by the Transferor of, or compliance by the Transferor with, this Agreement, the Initial Revenue Agreements, the Pledged Contracts and the Security Documents to which it is a party, (2) the issuance of the Notes, and (3) the sale of the Trust Assets under this Agreement and the consummation of the transactions required of it by this Agreement, except such as shall have been obtained on or before the Closing Date; F-8 (h) No Officer's Certificate, statement, report or other document prepared by the Transferor and furnished or to be furnished by it pursuant to this Agreement or the other Basic Documents contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading; and the information pertaining to each Revenue Agreement set forth on Exhibit A hereto is true and accurate in all --------- material respects; (i) The Transferor is solvent, is able to pay its debts as they become due and has capital sufficient to carry on its business and its obligations hereunder; it will not be rendered insolvent by the execution and delivery of this Agreement or by the performance of its obligations hereunder; and no petition of bankruptcy (or similar insolvency proceeding) has been filed by or against the Transferor prior to the date hereof; (j) The Transferor has transferred the Trust Assets without any intent to hinder, delay or defraud any of its creditors; (k) The Transferor is the lawful owner of the Trust Assets with the full right to transfer the Trust Assets free from any and all claims and encumbrances whatsoever, except for the City's subordinate Lien under the Arena Agreement as described in the City Intercreditor Agreements, and the Trust Assets, upon the transfer thereof to the Issuer Trust as contemplated herein, will be free and clear of all liens, claims and encumbrances, except for the City's subordinate Lien under the Arena Agreement as described in the City Intercreditor Agreements; this Agreement constitutes a valid sale, transfer, assignment, and conveyance to the Issuer Trust of all right, title, and interest of the Transferor in, to, and under all the Trust Assets now existing and hereafter created, and any related agreements under which the Trust Assets arose or will arise, all moneys due or to become due with respect thereto and all proceeds (as defined in the UCC as in effect in New York and all of the states where the Transferor's chief executive office or books and records relating to the Trust Assets are located) of such Trust Assets and any property relating thereto, and such property will be held by the Issuer Trust free and clear of any Lien of any Person claiming through or under the Transferor, except for the City's subordinate Lien under the Arena Agreement as described in the City Intercreditor Agreements; (l) All filings and recordings required to perfect the title of the Issuer Trust to the Trust Assets purchased hereunder have been accomplished and are in full force and effect, and the Transferor shall at its expense perform all acts and execute all documents requested by the Issuer Trust, the Servicer or the Indenture Trustee at any time to evidence, perfect, maintain, and enforce the title of the Issuer Trust in such Trust Assets and the security interest of the Issuer Trust in the Excess Collateral and the security interest and priority of the Indenture Trustee in the Collateral, including filing of continuation statements as required by applicable state law; the Transferor will, at the reasonable request of the Issuer Trust, the Servicer, or the Indenture Trustee, execute and file additional financing statements reasonably satisfactory in form and substance to the Servicer, the Issuer Trust or the Indenture Trustee, as the case may be; F-9 (m) Each Initial Revenue Agreement and Pledged Contract (i) contains all of the understandings and agreements between the Transferor and the related Obligor with respect to the subject matter thereof, (ii) is in existence and in full force and effect as of the Closing Date, and (iii) has not been modified or amended, and the provisions have not been waived at any time since the effective date of such Initial Revenue Agreement and Pledged Contract; (n) No default exists under the terms of any of the Initial Revenue Agreements, and all Required Payments due on or prior to the Closing Date have been made in full by the related Revenue Contractor; (o) There are no offsets, counterclaims or other defenses available to the Revenue Contractor under any Initial Revenue Agreement against the Transferor; (p) Except as otherwise expressly disclosed in a letter addressed to the Issuer Trust (i) the Property has been evaluated by environmental investigations and studies as disclosed in the VCUP; (ii) Hazardous Materials at the Property are being addressed pursuant to the VCUP; (iii) the VCUP was reviewed and approved by the CDPHE pursuant to Colorado's Voluntary Cleanup & Redevelopment Act; and (iv) EPA reviewed an earlier version of the VCUP which did not include certain additional source removal work, concurred with the cleanup and monitoring proposals set forth therein, and concluded that under the circumstances, EPA intervention under CERCLA and the federal Clean Water Act was not warranted. (q) The New Arena Facility is covered by customary hazard insurance policies, special hazard insurance policies, general and specific liability insurance policies and such other insurance policies as are customary and usual in the sports arena industry and for the jurisdiction in which the New Arena Facility is located; all Insurance Policies relating to the New Arena Facility have been issued by an insurer rated at least "A6" by A.M. Best, and such Insurance Policies are in full force and effect, have been issued in amounts which are customary and usual in the sports arena industry and for the jurisdiction in which the New Arena Facility is located, and name the Issuer Trust and the Indenture Trustee as loss payees thereunder to the extent of the Outstanding Amount of the Notes; (r) Any and all requirements of any federal, state or local law applicable to the Initial Revenue Agreements and Pledged Contracts and the use, operation, maintenance and construction of the New Arena Facility have been complied with in all material respects to the extent now required; and (s) Upon the execution and delivery of this Agreement by the parties hereto, the Issuer Trust, or its designees, will have the sole and exclusive right and authority to enter into any Subsequent Revenue Agreement, subject to the City Intercreditor Agreements. It is understood and agreed that the representations and warranties set forth in this Section 3.01 shall survive delivery of the Indenture Trustee's ------------ Contract Files to the Custodian (as the agent of the Indenture Trustee), the conveyance of the Trust Assets to the Issuer Trust, the grant of a security interest in the Trust Assets to the Indenture Trustee and the F-10 issuance of the Notes, and shall inure to the benefit of the Noteholders, the Servicer, the Indenture Trustee, the Owner Trustee and the Issuer Trust. Upon discovery by any of the Transferor, the Servicer, the Indenture Trustee or the Issuer Trust of a breach of any of the foregoing representations and warranties that materially and adversely affects the value of any Trust Asset or the interests of the Noteholders therein, the party discovering such breach shall give prompt written notice (but in no event later than two Business Days following such discovery) to the other parties. The obligations of the Transferor set forth in Section 3.03 hereof to cure any breach shall constitute ----------- the sole remedy available hereunder to the Noteholders, the Servicer, the Indenture Trustee or the Issuer Trust respecting a breach of the representations and warranties contained in this Section 3.01. ------------ Section 3.02 Representations and Warranties of the Servicer. ---------------------------------------------- The Servicer hereby represents and warrants to and covenants with the Issuer Trust, the Indenture Trustee, the Noteholders, and the Transferor that as of the Closing Date or as of such other date specifically provided herein: (a) The Servicer is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization, with full power and authority to own its assets and to conduct its business as such assets are currently owned and such business is presently conducted and has all licenses necessary to carry on its business as now being conducted; the Servicer has the power and authority to execute and deliver this Agreement and to perform in accordance herewith; the execution, delivery and performance of this Agreement by the Servicer and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action of the Servicer; this Agreement evidences the valid, binding and enforceable obligation of the Servicer; and all requisite action has been taken by the Servicer to make this Agreement valid, binding and enforceable upon the Servicer in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium and other, similar laws relating to or affecting creditors' rights generally or the application of equitable principles in any proceeding, whether at law or in equity; (b) The Servicer is duly qualified to do business and is in good standing, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its assets or the conduct of its business shall require such qualifications; (c) The consummation of the transactions contemplated by this Agreement will not result in (i) the breach of any terms or provisions of the organizational documents of the Servicer, (ii) the breach of any term or provision of, or conflict with or constitute a default under or result in the acceleration of any obligation under, any material agreement, indenture, loan or credit agreement or other material instrument to which the Servicer, its members or its assets is subject, or (iii) the violation of any law, rule, regulation, order, judgment or decree to which the Servicer or its members or its assets is subject; (d) The Servicer is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental agency, which default might have consequences that would materially and F-11 adversely affect the condition (financial or otherwise) or operations of the Servicer, its members or its assets or might have consequences that would materially and adversely affect its performance hereunder; (e) There are no actions or proceedings against, or investigations of, the Servicer currently pending with regard to which the Servicer has received service of process and no action or proceeding against, or investigation of, the Servicer is, to the knowledge of the Servicer, threatened or otherwise pending before any court, administrative agency or other tribunal that (A) if determined adversely, would prohibit its entering into this Agreement or render the Notes invalid, (B) seek to prevent the issuance of the Notes or the consummation of any of the transactions contemplated by this Agreement or (C) if determined adversely, would prohibit or materially and adversely affect the performance by the Servicer of its obligations under, or the validity or enforceability of, this Agreement or the Notes; (f) No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by the Servicer of, or compliance by the Servicer with, this Agreement, or for the consummation of the transactions contemplated by this Agreement, except for such consents, approvals, authorizations and orders, if any, that have been obtained prior to the Closing Date; (g) The Servicer is an Eligible Servicer and shall service and administer contracts and receivables in accordance with Accepted Servicing Procedures; (h) No Officer's Certificate, statement, report or other document prepared by the Servicer and furnished or to be furnished by it pursuant to this Agreement or any other Basic Document contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading; and (i) The Servicer is solvent and will not be rendered insolvent as a result of the performance of its obligations pursuant to this Agreement; It is understood and agreed that the representations and warranties set forth in this Section 3.02 shall survive delivery of the Indenture Trustee's ------------ Contract Files to the Indenture Trustee and shall inure to the benefit of the Issuer Trust, the Transferor, the Noteholders, the Indenture Trustee and the Owner Trustee. Upon discovery by any of the Transferor, the Servicer, the Indenture Trustee or the Issuer Trust of a breach of any of the foregoing representations and warranties that materially and adversely affects the value of any Trust Asset or the interests of the Noteholders therein, the party discovering such breach shall give prompt written notice (but in no event later than two Business Days following such discovery) to the other parties. Section 3.03 Transferor's Obligation to Cure. ------------------------------- (a) Upon discovery by the Servicer, the Transferor, the Custodian, the Issuer Trust, the Indenture Trustee or any Noteholder of a breach of any of the representations and warranties set forth in Section 3.01, or a deficiency in ------------ the documents delivered pursuant to F-12 Section 2.04(a) hereof, which materially and adversely affects the value of the Trust Assets or the interests of the Noteholders in the related Trust Asset (each such Trust Asset, a "Defective Trust Asset"), the party discovering such --------------------- breach or the failure to deliver a document shall give prompt written notice to the others. The Transferor shall promptly, but in any event within 60 days of the earlier of its discovery or its receipt of notice of any breach of a representation or warranty or document deficiency, cure such breach in all material respects. (b) It is understood and agreed that the obligation of the Transferor set forth in this Section 3.03 to cure a Defective Trust Asset constitutes the ------------ sole remedy hereunder of the Indenture Trustee, the Issuer Trust, the Servicer and the Noteholders respecting a breach of the representations and warranties contained in Section 3.01 hereof, or the failure to deliver a document pursuant ------------ to Section 2.04(a). Any cause of action against the Transferor relating to or arising out of a defect in any Indenture Trustee's Contract File as contemplated by Section 2.05 hereof or against the Transferor relating to or arising out of a ------------ breach of any representations and warranties made in Section 3.01 hereof shall ------------ accrue as to any Trust Asset upon (i) discovery of such defect or breach by any party and notice thereof to the Transferor or notice thereof by the Transferor to the Indenture Trustee, and (ii) failure by the Transferor to cure such defect or breach as specified above. (c) Neither the Issuer Trust nor the Indenture Trustee shall have any duty to conduct any affirmative investigation other than as specifically set forth in this Agreement as to the occurrence of any condition requiring the cure of any breach of a representation and warranty pursuant to this Section or the eligibility of any Trust Asset for purposes of this Agreement. ARTICLE IV ADMINISTRATION AND SERVICING ----------------------------- Section 4.01 Duties of the Servicer. ---------------------- (a) Servicing Standard. The Servicer, as an independent contractor, ------------------ shall service and administer (or cause a Subservicer to service and administer) the Trust Assets in accordance with and as described in this Agreement, the Indenture, the Operating and Management Agreement, the Construction Phase Agreement, the Security Documents and the Revenue Agreements and shall have full power and authority, acting alone, to do any and all things in connection with such servicing and administration which the Servicer may deem necessary or desirable and consistent with the terms of this Agreement, the Indenture, the Operating and Management Agreement, the Construction Phase Agreement, the Security Documents and the Revenue Agreements and the ordinary servicing and administrative practices of prudent institutions administering assets similar to the Trust Assets. Notwithstanding anything to the contrary contained herein, the Servicer, in servicing and administering the Trust Assets, shall employ or cause to be employed procedures (including collection, foreclosure, liquidation and management and liquidation procedures) and exercise the same care that it customarily employs and exercises in servicing and administering assets of F-13 the same type as the Trust Assets for its own account, all in accordance with Accepted Servicing Procedures of prudent owners and servicers of assets of the same type as the Trust Assets and giving due consideration to the Noteholders' reliance on the Servicer. The Servicer has and shall maintain the facilities, procedures and experienced personnel necessary to comply with the servicing standard set forth in this subsection (a) and the duties of the Servicer set forth in this Agreement and the Indenture relating to the servicing and administration of the Trust Assets. In performing its obligations hereunder and under the Indenture and the Operating and Management Agreement, the Servicer shall at all times act in good faith in a commercially reasonable manner in accordance with applicable law and the Contracts. Notwithstanding any provision to the contrary herein, neither the Servicer nor any Subservicer on behalf of the Servicer shall have any obligation to advance its own funds for any delinquent payments under any Revenue Agreement. (b) Enforcement, Waivers, Modifications and Extensions. The Servicer -------------------------------------------------- shall make reasonably diligent efforts to collect all payments called for under the terms and provisions of the Contracts, enforce the Obligors' obligations under their respective Contracts, manage the New Arena Facility in accordance with the Revenue Agreements, and administer the Operating and Management Agreement and the Revenue Agreement Rights and shall, to the extent such procedures shall be consistent with this Agreement, the Operating and Management Agreement and the Indenture, follow Accepted Servicing Procedures. On behalf of the Noteholders, the Servicer shall use all reasonable efforts, consistent with Accepted Servicing Procedures, to enforce, and maintain rights in respect of, the Contracts. The Servicer may in its discretion extend the Due Date with respect to any Required Payment for a period (with respect to each payment as to which the Due Date is extended) not greater than 30 days after the initially scheduled due date for such Required Payment (including within such maximum 30 day grace period, any grace periods set forth in any Revenue Agreement). The Servicer shall have the right, on behalf of and in the name of the Issuer Trust, to amend, modify or restate any of the Revenue Agreements; provided, however, that if in the reasonable judgment of the Servicer, such amendment, modification or restatement (i) could reasonably be expected to materially impair the operation of the New Arena Facility, or (ii) is likely to cause any Revenue Contractor to be entitled to reduce, interrupt or terminate its payment obligations under its Revenue Agreement (as such payment obligations are set forth in each such Revenue Agreement sold to the Issuer Trust and delivered to the Indenture Trustee on the Closing Date), the Servicer shall obtain the express prior written consent thereto of the Issuer Trust and the Indenture Trustee. Immediately following delivery of the Revenue Agreements by the Servicer, on behalf of the Issuer Trust, to the Indenture Trustee or its representative, on the Closing Date, the Servicer shall execute amended and restated Revenue Agreements for each of Pepsi and Coors in such manner as to conform them to the form previously reviewed and approved by the transaction counsel prior to the Closing Date. (c) The Servicer shall service and administer the Trust Assets in accordance with applicable state and federal law and shall provide to the Obligors any reports required to be provided to them thereby. F-14 The Servicer shall cause to be performed any and all acts required to be performed by the Servicer to preserve the rights and remedies of the Issuer Trust and the Indenture Trustee in any Insurance Policies applicable to the Trust Assets or the New Arena Facility including, without limitation, in each case, any necessary notifications of insurers, assignments of policies or interests therein, and establishments of co-insured, joint loss payee and mortgagee rights in favor of the Issuer Trust and the Indenture Trustee. The Servicer agrees that, so long as it shall continue to serve in the capacity contemplated under the terms of this Agreement, it shall remain in good standing under the laws governing its creation and existence and qualified under the laws of each state in which it is necessary to perform its obligations under this Agreement or in which the nature of its business requires such qualification; it shall maintain all licenses, permits and other approvals required by any law or regulations as may be necessary to perform its obligations under this Agreement and to retain all rights to service and administer the Trust Assets; and it shall not dissolve or otherwise dispose of all or substantially all of its assets. The Issuer Trust shall execute, at the written direction of the Servicer, any limited or special powers of attorney and other documents to enable the Servicer or any Subservicer to carry out their servicing and administrative duties hereunder, and the Issuer Trust shall not be accountable for the actions of the Servicer or any Subservicers under such powers of attorney and shall be indemnified by such parties with respect to such actions. The Servicer shall delegate its duties with respect to the Contracts, as set forth in Section 4.01(a), Section 4.01(b), and in this Section 4.01(c) to the --------------- --------------- --------------- Operator under the Operating and Management Agreement. Section 4.02 Maintenance of Filings. ---------------------- The Servicer shall take such steps as are reasonably necessary to maintain the perfection of the Issuer Trust's security interest in the Excess Collateral and the Indenture Trustee's security interests in the Collateral, including the filing of financing statements. Each of the Indenture Trustee, the Transferor, and the Issuer Trust agree to cooperate with the Servicer in preparing, executing and filing such statements. The filing of any such statement with respect to the Transferor and the Issuer Trust shall not be construed as any indication of an intent of any party contrary to the expressed intent set forth in Section 2.03 hereof. If the Servicer fails to file any such ------------ financing statements or continuation statements at least one month prior to the expiration thereof, the Servicer does hereby make, constitute and appoint the Indenture Trustee its attorney-in-fact, with full power and authority, to execute and file in its name and on its behalf any such financing statements or continuation statements required under this Section 4.02. ------------ Section 4.03 Subsequent Revenue Agreements. ----------------------------- In the event that any Revenue Agreement is terminated, the Servicer shall, on behalf of the Issuer Trust, the Indenture Trustee and the Noteholders, use reasonable efforts to promptly negotiate, execute and deliver a Subsequent Revenue Agreement with the Revenue Contractor or a successor obligor relating to the underlying Revenue Agreement Rights of the F-15 terminated Revenue Agreement. In finding a replacement Obligor and negotiating a Subsequent Revenue Agreement, the Servicer shall, to the extent consistent with Accepted Servicing Procedures, attempt to enter into a Revenue Agreement which is no less favorable to the Issuer Trust than the terms and provisions of the terminated Revenue Agreement, giving due consideration to the maximization, on a present value basis, of revenues under such Subsequent Revenue Agreement, and the credit of the successor Obligor. The Issuer Trust shall execute, at the written direction of the Servicer, any limited or special powers of attorney and other documents to enable the Servicer or any Subservicer to carry out their duties pursuant to this Section 4.03, and the Owner Trustee shall not be ------------ accountable for the actions of the Servicer or any Subservicers under such powers of attorney and shall be indemnified by such parties with respect to such actions. The Servicer shall promptly deliver an originally executed version of any Subsequent Revenue Agreement, and any related documentation and agreements, to the Indenture Trustee, or upon the direction of the Indenture Trustee, to the Custodian, and such Subsequent Revenue Agreement and related documentation shall become part of the Trust Estate and the Indenture Trustee's Contract Files and a copy of such Subsequent Revenue Agreement shall be held by the Servicer as part of the Servicer's Contract Files. Prior notice of the execution and delivery of any Subsequent Revenue Agreement shall be delivered by the Servicer to the Rating Agency. The Servicer shall take such steps as are reasonably necessary to ensure the perfection and priority of the Indenture Trustee's and the Noteholders' security interests in any Subsequent Revenue Agreements, including, without limitation, the filing of financing statements, and the Indenture Trustee and the Issuer Trust shall cooperate with the Servicer in ensuring any such perfection and priority of interests. Section 4.04 Subservicing. ------------ (a) The Servicer is entering into the Operating and Management Agreement with the Operator and may enter into other Subservicing Agreements for any additional servicing and administration of any of the Trust Assets with any institution that is an Eligible Servicer and in compliance with the laws of each state necessary to enable it to perform its obligations under such Subservicing Agreement. The Servicer shall give written notice to the Issuer Trust and the Indenture Trustee of the appointment of any other Subservicer. So long as no Event of Default or Servicer Event of Default has occurred and is continuing, the Servicer shall be entitled to terminate any Subservicing Agreement in accordance with terms and conditions of such Subservicing Agreement and to either service the related Trust Assets directly or enter into a Subservicing Agreement with a successor subservicer which qualifies hereunder. In the event of termination of any Subservicer, and unless a successor Subservicer has otherwise been appointed, all servicing obligations of such Subservicer shall be assumed simultaneously by the Servicer without any additional act or deed on the part of such Subservicer or the Servicer, and the Servicer shall service directly the related Trust Assets. Each Subservicing Agreement shall include the provision that such agreement may be immediately terminated by the Indenture Trustee in the event that the Servicer shall, F-16 for any reason, no longer be the Servicer. In no event shall any Subservicing Agreement require the Indenture Trustee, as successor Servicer, for any reason whatsoever to pay compensation to a Subservicer in order to terminate such Subservicer. (b) Notwithstanding any Subservicing Agreement, any of the provisions of this Agreement relating to agreements or arrangements between the Servicer and a Subservicer or reference to actions taken through a Subservicer or otherwise, the Servicer shall remain obligated and primarily liable to the Issuer Trust, the Indenture Trustee and the Noteholders for the servicing and administration of the Trust Assets in accordance with the provisions of this Agreement without diminution of such obligation or liability by virtue of such Subservicing Agreements or arrangements or by virtue of indemnification from the Subservicer and to the same extent and under the same terms and conditions as if the Servicer alone were servicing and administering the Trust Assets. For purposes of this Agreement, the Servicer shall be deemed to have received payments on Trust Assets when the Subservicer has actually received such payments and, unless the context otherwise requires, references in this Agreement to actions taken or to be taken by the Servicer in servicing the Trust Assets include actions taken or to be taken by the Operator or any other Subservicer on behalf of the Servicer. The Servicer shall be entitled to enter into any agreement with a Subservicer for indemnification of the Servicer by such Subservicer, and nothing contained in this Agreement shall be deemed to limit or modify such indemnification. (c) In the event the Servicer shall for any reason no longer be the Servicer (including by reason of an Event of Default or a Servicer Event of Default), the successor Servicer, on behalf of the Issuer Trust, the Indenture Trustee and the Noteholders pursuant to Section 4.05 hereof, shall thereupon ------------ assume all of the rights and obligations of the Servicer under each Subservicing Agreement that the Servicer may have entered into, unless the successor Servicer elects to terminate any Subservicing Agreement in accordance with its terms. The successor Servicer shall be deemed to have assumed all of the Servicer's interest therein and to have replaced the Servicer as a party to each Subservicing Agreement to the same extent as if the Subservicing Agreements had been assigned to the assuming party, except that the Servicer shall not thereby be relieved of any liability or obligations under the Subservicing Agreements which accrued prior to the transfer of servicing to the successor Servicer. The Servicer, at its expense and without right of reimbursement therefor, shall, upon request of the successor Servicer, deliver to the assuming party all documents and records relating to each Subservicing Agreement and the Trust Assets then being serviced and an accounting of amounts collected and held by it and otherwise use its best efforts to effect the orderly and efficient transfer of the Subservicing Agreements to the assuming party. (d) As part of its servicing activities hereunder, the Servicer, for the benefit of the Issuer Trust, the Indenture Trustee and the Noteholders, shall enforce the obligations of each Subservicer under the related Subservicing Agreement. Such enforcement, including, without limitation, the legal prosecution of claims and the pursuit of other appropriate remedies, shall be in such form and carried out to such an extent and at such time as the Servicer, in its good faith business judgment, would require were it the owner of the related Trust Assets. The Servicer shall pay the costs of such enforcement at its own expense and F-17 shall be reimbursed therefor only (i) from a general recovery resulting from such enforcement to the extent, if any, that such recovery exceeds all amounts due in respect of the related Trust Asset or (ii) from a specific recovery of costs, expenses or attorneys' fees against the party against which such enforcement is directed. (e) Any Subservicing Agreement that may be entered into and any other transactions or services relating to the Trust Assets involving a Subservicer shall be deemed to be between the Subservicer and the Servicer alone and none of the Issuer Trust, the Indenture Trustee or the Noteholders shall be deemed parties thereto or shall have any claims, rights, obligations, duties or liabilities with respect to the Subservicer in its capacity as such except as set forth in subsection (c) of this Section 4.04. ------------ Section 4.05 Successor Servicers. ------------------- In the event that the Servicer is terminated pursuant to Section 9.01 ------------ hereof, or resigns pursuant to Section 8.04 hereof or otherwise becomes unable ------------ to perform its obligations under this Agreement, the Indenture Trustee will appoint a successor servicer in accordance with the provisions of Section 9.02 ------------ hereof; provided, however, that any successor servicer shall satisfy the requirements of an Eligible Servicer and shall be approved by the Rating Agency (upon receipt by the Rating Agency of thirty (30) days written notice thereof). Section 4.06 144A Information. ---------------- The Servicer shall provide to the Indenture Trustee, if requested, information regarding the Notes and the Trust Assets and such other information as the Indenture Trustee shall be required to deliver to any Noteholder and any prospective transferee designated by any such Noteholder to satisfy the condition of eligibility set forth in Rule 144A(d)(4) under the Securities Act. Section 4.07 Administrative Duties of Servicer --------------------------------- (a) Duties with Respect to the Basic Documents. The Servicer shall ------------------------------------------ consult with the Owner Trustee as the Servicer deems appropriate regarding the duties of the Issuer Trust under the Basic Documents. The Servicer shall monitor the performance of the Issuer Trust and shall advise the Owner Trustee when action is necessary to comply with the Issuer Trust's duties under the Basic Documents. The Servicer shall prepare for execution by the Issuer Trust or shall cause the preparation by other appropriate Persons of all such documents, reports, filings, instruments, certificates and opinions as it shall be the duty of the Issuer Trust to prepare, file or deliver pursuant to the Basic Documents. In furtherance of the foregoing, the Servicer shall take all necessary action that is the duty of the Issuer Trust to take pursuant to the Indenture, including, without limitation, any applicable provisions of the Indenture. (b) Duties with Respect to the Issuer Trust --------------------------------------- (i) In addition to the duties of the Servicer set forth in this Agreement or any of the Basic Documents, the Servicer shall perform such calculations and F-18 shall prepare for execution by the Issuer Trust or the Owner Trustee or shall cause the preparation by other appropriate Persons of all such documents, reports, filings, instruments, certificates and opinions as it shall be the duty of the Issuer Trust or the Owner Trustee to prepare, file or deliver pursuant to state and federal tax and securities laws. In accordance with the directions of the Issuer Trust or the Owner Trustee, the Servicer shall administer, perform or supervise the performance of such other activities in connection with the Issuer Trust as are not covered by any of the foregoing provisions and as are expressly requested by the Issuer Trust or the Owner Trustee and are reasonably within the capacity of the Servicer. (ii) Notwithstanding anything in this Agreement or any of the Basic Documents to the contrary, the Servicer shall be responsible for promptly notifying the Owner Trustee and the Paying Agent in the event that any withholding tax is imposed on the Issuer Trust's payments (or allocations of income) to a Certificateholder. Any such notice shall be in writing and specify the amount of any withholding tax required to be withheld by the Owner Trustee or the Paying Agent pursuant to such provision. (c) Tax Matters. The Servicer shall prepare and file, on behalf of ----------- the Issuer Trust, all tax returns, tax elections, financial statements and such annual or other reports of the Issuer Trust as are necessary for the preparation of tax reports as provided in Article V of the Trust Agreement and Section 7.09 ------------ hereof. All tax returns will be executed as provided in Article V of the Trust Agreement and Section 7.09 hereof. ------------ (d) Records. The Servicer shall maintain appropriate books of account ------- and records relating to Servicer performance under this Agreement, which books of account and records shall be accessible for inspection by the Owner Trustee at any time during normal business hours and upon reasonable advance notice. (e) Additional Information to be Furnished to the Issuer Trust. The ---------------------------------------------------------- Servicer shall furnish to the Owner Trustee from time to time such additional information regarding the Issuer Trust or the Basic Documents as the Owner Trustee shall reasonably request. ARTICLE V ESTABLISHMENT OF TRUST ACCOUNTS ------------------------------- Section 5.01 Collection Account. ------------------ (a) Establishment of Collection Account. As of the Closing Date, the ----------------------------------- Servicer, for the benefit of the Securityholders, shall cause to be established and maintained a Collection Account (the "Collection Account"), which shall be a ------------------ separate Eligible Account, entitled "Collection Account, The Bank of New York, as Indenture Trustee, in trust for the Denver Arena Trust Arena Revenue Backed Notes." The Collection Account shall be maintained with any depository institution which satisfies the requirements set forth in the definition of Eligible Account. The creation of any Collection Account shall be evidenced by a F-19 letter agreement between the Servicer and such depository institution. Funds in the Collection Account shall be invested in accordance with Section 5.04 hereof. ------------ (b) (1) Deposits to Collection Account. The Indenture Trustee shall ------------------------------ withdraw from the Lockbox Account and deposit into the Collection Account on a daily basis, and to the extent received by the Servicer, the Servicer shall deposit or cause to be deposited, within two (2) Business Days after receipt thereof, into the Collection Account, in each case to be retained therein in trust for the benefit of the Securityholders: (i) all payments received on account of Revenue Agreements; (ii) all Insurance Proceeds, Condemnation Proceeds, liquidated damage payments, payments from performance and payment bonds, indemnity payments and the proceeds of any action to liquidate any portion of the Collateral; (iii) the Mandatory Redemption Price or the Optional Redemption Price paid pursuant to the Indenture; (iv) funds on deposit in the Capitalized Interest Account, Debt Service Reserve Account, Debt Service Coverage Account, Construction Fund Account and Lease Reserve Account that are required to be transferred to the Collection Account as described herein; and (v) interest and gains on funds held in the Collection Account. The Servicer shall be entitled to retain and not deposit into the Collection Account any amounts received by it with respect to a Trust Asset that constitute additional servicing compensation pursuant to Section 7.03 hereof, ------------ and such amounts retained by the Servicer shall be excluded from the calculation of the Servicing Compensation that is distributable to the Servicer from the Collection Account on the next Distribution Date. The Indenture Trustee shall make other deposits into the Collection Account as required pursuant to Section 5.03. ------------ (2) Withdrawals from Collection Account. ---------------------------------- The Indenture Trustee, at the written direction of the Servicer, shall make the following withdrawals from the Collection Account: (i) to withdraw any amount not required to be deposited in the Collection Account or deposited therein in error; (ii) to withdraw the $5,000,000 initial payment under the US West Agreement and deposit such amount in the Construction Fund Account; (iii) to make the payments set forth in Section 8.01(e) hereof; --------------- F-20 (iv) to distribute the Mandatory Redemption Price or Optional Redemption Price to Noteholders on the Redemption Date; and (v) to clear and terminate the Collection Account in connection with the termination of this Agreement. (c) Distributions from Collection Account. On each Distribution Date, ------------------------------------- the Indenture Trustee (based on the information provided by the Servicer contained in the Servicer's Remittance Report for such Distribution Date) shall distribute the Available Collection Amount from the Collection Account by 9:00 a.m. (New York City time) for application in the following order of priority: (i) (A) to the Servicer, an amount equal to the Servicing Compensation (net of any amounts retained prior to deposit into the Collection Account pursuant to subsection (b)(1) above) and all unpaid Servicing Compensation from prior Distribution Dates, (B) to the Indenture Trustee, an amount equal to the Indenture Trustee Fee and all unpaid Indenture Trustee Fees from prior Distribution Dates, (C) to the Owner Trustee, an amount equal to the Owner Trustee Fee and all unpaid Owner Trustee Fees from prior Distribution Dates, and (D) to the Custodian, an amount equal to the Custodian Fee, if any, and all unpaid Custodian Fees from prior Distribution Dates; and (ii) to the City, any amounts due and unpaid (after the expiration of any applicable cure periods) pursuant to the Lease between the City and the Transferor to the extent funds on deposit in the Lease Reserve Account are insufficient to make such payment; (iii) to the Paying Account, up to an amount equal to the Noteholders' Interest Distribution Amount for such Distribution Date; (iv) to the Debt Service Reserve Account to the extent the amount on deposit therein on such Distribution Date is less than the Required Debt Service Reserve Amount, an amount equal to such shortfall; (v) if such Distribution Date is in the month of November, to the Paying Account, up to an amount equal to the Targeted Principal Distribution Amount for such Distribution Date until the Principal Balance of each Note is reduced to zero; (vi) to the Debt Service Coverage Account, the Debt Service Coverage Amount for such Distribution Date; (vii) if a Lease Reserve Trigger Event shall have occurred, to the Lease Reserve Account, to the extent the amount on deposit therein on such Distribution Date is less than the Lease Reserve Amount, an amount equal to such shortfall; (viii) to the Indenture Trustee, the Issuer Trust and the Servicer, as applicable, to reimburse for expenditures made or incurred in connection with the exercise of rights or remedies under the Basic Documents; and F-21 (ix) if no Event of Default has occurred and is continuing, the remaining amount to the Certificate Paying Agent for distribution to the Certificateholders. (d) Release of Excess Cash. On each Monthly Distribution Date (but ---------------------- not on the Distribution Date in May and November), the Indenture Trustee shall, based on information provided by the Servicer on the immediately prior Determination Date, withdraw from the Collection Account the amount of funds therein in excess of the amount required to make the distributions pursuant to Sections 5.01(c)(i), (ii) (iii) and (v) on the Distribution Date occurring in - ------------------------------- --- the next following November, and distribute such funds as follows: (i) to the Debt Service Reserve Account to the extent the amount on deposit therein on the Determination Date related to such Monthly Distribution Date is less than the Required Debt Service Reserve Amount determined as of the immediately prior Distribution Date; (ii) to the Debt Service Coverage Account to the extent the amount on deposit therein on the Determination Date related to such Monthly Distribution Date is less than the Debt Service Coverage Amount determined on such related Determination Date; (iii) if a Lease Reserve Trigger Event shall have occurred, to the Lease Reserve Account to the extent the amount on deposit therein on the Determination Date related to such Monthly Distribution Date is less than the Lease Reserve Amount; (iv) to the Indenture Trustee, the Issuer Trust and the Servicer, as applicable, to reimburse for expenditures made or incurred in connection with the exercise of rights or remedies under the Basic Documents; and (v) if no Event of Default has occurred and is continuing, the remaining amount to the Certificate Paying Agent for distribution to the Certificateholders. (e) Certain Principal Distributions. Amounts deposited in the ------------------------------- Collection Account in respect of Insurance Proceeds, Condemnation Proceeds, liquidated damage payments, payments from performance and payment bonds, indemnity payments and the proceeds of any action to liquidate any portion of the Collateral which are not applied or to be applied to a mandatory redemption of the Notes pursuant to Section 10.01 of the Indenture, shall be distributed to the Noteholders, pro rata, on the Distribution Date next following the date which is fifteen (15) days after the receipt thereof, as a payment of principal of the Notes. In the event any such distribution is made to the Noteholders pursuant to this Section 5.01(e), the Servicer shall prepare and send to the -------------- Indenture Trustee, and the Indenture Trustee shall send to all Securityholders and the Rating Agency, a revised Targeted Principal Payment Schedule which shall amend the remaining Targeted Principal Distribution Amounts on such schedule by reducing each such remaining Targeted Principal Distribution Amount pro rata F-22 based on the amount thereof so that the total of all remaining Targeted Principal Payments are reduced by the amount of such distribution. Section 5.02 Distributions to Certificateholders and Noteholders. --------------------------------------------------- (a) Distributions to Certificateholders. On each Distribution Date, ----------------------------------- the Indenture Trustee shall distribute to the Certificate Paying Agent amounts required in accordance with Section 5.01(c)(ix) hereof for distribution to the ------------------- Certificateholders. On each Monthly Distribution Date, the Indenture Trustee shall distribute to the Certificate Paying Agent amounts required in accordance with Section 5.01(d)(v) hereof for distribution to the Certificateholders. All ------------------ distributions made on the Trust Certificates on each Distribution Date will be made pro rata among the Certificateholders of record on the next preceding Monthly Distribution Date based on their Percentage Interest, without preference or priority of any kind, and, except as otherwise provided in the next succeeding sentence, shall be made by wire transfer of immediately available funds to the account of each such Certificateholder, if such Certificateholder shall own of record a Trust Certificate in Percentage Interest of at least a 10% and shall have so notified the Indenture Trustee, and otherwise by check mailed to the address of such Certificateholder appearing in the Certificate Register. The final distribution on each Trust Certificate will be made in like manner, but only upon presentment and surrender of such Trust Certificate at the location specified in the notice to Certificateholders of such final distribution. Any amount so distributed to the Certificateholders shall not be subject to any claim or interest of the Noteholders. (b) Distributions to Noteholders. All distributions made on the ---------------------------- Notes on each Distribution Date will be made on a pro rata basis among the Noteholders of record on the next preceding Record Date based on the Principal Balance represented by their respective Notes, without preference or priority of any kind, and, except as otherwise provided in the next succeeding sentence, shall be made by wire transfer of immediately available funds to the account of each such Noteholder, if each such Noteholder shall own of record Notes in original Denominations aggregating at least $1,000,000 and shall have so notified the Indenture Trustee at least fifteen (15) days prior to the relevant payment date, and otherwise by check mailed to the address of each such Noteholder appearing in the Note Register. The final distribution on each Note will be made in like manner, but only upon presentment and surrender of such Note at the location specified in the notice to Noteholders of such final distribution. Section 5.03 Debt Service Coverage Account, Debt Service Reserve --------------------------------------------------- Account, Capitalized Interest Account, Construction Fund Account, Lease Reserve - ------------------------------------------------------------------------------- Account and Paying Account. - -------------------------- (a) Establishment and Administration of Debt Service Coverage --------------------------------------------------------- Account. - ------- (i) No later than the Closing Date, the Servicer, for the benefit of the Noteholders, shall cause to be established and maintained a Debt Service Coverage Account, which shall be a separate Eligible Account, entitled "Debt Service Coverage Account, The Bank of New York, as Indenture Trustee, in trust for the Denver Arena Trust Arena Revenue F-23 Backed Notes." Funds in the Debt Service Coverage Account shall be invested in accordance with Section 5.04 hereof. ------------ (ii) With respect to the Distribution Date occurring in the month of November in each year commencing November 1999, the Indenture Trustee shall deposit into the Debt Service Coverage Account pursuant to Section ------- 5.01(c)(vi) and retain therein in trust for the benefit of the Noteholders, an - ----------- amount equal to the shortfall, if any, between (i) the Projected Revenue, as defined below, for the period from such Distribution Date to the Distribution Date occurring in the following November and (ii) the amount of revenue required to provide a minimum Debt Service Coverage Ratio of 125%. Such deposit shall be made only to the extent of the Available Collection Amount on such Distribution Date after distribution of the amounts described in clauses (i) through (v) in Section 5.01(c) above. Amounts on deposit in the Debt Service Coverage Account - --------------- shall be transferred to the Collection Account on the Distribution Date occurring in the following November. The Projected Revenue shall equal all revenue under the Revenue Agreements contractually obligated to be paid for the period from the date of determination of Projected Revenues to the following November Distribution Date, except for payments due in respect of Luxury Suite License Agreements that expire within such period that had not been renewed, in which case the Projected Revenue for such period for each such expiring Luxury Suite License Agreement shall be assumed to be equal to 75% of the total amount of payments contractually obligated to be paid during such period. With respect to Luxury Suite License Agreements that had terminated prior to the date of determination and that have not been renewed or replaced or that were 90 days or more delinquent on such date, the Projected Revenue shall be equal to zero. On each monthly Determination Date, the Servicer shall determine the Debt Service Coverage Amount for the one year period commencing on the prior November Distribution Date. The Debt Service Coverage Amount shall equal the shortfall, if any, between (A) the sum of revenue collected since the prior November Distribution Date plus Projected Revenue (as defined below) for the period up to the following November Distribution Date and (B) the amount of revenue required to provide a minimum Debt Service Ratio of 125% for such one year period. The Debt Service Coverage Amount shall reflect the actual level of the renewals of expiring Luxury Suite License Agreements and shall be recalculated on each Determination Date. Any funds on deposit in the Debt Service Coverage Account in excess of the Debt Service Coverage Amount, after giving effect to such monthly recalculation, shall be released to the Certificate Paying Agent for distribution to the Certificateholders on the Monthly Distribution Date and on the Distribution Date in May of each year so long as no Event of Default has occurred and is continuing on such date. On the earlier of (A) the Rated Final Maturity Date or (B) the Distribution Date, the Mandatory Redemption Date or the Optional Redemption Date on which the Outstanding Amount shall be reduced to zero, the Indenture Trustee shall transfer all funds remaining on deposit in the Debt Service Coverage Account to the Collection Account. (b) Establishment and Administration of Debt Service Reserve Account. ---------------------------------------------------------------- (i) No later than the Closing Date, the Servicer, for the benefit of the Noteholders, shall cause to be established and maintained a Debt Service Reserve Account, which shall be a separate Eligible Account, entitled "Debt Service Reserve Account, The Bank F-24 of New York, as Indenture Trustee, in trust for the Denver Arena Trust Arena Revenue Backed Notes." Funds in the Debt Service Reserve Account shall be invested in accordance with Section 5.04 hereof. ------------ (ii) On the Closing Date, the Transferor shall deposit or cause to be deposited into the Debt Service Reserve Account and retain therein in trust for the benefit of the Noteholders, the Required Debt Service Reserve Amount. The Required Debt Service Amount on the Closing Date and on each Distribution Date shall be the amount equal to the interest that will accrue on the Outstanding Amount of the Notes (determined after giving effect to the distributions to be made on such Distribution Date) over a one year period at the Note Interest Rate. On each Distribution Date, the Indenture Trustee shall deposit or caused to be deposited into the Debt Service Reserve Account the amount required by Section 5.01(c)(iv). ------------------- (iii) With respect to the Distribution Date occurring in the month of May in each year (commencing May 2000), the Indenture Trustee shall, not later than 5:00 p.m. on the Business Day immediately preceding such Distribution Date, withdraw from funds in the Debt Service Reserve Account and deposit to the Collection Account an amount equal to the excess, if any, of the amount required to make the payments required on such Distribution Date pursuant to Sections 5.01(c)(i), (ii) and (iii) over the amount on deposit in the ----------------------------------- Collection Account. In addition, at such time, the Indenture Trustee shall transfer from the Debt Service Reserve Account to the Collection Account any amount remaining on deposit in the Debt Service Reserve Account which exceeds the Required Debt Service Reserve Amount for such Distribution Date. On the earlier of (A) the Rated Final Maturity Date or (B) the Distribution Date, the Mandatory Redemption Date or the Optional Redemption Date on which the Outstanding Amount shall be reduced to zero, the Indenture Trustee shall transfer all funds remaining on deposit in the Debt Service Reserve Account to the Collection Account. (c) Establishment and Administration of Capitalized Interest Account. ---------------------------------------------------------------- (i) No later than the Closing Date, the Servicer, for the benefit of the Noteholders, shall cause to be established and maintained a Capitalized Interest Account, which shall be a separate Eligible Account, entitled "Capitalized Interest Account, The Bank of New York, as Indenture Trustee, in trust for the Denver Arena Trust Arena Revenue Backed Notes." Funds in the Capitalized Interest Account shall be invested in accordance with Section ------- 5.03(c)(ii) and Section 5.04 hereof. - ----------- ------------ (ii) On the Closing Date, the Transferor shall deposit or cause to be deposited into the Capitalized Interest Account and retain therein in trust for the benefit of the Noteholders, the Capitalized Interest Amount. The Capitalized Interest Amount (which shall not be a negative amount) is equal to (A) the distributions to be made pursuant to Sections 5.01(c)(i) and (iii) ----------------------------- during the period commencing on the Closing Date and ending on the Distribution Date occurring in November 1999 at the Note Interest Rate on the Original Principal Balance of the Notes minus (B) the income to be received on the Permitted Investments specified by the Transferor on the Closing Date in which such deposit is invested. F-25 Funds deposited in the Capitalized Interest Account shall be invested by the Indenture Trustee on the Closing Date, as so directed by the Transferor. (iii) With respect to each Distribution Date up to and including the Distribution Date occurring in November 1999, the Indenture Trustee shall, not later than 5:00 p.m. on the Business Day immediately preceding such Distribution Date, withdraw the amount necessary to make the payments required under Sections 5.01(c)(i) and (iii) from the Capitalized Interest Account and ----------------------------- deposit the same into the Collection Account. On the Distribution Date occurring in November 1999, any funds remaining in the Capitalized Interest Account after the withdrawal of the amount required to pay the Trust Fees and Expenses and Noteholders' Interest Distribution Amount for such Distribution Date shall be transferred to the Collection Account and the Capitalized Interest Account shall be closed. (d) Establishment and Administration of Construction Fund Account. ------------------------------------------------------------- (i) No later than the Closing Date, the Servicer, for the benefit of the Noteholders, shall cause to be established and maintained a Construction Fund Account, which shall be a separate Eligible Account, entitled "Construction Fund Account, The Bank of New York, as Indenture Trustee, in trust for the Denver Arena Trust Arena Revenue Backed Notes." Funds in the Construction Fund Account shall be invested in accordance with Section 5.04 ------------ hereof. (ii) On the Closing Date, the Transferor shall deposit or cause to be deposited $139,835,000 into the Construction Fund Account. The funds in the Construction Fund Account shall be disbursed by the Indenture Trustee on a monthly basis upon its receipt of a notice from the Issuer Trust and the Construction Consultant stating that the conditions for disbursement set forth in the Construction Phase Agreement have been satisfied and indicating the amount to be disbursed and the recipients thereof. All funds, if any, remaining in the Construction Fund Account upon completion of construction of the New Arena Facility and the payment of the Construction Contractor in connection therewith, shall be transferred to the Collection Account. (e) Establishment and Administration of Lease Reserve Account. --------------------------------------------------------- (i) No later than the Closing Date, the Servicer, for the benefit of the Noteholders, shall cause to be established and maintained an account (the "Lease Reserve Account"), which shall be a separate Eligible ---------------------- Account, entitled "Lease Reserve Account, The Bank of New York, as Indenture Trustee, in trust for the Denver Arena Trust Arena Revenue Backed Notes." Funds in the Lease Reserve Account shall be invested in accordance with Section 5.04 ------------ hereof. (ii) If on any Distribution Date, any funds in the Collection Account are distributed pursuant to Section 5.01(c)(ii) above (a "Lease Reserve ------------------- ------------- Trigger Event"), the Indenture Trustee shall withdraw from the Collection - ------------- Account and deposit into the Lease Reserve Account an amount equal to three times the aggregate annual payment due under the Lease for the one year period prior to such Distribution Date (the "Lease Reserve Amount"). -------------------- F-26 Such withdrawal from the Collection Account shall be made only to the extent of the Available Collection Amount on such Distribution Date after payment of the amounts described in Section 5.01(c)(i) through (vi) above. To the extent the ------------------------------- amount on deposit in the Lease Reserve Account on any Distribution Date after a Lease Reserve Trigger Event is less than the Lease Reserve Amount, deposits to the Lease Reserve Account shall be made by the Indenture Trustee as set forth in the preceding sentence. Amounts on deposit in the Lease Reserve Account shall be used solely to make the payments, if any, required to be made pursuant to Section 5.01(c)(ii) above. On the earlier of (A) the Rated Final Maturity Date - ------------------- or (B) the Distribution Date, the Mandatory Redemption Date or the Optional Redemption Date on which the Outstanding Amount shall be reduced to zero, the Indenture Trustee shall transfer all funds remaining on deposit in the Lease Reserve Account to the Collection Account. (f) Establishment and Administration of Paying Account. -------------------------------------------------- (i) No later than the Closing Date, the Servicer, for the benefit of the Noteholders, shall cause to be established and maintained an account (the "Paying Account"), which shall be a separate Eligible Account, -------------- entitled "Paying Account, The Bank of New York, as Indenture Trustee, in trust for the Denver Arena Trust Arena Revenue Backed Notes." Funds in the Paying Account shall be invested in accordance with Section 5.04 hereof. ------------ (ii) On each Distribution Date, the Indenture Trustee shall withdraw from the Collection Account and deposit into the Paying Account the amount to be distributed to Noteholders in respect of the Noteholders' Interest Distribution Amount and the Targeted Principal Distribution Amount, if any, for such Distribution Date, in accordance with Section 5.01(c)(iii) and (v) hereof. ---------------------------- With respect to any Mandatory Redemption Date or Optional Redemption Date, the Indenture Trustee shall withdraw from the Collection Account and deposit into the Paying Account the Mandatory Redemption Price or the Optional Redemption Price, as the case may be, in accordance with Section 10.03 of the Indenture. Section 5.04 Trust Accounts; Trust Account Property. -------------------------------------- (a) Control of Trust Accounts. Each of the Trust Accounts established ------------------------- hereunder has been pledged by the Issuer Trust to the Indenture Trustee under the Indenture and shall be subject to the lien of the Indenture. In addition to the provisions hereunder, each of the Trust Accounts shall also be established and maintained pursuant to the Indenture. Amounts distributed from each Trust Account in accordance with the Indenture and this Agreement shall be released from the lien of the Indenture upon such distribution thereunder or hereunder. The Indenture Trustee shall possess all right, title and interest in and to all funds on deposit from time to time in the Trust Accounts and in all proceeds thereof (including all income thereon) and all such funds, investments, proceeds and income shall be part of the Trust Account Property and the Trust Estate. If, at any time, any Trust Account ceases to be an Eligible Account, the Indenture Trustee (or the Servicer on its behalf) shall, within ten Business Days (or such longer period, not to exceed 30 calendar days, as to which the Rating Agency may consent) (i) establish a new Trust Account as an Eligible Account, (ii) terminate F-27 the ineligible Trust Account, and (iii) transfer any cash and investments from such ineligible Trust Account to such new Trust Account. With respect to the Trust Accounts, the Indenture Trustee agrees, by its acceptance hereof, that each such Trust Account shall be subject to the sole and exclusive custody and control of the Indenture Trustee for the benefit of the Noteholders and the Issuer Trust, as the case may be, and the Indenture Trustee shall have sole signature and withdrawal authority with respect thereto. The Servicer shall have the power, revocable by the Indenture Trustee, to instruct the Indenture Trustee to make withdrawals and payments from the Trust Accounts for the purpose of permitting the Indenture Trustee to carry out its respective duties herein and under the Indenture. (b) (1) Investment of Funds. So long as no Event of Default shall ------------------- have occurred and be continuing, the funds held in any Trust Account shall be invested in Permitted Investments, as specifically directed by the Servicer in writing. In any case, funds in any Trust Account must be available for withdrawal without penalty, and any Permitted Investments must mature or otherwise be available for withdrawal, not later than the Business Day immediately preceding the Distribution Date next following the date of such investment and shall not be sold or disposed of prior to its maturity subject to subsection (b)(2) of this Section; except for Permitted Investments in the Capitalized Interest Account which must mature on or before the Business Day immediately preceding the Distribution Dates occurring in November 1998, May 1999 and November 1999, in amounts sufficient to provide for the distributions under Sections 5.01(c)(i) and (iii) to be made on such Distribution Dates. All ----------------------------- interest and any other investment earnings on amounts or investments held in any Trust Account, except for the Debt Service Reserve Account and the Capitalized Interest Account, shall be deposited into the Collection Account immediately upon receipt by the Indenture Trustee and shall comprise a portion of the Available Collection Amount. With respect to the Debt Service Reserve Account, so long as no Event of Default has occurred and is continuing and the amount on deposit in the Debt Service Reserve Account exceeds the Required Debt Service Reserve Amount, all interest and any other investment earnings with respect to such excess amount shall be deposited into the Collection Account on receipt. All income or other gain from investments in the Capitalized Interest Account will remain in such account to be applied to the payment of interest to the Noteholders on each Distribution Date up to and including the Distribution Date occurring in November 1999. All Permitted Investments in which funds in any Trust Account are invested must be held by or registered in the name of "The Bank of New York, as Indenture Trustee, in trust for the Denver Arena Trust Arena Revenue Backed Notes." (2) Insufficiency and Losses in Trust Accounts. If any amounts are ------------------------------------------ needed for disbursement from any Trust Account held by or on behalf of the Indenture Trustee and sufficient uninvested funds are not available to make such disbursement, the Indenture Trustee shall cause to be sold or otherwise converted to cash a sufficient amount of the investments in such Trust Account. The Indenture Trustee shall not be liable for any investment loss or other F-28 charge resulting therefrom, unless such loss or charge is caused by the failure of the Indenture Trustee or Owner Trustee, respectively, to perform in accordance with this Section 5.04. ------------ If any losses are realized in connection with any investment in any Trust Account pursuant to this Agreement and the Indenture, then the Transferor shall deposit the amount of such losses (to the extent not offset by income from other investments in such Trust Account) into such Trust Account immediately upon the realization of such loss. All interest and any other investment earnings on amounts held in any Trust Account shall be taxed to the Issuer Trust and for federal and state income tax purposes the Issuer Trust shall be deemed to be the owner of each Trust Account. (c) Subject to Sections 6.01 and 6.02 of the Indenture, the Indenture Trustee shall not in any way be held liable by reason of any insufficiency in any Trust Account held by the Indenture Trustee resulting from any investment loss on any Permitted Investment included therein (except to the extent that the Indenture Trustee is the obligor and has defaulted thereon). (d) With respect to the Trust Account Property, the Indenture Trustee acknowledges and agrees that: (1) any Trust Account Property that is held in deposit accounts shall be held solely in the Eligible Accounts, subject to the last sentence of subsection (a) of this Section 5.04; and each such Eligible Account shall ------------ be subject to the sole and exclusive dominion, custody and control of the Indenture Trustee; and, without limitation on the foregoing, the Indenture Trustee shall have sole signature authority with respect thereto; (2) any Trust Account Property that constitutes Physical Property shall be delivered to the Indenture Trustee in accordance with paragraph (a) of the definition of "Delivery" in Appendix A hereto and shall be held, ---------- pending maturity or disposition, solely by the Indenture Trustee or a financial intermediary (as such term is defined in Section 8-313(4) of the UCC) acting solely for the Indenture Trustee; (3) any Trust Account Property that is a book-entry security held through the Federal Reserve System pursuant to federal book-entry regulations shall be delivered in accordance with paragraph (b) of the definition of "Delivery" in Appendix A hereto and shall be maintained by ---------- the Indenture Trustee, pending maturity or disposition, through continued book-entry registration of such Trust Account Property as described in such paragraph; and (4) any Trust Account Property that is an "uncertificated security" under Article 8 of the UCC and that is not governed by clause (3) above shall be delivered to the Indenture Trustee in accordance with paragraph (c) of the definition of "Delivery" in Appendix A hereto and shall be ---------- maintained by the Indenture Trustee, pending maturity or disposition, through continued registration of the Indenture Trustee's (or its nominee's) ownership of such security. F-29 (e) The Servicer shall have the power, revocable by the Indenture Trustee or by the Owner Trustee with the consent of the Indenture Trustee, to instruct the Indenture Trustee to make withdrawals and payments from the Trust Accounts for the purpose of permitting the Servicer or the Owner Trustee to carry out their respective duties hereunder or under the Indenture or the Trust Agreement, as the case may be. (f) The Indenture Trustee shall have no liability whatsoever for any loss, fee, tax or other charge on any investment, reinvestment or liquidation of an investment hereunder. ARTICLE VI STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS ---------------------------------------------------- Section 6.01 Statements. ---------- (a) No later than the Determination Date related to each Distribution Date, the Servicer shall deliver to the Indenture Trustee by facsimile, the receipt and legibility of which shall be confirmed by telephone, and with hard copy thereof to be delivered no later than one (1) Business Day after such Determination Date, the Servicer's Remittance Report, setting forth the date of such report (day, month and year), the name of the Issuer Trust (i.e. "Denver Arena Trust") and the date of this Agreement, all in substantially the form set out in Exhibit B hereto. --------- (b) On each Distribution Date, Indenture Trustee shall distribute, based on information provided by the Servicer, a statement (the "Distribution ------------ Statement") to the Owner Trustee, the Securityholders and the Rating Agency, - --------- stating the date of original issuance of the Notes (day, month and year), the name of the Issuer Trust (i.e. "Denver Arena Trust"), the date of this Agreement and the following information: (i) the Available Collection Amount for the related Distribution Date; (ii) the aggregate Principal Balance of the Notes before and after giving effect to any distributions made to the Noteholders on such Distribution Date; (iii) the amount of principal, if any, and interest to be distributed to the Noteholders on the related Distribution Date and the Targeted Principal Distribution Amount for such Distribution Date, if any; (iv) any amount to be distributed to Certificateholders on such Distribution Date; (v) the Servicing Compensation, the Indenture Trustee Fee, the Owner Trustee Fee and the Custodian Fee, if any, for such Distribution Date; F-30 (vi) certain performance information, including, without limitation, delinquency information with respect to the Revenue Agreements indicating which Revenue Agreements are Delinquent, 30 days Delinquent, 60 days Delinquent, 90 days Delinquent and any Revenue Agreement which is more than 90 days Delinquent; (vii) a listing of Revenue Contractors and Revenue Agreements subject to bankruptcy proceedings, and the aggregate amount outstanding under the related Revenue Agreements; (viii) a listing of any Revenue Agreements which have been terminated, the aggregate amount remaining unpaid under each such Revenue Agreement, and any related Subsequent Revenue Agreement entered into and the aggregate amount owed by the Revenue Contractor under any such Subsequent Revenue Agreement; (ix) the amount of any Insurance Proceeds, Condemnation Proceeds, liquidated damage payments, payments from performance and payment bonds, indemnity payments and the proceeds of any action to liquidate any portion of the Collateral; and (x) the amount of the expenditures made or incurred by the Indenture Trustee, the Issuer Trust and the Servicer, as applicable, in connection with the exercise of rights or remedies under the Basic Documents. In the case of information furnished to Noteholders pursuant to subclause (b)(iii) of this Section 6.01, the amounts shall be expressed as a ------------ dollar amount per Note with a $1,000 Denomination. All reports prepared by the Indenture Trustee of the withdrawals from and deposits into the Collection Account will be based in whole or in part upon the information provided to the Indenture Trustee by the Servicer, and the Indenture Trustee may fully rely upon and shall have no liability with respect to such information provided by the Servicer. (c) Within a reasonable period of time after the end of each calendar year, the Indenture Trustee shall prepare and distribute to each Person that at any time during the calendar year was a Noteholder such information as is reasonably necessary to provide to such Person a statement containing the information set forth in subclause (b)(iii) of this Section 6.01, aggregated for ------------ such calendar year or applicable portion thereof during which such Person was a Noteholder. (d) On each Distribution Date, the Indenture Trustee shall forward to the Certificateholders a copy of the Distribution Statement in respect of such Distribution Date and a statement setting forth the amounts actually distributed to such Certificateholders on such Distribution Date, together with such other information as the Indenture Trustee deems necessary or appropriate. (e) Within a reasonable period of time after the end of each calendar year, the Indenture Trustee shall prepare and distribute to each Person that at any time during the F-31 calendar year was a Certificateholder, if requested in writing by such Person, a statement containing the information provided pursuant to the previous paragraph aggregated for such calendar year or applicable portion thereof during which such Person was a Certificateholder. (f) The Indenture Trustee shall forward to each Securityholder, during the term of this Agreement, such periodic, special or other reports, including information tax returns or reports required with respect to the Notes and the Trust Certificates, as shall be necessary, reasonable, or appropriate with respect to such Securityholders, or otherwise with respect to this Agreement, all such reports or information, in the case of the Trust Certificates, to be provided by and in accordance with such applicable instructions and directions as the Majority Certificateholders may reasonably require. (g) Reports furnished by the Servicer and the Indenture Trustee pursuant to this Agreement shall be deemed confidential and of a proprietary nature and shall not be copied or distributed except in connection with the purposes and requirements of this Agreement. No Person entitled to receive copies of such reports shall use the information therein for the purpose of soliciting the customers of the Transferor or the Servicer or for any other purpose except as set forth in this Agreement. Section 6.02 Specification of Certain Tax Matters. ------------------------------------ The Indenture Trustee shall comply with all requirements of the Code and applicable state and local law with respect to the withholding from any distributions made to any Securityholder of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith, giving due effect to any applicable exemptions from such withholding and effective certifications or forms provided by the recipient. Any amounts withheld pursuant to this Section 6.02 shall be deemed to have been ------------ distributed to the Noteholders or Certificateholders, as the case may be, for all purposes of this Agreement or the Indenture. ARTICLE VII GENERAL SERVICING PROCEDURE --------------------------- Section 7.01 Security Interest ----------------- The Servicer hereby covenants and agrees that it shall not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien (in favor of any Person other than the Issuer Trust or Indenture Trustee) on, any Trust Asset sold and assigned to the Issuer Trust, whether now existing or hereafter created, or any interest therein, and the Servicer shall defend the right, title and interest of the Issuer Trust in, to and under any Trust Asset sold and assigned to the Issuer Trust, whether now existing or hereafter created, against all claims of third parties claiming through or under the Servicer or the Transferor, provided, however, that nothing -------- ------- in this Section 7.01 shall prevent or be deemed to ------------ F-32 prohibit the Servicer from suffering to exist upon any of the Trust Assets any Lien specifically permitted under the terms of the related Revenue Agreement. Section 7.02 Lockbox Agreement; Lockbox Account; Lockbox Bank. ------------------------------------------------ (a) The Servicer shall (i) direct each Revenue Contractor in writing, on or before July 1, 1999, to make all payments required under the Revenue Agreements to the Lockbox Account, (ii) maintain, and keep in full force and effect, the Lockbox Agreement, except to the extent otherwise permitted under the terms of this Agreement, and (iii) ensure that the Lockbox Account shall be free and clear of, and defend the Lockbox Account against, any writ, order, stay, judgment, warrant of attachment or execution or similar process. (b) The parties hereto hereby acknowledge that the Lockbox Bank has been appointed by the Servicer to hold the Lockbox Account and the Trust Accounts, and that the Lockbox Bank is not an agent of the Indenture Trustee, and is acting under this Agreement as an independent contractor. (c) The Indenture Trustee shall not be liable by reason of any act or omission of the Lockbox Bank. (d) The Servicer hereby agrees to indemnify each of the Indenture Trustee or any predecessor Indenture Trustee and their respective agents for, and shall hold each such Person harmless against, any and all loss, damage, claims, liability or expense, including taxes (other than taxes based upon, measured by or determined by the income of the Indenture Trustee), arising out of or in connection with the acceptance or administration by each such Person of the trust or trusts hereunder, including the costs and expenses incurred by each such Person in defending itself against any claim (whether asserted by the Servicer, any Holder of a Note or any other Person) or any liability resulting from the exercise or performance of any of the powers or duties of such Person hereunder, except to the extent that such loss, damage, claim, liability or expense is due to such Person's own gross negligence or willful misconduct. The provisions of this Section 7.02(d) shall survive the termination --------------- of this Agreement. Section 7.03 Servicing Compensation. ---------------------- As compensation for its services hereunder, the Servicer shall be entitled to receive from the Collection Account the Servicing Fee, out of which the Servicer shall pay any servicing fees owed or payable to any Subservicer. Additional servicing compensation in the form of administrative fees, insufficient funds charges, and late payment charges and penalties shall be part of the Servicing Compensation payable to the Servicer and any Subservicer hereunder and shall be paid either by the Servicer's retaining such additional servicing compensation prior to deposit into the Collection Account pursuant to Section 5.01(b)(1) hereof or, if deposited into the Collection Account, as part - ------------------ of the Servicing Compensation withdrawn from the Collection Account pursuant to Section 5.01(c)(i) hereof. - ------------------ F-33 The Servicer and any Subservicer shall be required to pay all expenses incurred by them in connection with their servicing activities hereunder and shall not be entitled to reimbursement therefor except as specifically provided for herein. The Transferor also agrees to pay (i) all reasonable costs and expenses incurred by any successor Servicer or the Indenture Trustee in replacing the Servicer or any Subservicer in the event of a default by the Servicer or any Subservicer in the performance of their respective duties under the terms and conditions of this Agreement and (ii) the annual monitoring fees of the Rating Agency. Section 7.04 Statement as to Compliance and Financial Statements. --------------------------------------------------- The Servicer will deliver to the Indenture Trustee, the Owner Trustee and the Rating Agency not later than 90 days following the end of each fiscal year of the Servicer (beginning in 1999 with respect to the 1998 fiscal year), an Officer's Certificate stating that (i) a review of the activities of the Servicer and the Issuer Trust during the preceding year and of performance under this Agreement has been made under such officer's supervision and (ii) to the best of such officer's knowledge, based on such review, each of the Servicer and the Issuer Trust has fulfilled all of its obligations under this Agreement and the Indenture throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and status thereof and what action the Servicer proposes to take with respect thereto. Contemporaneously with the submission of the Officer's Certificate required by the preceding paragraph, the Servicer shall deliver to the Indenture Trustee a copy of its annual financial statements prepared in the ordinary course of business. The Servicer shall, upon the request of the Issuer Trust, deliver to such party any unaudited quarterly financial statements of the Servicer. The Servicer agrees to make available to the Issuer Trust and the Indenture Trustee on a reasonable basis a knowledgeable officer of the Servicer for the purpose of answering reasonable questions respecting recent developments affecting the Servicer or the financial statements of the Servicer and to permit the Issuer Trust and the Indenture Trustee on reasonable notice to inspect the Servicer's servicing facilities during normal business hours for the purpose of satisfying the Issuer Trust and the Indenture Trustee that the Servicer has the ability to service the Trust Assets in accordance with this Agreement. The Servicer shall also furnish and certify to the requesting party such other information as to (i) its organization, activities and personnel relating to the performance of the obligations of the Servicer hereunder, (ii) its financial condition, (iii) the Trust Assets and (iv) the performance of the obligations of any Subservicer under the related Subservicing Agreement, in each case as the Indenture Trustee or the Issuer Trust may reasonably request from time to time. Section 7.05 Independent Public Accountants' Servicing Report. ------------------------------------------------ (a) The Servicer shall cause a firm of Independent Accountants (which may provide other services to the Servicer) to prepare, and the Servicer shall deliver to the F-34 Indenture Trustee, the Issuer Trust and the Rating Agency, a report addressed to the Servicer, which may be included as part of the Servicer's or any Subservicer's customary auditing activities, for the information and use of the Indenture Trustee, Securityholders and Issuer Trust on or before May 31 of each year, beginning May 31, 1999, to the effect that such firm has performed certain procedures in connection with the Servicer's compliance with the servicing procedures of this Agreement, identifying the results of such procedures and including any exceptions noted. (b) The report of the Independent Accountants shall also indicate that such accounting firm is independent of the Servicer within the meaning of the Code of Professional Ethics of the American Institute of Certified Public Accountants. Section 7.06 Right to Examine Servicer Records. --------------------------------- Each Securityholder, the Indenture Trustee, the Issuer Trust and each of their respective agents shall have the right upon reasonable prior notice, during normal business hours and as often as reasonably required, to examine, audit and copy, at the expense of the Person making such examination, any and all of the books, records or other information of the Servicer (including without limitation any Subservicer to the extent provided in the related Subservicing Agreement), whether held by the Servicer or by another on behalf of the Servicer, which may be relevant to the performance or observance by the Servicer of the material terms, covenants or conditions of this Agreement. In the case of the supervisory agents and examiners of the Issuer Trust, Indenture Trustee and the Securityholders, access to the documentation regarding the Trust Assets required by applicable state and federal regulations shall be afforded without charge but only upon reasonable request and during normal business hours at the offices of the Servicer designated by it. Each Securityholder, the Indenture Trustee and the Issuer Trust agree that any information obtained pursuant to the terms of this Agreement shall be held confidential. The Servicer also agrees to make available on a reasonable basis to the Securityholders or any prospective Securityholder a knowledgeable financial or accounting officer for the purpose of answering reasonable questions respecting recent developments affecting the Servicer or the financial statements of the Servicer and to permit the Securityholders and any prospective Securityholder to inspect the Servicer's servicing facilities during normal business hours for the purpose of satisfying the Securityholders and such prospective Securityholder that the Servicer has the ability to service and administer the Trust Assets in accordance with this Agreement. Section 7.07 Reports to the Indenture Trustee; Collection Account ---------------------------------------------------- Statements. - ---------- If the Collection Account is not maintained with the Indenture Trustee, then not later than 25 days after each Record Date, the Servicer shall forward to the Indenture Trustee a statement, certified by a Servicing Officer, setting forth the status of the Collection Account as of the close of business on the preceding Record Date and showing, for the period covered by such statement, the aggregate of deposits into the Collection Account for each category of deposit specified in Section 5.01(b)(1) hereof, the aggregate of ------------------ withdrawals from the F-35 Collection Account for each category of withdrawal specified in Section ------- 5.01(b)(2) and (3) hereof. - ---------- --- Section 7.08 Financial Statements. -------------------- The Servicer understands that, in connection with the transfer of the Notes, Noteholders may request that the Servicer make available to the Noteholders and to prospective Noteholders annual financial statements of the Servicer for one or more of the most recently completed five fiscal years for which such statements are available, which request shall not be unreasonably denied. Section 7.09 Accounting and Reports ---------------------- For all purposes of this Section 7.09, the Servicer shall act on ------------ behalf of the Owner Trustee who in turn shall be acting on behalf of the Issuer Trust. The Servicer shall deliver to each Certificateholder, as may be required by the Code and applicable Treasury Regulations, or as may be requested by such Certificateholder, such information, reports or statements as may be necessary to enable each Certificateholder to prepare its federal and state income tax returns. Consistent with the Issuer Trust's characterization for tax purposes as a security arrangement for the issuance of non-recourse debt so long as the Transferor or any other Person is the sole Certificateholder, no federal income tax return shall be filed on behalf of the Issuer Trust unless either (i) the Servicer shall receive an opinion of counsel that, based on a change in applicable law occurring after the date hereof, or as a result of a transfer by the Transferor permitted by Section 3.4 of the Trust Agreement, the Code requires such a filing or (ii) the Internal Revenue Service shall determine that the Trust is required to file such a return. In the event that there shall be two or more Certificateholders, (x) the Servicer shall prepare or shall cause to be prepared federal and, if applicable, state or local partnership tax returns required to be filed by the Issuer Trust and shall remit such returns to the Transferor (or if the Transferor no longer owns any Trust Certificates, the Certificateholder selected by a majority of the Certificateholders (by Percentage Interest) for such purpose) at least five days before such returns are due to be filed, and (y) capital accounts shall be maintained for each Certificateholder in accordance with the Treasury Regulations under Section 704(b) of the Code reflecting each such Certificateholder's pro rata share of the income, gains, deductions, and losses of the Issuer Trust and contributions to, and distributions from, the Issuer Trust. The Transferor (or such designee Certificateholder, as applicable) shall promptly sign such returns and deliver such returns after signature to the Servicer and such returns shall be filed by the Servicer with the appropriate tax authorities. In the event that a "tax matters partner" (within the meaning of Code Section 6231(a)(7)) is required to be appointed with respect to the Issuer Trust, the Transferor is hereby designated as tax matters partner or, if the Transferor is not a Certificateholder, the Certificateholder selected by a majority of the Certificateholders (by Percentage Interest) shall be designated as tax matters partner. In no event shall the Servicer or the Transferor (or such designee Certificateholder, as applicable) be liable for any liabilities, costs or expenses of the Issuer Trust or the Certificateholders arising out of the application of any tax law, including federal, state, foreign or local income or excise taxes or any other tax imposed on or measured by income (or any interest, penalty or addition with F-36 respect thereto or arising from a failure to comply therewith) except for any such liability, cost or expense attributable to any act or omission by the Servicer or the Transferor (or such designee Certificateholder, as applicable) as the case may be, in breach of its obligations under this Agreement. ARTICLE VIII THE SERVICER ------------ Section 8.01 Indemnification; Third Party Claims. ----------------------------------- (a) The Servicer shall indemnify the Transferor, the Issuer Trust, the Owner Trustee and the Indenture Trustee and their respective officers, directors, employees and agents (each an "Indemnified Party") and hold harmless ----------------- each of them against any and all claims, losses, damages, penalties, fines, forfeitures, reasonable legal fees and related costs, judgments, and other costs and expenses resulting from (i) any claim, demand, defense or assertion based on or grounded upon, or resulting from, a breach of any of the Servicer's representations and warranties and covenants contained in this Agreement or in any way relating to the failure of the Servicer to perform its duties and service and administer the Trust Assets in compliance with the terms of this Agreement, the Indenture, the Operating and Management Agreement, the Construction Phase Agreement, the Security Documents and the Revenue Agreements, or (ii) with respect to the Issuer Trust, any indemnity claims against the Issuer Trust pursuant to the Revenue Agreements entered into with each of Pepsi, Coors and US West resulting from the assumption by the Issuer Trust of the obligations of the Transferor thereunder; provided, however, that if the Servicer is not liable pursuant to the provisions of Section 8.01(d) hereof for --------------- its failure to perform its duties and service and administer the Trust Assets in compliance with the terms of this Agreement, then the provisions of this Section ------- 8.01 shall have no force and effect with respect to such failure. - ---- (b) The Transferor, the Issuer Trust, the Owner Trustee or the Indenture Trustee, as the case may be, shall promptly notify the Servicer if a claim is made by a third party with respect to a breach of any of the Servicer's representations and warranties and covenants contained in this Agreement or in any way relating to the failure of the Servicer to perform its duties and service and administer the Trust Assets in compliance with the terms of this Agreement. The Servicer shall promptly notify the Indenture Trustee and the Issuer Trust of any claim of which it has been notified pursuant to this Section ------- 8.01 by a Person other than the Indenture Trustee or the Issuer Trust, as the - ---- case may be, and, in any event, shall promptly notify the Issuer Trust and the Indenture Trustee of its intended course of action with respect to any claim. (c) The Servicer shall be entitled to participate in and, upon notice to the Indemnified Party, assume the defense of any such action or claim in reasonable cooperation with, and with the reasonable cooperation of, the Indemnified Party. The Indemnified Party will have the right to employ its own counsel in any such action in addition to the counsel of the Servicer, but the fees and expenses of such counsel will be at the expense of such F-37 Indemnified Party, unless (i) the employment of counsel by the Indemnified Party at its expense has been authorized in writing by the Servicer, (ii) the Servicer has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both the Servicer and one or more Indemnified Parties, and the Indemnified Parties shall have been advised by counsel that there is a conflict of interest which renders common representation inappropriate. The Servicer shall not be liable for any settlement of any such claim or action unless the Servicer shall have consented thereto or be in default on its obligations hereunder. Any failure by an Indemnified Party to comply with the provisions of this Section 8.01 shall relieve the Servicer of ------------ liability only if such failure is materially prejudicial to the position of the Servicer and then only to the extent of such prejudice. (d) None of the Transferor, the Servicer or any of the directors, officers, employees or agents of the Transferor or the Servicer, shall be under any liability to the Issuer Trust or the Securityholders for any action taken, or for refraining from the taking of any action, in good faith pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Transferor, the Servicer or any such person against the remedies provided herein for the breach of the covenants set forth in Section ------- 2.06(a) hereof or any warranties, representations or other covenants made - ------- herein, or against any specific liability imposed on the Transferor or the Servicer herein, or against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or negligence in the performance of the duties of the Servicer or the Transferor, as the case may be, or by reason of reckless disregard of the obligations and duties of the Servicer or the Transferor, as the case may be, hereunder. The Transferor, the Servicer and any director, officer, employee or agent of the Transferor or the Servicer, may rely in good faith on any document of any kind which, prima facie, is properly executed and submitted by any Person respecting any matters arising hereunder. (e) The Servicer, the Transferor and the Owner Trustee and any director, officer, employee or agent of the Servicer, the Transferor or the Owner Trustee shall be indemnified by the Issuer Trust and held harmless against any loss, liability or expense incurred in connection with any audit, controversy or judicial proceeding relating to a governmental taxing authority or any legal action relating to this Agreement or the Securities, other than any loss, liability or expense related to any specific Trust Asset or Trust Assets (except as any such loss, liability or expense shall be otherwise reimbursable pursuant to this Agreement) and any loss, liability or expense incurred by reason of willful misfeasance, bad faith or negligence in the performance of duties hereunder or by reason of reckless disregard of obligations and duties hereunder. Except as otherwise provided herein, none of the Transferor, the Owner Trustee or the Servicer shall be under any obligation to appear in, prosecute or defend any legal action that is not related to its respective duties under this Agreement; provided, however, that, except as otherwise provided herein, any of the Transferor, the Owner Trustee or the Servicer may, with the prior consent of the Indenture Trustee, in its discretion undertake any such action which it may deem necessary or desirable with respect to this Agreement and the rights and duties of the parties hereto and the interests F-38 of the Securityholders hereunder. In such event, the legal expenses and costs of such action and any liability resulting therefrom shall be expenses, costs and liabilities of the Issuer Trust, and the Transferor, the Owner Trustee and the Servicer shall be entitled to be reimbursed therefor out of the Collection Account. Section 8.02 Merger or Consolidation of the Servicer. --------------------------------------- The Servicer shall keep in full effect its existence, rights and franchises as a limited liability company, and will obtain and preserve its qualification to do business as a foreign company and maintain such other licenses and permits in each jurisdiction necessary to protect the validity and enforceability of this Agreement or any of the Trust Assets and to perform its duties under this Agreement; provided, however, that the Servicer may merge or consolidate with any other entity upon the satisfaction of the conditions set forth in the following paragraph. Any Person into which the Servicer may be merged or consolidated, or any entity resulting from any merger, conversion or consolidation to which the Servicer shall be a party, or any Person succeeding to the business of the Servicer, shall be an Eligible Servicer and shall be the successor of the Servicer, as applicable hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. The Servicer shall send notice of any such merger, conversion, consolidation or succession to the Indenture Trustee, the Issuer Trust and the Rating Agency. Section 8.03 Limitation on Liability of the Servicer and Others. -------------------------------------------------- The Servicer and any director, officer, employee or agent of the Servicer may rely on any document of any kind which it in good faith reasonably believes to be genuine and to have been adopted or signed by the proper authorities respecting any matters arising hereunder. Subject to the terms of Section 8.01 hereof, the Servicer shall have no obligation to appear with - ------------ respect to, prosecute or defend any legal action which is not incidental to the Servicer's duty to service the Trust Assets in accordance with this Agreement. Section 8.04 Servicer Not to Resign; Assignment. ---------------------------------- The Servicer shall not resign from the obligations and duties hereby imposed on it except (a) with the consent of the Indenture Trustee or (b) upon determination that its duties hereunder are no longer permissible under applicable law. Any such determination pursuant to clause (b) of the preceding sentence permitting the resignation of the Servicer shall be evidenced by an independent opinion of counsel to such effect delivered (at the expense of the Servicer) to the Indenture Trustee. No resignation of the Servicer shall become effective until a successor servicer, appointed pursuant to the provisions of Section 9.02 hereof and satisfying the requirements of Section 4.05 hereof with - ------------ ------------ respect to the qualifications of a successor Servicer, shall have assumed the Servicer's responsibilities, duties, liabilities (other than those liabilities arising prior to the appointment of such successor) and obligations under this Agreement. F-39 Except as expressly provided herein, the Servicer shall not assign or transfer any of its rights, benefits or privileges hereunder to any other Person, or delegate to or subcontract with, or authorize or appoint any other Person to perform any of the duties, covenants or obligations to be performed by the Servicer hereunder and any agreement, instrument or act purporting to effect any such assignment, transfer, delegation or appointment shall be void. The Servicer agrees to cooperate with any successor Servicer in effecting the transfer of the Servicer's servicing responsibilities and rights hereunder pursuant to the first paragraph of this Section 8.04, including, ------------ without limitation, the transfer to such successor of all relevant records and documents (including the Servicer's Contract Files) and all amounts received with respect to the Trust Assets and not otherwise permitted to be retained by the Servicer pursuant to this Agreement. In addition, the Servicer, at its sole cost and expense, shall prepare, execute and deliver any and all documents and instruments to the successor Servicer and do or accomplish all other acts necessary or appropriate to effect such termination and transfer of servicing responsibilities. Section 8.05 Relationship of Servicer to Issuer Trust and the ------------------------------------------------ Indenture Trustee. - ----------------- The relationship of the Servicer (and of any successor to the Servicer as servicer under this Agreement) to the Issuer Trust and the Indenture Trustee under this Agreement is intended by the parties hereto to be that of an independent contractor and not of a joint venturer, agent or partner of the Issuer Trust or the Indenture Trustee. Section 8.06 Servicer May Own Notes. ---------------------- Each of the Servicer and any Affiliate of the Servicer may in its individual or any other capacity become the owner or pledgee of Notes with the same rights as it would have if it were not the Servicer or an Affiliate thereof except as otherwise specifically provided herein. Notes so owned by or pledged to the Servicer or such Affiliate shall have an equal and proportionate benefit under the provisions of this Agreement, without preference, priority, or distinction as among all of the Notes; provided, however, that any Notes owned by the Servicer or any Affiliate thereof, during the time such Notes are owned by them, shall be without voting rights for any purpose set forth in this Agreement. The Servicer shall notify the Indenture Trustee promptly after it or any of its Affiliates becomes the owner or pledgee of a Note. ARTICLE IX DEFAULT ------- Section 9.01 Servicer Events of Default. -------------------------- (a) In case one or more of the following events of default by the Servicer (each, a "Servicer Event of Default") shall occur and be continuing: ------------------------- F-40 (i) any failure by the Servicer to deposit in the Collection Account in accordance with Section 5.01(b) hereof any payments in respect of the --------------- Revenue Agreements received by the Servicer no later than the second Business Day following the day on which such payments were received; or (ii) failure by the Servicer to execute, on behalf of the Issuer Trust, amended and restated Revenue Agreements with each of Pepsi and Coors on the Closing Date as described in Section 4.01(b) hereof or to observe or perform, in any material respect, any other covenants, obligations or agreements of the Servicer as set forth in this Agreement or under the Operating and Management Agreement, which failure continues unremedied for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied and stating that such notice is a "Notice of Default" hereunder, shall have been given (a) to the Servicer by the Indenture Trustee or the Issuer Trust, or (b) to the Servicer by the Majority Noteholders; or (iii) a decree or order of a court or agency or supervisory authority having jurisdiction for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Servicer and such decree or order shall have remained in force, undischarged or unstayed for a period of 60 days; or (iv) the Servicer shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings of or relating to the Servicer or of or relating to all or substantially all of the Servicer's property; or (v) the Servicer shall admit in writing its inability to pay its debts as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations; or (vi) the Majority Noteholders shall receive notice from the Servicer that the Servicer is no longer able to discharge its duties under this Agreement; (b) then, and in each and every such case, so long as a Servicer Event of Default shall not have been remedied, the Indenture Trustee or the Majority Noteholders, by notice in writing to the Servicer may, in addition to whatever rights such Person may have at law or in equity to damages, including injunctive relief and specific performance, terminate all the rights and obligations of the Servicer under this Agreement and any Subservicer under the Operating and Management Agreement and in and to the Trust Assets and the proceeds thereof, as servicer under this Agreement. Upon receipt by the Servicer of such written notice, all authority and power of the Servicer under this Agreement, whether with respect to the Trust Assets or otherwise, shall, subject to Section 9.02 hereof, pass to and be vested in a successor servicer, or the ------------ Indenture Trustee if a successor servicer cannot be retained in a timely manner, and the successor servicer, or Indenture Trustee, as applicable, is hereby F-41 authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments and do or cause to be done all other acts or things necessary or appropriate to effect the purposes of such notice of termination, including, but not limited to, the transfer and endorsement or assignment of the Trust Assets and related documents. The Servicer agrees to cooperate with the successor servicer in effecting (i) the termination of the Servicer's responsibilities and rights hereunder, including, without limitation, the transfer to the successor servicer for administration by it of all amounts which shall at the time be credited by the Servicer to the Collection Account or thereafter received with respect to the Trust Assets and (ii) the termination of any Subservicer's responsibilities and rights under the Operating and Management Agreement. (c) In the event that the Servicer is terminated as Servicer hereunder, the Servicer hereby agrees that it shall immediately thereafter relinquish all supervisory rights with respect to the Operator held by it under the Operating and Management Agreement or in its capacity as owner of the New Arena Facility. Section 9.02 Indenture Trustee to Act; Appointment of Successor. -------------------------------------------------- On and after the date the Servicer receives a notice of termination pursuant to Section 9.01 hereof, or the Indenture Trustee receives the ------------ resignation of the Servicer evidenced by an Opinion of Counsel or accompanied by the consents required by Section 8.04 hereof, or the Servicer is removed as ------------ servicer pursuant to this Article IX, then, subject to Section 4.05 hereof, the ------------ Majority Noteholders, with the approval of the Rating Agency, shall appoint a successor servicer to be the successor in all respects to the Servicer in its capacity as Servicer under this Agreement and the transactions set forth or provided for herein and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof; provided, however, that the successor servicer shall not be liable for any actions of any prior servicer. As compensation therefor, the successor servicer appointed pursuant to the following paragraph, shall be entitled to all funds relating to the Trust Assets which the Servicer would have been entitled to receive from the Collection Account pursuant to Section 5.01(c) hereof as if the Servicer had --------------- continued to act as servicer hereunder, together with other Servicing Compensation in the form of administration fees, late payment charges or otherwise as provided in Section 7.03 hereof. The Servicer shall not be ------------ entitled to any termination fee if it is terminated pursuant to Section 9.01 ------------ hereof but shall be entitled to any accrued and unpaid Servicing Fee to the date of termination. Any collections received by the Servicer after removal or resignation shall be endorsed by it to the Indenture Trustee and remitted directly to the Indenture Trustee or, at the direction of the Indenture Trustee, to the successor servicer. The compensation of any successor servicer so appointed shall be the Servicing Fee, together with other Servicing Compensation provided for herein. The Indenture Trustee, the Issuer Trust, the Custodian, the Servicer and any such successor servicer shall take such action, consistent with this Agreement, as shall be necessary to effect any such succession. The Servicer agrees to F-42 cooperate with the Indenture Trustee and any successor servicer in effecting the termination of the Servicer's servicing responsibilities and rights hereunder and shall promptly provide the Indenture Trustee or such successor servicer, as applicable, all documents and records reasonably requested by it to enable it to assume the Servicer's functions hereunder and shall promptly also transfer to the Indenture Trustee or such successor servicer, as applicable, all amounts which then have been or should have been deposited in any Trust Account maintained by the Servicer or which are thereafter received with respect to the Trust Assets. Neither the Indenture Trustee nor any other successor servicer shall be held liable by reason of any failure to make, or any delay in making, any distribution hereunder or any portion thereof caused by (i) the failure of the Servicer to deliver, or any delay in delivering, cash, documents or records to it or (ii) restrictions imposed by any regulatory authority having jurisdiction over the Servicer hereunder. No appointment of a successor to the Servicer hereunder shall be effective until written notice of such proposed appointment shall have been provided by the Indenture Trustee to each Securityholder, and the Issuer Trust and, except in the case of the appointment of the Indenture Trustee as successor to the Servicer (when no consent shall be required), the Majority Noteholders and the Issuer shall have consented thereto. The Indenture Trustee may make such arrangements for the compensation of such successor servicer out of payments on the Contracts as it and such successor servicer shall agree; provided, however, that no such compensation shall be in excess of that permitted the Servicer pursuant to Section 7.03 ------------ hereof, together with other Servicing Compensation in the form of assumption fees, late payment charges or otherwise as provided in this Agreement. Section 9.03 Waiver of Defaults. ------------------ The Majority Noteholders may waive any events permitting removal of the Servicer as servicer pursuant to this Article IX; provided, however, that the Majority Noteholders may not waive a default in making a required distribution on a Note or Trust Certificate without the consent of the related Noteholder or Certificateholder. Upon any waiver of a past default, such default shall cease to exist and any Servicer Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereto except to the extent expressly so waived. Section 9.04 Accounting Upon Termination of Servicer. --------------------------------------- Upon termination of the Servicer under this Article IX, the Servicer shall, at its own expense: (a) deliver to its successor or, if none shall yet have been appointed, to the Indenture Trustee the funds in any Trust Account maintained by the Servicer; (b) deliver to its successor or, if none shall yet have been appointed, to the Indenture Trustee the Servicer's Contract Files and related documents and statements in its possession; F-43 (c) deliver to its successor or, if none shall yet have been appointed, to the Indenture Trustee and to the Issuer Trust and the Securityholders a full accounting of all funds, including a statement showing the Required Payments collected by it and a statement of moneys held in trust by it for payments or charges with respect to the Contracts; and (d) execute and deliver such instruments and perform all acts reasonably requested in order to effect the orderly and efficient transfer of servicing of the Trust Assets to its successor and to more fully and definitively vest in such successor all rights, powers, duties, responsibilities, obligations and liabilities of the Servicer under this Agreement. Section 9.05 Transferor Defaults. ------------------- (a) In case one or more of the following defaults by the Transferor (each, a "Transferor Default") shall occur and be continuing: (1) any failure of the Transferor to construct the New Arena Facility in accordance with the Project Plans, the Construction Contract and the Construction Phase Agreement on or before the Outside Completion Date; (2) any failure of the Transferor to operate and manage the New Arena Facility in accordance with the Arena Agreement, the Lease, the Operating and Management Agreement and the User Agreements, which failure is likely to result in the termination of any Revenue Agreement by the related Revenue Contractor or a material interruption in such Revenue Contractor's payment obligation thereunder; (3) receipt by the Issuer Trust or the Indenture Trustee from the City of a notice of default by the Transferor in the observance or performance of any material covenant or agreement under the Arena Agreement or the Lease, and such default is not cured within the grace periods provided by the City thereunder; (b) then, and in each and every such case, so long as a Transferor Default shall not have been remedied, the Indenture Trustee or the Majority Noteholders, by notice in writing to the Transferor and Servicer may, in addition to whatever rights such Person may have under the Construction Phase Mortgage, the Leasehold Mortgage, the Security Agreement [Excess Collateral] or the Security Agreement [Indenture Trustee], or at law or in equity to damages, including injunctive relief and specific performance, terminate all the rights and obligations of the Transferor under this Agreement and in and to the Trust Assets and proceeds thereof, and in the event of a Transferor Default under Section 9.05(a), assume all rights of the Transferor under the Construction - --------------- Phase Agreement, including any rights to proceeds from the Construction Fund Account. Upon receipt by the Transferor and Servicer of such written notice, all authority and power of the Transferor to cause completion of construction of the New Arena Facility under the Construction Phase Agreement and to operate the New Arena Facility under the Operating and Management Agreement, whether with respect to the Trust Assets or otherwise, shall, subject to Section 9.02 hereof, ------------ pass to and be vested in a successor servicer or the Indenture Trustee if a successor servicer cannot be retained in a timely manner, and the successor servicer or the Indenture Trustee, as applicable, F-44 is hereby authorized and empowered to execute and deliver, on behalf of the Transferor and the Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments and do or cause to be done all other acts or things necessary or appropriate to effect the purposes of such notice of termination, including, but not limited to, the transfer and endorsement or assignment of the Trust Assets and related documents. The Transferor and the Servicer agree to cooperate with the successor servicer in effecting the termination of such responsibilities and rights. ARTICLE X TERMINATION ----------- Section 10.01 Termination. ----------- This Agreement shall terminate upon notice from the Indenture Trustee to each other party hereto of either: (a) the later of (i) the satisfaction and discharge of the Indenture and the provisions thereof or (ii) the disposition of all funds with respect to the last Trust Asset and the remittance of all funds due hereunder and the payment of all amounts due and payable to the Indenture Trustee, the Owner Trustee, the Issuer Trust and the Custodian; or (b) the mutual consent of the Servicer, the Transferor and all Securityholders in writing. Section 10.02 Notice of Termination. --------------------- Notice of termination of this Agreement shall be sent (i) by the Indenture Trustee to the Noteholders in accordance with Section 11.05 of the Indenture and (ii) by the Owner Trustee to the Certificateholders in accordance with Section 11.4(b) of the Trust Agreement. ARTICLE XI MISCELLANEOUS PROVISIONS ------------------------ Section 11.01 Acts of Noteholders. ------------------- Except as otherwise specifically provided herein, whenever action, consent or approval of the Noteholders is required under this Agreement, such action, consent or approval shall be deemed to have been taken or given on behalf of, and shall be binding upon, all Noteholders if the Majority Noteholders agree to take such action or give such consent or approval. Section 11.02 Amendment. --------- (a) This Agreement may be amended from time to time by the Servicer, the Transferor, the Indenture Trustee, the Owner Trustee and the Issuer Trust by written agreement with notice thereof to the Securityholders, without the consent of any of the Securityholders, to cure any error or ambiguity, to correct or supplement any provisions F-45 hereof which may be defective or inconsistent with any other provisions hereof or to add any other provisions with respect to matters or questions arising under this Agreement; provided, however, that such action will not adversely affect in any material respect the interests of the Securityholders. An amendment described above shall be deemed not to adversely affect in any material respect the interests of the Securityholders if either (i) an Opinion of Counsel is obtained to such effect or (ii) the party requesting the amendment obtains a letter from the Rating Agency confirming that the amendment, if made, would not result in the downgrading or withdrawal of the rating then assigned by the Rating Agency to the Notes. (b) This Agreement may also be amended from time to time by the Servicer, the Transferor, the Indenture Trustee, the Owner Trustee and the Issuer Trust by written agreement, with the prior written consent of the Majority Noteholders, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement, or of modifying in any manner the rights of the Noteholders; provided, however, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, collections of payments on Trust Assets or distributions which are required to be made on the Notes, without the consent of the holders of 100% of the Notes (excluding any Notes held by the Transferor), (ii) adversely affect in any material respect the interests of any Noteholders in any manner other than as described in clause (i), without the consent of the holders of 100% of such Notes, or (iii) reduce the percentage of Notes, the consent of which is required for any such amendment, without the consent of the holders of 100% of the Notes. (c) It shall not be necessary for the consent of Securityholders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. Prior to the execution of any amendment to this Agreement, the Owner Trustee and the Indenture Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Agreement. The Issuer Trust, the Owner Trustee and the Indenture Trustee may, but shall not be obligated to, enter into any such amendment which affects the rights, duties or immunities of the Issuer Trust or the Indenture Trustee, as the case may be, under this Agreement. Section 11.03 Recordation of Agreement. ------------------------ The parties hereby agree that this Agreement shall be recorded in the appropriate public offices in Denver, Colorado. Section 11.04 Duration of Agreement. --------------------- This Agreement shall continue in existence and effect until terminated as herein provided. F-46 Section 11.05 Governing Law. ------------- (A) EXCEPT AS PROVIDED IN (B) BELOW, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. (B) THE CONVEYANCE OF THE TRUST ASSETS PURSUANT TO SECTION 2.01 HEREOF SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. Section 11.06 Notices. ------- All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by overnight mail, certified mail or registered mail, postage prepaid, to: (i) in the case of the Issuer Trust, DENVER ARENA TRUST, c/o Wilmington Trust Company, 1100 North Market Street, Rodney Square, Wilmington, Delaware 19890, Attention: Corporate Trust Administration, or such other address as may hereafter be furnished to the Securityholders and the other parties hereto in writing, with copies to Richards, Layton & Finger, One Rodney Square, 902 King Street, Wilmington, Delaware 19899; (ii) in the case of the Transferor and the Servicer, Ascent Arena Company, LLC, 901 Auraria Parkway, Denver, Colorado 80204, Attention: Mr. Timothy Romani, or such other address as may hereafter be furnished to the Securityholders and the other parties hereto in writing by the Servicer or the Transferor, with copies to 101 Barclay Street, New York, New York 10286; (iii) in the case of the Indenture Trustee, The Bank of New York, 101 Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust Administration, or such other address as may hereafter be furnished to the Securityholders and the other parties hereto in writing, and (iv) in the case of the Securityholders, as set forth in the Note Register or Certificate Register, as applicable. Any such notices shall be deemed to be effective with respect to any party hereto upon the receipt of such notice by such party, except that notices to the Securityholders shall be effective upon mailing or personal delivery. Section 11.07 Severability of Provisions. -------------------------- If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be held invalid for any reason whatsoever, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other covenants, agreements, provisions or terms of this Agreement. F-47 Section 11.08 No Partnership. -------------- Nothing herein contained shall be deemed or construed to create any partnership or joint venture between the parties hereto and the services of the Servicer shall be rendered as an independent contractor. Section 11.09 Counterparts. ------------ This Agreement may be executed in one or more counterparts and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed to be an original; such counterparts, together, shall constitute one and the same Agreement. Section 11.10 Successors and Assigns. ---------------------- This Agreement shall inure to the benefit of and be binding upon the Servicer, the Transferor, the Owner Trustee, the Issuer Trust, the Indenture Trustee, and the Securityholders and their respective successors and permitted assigns. Section 11.11 Headings. -------- The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. Section 11.12 Actions of Securityholders. -------------------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Agreement to be given or taken by Securityholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders in person or by agent duly appointed in writing; and except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Servicer or the Issuer Trust. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Agreement and conclusive in favor of the Servicer and the Issuer Trust if made in the manner provided in this Section 11.12. ------------- (b) The fact and date of the execution by any Securityholder of any such instrument or writing may be proved in any reasonable manner which, the Servicer or the Issuer Trust deems sufficient. (c) Any request, demand, authorization, direction, notice, consent, waiver or other act by a Securityholder shall bind every holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done, or omitted to be done, by the Servicer or the Issuer Trust in reliance thereon, whether or not notation of such action is made upon such Security. F-48 (d) The Servicer or the Issuer Trust may require additional proof of any matter referred to in this Section 11.12 as it shall deem necessary. ------------- Section 11.13 Reports to Rating Agency. ------------------------ (a) The Indenture Trustee shall provide to the Rating Agency copies of statements, reports and notices, to the extent received or prepared in connection herewith, as follows: (i) copies of amendments to this Agreement; (ii) notice of any termination of Revenue Agreements, and copies of Subsequent Revenue Agreements; (iii) notice of any termination, replacement, succession, merger or consolidation of the Servicer, any Custodian or the Issuer Trust; (iv) notice of final payment on the Notes; (v) notice of any Servicer Event of Default; (vi) copies of the annual independent accountants' report delivered pursuant to Section 7.05 hereof, and copies of any compliance reports ------------ delivered by the Servicer including under Section 7.04 hereof; ------------ (vii) copies of any Distribution Statement pursuant to Section ------- 6.01(b) hereof; - ------- (viii) notice of any Mandatory Redemption Date; and (ix) notice of the occurrence of a Lease Reserve Trigger Event as referred to in Section 5.03(e)(ii) hereof. ------------------- (b) With respect to the requirement of the Indenture Trustee to provide statements, reports and notices to the Rating Agency, such statements, reports and notices shall be delivered to the Rating Agency at the following addresses: (i) if to Fitch, One State Street Plaza, New York, New York 10004, Attention: ABS Surveillance Group. (c) The Indenture Trustee makes this covenant as a matter of courtesy and accommodation only and shall not be liable to any Person for any failure to comply therewith. Section 11.14 Certificateholders. ------------------ (a) Any sums to be distributed or otherwise paid hereunder or under the Trust Agreement to the Certificateholders shall be paid to such Certificateholders pro rata based on their Percentage Interest; F-49 (b) Where any act or event hereunder is expressed to be subject to the consent or approval of the Certificateholders, such consent or approval shall be capable of being given by no fewer than the Majority Certificateholders. Section 11.15 Limitation of Liability. ----------------------- It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by Wilmington Trust Company, not individually or personally but solely as Owner Trustee of the Issuer Trust, in the exercise of the powers and authority conferred and vested in it under the Trust Agreement, (b) each of the representations, undertakings and agreements herein made on the part of the Issuer Trust is made and intended not as personal representations, undertakings and agreements by Wilmington Trust Company but is made and intended for the purpose of binding only the Issuer Trust, and (c) under no circumstances shall Wilmington Trust Company be personally liable for the payment of any indebtedness or expenses of the Issuer Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer Trust under this Agreement or the other Basic Documents. Section 11.16 Third Party Beneficiaries. ------------------------- The parties hereby agree and acknowledge that each of the Revenue Contractors shall be deemed to be third party beneficiaries of this Agreement. Section 11.17 Limitation on Recourse. ---------------------- There will be full recourse to the Collateral with respect to the obligations of the Transferor, the Servicer or any Subservicer under this Agreement or the other Basic Documents as described herein and therein. The Transferor, the Servicer or any Subservicer will not be held personally liable or obligated for any of the obligations under the Basic Documents, except as may be specifically provided in any Basic Document to which it is a party; provided, however, that such entities will be personally liable for damages arising from (i) fraud, misrepresentation, or misappropriation or misapplication of funds, (ii) in the case of the Transferor, any breach of the obligations of the Transferor to construct the New Arena Facility in a timely manner in accordance with and pursuant to the terms and conditions of this Agreement, the Arena Agreement, the Construction Phase Agreement and the Project Plans, or (iii) any breach of the Team Commitments under the User Agreements, and such entities will be liable for payment of their respective indemnity obligations under any of the Basic Documents. F-50 IN WITNESS WHEREOF, the Issuer Trust, the Servicer, the Transferor and the Indenture Trustee have caused their names to be signed by their respective officers thereunto duly authorized, as of the day and year first above written, to this Sale and Servicing Agreement. ISSUER TRUST: DENVER ARENA TRUST By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee on behalf of the Issuer Trust By: /s/ Emmett R. Harmon ----------------------------------------- Name: Emmett R. Harmon Title: Vice President TRANSFEROR AND SERVICER: ASCENT ARENA COMPANY, LLC By: Ascent Arena and Development Corporation, a Delaware corporation, as managing member By: /s/ Timothy D. Romani ----------------------------------------- Name: Timothy D. Romani Title: President INDENTURE TRUSTEE: THE BANK OF NEW YORK By: /s/ Walter N. Gitlin ----------------------------------------- Name: Walter N. Gitlin Title: Vice President F-51 EX-10.20 9 ASCENT ENTERTAINMENT GROUP, INC NON EMPLOYEE EXHIBIT 10.20 1997 NON-EMPLOYEE DIRECTORS STOCK APPRECIATION RIGHTS PLAN Ascent Entertainment Group, Inc., a Delaware corporation, has adopted the 1997 Non-Employee Directors Stock Plan (the "Plan"), effective as of June 27, 1997, and ratified on October 24, 1997, for the benefit of its eligible Independent Directors (as such term is defined below). The purposes of this Plan are as follows: (1) To provide an additional incentive for directors to further the growth, development and financial success of the Company by personally benefitting through the ownership of Company stock appreciation rights which recognize such growth, development and financial success. (2) To enable the Company to attract and retain the services of directors of the highest qualifications considered essential to both the short term challenges confronting the Company and the long range success of the Company by offering them an opportunity to own Company stock appreciation rights which will reflect the growth, development and financial success of the Company. ARTICLE I DEFINITIONS I.1 General. Wherever the following terms are used in this Plan they ------- shall have the meaning specified below, unless the context clearly indicates otherwise. I.2 Board. "Board" shall mean the Board of Directors of the Company. ----- I.3 Code. "Code" shall mean the Internal Revenue Code of 1986, as ---- amended. I.4 Common Stock. "Common Stock" shall mean the common stock of the ------------ Company, par value $.01 per share, and any equity security of the Company issued or authorized to be issued in the future, but excluding any warrants, options or other rights to purchase Common Stock. I.5 Company. "Company" shall mean Ascent Entertainment Group, Inc., ------- a Delaware corporation. I.6 Corporate Transaction. "Corporate Transaction" shall mean any of --------------------- the following: 1 (a) 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 (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) 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 subsection (a), the following acquisitions shall not constitute a Corporate Transaction: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c); or (b) Individuals who, as of June 27, 1997, 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 June 27, 1997 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 (c) 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, (i) 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 50% 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 2 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, (ii) 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 (iii) 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 (d) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. I.7 Director. "Director" shall mean a member of the Board. -------- 1.8 Exchange Act. "Exchange Act" shall mean the Securities Exchange ------------ Act of 1934, as amended. 1.9 Fair Market Value. "Fair Market Value" of a share of Common ----------------- Stock as of a given date shall be (i) the closing price of a share of Common Stock on the principal exchange on which shares of Common Stock are then trading, if any, on such date, or if shares were not traded on such date, then on the closest preceding date on which a trade occurred, or (ii) if Common Stock is not traded on an exchange, the closing price for the Common Stock on such date as reported by NASDAQ or, if NASDAQ is not then in existence, by its successor quotation system; or (iii) if Common Stock is not publicly traded, the Fair Market Value of a share of Common Stock as established by the Board acting in good faith. 1.10 Grant Date. "Grant Date" shall mean the date an Independent ---------- Director receives a grant of SARs pursuant to Section 3 of the Plan. 3 1.11 Independent Director. "Independent Director" shall mean a -------------------- Director who is not an officer or employee of the Company or any of its Subsidiaries. 1.12 Holder. "Holder" shall mean an Independent Director granted an ------ SAR under this Plan. 1.13 Plan. "Plan" shall mean the 1997 Non-Employee Directors Stock ---- Plan. 1.14 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 ---------- under the Exchange Act, as such Rule may be amended from time to time. 1.15 Stock Appreciation Right or SAR. "Stock Appreciation Right" or ------------------------------- "SAR" shall mean a right to receive cash in an amount equal to the appreciation in the Fair Market Value of the Common Stock from the date of grant through the date of exercise as set forth in Article III of this Plan. 1.16 Subsidiary. "Subsidiary" shall mean any corporation in an ---------- unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 1.17 Termination of Directorship. "Termination of Directorship" --------------------------- shall mean the time when a Holder ceases to be a Director for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement. The Board, in its sole and absolute discretion, shall determine the effect of all matters and questions relating to Termination of Directorship. ARTICLE II SHARES SUBJECT TO PLAN II.1 Shares Subject to Plan. The shares subject to SARs shall be ---------------------- shares of the Company's Common Stock. The aggregate number of such shares which will relate to SARs issued under the Plan shall not exceed seven hundred thousand (700,000). ------- II.2 Unexercised SARS. If any SARs issued under the Plan expire or ---------------- are canceled without having been fully exercised, the number of shares subject to such SARs but as to which such SARs were not exercised prior to their expiration or cancellation 4 may again be subject to an SAR hereunder, subject to the limitations of Section 2.1. ARTICLE III GRANTING OF SARs 3.1 Eligibility. Each Independent Director of the Company shall be ----------- eligible to be granted SARs at the times and in the manner set forth in Section 3.2. 3.2 Granting of SARs ---------------- (a) On June 27, 1997, each individual then serving on or elected to the Board and continuing to serve after such date as an Independent Director shall be granted an SAR with respect to 100,000 shares of Common Stock. (b) Subsequent to June 27, 1997, each individual, other than those individuals described in subsection (a) above, who is elected or appointed to the Board of Directors and is an Independent Director shall be granted, on a one-time basis, an SAR with respect to 100,000 shares of Common Stock. ARTICLE IV TERMS OF SARS 4.1 SAR Agreement. Each SAR grant shall be evidenced by a written ------------- SAR Agreement, which shall be executed by the Holder and an authorized officer of the Company and which shall contain such terms and conditions as the Board shall determine, consistent with this Plan. 4.2 SAR Price. The exercise price per share of the shares of Common --------- Stock subject to each SAR shall be the Fair Market Value of a share of Common Stock on the date of grant of such SAR. 4.3 SAR Term. The term of a grant of SARs under the Plan shall be -------- ten (10) years from the date the SARs are granted. 4.4 SAR Vesting ----------- (a) Each SAR grant shall vest as follows:
Percent of SAR grant Date Which Is Exercisable - ---- -------------------- Prior to the first anniversary of the 0%
5 Grant Date After the first anniversary of the Grant Date 25% After the second anniversary of the Grant Date 50% After the third anniversary of the Grant Date 100%
(b) Except as otherwise provided in this Plan, no portion of an SAR grant which is unexercisable at a Termination of Directorship shall thereafter become exercisable. 4.5 Consideration. In consideration of the granting of an SAR, the ------------- Holder shall agree, in the written SAR Agreement, to serve as an Independent Director of the Company or any Subsidiary until the next annual meeting of stockholders of the Company. Nothing in this Plan or in any SAR Agreement hereunder shall interfere with or restrict in any way the rights of the Company, which are hereby expressly reserved, to remove any Holder as a Director at any time for any reason whatsoever, with or without good cause. ARTICLE V EXERCISE OF SARS 5.1 Partial Exercise. Vested SARs may be exercised in whole or in ---------------- part. However, SARs shall not be exercisable with respect to fractional shares and the Board may require that, by the terms of the SAR, a partial exercise be with respect to a minimum number of shares. 5.2 Manner of Exercise. All or a portion of exercisable SARs shall ------------------ be deemed exercised upon delivery of all of the following to the Secretary of the Company or his office: (a) A written notice complying with the applicable rules established by the Board stating that the SARs, or a portion thereof, are exercised. The notice shall be signed by the Holder or such other person then entitled to exercise the SARs or such portion; and (b) In the event that SARs shall be exercised pursuant to Section 7.1 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the SARs. 6 5.3 Conditions to Payment Pursuant to the SARs. The Company shall ------------------------------------------ not be required to make the cash payment related to the exercise of rights under the SARs prior to fulfillment of all of the following conditions: (a) The lapse of such reasonable period of time following the exercise of the SARs as the Board may establish from time to time for reasons of administrative convenience; and (b) The retention out of the SAR exercise proceeds by the Company of full payment for any applicable taxes. 5.4 Rights as Stockholders. The Holders of SARs shall not be, nor ---------------------- have any of the rights or privileges of, stockholders of the Company in respect of such SARs. 5.5 Limitations on Exercise of SARs. No SAR may be exercised to any ------------------------------- extent by anyone after the first to occur of the following events: (a) the expiration of twelve months from the date of the Holder's death; (b) the expiration of twelve months from the date of the Holder's Termination of Directorship by reason of his permanent and total disability (within the meaning of Section 22(e)(3) of the Code); (c) the expiration of three months from the date of the Holder's Termination of Directorship for any reason other than such Holder's death or his permanent and total disability, unless the Holder dies within said three-month period; (d) the expiration of twelve months from the date of a Corporate Transaction; or (e) the expiration of ten years from the date the SARS were granted. 7 ARTICLE VI ADMINISTRATION 6.1 Duties and Powers of Board. It shall be the duty of the Board to -------------------------- conduct the general administration of this Plan in accordance with its provisions. The Board shall have the power to interpret this Plan and the agreements pursuant to which SARs are granted, and to adopt such rules for the administration, interpretation, and application of this Plan as are consistent therewith and to interpret, amend or revoke any such rules. Any such grant under this Plan need not be the same with respect to each Holder. 6.2 Majority Rule. The Board shall act by a majority of its members ------------- in attendance at a meeting at which a quorum is present or by a consent, memorandum or other written instrument signed by all members of the Board. 6.3 Compensation; Professional Assistance; Good Faith Actions. All --------------------------------------------------------- expenses and liabilities which members of the Board incur in connection with the administration of this Plan shall be borne by the Company. The Board may, but is not required to, employ attorneys, consultants, accountants, appraisers, brokers, or other persons. The Board, the Company and the Company's officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon all Holders, the Company and all other interested persons. No members of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to this Plan or the SARs granted pursuant to this Plan, and all members of the Board shall be fully protected by the Company in respect of any such action, determination or interpretation. 8 ARTICLE VII MISCELLANEOUS PROVISIONS 7.1 Not Transferable. SARs under this Plan may not be sold, pledged, ---------------- assigned, or transferred in any manner other than by will or the laws of descent and distribution. No SAR or interest or right therein shall be liable for the debts, contracts or engagements of the Holder or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect. During the lifetime of the Holder, only he or she may exercise an SAR (or any portion thereof) granted to him or her under the Plan. After the death of the Holder, any exercisable portion of an SAR may, prior to the time when such portion becomes unexercisable under the Plan or the applicable SAR Agreement, be exercised by his or her personal representative or by any person empowered to do so under the deceased Holder's will or under the then applicable laws of descent and distribution. 7.2 Amendment, Suspension or Termination of this Plan. Unless sooner ------------------------------------------------- terminated under this Section 7.2, the Plan will terminate on June 27, 2007. The Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board. However, without approval of the Company's stockholders given within twelve months before or after the action by the Board, no action of the Board may, except as provided in Section 7.3, increase the limits imposed in Section 2.1 on the maximum number of shares related to SARs which may be issued under this Plan, and no action of the Board may be taken that would otherwise require stockholder approval as a matter of applicable law, regulation or rule; provided, however, that by approving this Plan stockholders will be authorizing an amendment of the Plan for the purpose of converting the SARs to options to purchase shares of the Common Stock on substantially the same terms as the existing SARs. Notwithstanding the foregoing, except as permitted by the applicable exemptive conditions of Rule 16b-3, the provisions of this Plan relating to grant of SARs to Independent Directors, including the amount, price and timing thereof, shall not be amended more than once in any six-month period other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the respective rules thereunder. No amendment, suspension or termination of this Plan 9 shall, without the consent of the Holders, alter or impair any rights or obligations under any SARs theretofore granted, unless the award itself otherwise expressly so provides. No SARs may be granted during any period of suspension or after termination of this Plan. 7.3 Changes in Common Stock or Assets of the Company, Acquisition or ---------------------------------------------------------------- Liquidation of the Company and Other Corporate Events. ----------------------------------------------------- (a) Subject to Section 7.3(e), in the event that the Board determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split- up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Board's sole discretion, affects the Common Stock such that an adjustment is determined by the Board to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an SAR then the Board shall, in such manner as it may deem equitable, adjust any or all of (i) the number and kind of shares of Common Stock (or other securities or property) with respect to which SARS are granted under the Plan (including, but not limited to, adjustments of the limitations in Section 2.1 on the maximum number and kind of shares which may be issued related to SARs), (ii) the number and kind of shares of Common Stock (or other securities or property) subject to outstanding SARs, and (iii) the grant or exercise price with respect to any SARs. (b) Subject to Section 7.3(e), in the event of any corporate transaction or other event described in Section 7.3(a) which results in shares of Common Stock being exchanged for or converted into cash, securities (including securities of another corporation) or other property, the Board will have the right to terminate this Plan as of the date of the event or transaction, in which case all SARs granted under this Plan shall become the 10 right to receive such cash, securities or other property, net of any applicable exercise price. (c) Subject to Sections 7.3(c)(vi) and 7.3(e), in the event of any corporate transaction or other event described in Section 7.3(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations, or accounting principles, the Board in its discretion is hereby authorized to take any one or more of the following actions whenever the Board determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any SARs granted under this Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles: (i) In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Board may provide, either automatically or upon the Holder's request, for either the purchase of any such SAR for an amount of cash equal to the amount that would have been received upon the exercise of such SAR had such SAR been currently exercisable or payable or the replacement of such SAR with other rights or property selected by the Board in its sole discretion; (ii) In its sole and absolute discretion, the Board may provide, either by the terms of such SAR or by action taken prior to the occurrence of such transaction or event that it cannot be exercised after such event; (iii) In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Board may provide, either by the terms of such SAR or by action taken prior to the occurrence of such transaction or event, that for a specified period of time prior to such transaction or event, such SAR shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in (a) Section 4.4 or (b) the provisions of such SAR; (iv) In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Board may provide, either by the terms of such SARs or by action taken prior to the occurrence of such transaction or event, that upon such event, such SAR be assumed by the successor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar awards covering the stock of the 11 successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; (v) In its sole and absolute discretion, and on such terms and conditions as it deems appropriate, the Board may make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding SARs, and/or in the terms and conditions of such SARs (including the grant or exercise price), and the criteria included in, awards which may be granted in the future; and (vi) The foregoing discretionary terms of this Section 7.3(c) shall be permitted with respect to SARs to the extent that such discretion would be inconsistent with the requirements of Rule 16b-3. In the event of a Corporate Transaction, to the extent that the Board does not have the ability under Rule 16b-3 to take or to refrain from taking the discretionary actions set forth above, each SAR shall be exercisable as to all shares covered thereby during the five days immediately preceding the consummation of such Corporate Transaction and subject to such consummation, notwithstanding anything to the contrary in Section 4.4, SARs cannot be exercised following such event. (d) Subject to Section 7.3(e) and 7.8, the Board may, in its discretion, include such further provisions and limitations in any SAR agreement, as it may deem equitable and in the best interests of the Company. (e) No adjustment or action described in this Section 7.3 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would violate Section 16 of the Exchange Act or the exemptive conditions of Rule 16b-3. The number of shares of Common Stock subject to any SAR shall always be rounded to the next whole number. 7.4 Approval of Plan by Stockholders. This Plan will be submitted -------------------------------- for the approval of the Company's stockholders within twelve months after the date of the Board's initial adoption of this Plan. SARs may be granted prior to such stockholder approval, provided that such SARs shall not be exercisable prior to the time when this Plan is approved by the stockholders, and provided further that if such approval has not been obtained at the end of said twelve- month period, all SARs previously granted under this Plan shall thereupon be canceled and become null and void. 12 7.5 Forfeiture Provisions. Pursuant to its general authority to --------------------- determine the terms and conditions applicable to SAR awards under the Plan, the Board shall have the right (to the extent consistent with the requirements of Rule 16b-3) to provide, in the terms of SAR awards made under the Plan, or to require the recipient to agree by separate written instrument, that (a) any proceeds, gains or other economic benefit actually or constructively received by the recipient upon any receipt or exercise of the SARs, must be paid to the Company, and (b) the award shall terminate and any unexercised portion of such award (whether or not vested) shall be forfeited, if (i) a Termination of Directorship occurs prior to a specified date, or within a specified time period following receipt or exercise of the award, or (ii) the recipient at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Board. 7.6 Limitations Applicable to Section 16 Persons. Notwithstanding -------------------------------------------- any other provision of this Plan, the Plan and any SAR granted to an Independent Director who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and the SARs granted hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule. 7.7 Effect of Plan Upon Incentive and Compensation Plans. The ---------------------------------------------------- adoption of this Plan shall be in lieu of, and the Board is terminating effective June 27, 1997, any other compensation plans or arrangements for Directors. The adoption of this Plan shall not affect any compensation or incentive plans for officers or employees in effect for the Company or any Subsidiary. Nothing in this Plan shall be construed to limit the right of the Company (i) to establish any other forms of incentives or compensation for employees of the Company or any Subsidiary or (ii) to grant or assume SARs or other rights otherwise than under this Plan in connection with any proper corporate purpose including but not by way of limitation, the grant or assumption of SARs in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, firm or association. 7.8 Compliance with Laws. This Plan and the granting and vesting of -------------------- SARs under this Plan are subject to compliance with all applicable federal and state laws, rules and 13 regulations. To the extent permitted by applicable law, the Plan and the SARs granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. 7.9 Titles. Titles are provided herein for convenience only and are ------ not to serve as a basis for interpretation or construction of this Plan. 7.10 Governing Law. This Plan and any agreements hereunder shall be ------------- administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof. I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of Ascent Entertainment Group, Inc. effective as of June 27, 1997, and ratified by such Board of Directors on October 24, 1997. Executed as of the 24th day of October, 1997 /s/ Arthur M. Aaron ---------------------------- Secretary 14 EX-10.21 10 PURCHASE & SALE OF BEACON EXHIBIT 10.21 AGREEMENT FOR THE PURCHASE AND SALE OF AN INTEREST IN BEACON COMMUNICATIONS, LLC THIS AGREEMENT (the "Agreement") is made and entered into as of the 20th day of January, 1999, by and among ASCENT ENTERTAINMENT GROUP, INC., a Delaware corporation (the "Ascent"); ASCENT BEACON CORPORATION, a Delaware corporation ("ABC") (Ascent and ABC are individually and collectively sometimes hereinafter referred to as "Seller"); BEACON COMMUNICATIONS, LLC, a Delaware limited liability company ("Beacon LLC"); and BOOMTOWN INVESTMENTS, LLC, a Delaware limited liability company ("BT Investments"), and ANG CAPITAL CORPORATION, a Delaware corporation ("ANG") (BT Investments and ANG are individually and collectively sometimes hereinafter referred to as "Buyer"). This Agreement is made with reference to the following facts: R E C I T A L S A. Beacon Communications Corp. ("BCC") was ninety percent (90%) owned by Ascent and ten percent (10%) owned by ABC, and has been merged with and into Beacon LLC, and Beacon LLC is owned entirely by Ascent (as to 90% of the membership interests) and ABC (as to 10% of the membership interests). Prior to the merger of BCC into Beacon LLC, Club Pictures, Inc. and Beacon Music Publishing were merged into single- or two-member limited liability companies wholly-owned by BCC and/or Beacon LLC and a subsidiary corporation or limited liability company. 16th Round Production Corp., Lucifilms, Inc. and Lazarus Pictures, Inc. have remained wholly-owned subsidiaries of Beacon LLC. Individually and collectively, whether remaining in corporate form or merged into limited liability companies, Club Pictures, Beacon Music Publishing, 16th Round Production Corp., Lucifilms, Inc. and Lazarus Pictures, Inc. are referred to as "Beacon Sub LLC." B. BCC was, and Beacon LLC is, directly and through their respective wholly-owned corporations and limited liability companies (all references to BCC or Beacon LLC throughout this Agreement, including without limitation, Paragraphs 4 and 5 and Schedule 2.1, shall include BCC or Beacon LLC and each of their direct and indirect respective subsidiary corporations and subsidiary limited liability companies), engaged in the business of the development, financing, production and exploitation of theatrical and television films, music sound tracks, and other related areas of the entertainment business (the "Business"). C. After the merger of BCC into Beacon LLC, Ascent desires to sell, and Buyer desires to purchase, ninety percent (90%) of all of the membership interests in Beacon LLC (the "Interest") from Ascent. 1 AGREEMENT NOW, THEREFORE, in consideration of the covenants, agreements, representations and warranties contained herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. PURCHASE AND SALE OF MEMBERSHIP INTEREST. Subject to the terms and ---------------------------------------- conditions hereof, Ascent hereby agrees to sell, transfer, deliver and assign to Buyer, and Buyer agrees to purchase and receive from Seller, ninety percent (90%) of all of the membership interests in Beacon LLC. ABC shall retain the other ten percent (10%) of the membership interests in Beacon LLC. The Beacon LLC Operating Agreement shall be amended and restated at the Closing, and the Operating Agreement attached hereto as Exhibit "A" will become the new Operating Agreement of Beacon LLC, effective as of the Closing. 2. ASSETS; ASSUMED LIABILITIES; EXCLUDED LIABILITIES. ------------------------------------------------- 2.1 Prior to the merger of BCC into Beacon LLC, Seller (which for purposes of this Section 2.1, includes all subsidiaries and entities owned or controlled by Seller, other than BCC) contributed to BCC any assets, tangible or intangible, of whatever kind or nature, of Ascent that were being used by BCC solely in the Business, the life and disability policies on Armyan Bernstein and the life insurance policy on Marc Abraham, or related to the Assumed Liabilities (as defined below), including, without limitation, all claims, offsets, defenses and causes of action Seller has or may have related to the claims listed on Exhibit 2.1A. After the merger, Beacon LLC owns all of the assets of BCC (the "Assets"), wherever located, including, without limitation, cash, receivables, all notes, securities, shares and ownership interests in subsidiaries and other entities, completed and in-progress motion pictures, films, television projects, music and record rights, music soundtracks and music publishing rights, all copyrights, all intellectual property rights, all trade secrets, contracts, scripts, development projects, intellectual property rights, story ideas, rights to ideas created by employees or agents, or others, equipment, automobiles, machines, supplies, trademarks, service marks, trade names, goodwill, name, reputation, fictitious business names, the names "Beacon" and "Beacon Communications," logos, designs, producing and production agreements, financing and lending contracts, contracts for distribution of films, contracts for music, songs, music soundtracks, music publishing (whether as to ownership obligations or distribution), contracts for the services of actors, directors, writers and other service providers, contracts and agreements for BCC and Beacon LLC to provide services, contracts and options for stories, scripts and other properties, the Universal Pictures and Sony Pictures agreements and contract rights, rights to receive monies (including producer's fees, profits from motion pictures, residuals, participations, cost and expense reimbursements), all other contracts and rights related to the Business and the Assets (including any and all rights under any insurance policy now or previously held by Seller or COMSAT), deposits, claims, causes of action, the existing life insurance policy(ies) on Armyan Bernstein and the existing life insurance policies(ies) on Marc Abraham, the disability policy on Armyan Bernstein, corporate shares in all BCC and Beacon LLC subsidiary corporations, membership and partnership interests in all partnerships and limited liability companies in which BCC or Beacon LLC directly or indirectly have any interest, computer software, accounting software, books and records, files, ledgers, employee manuals, safety manuals and plans, and all other proprietary, financial, legal, or relevant or helpful information, documents and agreements relating to Beacon LLC, BCC, the Assets, the Business, and the Assumed Liabilities (including, without limitation, any liability, casualty, errors and omissions, and other insurance policies solely related to any films in production, all BCC or Beacon LLC insurance policies (but not Ascent Group policies covering BCC) and Beacon LLC under the merger has 2 assumed and is subject to all of the debts, liabilities, commitments and obligations of BCC, except for the Excluded Liabilities (as hereinafter defined) (hereinafter referred to as the "Assumed Liabilities"). The Assumed Liabilities also specifically include the claims described on Exhibit 2.1A(i) The Excluded Liabilities are set forth on Schedule 2.1. All Excluded Liabilities shall remain the sole obligation of Seller, and neither Beacon LLC, Buyer nor the owners of Buyer (the "Principals") shall have any obligation with respect thereto (except as otherwise provided on Schedule 2.1B), nor shall any payments from the Assets be made with respect thereto. Seller, jointly and severally, agree to indemnify Beacon LLC, Buyer, and Principals from any Excluded Liabilities and all matters related thereto. Notwithstanding anything to the contrary, Seller and Buyer agree that the "Assets" do not include actual out-of-pocket bridge production --- financing (but excluding development/pre-production expenditures) actually advanced by Ascent for the films "Hurricane Carter" and "End of Days." Ascent shall be entitled to receive from any third party production financing or other funds received by BCC or Beacon LLC for any such project, as and when received, whether before or after the Closing, an amount equal to the amount of bridge production financing (but excluding development/pre-production expenditures) advanced by Ascent as of the Closing for the films "Hurricane Carter" and "End of Days." All amounts (if any) received over and above (i.e., any Production --- Overages) development/pre-production expenditures (which will be for the benefit of Buyer) and out-of-pocket bridge production financing (which will be for the benefit of Seller) shall be for the sole benefit of Buyer. Notwithstanding anything to the contrary, Seller and Buyer and the Principals agree that the following amounts, whenever received, whether before or after Closing, shall be for the sole benefit of, and belong to, Buyer, and Seller shall not be entitled to retain any such amounts: (a) all producer's fees due or paid to BCC or Beacon LLC for the films "G's Trippin,'" "Love of the Game," "Hurricane Carter," and "End of Days" or other films in progress as of the Closing, including, without limitation, "13 Days" and "Family Man"; (b) all accrued development expenditures advanced by Ascent, BCC or Beacon LLC prior to Closing, and (c) all Production Overages. Prior to the Closing, any such producer's fees or development expenditures or Production Overages received by Ascent, BCC or Beacon LLC shall be credited against (and reduce) the Purchase Price (as defined in Section 3) on a dollar-for-dollar basis. After the Closing, (i) any such producer's fees or development expenditures or Production Overages received by Beacon LLC shall be delivered by Beacon LLC to Buyer, (ii) any such producer's fees or development expenditures or Production Overages received by Seller shall be immediately delivered to Buyer by wire transfer or endorsement of the check received, and (iii) any out-of-pocket bridge production financing advanced by Ascent (and not previously paid to Ascent) for the films "Hurricane Carter" and "End of Days" received by Beacon LLC shall be immediately delivered to Ascent by wire transfer or endorsement of the check received. With respect to the $2,000,000 production investment to be made for the Beacon LLC asset "G's Trippin,'" Seller shall contribute $500,000, towards the cost thereof (to be made by a credit against the Purchase Price) and Buyer shall fund the entire "G's Trippin'" investment obligation as and when due. If such obligation is paid by Seller, BCC or Beacon LLC (other than from funds to be transferred to Buyer at the Closing) prior to the Closing, then such investment amount shall be added to (and increase) the Purchase Price to be paid by Buyer on a dollar-for-dollar basis, less the $500,000 credit against the ---- Purchase Price with respect to "G's Trippin.'" 2.2 Except as specifically set forth in Section 2.1, above, BCC, Beacon LLC, Buyer and the Principals have not agreed to assume, pay, perform or discharge any debts, liabilities, commitments or 3 obligations of Seller, and Seller shall indemnify and hold Buyer, Beacon LLC and the Principals harmless from any debts, liabilities, commitments or obligations of Seller other than those described in Section 2.1, above. At the time of the assumption of the Assumed Liabilities by Beacon LLC, Seller, BCC and Beacon LLC agreed that as between Beacon LLC and any third parties, assumption by Beacon LLC of certain debts, liabilities, commitments and obligations of Seller and BCC shall, in any event, be construed and limited with reference to the aggregate of business and activities previously carried on by Seller through BCC and to be acquired by Beacon LLC; and, with respect to said assumption, none of the debts, liabilities, commitments and obligations of the Seller or BCC are intended by Buyer and Seller be expanded, increased, broadened or enlarged as to rights or remedies of third parties against Beacon LLC as compared to such rights or remedies which such parties would have had against the Seller or BCC had the acquisition of its business and assets by Beacon LLC not taken place. Nothing contained in the assumption of liabilities shall be deemed to foreclose Beacon LLC or Buyer from contesting in good faith the Seller's or BCC's and Beacon LLC's duties and liabilities to third parties. 2.3 Ascent will cooperate with Beacon LLC (to the extent legally possible) to permit Beacon LLC, after the Closing, to continue any employee benefit programs now currently offered to BCC or Beacon LLC employees [e.g., ---- health insurance, life insurance, etc.] that Beacon LLC chooses to participate in. During the period that Beacon LLC's employees participate in any such employee benefit plans, Beacon LLC will prepay to Ascent, within ten (10) business days of presentation of an invoice with an explanation of the estimated costs, the full amount of such estimated costs. Any difference between the actual costs to Ascent of such benefits for Beacon LLC employees, plus Ascent's out-of-pocket costs in administering such benefit programs for Beacon LLC, and the estimated costs shall be paid by Beacon LLC, or refunded by Ascent, as the case may be, within ten days after a final reconciliation by Ascent. It is the parties' intent that Beacon LLC terminate its participation in the Seller's group plans and adopt its own "mirror" plans (to the extent it chooses to continue such benefit program for Beacon LLC employees). Seller shall pay in the normal course and in accordance with the terms of such plans any forfeitures or positive account balances for Beacon LLC employees in any employee benefit plans to Beacon LLC or Beacon LLC employees, as appropriate. 3. PURCHASE PRICE. Subject to the terms and conditions hereof, and less --------------- credits to be given by Seller against the Purchase Price, in consideration of the transfer of the Interest to Buyer, Buyer shall pay Seller at the Closing by electronic transfer to an account to be designated by Ascent, the sum of Nineteen Million Dollars ($19,000,000) (the "Purchase Price"). 4. REPRESENTATIONS AND WARRANTIES OF SELLER AND ABC. As of the Closing, ------------------------------------------------ Seller, jointly and severally, hereby represents and warrants to Buyer with respect to Seller, ABC, BCC and Beacon LLC that: 4.1 AUTHORITY AND LEGALITY; NO CHANGES BY SELLER. Each of Ascent, -------------------------------------------- BCC and ABC are a corporation, and Beacon LLC is a limited liability company, duly organized and validly existing and in good standing under the laws of the State of Delaware with all requisite corporate or entity power to enter into this Agreement and to perform all of their respective obligations hereunder and to own, lease or operate their properties and assets which they now own, lease or operate. All of the shares, of all classes, of ABC are owned by Ascent. Set forth on Schedule 4.1 is a true and complete list of all the direct and indirect subsidiary corporations and limited liability companies and all entities BCC or Beacon LLC have an 4 ownership interest in, and the percentage and class of ownership in each entity. Except as otherwise contemplated herein, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and compliance with the terms hereof, have been duly authorized by all necessary corporate action by Ascent, BCC and ABC and by all entity actions by Beacon LLC or any affiliate; will not violate any existing provision of any law, rule, or governmental regulation, or violate any existing term or provision of any order, writ, judgment, injunction or decree of any government, governmental instrumentality, public authority or court applicable to Ascent, BCC, ABC, or Beacon LLC; will not require the prior consent, approval or action of any other corporation or any person, firm, company, or public authority, except for Seller's lenders, which consent has been obtained; will not conflict with or result in a breach or default (or give any party the right to declare a breach or default upon notice or passage of time, or both), and will not result in the creation or imposition of any lien, charge, security interest or encumbrance of any nature upon or in any of the Assets, of or pursuant to any of the terms, conditions or provisions of the Certificate of Incorporation or Bylaws of Seller, BCC or ABC, or the Certificate of Formation and Operating Agreement of Beacon LLC, or of any indenture, mortgage, deed of trust, or any material agreement or instrument to which Seller or BCC, or Beacon LLC or ABC is a party; and this Agreement constitutes the legal, valid and binding agreement of Seller, ABC, and Beacon LLC. Seller, ABC, and Beacon LLC each is, and BCC was, qualified to do business and is (and BCC was) in good standing in each material jurisdiction in which the nature of its business or the character of its properties makes such qualification necessary. Except as otherwise disclosed on Schedule 4.1.A, neither Seller nor any of its affiliates (other than BCC) have entered into any material agreements or incurred any material obligations binding on BCC or Beacon LLC, or affecting the Assets, and with respect to BCC and Beacon LLC, has entered into any material agreements or incurred any material obligations binding on BCC or Beacon LLC, or affecting the Assets, other than through officers of BCC or of Beacon LLC excluding Charlie Lyons, James A. Cronin, III, David Holden or Arthur Aaron. 4.2 TAXES. Seller, ABC, BCC and Beacon LLC have filed all tax ----- returns required by law to have been filed and have paid all taxes, federal, state, local or foreign, and penalties and interest due with respect to all periods ending on or before the Closing Date, for returns and taxes due as of that date, and will timely file all returns and pay all taxes, federal, state, local or foreign, and penalties and interest due with respect to all periods up through and including the Closing Date. Except as set forth on Schedule 4.2, neither Seller or any of its subsidiaries or affiliates, nor BCC or Beacon LLC has waived any statute of limitations applicable to its tax returns or tax liabilities. Seller, BCC and Beacon LLC have withheld and paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, officer, director, creditor or third party of BCC, Beacon LLC or any affiliated entity with respect to BCC's and Beacon LLC's business. There are no liens or levies for taxes upon the Assets. Except as set forth in Schedule 4.2, there has been no tax audits or examinations of Ascent and its affiliates, including BCC, and no adjustments made with respect to any previously filed tax returns. There are no pending assessments. 5 4.3 CERTIFICATES OF FORMATION AND OPERATING AGREEMENTS. -------------------------------------------------- 4.3.1 Prior to Closing, Seller has delivered to Buyer true, accurate and complete copies of Beacon LLC's Certificate of Formation and Operating Agreement, together with all amendments to each of same, and will permit Buyer to examine the minute books of Beacon LLC, which contains complete and accurate records of any and all proceedings and actions at all meetings or taken by the written consent of Beacon LLC's members and manager(s). Seller represents and warrants that at all times since formation (1) such Beacon LLC has been and will be treated as, and will file income tax returns as, a partnership for all federal, state and local taxing jurisdictions; (2) such Beacon LLC has not made, and will not make, an election under Section 754 of the United States Internal Revenue Code (the "Code") or any corresponding provision of any state or local law; and (3) such Beacon LLC has elected to make any allocations under Section 704(c) of the Code (and any state or local law) under the "traditional" method. 4.3.2 Prior to Closing, Seller has delivered to Buyer true, accurate and complete copies of each Beacon Sub LLC's Certificate of Formation and Operating Agreement, together with all amendments to each of same, and will permit Buyer to examine the minute books of each Beacon Sub LLC, which contains complete and accurate records of any and all proceedings and actions at all meetings or taken by the written consent of such Beacon Sub LLC's members and manager(s). With respect to each Beacon Sub LLC, Seller represents and warrants that at all times since formation, such (1) Beacon Sub LLC has been and will be treated as, and will file income tax returns as, a partnership or a disregarded entity for all federal, state and local taxing jurisdictions; (2) Beacon Sub LLC has not made, and will not make, an election under the Code or any corresponding provision of any state or local law; and (3) Beacon Sub LLC has elected to make any allocations under Section 704(c) of the Code (and any state or local law) under the "traditional" method. 4.4 OUTSTANDING MEMBERSHIP INTERESTS OF BEACON LLC; OUTSTANDING ----------------------------------------------------------- OPTIONS AND WARRANTS. -------------------- 4.4.1 The authorized membership interests of Beacon LLC are as set forth on Schedule 4.4.1. All such interests will be validly issued, fully paid and non-assessable and issued and outstanding. All of such issued and outstanding membership interests of Beacon LLC's membership interests are held by Ascent and ABC, and owned by them in the proportions set forth on Schedule 4.4.1. 4.4.2 Seller and ABC are the lawful owners of all right, title and interest in and to all of the issued and outstanding membership interests of Beacon LLC and have good and marketable title thereto free and clear of any claims, liens, pledges, encumbrances, equities or adverse rights of any kind whatsoever. Ascent and ABC have the right, power and authority to sell, assign and transfer the Interest (consisting of 90% of the membership interests of Beacon LLC) pursuant to the terms of this Agreement and will convey same to Buyer free and clear of any claims, liens, pledges, encumbrances, equities or adverse rights of any kind whatsoever, except those granted to Armyan Bernstein and Marc Abraham. 4.4.3 There are not any options, warrants, subscriptions or other contracts, agreements, rights or claims outstanding for the purchase or acquisition of, nor any securities convertible into, membership or other interests in Beacon LLC whether issued, unissued, held in the treasury or otherwise, and whether exercisable against Beacon LLC or any of its members. There are no outstanding stock appreciation, phantom stock, profit participation or similar rights with respect to BCC or Beacon LLC except those granted to Armyan Bernstein and Marc Abraham. 6 4.5 OUTSTANDING OWNERSHIP INTERESTS OF BEACON SUBSIDIARIES. ------------------------------------------------------ 4.5.1 The authorized membership interests of each Beacon Sub LLC are as set forth on Schedule 4.5.1. All such interests will be validly issued, fully paid and non-assessable and issued and outstanding. All of such issued and outstanding membership interests of each Beacon Sub LLC's membership interests are held by Beacon LLC alone or in conjunction with another Beacon Sub LLC, and owned by them in the proportions set forth on Schedule 4.5.1. 4.5.2 Beacon LLC and/or a Beacon Sub LLC are the lawful owners of all right, title and interest in and to all of the issued and outstanding membership interests of each Beacon Sub LLC and have good and marketable title thereto free and clear of any claims, liens, pledges, encumbrances, equities or adverse rights of any kind whatsoever. All of the membership interests in each Beacon Sub LLC are owned by Beacon LLC alone or in conjunction with another Beacon Sub LLC. 4.5.3 There are not any options, warrants, subscriptions or other contracts, agreements, rights or claims outstanding for the purchase or acquisition of, nor any securities convertible into, membership or other interests in any Beacon Sub LLC whether issued, unissued, held in the treasury or otherwise, and whether exercisable against Beacon LLC or any of its members. There are no outstanding stock appreciation, phantom stock, profit participation or similar rights with respect to any Beacon Sub LLC. 4.6 OFFICERS, DIRECTORS AND MANAGERS. -------------------------------- 4.6.1 The managers and officers of Beacon LLC prior to the Closing will be as set forth in Schedule 4.6 A attached hereto. Each of the managers and officers of Beacon LLC (except for those listed on Schedule 4.6B [the "Retained Officers"]) will resign effective on the Closing Date and will release such Beacon LLC from any claims which he, she or it may have against Beacon LLC in a form mutually acceptable to the parties. 4.6.2 The managers and officers of each Beacon Sub LLC prior to the Closing will be as set forth in Schedule 4.6 attached hereto. Each of the managers and officers of each Beacon Sub LLC (except for the Retained Officers) will resign effective on the Closing Date and will release Beacon LLC and each Beacon Sub LLC from any claims which he, she or it may have against Beacon LLC or any Beacon Sub LLC in a form mutually acceptable to the parties. 4.6.3 At the Closing, Seller will deliver a release of all claims against BCC or Beacon LLC from all former directors and officers of BCC, except for the Retained Officers, in a form mutually acceptable to the parties. 4.7 BOOK VALUE AND TAX BASIS. The Seller's and BCC's respective book ------------------------ values and tax basis of each category of the Assets and each material Assets and any other assets held by BCC on November 30, 1998 is attached hereto as Schedule 4.7. Seller will update this Schedule, values and basis as of the Closing Date and will deliver it to Buyer as soon as practical after the Closing Date. The parties agreed that the Chairman of BCC and Beacon LLC, shall determine which, if any, projects are to be abandoned for the periods from January 1, 1998 through the Closing. 7 4.8 LITIGATION. Except as set forth on Schedule 4.8 prepared and ---------- delivered by Seller's management, there are no actions, suits, investigations, or proceedings pending or, to the knowledge of Seller, threatened against Seller, BCC or Beacon LLC with respect to, or arising out of, this Agreement or the transactions contemplated hereby, or which could have a material adverse effect on the Assets or the business or operations of BCC or Beacon LLC, at law or in equity, or before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency or instrumentality, or before any arbitrator or private judge. 4.9 SALE BY SELLER ON AN "AS-IS, WHERE-IS" BASIS. Except for the -------------------------------------------- specific representations made by Seller herein and in any other document or certificate delivered by Seller pursuant to this Agreement, it is the intention of Seller that its sale of the Interest is on an "as is, where is" basis. Notwithstanding the foregoing, Seller does not have knowledge of any facts which would make any representation or warranty of BCC or Beacon LLC contained in this Agreement or in any certificate or schedule furnished pursuant hereto untrue in any material respect or materially misleading, including, with respect to representations or warranties made to the knowledge of BCC or Beacon LLC, facts which would make sure representation or warranty untrue in any material respect or materially misleading if known to BCC or Beacon LLC. To the knowledge of Seller, Seller (which for purposes hereof includes all subsidiaries and entities owned or controlled by Seller other than BCC or Beacon LLC) has not taken any action, or omitted to take any action, which would have the effect of making any of the representations or warranties of BCC or Beacon LLC untrue in any material respect or materially misleading. Seller has made its own determination as to the value of the Interest and is relying solely thereon and not on any representation or warranty of any other person or party in entering into this Agreement and selling the Interest. 4.10 KNOWLEDGE OF SELLER. Knowledge of Seller means actual ------------------- knowledge of Charlie Lyons, James A. Cronin III, David Holden or Arthur Aaron (collectively, "Seller's Executives"), and specifically excludes information only known to directors or officers of BCC or Beacon LLC who are not officers or directors of Ascent and which information they have not disclosed to any of Seller's Executives. 4.11 MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or ----------------------------------- warranty by Seller contained in this Agreement or in any certificate or schedule furnished by Seller pursuant hereto contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement of fact contained therein not misleading. 5. REPRESENTATIONS AND WARRANTIES OF BEACON LLC. As of the Closing, -------------------------------------------- Beacon LLC hereby represents and warrants to Buyer with respect to BCC and Beacon LLC that: 5.1 FINANCIAL STATEMENTS. BCC has heretofore delivered to Seller, -------------------- Buyer and the Principals the financial statement of BCC as of November 30, 1998 (the "Statement Date"). Said financial statement has been prepared by BCC management in accordance with the books and records of BCC and common industry accounting practices for a subsidiary of a parent company, applied on a basis consistent with the financial statements of prior periods, contains and reflects all necessary adjustments for a fair presentation of the financial condition of BCC at the Statement Date, and with respect to any of BCC's contracts and commitments, contains and reflects reserves for all material liabilities and for all reasonably anticipated material losses and costs in excess of expected receipts. For purposes of this Agreement, BCC's financial statements as of the Statement Date shall be treated as Beacon LLC's financial statement as of that date. Except as otherwise disclosed on Schedule 5.1, since the Statement Date neither BCC nor Beacon LLC nor any of their controlled affiliates have entered into any material agreements or incurred any material 8 obligations binding on BCC or Beacon LLC, or affecting the Assets, other than through Armyan Bernstein, in his capacity as Chairman of BCC and Manager of Beacon LLC. 5.2 ABSENCE OF CERTAIN CHANGES. Other than as specifically permitted -------------------------- by this Agreement, since the Statement Date, there has not been: (a) any material adverse change in the financial condition, assets, liabilities or business or prospects of BCC or Beacon LLC; (b) any damage, destruction or loss, whether or not covered by insurance, adversely affecting the Assets or Beacon LLC's properties or the Business; (c) except as set forth on Schedule 5.2, any increase in the compensation payable or to become payable by Beacon LLC to any of Beacon LLC's employees or agents, or any bonus payment or arrangement made to or with any thereof; (d) any mortgage, pledge or subjection to lien, charge or encumbrance of any kind of any of the Assets or Beacon LLC's assets, tangible or intangible; (e) any sale or transfer of any of the Assets or BCC's or Beacon LLC's assets, tangible or intangible, or any cancellation by BCC or Beacon LLC of debts owed to BCC or Beacon LLC or claims by Beacon LLC against others, except in the ordinary course of business, including transactions among BCC and Beacon LLC, on one hand, and Seller and Seller's division, controlled-entities and subsidiaries, on the other, consistent with past practices; (f) any amendment, modification or termination of any contract, agreement or license to which BCC or Beacon LLC is a party or by which it or any of the Assets are bound or directly or indirectly affected, otherwise than in the ordinary course of business, including transactions among Seller's divisions and subsidiaries consistent with past practices; (g) any cash payments by BCC or Beacon LLC to Seller or any affiliate other than for services provided or funds advanced for bridge production financing in accordance with past practices of BCC and the terms of this Agreement; and (h) any event or condition of any character materially and adversely affecting BCC's or Beacon LLC's financial condition, assets, liabilities, business, properties or prospects. 5.3 AUTHORITY TO CONDUCT BUSINESS. BCC and Beacon LLC are duly ----------------------------- authorized to conduct the business of BCC and Beacon LLC as is presently or was conducted under all material applicable laws, orders and regulations. BCC and Beacon LLC each is in compliance in all material respects with all laws, orders and regulations applicable to the Assets, properties (including the Assets), business and operations of BCC and Beacon LLC, the noncompliance with which would have a materially adverse impact on BCC or Beacon LLC, and no formal or informal notice of any violation of any such laws, orders and regulations has been received by BCC or Beacon LLC. To BCC's and Beacon LLC's knowledge, there are no situations involving BCC or Beacon LLC which involved or involves (i) the use of funds for unlawful contributions or unlawful expenses related to political activity, or (ii) the making of any direct or indirect unlawful payment to government officials or others, or the establishment or maintenance of any unlawful or unrecorded funds, or (iii) the receipt of any illegal discounts or rebates. 5.4 TITLE TO AND CONDITION OF ASSETS. BCC management has prepared -------------------------------- and delivered to Buyer and Seller Schedule 5.4 which is a true and complete list of all of the Assets containing an accurate description of the Assets and an accurate summary of the principal terms of all leases and options to purchase property included among the Assets, including the names of BCC's and Beacon LLC's lessors, if any, and persons or entities against whom options to purchase property are or will be exercisable. Except as set forth in Schedule 5.4, neither BCC nor Beacon LLC has leased or licensed others to use any of the Assets nor are the Assets subject to any such lease or license. Beacon LLC has good and marketable title to all of the Assets and all other assets of Beacon LLC free and clear of all liens, pledges, charges, encumbrances or equities of any nature whatsoever except as set forth on Schedule 5.4. 5.5 CONTRACTS. BCC management has prepared and delivered to Buyer --------- and Seller Schedule 5.5 which is a true and complete schedule of all material contracts and commitments to which each 9 of BCC and Beacon LLC is a party, by which it is bound, or under which it may be directly or indirectly affected, insofar as the same relate to the Assets or the Business. For the purposes of this Section 5.5, the term "material contracts and commitments" shall be defined as (a) all contracts or commitments arising outside of the ordinary course of business; (b) all contracts or commitments involving an obligation which cannot, or in reasonable probability will not, be performed or terminated within six (6) months from the date hereof; (c) all other contracts or commitments providing for payments based in any manner upon the receipts or profits of BCC or Beacon LLC; (d) all contracts or commitments between BCC or Beacon LLC and Seller or any of Seller's subsidiaries or affiliates; and (e) all contracts or commitments, whether in the ordinary course of business or not, which contracts or commitments involve future payments, performance of services or delivery of goods or materials to or by Beacon LLC of an aggregate amount or value in excess of Twenty-five Thousand Dollars ($25,000). Except as set forth on Schedule 5.5, neither BCC nor Beacon LLC is in default, nor is there any claim of default, under any such contracts made or obligations owed by BCC or Beacon LLC, and neither BCC nor Beacon LLC has waived any material right under any such contracts or obligations, nor is there any basis for the other party or parties to any such contracts canceling the same. All such contracts are fully assignable to Beacon LLC, and have been assigned (or will be before Closing) and the transactions described herein shall not affect the contracts (e.g., constituting a default or triggering any change in --- the terms or conditions thereof). 5.6 COPYRIGHTS. BCC management has prepared and delivered to Buyer ---------- and Seller Schedule 5.6 which is a true and complete list of all of the foreign and domestic copyright registrations or applications for registration thereof for motion pictures, films, records, materials, designs or other copyrightable subject matter used in the conduct of the business of BCC and/or Beacon LLC as now conducted or in which either BCC or Beacon LLC has rights. Except as set forth in Schedule 5.6, all copyrights used in the conduct of the business as now conducted, including all copyrights with respect to all motion pictures, films, records, materials, advertising, software and photographs (collectively, the "Copyrights"), are solely owned by BCC and/or Beacon LLC, and will be owned by Beacon LLC on the Closing Date. Neither BCC nor Beacon LLC (nor any affiliate, including Seller) has received any notice from a third party asserting any allegations of infringement of any copyrights held by third parties. Neither BCC nor Beacon LLC has sold, licensed or transferred to Seller, any employee or other person or entity any rights to any of the Copyrights, except as set forth on Schedule 5.6. No person has asserted, and which has not been completely resolved, that either Seller, BCC or Beacon LLC is infringing or has infringed, any foreign or domestic copyright in connection with the Business. 5.7 PATENTS, TRADEMARKS, LICENSES AND CERTIFICATES. Beacon LLC uses ---------------------------------------------- no patents in the operation of its business. Beacon LLC owns, all of its right, title and interest to the name "Beacon" and "Beacon Communications" and to any copyrights, trademarks, trade names, service marks, logos, designs, domain names and similar items, both foreign and domestic, using the name or term "Beacon" or "Beacon Communications" (the "Marks"). Neither the Seller nor any of its affiliates, nor any other person or entity, has any rights to license or use any of the Marks or any derivation thereof. No Mark is the subject of any pending, or to the knowledge of BCC or Beacon LLC threatened, litigation, arbitration, interference, cancellation, adverse claim, or hearing. Neither BCC nor Beacon LLC has infringed upon or violated the rights of any other person respecting copyrights, patents, trademarks, trade names, logos, names or service marks. Neither BCC nor Beacon LLC (nor any affiliate, including Seller) has received any notice of any claim of infringement or violation. 5.8 LITIGATION. Except as set forth on Schedule 5.8 prepared and ---------- delivered by BCC management, there are no actions, suits, investigations, or proceedings pending or, to the knowledge of BCC 10 or Beacon LLC, threatened against Seller, BCC or Beacon LLC with respect to, or arising out of, this Agreement or the transactions contemplated hereby, or which could have a material adverse effect on the Assets or the business or operations of BCC or Beacon LLC, at law or in equity, or before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency or instrumentality, or before any arbitrator or private judge. 5.9 EMPLOYEE RELATIONS. Except as set forth on Schedule 5.9 ------------------ prepared and delivered by BCC management, neither BCC nor Beacon LLC is, or will be at the Closing, subject to any agreements or employment contracts with any of their employees or to any bonus arrangements, pension or other retirement plans, or other similar benefit plans covering any of said employees. Beacon LLC will have no obligations with respect to wage continuation, health insurance, severance pay or accrued vacation obligations to any employee of BCC or Beacon LLC or Seller for any period prior to and including the Closing Date. Except as set forth on Schedule 5.9, none of BCC's or Beacon LLC's employees is represented by any labor union or other collective bargaining agent; and neither BCC nor Beacon LLC has any knowledge of any attempt to organize any of such employees or any unit pursuant to any state or federal law such as, but not limited to, the National Labor Relations Act. None of Seller, BCC, Beacon LLC or an affiliate of any of them under the Employee Retirement Income Security Act ("ERISA") is or has ever been obligated to contribute to any employee benefit plan or arrangement which constitutes a "multi-employer plan" as defined in Section 3(37) of ERISA or a plan described in Section 4063(a) of ERISA. Seller, BCC and Beacon LLC have made or accrued all contributions required under the terms of such employee benefit plans to have been paid or accrued for services ending on or prior to the Closing, and no accumulated funding deficiency (as defined in Section 302 of ERISA and/or Section 412 of the Internal Revenue Code) exists (whether or not waived). No plans of Seller, BCC or Beacon LLC are or have ever been required to pay premiums to the Pension Benefit Guaranty Corporation. 5.10 INSURANCE. There is listed on Schedule 5.10, prepared and --------- delivered by BCC management, a true and complete list of all policies of fire, liability, warranty, use and occupancy and other forms of insurance obtained by BCC (including those to cover those films in production that are included in the Assets, the "Film Policies") and all other insurance policies covering the Assets, the Business, the properties, employees or business of BCC and Beacon LLC, including any policies obtained and owned by Ascent and COMSAT and covering BCC, Beacon LLC and the Assets as a result of BCC and Beacon LLC being subsidiaries of Ascent (the "Beacon Policies") since December 1, 1994. Except as noted, all Beacon Policies are duly in force and they are in amounts and insure against such losses and risks as are generally maintained for comparable businesses and properties. All Film Policies and other insurance policies covering BCC, Beacon LLC, the Business, the Assets, the properties or employees thereof (but excluding any policies obtained by Ascent and covering BCC and Beacon LLC as a subsidiary of Ascent) ["Beacon-Specific Policy(ies)"], and specifically including the life and disability policies on Armyan Bernstein and the life insurance policy on Marc Abraham, have been, assigned to Beacon LLC, and the sale of the Interest will not cause any Film Policy or Beacon-Specific Policy to be terminated or canceled, and such policy shall remain in force until the normal expiration of its terms (subject to payment of the normal premiums), unless Beacon LLC elects to terminate the policy prior to that date. All of the other Beacon Policies will continue to cover Beacon LLC and BCC for occurrences prior to the Closing Date on the same terms as if the sale described herein had not occurred. Seller will assist and cooperate with Beacon LLC in obtaining, at Beacon LLC's expense, coverage with respect to occurrences on or prior to the Closing Date. On or before the Closing, Buyer will be provided a summary of all Beacon policies, and copies of each Beacon policy (including any policies obtained by Ascent). 11 5.11 BANKS. Schedule 5.11 prepared and delivered by BCC management ----- sets forth (a) the name of each bank, trust company, stock and other broker with which BCC or Beacon LLC have an account, credit line, or safe deposit box or value or maintain any relations, (b) the name of all persons authorized to draw thereon or to have access to any safe deposit box or vault, (c) the purpose of each such account, safe deposit box or vault, and (d) the names of all persons authorized by proxy, power of attorney or like instrument, to act on behalf of either of BCC or Beacon LLC in matters concerning the Business or the Assets. 5.12 ENVIRONMENTAL AND HEALTH LAWS. Neither BCC nor Beacon LLC is ----------------------------- in violation of any environmental law or any order or requirement of any court or governmental authority to the extent such order or requirement pertains to health or the environment, nor are the operations or assets of either BCC or Beacon LLC, or the Assets subject to any remedial obligations under any environmental law. 5.13 MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or ----------------------------------- warranty by BCC or Beacon LLC contained in this Agreement or in any certificate or schedule furnished by BCC or Beacon LLC pursuant hereto contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement of fact contained therein not misleading. To the knowledge of BCC and Beacon LLC, there is no fact that would materially adversely affect the operations, business, assets or projects of BCC or Beacon LLC that has not been disclosed in this Agreement or a Schedule thereto. 6. OBLIGATIONS AND COVENANTS OF SELLER, BCC AND BEACON LLC. Each of ------------------------------------------------------- Seller, BCC and Beacon LLC hereby covenants and agrees as follows: 6.1 ACCESS AND INFORMATION. Seller, BCC and Beacon LLC will give ---------------------- Buyer and its counsel, accountants and other representatives full access, during normal business hours, to all of the properties, books, contracts, commitments and other records of BCC and Beacon LLC, and will furnish Buyer and such representatives during such periods with all such information and data concerning the Assets, the Assumed Liabilities and the assets, properties and affairs of Beacon LLC as Buyer or such representatives shall request, and Buyer and its representative, shall keep confidential (except to the extent that disclosure may be required by law) any confidential information obtained under this Agreement. Seller shall also provide all schedules, work papers and other information showing the depreciation and the methodology therefor for the amortization and depreciation of all Assets, and BCC's and Beacon LLC's methods of accounting, and all information relating to differences in reporting for financial (i.e.., book) purposes and income tax purposes and other matters ---- necessary or helpful in the preparation of BCC's and Beacon LLC's financial statements and tax returns. Also, Seller and Beacon LLC will cooperate with Buyer and use Seller's best reasonable efforts to have Seller's auditors and tax preparers provide Buyer and its representatives access to, and copies of, all information, schedules and work papers relating to BCC and Beacon LLC tax returns, financial statements, methods of accounting, tax basis and book values, methods of depreciation and amortization, and other matters necessary or helpful for Buyer and Beacon LLC to prepare its books and records, financial statements and tax returns. Post-Closing, Beacon LLC, shall cooperate in providing information reasonably requested by Seller for Seller to prepare its financial statements and tax returns. 7. REPRESENTATIONS AND WARRANTIES OF BUYER. As of the Closing, Buyer --------------------------------------- hereby represents and warrants that: 12 7.1 AUTHORITY AND LEGALITY. BT Investments is a limited liability ---------------------- company duly organized and validly existing and in good standing under the laws of the State of Delaware with all requisite entity power to enter into this Agreement and to perform all of its obligations hereunder. ANG is a corporation organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite corporate power to enter into this Agreement and to perform all of its obligations hereunder. Except as otherwise contemplated herein, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by Buyer, and compliance with the terms hereof, have been duly authorized by all necessary entity action; will not violate any existing provision of any law, rule, or governmental regulation, or violate any existing term or provision of any order, writ, judgment, injunction or decree of any government, governmental instrumentality, public authority or court applicable to Buyers, or require the prior consent, approval or action of any other corporation or any person, firm or public authority; will not conflict with or result in a breach or default (or give any party the right to declare a breach or default upon notice or passage of time, or both) of any of the terms, conditions or provisions of the Certificate of Formation or the Operating Agreement of BT Investments or the Certificate of Incorporation or Bylaws of ANG or of any indenture, mortgage, deed of trust, or any material agreement or instrument to which Buyer is a party; and this Agreement constitutes the legal, valid and binding agreement of Buyer. 7.2 MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or ----------------------------------- warranty of Buyer contained in this Agreement or in any certificate or schedule furnished pursuant hereto contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement of fact contained therein not misleading. 7.3 LITIGATION. Except as set forth on Schedule 7.3 prepared and ---------- delivered by Buyer, there are no actions, suits, investigations, or proceedings pending or, to the knowledge of Buyer, threatened against Buyer, with respect to, or arising out of, this Agreement or the transactions contemplated hereby, or which could have a material adverse effect on the assets or businesses of Buyer, or at law or in equity, or before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency or instrumentality, or before any arbitrator or private judge. 8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made by Buyer or Seller (or their respective owners) shall survive the Closing Date for a period of eighteen (18) months and any voluntary or involuntary act of Buyer, the Principals, Beacon LLC or Seller. Notwithstanding the preceding, (i) Seller's representations, warranties and agreements as to the Membership Interests of Beacon LLC set forth in Paragraphs 4.4 and 4.5 hereof shall survive indefinitely, and (ii) all representations, warranties and agreements as to all tax obligations and tax matters of Seller, BCC and Beacon LLC for all periods ending on and before the Closing shall survive for the period of all relevant statutes of limitations. All representations, warranties and agreements made by BCC or Beacon LLC shall survive the Closing Date for a period of four (4) years and any voluntary or involuntary act of Buyer, the Principals, Seller or Beacon LLC. Any investigation made by Buyer shall not affect the representations and warranties hereunder or their survival as herein contemplated. 9. FEDERAL SECURITIES ACT. The parties hereto understand that the ---------------------- membership interests to be transferred pursuant to the provisions of this Agreement will not be registered under the Securities Act of 1933, as amended (hereinafter referred to as the "Securities Act"), in reliance upon exemptions contained in the Securities Act and General Rules and Regulations under the Securities Act and promulgated by the Securities and Exchange Commission. Each of Buyer hereby represents and warrants 13 that the membership interests to be purchased pursuant to the terms of this Agreement are not being acquired with a view to any distribution in violation of the Securities Act and the Rules and Regulations promulgated thereunder. The certificates for the membership interests to be delivered at the Closing will bear an appropriate legend required by the Securities Act. 10. CLOSING. The sale and purchase of the membership interests shall ------- place at a closing (the "Closing") which shall take place on January 15, 1999 at 5:00 p.m. at the offices of LeWinter & Rosman, A Professional Corporation, 16255 Ventura Boulevard, Suite 600, Encino, California 91436, or at such other time and place as shall be determined by Seller and Buyer (the "Closing Date"). 10.1 At the Closing, in addition to all of the other documents set forth herein, Seller shall deliver to Buyer (a) resignations and releases of each of the managers and officers of Beacon LLC and each Beacon LLC Sub; (b) an assignment sufficient to transfer the Interest on the books of Beacon LLC to Buyer; (c) the books and records of BCC and Beacon LLC; (d) certificates, dated the Closing Date, executed by the Chairman or a Vice President and by the Chief Financial Officer of such corporation or two Managers of the Beacon LLC certifying that all representations and warranties of Seller and Beacon LLC contained herein or in any schedule, statement or certificate delivered in connection herewith are true and correct on of the Closing, and that Seller and Beacon have duly performed all obligations and covenants to be performed by each of them hereunder; (e) an instrument from each of Seller's lenders or other parties having a security interest or other lien or interest in the Interest, any of the Assets or any of the other assets of BCC or Beacon LLC or having a security interest in any significant Ascent assets releasing its security or other lien or interest therein as of the Closing and a fully-executed UCC-3 forms (and/or other documents) and release of guarantees or other obligations of Beacon LLC, BCC, and or any Beacon LLC Sub for such purpose. The liens for the production loans for "G's Trippin,'" "Hurricane Carter" and "End of Days" shall be excluded; (f) an opinion of Seller's Vice President, business and legal affairs, dated the Closing Date, in form reasonably satisfactory to Buyer's counsel; (g) an opinion of Seller's intellectual property counsel, dated the Closing Date, in form satisfactory to Buyer's counsel, regarding the Marks; and (h) checks for 1998 bonuses for employees of BCC and Beacon LLC. 10.2 Buyer's Delivery. At the Closing, Buyer shall deliver to Seller (a) ---------------- confirmation of the wire transfer of or delivery of a certified cashier's check in the amount of the Purchase Price (less credits) as provided in Section 3.1, above, and (b) a certificate, dated the Closing Date, executed by its Manager and 14 each of the Principals certifying that (i) all representations and warranties of Buyer and the Principals contained herein or in any schedule, statement or certificate delivered in connection herewith are true and correct as of the Closing; and (ii) each of Buyer and the Principals shall have duly performed all obligations and covenants to be performed by each of them hereunder. 10.3 Adjustments. From and after December 21, 1998, the Assets shall also ----------- include all cash receipts of any type, including overhead contributions from MCA, profit participations, fees, residuals, reimbursement and payments received with respect to the Assets, the Business, and the operations of BCC and Beacon LLC, including from all motion pictures and films that BCC or Beacon LLC is or was involved with (other than recoveries of bridge production financing which Ascent is entitled to keep under the terms of Paragraph 2.1) less direct operating overhead (excluding interest on any intercompany advances, if any is normally charged) expenditures of BCC and Beacon LLC for period after that date. Expenditures are to be the usual and customary expenditures and within the budget, and, in no event, are any Excluded Liabilities to be paid or any expenditures which are to be paid by Seller under this Agreement to be paid. All expenses of BCC or Beacon LLC related to the Assets or the Business which are due and payable in the ordinary course up through and including the Closing Date shall be paid by BCC or Beacon LLC in the ordinary course, without any delay from past practices, and Seller shall provide the funds to make such payments, if needed. Notwithstanding anything to the contrary, all items of Excluded Liabilities and expenses which are to be paid by Seller under this Agreement shall be paid by Seller and not by BCC or Beacon LLC. Except as expressly set forth in the Agreement, there will be no liability or obligation of Beacon LLC to reimburse or in any manner to repay any intercompany account payable to Seller as of the Closing. No distributions shall be made to Seller, except to reimburse Seller for the cost of salaries and other operating overhead expenditures (consistent with past practices and prorated for periods extending beyond January 1999)of BCC or Beacon LLC paid by Ascent plus recoveries of bridge production financing which Ascent is entitled to keep under the terms of Paragraph 2.1. Ascent may have BCC or Beacon LLC use any such funds received to fund production (including development/financing) for "13 Days" and "Family Man," but any BCC or Beacon LLC funds so used shall reduce on a dollar-for- dollar basis Buyer's reimbursement obligations to Seller at the Closing with respect to such financing, unless Ascent has funded BCC or Beacon LLC operating and overhead expenditures in excess of receipts from December 21, 1998, in which case, Buyer will reimburse Seller for the BCC or Beacon LLC funds used to fund production for "13 Days" and "Family Man," but in no event shall such amount exceed the out-of-pocket amount contributed by Ascent to fund BCC or Beacon LLC operating expenditures. 11. SELLER'S INDEMNIFICATIONS. Seller, jointly and severally, shall ------------------------- indemnify the Principals, Beacon LLC and Buyer as follows: 11.1 INDEMNIFICATION. Seller shall indemnify and hold the --------------- Principals, Buyer and Beacon LLC harmless against and from any losses, costs, damages, or liabilities, including in each case the costs and expenses reasonably incurred by the Principals, Buyer or Beacon LLC for legal and accounting services in defending actions or claims giving rise to such right of indemnification, arising out of or based upon (a) the Excluded Liabilities; or (b) any breach of any of Seller's warranties or agreements provided in this Agreement or any misrepresentation in any certificate or document delivered by Seller to Buyer hereunder. Recovery of the Principals, Buyer or Beacon LLC will also include any legal fees and costs of the Principals, Buyer or Beacon LLC in asserting their rights against Seller hereunder. 11.2 OPPORTUNITY TO DEFEND LITIGATION. If, after the Closing, any -------------------------------- claim is made against the Principals, Beacon LLC or Buyer which, if sustained, would constitute an Excluded Liability or a breach 15 of warranty or agreement by Seller or which would give rise to a right of indemnification, the Principals, Beacon LLC or Buyer shall cause written notice of the claim to be mailed to Seller within thirty (30) days after the Principals, Beacon LLC or Buyer receives a formal written demand for payment of such claim. If Seller wishes to join in defending or compromising the claim and so advises the Principals, Beacon LLC or Buyer in writing within ten (10) days after receipt of the notice, the Principals, Beacon LLC or Buyer shall afford Seller an opportunity to join therein at the sole expense of Seller and to undertake the sole defense thereof. If Seller does elect to join therein and to undertake the sole defense thereof with counsel reasonably acceptable to the Principals, Beacon LLC and Buyer, the Principals, Beacon LLC or Buyer will not compromise or settle such claim without Seller's consent. If Seller does not elect to join in the defense and undertake the sole defense, the Principals, Beacon LLC or Buyer shall have the right to make any settlement or compromise which it, in its sole discretion, deems reasonable (including payment in full of such claim) and obtain indemnification from Seller for the full amount thereof and in such event the validity of such claim or amount of such settlement may not then be challenged by Seller. In the event and for so long as Seller actively is contesting or defending against any indemnified action or claim, each of the Principals, Buyer and Beacon LLC will cooperate with the contest and defense, and Seller's counsel in the contest or defense, make available its personnel, and provide such testimony and access to its books and records as shall be necessary in connection with the contest or defense, at no cost and expense to Seller. The indemnified party shall have the right to employ counsel separate from counsel employed by the indemnifying party in any such action and to participate therein, but the fees and expenses of such counsel employed by the indemnified party shall be at its expense. 11.3 LOSSES BY SUBSIDIARIES. For all purposes of this Agreement, any ---------------------- loss, liability, cost or expense suffered or incurred by any entity owned by Buyer (including Beacon LLC) or Beacon LLC shall be deemed suffered or incurred by Buyer, but Seller shall not be responsible for reimbursing more than one (1) party for the same loss, liability, cost or expense or for paying any amount in excess of the total loss, liability, cost or expense actually suffered or incurred. 12. INDEMNIFICATION BY BUYER AND BEACON LLC. Buyer and Beacon LLC shall --------------------------------------- jointly and severally indemnify Seller as follows: 12.1 INDEMNIFICATION. Buyer and Beacon LLC shall jointly and --------------- severally indemnify and hold Seller harmless against and from any losses, costs, damages, or liabilities, including in each case the costs and expenses reasonably incurred by Seller for legal and accounting services in defending actions or claims giving rise to such right of indemnification, arising out of or based upon (a) any Assumed Liabilities; and (b) any breach of any of the warranties of Buyer provided in this Agreement or any misrepresentation by Buyer in any certificate or document delivered to Seller. Seller's recovery will also include any legal fees and costs of Seller in asserting its rights against Buyer and Beacon LLC hereunder. 12.2 OPPORTUNITY TO DEFEND LITIGATION. If, after the Closing, any -------------------------------- claim is made against Seller which, if sustained, would arise out of an Assumed Liability or constitute a breach of warranty or misrepresentation by Buyer or which would give otherwise rise to a right of indemnification by Buyer or Beacon LLC to Seller under this Agreement, Seller shall cause written notice of the claim to be mailed to Buyer and Beacon LLC within thirty (30) days after Seller receives a formal written demand for payment of such claim. If Buyer and/or Beacon LLC wishes to join in defending or compromising the claim and so advises Seller in writing within ten (10) days after receipt of the notice, Seller shall afford them an opportunity to join therein at the sole expense of Buyer and Beacon LLC and to undertake the sole defense thereof. If Buyer and Beacon LLC, or any of them, elect to join therein and to undertake the sole defense 16 thereof with counsel reasonably acceptable to Seller, then Seller will not compromise or settle such claim without the consent of the defending party. If neither Buyer nor Beacon LLC elect to join in the defense and undertake the sole defense, Seller shall have the right to defend the action and to make any settlement or compromise which it, in its sole discretion, deems reasonable (including payment in full of such claim) and to obtain indemnification jointly and severally from Buyer or Beacon LLC for the full amount thereof, and in such event the validity of such claim or the amount of such settlement may not then be challenged by Buyer or Beacon LLC. In the event and for so long as Buyer or Beacon LLC actively is contesting or defending against any indemnified action or claim, Seller will cooperate with the contest and defense, and counsel in the contest or defense, make available Seller's personnel, and provide such testimony and access to Seller's books and records as shall be necessary in connection with the contest or defense, at no cost and expense to Buyer or Beacon LLC. The indemnified party shall have the right to employ counsel separate from counsel employed by the indemnifying party in any such action and to participate therein, but the fees and expenses of such counsel employed by the indemnified party shall be at its expense. 12.3 LOSSES BY SUBSIDIARIES. For all purposes of this Agreement, any ---------------------- loss, liability, cost or expense suffered or incurred by any Subsidiary of Seller shall be deemed suffered or incurred by Seller, but Buyer and Beacon LLC shall not be responsible for reimbursing more than one (1) party for the same loss, liability, cost or expense or for paying any amount in excess of the total loss, liability, cost or expense actually suffered or incurred. 13. INDEMNIFICATION BY BEACON LLC. Beacon LLC shall indemnify Buyer and ----------------------------- the Principals as follows: 13.1 INDEMNIFICATION. Beacon LLC shall indemnify and hold Buyer and --------------- the Principals harmless against and from any losses, costs, damages, or liabilities, including in each case the costs and expenses reasonably incurred by Buyer or the Principals for legal and accounting services in defending actions or claims giving rise to such right of indemnification based upon any breach of any of the warranties of BCC or Beacon LLC provided in this Agreement or any misrepresentation by BCC or Beacon LLC in any certificate or document delivered to Buyer or the Principals by either of them. Buyer's or the Principal's recovery will also include any of their respective legal fees and costs in asserting their rights against Beacon LLC hereunder. 13.2 OPPORTUNITY TO DEFEND LITIGATION. If, after the Closing, any -------------------------------- claim is made against Buyer or the Principals which, if sustained, would constitute a breach of warranty or agreement by Beacon LLC or which would give rise to a right of indemnification, Buyer or the Principals shall cause written notice of the claim to be mailed to Beacon LLC within thirty (30) days after any of them receives a formal written demand for payment of such claim. If Beacon LLC wishes to join in defending or compromising the claim and so advises Seller in writing within ten (10) days after receipt of the notice, Buyer and the Principals shall afford Beacon LLC an opportunity to join therein at the sole expense of Beacon LLC and to undertake the sole defense thereof. If Beacon LLC elects to join therein and to undertake the sole defense thereof with counsel reasonably satisfactory to Buyer and the Principals, neither Buyer not the Principals will compromise or settle such claim without Beacon LLC's consent. If Beacon LLC does not elect to join in the defense and undertake the sole defense, Buyer and the Principals shall have the right to defend the action and to make any settlement or compromise which they, in their sole discretion, deem reasonable (including payment in full of such claim) and to obtain indemnification jointly and severally from Beacon LLC for the full amount thereof, and in such event the validity of such claim or the amount of such settlement may not then be challenged by Beacon LLC. In the event and for so long as Beacon LLC actively is contesting or defending 17 against any indemnified action or claim, Buyer and the Principals will cooperate with the contest and defense, and counsel in the contest or defense, make available their personnel, and provide such testimony and access to Buyer's books and records as shall be necessary in connection with the contest or defense, at no cost and expense to Beacon LLC. The indemnified party shall have the right to employ counsel separate from counsel employed by the indemnifying party in any such action and to participate therein, but the fees and expenses of such counsel employed by the indemnified party shall be at its expense. 13.3 LOSSES BY SUBSIDIARIES. For all purposes of this Agreement, any ---------------------- loss, liability, cost or expense suffered or incurred by any Subsidiary of Buyer shall be deemed suffered or incurred by Buyer, but Beacon LLC shall not be responsible for reimbursing more than one (1) party for the same loss, liability, cost or expense or for paying any amount in excess of the total loss, liability, cost or expense actually suffered or incurred. 14. FEES AND EXPENSE. Each of the parties to this Agreement shall pay its ---------------- own expenses in connection with the transactions contemplated hereby. Seller shall pay any transfer, documentary, sales or other taxes, fees, and expenses which may be due with respect to the transfers described herein. 15. BROKER'S AND FINDER'S FEE. Seller and Buyer each represents and ------------------------- warrants to the other that it (and with respect to Seller it represents that each of BCC and Beacon LLC) has not incurred any broker's or finder's fee in connection with the transactions contemplated hereby, and each agrees to indemnify and hold the other harmless from any broker's or finder's fee or alleged broker's or finder's fee incurred by the other or any claim by any party that the other entered into any agreement calling for a broker's or finder's fee. 16. PUBLIC STATEMENTS. Buyer, Seller and the Principals agree that to the ----------------- fullest extent permitted by law, the terms of this Agreement are CONFIDENTIAL. Buyer and Seller shall consult with each other with regard to all publicity, general employee announcements and public announcements concerning this Agreement and the transactions contemplated hereby and, except as required by applicable law or the applicable rules or regulations of any governmental body or stock exchange (including, without limitation, the NASDAQ Stock Market), no party shall issue a press release or announcement concerning this Agreement and the transactions contemplated hereby without the prior consent of the other parties hereto, which consent shall not be unreasonably withheld. Prior to making any filing with regard to this Agreement, Seller will redact as many of the terms of this Agreement as may be permitted by law and shall provide Buyer the opportunity to comment on the proposed disclosure prior to filing. 17. SUCCESSORS AND ASSIGNS. All covenants, representations, warranties ---------------------- and agreements of the parties contained herein shall be binding upon and inure to the benefit of their respective successors and permitted assigns. 18. REMEDIES NOT EXCLUSIVE. Except as expressly provided, no remedy ---------------------- conferred by any entity of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies by Buyer, Beacon LLC or Seller shall not constitute a waiver of the right to pursue other available remedies. 18 19. NOTICES. All notices, requests, demands and other communications ------- required or permitted hereunder shall be in writing and shall be deemed given or delivered to the parties at the following addresses (or at such other address as shall be given in writing by either party to the other) (i) when delivered personally, (ii) if transmitted by facsimile when confirmation of transmission is received, if received during normal business hours on a business day, otherwise on the next business day, or (iii) if sent by United States certified or registered mail, postage prepaid or by private courier, when received: Buyer: BOOMTOWN INVESTMENTS, LLC c/o LeWinter & Rosman, A Professional Corporation 16255 Ventura Boulevard, Suite 600 Encino, CA 91436 Attn.: Kevin O'Donnell, Manager Fax No.: (818) 784-5096 and to: Armyan Bernstein, Member-Manager c/o LeWinter & Rosman, A Professional Corporation 16255 Ventura Boulevard, Suite 600 Encino, CA 91436 Fax No.: (818) 784-5096 ANG: ANG Capital Corporation c/o LeWinter & Rosman, A Professional Corporation 16255 Ventura Boulevard, Suite 600 Encino, CA 91436 Fax: (818) 784-5096 With copies to: LeWinter & Rosman, A Professional Corporation 16255 Ventura Boulevard, Suite 600 Encino, CA 91436 Attn.: Richard D. Rosman, Esq. Fax No.: (818) 784-5096 Seller: Ascent Entertainment Group, Inc. 1225 Seventeenth Street Suite 1800 Denver, CO 80202 Attn.: Charles Lyons, Chairman Fax No.: (303) 308-0488 With copies to: Arthur Aaron, Esq. c/o Ascent Entertainment Group, Inc. 1225 Seventeenth Street Suite 1800 Denver, CO 80202 Fax No.: (303) 308-0489 19 Beacon LLC: Beacon Communications, LLC 120 Broadway Santa Monica, CA 90401 Attn.: Armyan Bernstein, Chairman with copies to: LeWinter & Rosman, A Professional Corporation 16255 Ventura Boulevard, Suite 600 Encino, CA 91436 Attn.: Richard D. Rosman, Esq. Fax No.: (818) 784-5096 20. ENTIRE AGREEMENT. This Agreement, together with all schedules, exhibits, certificates and documents delivered in connection herewith or referred to herein, contain the entire agreement between the parties hereto with respect to the transactions contemplated herein, supersede all prior negotiations between the parties, and cannot be amended, supplemented or modified except by an instrument in writing signed by the party against whom the enforcement of any such amendment, supplement or modification is sought. 21. CONSTRUCTION. This Agreement shall be construed and enforced in ------------ accordance with the laws of the State of California. 22. CAPTIONS AND SECTION HEADINGS. Captions and section headings used ----------------------------- herein are for convenience only and are not a part of this Agreement and shall not be used in construing it. 23. COUNTERPARTS. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The delivery of a facsimile copy of an executed copy by a party hereto shall be deemed an equivalent of delivery of any original signature by such party. Such party shall also deliver an original copy of the executed document within three (3) business days. 24. CORPORATE AUTHORITY. Any corporation signing this Agreement ------------------- represents and warrants that said Agreement is executed in compliance with a resolution of the Board of Directors of said corporation, duly adopted by said Board and transcribed in full in the minutes of said corporation. Any individual signing this Agreement on behalf of an entity represents and warrants that he has full authority to do so. 25. INTERPRETATION. No provision of this Agreement is to be interpreted -------------- for or against either party because that party or that party's legal representative drafted such provision. 26. DISPUTE RESOLUTION. In the event of a dispute or disagreement among ------------------ the parties as to whether there has been a breach or default under this Agreement, each party agrees to notify in writing the other party of the alleged breach or default and both parties agree to discuss, negotiate and attempt to resolve the alleged breach or default for a period of thirty (30) days after notice. In the event the parties cannot reach an agreement to settle and resolve their dispute, each party agrees to use the alternative dispute mechanism set forth on Schedule 26 attached hereto as the exclusive means of resolving the dispute. 20 Notwithstanding anything to the contrary, either party may use a court proceeding to seek and obtain a temporary restraining order or injunctive relief. 27. FURTHER ASSURANCES. The parties hereto agree to execute such ------------------ additional documents and take such further action as may be reasonably necessary to carry out the provisions of this Agreement. Without limiting the foregoing, from time to time, at Buyer's request, whether on or after the Closing Date and without further consideration or cost to Buyer or Beacon LLC, (a) Seller shall execute and deliver such further instruments of conveyance and transfer and take such other action as Buyer reasonably may require to more effectively convey and transfer to Buyer the Interests and to Beacon LLC the Assets and the Business which has been transferred and assigned to Beacon LLC and, if necessary, will assist Beacon LLC, at Beacon LLC's request, in the collection or reduction to possession of such property and to assist Buyer in understanding, contesting and defending any Assumed Liabilities and any Excluded Liabilities; and (b) Seller shall execute and deliver such documents and take all other actions reasonably necessary or helpful for Beacon LLC, BT Investments or any Principal to assert any claims it may have under any insurance policy now or previously held by Seller or COMSAT). 28. NAME CHANGE. Not later than the next business day immediately ----------- following the Closing, each Seller shall file an amendment to its respective Certificate of Incorporation to change its respective corporate name so as not to include the word "Beacon" or any other name or mark that has such a near resemblance thereto as may be likely to cause confusion or mistake to the public, or to otherwise deceive the public. Each such amendment shall be in a form acceptable for filing with the appropriate public official or agency of the respective State of incorporation of such Seller. A copy of the filed Amendment shall promptly be supplied to Buyer. 29. TAX RETURNS AND EXAMINATIONS. All tax returns for BCC and Beacon LLC, ---------------------------- and their respective corporation subsidiaries and limited liability companies, for periods up to and including the Closing Date which have not yet been filed as of the date of this Agreement ("Pre-Closing Tax Returns") shall be prepared in a manner consistent with past practices and applicable law, and in accordance with the provisions of this Agreement and the agreements of the parties, and shall be provided to Buyer to allow for Buyer's review prior to filing as to matters that do or may affect Beacon LLC and/or Beacon Sub LLC (including, without limitation, tax basis of Assets, expensing or capitalization of expenditures, changes in methods of accounting, depreciation and amortization of films and other assets, and abandonment of development projects). Notwithstanding the above, Buyer and Seller agree that Buyer shall prepare all Beacon LLC tax returns and Beacon Sub LLC tax return (but not for corporate entities for periods ending on or before the Closing, which shall be prepared by Seller) for periods after December 31, 1998. Any Pre-Closing Tax Returns prepared by Seller shall be provided to Buyer for review and consultation; any pre-Closing Tax Returns prepared by Buyer shall be provided to Seller for review and consultation. Buyer and Seller intend and agree that such returns be filed in a manner that reflects that Beacon LLC has a carryover tax basis in the Assets of BCC, and that the merger of BCC into Beacon LLC is treated as a tax- free contribution of assets by BCC to Beacon LLC and a distribution of membership interests to Ascent. With respect to each merger or liquidation of any BCC or Beacon LLC subsidiary corporation into a limited liability company, there will also be a carryover basis in the assets. Seller will take all reasonable steps to preserve Buyer's tax positions. Seller and Buyer agree to consult and resolve in good faith any issue arising as a result of the review of such Pre-Closing Tax Returns. In the event the parties are unable to resolve any dispute within ten (10) days following the delivery of such Pre-Closing Tax Returns, the parties shall jointly request Seller's or Buyer's accountants (depending on whether Seller or Buyer prepared the tax return) to resolve any issue at least five (5) days before the due date of any such Pre-Closing Tax Return, in order that 21 such Pre-Closing Tax Return may be timely filed. Except as expressly permitted by this Paragraph 32, neither Seller nor any affiliate of Seller shall, without the prior written consent of Buyer, file, or cause to be filed, any tax return or amended tax return or claim for tax refund for any pre-Closing period, which reasonably may materially adversely affect Beacon LLC or any subsidiary entity. Buyer's consent may be withheld to the extent that any such tax return or claim refund reasonably could materially adversely affect BCC, Beacon LLC or any subsidiary entity of either (such as by increasing its income or decreasing its deductions in years subsequent to the year involved in the return or claim for refund or changing the tax basis of Beacon LLC's assets or methods of accounting). The Seller has delivered to Buyer on or before the Closing, copies of all tax returns of BCC, Beacon LLC, or portions of Seller's group returns related to or affecting BCC or Beacon LLC, and all schedules and work papers, and all material records and other documents relating thereto, and the parties shall retain such documents until the expiration of the statute of limitation (and, to the extent notified by any party, any extensions thereof) of the taxable years to which such returns and other documents relate until the final determination of any tax in respect of such years. Buyer shall have the right to participate with Seller and represent the interests of BCC or Beacon LLC and any transferred subsidiary of either in any tax audit or administrative or court proceeding relating to any tax returns or portions thereof (including any examination or proceeding relating to the income, methods of accounting, properties or operations of the BCC, Beacon LLC, and any subsidiary entities of either, for pre-Closing periods) relating to BCC, Beacon LLC or any subsidiary entity, and Seller shall give Buyer prompt and timely notice of any such audit or proceeding. In the event that Seller desires to compromise or settle any tax claim, or to consent or agree to any adjustment, relating to BCC or Beacon LLC or any transferred subsidiary entity for any pre-Closing period, Buyer and Beacon LLC shall have the right to review and approve such compromise, settlement, consent or agreement. Notwithstanding anything to the contrary contained or implied in this Agreement, without the prior written approval of Buyer, neither Seller nor any affiliate of Seller shall agree or consent to compromise or settle, either administratively or after the commencement of litigation, any issue or claim arising in any such audit or proceeding, or otherwise agree or consent to any tax liability that will adversely affect Beacon LLC or any transferred subsidiary entity should Beacon LLC or Buyer pick up and pay for the defense; if Buyer does not do so, Seller may compromise or settle. 30. SEVERABILITY. In the event that any covenant, condition or other ------------ provision herein contained is held to be invalid, void or illegal by any court of competent jurisdiction, the same shall be deemed severable from the remainder of this Agreement and shall in no way affect, impair or invalidate any other covenant, condition or other provision herein contained. If such condition, covenant or other provision shall be deemed invalid due to its scope or breadth, such covenant, condition or other provision shall be deemed valid to the extent of the scope or breadth permitted by law. 22 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. Ascent: ASCENT ENTERTAINMENT GROUP, INC. A Delaware Corporation By: /s/ Charles Lyons --------------------------------------------- Charles Lyons, Chairman By: /s/ Arthur M. Aaron --------------------------------------------- Arthur M. Aaron, Vice President ABC: ASCENT BEACON CORP. A Delaware Corporation By: /s/ James A. Cronin, III --------------------------------------------- Authorized Officer By: /s/ Arthur M. Aaron --------------------------------------------- Authorized Officer Beacon LLC: BEACON COMMUNICATIONS LLC A Delaware Limited Liability Company By: /s/ James A. Cronin, III --------------------------------------------- Authorized Member-Manager By: /s/ Arthur M. Aaron --------------------------------------------- Authorized Member-Manager 23 Buyer: BOOMTOWN INVESTMENTS, LLC A Delaware Limited Liability Company By: /s/ Kevin O'Donnell --------------------------------------------- Kevin O'Donnell, Manager By: /s/ Armyan Bernstein --------------------------------------------- Armyan Bernstein, Manager and ANG CAPITAL CORPORATION A Delaware Corporation By: /s/ Armyan Bernstein --------------------------------------------- Armyan Bernstein, President 24 EX-21 11 SUBSIDIARIES OF ASCENT ENTERTAINMENT 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, Inc. Ascent Arena and Development Corporation Ascent Arena Company, LLC The Denver Nuggets Limited Partnership The Colorado Avalanche LLC Ascent Beacon Corporation EX-23.1 12 CONSENT OF DELOITTE & TOUCHE LLP 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 February 24, 1999, appearing in this Annual Report on Form 10-K of Ascent Entertainment Group, Inc. for the year ended December 31, 1998. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Denver, Colorado March 26, 1999 EX-27 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 42,425 0 62,911 0 0 134,911 388,762 0 863,741 127,538 441,707 0 0 297 176,229 863,741 0 343,629 0 270,114 113,508 0 24,489 (62,540) 5,512 (57,028) (3,908) 0 0 (49,725) (1.67) (1.67)
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