<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1998
REGISTRATION NO. 333-44461
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ASCENT ENTERTAINMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-0930707
(State of Registrant's Incorporation) (I.R.S. Employer
Identification Number)
1200 SEVENTEENTH STREET, SUITE 2800
DENVER, COLORADO 80202
(303) 626-7000
(Address, Including Zip Code, and Telephone Number, including
Area Code, of Registrant's Principal Executive Office)
ARTHUR M. AARON, ESQ.
VICE PRESIDENT, BUSINESS & LEGAL AFFAIRS AND SECRETARY
ASCENT ENTERTAINMENT GROUP, INC.
1200 SEVENTEENTH STREET, SUITE 2800
DENVER, COLORADO 80202
(303) 626-7000
(Name, Address, Including Zip Code, and Telephone Number of Agent for Service)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
- --------- ------------------------------------------------- -------------------------------------------------
<C> <C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover of Page of Prospectus........ Facing Page; Cross-Reference Sheet; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page of Prospectus and Outside
Back Cover Page of Prospectus
3. Risk Factors and Ratio of Earnings to Fixed
Charges and Other Information.................... Prospectus Summary; Summary Financial Data;
Selected Financial Data; Risk Factors
4. Terms of the Transaction......................... Prospectus Summary; The Exchange Offer;
Description of the Exchange Senior Notes; Certain
Federal Income Tax Consequences; Plan of
Distribution
5. Pro Forma Financial Information.................. Not Applicable
6. Material Contracts with Company Being Acquired... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters.... Not Applicable
8. Interest of Named Experts and Counsel............ Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants...................................... Available Information; Risk Factors; Prospectus
Summary; Selected Financial and Operating
Information; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Description of Certain Indebtedness;
COMSAT Distribution; Index to Consolidated
Financial Statements
11. Incorporation of Certain Documents by Reference;
Exhibits and Financial Statement Schedules....... Incorporation of Certain Information by Reference
12. Information with Respect to S-2 or S-3
Registrants...................................... Not Applicable
13. Incorporation of Certain Information by
Reference........................................ Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants...................... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
- --------- ------------------------------------------------- -------------------------------------------------
<C> <C> <S> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies........................................ Not Applicable
16. Information with Respect to S-2 or S-3
Companies........................................ Not Applicable
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies............................. Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited............... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited in an
Exchange......................................... The Exchange Offer; Certain Relationships and
Related Transactions; Common Stock Ownership of
Certain Beneficial Owners and Management; COMSAT
Distribution
</TABLE>
<PAGE>
PROSPECTUS
ASCENT ENTERTAINMENT GROUP, INC.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT AT MATURITY OF ITS
11 7/8% SENIOR SECURED DISCOUNT NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
FOR EACH $1,000 IN PRINCIPAL AMOUNT AT MATURITY OF ITS
OUTSTANDING 11 7/8% SENIOR SECURED DISCOUNT NOTES DUE 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN TIME,
ON MARCH 2, 1998, UNLESS EXTENDED
Ascent Entertainment Group, Inc., a Delaware corporation (the "Issuer"),
hereby offers to exchange (the "Exchange Offer") up to $225,000,000 in aggregate
principal amount at maturity of its new 11 7/8% Senior Secured Discount Notes
due 2004 (the "Exchange Senior Notes") for up to $225,000,000 in aggregate
principal amount at maturity of its outstanding 11 7/8% Senior Secured Discount
Notes due 2004 (the "Senior Notes" and, together with the Exchange Senior Notes,
the "Notes") that were issued and sold in a transaction exempt from registration
under the Securities Act of 1933, as amended (the "Offering").
The terms of the Exchange Senior Notes are substantially identical
(including principal amount, interest rate, maturity, security and ranking) to
the terms of the Senior Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Senior Notes: (i) are freely
transferable by holders thereof (except as provided below); and (ii) are not
entitled to certain registration rights and certain liquidated damages which are
applicable to the Senior Notes under the Registration Rights Agreement (as
defined). The Exchange Senior Notes will be issued under the indenture governing
the Senior Notes (the "Indenture"). The Notes are senior secured obligations of
the Company, secured by a perfected first priority pledge of the Company's
shares of the capital stock of On Command Corporation ("OCC"). The Notes rank
senior to all existing and future subordinated indebtedness of the Company and
PARI PASSU in right of payment to all unsubordinated indebtedness of the
Company. Borrowings under the New Ascent Credit Facility (as defined herein) are
secured by perfected first priority pledges of the capital stock of all of the
subsidiaries (other than OCC and its subsidiairies) of the Company and,
accordingly, such indebtedness will effectively rank senior to the Notes to the
extent of such security interests. The Notes are structurally subordinated to
all indebtedness and other liabilities, including trade payables, and to
preferred stockholders (if any) of the subsidiaries of the Company. As of
September 30, 1997, on an as adjusted basis after giving effect to the Offering
and the use of the proceeds therefrom, the Company would have had approximately
$254 million of indebtedness, of which approximately $127 million would have
been senior secured debt in the form of the Notes and $127 million would have
been indebtedness of OCC. There will be no cash proceeds to the Issuer from the
Exchange Offer.
------------------------
HOLDERS OF SENIOR NOTES SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH IN
"RISK FACTORS" COMMENCING ON PAGE 12 OF THIS PROSPECTUS PRIOR TO MAKING A
DECISION WITH RESPECT TO THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is January 30, 1998.
<PAGE>
Interest on the Notes will be payable semi-annually on June 15 and December
15 of each year, commencing June 15, 2003 and the Notes will bear original issue
discount for U.S. federal income tax purposes. Thus, although there will be no
cash payments on the Notes prior to June 15, 2003, original issue discount (that
is, the difference between the issue price of the Notes and the sum of all
payments to be made thereon) will accrue from the issue date and will be
includible as interest income periodically in a holder's gross income for
federal income tax purposes in advance of receipt of the cash payments to which
the income is attributable. See "Certain United States Federal Income Tax
Consequences."
On or after December 15, 2001, the Company may redeem the Notes, in whole or
in part, at the redemption prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. Notwithstanding the foregoing, at
any time on or before December 15, 2001, the Company may redeem up to 35% of the
originally issued principal amount at maturity of the Notes, on one or more
occasions, with the net cash proceeds of one or more Equity Offerings (as
defined herein) at a redemption price equal to 111 7/8% of the Accreted Value
(as defined herein) thereof, plus accrued and unpaid interest, if any, to the
date of redemption provided that at least 65% of the originally issued principal
amount at maturity of Notes remains outstanding immediately after the
redemption. See "Description of the Exchange Senior Notes--Optional Redemption."
The Senior Notes were originally issued and sold on December 22, 1997 in a
transaction not registered under the Securities Act of 1933, as amended (the
"Securities Act") in reliance upon the exemption provided in Section 4(2) of the
Securities Act and Rule 144A promulgated under the Securities Act. Accordingly,
the Senior Notes may not be reoffered, resold or otherwise pledged, hypothecated
or transferred in the United States unless so registered or unless an applicable
exemption from the registration requirements of the Securities Act is available.
Based on existing interpretations of the Securities Act by the staff of the
Securities and Exchange Commission (the "SEC" or "Commission") set forth in
several no-action letters to third parties, and subject to the immediately
following sentence, the Company believes that the Exchange Senior Notes that
will be issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by the Holders thereof without further compliance with
the registration and prospectus delivery provisions of the Securities Act.
However, any purchaser of Senior Notes who is an "affiliate" of the Company or
who intends to participate in the Exchange Offer for the purpose of distributing
the Exchange Senior Notes (i) will not be able to rely on the interpretation by
the staff of the Commission set forth in the above-mentioned no-action letters,
(ii) will not be able to tender its Senior Notes in the Exchange Offer and (iii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Senior Notes
unless such sale or transfer is made pursuant to an exemption from such
requirements.
Each holder of the Senior Notes who wishes to exchange Senior Notes for
Exchange Senior Notes in the Exchange Offer will be required to represent that
(i) it is not an affiliate of the Company, (ii) any Exchange Senior Notes to be
received by it were acquired in the ordinary course of its business and (iii) at
the time of commencement of the Exchange Offer, it has no arrangement with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Senior Notes. In addition, in connection with any resales
of Exchange Senior Notes, any broker-dealer (an "Exchanging Dealer") who
acquired the Senior Notes for its own account as a result of market-making
activities or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
Exchanging Dealers may fulfill their prospectus delivery requirements with
respect to the Exchange Senior Notes (other than a resale of an unsold allotment
from the original sale of the Senior Notes) with the prospectus contained
herein. Under the Registration Rights Agreement (as defined herein), the Company
is required to allow Exchanging Dealers to use the prospectus contained herein
in connection with the resale of such Exchange Senior Notes for the period
starting on the Expiration Date and ending on the close of business one year
after the Expiration Date. Each Exchanging Dealer who receives Exchange Senior
Notes for its own account in exchange for Senior Notes that were acquired by it
as a result of market-making activities or other trading activities will be
required to acknowledge that it will
ii
<PAGE>
deliver a Prospectus in connection with any resale by it of such Exchange Senior
Notes. The Letter of Transmittal that is filed as an exhibit to the Registration
Statement of which this Prospectus is a part (the "Letter of Transmittal")
states that by so acknowledging and by delivering a prospectus, an Exchanging
Dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Senior Notes initially purchased by qualified institutional buyers were
initially represented by a global Senior Note in registered form, deposited
with, or on behalf of, The Depository Trust Company (the "Depositary"), and
registered in the name of Cede & Co., as nominee of the Depositary. The Exchange
Senior Notes exchanged for Senior Notes represented by the global Senior Note
will be represented by one or more global Exchange Senior Notes in registered
form, registered in the name of the nominee of the Depositary. See "Description
of Exchange Senior Notes--Book-entry, Delivery and Form." Exchange Senior Notes
issued to non-qualified institutional buyers in exchange for Senior Notes held
by such investors will be issued only in certificated, fully registered,
definitive form.
The Senior Notes and the Exchange Senior Notes constitute new issues of
securities with no established public trading market and the Company does not
intend to apply for listing of the Senior Notes or the Exchange Senior Notes on
any securities exchange or for the inclusion of the Senior Notes or the Exchange
Senior Notes in any automated quotation system. The Senior Notes that are sold
to "Qualified Institutional Buyers" (as defined in Rule 144A under the
Securities Act) are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market of the National Association
of Securities Dealers, Inc. upon issuance. If a trading market does not develop
or is not maintained, holders of the Exchange Senior Notes may experience
difficulty in reselling the Exchange Senior Notes or may be unable to sell them
at all. If a market for the Exchange Senior Notes develops, any such market may
be discontinued at any time and the Exchange Senior Notes could trade at prices
that may be lower than the initial market values thereof, depending on many
factors, including prevailing interest rates, the markets for similar services
and the financial performance of the Company. Although there is currently no
market for the Exchange Senior Notes, NationsBanc Montgomery Securities, Inc.
(the "Initial Purchaser") has advised the Company that they will make a market
in the Exchange Senior Notes. However, they are not obligated to do so, and any
such market making with respect to the Exchange Senior Notes may be discontinued
at any time without notice. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the Securities Exchange
Act of 1934, as amended, and may be limited during the Exchange Offer and the
pendency of any applicable shelf registration statement. Accordingly, there can
be no assurance as to the development or liquidity of any market for the
Exchange Senior Notes.
Any Senior Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that Senior Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered and tendered, but
unaccepted, Senior Notes are likely to be adversely affected. Following
consummation of the Exchange Offer, the holders of any remaining Senior Notes
will continue to be subject to the existing restrictions on transfer thereof and
the Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the Senior Notes. No assurance can be
given as to the liquidity of the trading market for either the Senior Notes or
the Exchange Senior Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Notes being tendered or accepted for exchange. The Exchange
Offer will expire at 5:00 p.m., Eastern Time, on March 2, 1998, unless extended
(the "Expiration Date"). The date of acceptance for exchange (the "Exchange
Date") will be the first business day following the Expiration Date, upon
surrender of the Senior Note. Senior Notes tendered pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date; otherwise such
tenders are irrevocable.
iii
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. Such reports
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be
available for inspection and copying at its regional offices located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
also be obtained by mail from the public reference section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
material may also be accessed electronically by means of the Commission's web
site on the Internet at http://www.sec.gov.
The common stock of the Company is reported on the NASDAQ National Market
Reporting System ("NASDAQ"), and in accordance with the rules thereof, the
Company files reports and other information with NASDAQ. Such reports and other
information filed by the Company with NASDAQ can be inspected and copied at the
NASDAQ national office located at 1735 K Street, 2nd Floor, Washington, D.C.,
20006.
UNTIL APRIL 30, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
NOTICE TO INVESTORS
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY NOTES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------------
NOTICE TO NEW HAMPSHIRE INVESTORS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE DIRECTORS OF THE OFFICE OF SECURITIES
REGULATION THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT
MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS
AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE DIRECTORS OF THE OFFICE
OF SECURITIES REGULATION HAVE PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE
INVESTOR, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS
OF THIS PARAGRAPH.
------------------------
v
<PAGE>
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Offering Memorandum contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of management
as well as assumptions made by and information currently available to
management. Such forward-looking statements are principally contained in the
sections "Offering Memorandum Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and "Business"
and include, without limitation, the Company's expectation and estimates as to
the Company's business operations following the consummation of the Offering,
including the introduction of new products and services, future financial
performance, including growth in net sales and earnings and cash flows from
operations and capital expenditures. In addition, in those and other portions of
this Offering Memorandum, the words "anticipates," "believes," "estimates,"
"expects," "plans," "intends" and similar expressions, as they relate to the
Company or its management, are intended to identify forward-looking statements.
Such statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions,
including the risk factors described in this Offering Memorandum. In addition to
factors that may be described elsewhere in this Offering Memorandum, the Company
specifically wishes to advise readers that the factors listed under the caption
"Risk Factors" could cause actual results to differ materially from those
expressed in any forward-looking statement. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE EXCHANGE SENIOR
NOTES. SPECIFICALLY, THE INITIAL PURCHASER MAY BID FOR, AND PURCHASE, EXCHANGE
SENIOR NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"PLAN OF DISTRIBUTION."
------------------------
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE CORPORATE SECRETARY OF THE COMPANY, 1200 SEVENTEENTH STREET, SUITE 2800,
DENVER, COLORADO 80202, (303) 626-7000. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FEBRUARY 13, 1998.
vi
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES
THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FACTORS SET FORTH HEREIN UNDER THE CAPTION "RISK FACTORS"
AND ARE URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
ASCENT ENTERTAINMENT GROUP
Ascent Entertainment Group, Inc. ("Ascent" or the "Company") operates
diversified media and entertainment production and distribution businesses
characterized by well-known franchises. The Company conducts its business in two
segments, Multimedia Distribution and Entertainment. The Company's approximately
57% owned publicly traded subsidiary, On Command Corporation ("OCC"), is the
largest provider (by number of hotel rooms served) of on-demand in-room video
entertainment services to the domestic lodging industry. The Company's Ascent
Network Services ("ANS") division is the primary provider of satellite
distribution support services that link the National Broadcasting Company
("NBC") television network with 167 of its affiliated stations nationwide. The
Company also owns two professional sports franchises--the National Hockey League
("NHL") Colorado Avalanche-Registered Trademark- and the National Basketball
Association ("NBA") Denver Nuggets-Registered Trademark-. In order to enhance
the asset value of its sports franchises and to take advantage of the growing
popularity of the NHL and NBA, as well as to augment the revenues and operating
cash flows of its two sports franchises, the Company plans to construct, own and
operate a new state-of-the-art sports and entertainment center in downtown
Denver seating up to 20,000 (the "Pepsi Center") to house the Avalanche, the
Nuggets and other live entertainment events. 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. Finally, the Company owns 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.
Ascent believes it is creating a diversified media and entertainment company
with significant growth and cash flow potential. The Company has a strong and
capable management team with a diverse blend of operating and financial
expertise, which has demonstrated the ability to develop and execute strategies
for enhancing and realizing the franchise values of the Company's assets.
Management's overall goals are to continue to implement strategies that will
enable it to maximize the intrinsic values and cash flow potential of its
existing businesses and, as opportunities arise, to enter into strategic
acquisitions, joint ventures and alliances that complement those businesses.
MULTIMEDIA DISTRIBUTION
ON COMMAND CORPORATION
OCC is the largest provider (by number of hotel rooms served) of on-demand
in-room video entertainment 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,
Wyndham, 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 September 30, 1997, OCC had an installed room base
of approximately 872,000 rooms (of which 749,000 were served by on-demand
pay-per-view systems and 123,000 were only served by scheduled pay-per-view
systems) in approximately 2,900 hotels worldwide. From 1992 until the 1996
acquisition of the SpectraVision, Inc. ("SpectraVision") assets discussed below,
OCC enjoyed a compounded annual growth rate of 88.4% in the number of rooms
1
<PAGE>
served. From 1992 through year end 1996, OCC had a compounded annual growth rate
in revenues and EBITDA of 103.5% and 107.6%, respectively.
In October 1996, OCC acquired the assets and certain liabilities of
SpectraVision (the "Acquisition"), at the time the second largest provider of
in-room on-demand video entertainment services to the domestic lodging industry.
The Acquisition enhanced OCC's position as the leading provider of in-room video
entertainment services to the domestic lodging industry and approximately
doubled the number of installed rooms served by OCC. The conversion of
SpectraVision rooms to OCC's on-demand system is expected to result 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 September 30, 1997, approximately 12.5% of OCC's hotel rooms served, or
109,000 rooms, are located in international markets.
OCC's primary on-demand system currently is the On Command Video Corporation
("OCV") system, a patented video selection and distribution system that allows
guests to select at any time from 20 to 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 offer some combination thereof.
Management expects OCC to have a substantial majority of SpectraVision rooms
converted to OCC's on-demand system by 2001. OCC also provides in-room viewing
of free-to-guest programming of select cable channels (such as HBO, Showtime,
ESPN, CNN 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.
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 and continue to grow through the following
initiatives: (i) increase its installed hotel customer base by obtaining new
contracts within its core hotel markets and within select mid-priced hotels and
hotel chains; (ii) increase revenues and decrease costs in certain hotels
acquired in the Acquisition by installing OCC 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 will incur
significant capital expenditures over the next two years in furtherance of its
goals of increasing revenues and operating cash flows, enhancing asset value and
achieving long-term growth.
ASCENT NETWORK SERVICES
ANS principally owns and 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 a 10-year agreement that was
extended in 1994 for an additional five years (the "NBC Agreement"). Management
believes the NBC Agreement, which is scheduled to expire in 1999, will be
renewed and extended and that, in connection with such renewal, NBC would engage
ANS to complete a full upgrade of the NBC satellite distribution network to
digital technology, which could involve capital expenditures by the Company. The
renewal of the NBC Agreement and digital upgrade of the NBC satellite
distribution
2
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network would be expected to increase the asset value of ANS and further
solidify the relationship between ANS and NBC.
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 since 1995. Ascent's strategy for maintaining and expanding
this source of cash flows is to renew and extend the NBC Agreement to 2006 or
beyond, and to be engaged for and complete successfully the full digital upgrade
of the NBC satellite distribution network.
ENTERTAINMENT
COLORADO AVALANCHE AND DENVER NUGGETS; PEPSI CENTER
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 NBA and NHL 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, NBA and NHL sports franchises have increased in value and revenue
generation over that period.
In July 1995, the Company acquired the Avalanche, one of 26 franchises in
the NHL, at a cost of $75.8 million. In 1996, the Avalanche won the Stanley Cup
Championship and, in 1997, competed in the NHL Western Conference Finals. The
Avalanche has consistently sold all available season tickets and currently has a
waiting list for over 2,500 season tickets. Construction of the Pepsi Center is
expected to result in an increase of approximately 2,000 seats for sale for each
Avalanche game to 18,100 seats. The average ticket price per seat for an
Avalanche game during the 1997-1998 season is $44.61 per ticket, a 25.1%
increase over the prior year and 14% above the average NHL ticket price of
$39.12. As of the date of this Prospectus, the Avalanche enjoys the longest
record of consecutive sellout home games in the NHL at over 100 games.
The Company believes that the NHL in general will continue to grow in
popularity as evidenced by a record number of aggregate league-wide ticket sales
of approximately 16.2 million and record revenues from ticket sales of
approximately $595 million during the 1996-1997 season (a 4% increase in number
of tickets sold and a 14.8% increase in revenues from the prior season) and an
increase in revenues from retail sales of NHL licensed merchandise in the United
States from approximately $800 million in 1992-1993 to approximately $1.2
billion in 1996-1997. 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 to be paid in 1998, 1999 and 2000. The increased popularity of the
NHL resulted in 1994 in a new five-year national over-the-air television rights
contract with the Fox television network with aggregate license fees of $155
million, subject thereafter to a two-year renewal term at Fox's option for
aggregate incremental license fees of $120 million. In addition, in 1994, the
NHL extended its existing contracts with ESPN and its Canadian broadcaster
through the 1998-1999 season for aggregate license fees of approximately $235
million.
The Company acquired its ownership in the Denver Nuggets, one of 29
franchises in the NBA, through a series of transactions from 1989 to 1992 at a
total cost of $60.2 million. From the 1991-1992 season through the 1995-1996
season, the Nuggets had a compounded annual growth rate in revenues (excluding
$9.2 million of NBA expansion fees recorded during 1995) of 17.5%. From the
1995-1996 season to the 1996-1997 season, however, poor on-court performance led
to decreased attendance, resulting in a decline in revenues for the Nuggets of
8.1%. Management is currently implementing focused measures in an attempt to
improve the Nuggets' on-court performance in order to reverse the decline in
attendance and revenues, including the hiring of a new General Manager and a new
Head Coach and the restructuring of the player roster. Management believes that
these efforts, combined with the relocation to
3
<PAGE>
the Pepsi Center, should contribute to improving attendance and ticket sales at
Nuggets games and increased revenues.
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 16.8 million and the increase in average game attendance by over
50% to approximately 14,159 or 86% of capacity for the 1996-1997 season. In
addition, revenues from the sale of NBA retail merchandise in the United States
have increased from approximately $2.1 billion in 1992-1993 to approximately
$2.6 billion in 1995-1996. 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
four-year national television contracts between the NBA and each of NBC and
Turner Sports provide $1.1 billion in aggregate fixed revenues for NBA member
teams over the term of the contracts, and provide for revenue sharing over
specified amounts of sponsorship revenues. Such contracts will expire after the
1997-1998 season. New contracts with both NBC and Turner Sports, commencing with
the 1998-1999 season, were recently announced under which $2.6 billion in
aggregate fixed revenues will be provided to NBA member teams over the four-year
term of such contracts and such contracts also provide for revenue sharing.
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, for local television rights
(over-the-air and cable) for the Nuggets and the Avalanche (the "Fox Sports
Agreement"). The Fox Sports Agreement has a term of seven years, commencing with
the 1997-1998 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. 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 flows from the Avalanche and the Nuggets. The three key elements of the
Company's strategy to realize such growth are to: (i) complete the financing and
construction of the Pepsi Center, to be owned and operated by Ascent Arena
Company, LLC, a subsidiary of the Company (the "Arena Company") for occupancy in
the 1999-2000 seasons; (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.
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 Arena Agreement (as defined herein) with the City and County of Denver (the
"City") setting forth the terms on which the Company, through 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 already have lease
commitments with terms of five to ten years (at lease amounts from $90,000 to
$180,000 per year), and will have over 1,600 club seats 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
4
<PAGE>
and increased seating capacity, combined with naming rights, founding sponsor
arrangements and enhanced facilities, will result in significantly increased
revenues to the Company.
Development and construction of the Pepsi Center will cost approximately
$160 million. The Company expects to finance the Pepsi Center from the sale by
the Arena Company of approximately $100 to $130 million in indebtedness (the
"Arena Notes"), secured by some or all of the assets of the Arena Company,
including the Pepsi Center, and by the revenues of the Pepsi Center, including
corporate sponsorships. In addition, the Arena Company 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. The investment by Liberty is an example of management's strategy
to use strategic alliances to enhance the Company's asset value and cash flows.
BEACON COMMUNICATIONS
Acquired in 1994, Beacon produces 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. Historically, Beacon has limited its net
investment to between $4 million and $17 million in the development and
production of each of the motion pictures it has produced. In order to maintain
the Company's strategy for limited investment in new motion picture production,
in 1996 Beacon entered into a five-year domestic distribution agreement (the
"Universal Agreement") with Universal Pictures ("Universal") for up to 20
pictures produced by Beacon (although Universal is not obligated to accept more
than four films per year from Beacon). Pursuant to the Universal Agreement,
Universal contributes a significant percentage of the production cost per motion
picture which it recoups out of domestic revenues, and receives a distribution
fee to distribute the motion pictures in the United States and Canada, and
Beacon receives net revenues after Universal's fees and expenses. Universal
generally controls all rights to distribute such motion pictures domestically
for two full television syndication cycles, not to exceed 21 years from the
theatrical release of the picture, and Beacon retains all international
distribution rights, the films' copyrights and certain other rights related to
such films such as music publishing, merchandising and hotel television rights.
In the event that Universal declines to distribute a film produced by Beacon,
Beacon may seek another domestic distributor for the film.
5
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer................ The Issuer is offering to exchange (the "Exchange
Offer") up to $225,000,000 aggregate principal amount at
maturity of its 11 7/8% Senior Secured Discount Notes
due 2004 (the "Exchange Senior Notes") for up to
$225,000,000 aggregate principal amount at maturity of
its 11 7/8% Senior Secured Discount Notes due 2004 that
were issued and sold in a transaction exempt from
registration under the Securities Act (the "Senior
Notes" and with the Exchange Senior Notes, the "Notes").
The form and terms of the Exchange Senior Notes are
substantially identical (including principal amount,
interest rate, maturity, security and ranking) to the
form and terms of the Senior Notes for which they may be
exchanged pursuant to the Exchange Offer, except that
the Exchange Senior Notes are freely transferable by
holders thereof except as provided herein (see "The
Exchange Offer--Terms of the Exchange" and "--Terms and
Conditions of the Letter of Transmittal") and are not
entitled to certain registration rights and certain
liquidated damages which are applicable to the Senior
Notes under a Registration Rights Agreement dated as of
December 22, 1997 (the "Registration Rights Agreement")
by and between the Company and NationsBanc Montgomery
Securities, Inc. (the "Initial Purchaser").
The Exchange Senior Notes that will be issued pursuant
to the Exchange Offer may be offered for resale, resold
and otherwise transferred by the holders thereof without
further compliance with the registration and prospectus
delivery provisions of the Securities Act. However, any
purchaser of Senior Notes who is an "affiliate" of the
Company or who intends to participate in the Exchange
Offer for the purpose of distributing the Exchange
Senior Notes (i) will not be able to rely on the
interpretation by the staff of the Commission set forth
in the above-mentioned no-action letters, (ii) will not
be able to tender its Senior Notes in the Exchange Offer
and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act
in connection with any sale or transfer of the Senior
Notes unless such sale or transfer is made pursuant to
an exemption from such requirements.
Minimum Condition................. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Senior Notes being
tendered or accepted for exchange.
Expiration Date................... The Exchange Offer will expire at 5:00 p.m., Eastern
time, on March 2, 1998, unless extended (the "Expiration
Date").
Exchange Date..................... The first date of acceptance for exchange of the Senior
Notes will be the first business day following the
Expiration Date.
Withdrawal Rights................. Tenders of Senior Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration
Date. Any Senior
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Notes not accepted for any reason will be returned
without expense to the tendering holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
Procedures for Tendering Senior See "The Exchange Offer--How to Tender."
Notes...........................
Federal Income Tax Consequences... The exchange of Senior Notes for Exchange Senior Notes
by tendering holders will not be a taxable exchange for
federal income tax purposes, and such holders should not
recognize any taxable gain or loss or any interest
income as a result of such exchange. See "Certain U.S.
Federal Income Tax Consequences".
Use of Proceeds................... There will be no cash proceeds to the Issuer from the
exchange pursuant to the Exchange Offer.
Effect on Holders of Senior As a result of the making of this Exchange Offer, and
Notes........................... upon acceptance for exchange of all validly tendered
Senior Notes pursuant to the terms of this Exchange
Offer, the Issuer will have fulfilled obligations
contained in the terms of the Senior Notes and the
Registration Rights Agreement, and, accordingly, the
holders of the Senior Notes will have no further
registration or other rights under the Registration
Rights Agreement. See "The Exchange Offer."
</TABLE>
TERMS OF THE EXCHANGE SENIOR NOTES
The Exchange Offer applies to $225,000,000 aggregate principal amount at
maturity of Senior Notes. The form and terms of the Exchange Senior Notes are
substantially identical to the form and terms of the Senior Notes, except that
the Exchange Senior Notes have been registered under the Securities Act, and
therefore, will not bear legends restricting the transfer thereof. The Exchange
Senior Notes will evidence the same debt as the Senior Notes and will be
entitled to the benefits of the Indenture. See "Description of Exchange Senior
Notes."
<TABLE>
<S> <C>
Securities Offered................ $225,000,000 aggregate principal amount at maturity of
11 7/8% Senior Secured Discount Notes due 2004 (the
"Exchange Senior Notes").
Maturity Date..................... December 15, 2004.
Interest Payment Dates............ June 15 and December 15, commencing June 15, 2003.
Original Issue Discount........... The Exchange Senior Notes will bear original issue
discount for U.S. federal income tax purposes. Thus,
although there will be no cash payments on the Exchange
Senior Notes prior to June 15, 2003, original issue
discount (that is, the difference between the issue
price of the Exchange Senior Notes and the sum of all
payments to be made thereon) will accrue from the issue
date and will be includible as interest income
periodically in a holder's gross income for federal
income tax purposes in advance of receipt of the cash
payments to which the income is
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
attributable. See "Certain United States Federal Income
Tax Consequences."
Ranking........................... The Exchange Senior Notes will be senior secured
obligations of the Company, senior to all existing and
future subordinated indebtedness of the Company and PARI
PASSU in right of payment with all other existing and
future unsubordinated indebtedness of the Company. The
Exchange Senior Notes will be secured by a perfected
first priority pledge of the Company's shares of the
capital stock of OCC. Loans under the New Ascent Credit
Facility (as defined herein) will be secured by
perfected first priority pledges of capital stock of all
the subsidiaries (other than OCC and its subsidiaries)
of the Company and, accordingly, such indebtedness will
effectively rank senior to the Exchange Senior Notes to
the extent of such security interests. The Exchange
Senior Notes will be structurally subordinated to all
indebtedness, all other liabilities, including trade
payables, and preferred stockholders (if any) of the
subsidiaries of the Company. The pledge of the Company's
shares of the capital stock of OCC to secure the
Exchange Senior Notes will not alter such structural
subordination of the Exchange Senior Notes. As of
September 30, 1997, on an as adjusted basis after giving
effect to the Offering and the use of proceeds
therefrom, the Company would have had approximately $254
million of indebtedness, of which approximately $127
million would have been senior secured debt and $127
million would have been indebtedness of OCC. The
Indenture for the Exchange Senior Notes (the
"Indenture") restricts, but does not prohibit, the
Company from incurring additional indebtedness. See
"Description of the Exchange Senior Notes--Ranking."
Optional Redemption............... On or after December 15, 2001, the Company may redeem
the Exchange Senior Notes, in whole or in part, at the
redemption prices set forth herein, plus accrued and
unpaid interest, if any, to the date of redemption.
Notwithstanding the foregoing, at any time on or before
December 15, 2001, the Company may redeem up to 35% of
the originally issued principal amount at maturity of
the Exchange Senior Notes, on one or more occasions,
with the net cash proceeds of one or more Equity Offer-
ings (as defined herein) at a redemption price equal to
111 7/8% of the Accreted Value (as defined herein)
thereof, plus accrued and unpaid interest, if any, to
the date of redemption provided that at least 65% of the
originally issued principal amount at maturity of
Exchange Senior Notes remains outstanding immediately
after the redemption. See "Description of the Exchange
Senior Notes--Optional Redemption."
Security.......................... The Exchange Senior Notes will be secured by a pledge of
the Company's shares of capital stock of OCC (the
"Collateral"), a 57% owned (approximately 46% on a fully
diluted basis) direct subsidiary of the Company. The
Exchange Senior Notes are not secured by any lien on, or
other security interest in, any other
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
properties or assets of the Company or any properties or
assets of any subsidiary of the Company. The Collateral
may be sold and the security interest therein may be
released under the circumstances set forth below under
the caption "Description of the Exchange Senior
Notes--Repurchase at the Option of Holders--Sale of
Collateral or Loss of Control of OCC Board."
Mandatory Redemption.............. None.
Change of Control................. Upon a Change of Control (as defined herein), the
Company will be required to make an offer to repurchase
all outstanding Exchange Senior Notes at 101% of their
Accreted Value, in the case of any such purchase on or
before December 15, 2002, and 101% of the aggregate
principal amount at maturity of the Senior Notes, plus
accrued and unpaid interest, if any, to the date of
repurchase in the case of any such purchase after
December 15, 2002. See "Description of the Exchange
Senior Notes--Repurchase at the Option of
Holders--Change of Control." There can be no assurance
that sufficient funds will be available to the Company
at the time of any Change of Control to make any
required repurchases of Exchange Senior Notes. See "Risk
Factors--General--Potential Inability to Fund Change of
Control Offer."
Covenants......................... The Indenture will restrict, among other things, the
Company's and its subsidiaries' ability to incur
additional indebtedness, pay dividends or make certain
other restricted payments, incur liens, sell stock of
subsidiaries, apply net proceeds from certain asset
sales, merge or consolidate with any other person, sell,
assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company or enter
into certain transactions with affiliates. See
"Description of the Exchange Senior Notes-- Certain
Covenants."
Use of Proceeds................... There will be no cash proceeds to the Issuer from the
exchange pursuant to the Exchange Offer.
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Senior Notes.
9
<PAGE>
SUMMARY FINANCIAL AND OPERATING INFORMATION
The following tables present summary historical financial information and
operating information for the Company. The summary historical financial
information for each year in the five-year period ended December 31, 1996 and as
of and for the nine-month periods ended September 30, 1996 and 1997 has been
derived from the consolidated financial statements of the Company. The
consolidated financial statements as of December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996 are included elsewhere
herein together with the report of Deloitte & Touche LLP, independent auditors
(the "Consolidated Financial Statements"). The unaudited condensed consolidated
financial statements for the nine-month periods ended September 30, 1997 and
1996 are also included elsewhere herein (the "Unaudited Condensed Consolidated
Financial Statements"). The summary historical information for the nine months
ended September 30, 1996 and 1997 has been derived from the Company's Unaudited
Condensed Consolidated Financial Statements, which have not been audited, but
which reflect, in the opinion of management, all adjustments that include only
normal recurring adjustments necessary to present fairly the information
contained herein. Interim results are not necessarily indicative of results to
be expected for any full year. This information should be read in conjunction
with "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of the Company, including the notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Multimedia Distribution revenues........ $ 81,767 $ 97,855 $ 125,823 $ 135,782 $ 167,976(4) $ 110,021 $ 180,424
Entertainment revenues.................. 21,901 27,826 39,653 66,036(2) 90,144 59,480 138,290
--------- --------- --------- --------- --------- --------- ---------
Total revenues........................ 103,668 125,681 165,476 201,818(2) 258,120 169,501 318,714
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Cost of services...................... 75,046 85,998 107,452 154,676 217,949 131,059 266,463
Depreciation and amortization......... 22,386 27,227 38,820 53,675 74,812 48,637 75,689
General & administrative.............. 7,089 7,967 9,203 10,002 9,678 7,723 5,921
Provision for restructuring........... 15,318(1) -- -- 10,866(3) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses............ 119,839 121,192 155,475 229,219 302,439 187,419 348,073
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........... (16,171) 4,489 10,001 (27,401) (44,319) (17,918) (29,359)
Interest expense........................ (2,186) (567) (326) (759) (10,715) (5,904) (16,329)
Other income (expense) [including taxes,
minority interest and extraordinary
items]................................ 6,686 (1,252) (4,075) 7,137 19,000 7,256 16,933
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)....................... $ (11,671) $ 2,670 $ 5,600 $ (21,023) $ (36,034) $ (16,566) $ (28,755)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per common share...... $ (.49) $ .11 $ .23 $ (.87) $ (1.21) $ (.56) $ (.97)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common shares
outstanding........................... 24,000 24,000 24,000 24,217 29,753 29,752 29,755
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
EBITDA (5):
Multimedia Distribution(6)............ $ 31,317 $ 39,071 $ 53,031 $ 48,277 $ 52,457 $ 44,472 $ 49,361
Entertainment......................... (2,695) 612 4,993 (1,135) (12,286) (6,124) 2,890
General & administrative.............. (7,089) (7,967) (9,203) (10,002) (9,678) (7,629) (5,921)
--------- --------- --------- --------- --------- --------- ---------
Total EBITDA........................ $ 21,533 $ 31,716 $ 48,821 $ 37,140 $ 30,493 $ 30,719 $ 46,330
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
CAPITAL EXPENDITURES:
Multimedia Distribution(7)............ $ 17,700 $ 63,708 $ 89,073 $ 82,903 $ 78,793 $ 64,205 $ 66,938
Entertainment......................... 371 1,232 980 2,208 10,066 9,216 1,355
--------- --------- --------- --------- --------- --------- ---------
Total capital expenditures.......... $ 18,071 $ 64,940 $ 90,053 $ 85,111 $ 88,859 $ 73,421 $ 68,293
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
CASH FLOW DATA:
Net cash provided by operating
activities.......................... $ 27,528 $ 27,713 $ 38,560 $ 63,771 $ 23,277 $ 28,279 $ 48,368
Net cash used in investing
activities.......................... (23,212) (76,086) (119,975) (180,523) (113,314) (106,186) (82,912)
Net cash provided by (used in)
financing activities................ (3,512) 51,217 81,554 124,406 82,988 68,368 49,000
OTHER:
Ratio of earnings to fixed
charges(8).......................... NM 8.9x 31.7x NM NM NM NM
Cash dividends per share.............. -- -- -- -- -- -- --
</TABLE>
10
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<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30, 1997
----------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED
--------- --------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.............................. $ 203,085 $ 270,473 $ 372,580 $ 504,416 $ 742,642 $ 734,831 $ 746,495
Total short-term debt..................... 729 817 817 -- 143,000 192,000 --
Total long-term debt...................... 2,570 1,024 207 70,000 50,000 50,000 253,664
Stockholders' equity...................... 137,209 181,181 268,197 301,269 269,585 240,863 240,863
Book value per share...................... $ 5.72 $ 7.55 $ 11.17 $ 12.44 $ 9.06 $ 8.10 $ 8.10
--------- --------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- --------- -----------
ROOM DATA:
Total number of guest-pay rooms
(at end of period):
On-demand............................... 37,000 124,000 248,000 361,000 710,000 749,000
Scheduled only.......................... 298,000 264,000 194,000 51,000(9) 208,000(9) 123,000
--------- --------- --------- --------- --------- ---------
Total rooms........................... 335,000 388,000 442,000 412,000 918,000 872,000
--------- --------- --------- --------- --------- ---------
</TABLE>
- ----------------------------------
(1) Reflects a restructuring charge of $15.3 million relating to the Company's
decision to shift its business focus from mid-priced hotels served by
Satellite Cinema's scheduled, satellite delivered pay-per-view systems to
business and luxury hotels served by OCV's on-demand technology, and the
write-off of an equity investment.
(2) Includes $9.2 million of NBA expansion fee revenues 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, which was
acquired on July 1, 1995.
(3) Reflects a $10.9 million restructuring charge resulting from the
discontinuation of Satellite Cinema's lower margin, scheduled, satellite
delivered pay-per-view service. See Note 12 of Notes to Consolidated
Financial Statements.
(4) Includes $21.4 million in revenues from SpectraVision. The results of
operations for the fourth quarter of 1996 include the results from
SpectraVision, which was acquired on October 8, 1996. See Note 2 of Notes
to Consolidated Financial Statements.
(5) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. The most significant difference between
EBITDA and cash provided from operations is changes in working capital and
interest costs. 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 under "Liquidity and Capital Resources" at pages
45-47 of this Prospectus. See the Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this document. EBITDA for the years
ended December 31, 1992 and 1995 excludes the provisions for restructuring
during such periods.
(6) Included in the Multimedia Distribution EBITDA for the years ended December
31, 1992, 1993, 1994, 1995 and 1996, are OCC amounts of $2.3 million, $10.2
million, $23.4 million, $37.3 million and $42 million. For the nine months
ended September 30, 1996 and 1997, OCC's EBITDA was $37 million and $41
million, respectively. While these amounts represent 100% of OCC's EBITDA,
the Company only owns approximately 57% of the capital stock of OCC. Cash
flow available to be distributed by OCC will be restricted and,
accordingly, the Company may not be able to depend on the operating cash
flows of OCC for purposes of satisfying the Company's debt service
obligations under the Notes. See "Risk Factors-- General--Structural
Subordination; Restrictions on Payments by Subsidiaries; Asset
Encumbrances" and "Description of Other Indebtedness-- New OCC Credit
Facility." OCC's EBITDA for the fourth quarter of 1996 and the first nine
months of 1997 includes the results from SpectraVision, which was acquired
on October 8, 1996.
(7) Included in Multimedia Distribution capital expenditures for the years
ended December 31, 1992, 1993, 1994, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997 are OCC amounts of $16.6 million, $56.2
million, $64.1 million, $63.7 million, $70.5 million, $56.2 million and
$65.8 million, respectively.
(8) For the purpose of determining the ratio of earnings to fixed charges,
earnings are defined as income from operations plus fixed charges. Fixed
charges consist of interest expense. Earnings were insufficient to cover
fixed charges for the years ended December 31, 1992, 1995 and 1996 and the
nine months ended September 30, 1996 and 1997 by $18.4 million, $28.2
million, $55 million, $23.8 million and $45.7 million, respectively.
(9) 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. In 1992, the Company changed the
focus of its in-room video entertainment service to the higher-margin OCC
on-demand service. 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 up to 45,000 rooms in the United States and
Canada.
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RISK FACTORS
AN INVESTMENT IN THE EXCHANGE SENIOR NOTES INVOLVES A SIGNIFICANT DEGREE OF
RISK. IN DETERMINING WHETHER TO MAKE AN INVESTMENT IN THE EXCHANGE SENIOR NOTES,
POTENTIAL INVESTORS SHOULD CONSIDER CAREFULLY ALL OF THE INFORMATION CONTAINED
IN THIS PROSPECTUS AND, IN PARTICULAR, THE FOLLOWING FACTORS.
GENERAL
HIGH LEVERAGE; ABILITY TO SERVICE DEBT; NEED TO REFINANCE NOTES AT MATURITY
The Company has a significant amount of indebtedness. At September 30, 1997,
giving effect to the Offering, the Company would have had $254 million of
indebtedness. For the year ended December 31, 1996 and the nine months ended
September 30, 1997, the Company's earnings were insufficient to cover its fixed
charges by $55 million and $45.7 million, respectively.
The level of the Company's indebtedness could adversely affect the Company
in a number of ways. For example, (i) the ability of the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes may be limited; (ii) the Company's
level of indebtedness could limit its flexibility in planning for, or reacting
to, changes in its business; (iii) the Company will be more highly leveraged
than some of its competitors, which may place it at a competitive disadvantage;
(iv) the Company's degree of indebtedness may make it more vulnerable to a
downturn in its business or the economy generally; and (v) a substantial portion
of the Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness and will not be available for other
purposes.
In view of the Company's expectation that cash flows from operations will be
insufficient to cover planned capital expenditures through the end of 1997 and
in 1998 and 1999, no cash interest is payable on the Notes until June 2003. See
"--Historical and Anticipated Future Operating Losses and Insufficient Cash
Flows." Thereafter, the Company's ability to pay interest on the 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 to OCC's on-demand technology, the upgrade and expansion of OCC's
technology and service offerings and construction of the Pepsi Center in Denver,
and 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 debt service obligations and working capital
requirements. In the event the implementation of the Company's strategy is
delayed or is unsuccessful, the Company will not generate sufficient cash flows
to meet its debt service obligations, including the Notes, and its working
capital requirements. In this event, the Company will have to refinance such
debt obligations. Based on the Company's current expectations with respect to
its existing businesses, the Company does not expect to have cash flows after
capital expenditures sufficient to repay the Notes at maturity and, accordingly,
will have to refinance the Notes at 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. See "--Restrictive Covenants." In the absence of such
financing, the Company could be forced to dispose of assets in order to make up
for any shortfall in the payments due on its indebtedness under circumstances
that might not be favorable to realizing the highest price for such assets. As a
result, there can be no assurance that the Company's assets could be sold
quickly enough or for sufficient amounts to enable the Company to meet its
obligations, including its obligations with respect to the Notes.
RESTRICTIVE COVENANTS
The Indenture and the New Ascent Credit Facility contain restrictions on the
Company and its subsidiaries that will affect, and in certain cases
significantly limit or prohibit, among other things, the
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ability of the Company and its subsidiaries to incur additional indebtedness,
create liens, make investments, enter into transactions with affiliates, issue
stock of subsidiaries, sell assets and engage in mergers and consolidations. The
New Ascent Credit Facility requires the Company to maintain certain financial
ratios. See "Description of Certain Indebtedness--New Ascent Credit Facility"
and "Capitalization." In addition, the New OCC Credit Facility (as defined
herein) limits OCC's ability to pay dividends or distributions or repurchase its
capital stock, and requires OCC to maintain certain financial ratios. See
"Description of Certain Indebtedness--New OCC Credit Facility" and
"Capitalization." There can be no assurance that Ascent or OCC will be able to
maintain such ratios or that such covenants will not adversely affect the
Company's ability to finance its future operations or capital needs or to engage
in other business activities that may be in the interest of the Company. If the
Company fails to comply with the various covenants in its indebtedness, it would
be in default under the terms thereof, which would permit the holders of such
indebtedness to accelerate the maturity of such indebtedness and could cause
defaults under other indebtedness of the Company. Such defaults could result in
a default on the Notes.
HISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES AND INSUFFICIENT CASH FLOWS
The Company reported operating losses of $44.3 million and $29.4 million for
1996 and for the nine months ended September 30, 1997, respectively. The Company
had negative operating cash flows (after capital expenditures) in 1993, 1994,
1995, and 1996 and the first nine months of 1997 equal to $37.2 million, $51.5
million, $21.3 million, $65 million and $19.9 million, respectively. The Company
expects to incur significant operating losses and to have insufficient cash
flows from operating activities to cover capital expenditures through the end of
1997 and in 1998 and 1999 as it implements its business strategy, including
conversion of hotel rooms acquired in the Acquisition to OCC's on-demand
technology, upgrade and expansion of OCC's service offerings, and construction
of the Pepsi Center. There can be no assurance that the Company will achieve or
sustain future profitability or cash flows from operating activities sufficient
to pay capital expenditures. If the Company cannot achieve or sustain operating
profitability and cash flows from operating activities sufficient to cover
capital expenditures, it may not be able to meet its working capital, capital
expenditure, or debt service needs or requirements, which would have a material
adverse effect on the Company's ability to meet its obligations on the Notes
once cash interest becomes payable in June 2003. See "--High Leverage; Ability
to Service Debt; Need to Refinance Notes at Maturity," "--Dependence on
Additional Capital for Growth; Uncertainty of Additional Financing," "Selected
Financial and Operating Information" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
STRUCTURAL SUBORDINATION; RESTRICTIONS ON PAYMENTS BY SUBSIDIARIES; ASSET
ENCUMBRANCES
The Company is a holding company with direct operations only through ANS.
Except for the assets of ANS, the Company has no significant assets other than
the stock of its subsidiaries. The Company is dependent on the cash flows of its
subsidiaries and of ANS to meet its obligations, including the payment of
interest and principal on the Notes after cash interest on the Notes becomes
payable in June 2003. The Company's subsidiaries are separate legal entities
that have no obligation to pay any amounts due pursuant to the Notes or to make
any funds available therefor, whether by dividends, loans or other payments.
Because the Company's subsidiaries will not guarantee the payment of the
principal or interest on the Notes, any right of the Company to receive assets
of any of such subsidiaries upon its liquidation or reorganization (and the
consequent right of holders of the Notes to participate in the distribution or
realize proceeds from those assets) will be effectively subordinated to the
claims of the creditors of any such subsidiary (including trade creditors and
holders of indebtedness of such subsidiary), except if and to the extent the
Company is itself a creditor of such subsidiary, in which case the claims of the
Company would still be effectively subordinated to any security interest in the
assets of such subsidiary held by other creditors. As of September 30, 1997, on
an adjusted basis giving effect to the Offering, the Company and its
subsidiaries would have had approximately $408 million of consolidated
liabilities (excluding intercompany payables), including approximately $254
million of indebtedness. As of the date of the filing of this
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registration statement, the Company has up to $50 million of availability under
the New Ascent Credit Facility (subject to certain covenant restrictions), and
each of the Company's subsidiaries other than OCC and its subsidiaries, the
Company's sports franchise companies and the Arena Company are guarantors
thereunder. At September 30, 1997, OCC would have had up to $73 million of
availability under the New OCC Credit Facility (subject to certain covenant
restrictions), and each of its subsidiaries are guarantors thereunder. The Arena
Company will be the borrower under the Arena Notes. See "Description of Certain
Indebtedness."
The Company expects that the cash flow available to be distributed by its
subsidiaries to enable the Company to meet its debt service obligations under
the Notes will be restricted. Under the terms of the New OCC Credit Facility,
OCC is subject to restrictions on its ability to make dividends, distributions
or advances to the Company. Moreover, the Company does not anticipate that OCC
will have free cash flow available for distributions or advances to the Company
after making planned capital expenditures. In addition, the terms of the Arena
Notes are expected to require that the debt obligations incurred thereunder will
have priority of payment over other uses of the cash flows generated by the
Pepsi Center, and to restrict the Arena Company's ability to distribute cash
depending on specified coverage ratios.
The Notes are secured by a perfected first priority pledge of the Company's
shares of capital stock of OCC, a 57% owned (approximately 46% on a fully
diluted basis) direct subsidiary of the Company. The New Ascent Credit Facility
is secured by substantially all of the assets of ANS and the stock of all of the
Company's subsidiaries (other than OCC). Borrowings under the New Ascent Credit
Facility will effectively rank senior to the Notes to the extent of such
security interests. Consequently, in the event of a bankruptcy, liquidation,
dissolution, reorganization or similar proceeding with respect to the Company,
the lenders under the New Ascent Credit Facility would be entitled to exercise
the remedies available to secured lenders under applicable law and pursuant to
the New Ascent Credit Facility and would have a prior claim to such assets
relative to holders of the Notes. In addition, to the extent such assets did not
satisfy in full the secured indebtedness, the holders of such indebtedness would
have a claim for any shortfall that would be PARI PASSU (or effectively senior
if the indebtedness were issued by a subsidiary) with the Notes. Accordingly,
there may only be a limited amount of assets available to satisfy any claims of
the holders of the Notes upon an acceleration of the Notes.
DEPENDENCE ON ADDITIONAL CAPITAL FOR GROWTH; UNCERTAINTY OF ADDITIONAL FINANCING
The growth of the Company's business and successful implementation of the
Company's business strategy requires substantial investment on a continuing
basis to finance capital expenditures and related expenses. The conversion of
hotel rooms acquired in the SpectraVision acquisition to OCC's on-demand
technology, and upgrade and expansion of OCC's technology and services and
construction of the Pepsi Center in Denver will require significant capital. The
Company currently estimates that its aggregate capital requirements will total
approximately $110 to $120 million in 1997, of which approximately $68 million
was incurred during the first nine months of 1997, and $150 to $170 million in
1998. The Company believes that the anticipated proceeds from the Arena Notes
expected to be issued by the Arena Company in connection with construction of
the Pepsi Center, together with cash flows from operations and borrowings
expected to be available under the New Ascent Credit Facility and available
under the New OCC Credit Facility, will provide sufficient funds to enable the
Company to expand its business as currently planned through 1998. Because both
the New Ascent Credit Facility and the New OCC Credit Facility are scheduled to
mature in 2002, there is no assurance that the Company will have a ready source
of liquidity after 2002. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Certain Indebtedness."
The actual amount and timing of the Company's future capital requirements
may differ materially from the Company's estimate depending on the demand for
OCC's products and services and as a result of technological and competitive
developments (including new market developments and new opportunities) in the
Company's industries. The Company may also require additional capital in the
future (or sooner
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than currently anticipated) for new business activities related to its current
and planned businesses, or in the event it decides to make additional
acquisitions or enter into joint ventures and strategic alliances. Sources of
additional capital may include cash flow from operations and public or private
equity or debt financings, subject to the limitations described under
"--Restrictive Covenants" and "Certain Restrictions Related to COMSAT
Distribution."
There can be no assurance that the Company will be successful in generating
sufficient cash flows or raising sufficient debt or equity capital to meet its
strategic objectives or take advantage of acquisition and joint venture
opportunities or that such funds, if available at all, will be available on a
timely basis or on terms that are acceptable to the Company. Failure to generate
or raise sufficient funds would require the Company to delay or alter some or
all of its future expansion plans or expenditures, which could have a material
adverse effect on the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
UNCERTAINTY OF EXECUTING ARENA NOTES OFFERING
The Company currently estimates that the development and construction of the
Pepsi Center will cost approximately $160 million. The Company expects to
finance the Pepsi Center from the sale by the Arena Company of approximately
$100 to $130 million of Arena Notes. While management believes that the
projected revenues from the Pepsi Center, including revenues from the lease of
luxury suites, corporate sponsorships, and revenues from the Avalanche and the
Nuggets will be sufficient to enable the Arena Company to sell the Arena Notes
on favorable terms, there can be no assurance that market conditions will not
change or other circumstances will not arise which would prevent the Arena
Company from selling the Arena Notes on favorable terms or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Entertainment-- The
Pepsi Center."
DEPENDENCE ON KEY PERSONNEL
The Company's success is dependent upon the continued contributions of its
senior corporate management and key employees. The loss of the services of its
key personnel at the senior corporate management level, in particular Charles
Lyons, the Company's Chairman, President and Chief Executive Officer, and Robert
M. Kavner, the President and Chief Executive Officer of OCC, could have a
material adverse effect on the Company. The Company has entered into an
employment agreement with Mr. Lyons, and OCC has entered into an employment
agreement with Mr. Kavner. The Company does not, however, maintain "key man"
insurance on Mr. Lyons or Mr. Kavner or any other key executive officer of
Ascent.
ACQUISITIONS, JOINT VENTURES, AND STRATEGIC ALLIANCES; EXPANSION OF BUSINESS
Part of the Company's business strategy is to enter into acquisitions, joint
ventures or strategic alliances with respect to media, distribution and
entertainment-related assets, as opportunities arise, which will complement its
existing businesses and enhance the value of its portfolio of assets. Although
no such transaction is considered to be probable at this time, the Company is
unable to predict whether or when any prospective acquisition, joint venture or
strategic alliance candidates will become available or the likelihood of a
material transaction being completed should any negotiations commence. The
Company's ability to effect any such transaction will be limited by the
projected insufficiency of its operating cash flows to cover capital
expenditures through 1999 as well as by the restrictive covenants under its
indebtedness, including under the Notes. If the Company proceeds with such a
transaction, and if such transaction is relatively large and some or all of the
consideration is in the form of cash, a substantial portion of the Company's
available cash could be used in order to consummate any such transaction. The
Company may also seek to finance any such transaction through debt financings or
issuances of equity, and there can be no assurance that any such financing will
be available on acceptable terms or at all. See "--Dependence on Additional
Capital for Growth; Uncertainty of Additional Financing." Moreover, the Company
is subject
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to certain restrictions under its Distribution Agreement with COMSAT that could
affect its ability to engage in any such transaction or financing thereof
through issuances of equity. See "Certain Restrictions Related to COMSAT
Distribution." The Company's inability to secure financing to enable it to
consummate any such transaction could have a material adverse effect on the
Company's expansion of its business.
SEASONALITY AND VARIABILITY
OCC's revenues are seasonally influenced by hotel occupancy rates, with
higher revenues realized during the summer months and lower revenues realized
during the winter months due to business and vacation travel patterns.
Conversely, because the NHL and NBA seasons extend from the fall to late spring,
the Company realizes the vast majority of its revenues from the Nuggets and the
Avalanche during such period. Beacon's revenues fluctuate based upon the
delivery and/or availability of the films it produces, the timing of theatrical
and home video releases and seasonal consumer purchasing behavior. Release and
delivery dates of films are determined by several factors, including the
distributor's schedule, the timing of vacation and holiday periods and
competition in the market. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality, Variability and
Other."
POTENTIAL INABILITY TO FUND CHANGE OF CONTROL OFFER
Upon a Change of Control, the Company is required to offer to purchase all
outstanding Notes. In addition, such a Change of Control would result in an
event of default under the New Ascent Credit Facility, which may result in the
acceleration of the Company's obligations thereunder. In the case of any offer
to purchase the outstanding Notes upon a Change of Control, there can be no
assurance that the Company would be able to repay amounts outstanding under the
New Ascent Credit Facility or obtain waivers necessary to consummate a purchase
of the Notes. Any such requirement to offer to purchase outstanding Notes may
result in the Company having to refinance the indebtedness then outstanding
under the New Ascent Credit Facility and to obtain the funds necessary to offer
to purchase the Notes. There can be no assurance that the Company would be able
to refinance such indebtedness or obtain such funds or, if it were to do so,
that such refinancing or such funds would be available on terms favorable to the
Company. See "Description of Certain Indebtedness--New Ascent Credit Facility"
and "Description of the Exchange Senior Notes--Repurchase at the Option of
Holders--Change of Control."
ORIGINAL ISSUE DISCOUNT; POSSIBLE UNFAVORABLE TAX AND OTHER LEGAL CONSEQUENCES
FOR HOLDERS OF SENIOR NOTES AND THE COMPANY
The Notes will be issued with original issue discount ("OID"). Consequently,
purchasers of the Notes should be aware that, although there will be no cash
payments on the Notes prior to June 15, 2003, OID (that is, the difference
between the issue price of the Notes and the sum of all payments to be made
thereon) will accrue from the issue date and will be includible as interest
income periodically in a holder's gross income for U.S. federal income tax
purposes in advance of receipt of the cash payments to which the income is
attributable. Similar results may apply under state and other tax laws.
If a bankruptcy case is commenced by or against the Company under U.S.
bankruptcy laws, the claim of a holder of Notes with respect to the principal
amount thereof may be limited to an amount equal to the sum of (i) the initial
offering price of the Notes and (ii) that portion of the OID that is not deemed
to constitute "unmatured interest" for purposes of the U.S. bankruptcy laws. Any
OID that was not amortized as of any such bankruptcy filing would constitute
"unmatured interest."
Moreover, the Notes will constitute "applicable high yield discount
obligations" ("AHYDOs"), since the yield to maturity of the Notes exceeds the
relevant applicable federal rate at the time of issue by more than 5 percentage
points. Since the Senior Notes constitute AHYDOs, the Company will not be
entitled to
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deduct OID accruing with respect thereto until such amounts are actually paid.
Accordingly, the Company's after-tax cash flow might be less than it would if
the OID on the Notes was deductible when accrued.
See "Certain United States Federal Income Tax Consequences" for a more
detailed discussion of the federal income tax consequences to the holders of the
Notes regarding the purchase, ownership and disposition of the Notes.
LACK OF PUBLIC MARKET FOR THE EXCHANGE SENIOR NOTES; RESTRICTIONS ON
TRANSFERABILITY
The Exchange Senior Notes are a new issue of securities for which there is
currently no active trading market. If the Exchange Senior Notes are traded
after their initial issuance, they may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for similar
securities, the financial condition and prospects of the Company and other
factors beyond the control of the Company, including general economic
conditions. The Company does not intend to apply for a listing or quotation of
the Exchange Senior Notes. Although the Initial Purchaser has informed the
Company that it currently intends to make a market in the Exchange Senior Notes,
it is not obligated to do so, and any such market making may be discontinued at
any time without notice. Accordingly, no assurance can be given as to the
development or liquidity of any trading market for the Exchange Senior Notes.
The Senior Notes have not been registered under the Securities Act or any
state securities laws and may not be offered or sold, except pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws, or
pursuant to an effective registration statement. The Company is obligated to use
its best efforts to complete the Exchange Offer or register resales of the
Senior Notes under the Securities Act, but no assurance can be given as to the
development of or liquidity of the trading market of the Senior Notes
thereafter. See "The Exchange Offer."
MULTIMEDIA DISTRIBUTION
OCC
DEPENDENCE ON PERFORMANCE OF LODGING INDUSTRY
The business of OCC is closely linked to the performance of the business and
luxury hotel segments of the hotel industry in which occupancy rates have been
at a recent nearly all-time high. The hotel industry is cyclical and is also
affected by general business, economic, seasonal and other factors. A decline in
hotel occupancy rates could have a significant adverse impact on OCC's results
of operations.
HIGHLY COMPETITIVE IN-ROOM ENTERTAINMENT INDUSTRY
The hotel in-room entertainment industry is highly competitive. Due to the
high level of penetration in the United States lodging industry already achieved
by participants in the in-room entertainment industry and the current rate of
construction and expansion of hotel properties in the United States, most of the
growth opportunities in the in-room entertainment industry currently involve
securing contracts to serve hotels that are already being served by a competing
vendor, expanding internationally and broadening the range of services provided.
These circumstances have led to increasing competition for contract renewals,
particularly at hotels operated by major hotel chains. There can be no assurance
that OCC will obtain new contracts with hotels currently served by other vendors
of in-room entertainment services or that OCC will be able to retain contracts
with the hotels served by it when those contracts expire. The loss by OCC of one
or more of the major hotel chain customers, such as Marriott, Hyatt, Holiday Inn
or Hilton, could have a material adverse impact on OCC's results of operations.
See "--Dependence on Significant Customers." 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
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chains themselves, cable companies (including wireless cable),
telecommunications companies, and direct-to-home and direct broadcast satellite
companies. Some of these potential competitors already are providing
free-to-guest services to hotels and testing video-on-demand. Some of these
potential competitors have substantially greater resources than OCC.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
Marriott, Hilton and Holiday Inn accounted for approximately 25%, 13% and
14%, respectively, of OCC's revenues for the year ended December 31, 1996 and
approximately 22%, 12% and 11%, respectively, of OCC's revenues for the nine
months ended September 30, 1997. 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.
RISK OF TECHNOLOGICAL OBSOLESCENCE
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.
There can be no assurance 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.
INTEGRATION OF SPECTRAVISION BUSINESSES
While the Company has substantially completed the integration of
SpectraVision's operating systems, financial reporting, sales, marketing and
management, a significant portion of the installed base of hotel rooms acquired
in the SpectraVision acquisition remains to be converted to OCC's on-demand
technology. Management expects that this conversion process, which is scheduled
to be completed by the end of 2001, will result in financial improvement due to
increased revenues attributable to the OCC system's on-demand capabilities and
reduced system downtime, as well as lower field service costs. There can be no
assurance that the conversion process will be completed on schedule or that the
desired financial improvements will be realized. The inability to complete the
conversion process on schedule and realize such financial improvements could
have a material adverse effect on the financial condition or results of
operations of OCC.
PROGRAMMING
The cost to OCC to license feature movies from major movie studios is
subject to change as the major movie studios continue to negotiate for higher
royalty rates as well as higher minimum payments by OCC. Such changes may have
adverse impacts on OCC's earnings. In addition OCC has experienced, and may
continue to experience, a decline in the buy-rate for independent movies for
mature audiences. While OCC intends to address such trends, there can be no
assurance that OCC's efforts will prove effective.
RISK OF NON-RENEWAL OF NBC AGREEMENT
The Company currently provides (through ANS) satellite distribution support
service to the NBC affiliate distribution network pursuant to a service
agreement that expires in 1999. For the years ended December 31, 1994, 1995 and
1996, revenues under the NBC Agreement accounted for approximately 17%, 8% and
7%, respectively, of the Company's consolidated revenues for such years, and ANS
generated, as a whole, EBITDA which accounted for approximately 47%, 27.7% and
34.9%, respectively,
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of the Company's consolidated EBITDA for such years. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." There
can be no assurance that such contract will be renewed upon its expiration in
1999 or that any such renewal will be on terms as favorable to the Company as
the current agreement. See "Business--Multimedia Distribution--Ascent Network
Services."
ENTERTAINMENT
SPORTS FRANCHISES
COMPETITION
The Nuggets and the Avalanche compete for sports fans' entertainment dollars
not only with other major league sports, but also with minor league sports,
college athletics and other sports entertainment. During portions of their
respective seasons, the Nuggets and the Avalanche will experience competition
from each other, professional football (the Denver Broncos), professional
baseball (the Colorado Rockies) and professional women's basketball (the
Colorado Xplosion). In addition, the colleges and universities in the Rocky
Mountain region, as well as public and private secondary schools, offer a full
schedule of athletic events throughout the year. The Nuggets and the Avalanche
also compete for attendance and advertising revenue with a wide range of other
entertainment and recreational activities available in the Rocky Mountain
region.
Additionally, the NHL has announced that it will grant four additional
franchises within the next four years, which will have significant financial
consequences for the Avalanche. First, the Avalanche has agreed, in connection
with obtaining the NHL's consent to relocate to Denver, that the NHL may retain
$2 million per expansion team of the Avalanche's share of the franchise fees
from the next four expansion teams. Second, while such expansion affords the NHL
the opportunity to expand into new markets, it also increases the competition
for talented players among the NHL teams. In the event the NHL expands, the
expansion teams are permitted to select in an expansion draft certain
unprotected players playing for the various NHL teams. 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. In addition, to the extent the NHL teams
share equally in the revenue generated from national television contracts and
sale of NHL merchandise, the Company may receive less revenue from the NHL as
the result of the league expansion.
DEPENDENCE ON COMPETITIVE SUCCESS
The financial results of the Company's professional sports franchises are,
to a large extent, dependent on their success in their respective leagues.
Successful performance results in increased attendance and ticket pricing. In
addition, by qualifying for the playoffs, for example, the Nuggets and the
Avalanche can receive significant additional revenue from gate receipts for home
playoff games and from broadcasts for playoff games under the Fox Sports
Agreement. Poor performance by the Nuggets since the 1995-96 season has had an
adverse impact on attendance at the Nuggets' games and consequently on ticket
sales and other sources of revenue. Revenues to the Company from each of the
Nuggets and the Avalanche could be adversely affected by poor performance by the
teams, and there can be no assurance that either the Nuggets or the Avalanche
will perform well or qualify for the playoffs in their respective leagues.
PEPSI CENTER RISKS
The development and construction of the Pepsi Center 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 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. The Land Purchase Agreement
pursuant to which the Arena Company has purchased the site for the Pepsi Center
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from Southern Pacific Transportation Company ("SPT") provides for the Arena
Company and SPT to effect a voluntary environmental remediation plan on the
site. 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, absent
implementation of the voluntary remediation plan, governmental authorities will
not order the Arena Company to perform the remediation. See "Properties."
Although the Company anticipates that the Pepsi Center will be completed for the
1999-2000 season, there can be no assurance that the Pepsi Center will commence
operations by, or be completed within, the contemplated time frame, if at all.
In addition, no assurance can be given that, once the Pepsi Center is completed,
attendance for Pepsi Center events or revenues generated by the Pepsi Center
will achieve projected levels.
DEPENDENCE ON TALENTED PLAYERS; RISK OF INJURIES; PLAYER SALARY INCREASES
The success of each of the Nuggets and the Avalanche will depend upon each
team's continued ability to retain and attract talented players. The Nuggets and
the Avalanche compete with other United States and foreign basketball and hockey
teams for available players. There can be no assurance that the Nuggets and the
Avalanche will be able to retain players upon expiration of their contracts or
identify and obtain new players of comparable talent to replace players who
retire or are injured, traded or released. Even if the Nuggets and the Avalanche
are able to retain or obtain players who have had successful college or
professional careers, there can be no assurance that their performance for the
Nuggets or the Avalanche in subsequent years will be at the same level as their
prior performance.
Player contracts generally provide that the player is entitled to receive
his salary even if, as a result of injuries sustained from basketball or
hockey-related activities, he is unable to play. These salaries represent
significant financial commitments of both the Nuggets and the Avalanche.
Disability insurance for NBA and NHL players (which provides for up to 80% of
salary reimbursement after a certain number of consecutive regular season games
are missed) is costly to maintain, and both the Nuggets and the Avalanche carry
it only for certain highly compensated players. In the event an injured player
is not insured or insurance does not cover the entire amount of the injured
player's salary, the Company may be obligated to pay all or a portion, as the
case may be, of the injured player's salary. In addition, the Company would be
required to pay the salary of a player who replaces the injured player.
Furthermore, to the extent that financial results of the Nuggets and the
Avalanche are dependent on their competitive success (as discussed above), the
likelihood of achieving such success is substantially reduced by serious
injuries to key players. There can be no assurance that key players for either
team will not sustain serious injury during any given season.
Player's salaries in the NBA and NHL have increased significantly since the
1993-1994 season. The aggregate players' salaries in the NHL increased 72.1%
from approximately $371.5 million in the aggregate and $14.3 million per team
during the 1993-1994 season to approximately $639.3 million in the aggregate and
$24.6 million per team during the 1996-1997 season. Over the same period, the
aggregate players' salaries in the NBA increased approximately 67%, from
approximately $497 million during the 1993-1994 season to approximately $830
million in the 1996-1997 season. By comparison, average aggregate players'
salaries for NBA teams have increased 55%, from approximately $18.4 million per
team during the 1993-1994 season to approximately $28.6 million per team during
the 1996-1997 season. The NBA and NHL collective bargaining agreements are
designed, in part, to control the rate of increase in players' salaries.
However, there can be no assurance that the rate of increase in players'
salaries will be effectively controlled. Significant increases in players'
salaries could have a material adverse effect on the Company's financial
condition or results of operations. See "--Labor Relations in Professional
Sports."
LABOR RELATIONS IN PROFESSIONAL SPORTS
In 1995, the NHL and the NBA experienced labor relations difficulties in the
form of player lock-outs and disputes over their respective collective
bargaining agreements. The NBA Players' Association
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approved a new six-year collective bargaining agreement (the "NBA Collective
Bargaining Agreement") on September 13, 1995, which was subsequently ratified by
the NBA owners on September 15, 1995 and signed on July 11, 1996, retroactive to
September 18, 1995. The NHL and the NHL Players' Association entered into a new
seven-year collective bargaining agreement (the "NHL Collective Bargaining
Agreement") on August 11, 1995 that took retroactive effect as of September 13,
1993, and has subsequently been extended through the 2002-2003 season. The NBA
has stated that, due to continuing increases in player salaries under certain
exceptions to the salary cap provisions included in the NBA Collective
Bargaining Agreement, the NBA may be entitled under the terms of the NBA
Collective Bargaining Agreement to terminate the agreement at the end of the
1997-98 season and commence negotiations on a new collective bargaining
agreement. In the event that any such negotiations were to be commenced,
management is unable to predict what the timing and outcome of such negotiations
would be and whether any work stoppage would ensue. There can be no assurance
that the NBA, the NHL, the Nuggets or the Avalanche will not experience labor
relations difficulties in the future which could have a material adverse impact
on the Company's financial condition or results of operations.
LEAGUE MEMBERSHIP RISKS AND RESTRICTIONS
Because each of the NBA and the NHL is a joint venture, the Nuggets and the
Avalanche and other members of their respective leagues are generally jointly
and severally liable for the debts and obligations of such leagues. 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, 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. In addition, each of the Nuggets and the
Avalanche and their owners and personnel are bound by a number of rules,
regulations and agreements, including the constitution and by-laws of the NBA
and NHL, respectively, national television contracts and collective bargaining
agreements. Any changes to these rules, regulations and agreements adopted by
the NBA or the NHL will be binding upon the Nuggets or the Avalanche, as the
case may be, and their respective personnel regardless of whether the Nuggets or
the Avalanche agree or disagree with them, and it is possible that any such
changes could adversely affect the Nuggets or the Avalanche. See
"Business--Entertainment--Colorado Avalanche and Denver Nuggets-- Basketball
Operations" and "--Hockey Operations."
BEACON
COMPETITION IN THE MOTION PICTURE AND TELEVISION INDUSTRY
The motion picture and television industry is highly competitive and
involves a substantial degree of risk. Beacon competes with many other motion
picture production and distribution companies which are larger and have
financial resources substantially greater than those of the Company. Each motion
picture is an individual artistic work and its commercial success is primarily
determined by public response, which is unpredictable, and production and
distribution costs. Accordingly, there can be no assurance as to the financial
success of any motion picture. Furthermore, there can be no assurance that the
audiences for motion pictures will remain constant. Beacon also competes to
obtain creative talents and story properties which are essential to the success
of Beacon's motion picture production enterprise.
ADDITIONAL FINANCING; COST OVERRUNS
The motion picture production and distribution business is capital
intensive. There can be no assurance that there will be adequate capital
available for all of Beacon's requirements, including capital requirements
associated with Beacon's anticipated production schedule. In addition, the costs
of producing and distributing motion pictures have generally increased in recent
years and may continue to increase in
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the future. While Beacon attempts to reduce the financial risk of an individual
project, actual production costs may exceed production budgets and the
occurrence of material cost overruns, to the extent not covered by greater
revenues attributable to such films, could have a material adverse effect on
Beacon's results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
RELIANCE ON KEY DISTRIBUTOR
Pursuant to the Universal Agreement, Universal has agreed to distribute up
to 20 of Beacon's motion pictures in the United States and Canada. Universal has
the right to terminate the Universal Agreement if for any reason Armyan
Bernstein, Beacon's Chairman and Chief Executive Officer, is no longer rendering
exclusive producing services in connection with Beacon productions. The Company
believes that the Universal Agreement provides Beacon with favorable terms for
motion picture production and distribution. Termination or cancellation of the
Universal Agreement could have a material adverse impact on Beacon's results of
operations. In addition, the Universal Agreement is limited to 20 motion
pictures, only four of which is Universal required to accept in any one year of
the five year agreement. No motion pictures have been produced or distributed
under the agreement to date, and it expires in July 2001. There can be no
assurance that Beacon will be able to produce the 20 remaining motion pictures
under the Universal Agreement prior to its expiration, that Universal will agree
to accept more than the four pictures per year set forth in the agreement, that
the Universal Agreement will be renewed after the completion of all of such
motion pictures or upon such expiration or that, if renewed, the terms of such
renewal will be as favorable to Beacon. If Universal does not accept a film from
Beacon for domestic distribution, Beacon is free to seek an alternative domestic
distributor for the film in its discretion.
INDIVIDUAL-FILM-FORECAST METHOD OF INVENTORY AMORTIZATION
Pursuant to generally accepted accounting principles, Beacon uses the
individual-film-forecast computation method to amortize its inventory, which
consists primarily of acquisition, production and distribution costs. Under this
method, motion picture costs are amortized for each motion picture based upon
the ratio that the revenue earned in the current period for such motion picture
bears to management's estimate of the total revenue to be realized from all
media and markets for such motion picture. Estimates of future revenues could
change significantly over time. Reported financial results in future years may
be significantly affected by the Company's amortization of its inventory costs
and by the periodic adjustments in such amortization rates. See Note 1 of Notes
to Consolidated Financial Statements.
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USE OF PROCEEDS
There will be no cash proceeds to the Issuer from the Exchange Offer. The
net proceeds to the Company from the Offering were approximately $121 million,
after deducting discounts, commissions and estimated Offering expenses.
The Company used the net proceeds from the Offering and available cash to
repay outstanding indebtedness, including accrued interest thereon, under an
existing credit facility with NationsBank of Texas, N.A. (the "Existing Ascent
Credit Facility"). At December 22, 1997, the Company had approximately $123.7
million of indebtedness outstanding under the Existing Ascent Credit Facility,
including accrued interest. Indebtedness under the Existing Ascent Credit
Facility, which was scheduled to mature on December 31, 1997 subject to the
right to renew for up to two additional years, had a weighted average interest
rate of 8.33% as of December 22, 1997. For additional information with respect
to the interest rate, maturity and covenants related to the Existing Ascent
Credit Facility to be repaid with proceeds from the Offering, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 6 of Notes to Consolidated
Financial Statements. Concurrently with the closing of the Offering, the Company
entered into the New Ascent Credit Facility with NationsBank of Texas, N.A.,
providing for up to $50 million of revolving credit borrowings. Amounts repaid
under the Existing Ascent Credit Facility may be reborrowed under the New Ascent
Credit Facility up to the limits set forth thereunder.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Issuer with respect to the registration of the Senior Notes.
Pursuant to the Registration Rights Agreement, the Company agreed, for the
benefit of the holders of the Senior Notes, at the expense of the Company, to
(i) file on or prior to the 45th calendar day following the Offering a
registration statement (the "Exchange Offer Registration Statement") with the
Commission with respect to a registered offer to exchange the Senior Notes for
the Exchange Senior Notes which are to be issued under the Indenture in the same
aggregate principal amount at maturity as and with terms that will be identical
in all respects to the Senior Notes (except that the Exchange Senior Notes will
not contain terms with respect to the interest rate step-up provision and
transfer restrictions) and (ii) use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act on or
prior to the 120th calendar day following the Offering and (iii) use its best
efforts to consummate the Exchange Offer on or prior to the 150th calendar day
following the Offering. Promptly after the Exchange Offer Registration Statement
is declared effective, the Company will commence the Exchange Offer. The Company
will keep the Exchange Offer open for not less than 30 days and not more than 45
days (or longer if required by applicable law) after the date notice of the
Exchange Offer is mailed to the holders of the Senior Notes. For each Senior
Note tendered to the Company pursuant to the Exchange Offer and not validly
withdrawn by the holder thereof, the holder of such Senior Note will receive an
Exchange Senior Note having a principal amount at maturity equal to the
principal amount at maturity of such surrendered Senior Note.
In the event that any changes in law or applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange Offer,
or if for any reason the Exchange Offer is not consummated within 150 days of
the Closing Date or in certain other circumstances, the Company will, at its
expense, (i) as promptly as practicable, and in any event on or prior to 30 days
after such filing obligation arises (and within 150 days after the Offering),
file with the Commission a shelf registration statement (the "Shelf Registration
Statement") covering resales of the Senior Notes, (ii) use its best efforts to
cause the Shelf Registration Statement to be declared effective under the
Securities Act on or prior to 45 days after such filing occurs and (iii) keep
effective the Shelf Registration Statement until two years after its effective
date (or such shorter period that will either terminate when all the Senior
Notes covered thereby have been sold pursuant thereto or will be provided
pursuant to Rule 144(k) under the Securities Act and any successor rule
thereto). The Company will, in the event of the filing of a Shelf Registration
Statement, provide to each holder of the Senior Notes covered by the Shelf
Registration Statement copies of the prospectus that is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement for the Senior Notes has become effective and take certain other
actions as are required to permit unrestricted resales of the Senior Notes. A
holder of Senior Notes that sells such Senior Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to the
purchaser, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such
holder (including certain indemnification obligations). In addition, each holder
of the Senior Notes will be required to deliver certain information to be used
in connection with the Shelf Registration Statement in order to have its Senior
Notes included in the Shelf Registration Statement.
In the event that either (a) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the 45th calendar day following the
Offering or (b) the Exchange Offer is not consummated or a Shelf Registration
Statement is not declared effective on or prior to the 150th calendar day
following the Offering, the interest rate borne by the Senior Notes will be
increased by 0.5 percent per annum for the first 30 days following the 45-day
period referred to in clause (a) above or the first 90 days
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following the 120-day period referred to in clause (b) above. Such interest will
increase by an additional 0.5 percent per annum at the beginning of each
subsequent 30-day period in the case of clause (a) above or 90-day period in the
case of clause (b) above; PROVIDED, HOWEVER, that in no event will the interest
rate borne by the Senior Notes be increased by more than 1.5 percent. Upon the
filing of the Exchange Offer Registration Statement, the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, the interest rate borne by the Senior Notes from the date of such
filing, consummation or effectiveness, as the case may be, will be reduced to
the original interest rate set forth on the cover of this Prospectus; PROVIDED,
HOWEVER, that, if after any such reduction in interest rate, a different event
specified in clause (a) or (b) above occurs, the interest rate may again be
increased pursuant to the foregoing provisions.
Holders of Senior Notes will be required to make certain representations to
the Issuer (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Senior Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding liquidated damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Registration Rights Agreement.
TERMS OF THE EXCHANGE
The Issuer hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying this
Prospectus, $1,000 in principal amount at maturity of Exchange Senior Notes for
each $1,000 in principal amount at maturity of Senior Notes. The terms of the
Exchange Senior Notes are substantially identical to the terms of the Senior
Notes for which they may be exchanged pursuant to this Exchange Offer, except
that the Exchange Senior Notes will generally be freely transferable by holders
thereof, and the holders of the Exchange Senior Notes (as well as the remaining
holders of the Senior Notes) are not entitled to certain registration rights and
certain liquidated damages provisions which are applicable to the Senior Notes
under the Registration Rights Agreement. The Exchange Senior Notes will evidence
the same debt as the Senior Notes and will be entitled to the benefits of the
Indenture. See "Description of Exchange Senior Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Notes being tendered or accepted for exchange.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that the Exchange
Senior Notes that will be issued pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by the holders thereof without
further compliance with the registration and prospectus delivery provisions of
the Securities Act. However, any purchaser of Senior Notes who is an "affiliate"
of the Company or who intends to participate in the Exchange Offer for the
purpose of distributing the Exchange Senior Notes (i) will not be able to rely
on the interpretation by the staff of the Commission set forth in the
above-mentioned no-action letters, (ii) will not be able to tender its Senior
Notes in the Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the Senior Notes unless such sale or transfer is made
pursuant to an exemption from such requirements.
Each holder of the Senior Notes who wishes to exchange Senior Notes for
Exchange Senior Notes in the Exchange Offer will be required to represent that
(i) it is not an affiliate of the Company, (ii) any Exchange Senior Notes to be
received by it were acquired in the ordinary course of its business and (iii) at
the time of commencement of the Exchange Offer, it has no arrangement with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Senior Notes. In addition, in
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connection with any resales of Exchange Senior Notes, any broker-dealer (an
"Exchanging Dealer") who acquired the Senior Notes for its own account as a
result of market-making activities or other trading activities must deliver a
prospectus meeting the requirements of the Securities Act. The Commission has
taken the position that Exchanging Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Senior Notes (other than a resale of
an unsold allotment from the original sale of the Senior Notes) with the
prospectus contained herein. Under the Registration Rights Agreement, the
Company is required to allow Exchanging Dealers to use the prospectus contained
herein in connection with the resale of such Exchange Senior Notes for the
period starting on the Expiration Date and ending on the close of business one
year after the Expiration Date. Each Exchanging Dealer who receives Exchange
Senior Notes for its own account in exchange for Senior Notes that were acquired
by it as a result of market-making activities or other trading activities will
be required to acknowledge that it will deliver a Prospectus in connection with
any resale by it of such Exchange Senior Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, an Exchanging Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
Tendering holders of Senior Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Senior Notes
pursuant to the Exchange Offer.
Interest on the Exchange Senior Notes will be payable semi-annually on June
15 and December 15 of each year, commencing June 15, 2003 and the Exchange
Senior Notes will bear original issue discount for U.S. federal income tax
purposes. Thus, although there will be no cash payments on the Exchange Senior
Notes prior to June 15, 2003, original issue discount (that is, the difference
between the issue price of the Exchange Senior Notes and the sum of all payments
to be made thereon) will accrue from the issue date and will be includible as
interest income periodically in a holder's gross income for federal income tax
purposes in advance of receipt of the cash payments to which the income is
attributable. See "Certain United States Federal Income Tax Consequences."
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., Eastern time, on March 2, 1998 unless the Issuer in its
sole discretion extends the period during which the Exchange Offer is open, in
which event the term "Expiration Date" means the latest time and date on which
the Exchange Offer, as so extended by the Issuer, expires. The Issuer reserves
the right to extend the Exchange Offer at any time and from time to time prior
to the Expiration Date by giving written notice to The Bank of New York (the
"Exchange Agent") and by timely public announcement communicated by no later
than 5:00 p.m. on the next business day following the Expiration Date, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service. During any extension of the Exchange Offer, all Senior
Notes previously tendered pursuant to the Exchange Offer will remain subject to
the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Issuer to record holders of Senior Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Senior Notes.
HOW TO TENDER
The tender to the Issuer of Senior Notes by a holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
holder and the Issuer in accordance with the terms and subject to the conditions
set forth herein and in the Letter of Transmittal.
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GENERAL PROCEDURES
A holder of a Senior Note may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Senior Notes being tendered and any required signature
guarantees (or a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") pursuant to the procedure described below), to the Exchange Agent
at its address set forth on the back cover of this Prospectus on or prior to the
Expiration Date or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Senior Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Senior Notes to be issued in exchange
therefor are to be issued (and any untendered Senior Notes are to be reissued)
in the name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Senior Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Issuer and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Senior Notes and/or Senior Notes not exchanged are
to be delivered to an address other than that of the registered holder appearing
on the note register for the Senior Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Senior Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Senior Notes should contact such holder promptly and instruct such
holder to tender Senior Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Senior Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Senior Notes, either make appropriate arrangements to register
ownership of the Senior Notes in such beneficial owner's name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Notes at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Exchange Offer within two business days after
receipt of this Prospectus, and any financial institution that is a participant
in the Book-Entry Transfer Facility's systems may make book-entry delivery of
Senior Notes by causing the Book-Entry Transfer Facility to transfer such Senior
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with the Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Senior Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal, with
any required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address
specified on the back cover of this prospectus on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
THE METHOD OF DELIVERY OF SENIOR NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold 31% of the
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gross proceeds otherwise payable to a holder pursuant to the Exchange Offer if
the holder does not provide his, her, or its taxpayer identification number
(social security number or employer identification number, as applicable) and
certify that such number is correct. Each tendering holder should complete and
sign the main signature form and the Substitute Form W-9 included as part of the
Letter of Transmittal, so as to provide the information and certification
necessary to avoid backup withholding, unless an applicable exemption exists and
is proven in a manner satisfactory to the Issuer and the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Senior Notes to reach the Exchange Agent before the
Expiration Date, a tender may be effected if the Exchange Agent has received at
its office listed on the Letter of Transmittal on or prior to the Expiration
Date a letter, telegram or facsimile transmission from an Eligible Institution
setting forth the name and address of the tendering holder, the principal amount
of the Senior Notes being tendered, the names in which the Senior Notes are
registered and, if possible, the certificate numbers of the Senior Notes to be
tendered, and stating that the tender is being made thereby and guaranteeing
that within three New York Stock Exchange trading days after the date of
execution of such letter, telegram or facsimile transmission by the Eligible
Institution, the Senior Notes, in proper form for transfer, will be delivered by
such Eligible Institution together with a properly completed and duly executed
Letter of Transmittal (and any other required documents). Unless Senior Notes
being tendered by the above-described method (or a timely Book-Entry
Confirmation) are deposited with the Exchange Agent within the time period set
forth above (accompanied or preceded by a properly completed Letter of
Transmittal and any other required documents), the Issuer may, at its option,
reject the tender. Copies of a Notice of Guaranteed Delivery which may be used
by Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Senior Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Senior Notes tendered pursuant to a Notice of Guaranteed Deliver or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Senior Notes (or
a timely Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Senior Notes will be
determined by the Issuer, whose determination will be final and binding. The
Issuer reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Issuer, be unlawful. The Issuer also reserves the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of any other holder. Neither the Issuer,
the Exchange Agent nor any other person will be under any duty to give
notification of any defects or irregularities in tenders or shall incur any
liability for failure to give such notification. The Issuer's interpretation of
the terms and conditions of the Exchange Offer (including the Letter of
Transmittal and the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer:
The party tendering Senior Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Senior Notes to the Issuer and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Senior Notes to be assigned, transferred and exchanged. The
28
<PAGE>
Transferor represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Senior Notes and to acquire Exchange
Senior Notes issuable upon the exchange of such tendered Senior Notes, and that,
when the same are accepted for exchange, the Issuer will acquire good and
unencumbered title to the tendered Senior Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
Transferor also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Issuer to be necessary or desirable to
complete the exchange, assignment and transfer of tendered Senior Notes. The
Transferor further agrees that acceptance of any tendered Senior Notes by the
Issuer and the issuance of Exchange Senior Notes in exchange therefor shall
constitute performance in full by the Issuer of its obligations under the
Registration Rights Agreement and that the Issuer shall have no further
obligations or liabilities thereunder (except in certain limited circumstances).
All authority conferred by the Transferor will survive the death or incapacity
of the Transferor and every obligation of the Transferor shall be binding upon
the heirs, legal representatives, successors, assigns, executors and
administrators of such Transferor.
By tendering Senior Notes and executing the Letter of Transmittal, the
Transferor certifies that (a) it is not an Affiliate of the Issuer, (b) it is
not a broker-dealer that owns Senior Notes acquired directly from the Issuer or
an Affiliate of the Issuer, (c) it is acquiring the Exchange Senior Notes
offered hereby in the ordinary course of such Transferor's business and (d) such
transferor has no arrangement with any person to participate in the distribution
of such Exchange Senior Notes. In order to participate in the Exchange Offer,
each entity must certify to the Issuer in the Letter of Transmittal that it is
not an Affiliate of the Issuer, that it is not engaged in, and does not intend
to engage in, a distribution of the Exchange Senior Notes, and that the Exchange
Senior Notes are being acquired in the ordinary course of business.
WITHDRAWAL RIGHTS
Senior Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this prospectus prior to the Expiration Date. Any
such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Senior Notes to be withdrawn, the certificate
numbers of the Senior Notes to be withdrawn, the principal amount of Senior
Notes to be withdrawn, a statement that such holder is withdrawing his election
to have such Senior Notes exchanged, and the name of the registered holder of
such Senior Notes, and must be signed by the holder in the same manner as the
original signature of the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the Issuer
that the person withdrawing the tender has succeeded to the beneficial ownership
of the Senior Notes being withdrawn. The Exchange Agent will return the properly
withdrawn Senior Notes promptly following receipt of notice of withdrawal. All
questions as to the validity of notices of withdrawals, including time of
receipt, will be determined by the Issuer, and such determination will be final
and binding on all parties.
ACCEPTANCE OF SENIOR NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE SENIOR NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Senior Notes validly tendered and not withdrawn and
the issuance of the Exchange Senior Notes will be made on the Exchange Date.
The Exchange Agent will act as agent for the tendering holders of Senior
Notes for the purposes of receiving Exchange Senior Notes from the Issuer and
causing the Senior Notes to be assigned, transferred and exchanged. Upon the
terms and subject to conditions of the Exchange Offer, delivery of Exchange
Senior Notes to be issued in exchange for accepted Senior Notes will be made by
the Exchange Agent promptly after acceptance of the tendered Senior Notes.
Senior Notes not accepted for exchange by the
29
<PAGE>
Issuer will be returned without expense to the tendering holders (or in the case
of Senior Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the procedures described
above, such non-exchanged Senior Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) promptly following the Expiration Date.
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. Letters of Transmittal must be addressed to the Exchange Agent
at:
<TABLE>
<S> <C>
The Bank of New York By Registered Certified Mail:
Corporate Trust Services Window, The Bank of New York
Ground Level 101 Barclay Street, 7E
101 Barclay Street New York, New York 10286
New York, N.Y. 10286 Attn: Reorganization Center, Odell Romeo
Telephone: (212) 815-6337
Facsimile: (Eligible Institutions only)
(212) 815-6339
Attention: Reorganization Center, Odell
Romeo
</TABLE>
Delivery to an address other than as set forth herein, or transmission of
instructions via a facsimile number other than the ones set forth herein, will
not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Issuer has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Issuer
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Issuer will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including registration fees, the
fees and expenses of the Exchange Agent and printing, accounting, investment
banking and legal fees, will be paid by the Issuer.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Issuer. Neither the delivery
of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Issuer since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Senior Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Issuer may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Senior
Notes in such jurisdiction. In any jurisdiction the securities laws or blue sky
laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Issuer by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
DISSENTER AND APPRAISAL RIGHTS
HOLDERS OF SENIOR NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS
IN CONNECTION WITH THE EXCHANGE OFFER.
30
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Senior Notes for Exchange Senior Notes by tendering holders
will not be a taxable exchange for federal income tax purposes, and such holders
should not recognize any taxable gain or loss or any interest income as a result
of such exchange. See "Certain United States Federal Income Tax Considerations."
OTHER
Participation in the Exchange Offer is voluntary and holders of Senior Notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of the Senior Notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take with respect to
the Exchange Offer.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Senior Notes pursuant to the terms of this Exchange Offer, the
Issuer will have fulfilled obligations contained in the terms of the Senior
Notes and the Registration Rights Agreement. Holders of the Senior Notes who do
not tender their Senior Notes in the Exchange Offer will continue to hold such
Senior Notes and will be entitled to all the rights, and limitations applicable
thereto under the Indenture, except for any such rights under the Registration
Rights Agreement which by their terms terminate or cease to have further effect
as a result of the making of this Exchange Offer. See "Description of Exchange
Senior Notes." All untendered Senior Notes will continue to be subject to the
restriction or transfer set forth in the Indenture. To the extent that Senior
Notes are tendered and accepted in the Exchange Offer, the trading market, if
any, for any remaining Senior Notes could be adversely affected.
The Issuer may in the future seek to acquire untendered Senior Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Issuer has no present plan to acquire any Senior Notes which
are not tendered in the Exchange Offer.
31
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1997 (i) on an actual basis, and (ii) as adjusted to
give effect to the Offering and the application of the net proceeds therefrom to
repay indebtedness under the Existing Ascent Credit Facility as described under
"Use of Proceeds." This information should be read in conjunction with "Use of
Proceeds," "Selected Financial and Operating Information," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of Certain
Indebtedness" and the Consolidated Financial Statements (including the notes
thereto) included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Existing Ascent Credit Facility(1)..................................................... $ 115,000 $ --
Existing OCC Credit Facility(1)........................................................ 77,000 --
--------- -----------
Total short-term debt................................................................ 192,000 --
--------- -----------
Long-term debt:
Existing OCC Credit Facility(1)........................................................ 50,000 --
New Ascent Credit Facility(2).......................................................... -- --
New OCC Credit Facility(3)............................................................. -- 127,000
Senior Notes........................................................................... -- 126,664
--------- -----------
Total long-term debt................................................................. 50,000 253,664
--------- -----------
Total Stockholders' equity............................................................... 240,863 240,863
--------- -----------
Total capitalization(4).................................................................. $ 482,863 $ 494,527
--------- -----------
--------- -----------
</TABLE>
- --------------------------
(1) During the nine months ended September 30, 1997, the average outstanding
daily balance was approximately $110 million under the Existing Ascent
Credit Facility and $111 million under the Existing OCC Credit Facility.
The weighted average interest rate was 8.22% on the balances outstanding
for the nine months ended September 30, 1997 under the Existing Ascent
Credit Facility and 6.35% on the balances outstanding for the nine months
ended September 30, 1997 under the Existing OCC Credit Facility. Borrowings
under the Existing Ascent Credit Facility have been recorded as current
liabilities since such facility terminates on December 31, 1997 (subject,
by its terms, to two one year extensions). The Existing OCC Credit Facility
as of September 30, 1997, provides for a $50 million long-term revolving
loan payable in 2001 while $77 million is considered short-term and
classified as a current liability. For more information about these
existing facilities, see Note 6 of Notes to Unaudited Condensed
Consolidated Financial Statements and "Description of Certain
Indebtedness."
(2) Concurrently with the closing of the Offering, the Company entered into the
New Ascent Credit Facility. The available amount under the New Ascent
Credit Facility was $50 million at the time of the closing of the Offering.
Borrowings under the New Ascent Credit Facility, if any, will be used for
general corporate purposes. See "Description of Certain Indebtedness--New
Ascent Credit Facility."
(3) The OCC Credit Facility was amended and restated in November 1997 (the "New
OCC Credit Facility") to provide the availability of a long-term borrowing
of up to $200 million. Amounts of indebtedness reflected represents 100% of
OCC's indebtedness, which is not guaranteed by Ascent.
(4) Does not include approximately $100 to $130 million of indebtedness
expected to be incurred in the first quarter of 1998 by the Arena Company
in the form of the Arena Notes. See "Description of Certain
Indebtedness--Proposed Arena Notes."
32
<PAGE>
SELECTED FINANCIAL AND OPERATING INFORMATION
The following tables present selected historical financial information and
operating information for the Company. The selected historical financial
information for each year in the five-year period ended December 31, 1996 and as
of and for the nine-month periods ended September 30, 1996 and 1997 has been
derived from the consolidated financial statements of the Company. The
Consolidated Financial Statements as of December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996 are included elsewhere
herein together with the report of Deloitte & Touche LLP, independent auditors.
The Unaudited Condensed Consolidated Financial Statements for the nine-month
periods ended September 30, 1997 and 1996 are also included elsewhere herein.
The selected historical information for the nine months ended September 30, 1996
and 1997 has been derived from the Company's Unaudited Condensed Consolidated
Financial Statements, which have not been audited, but which reflect, in the
opinion of management, all adjustments that include only normal recurring
adjustments necessary to present fairly the information contained herein.
Interim results are not necessarily indicative of results to be expected for any
full year. This information should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company, including
the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
-------------------------------------------------------- ----------
1992 1993 1994 1995 1996 1996
--------- --------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Multimedia Distribution revenues....................... $ 81,767 $ 97,855 $ 125,823 $ 135,782 $167,976(4) $ 110,021
Entertainment revenues................................. 21,901 27,826 39,653 66,036(2) 90,144 59,480
--------- --------- ---------- ---------- ---------- ----------
Total revenues....................................... 103,668 125,681 165,476 201,818(2) 258,120 169,501
--------- --------- ---------- ---------- ---------- ----------
Operating expenses:
Cost of services..................................... 75,046 85,998 107,452 154,676 217,949 131,059
Depreciation and amortization........................ 22,386 27,227 38,820 53,675 74,812 48,637
General & administrative............................. 7,089 7,967 9,203 10,002 9,678 7,723
Provision for restructuring.......................... 15,318(1) -- -- 10,866(3) -- --
--------- --------- ---------- ---------- ---------- ----------
Total operating expenses........................... 119,839 121,192 155,475 229,219 302,439 187,419
--------- --------- ---------- ---------- ---------- ----------
Income (loss) from operations.......................... (16,171) 4,489 10,001 (27,401) (44,319) (17,918)
Interest expense....................................... (2,186) (567) (326) (759) (10,715) (5,904)
Other income (expense), net............................ 597 585 1,021 (2,070) 565 491
Income tax benefit (expense)........................... 5,506 (2,416) (4,831) 9,835 11,957 7,081
Minority interest...................................... 583 (362) (265) (628) 6,812 (316)
--------- --------- ---------- ---------- ---------- ----------
Income (loss) before cumulative effect of accounting
change and extraordinary loss........................ (11,671) 1,729 5,600 (21,023) (35,700) (16,566)
Cumulative effect of accounting change for income
taxes................................................ -- 941 -- -- -- --
Extraordinary loss, net of taxes....................... -- -- -- -- (334) --
--------- --------- ---------- ---------- ---------- ----------
Net income (loss)...................................... $ (11,671) $ 2,670 $ 5,600 $ (21,023) $ (36,034) $ (16,566)
--------- --------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ----------
Net income (loss) per common share..................... $ (.49) $ .11 $ .23 $ (.87) $ (1.21) $ (.56)
--------- --------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ----------
Weighted average number of common shares outstanding... 24,000 24,000 24,000 24,217 29,753 29,752
--------- --------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ----------
OTHER FINANCIAL DATA:
EBITDA(5):
Multimedia Distribution(6)........................... $ 31,317 $ 39,071 $ 53,031 $ 48,277 $ 52,457 $ 44,472
Entertainment........................................ (2,695) 612 4,993 (1,135) (12,286) (6,124)
General & administrative............................. (7,089) (7,967) (9,203) (10,002) (9,678) (7,629)
--------- --------- ---------- ---------- ---------- ----------
Total EBITDA....................................... $ 21,533 $ 31,716 $ 48,821 $ 37,140 $ 30,493 $ 30,719
--------- --------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ----------
CAPITAL EXPENDITURES:
Multimedia Distribution(7)........................... $ 17,700 $ 63,708 $ 89,073 $ 82,903 $ 78,220 $ 64,205
Entertainment........................................ 371 1,232 980 2,208 10,066 9,216
--------- --------- ---------- ---------- ---------- ----------
Total capital expenditures......................... $ 18,071 $ 64,940 $ 90,053 $ 85,111 $ 88,286 $ 73,421
--------- --------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ----------
CASH FLOW DATA:
Net cash provided by operating activities............ $ 27,528 $ 27,713 $ 38,560 $ 63,771 $ 23,277 $ 28,279
Net cash used in investing activities................ (23,212) (76,086) (119,975) (180,523) (113,314) $ (106,186)
Net cash provided by (used in) financing
activities......................................... (3,512) 51,217 81,554 124,406 82,988 $ 68,368
OTHER:
Ratio of earnings to fixed charges(8)................ NM 8.9x 31.7x NM NM NM
Cash dividends per share............................. -- -- -- -- -- --
<CAPTION>
1997
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Multimedia Distribution revenues....................... $ 180,424
Entertainment revenues................................. 138,290
---------
Total revenues....................................... 318,714
---------
Operating expenses:
Cost of services..................................... 266,463
Depreciation and amortization........................ 75,689
General & administrative............................. 5,921
Provision for restructuring.......................... --
---------
Total operating expenses........................... 348,073
---------
Income (loss) from operations.......................... (29,359)
Interest expense....................................... (16,329)
Other income (expense), net............................ 789
Income tax benefit (expense)........................... 5,907
Minority interest...................................... 10,237
---------
Income (loss) before cumulative effect of accounting
change and extraordinary loss........................ (28,755)
Cumulative effect of accounting change for income
taxes................................................ --
Extraordinary loss, net of taxes....................... --
---------
Net income (loss)...................................... $ (28,755)
---------
---------
Net income (loss) per common share..................... $ (.97)
---------
---------
Weighted average number of common shares outstanding... 29,755
---------
---------
OTHER FINANCIAL DATA:
EBITDA(5):
Multimedia Distribution(6)........................... $ 49,361
Entertainment........................................ 2,890
General & administrative............................. (5,921)
---------
Total EBITDA....................................... $ 46,330
---------
---------
CAPITAL EXPENDITURES:
Multimedia Distribution(7)........................... $ 66,938
Entertainment........................................ 1,355
---------
Total capital expenditures......................... $ 68,293
---------
---------
CASH FLOW DATA:
Net cash provided by operating activities............ $ 48,368
Net cash used in investing activities................ $ (82,912)
Net cash provided by (used in) financing
activities......................................... $ 49,000
OTHER:
Ratio of earnings to fixed charges(8)................ NM
Cash dividends per share............................. --
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
AT
SEPTEMBER
30, 1997
AT DECEMBER 31, ----------
--------------------------------------------------------
1992 1993 1994 1995 1996 ACTUAL
--------- --------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................. $ 203,085 $ 270,473 $ 372,580 $ 504,416 $ 742,642 $ 734,831 $ 746,495
Total short-term debt.................... 729 817 817 -- 143,000 192,000 --
Total long-term debt..................... 2,570 1,024 207 70,000 50,000 50,000 253,664
Stockholders' equity..................... 137,209 181,181 268,197 301,269 269,585 240,863 240,863
Book Value per share..................... $ 5.72 $ 7.55 $ 11.17 $ 12.44 $ 9.06 $ 8.10 $ 8.10
--------- --------- --------- ---------- ---------- --------- -----------
--------- --------- --------- ---------- ---------- --------- -----------
ROOM DATA:
Total number of guest-pay rooms (at end
of period):
On-demand................................ 37,000 124,000 248,000 361,000 710,000 749,000
Scheduled only........................... 298,000 264,000 194,000 51,000(9) 208,000(9) 123,000
--------- --------- --------- ---------- ---------- ---------
Total rooms............................ 335,000 388,000 442,000 412,000 918,000 872,000
--------- --------- --------- ---------- ---------- ---------
---------
<CAPTION>
AS
ADJUSTED
---------
<S> <C>
</TABLE>
- ------------------------------
(1) Reflects a restructuring charge of $15.3 million relating to the Company's
decision to shift its business focus from mid-priced hotels served by
Satellite Cinema's scheduled, satellite delivered pay-per-view systems to
business and luxury hotels served by OCV's on-demand technology, and the
write-off of an equity investment.
(2) Includes $9.2 million of NBA expansion fee revenues 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, which was
acquired on July 1, 1995.
(3) Reflects a $10.9 million restructuring charge resulting from the
discontinuation of Satellite Cinema's lower margin, scheduled, satellite
delivered pay-per-view service. See Note 12 of Notes to Consolidated
Financial Statements.
(4) Includes $21.4 million in revenues from SpectraVision. The results of
operations for the fourth quarter of 1996 include the results from
SpectraVision, which was acquired on October 8, 1996. See Note 2 of Notes
to Consolidated Financial Statements.
(5) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. The most significant difference between
EBITDA and cash provided from operations is changes in working capital and
interest costs. 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 under "Liquidity and Capital Resources" at pages
45-47 of this Prospectus. See the Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this document. EBITDA for the years
ended December 31, 1992 and 1995 excludes the provisions for restructuring
during such periods.
(6) Included in the Multimedia Distribution EBITDA for the years ended December
31, 1992, 1993, 1994, 1995 and 1996, are OCC amounts of $2.3 million, $10.2
million, $23.4 million, $37.3 million and $42 million. For the nine months
ended September 30, 1996 and 1997, OCC's EBITDA was $37 million and $41
million, respectively. While these amounts represent 100% of OCC's EBITDA,
the Company only owns approximately 57% of the capital stock of OCC. Cash
flow available to be distributed by OCC will be restricted and,
accordingly, the Company may not be able to depend on the operating cash
flows of OCC for purposes of satisfying the Company's debt service
obligations under the Notes. See "Risk Factors--General--Structural
Subordination; Restrictions on Payments by Subsidiaries; Asset
Encumbrances" and "Description of Other Indebtedness--New OCC Credit
Facility." OCC's EBITDA for the fourth quarter of 1996 and the first nine
months of 1997 includes the results from SpectraVision, which was acquired
on October 8, 1996.
(7) Included in Multimedia Distribution capital expenditures for the years
ended December 31, 1992, 1993, 1994, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997 are OCC amounts of $16.6 million, $56.2
million, $64.1 million, $63.7 million, $70.5 million, $56.2 million and
$65.8 million, respectively.
(8) For the purpose of determining the ratio of earnings to fixed charges,
earnings are defined as income from operations plus fixed charges. Fixed
charges consist of interest expense. Earnings were insufficient to cover
fixed charges for the years ended December 31, 1992, 1995 and 1996 and the
nine months ended September 30, 1996 and 1997 by $18.4 million, $28.2
million, $55 million, $23.8 million and $45.7 million, respectively.
(9) 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. In 1992, the Company changed the
focus of its in-room video entertainment service to the higher-margin OCC
on-demand service. 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 up to 45,000 rooms in the United States and
Canada.
34
<PAGE>
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 Unaudited Condensed Consolidated Financial Statements
and Notes thereto and other financial information included elsewhere in this
Prospectus.
OVERVIEW
The Company operates in two segments: Multimedia Distribution, which
consists of OCC and ANS, and Entertainment, which consists of the Denver
Nuggets, the Colorado Avalanche and Beacon.
MULTIMEDIA DISTRIBUTION
The Company made its initial investment in OCC in 1991 and owned
approximately 79% 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"). See
Note 2 of Notes to the Consolidated Financial Statements. 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.
During the third quarter of 1997, OCC assigned to Skylink operating rights and
sold assets associated with approximately 45,000 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:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
---------------------- ---------------------- ---------------------- ---------------------- ---------
ROOMS PERCENT ROOMS PERCENT ROOMS PERCENT ROOMS PERCENT ROOMS
--------- ----------- --------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
On-Demand.......... 248,000 56.1% 361,000 87.6% 710,000 77.3% 441,000 100.0% 749,000
Scheduled.......... 194,000 43.9 51,000 12.4 208,000 22.7 -- -- 123,000
--------- ----- --------- ----- --------- ----- --------- ----- ---------
442,000 100.0% 412,000 100.0% 918,000 100.0% 441,000 100.0% 872,000
--------- ----- --------- ----- --------- ----- --------- ----- ---------
--------- ----- --------- ----- --------- ----- --------- ----- ---------
<CAPTION>
PERCENT
-----------
<S> <C>
On-Demand.......... 85.9%
Scheduled.......... 14.1
-----
100.0%
-----
-----
</TABLE>
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, as well as the continued upgrading and expansion of the products and
services offered by OCC, will require capital expenditures of approximately $20
to $25 million during the remainder of 1997 and may require approximately $85 to
$100 million through 1998.
35
<PAGE>
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 and as part of such extension, the Company
reduced the amounts payable by NBC to the Company from the higher payments due
under the original agreement which had been calculated to reimburse the Company
for capital expenditures made in connection with the purchase and construction
of certain equipment. As a result of this extension and revised payment amounts,
revenues from the NBC Agreement for 1995 and 1996 were approximately $12.3
million and $10.5 million, respectively, less than the revenues in 1994, and the
Company expects such reduction in revenues through 1999. No assurance, however,
can be provided that the NBC Agreement will be extended, and if extended, on
what terms. 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 being provided for a 10-year term. ANS and MSNBC
currently anticipate finalizing a service agreement separate from the underlying
NBC Agreement in the first quarter of 1998 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. Expenditures by ANS which would be associated with such
digital upgrade in the event of such renewal are estimated at approximately
$30-$35 million, substantially all of which are currently expected to be
financed off-balance sheet through operating leases, and would be accompanied by
an extension of the NBC Agreement that expires in 1999. No assurance can be
provided that such agreement will be extended and, if extended, on what terms.
The Company does not anticipate that the contract to complete the digital
upgrade for NBC will be awarded until 1998 and accordingly, the timing of the
expenditures may vary.
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, at a cost of
approximately $75.8 million. 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. Based on the timing of
these acquisitions, the Company's results of operations for the year ended
December 31, 1994 do not include results of operations from the Avalanche.
Similarly, the results of operations for the year ended December 31, 1995
include results of operations from the Avalanche only for the last six months.
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 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 live events, completion of the
Pepsi Center is expected to result in increased revenues and improved operating
results for the Company's Entertainment segment.
36
<PAGE>
SEASONALITY, VARIABILITY AND OTHER
The Company's businesses are subject to the effects of both seasonality and
variability. Consequently, the operating results for the nine months ended
September 30, 1997 for each segment and line of business, and for the Company as
a whole, are not necessarily indicative of the results for the full year.
The Multimedia Distribution segment revenues, and primarily those of OCC,
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
picture 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. Beacon's revenues fluctuate based upon the delivery and/or availability
of the films it produces, the timing of theatrical and home video releases and
seasonal consumer purchasing behavior. Release and delivery dates for theatrical
products are determined by several factors, including the distributor's
schedule, the timing of vacation and holiday periods and competition in the
market. Specifically, Beacon delivered and released two motion pictures during
the nine months ended September 30, 1997; AIR FORCE ONE was delivered and
released in July 1997 and A THOUSAND ACRES was delivered and released in
September 1997. An additional picture, PLAYING GOD, has been delivered to
certain of its distributors during the nine months ended September 30, 1997 and
was released domestically in October 1997. Accordingly, Beacon's revenues have
significantly increased during the nine months ended September 30, 1997 and are
expected to increase during the fourth quarter of 1997 as compared to the
comparable period of 1996 and prior years.
Furthermore, Beacon's operating results are significantly affected by
accounting policies required for the film and entertainment industry and
management's estimates of the ultimate realizable value of its films. Production
advances received prior to delivery or completion of a film are treated and
recorded as deferred income and are generally recognized as revenues on the date
the film is delivered or made available for delivery.
The Company generally capitalizes all costs incurred to produce a film. Such
costs include the acquisition of story rights, the development of stories, the
direct costs of production, print and advertising costs, production overhead and
interest expense relating to financing the project. Capitalized exploitation or
distribution costs include those costs that clearly benefit future periods such
as film prints and prerelease and early release advertising that is expected to
benefit the film in future periods. These costs, as well as participation and
talent residuals, are amortized each period under the individual film forecast
method, which uses the ratio that the current period's gross revenues from all
sources for the film bear to management's estimate of anticipated total gross
revenues for such film from all sources. In the event management reduces its
estimates of the future gross revenues associated with a particular item or
product, which had been expected to yield greater future proceeds, a write-down
and a corresponding decrease in the Company's earnings for the quarter and
fiscal year end in which such write-down is taken could result and could be
material.
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 through the end of 1997. However, the Company expects to
record positive earnings before income taxes, depreciation and amortization and
positive operating cash flows during this period.
37
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
The following table sets forth certain data as a percentage of revenues for
the period indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------
1997 1996
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
<CAPTION>
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Multimedia Distribution........................................... $ 180,424 56.6% $ 110,021 64.9%
Entertainment..................................................... 138,290 43.4 59,480 35.1
---------- ----- ---------- -----
Total........................................................... 318,714 100.0 169,501 100.0
Cost of services.................................................... 266,463 83.6 131,059 77.3
Depreciation and amortization....................................... 75,689 23.7 48,637 28.7
General and administrative.......................................... 5,921 1.9 7,723 4.6
---------- ----- ---------- -----
Operating loss...................................................... (29,359) (9.2) (17,918) (10.6)
Other income (expense).............................................. 789 0.2 491 0.3
Interest expense.................................................... (16,329) (5.1) (5,904) (3.5)
Income tax benefit.................................................. 5,907 1.9 7,081 4.2
Minority interest................................................... 10,237 3.2 (316) (0.2)
---------- ----- ---------- -----
Net loss............................................................ $ (28,755) (9.0)% $ (16,566) (9.8)%
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
REVENUES
Revenues for the nine months ended September 30, 1997 were $318.7 million,
an increase of $149.2 million or 88%, as compared to $169.5 million in revenues
for the nine months ended September 30, 1996. This increase is primarily
attributable to a $70.3 million increase in revenues at OCC in the Multimedia
Distribution segment and a $78 million increase in revenues at Beacon within the
Entertainment segment. The increase in revenues at OCC was due to a larger
number of hotel rooms served, resulting primarily from the Acquisition in
October 1996. The increase in revenues at Beacon is due to the recognition of
$81.9 million in revenues from the release and delivery of three motion pictures
to their distributors during 1997. Specifically, Beacon recognized revenues of
$68.1 million from the release of AIR FORCE ONE (which includes Beacon's share
of the net box office results through September 30, 1997 and $50 million which
is attributable to the recognition of previously deferred revenues upon delivery
of the film to its foreign distributor), $6.7 million from the delivery and
release of A THOUSAND ACRES and revenues of $7.1 million from the delivery of
the motion picture PLAYING GOD to its domestic distributor. In contrast, during
the nine months ended September 30, 1996, Beacon recognized revenues of $4.6
million from the home video release of the motion picture, THE BABYSITTER'S
CLUB. During the nine months ended September 30, 1997, the Avalanche realized
increased revenues from regular season ticket sales, sponsorship sales, 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
substantially offset by declining revenues from the Nuggets as compared to 1996.
COST OF SERVICES
Cost of services for the nine months ended September 30, 1997 were $266.5
million, an increase of $135.4 million or 103% compared to the nine months ended
September 30, 1996. This increase is attributable to an increase in film
amortization costs at Beacon of $63.4 million, primarily from AIR FORCE
38
<PAGE>
ONE, an increase in cost of services at OCC of $66.3 million due to the overall
increase in the number of hotel rooms served by OCC, including increased costs
to support the SpectraVision rooms, costs associated with the integration of
SpectraVision and OCV and the increased expenses to operate OCC as a public
company; and, to a lesser degree, higher costs with respect to the Avalanche and
the Nuggets resulting primarily from increased player and other team related
costs.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the nine months ended September 30, 1997
were $75.7 million, an increase of $27.1 million or 56% compared to the nine
months ended September 30, 1996. This 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.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the nine months ended September 30,
1997 were $5.9 million, a decrease of $1.8 million or 23% compared to the nine
months ended September 30, 1996. This decrease primarily reflects the reduction
of approximately $1.3 million in certain general and administrative service
charges from COMSAT and the non-recurrence of moving, relocation and other
travel costs incurred during the second quarter of 1996, offset by an increase
in professional service costs associated with the Distribution (as defined
herein) and the recognition of expense during the third quarter for the
Company's stock appreciation rights. See "Business--History." From January
through June 1997, COMSAT provided only limited administrative and support
services to the Company and, since July 1997, has provided none.
OTHER INCOME (EXPENSE)
Other income (expense) improved by approximately $300,000 in the nine months
ended September 30, 1997 as compared to the nine months ended September 30,
1996. The improvement in other income during the nine-month period is
attributable to the non-recurrence of certain significant transactions.
Specifically, during the nine months ended September 30, 1996, the Company
recognized $2.6 million in total losses on its limited partnership investment in
Elitch Gardens, which was offset by a gain of $1.9 million from the sale of
investment securities. Elitch Gardens, a Denver amusement park, was sold in
October 1996.
INTEREST EXPENSE
Interest expense increased $10.4 million during the nine months ended
September 30, 1997 as compared to the nine months ended September 30, 1996. This
increase is attributable to the additional borrowings incurred during the fourth
quarter of 1996 (primarily the assumption of debt in the Acquisition) and in the
first nine months of 1997 for capital expenditures, investment requirements and
the funding of operating requirements of the Company and its subsidiaries and an
increase in financing costs as a result of the amendment to the Existing Ascent
Credit Facility in March 1997. See Note 6 of Notes to Unaudited Condensed
Consolidated Financial Statements.
INCOME TAXES
The Company recorded an income tax benefit of $5.9 million during the nine
months ended September 30, 1997 as compared to an income tax benefit of $7.1
million in the nine months ended September 30, 1996. Up to and until the
previously announced 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. In addition,
during the third quarter of 1997, the
39
<PAGE>
Company recognized tax expense of $1.2 million to appropriately reflect OCC's
tax on its income from foreign jurisdictions and the Company's consolidated net
deferred tax liabilities after the Distribution from COMSAT. 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.
MINORITY INTEREST
Minority interest reflects the losses attributable to the minority interest
in the Company's 57% owned subsidiary, OCC.
NET LOSS
As a result of the foregoing, net loss for the nine months ended September
30, 1997 was $28.8 million as compared to a net loss of $16.6 million for the
nine months ended September 30, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The following table sets forth certain data as a percentage of revenues for
the period indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Multimedia Distribution.............................................. $ 167,976 65.1% $ 135,782 67.3%
Entertainment........................................................ 90,144 34.9 66,036 32.7
---------- ----- ---------- -----
Total.............................................................. 258,120 100.0 201,818 100.0
Cost of services....................................................... 217,949 84.4 154,676 76.6
Depreciation and amortization.......................................... 74,812 29.0 53,675 26.6
General and administrative............................................. 9,678 3.8 10,002 5.0
Provision for restructuring............................................ -- -- 10,866 5.4
---------- ----- ---------- -----
Operating loss......................................................... (44,319) (17.2) (27,401) (13.6)
Other income (expense)................................................. 565 0.2 (2,070) (1.0)
Interest expense....................................................... (10,715) (4.1) (759) (0.4)
Income tax benefit..................................................... 11,957 4.6 9,835 4.9
Minority interest...................................................... 6,812 2.6 (628) (0.3)
Extraordinary loss, net................................................ (334) (0.1) -- --
---------- ----- ---------- -----
Net loss............................................................... $ (36,034) (14.0)% $ (21,023) (10.4)%
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
REVENUES
Revenues increased by $56.3 million, or 27.9%, to $258.1 million for the
year ended December 31, 1996 from $201.8 million for the year ended December 31,
1995. Multimedia Distribution revenues increased by $32.2 million, or 23.7%, to
$168 million for the twelve months ended December 31, 1996 from $135.8 million
for the twelve months ended December 31, 1995. While revenues for the year ended
December 31, 1996 includes $21.4 million from the SpectraVision assets acquired
by OCC in October, 1996, 1995 revenues includes $24.7 million of revenues from
the Company's Satellite Cinema business, which ceased operations on December 31,
1995. Excluding the 1995 Satellite Cinema revenues and the 1996 SpectraVision
revenues, Multimedia Distribution revenues increased $35.5 million or 32% over
1995 revenues. This increase is primarily attributable to the 29% growth in 1996
of OCV installed on-demand
40
<PAGE>
rooms (from 361,000 rooms at December 31, 1995 to 466,000 rooms at December 31,
1996). In addition, revenues increased at ANS due to revenues earned for
services provided under the NBC agreement for the MSNBC partial digital upgrade.
Entertainment revenues increased by $24.1 million, or 36.5%, to $90.1 million
for the year ended December 31, 1996 from $66 million for the year ended
December 31, 1995 primarily as a result of the inclusion of a full year of
revenues from the Avalanche. The Avalanche, acquired in July 1995, reflected no
revenues in the first half of 1995 as compared to $26.4 million for the first
six months of 1996. The increased Avalanche revenues were partially offset by
lower revenues at the Nuggets, primarily attributable to the absence of $9.2
million in NBA expansion fees recognized in 1995, and at Beacon, since Beacon
had no movie releases in 1996 as compared to one in 1995.
COST OF SERVICES
Cost of services increased by $63.2 million, or 40.9%, to $217.9 million for
the year ended December 31, 1996 from $154.7 million for the year ended December
31, 1995. Cost of services for the Multimedia Distribution was $115.5 million,
or 69% of Multimedia Distribution revenues, for the year ended December 31, 1996
compared to $87.5 million, or 64% of Multimedia Distribution revenues, for the
year ended December 31, 1995. The decline in Multimedia Distribution margin is
primarily attributable to one-time charges of $8.7 million at OCC for costs
associated with the integration of SpectraVision, the alignment of OCC's
operating practices and the establishment of OCC as a new public company. In
addition, OCC's margin also decreased due to increases in free-to-guest costs
and movie royalty expenses in 1996 as compared to 1995. Cost of services for
Entertainment was $102.4 million, or 114% of Entertainment revenues for the year
ended December 31, 1996, compared to $67.2 million, or 102% of Entertainment
revenues, for the year ended December 31, 1995. The decline in Entertainment
margin is attributable to increased operating losses at the Nuggets which is
primarily attributable to lower ticket revenues due to reduced attendance and
the absence of NBA expansion fees of $9.2 million recognized in 1995.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $21.1 million, or 39.3%, to $74.8
million for the year ended December 31, 1996 from $53.7 million for the year
ended December 31, 1995. Depreciation and amortization for Multimedia
Distribution was $62.2 million, or 37% of Multimedia Distribution revenues for
the year ended December 31, 1996, compared to $45.4 million, or 33% of
Multimedia Distribution revenues for the year ended December 31, 1995. This
increase in depreciation and amortization is primarily attributable to the
capital investment associated with installing on-demand service systems in
hotels and to a lesser extent, the depreciation and amortization associated with
assets acquired from the SpectraVision acquisition. Depreciation and
amortization for Entertainment was $12.6 million, or 14% of Entertainment
revenues, for the year ended December 31, 1996, compared to $8.3 million, or
12.6% of Entertainment revenues, for the year ended December 31, 1995. This
increase in depreciation and amortization is attributable to the inclusion of a
full year of amortization of the intangible assets acquired in the 1995
acquisition of the Avalanche.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the year ended December 31, 1996
were $9.7 million, or 3.8% of revenues, compared to general and administrative
expenses of $10 million, or 5% of revenues for the year ended December 31, 1995.
This decrease primarily reflects the reduction of approximately $2.4 million in
certain general and administrative service charges from COMSAT offset by an
increase in costs associated with the relocation of the Company's headquarters
to Denver and the costs associated with being a publicly traded corporation in
1996.
41
<PAGE>
OTHER INCOME (EXPENSE)
Other income for the year ended December 31, 1996 was $600,000, an increase
of $2.6 million from the year ended December 31, 1995 which reflected $2 million
in other expense. Other income in 1996 includes a gain of $1.9 million from the
sale of investment securities in 1996 offset by a $3.1 million in total losses
in 1996 on its limited partnership investment in Elitch Gardens. The improvement
over 1995 is primarily due to the settlement of a lawsuit in 1995 with a former
employee of OCV of $1.5 million and a charge of $900,000 for expenses in 1995
associated with the Company's portion of certain site-specific plans for a Pepsi
Center in Denver.
INTEREST EXPENSE AND EXTRAORDINARY LOSS
Interest expense for the year ended December 31, 1996 was $10.7 million, an
increase of $10 million from the year ended December 31, 1995. This increase is
attributable to borrowings incurred in conjunction with Ascent's initial public
offering in December 1995 to pay off indebtedness owed to COMSAT and the
additional borrowings incurred during 1996 to fund the Company's continuing
expansion of its businesses, primarily for capital expenditures at OCC and the
assumption of debt in connection with the Acquisition. In conjunction with the
Acquisition, the Company and OCC each obtained new credit agreements with a
bank. The Company recorded an extraordinary loss of $334,000, net of taxes, in
the fourth quarter of 1996 in connection with the extinguishment of its previous
credit facility with its former lender.
INCOME TAX BENEFIT
Income tax benefit for the year ended December 31, 1996 was $12 million,
compared to an income tax benefit of $9.8 million for the year ended December
31, 1995. This decline in the Company's effective tax benefit is primarily
attributable to the losses incurred by OCC during the fourth quarter of 1996, in
which no tax benefit was recognized due to uncertainties regarding OCC's ability
to realize a portion of the benefits associated with future deductible temporary
differences (deferred tax assets) and net operating loss carryforward prior to
their expiration. See Note 8 of Notes to Consolidated Financial Statements.
NET INCOME (LOSS)
As a result of the foregoing, net loss for the year ended December 31, 1996
was $36 million, compared to net loss of $21 million for the year ended December
31, 1995.
42
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The following table sets forth certain data as a percentage of revenues for
the period indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Multimedia Distribution...................................... $ 135,782 67.3% $ 125,823 76.0%
Entertainment................................................ 66,036 32.7 39,653 24.0
---------- ----- ---------- -----
Total...................................................... 201,818 100.0 165,476 100.0
Cost of services............................................... 154,676 76.6 107,452 64.9
Depreciation and amortization.................................. 53,675 26.6 38,820 23.5
General and administrative..................................... 10,002 5.0 9,203 5.6
Provision for restructuring.................................... 10,866 5.4 -- --
---------- ----- ---------- -----
Operating income (loss)........................................ (27,401) (13.6) 10,001 6.0
Other income (expense)......................................... (2,070) (1.0) 1,021 0.6
Interest expense............................................... (759) (0.4) (326) (0.2)
Income tax benefit (expense)................................... 9,835 4.9 (4,831) (2.9)
Minority interest.............................................. (628) (0.3) (265) (0.1)
---------- ----- ---------- -----
Net income (loss).............................................. $ (21,023) (10.4)% $ 5,600 3.4%
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
REVENUES
Revenues increased by $36.3 million, or 21.9%, to $201.8 million for the
year ended December 31, 1995 from $165.5 million for the year ended December 31,
1994. Multimedia Distribution revenues increased by $10 million, or 7.9%, to
$135.8 million for the twelve months ended December 31, 1995 from $125.8 million
for the twelve months ended December 31, 1994 as a result of a 46% increase in
installed on-demand rooms, offset in part by a 74% decrease in installed
scheduled service rooms (primarily as a result of conversion to OCV's on-demand
technology) and reduced revenues from NBC for network distribution support
services. See "Overview--Multimedia Distribution." Entertainment revenues
increased by $26.4 million, or 66.5%, to $66 million for the year ended December
31, 1995 from $39.7 million for the year ended December 31, 1994 as a result of
the Nuggets' share of NBA expansion fees of $9.2 million in connection with the
admission of two new teams to the NBA in 1995; the acquisition of Beacon on
December 1, 1994, which generated $6.5 million in revenues; and the acquisition
of the Colorado Avalanche in July 1995, which generated revenues of $12.3
million during the last six months of 1995.
COST OF SERVICES
Cost of services increased by $47.2 million, or 43.9%, to $154.7 million for
the year ended December 31, 1995 from $107.5 million for the year ended December
31, 1994. Cost of services for Multimedia Distribution was $87.5 million, or
64.4% of Multimedia Distribution revenues, for the year ended December 31, 1995
compared to $72.8 million, or 57.9% of Multimedia Distribution revenues, for the
year ended December 31, 1994. The decline in Multimedia Distribution margin is
attributable to lower margins under the NBC contract and the Company's Satellite
Cinema division, offset in part by the growth in the number of higher margin
on-demand hotel rooms serviced by OCV. In connection with the 1994 extension of
the Company's agreement with NBC, the Company agreed to reduce its margins under
the NBC contract in connection with the extension of such contract through 1999.
Cost of services for Entertainment was $67.2 million, or 102% of Entertainment
revenues, for the year ended December 31, 1995, compared to $34.7 million, or
87.5% of Entertainment revenues, for the year ended December 31, 1994.
43
<PAGE>
The decline in Entertainment margin is attributable to negative operating
margins for both Beacon and the Colorado Avalanche, partially offset by NBA
expansion fees.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $14.9 million, or 38.4%, to $53.7
million for the year ended December 31, 1995 from $38.8 million for the year
ended December 31, 1994. Depreciation and amortization for Multimedia
Distribution was $45.4 million for the year ended December 31, 1995, compared to
$34.9 million for the year ended December 31, 1994. This increase in
depreciation and amortization is attributable to the capital investment
associated with installing on-demand service systems in hotels, coupled with
slightly higher installation costs per room as a result of the addition of
smaller hotels to the room base. Depreciation and amortization for Entertainment
was $8.3 million, or 12.6% of Entertainment revenues, for the year ended
December 31, 1995, compared to $3.9 million, or 9.8% of Entertainment revenues,
for the year ended December 31, 1994. This increase in depreciation and
amortization is attributable to the amortization of the intangible assets
acquired in the Beacon acquisition beginning in December 1994 and amortization
of the intangible assets acquired in the Avalanche acquisition beginning in July
1995.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the year ended December 31, 1995
were $10 million, or 5% of revenues, compared to general and administrative
expenses of $9.2 million, or 5.6% of revenues for the year ended December 31,
1994.
PROVISION FOR RESTRUCTURING
The provision for restructuring during the year ended December 31, 1995
resulted from the discontinuation of Satellite Cinema's lower margin, scheduled,
satellite-delivered pay-per-view service. See Note 12 of Notes to Consolidated
Financial Statements.
OTHER INCOME (EXPENSE)
Other expense for the year ended December 31, 1995 was $2.1 million, an
increase of $3.1 million from the year ended December 31, 1994. This increase is
primarily due to the settlement of a lawsuit in 1995 with a former employee of
OCV and a charge for expenses associated with the Company's portion of certain
site-specific plans for the Pepsi Center.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1995 was $800,000 as
compared to $300,000 for the year ended December 31, 1994. The increase is
attributable to interest incurred on certain severance obligations of the
Nuggets.
INCOME TAX BENEFIT (EXPENSE)
Income tax benefit for the year ended December 31, 1995 was $9.8 million,
compared to income tax expense of $4.8 million for the year ended December 31,
1994. In 1994, the Company generated operating income of $10 million, a
significant portion of which was attributable to OCV which, at that time, was
not included in the Company's consolidated tax group. Accordingly, tax losses
generated by the Company's other subsidiaries could not be used to offset OCV's
taxable income in 1994. See Note 8 of Notes to Consolidated Financial
Statements.
NET INCOME (LOSS)
As a result of the foregoing, net loss for the year ended December 31, 1995
was $21 million, compared to net income of $5.6 million for the year ended
December 31, 1994.
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LIQUIDITY AND CAPITAL RESOURCES
The primary sources of cash during the nine months ended September 30, 1997
were as follows: cash from operating activities of $48.4 million, net borrowings
under the Existing Ascent Credit Facility and the Existing OCC Credit Facility
of an aggregate of $49 million and the collection of $2.2 million on notes and
other long-term receivables. Cash was expended primarily for property and
equipment as the Company continued to make investments to support business
growth. Specifically, capital expenditures of $65.8 million were made by OCC for
the continuing installation of on-demand systems. In addition, $19.2 million of
cash was invested by Beacon on films under production and development and to
acquire rights for film properties and $17.5 million in cash was used by the
sports teams to make payments associated with long-term player contracts.
The primary sources of cash during the year ended December 31, 1996 were as
follows: cash from operating activities of $23.3 million, net borrowings under
the Existing Ascent Credit Facility and Existing OCC Credit Facility of an
aggregate of $120.3 million, proceeds of $3.6 million from the sale of certain
investments owned by the Company and the collection of $6.7 million on notes and
other long-term receivables. Cash was expended primarily for property and
equipment as the Company continued to make investments to support business
growth. Specifically, capital expenditures of $70.5 million were made by OCC for
the continued installation of on-demand systems, $9.1 million for the
development of the proposed Pepsi Center in Denver, $6.8 million by ANS for the
partial digital upgrade of the MSNBC network and the investment of $21.1 million
in cash by Beacon for the development and production of three major motion
pictures.
The Company's negative working capital position improved by $8.9 million
from December 31, 1996 to September 30, 1997. This improvement is attributable
to the increase in cash of $14.5 million, which is primarily attributable to the
receipt of significant cash deposits at quarter end pursuant to the Fox Sports
Agreement, the classification of $15.9 million of film inventory as a current
asset and a reduction in deferred revenue, primarily at Beacon, due to the
recognition of certain previously deferred revenues upon delivery of films to
their respective distributors. These working capital increases were offset by
the $49 million increase in short-term debt, most of which was used by OCC for
the acquisition of long-term assets and the remainder of which was used by
Ascent primarily for film expenditures.
The Company's negative working capital position increased by $190.5 million
from December 31, 1995 to December 31, 1996. This is primarily attributable to
an increase in short-term debt of $143 million used mainly for the acquisition
of $221.4 million of long-term assets (primarily the acquired SpectraVision
assets and the continued installation of on-demand systems by OCV).
As of September 30, 1997, the Company had access to $140 million of
short-term financing under the Existing Ascent Credit Facility, of which $115
million was outstanding, and OCC had access to $150 million of short-term and
long-term financing under the Existing OCC Credit Facility of which $127 million
was outstanding. (See Note 6 of Notes to the Unaudited Condensed Consolidated
Financial Statements.) Based on borrowings outstanding at September 30, 1997,
Ascent had $25 million in available borrowings under the Existing Ascent Credit
Facility and OCC had $23 million in available borrowings under the Existing OCC
Credit Facility, subject to certain covenant restrictions.
The net proceeds to the Company from the Offering were approximately $121
million (after deducting discounts, commissions and estimated Offering
expenses). The Company used the net proceeds from the Offering and available
cash to repay outstanding indebtedness including accrued interest thereon, under
the Existing Ascent Credit Facility. Concurrently with the closing of the
Offering, the Company entered into the New Ascent Credit Facility, providing for
up to $50 million of revolving credit borrowings. Amounts repaid under the
Existing Ascent Credit Facility may be reborrowed under the New Ascent Credit
Facility up to the limits set forth thereunder.
The Company is also proposing to offer approximately $100 to $130 million of
Arena Notes during the first quarter of 1998 for purposes of financing the
development and construction of the Pepsi Center. The Arena Notes are expected
to have a term of 20 to 25 years, and be secured by some or all of the assets of
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the Arena Company, including the Pepsi Center and by the revenues of the Pepsi
Center, including corporate sponsorships.
In addition, in November 1997, OCC refinanced the Existing OCC Credit
Facility and entered into the New OCC Credit Facility. The amount available
under the New OCC Credit Facility has been increased from $150 million to $200
million, and certain other terms have also been amended, including, the
inclusion of restrictions on OCC's ability to pay dividends or make other
distributions until the later of January 1, 1999 or until certain operating
ratios are attained. In connection with the New OCC Credit Facility, Ascent and
its lender also amended certain provisions of the Existing Ascent Credit
Facility (see Notes 6 and 11 of Notes to the Unaudited Condensed Consolidated
Financial Statements).
The Company's cash requirements through the remainder of 1997 and during
1998 are expected to include (i) the continuing installation by OCC of on-demand
in room video entertainment systems, (ii) construction of the Pepsi Center,
(iii) funding the development, production and/or acquisition of rights for
motion pictures at Beacon, (iv) funding the operating requirements of Ascent and
its subsidiaries, and (v) the payment of interest under the New Ascent Credit
Facility and New OCC Credit Facility. The Company anticipates that capital
expenditures in connection with the continuing installation by OCC of on-demand
in room video entertainment systems will be approximately $20 to $25 million
during the remainder of 1997 and may be approximately $85 to $100 million in
1998. The Company anticipates that OCC's funding for its operating requirements
and capital expenditures for the continuing installation by OCC of on-demand in
room video entertainment systems will be funded primarily through cash flows
from OCC's operating activities and financed under the New OCC Credit Facility.
The expenditures for construction of the Pepsi Center will be funded through
Ascent's equity investment in the Arena Company of $15 million, which may be
increased by up to an additional $30 million, the $15 million equity investment
in the Arena Company by Liberty (see Note 4 of Notes to the Unaudited Condensed
Consolidated Financial Statements) and the anticipated proceeds of the Arena
Notes. However, as a result of the timing of the closing of the Arena Notes and
the ground breaking for construction, the Company has, and will continue to
advance during the remainder of 1997 and the first quarter of 1998, funds to the
Arena Company in excess of its anticipated participation. Beacon's cash
requirements with respect to the funding of its current movie productions are
expected to consist of expenditures totaling approximately $2 million during the
fourth quarter of 1997. Cash requirements with respect to the funding of
additional productions at Beacon will be dependent upon the number, nature and
timing of the projects that the Company determines to pursue during the
remainder of 1997 and 1998. To fund Beacon's productions, the Company expects to
utilize Beacon's domestic distribution agreement with Universal Pictures when
appropriate, and/or pre-sell a portion of the international distribution rights
to help fund motion picture costs. The Company's other long-term capital
requirements may include ANS' participation in an upgrade of the NBC affiliate
network. ANS' cash requirements, should it be awarded the NBC Agreement, may
consist of expenditures of $30 to $35 million, commencing in late 1998 or 1999,
substantially all of which are currently anticipated to be financed off-balance
sheet through operating leases.
Management of the Company believes that available cash, cash flows from
operating activities and funds available under the proposed New Ascent Credit
Facility and New OCC Credit Facility (see Notes 6 and 11 of Notes to Unaudited
Condensed Consolidated Financial Statements), together with any remaining
proceeds from the Offering after repayment of outstanding indebtedness under the
Existing Ascent Credit Facility and anticipated proceeds from the Arena Notes
will be sufficient for the Company and its subsidiaries to satisfy their growth
and finance working capital requirements through the remainder of 1997 and 1998.
A number of factors could cause Ascent's funding requirements to differ
materially from those projected, including, but not limited to, the operating
performance of Ascent's subsidiaries, the level of ticket sales and other
revenues by Ascent's professional sports franchises, the timing of film
productions and releases, the timing of distributions from SONY Pictures
Entertainment, Walt Disney Company and other distributors from the movies AIR
FORCE ONE, A THOUSAND ACRES and PLAYING GOD and other market conditions.
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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 7 of Notes to
Unaudited Condensed Consolidated Financial Statements) terminated an 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 the Federal Communications Commission. As a result,
Ascent's financial leverage may increase in the future for numerous reasons,
including the Offering and the sale of the Arena Notes. 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
will not be allowed to sell, purchase or otherwise acquire stock or instruments
which afford a person the right to acquire the stock of Ascent until one year
after the date of Distribution. 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 the second
half of 1997 and thereafter.
Also, in connection with the Acquisition, Ascent and OCC entered into an
agreement (the "OCC Corporate Agreement"), pursuant to which OCC agreed, among
other things, not to incur any indebtedness, other than under the Existing OCC
Credit Facility (and refinancings thereof including the New OCC Credit Facility)
and indebtedness incurred in the ordinary course of business which together
shall not exceed $100 million in the aggregate, without Ascent's prior written
consent. In connection with OCC's 1997 budget process, Ascent consented to OCC
incurring up to $130 million in indebtedness under the Existing OCC Credit
Facility, subject to the financial covenants contained therein. In October 1997,
Ascent consented to an Amendment of the OCC Corporate Agreement which allows OCC
to borrow up to $140 million through December 31, 1997, provided that such
indebtedness be incurred in compliance with the financial covenants of the New
OCC Credit Facility.
Inflation has not significantly impacted the Company's financial position or
operations.
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BUSINESS
Ascent operates diversified media and entertainment production and
distribution businesses characterized by well-known franchises. The Company
conducts its business in two segments, Multimedia Distribution and
Entertainment. The Company's approximately 57% owned publicly traded subsidiary,
OCC, is the largest provider (by number of hotel rooms served) of on-demand
in-room video entertainment services to the domestic lodging industry. The
Company's ANS division is the primary provider of satellite distribution support
services that link the NBC television network with 167 of its affiliated
stations nationwide. The Company also owns two professional sports
franchises--the NHL Colorado Avalanche and the NBA Denver Nuggets. In order to
enhance the asset value of its sports franchises and to take advantage of the
growing popularity of the NHL and NBA, as well as to augment the revenues and
operating cash flows of its two sports franchises, the Company plans to
construct, own and operate the Pepsi Center, a new state-of-the-art sports and
entertainment center in downtown Denver seating up to 20,000 to house the
Avalanche, the Nuggets and other live entertainment events. 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. Finally, the Company owns Beacon, an independent
motion picture and television production company whose most recently produced
films include AIR FORCE ONE, A THOUSAND ACRES and PLAYING GOD.
Ascent believes it is creating a diversified media and entertainment company
with significant growth and cash flow potential. The Company has a strong and
capable management team with a diverse blend of operating and financial
expertise, which has demonstrated the ability to develop and execute strategies
for enhancing and realizing the franchise values of the Company's assets.
Management's overall goals are to continue to implement strategies that will
enable the Company to maximize the intrinsic values and cash flow potential of
its existing businesses and, as opportunities arise, enter into strategic
acquisitions, joint ventures and alliances that complement those businesses.
HISTORY
Until December 1995, when it made an initial public offering of its common
stock, Ascent was a wholly owned subsidiary of COMSAT Corporation ("COMSAT").
Following the initial public offering, COMSAT continued to own 80.67% of
Ascent's common stock and control Ascent until June 27, 1997, when 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"). As a result of the
Distribution, Ascent became an independent publicly held corporation. See
"Certain Restrictions Related to COMSAT Distribution."
MULTIMEDIA DISTRIBUTION
ON COMMAND CORPORATION
GENERAL
OCC is the largest provider (by number of rooms served) of on-demand in-room
video entertainment 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,
Wyndham, 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 September 30, 1997, OCC had an installed room base
of approximately 872,000 rooms (of which 749,000 were served by on-demand
pay-per-view systems and 123,000 were only served by scheduled pay-per-view
systems) in approximately 2,900 hotels worldwide. From 1992 until the
Acquisition in 1996, OCC enjoyed a compounded annual growth rate of
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88.4% in the number of rooms served. From 1992 through year end 1996, OCC had a
compounded annual growth rate in revenues and EBITDA of 103.5% and 107.6%,
respectively.
In October 1996, OCC acquired the assets and certain liabilities of
SpectraVision, at the time the second largest provider of in-room on-demand
video entertainment services to the domestic lodging industry. The Acquisition
enhanced OCC's position as the leading provider of in-room video entertainment
services to the domestic lodging industry and approximately doubled the number
of installed rooms served by OCC. The conversion of SpectraVision rooms to OCC's
on-demand system is expected to result 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 September 30, 1997,
approximately 12.5% of OCC's hotel rooms served, or 109,000 rooms, are located
in international markets.
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 from
20 to 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 OCC's on-demand system by 2001. OCC also
provides in-room viewing of free-to-guest programming of select cable channels
(such as HBO, Showtime, ESPN, CNN 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.
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 and continue to grow through the following
initiatives: (i) increase its installed hotel customer base by obtaining new
contracts within its core hotel markets and within select mid-priced hotels and
hotel chains; (ii) increase revenues and decrease costs in certain hotels
acquired in the Acquisition by installing OCC 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 will incur capital
expenditures of approximately $20 to $25 million in the fourth quarter of 1997
and may incur $85 to $100 million in 1998, a substantial portion of which will
relate to the conversion of SpectraVision rooms to OCC'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 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. Depending on the
type of system installed and the size of the hotel, guests can choose from 20 to
up to 50 different movies with an 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.
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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 September 30, 1997, OCC
has converted approximately 47,000 rooms from SpectraVision's scheduled system
to OCC'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, offers financial benefits to
the Company as a result of lower field service costs, and an increase in
revenues due to on-demand capabilities and reduced system down time.
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. Negotiated fees are related to
the popularity of the picture and the volume of pictures licensed from a given
studio. License fees typically decline over the time the movie is played.
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 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 may provide
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 $400 to $700 per room, or approximately $300 per room if the
VideoNOW-TM- system is used. 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
specific technologies and features to be provided by OCC to the extent that such
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.
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. 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 an end-consumer
and, in certain hotels with OCV systems, $4.95 for each subsequent buy by the
same end-consumer on the same day. The hotels equipped with SpectraVision
systems do not discount second buys.
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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. OCC markets lower cost OCV
VideoNOW systems to select mid-priced hotels. The VideoNOW system works with the
hotel's existing televisions and telephones, allowing guests to use their
touchtone telephones to access movies and other programming.
OCC also markets a free-to-guest service pursuant to which a hotel may elect
to receive one or more satellite 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 per room for each programming channel selected or having the
price of such programming included in OCC's other offerings. OCC also provides
certain interactive services such as video check-out, room service ordering and
guest satisfaction surveys. The OCC system also enables hotel owners to
broadcast informational and promotional messages and to monitor room
availability.
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. The new services include an internet offering which
has been in a technical and marketing test phase for several months. As a result
of the test, OCC recently selected Microsoft's Internet Explorer as browser for
its internet service. 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
OCC's product development philosophy is to design high quality entertainment
and information systems which incorporate features allowing OCC to add or
upgrade 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.
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. Such technologies might include digital compression and
store-and-forward, which would permit multiple users to access the same stored
movie at varying start times.
Since 1991, SpectraVision's tape based system has provided hotel guests with
on-demand viewing from a library of videotapes, which varies by hotel. During
1994, however, SpectraVision introduced its new satellite-based digital video
on-demand service, Digital Guest Choice, that provides on-demand viewing of
digitally stored movies. The digitized movies are stored at the hotel site and
then decoded and forwarded to the guest instantaneously and on-demand. Digital
Guest Choice allows multiple users to access the same digitally stored movie
image at the same time. On January 11, 1997, OCC experienced an interruption in
its satellite delivered service caused by the loss of communication with a
satellite used to deliver pay-per-view programming to 950 of OCC's then
approximately 3,100 hotels. Of the hotels affected, approximately 410 hotels
continued to provide limited pay-per-view services through alternate disk or
tape-based systems.
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OCC was able to obtain alternate temporary satellite service through July 23,
1997. OCC no longer provides its pay-per-view service through satellite
transmission; all such service is terrestrially based.
SALES AND MARKETING
OCC's marketing efforts are 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. OCC
also targets smaller business and luxury hotels and selects mid-priced hotels
that meet its profitability criteria. OCC intends to continue targeting
established hotel chains, 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. 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.
INSTALLATION AND SERVICE OPERATIONS
At September 30, 1997, OCC's installation and service organization consisted
of approximately 331 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 September 30, 1997, approximately 8% of the pay-per-view hotels
served by OCC have contracts that have expired and are on a month-to-month
basis. These contracts were primarily acquired in the SpectraVision acquisition
and have been operating on a month-to-month basis for sometime. Approximately 8%
of the pay-per-view hotels served by OCC have contracts expiring in 1997.
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
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<PAGE>
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.
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
for each room offering the service. OCC believes its relationships with all
suppliers are good, except for Showtime Networks, Inc. which is disputing OCC's
performance of the contract with Showtime in connection with the Company's
termination of scheduled satellite delivered pay-per-view service. Showtime is
currently installed in less than 3% of OCC's room base.
COMPETITION
There are several providers of in-room video entertainment to the lodging
industry, at least two of which provide on-demand pay-per-view and free-to-guest
programming and other interactive services over the hotel television.
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 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 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 September 30, 1997,
LodgeNet served approximately 492,000 pay-per-view rooms, of which approximately
459,000 are equipped with on-demand service. At September 30, 1997, OCC served
approximately 872,000 rooms, of which approximately 749,000 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 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 three
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.
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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.
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 United States, OCC offers its services
in Canada, Hungary (Budapest), Austria (Vienna), Belgium, Spain, Mexico, the
United Kingdom and the Caribbean and, following the Acquisition, in the
Asia-Pacific region, including Hong Kong, Singapore and Thailand. SpectraVision
had been a leading provider of in-room video entertainment in the Asia-Pacific
region and Australia. At September 30, 1997, OCC serviced 416 hotels with a
total of 109,000 rooms located outside the United States with SpectraVision
systems.
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.
ASCENT NETWORK SERVICES
ANS principally owns and 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 for an additional five years. Management
believes the NBC Agreement, which is scheduled to expire in 1999, will be
renewed and extended and that, in connection with such renewal, NBC would engage
ANS to complete a full upgrade of the NBC distribution network to digital
technology, although no assurance can be provided in this regard. Expenditures
by ANS which would be associated with the digital upgrade in the event of such
renewal are estimated at approximately $30 to $35 million, substantially all of
which are currently anticipated to be financed off-balance sheet through
operating leases. The renewal of the NBC Agreement and digital upgrade of the
NBC distribution system would be expected to increase the asset value of ANS and
further solidify the relationship between ANS and NBC.
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 since 1995. Ascent's strategy for maintaining and expanding
this source of cash flow is to renew and extend the NBC Agreement to 2006 or
beyond, and to be engaged for and complete successfully the full digital upgrade
of the NBC satellite distribution network.
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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, 170 receive earth stations at NBC
affiliates, 54 portable uplink antennas, and six transportable transmit/receive
trucks.
NBC, with ANS's technical assistance, issued a request for information to
certain of its hardware vendors in July 1995 with respect to procuring equipment
necessary to upgrade the NBC distribution network to digital technology. In
August of 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
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 quarter of
1998 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. The Company expects that ANS will assist NBC in a full
network upgrade of all satellite distribution locations to digital technology in
late 1998 or early 1999, although no assurance can be provided in this regard.
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 will continue to grow in
popularity as evidenced by a record number of aggregate league-wide ticket sales
of approximately 16.2 million and record revenues from ticket sales of
approximately $595 million during the 1996-1997 season (a 4% increase in number
of tickets sold and a 14.8% increase in revenues from the prior season) and an
increase in revenues from retail sales of NHL licensed merchandise in the United
States from approximately $800 million in 1992-1993 to approximately $1.2
billion in 1996-1997. 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 to be paid in 1998, 1999 and 2000. The increased popularity of the
NHL resulted in 1994 in a new five-year national over-the-air television rights
contract with the Fox television network with aggregate license fees of $155
million, subject thereafter to a two-year renewal term at Fox's option for
aggregate incremental license fees of $120 million. In addition, in 1994, the
NHL extended its existing contracts with ESPN and its Canadian broadcaster
through the 1998-1999 season for aggregate license fees of approximately $235
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 16.8 million and the increase in average game attendance by over
50% to approximately 14,159 or 86% of capacity for the 1996-1997 season. In
addition, revenues from the sale of NBA retail merchandise in the United States
have increased from approximately $2.1 billion in 1992-1993
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to approximately $2.6 billion in 1995-1996. 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 four-year national television contracts between the NBA and each of
NBC and Turner Sports provide $1.1 billion in aggregate fixed revenues for NBA
member teams over the term of the contracts, and provide for revenue sharing
over specified amounts of sponsorship revenues. Such contracts will expire after
the 1997-1998 season. New contracts with both NBC and Turner Sports, commencing
with the 1998-1999 season, were recently announced under which $2.6 billion in
aggregate fixed revenues will be provided to NBA member teams over the four-year
term of such contracts and such contracts also provide for revenue sharing.
In August, 1997, the Company capitalized on the growing demand for popular
branded regional sports programming by entering into 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, 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. 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 financing and
construction of the Pepsi Center in 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 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. 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 paid to the
visiting team), and receive appearance fees for exhibition games played
elsewhere. If the Avalanche or the Nuggets 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 62.2%, and, from the 1991-1992 season to the
present, average ticket prices to the Nugget games have increased by 87.3%. In
the 1997-1998 season, average ticket prices for the Avalanche and Nuggets
represented 114% and 81.2% 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 27 executive suites containing a total of 374 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
1997-1998 season, the Avalanche have sold 12,500 season tickets and the Nuggets
have sold approximately 6,800 season tickets. The Avalanche currently enjoys the
longest consecutive record of sell-out games in the NHL (over 100
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games as of the date of this Prospectus). Management has taken a number of
measures in an attempt to address the decline in season tickets purchased for
Nuggets games. See "Basketball Operations-- Performance."
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 1994, the NHL entered into a new five-year
national over-the-air television contract with the Fox television network with
aggregate license fees of $155 million, subject thereafter to a two-year renewal
term at Fox's option for aggregate incremental license fees of $120 million. In
addition, in 1994, the NHL extended its existing contracts with ESPN and its
Canadian broadcaster through the 1998-1999 season for aggregate license fees of
approximately $235 million. In 1994, the NBA licensed the national broadcast of
NBA games under agreements with NBC and Turner Sports. The current four-year
national television contracts between the NBA and each of NBC and Turner Sports
provide $1.1 billion in aggregate fixed revenues for NBA member teams over the
term of the contracts, and provide for revenue sharing over specified amounts of
sponsorship revenues. Such contracts will expire after the 1997-1998 season. New
contracts with both NBC and Turner Sports, commencing with the 1998-1999 playing
season, were recently announced under which $2.6 billion in aggregate fixed
revenues will be provided 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 rights to broadcast all games on radio
under agreements with KKFN, 950 AM.
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.
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.
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HOCKEY OPERATIONS
NATIONAL HOCKEY LEAGUE. For the 1997-1998 season, the NHL will include the
following teams, which are currently aligned into two conferences, with two
divisions in each conference:
WESTERN CONFERENCE
<TABLE>
<S> <C>
PACIFIC DIVISION CENTRAL DIVISION
Colorado Avalanche Chicago Blackhawks
Anaheim Mighty Ducks Dallas Stars
Calgary Flames Detroit Red Wings
Edmonton Oilers Toronto Maple Leafs
Los Angeles Kings St. Louis Blues
San Jose Sharks Phoenix Coyotes
Vancouver Canucks
</TABLE>
EASTERN CONFERENCE
<TABLE>
<S> <C>
ATLANTIC DIVISION NORTHEAST DIVISION
Florida Panthers Boston Bruins
New Jersey Devils Buffalo Sabres
Carolina
New York Islanders Hurricanes
New York Rangers Montreal Canadians
Philadelphia Flyers Ottawa Senators
Pittsburgh
Tampa Bay Lightning Penguins
Washington Capitals
</TABLE>
In June 1997, the NHL Board of Governors approved the addition of four NHL
expansion teams to be located in Nashville, Tennessee, Atlanta, Georgia,
Columbus, Ohio and Minneapolis-St. Paul, Minnesota. Each of the expansion teams
has a majority ownership group in place. The Tennessee franchise is scheduled to
begin play during the 1998-1999 NHL season, the Atlanta franchise is scheduled
to begin play during the 1999-2000 season, and the Columbus and Minneapolis-St.
Paul franchises are scheduled to join the NHL for the 2000-2001 season.
REGULAR SEASON AND PLAYOFFS. During the NHL regular season, which extends
from early October to mid-April, each team plays a total of 82 games against
members of both conferences. Half of the games are played at "home," and half
are played "away" in the opposing team cities. At the end of the regular season,
16 of the 26 teams qualify for the NHL playoffs to determine the NHL's Stanley
Cup Champion for the season. These 16 teams consist of the champions of each of
the four divisions, together with the six teams in each conference with the
highest number of points during the regular season (with two points awarded for
a win and one point awarded for a tie). The playoffs consist of three rounds in
each conference, with the fourth and final round matching the winners of the
Eastern and Western Conferences in the Stanley Cup Finals to determine the
Stanley Cup Champion. Each round is a best-of-seven game series. Any team
qualifying for the playoffs can be assured of at least two home games during
each round of the playoffs and, depending upon its success in the playoffs, its
regular season record and the length of each series, may play up to 16 home
games during the playoffs.
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PERFORMANCE. The following table shows the performance of the Avalanche
(including three years as the Quebec Nordiques) during the past five NHL
seasons:
<TABLE>
<CAPTION>
SEASON FINISH IN
SEASON RECORD DIVISION PLAYOFF RESULTS
- ------------------------ ---------- ----------- ----------------------------------------
<S> <C> <C> <C>
1996-97................. 49-24-9 1st Lost in conference finals
1995-96................. 47-25-10 1st Stanley Cup Champions
1994-95................. 30-13-5 1st Lost in divisional semi-finals
1993-94................. 34-42-8 5th Not in playoffs
1992-93................. 47-27-10 2nd Lost in divisional semi-finals
</TABLE>
HEAD COACH AND GENERAL MANAGER. The head coach of the Avalanche, Marc
Crawford, was named to the position of head coach for the Nordiques in July
1994. Prior to joining the Nordiques, Mr. Crawford was the head coach of the St.
John's Maple Leafs of the American Hockey League in Newfoundland. In the early
1980s, Mr. Crawford played for the Vancouver Canucks of the NHL. Mr. Crawford,
who led the Avalanche to the Stanley Cup in his second year as the head coach,
was named NHL coach of the year for the 1994-95 season. The General Manager of
the Avalanche, Pierre Lacroix, became General Manager of the Quebec Nordiques in
May 1994. Prior to joining the Nordiques, Mr. Lacroix served for 20 years as an
NHL player representative for JANDEC, a sports agency and marketing firm.
NHL COLLECTIVE BARGAINING. The NHL and the NHL Players' Association entered
into the new 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 allows 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.
BASKETBALL OPERATIONS
NATIONAL BASKETBALL ASSOCIATION. For the 1997-1998 season, the NBA will
include the following teams, which are currently aligned into two conferences,
with two divisions in each conference:
WESTERN CONFERENCE
<TABLE>
<S> <C>
MIDWEST DIVISION PACIFIC DIVISION
Golden State
Denver Nuggets Warriors
Dallas Mavericks Los Angeles Clippers
Houston Rockets Los Angeles Lakers
Minnesota Timberwolves Phoenix Suns
Portland
San Antonio Spurs Trailblazers
Utah Jazz Sacramento Kings
Vancouver Grizzlies Seattle Supersonics
EASTERN CONFERENCE
ATLANTIC DIVISION CENTRAL DIVISION
Boston Celtics Atlanta Hawks
Miami Heat Charlotte Hornets
New Jersey Nets Chicago Bulls
New York Knicks Cleveland Cavaliers
Orlando Magic Detroit Pistons
Philadelphia 76ers Indiana Pacers
Washington Wizards Milwaukee Bucks
Toronto Raptors
</TABLE>
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REGULAR SEASON AND PLAYOFFS. During the NBA regular season, which extends
from late October to mid-April, each team plays a total of 82 games against
members of both conferences. Half of the games are played at "home," and half
are played "away" in the opposing team cities. At the end of the regular season,
16 of 29 teams qualify for the NBA playoffs to determine the NBA Champion for
such season. These 16 teams consist of the champions of each of the four
divisions, together with the six teams in each conference with the next best
winning percentages during the regular season. The playoffs consist of three
rounds in each conference, with the fourth and final round matching the winners
of the Eastern and Western Conferences to determine the NBA champion. The first
round is a best-of-five game series, while all subsequent rounds are
best-of-seven game series. Any team qualifying for the playoffs can be assured
of at least two home games per round if it qualifies for further rounds and,
depending upon its success in the playoffs, its regular season record and the
length of each series, may play up to 15 home games during the playoffs.
PERFORMANCE. The following table shows the performance of the Nuggets
during the past five NBA seasons:
<TABLE>
<CAPTION>
SEASON FINISH IN
SEASON RECORD DIVISION PLAYOFF RESULTS
- ------------------------ ---------- ------------- ----------------------------------------
<S> <C> <C> <C>
1996-97................. 21-61 5th Not in playoffs
1995-96................. 35-47 4th Not in playoffs
1994-95................. 41-41 4th Lost in 1st round of playoffs
1993-94................. 42-40 4th Lost in 2nd round of playoffs
1992-93................. 36-46 4th Not in playoffs
</TABLE>
Management has developed and is currently implementing focused measures to
improve the Nuggets' on-court performance in order to reverse the decline in
game attendance and revenues, including the hiring of a new General Manager and
a new Head Coach and restructuring of the player roster.
HEAD COACH AND GENERAL MANAGER. In February 1997, the Nuggets hired Allan
Bristow as Vice President, Basketball Operations. Mr. Bristow had been Vice
President, Basketball Operations and Head Coach of the NBA Charlotte Hornets
from 1990 through 1996, where he twice guided the Hornets to the NBA playoffs.
One of Mr. Bristow's first moves was to hire Bill Hanzlik as head coach of the
Nuggets. Mr. Hanzlik, a former first-round draft choice, played for the Nuggets
from 1982-1990, and was an assistant coach under Mr. Bristow in Charlotte and
for the NBA Atlanta Hawks.
NBA COLLECTIVE BARGAINING. On September 13, 1995, the NBA Players'
Association approved the new six-year NBA Collective Bargaining Agreement, which
was subsequently ratified by the NBA owners on September 18, 1995, and signed on
July 11, 1996, retroactive to September 18, 1995. The NBA Collective Bargaining
Agreement provides for, among other things, maximum and minimum total team
salaries to be paid to players and runs for a term from September 18, 1995
through June 30, 2001. The NBA Collective Bargaining Agreement provides various
exceptions to the salary limitations, including exceptions relating to a team's
resigning its own veteran free agent players, replacing injured players, and
signing players at the minimum individual player salary. The NBA has stated
that, due to continuing increases in player salaries under certain exceptions to
the salary cap provisions included in the NBA Collective Bargaining Agreement,
the NBA may be entitled under the terms of the NBA Collective Bargaining
Agreement to terminate the agreement at the end of the 1997-98 season and
commence negotiations on a new collective bargaining agreement. In the event
that any such negotiations were to be commenced, management is unable to predict
what the timing and outcome of such negotiations would be and whether any player
lock-out would ensue.
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
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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. 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.
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), professional baseball (the Colorado Rockies) and women's professional
basketball (the Colorado Xplosion). 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.
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.
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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 Arena Agreement with the City setting forth the terms on which the Company,
through 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
already have lease commitments with terms of five to ten years (at lease amounts
from $90,000 to $180,000 per year), and will have over 1,600 club seats 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.
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.
On November 13, 1997, Ascent entered into the 1997 Denver Arena Agreement
(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 SPT, on November 14, 1997, the
Arena Company purchased approximately 50 acres 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. See "Risk Factors--Entertainment--Sports
Franchises--Pepsi Center Risks."
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Development and construction of the Pepsi Center will cost approximately
$160 million. The Company expects to finance the Pepsi Center from the sale by
the Arena Company of approximately $100 to $130 million of Arena Notes, secured
by some or all of the assets of the Arena Company, including the Pepsi Center,
and by the revenues of the Pepsi Center, including corporate sponsorships. In
addition, the Arena Company 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, upon consent of the NBA and NHL, 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.
Prior to receipt of the league consents, Liberty will have a 50% interest in the
Arena Company, and, if the consents are not received, then after June 30, 1998,
Liberty may require Ascent to purchase, and Ascent may require Liberty to sell,
Liberty's interest in the Arena Company for $15 million, plus interest, payable
at the election of Ascent, in either cash or common stock of Ascent, or some
combination thereof. The Boards of Governors of both the NBA and NHL have
approved Liberty's investment and final consents are expected to be executed by
year end. The investment by Liberty is an example of management's strategy to
use strategic alliances to enhance the Company's asset value and cash flows.
The Arena Company, the Avalanche and the Nuggets have concluded negotiations
with the Pepsi-Cola Company regarding the principal terms of naming rights,
pouring rights and sponsorship of the teams for a 20-year period, pursuant to
which the Pepsi Center will be known as the "Pepsi Center," and anticipate
signing a definitive agreement in the first quarter of 1998. The Arena Company
is also currently negotiating sponsorship arrangements with other companies who
would be designated "founding sponsors" in consideration for long term
sponsorship of the Pepsi Center and the teams. The Arena Company anticipates
that the naming rights, pouring rights and founding sponsor arrangements will
result in significant revenues both to fund costs of the construction of the
Pepsi Center and on an annual basis thereafter.
As previously discussed, the additional financing required for the Pepsi
Center will be raised through the sale of the Arena Notes. The Arena Notes are
expected to be bonds secured by assets of the Arena Company, including the Pepsi
Center, and by revenues of the Pepsi Center, including corporate sponsorships.
It is anticipated that the Arena Notes will be sold in the first quarter of 1998
and will have a term of 20 to 25 years. While management believes that the
projected revenues from the Pepsi Center will be sufficient to enable the Arena
Company to sell the Arena Notes on favorable terms, there can be no assurances
that market conditions will not change or other circumstances will not arise
which would prevent the Arena Company from selling the Arena Notes on favorable
terms or at all. If the sale of the Arena Notes is not consummated, the Company
would have to seek other sources of financing to complete the construction of
the Pepsi Center.
BEACON COMMUNICATIONS
Acquired in 1994, Beacon produces 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. While Beacon generally produces motion
pictures with total budgeted production costs (before any third party
contributions) ranging from $20 million to $60 million, it also considers
certain higher budget projects such as AIR FORCE ONE starring Harrison Ford with
a production budget of approximately $95 million (of which more than half has
been funded by contributions from third parties). AIR FORCE ONE has grossed in
excess of $170 million in the domestic market since its release in July 1997.
Historically, Beacon has limited its net investment to between $4 million and
$17 million in the development and production of each of the motion pictures it
has produced. In order to maintain the Company's strategy for limited investment
in new motion picture
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production, in 1996 Beacon entered into the Universal Agreement, a five-year
domestic distribution agreement with Universal for up to 20 pictures produced by
Beacon (although Universal is not obligated to accept more than four films per
year from Beacon). Pursuant to the Universal Agreement, Universal contributes a
significant percentage of the production cost per motion picture which it
recoups out of domestic revenues, and receives a distribution fee to distribute
the motion pictures in the United States and Canada, and Beacon receives net
revenues after Universal's fees and expenses. Universal generally controls all
rights to distribute such motion pictures domestically for two full television
syndication cycles, not to exceed 21 years from the theatrical release of the
picture and Beacon retains all international distribution rights, the films'
copyrights and certain other rights related to such films such as music
publishing, merchandising and hotel television rights. In the event that
Universal declines to distribute a film produced by Beacon, Beacon may seek
another domestic distributor for the film.
Beacon's principal focus is the production of high quality motion pictures
with budgets of varying amounts. To date, Beacon has released the following
motion pictures:
<TABLE>
<CAPTION>
RELEASED MOVIES TALENT RELEASE DATE
<S> <C> <C>
Air Force One Harrison Ford 1997
Playing God David Duchovny 1997
A Thousand Acres Michelle Pfeiffer, Jessica Lange 1997
The Baby-Sitters Club based on novel by Ann Martin 1995
Sugar Hill Wesley Snipes 1994
Princess Caraboo Phoebe Cates, Kevin Kline 1994
A Life in Theatre (made for cable) Jack Lemmon, Matthew Broderick 1994
The Commitments directed by Alan Parker 1991
A Midnight Clear directed by Keith Gordon 1991
</TABLE>
In addition, Beacon currently has several projects in various stages of
development.
The principal revenue sources for the distribution of motion pictures are
domestic and foreign theatrical rentals, domestic and foreign home video,
domestic pay and basic cable television, broadcast network television, domestic
and foreign syndicated television and other sources, such as music rights,
airline and other non-theatrical exhibition and various merchandising rights. In
addition, motion pictures often produce licensing opportunities to manufacture
and distribute commercial articles derived from characters or other elements of
a motion picture, such as clothing, games, dolls and similar products. Rights
may also be licensed for novelization of the screenplay and other related book
publications. The principal cost elements of motion picture production and
distribution include, among others, costs of direct and indirect labor, talent,
rights, producer fees, print costs, publicity and advertising.
Beacon has developed a strategy for production that the Company believes
will allow Beacon to maximize its production capacity while at the same time
reducing its investment and diversifying risks. A major component of that
formula involves Beacon's strategic relationships with significant domestic and
international motion picture distributors, such as Universal and The Walt Disney
Company ("Disney"), whose Buena Vista International division distributed AIR
FORCE ONE internationally. The Universal Agreement is a key part of Beacon's
strategy as it allows Beacon to retain all international distribution rights and
often pre-sells a portion of such rights to help fund motion picture production
costs.
In April 1993, Beacon entered into a five-year agreement (the "Sony
Agreement") with Sony Pictures Entertainment, Inc. ("Sony"), pursuant to which
Sony agreed to co-finance and distribute in the United States and Canada,
through Sony's affiliates, up to 15 motion pictures produced by Beacon. Three
motion pictures were distributed pursuant to the Sony Agreement, including AIR
FORCE ONE. Sony generally controls all rights to distribute the motion pictures
domestically for the later of 14 years or the end of the second television
syndication cycle for such motion picture (but in no event later than 23 years),
although Beacon retains the copyrights. In July 1996, the Sony Agreement was
amended to terminate Sony's
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exclusive acquisition term and to provide that Sony has the right to jointly
develop, produce and distribute up to two additional motion pictures with
Beacon.
As described above, Beacon entered into the Universal Agreement in July
1996. To date, no motion pictures have been produced and distributed pursuant to
the Universal Agreement. Pursuant to the terms of the Universal Agreement,
Universal has the right to terminate the Universal Agreement if for any reason
Armyan Bernstein, Beacon's Chairman and Chief Executive Officer, is no longer
rendering exclusive producing services in connection with Beacon productions.
The Universal Agreement allows Beacon to continue to offset production risks by
pre-selling foreign distribution rights to its motion pictures and provides
Beacon a proven domestic distribution network for its productions.
Beacon's goal is to create a motion picture and television production
company built upon its relationships with high quality talent, the availability
of a strategic distribution alliance and control of the copyrights to its motion
pictures. Beacon does not intend to generally engage in broad, costly motion
picture development and production programs or employ a large development staff.
Instead, Beacon's strategy is to develop superior quality projects as a means of
attracting film-makers and actors of demonstrated talent to produce motion
pictures with budgets generally below the industry average.
Beacon plans to release most of its motion pictures on a nationwide basis,
with advertising and distribution budgets generally comparable to those of the
major motion picture companies. This type of release pattern requires
substantial marketing expenditures to create a campaign and purchase advertising
on television, newspapers, radio and other media. Beacon expects that the
Universal Agreement will help offset such costs and provide more cost effective
use of Beacon's resources than if Beacon distributed its motion pictures alone.
The production and release of motion pictures are subject to numerous
uncertainties, however, and there can be no assurance that Beacon's strategy
will be successful, that its release schedule will be met, that Beacon will be
successful in obtaining the necessary financing for its operations or that it
will achieve its goals. Beacon intends to maintain flexibility in order to
adjust its strategies, including the criteria for investing in motion pictures,
in response to changes in the motion picture industry and in respect of Beacon.
See "Risk Factors--Entertainment--Additional Financing; Cost Overruns."
Beacon competes with many other motion picture producers and distributors,
including the major motion picture studios. Although the motion picture industry
is extremely competitive, Beacon believes it can attract well known and highly
respected talent at below-market rates as a result of its focus on high quality
scripts. In addition, the Company has consistently produced its motion pictures
at or below budget. Beacon believes that its high quality and production
efficiency will allow it to compete effectively. See "Risk
Factors--Entertainment--Competition in the Motion Picture and Television
Industry."
The Code and Ratings Administration of the Motion Picture Association of
America, an industry trade association, assigns ratings for age-group
suitability for viewing of motion pictures. Beacon will follow the practice of
submitting its motion pictures for such ratings.
In addition, United States television stations and networks as well as
foreign governments impose restrictions on the content of motion pictures which
may restrict in whole or in part exhibition on television or in a particular
territory.
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," "Beacon" 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
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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
relations with their customers are at least as important, if not more so, to the
maintenance and growth of OCC.
Distribution rights to motion pictures are granted legal protection under
the copyright laws of the United States and most foreign countries, which
provide substantial civil and criminal sanctions for unauthorized duplication
and exhibition of motion pictures. Beacon plans to take all appropriate and
reasonable measures to secure, protect and maintain or obtain agreements from
licensees to secure, protect and maintain copyright protection for all of the
motion pictures distributed by Beacon under the laws of all applicable
jurisdictions.
REGULATION
The Federal Communications Commission (the "FCC") has broad jurisdiction
over electronic communications. The FCC does not directly regulate On Command
Corporation's pay-per-view or free-to-guest services. However, the FCC's
jurisdiction does encompass certain aspects of ANS's satellite delivery
operations.
EMPLOYEES
The Company had approximately 1,105 employees at September 30, 1997. In
addition to the NBA Collective Bargaining Agreement and the NHL Collective
Bargaining Agreement, relating to the players for the Nuggets and the Avalanche,
respectively, Beacon is a signatory to collective bargaining agreements with the
Screen Actors Guild, the Directors' Guild of America and the Writers' Guild of
America. These agreements generally require Beacon to employ union actors,
directors and writers and comply with certain other provisions relating to
compensation, benefits and work rules. The Company considers its relations with
its employees to be good.
PROPERTIES
The Company currently leases its principal offices in Denver, Colorado under
a lease which expires in August 1998. The Company also leases facilities for ANS
from COMSAT in Maryland, for Beacon in Los Angeles, California, and for ANS in
Palm Bay, Florida. Through 1996, OCV leased facilities in Santa Clara,
California for its headquarters and manufacturing plant; however, 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 1997-1998 season, subject to renewals for a one-year
term. Pursuant to an amendment to the Nuggets lease agreement, the term of the
Nuggets' lease decreased by one year for each
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of the first two years that the Avalanche played in McNichols Arena (from the
2007-2008 season to the 2005-2006 season).
The Avalanche's and the Nuggets' leases with the City require the teams to
pay rent to the City for use of McNichols Arena equal to a percentage of the
teams' net income from ticket sales, subject to certain minimum and maximum
annual payments. 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.
Through the Arena Company, the Company plans to construct, own and operate a
new state-of-the-art sports and entertainment center to be located in downtown
Denver. 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. See "Business--Entertainment--
The Pepsi Center."
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.
See also "Business--Beacon Communications."
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MANAGEMENT
The table below sets forth the names, ages at December 31, 1997 and titles
of the executive officers and directors of the Company.
<TABLE>
<CAPTION>
TERM AS DIRECTOR
NAME AGE POSITION(S) WITH COMPANY EXPIRES
- ------------------------------------ --- ---------------------------------------------------- -----------------
<S> <C> <C> <C>
Charles Lyons....................... 42 Chairman of the Board, President and Chief Executive 1998
Officer
James A. Cronin, III................ 42 Executive Vice President, Chief Operating Officer, 2000
Chief Financial Officer and Director
Robert M. Kavner.................... 54 President and Chief Executive Officer, On Command N/A
Corporation
Arthur M. Aaron..................... 40 Vice President, Business and Legal Affairs and N/A
Secretary
David A. Holden..................... 38 Vice President, Finance and Controller N/A
Ellen Robinson...................... 35 President, Ascent Sports, Inc. N/A
Peter Barton........................ 46 Director 1998
Paul Gould.......................... 52 Director 1999
Charles M. Lillis................... 55 Director 1999
Charles M. Neinas................... 65 Director 2000
</TABLE>
MR. LYONS has been President and a director of the Company since February
1992 and Chairman since June 1997. He was Vice President and General Manager of
the Company from October 1990 to January 1992. Prior to joining COMSAT, Mr.
Lyons was with Marriott Corporation from 1982 to October 1990 in various
executive positions. 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 and as a partner in Alfred Checchi Associates, a merchant
bank from 1990 through 1991. Mr. Cronin is a director of OCC and Landair
Services, Inc.
MR. KAVNER has been President and Chief Executive Officer of OCC since
September, 1996. Prior thereto Mr. Kavner was a principal in Kavner &
Associates, a consulting firm for media and communications companies. From June
1994 through September 1995 Mr. Kavner was an Executive Vice President of
Creative Artists Agency, Inc. ("CAA"). Prior to joining CAA, Mr. Kavner was
Executive Vice President of AT&T Corp. ("AT&T") from 1984 to 1994, where he held
the positions of Chief Executive Officer of AT&T's Multimedia Products and
Services Group and Chief Financial Officer of AT&T. Mr. Kavner is a director of
Fleet Financial Corp. and EARTHLINK NETWORKS, INC.
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. From October 1987 to July 1993, Mr.
Aaron was an attorney at the law firm of Skadden, Arps, Slate, Meagher & Flom in
Boston, Massachusetts.
MR. HOLDEN has been Vice President, Finance since June 1997 and Controller
of the Company since April 1996. Prior thereto, Mr. Holden was Senior Manager at
Deloitte & Touche LLP ("Deloitte") from 1987 through 1996. Prior to 1987, Mr.
Holden was an audit manager at Deloitte.
MS. ROBINSON has been President of Ascent Sports, Inc. since June 1996.
Prior thereto, Ms Robinson served as General Manager of Pepsi Cola Bottling
Company ("Pepsi") in Denver from 1995 to 1996, Vice
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President of Customer Development of Pepsi from 1992 through 1995 and Area
Marketing Manager of Pepsi from 1988 through 1992.
MR. BARTON has been President of Barton & Associates since April 1997. Prior
thereto, Mr. Barton was President, Chief Executive Officer and a director of
Liberty from 1990 to April 1997. Mr. Barton is a director of First Albany
Corporation and Ticketmaster.
MR. GOULD has been Managing Director and Executive Vice President of Allen &
Company, Incorporated for over 10 years. Mr. Gould has been with Allen & Company
for over 20 years and is a director of Tele-Communications, Inc., United Video
Satellite Group, Choice Hotels International, Inc. and Tele-Communications
International, Inc.
MR. LILLIS has been President and Chief Executive Officer of US WEST Media
Group since April 1995, and prior thereto was President of US WEST Diversified
Group from 1991 to 1994 and Executive Vice President and Chief Planning Officer
of US WEST, Inc. from 1987 to 1991. Mr. Lillis joined US WEST in 1985 as Vice
President of Strategic Marketing. Mr. Lillis is a member of the boards of Super
Valu, Inc. and TeleWest Communications PLC.
MR. NEINAS has been President of Neinas Sports Services, Inc. since July
1997. Prior thereto, Mr. Neinas was Executive Director of the College Football
Association from 1980 through June 1997. Mr. Neinas served as a member of the
Board of Directors of the National Association of Collegiate Directors of
Athletics from 1990 to 1993.
The Company's board of directors consists of six members, divided into three
classes. Each class is elected to serve for a term of three years, and the
stockholders of the Company will elect approximately one-third of the directors
at each annual meeting.
COMMITTEES OF THE BOARD
The Company's board of directors has established an Audit Committee,
currently comprised of three independent directors, Messrs. Lillis (Chairman),
Barton, and Neinas and a Compensation Committee comprised of three independent
directors, Messrs. Neinas (Chairman), Gould, and Lillis. Additional information
regarding the committees of the board of directors is incorporated herein by
reference to the Company's 1997 proxy statement filed with the SEC on April 23,
1997.
DIRECTORS' COMPENSATION
The Company does not pay its current directors any cash compensation. In
June 1997, directors who were not employees of the Company or its subsidiaries
were granted stock appreciation rights ("SARs") payable only in cash with
respect to 100,000 shares of Ascent common stock pursuant to the 1997 Non-
employee Directors Stock Appreciation Rights Plan (described below), which is
subject to stockholder approval. These SARs, which have an exercise price of
$8.25 per share, will vest 25% on the first anniversary of the date of grant
(June 27, 1997), and 25% and 50%, respectively, on the second and third
anniversaries.
Prior to May 1997, the Company granted common stock and options to its
non-employee directors pursuant to the 1995 Non-employee Directors Stock Plan.
That plan was terminated in May 1997 in connection with the Distribution.
Pursuant to this plan, Mr. Neinas was granted options to purchase 12,000 shares
of Ascent common stock at exercise prices ranging from $10.50 per share to
$17.625 per share and Mr. Lillis was granted options to purchase 4,000 shares of
Ascent stock at an exercise price of $10.50 per share.
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EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference to the following Company documents (i) the Company's 1997 proxy
statement filed with the SEC on April 23, 1997 and (ii) a Form 8-K filed on July
8, 1997, as amended by a Form 8-K/A filed on July 11, 1997.
In connection with the Distribution, on June 27, 1997, the Company amended
and restated Messrs. Lyons and Cronin's employment agreements and entered into
employment agreements with Messrs. Aaron and Holden (each an "executive"), all
of which agreements were attached as exhibits to the Form 8-K referenced above.
The primary revisions to Mr. Lyons' employment agreement were (i) the agreement
was extended to a five year term expiring June 27, 2002, (ii) Mr. Lyons would
continue as chairman of the Company for the term of the agreement and (iii) the
provisions regarding severance and change-of-control were revised to reflect
Ascent's status as a fully publicly traded company after the Distribution, as
described further below. Mr. Cronin's employment agreement contained the same
revisions as Mr. Lyons', other than (ii) above. Mr. Aaron's employment agreement
is for a five year term and provides for annual compensation of $175,000 and, if
certain performance goals of the Company are met, a target bonus of 35% of
annual compensation. Mr. Holden's employment agreement is for a five year term
and provides for annual compensation of $150,000 and, if certain performance
goals of the Company are met, a target bonus of 35% of annual compensation.
The employment agreements for each of Messrs. Lyons, Cronin, Aaron and
Holden contain provisions related to change-of-control and severance. If an
executive is terminated without "cause" (as defined in the agreements) or upon
certain events defined in the agreements which have the effect of a constructive
termination (including a "Change of Control Event") then (i) there shall be no
forfeiture of any rights or interests related to fringe benefits granted under
the agreement, including, without limitation, the SARs and any other stock-based
incentives, all of which will fully vest, to the extent not previously vested,
immediately upon such termination becoming effective and final; (ii) the
executive shall receive current base salary, fringe benefits and the annual
bonus outlined in the agreement for the longer of (a) the remainder of the
employment period under the agreement or (b) three years following the date of
such termination, with respect to Messrs. Lyons and Cronin, and one year
following the date of such termination with respect to Messrs. Aaron and Holden,
with no obligation to seek other employment and no offset to the amounts paid by
the Company if other employment is obtained; and (iii) all other benefits
provided pursuant to the agreement shall be received by the executive.
For purposes of the employment agreements, a "Change of Control Event" shall
mean and include either the occurrence of any of the following with respect to
Ascent, or any of the following becoming highly likely to occur, in the
determination of the Board: (i) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (A) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (B)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for purposes
of this clause (i), the following acquisitions shall not constitute a Change of
Control: (1) any acquisition directly from or by the Company, (2) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (3)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (1), (2) and (3) of clause (iii) below; or (ii) individuals who, as of
the date hereof, constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to 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
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to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or (iii) consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (1) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
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 Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (2) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (3) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or (iv) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
Additionally, each of the employment agreements referenced above provides
that the Company will indemnify and hold the executive harmless from and against
any liabilities, costs and expenses that 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 "Excise Tax"), to the end that the executive shall be placed in the
same tax position with respect to all payments under such executive's employment
agreement and all other payments to the executive in the nature of compensation
as the executive would have been in if the Excise Tax had never been enacted.
Payments to this end ("Gross-Up Payments") will be made to the executive at such
time or times as necessary, but in no event later than December 31 of each year
in which the executive receives a payment from the Company under the employment
agreement or in the nature of compensation. Any refunds from any taxing
authority paid to the executive (which shall include (i) a reduction in the
executive's tax liability attributable to a previous payment of a Gross-Up
Payment or Excise Tax or (ii) an offset of a refund against other taxes or
liabilities due) shall be paid over to the Company by the executive.
STOCK OPTION PLAN; STOCK APPRECIATION RIGHTS PLAN
As discussed in Note 10 to the Company's 1996 financial statements, the
Company had two stock incentive plans, the 1995 Key Employee Stock Plan (the
"Key Employee Plan") and the 1995 Non-employee Directors Stock Plan. In order
for the Distribution to be tax-free, the Distribution Agreement required Ascent
to cancel substantially all of the outstanding options under the Key Employee
Plan, and not to have any plans or agreements to issue stock. Therefore, in
connection with the Distribution, the 1995 Non-employee Director's Stock Plan
was terminated as it only provided for the issuance of stock and stock options.
In addition, the stock options previously granted under the Key Employee Plan
(1,273,250 options) were canceled and, in exchange, option holders were issued
SARs, payable only in cash, with an exercise price equal to $9.53, based on the
average trading price of the Ascent stock for five days commencing with the date
of the Distribution. In addition, under the Key Employee Plan, 120,000 SARs were
granted to certain officers and key employees of the Company in June 1997, and
in October 1997, 22,000 SARs were granted to certain other employees of the
Company. The SAR's 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
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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 will vest over either a three year or five year period from the date of
grant of the option for which they were exchanged.
Effective as of June 27, 1997, the Company adopted the 1997 Non-Employee
Directors Stock Appreciation Rights Plan (the "Directors Plan"), subject to the
approval of stockholders. The Directors Plan is intended to assist the Company
in attracting and retaining directors of outstanding ability and to promote the
identification of their interests with those of the stockholders of the Company.
The Directors Plan provides for automatic grants of SARs covering up to 700,000
shares of Common Stock, subject to adjustment to reflect events such as stock
dividends, stock splits, recapitalizations, mergers or reorganizations of or by
the Company.
Unless sooner terminated by the Board of Directors, the Directors Plan will
expire in June 2007. Such termination will not affect the validity of any SAR
outstanding on the date of termination.
The Directors Plan is administered by the Board of Directors of the Company
and is intended to satisfy the requirements of Rule 16b-3 under the Exchange
Act.
Contemporaneous with the Distribution, each non-employee director then
serving and continuing to serve on the Board of Directors was granted a SAR with
respect to 100,000 shares of Common Stock at an exercise price equal to $8.27,
the closing price of the Common Stock on the Distribution Date, vesting 25%, 25%
and 50% over a three year period. As of the election to the Board of any
subsequent director, each such director then will be granted a SAR with respect
to 100,000 shares of Common Stock at an exercise price equal to the closing
price of the Common Stock on such date with the same vesting schedule. See
"--Directors' Compensation."
COMPENSATION COMMITTEE INTERLOCKS; CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
Paul Gould, a director of the Company, is a Managing Director and Executive
Vice President of Allen & Company Incorporated, an investment banking firm that
has performed financial advisory services for the Company since 1995, including
serving as the managing underwriter for the Company's initial public offering in
1995 and advising the Company with respect to the acquisition of SpectraVision
in 1996.
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COMMON STOCK OWNERSHIP OF CERTAIN HOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's and OCC's Common Stock (including stock options and
stock appreciation rights which the named individuals have the right to acquire
(only for cash in the case of the stock appreciation rights) within 60 days upon
the exercise of such outstanding stock options or stock appreciation rights) as
of the date of this Registration Statement, by (a) each of the company's
directors, (b) each of the Company's executive officers, (c) all of the
Company's executive officers and directors as a group and (d) all persons who
own beneficially more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
ASCENT SHARES ON COMMAND SHARES*
AMOUNT AND NATURE PERCENT OF AMOUNT AND NATURE OF
OF BENEFICIAL ASCENT COMMON BENEFICIAL
NAME(1) OWNERSHIP(2) STOCK OWNERSHIP(3)
- ----------------------------------------------------- ------------------ --------------- ----------------------
<S> <C> <C> <C>
The Capital Group Companies, Inc..................... 3,570,260 12 % --
333 South Hope Street
Los Angeles, CA 90071
Gabelli Funds, Inc................................... 1,675,211 5.63% --
One Corporate Center
Rye, New York 10580
West Highland Capital, Inc........................... 1,530,000 5.1 % --
300 Drakes Landing Road
Suite 290
Greenbrae, CA 94904
Arthur M. Aaron...................................... 1,519 -- 0
Peter Barton......................................... 0 -- 0
James A. Cronin, III................................. 0 -- 0
Paul A. Gould........................................ 0 -- 0
David A. Holden...................................... 0 -- 0
Robert M. Kavner..................................... 11,800 -- 260,390
Charles M. Lillis.................................... 400 -- 0
Charles Lyons(4)..................................... 19,551 -- 0
Charles M. Neinas.................................... 8,200 -- 0
Ellen Robinson....................................... 0 -- 0
All directors and officers as a group 41,470 -- 260,390
(10 persons).......................................
</TABLE>
- ------------------------
* OCC is a subsidiary of the Company, based upon the Company's beneficial
ownership of approximately 57% of the current issued and outstanding shares
of On Command.
(1) Unless otherwise indicated, each person has sole voting and investment
powers over the shares listed, and no director or executive officer
beneficially owns more than 1.0% of the common stock of the Company or OCC.
Ownership of holders with beneficial ownership of more than 5% of the
Company's common stock is based on (i) The Capital Group Companies, Inc.
Form 13G dated August 8, 1997; (ii) Gabelli Funds, Inc. 13D/A filed August
4, 1997; and (iii) West Highland Capital, Inc. 13D dated December 23, 1997.
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(2) Each number in this column has been rounded down to the nearest whole share.
Beneficial ownership of Ascent common stock includes 3,000 shares each that
may be acquired by Mr. Kavner and Mr. Neinas within 60 days after January
12, 1998, through the exercise of stock options.
(3) Each number in this column has been rounded down to the nearest whole share.
Beneficial ownership of OCC common stock includes 260,390 shares that may be
acquired by Mr. Kavner within 60 days after January 12, 1998, through the
exercise of stock options.
(4) Mr. Lyons' ownership of OCC common stock does not reflect ownership of the
shares owned by Ascent, even though Mr. Lyons holds the proxy to vote those
shares on behalf of Ascent.
CERTAIN RESTRICTIONS RELATED TO COMSAT DISTRIBUTION
In connection with the Distribution, Ascent and COMSAT executed the
Distribution Agreement, dated as of June 3, 1997. The Distribution Agreement
provides, among other things, that COMSAT will distribute all of its holdings of
Ascent common stock to COMSAT shareholders on a pro-rata basis. 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 will be
subject to the following restrictions under the Distribution Agreement: (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
of the tax-free status of the Distribution; (ii) until the second anniversary of
the Distribution, Ascent will continue the active conduct of its ANS satellite
distribution, service and maintenance business; (iii) until the first
anniversary of the Distribution, Ascent will not sell or otherwise issue to any
person, or redeem or otherwise acquire from any person, any Ascent stock or
securities exercisable or convertible into Ascent stock or any instruments that
afford any person the right to acquire stock of Ascent; (iv) for six months
after the Distribution, Ascent will not solicit any person to make a tender
offer for stock of Ascent, participate in or support any unsolicited tender
offer for stock of Ascent, or approve any proposed business combination or any
transaction which would result in any person owning 20% or more of the stock of
Ascent; (v) until the second anniversary of the Distribution, 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; (vi) until the second anniversary of the
Distribution, Ascent will not voluntarily dissolve or liquidate or engage in any
merger, consolidation or other reorganization; and (vii) until the second
anniversary of the Distribution, Ascent will not unwind the merger of ANS with
and into Ascent in any way.
The restrictions noted in items (ii) through (vii) above will be waived with
respect to any particular transaction if either 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, or 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, with respect to a transaction
occurring at least one year after the Distribution, 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
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attributable to subsequent tax legislation or regulation, such losses will be
borne equally by COMSAT and Ascent.
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW ASCENT CREDIT FACILITY
On December 22, 1997, the Company and NationsBank of Texas, N.A. as agent
and lender, entered into the New Ascent Credit Facility, a revolving credit
facility with an initial commitment of $50 million. Commencing on March 31,
2000, availability under the New Ascent Credit Facility will be permanently
reduced by the following amounts:
<TABLE>
<CAPTION>
AMOUNT OF OUTSTANDING
DATE REDUCTION COMMITMENT
- -------------------------------------------------------------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C>
March 31, 2000...................................................... $ 3,125 $ 46,875
June 30, 2000....................................................... 3,125 43,750
September 30, 2000.................................................. 3,125 40,625
December 31, 2000................................................... 3,125 37,500
March 31, 2001...................................................... 3,125 34,375
June 30, 2001....................................................... 3,125 31,250
September 30, 2001.................................................. 3,125 28,125
December 31, 2001................................................... 3,125 25,000
March 31, 2002...................................................... 6,250 18,750
June 30, 2002....................................................... 6,250 12,500
September 30, 2002.................................................. 6,250 6,250
December 31, 2002................................................... 6,250 0
</TABLE>
The New Ascent Credit Facility requires the Company to prepay and
permanently reduce the commitment thereunder with 100% of the net cash proceeds
from the issuance and sale of additional shares of the Company's capital stock,
and to prepay and permanently reduce the commitment 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.
SECURITY; GUARANTY
The obligations of the Company under the New Ascent Credit Facility are
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 New Ascent Credit Facility are
guaranteed by the Credit Facility Guarantors.
INTEREST
At the Company's option, the interest rates per annum applicable to
borrowings under the New Ascent Credit Facility will be a fluctuating rate of
interest equal to either (i) an adjusted LIBOR plus a borrowing margin or (ii)
the greater of the Federal Funds Effective Rate plus 1/2% and the Prime Rate of
NationsBank (the "Base Rate") plus a borrowing margin. The applicable borrowing
margin will be 2.75% (for LIBOR borrowings) and 1.50% (for Base Rate borrowings)
until December 31, 2000. Thereafter, the applicable borrowing margin will range
plus 2.00% to 2.75% for LIBOR borrowings or 0.75% to 1.50% for Base Rate
borrowings, based upon the Company's ratio of EBITDA to cash interest expense.
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FEES
The Company has agreed to pay certain fees with respect to the New Ascent
Credit Facility, including (i) commitment fees of 0.50% on the unused portion of
the commitment, and (ii) agent, arrangement and other similar fees.
COVENANTS
The New Ascent Credit Facility will prohibit the Company from, among other
things: (i) having a ratio of Annualized EBITDA (as defined) to Cash Interest
Expense (as defined) of less than 1.10:1 beginning July 1, 2000, increasing to
1.25:1 at July 1, 2001 and (ii) having a minimum adjusted EBITDA of less than
certain specified amounts calculated on a rolling four quarter basis, and taking
into account available cash, availability under the New Ascent Credit Facility
and cash interest (as defined therein) which minimum will be eliminated on July
1, 2000. In addition, the New Ascent Credit Facility contains certain
restrictions on the Company and its subsidiaries with respect to, among other
things, incurring additional indebtedness, the making of loans and investments,
the creation of liens, certain asset sales, dividends, the making of interest
rate protection agreements, distributions or stock repurchases, payment of
management fees, transactions with affiliates, mergers and changes in the
business of the Company. With respect to gross film inventory on the balance
sheet of the Company and its consolidated subsidiaries, such film inventory
shall not exceed $60 million at any time, less the sum of (i) deferred revenues
associated with such film inventory plus (ii) contractually guaranteed
pre-sales; provided, that the $60 million limitation shall be adjusted quarterly
by increasing or decreasing such number by Film Cash Flow (as defined therein).
The New Ascent Credit Facility also contains customary events of default. In
addition it will be an event of default if (i) there is a default under any
Pepsi Center or Beacon financing, (ii) NHL or NBA franchises are sold for
consideration below certain specified amounts and (iii) the Pepsi Center is not
open and completed by December 31, 1999.
NEW OCC CREDIT FACILITY
In November 1997, OCC, various lenders and NationsBank of Texas, N.A., as
Agent, entered into the New OCC Credit Facility replacing the Existing OCC
Credit Facility. The New OCC Credit Facility is a revolving credit facility with
an initial commitment of $200 million. The maturity of the New OCC Credit
Facility is in five years and all amounts outstanding thereunder will be due on
such date.
MANDATORY PREPAYMENT
The New OCC Credit Facility requires OCC to prepay and permanently reduce
the commitment thereunder whenever OCC receives net cash proceeds from asset
dispositions (other than through a sale of hotel contracts and related assets
for its hotel customers outside the United States) which, together with net cash
proceeds received from prior asset dispositions, exceeds 15% of OCC's
consolidated tangible assets (as defined under GAAP). Prepayments and commitment
reductions will be in the amount of such excess net cash proceeds above 15% of
such assets.
SECURITY
The New OCC Credit Facility is unsecured. The facility contains a negative
pledge on all the assets of OCC and its subsidiaries and a prohibition against
providing others a negative pledge on all of such assets.
INTEREST
At OCC's option, the interest rates per annum applicable to the New OCC
Credit Facility will be a fluctuating rate of interest equal to either (i) an
adjusted LIBOR plus a borrowing margin or (ii) the greater of the Federal Funds
Effective Rate plus 1/2% and the Prime Rate of NationsBank. The applicable
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borrowing margin for LIBOR borrowings will range 0.375% to 0.75%, based upon
OCC's ratio of total debt to EBITDA.
FEES
OCC has agreed to pay certain fees with respect to the New OCC Credit
Facility including (i) commitment fees of 0.25% or 0.1875% on the unused portion
of the commitment, based on the ratio of total debt to EBITDA and (ii) agent,
arrangement and other similar fees.
COVENANTS
The New OCC Credit Facility prohibits OCC from, among other things: (i)
having a ratio of total consolidated debt to EBITDA of more than 3.00:1 from the
closing of the facility to December 31, 1999 and 2.50:1 thereafter and (ii)
having a ratio of consolidated EBITDA to consolidated cash interest expense of
less than 4.00:1. In addition, the New OCC Credit Facility contains certain
restrictions on OCC and its subsidiaries with respect to, among other things,
incurring additional subsidiary indebtedness, issuance of subsidiary preferred
stock, the making of loans and investments, dividends, stock redemptions, the
creation of liens, certain asset sales, sale/lease back transactions,
transactions with affiliates, mergers, acquisitions and changes in the business
of the Company and amendments to agreements and organizational documents in a
manner that would be material and adverse to the OCC lender. The New OCC Credit
Facility also contains customary events of default. In addition it will be an
event of default if (i) any party owns more OCC common stock than Ascent or (ii)
Ascent no longer controls the OCC Board of Directors.
PROPOSED ARENA NOTES
The Arena Company has engaged Bear, Stearns & Co., Inc. ("Bear Stearns") as
placement agent with respect to the proposed sale of the Arena Notes. Management
and Bear Stearns anticipate that the Arena Notes will be sold in the form of
first mortgage bonds in the aggregate amount of $100 to $130 million, with a
term of from 20 to 25 years.
SECURITY; NO GUARANTIES
The obligations of the Arena Company under the Arena Notes are expected to
be secured by a first priority pledge of, and lien on, all of the assets of the
Arena Company, including, without limitation, the Pepsi Center, all related
fixtures and furnishings, all rights of the Arena Company under contracts to
which the Arena Company is a party and in the leasehold mortgage of the Arena
Company's rights as lessee in the land which will be contributed to the City and
leased back to the Arena Company. The Arena Notes are expected to be, and under
the terms of the Notes are required to be, non-recourse to Ascent or any of its
other subsidiaries, and thus the Arena Notes should not be guaranteed by Ascent
or any of its other subsidiaries.
COVENANTS; DEFAULTS
The terms of the Arena Notes are expected to contain certain restrictions on
the Arena Company with respect to, among other things, incurring additional
indebtedness, the making of loans and investments, the creation of liens, asset
sales, dividends or distributions unless certain debt service coverage ratios
are met, payment of management fees, transactions with affiliates, mergers and
changes in the business of the Arena Company. The Arena Notes are also expected
to contain customary events of default, including, but not limited to payment,
misrepresentation, covenant compliance, bankruptcy and judgment.
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DESCRIPTION OF THE EXCHANGE SENIOR NOTES
For purposes of this section entitled "Description of the Exchange Senior
Notes," all references to "Senior Notes" herein shall mean the Senior Notes and
the Exchange Senior Notes, collectively.
GENERAL
The Senior Notes offered hereby will be issued under an indenture dated as
of December 22, 1997 (the "Indenture") among the Company, as issuer, and The
Bank of New York, as trustee (the "Trustee"), a copy of which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
Upon the issuance of the Exchange Senior Notes, if any, or the effectiveness the
Shelf Registration Statement (as defined herein), the Indenture will be subject
to and governed by the Trust Indenture Act of 1939, as amended. The following
summary of the material provisions of the Indenture does not purport to be
complete and is subject to, and qualified in its entirety by, reference to the
provisions of the Indenture, including the definitions of certain terms
contained therein and those terms made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended. For definitions of certain capitalized
terms used in the following summary, see "Certain Definitions" below.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes will mature on December 15, 2004, will initially be limited
to $225 million aggregate principal amount at maturity and will be senior
secured obligations of the Company. The Senior Notes will be issued at a
discount to their aggregate principal amount at maturity and will generate gross
proceeds to the Company of approximately $126,664,000. Based on the issue price
thereof, the yield to maturity of the Senior Notes is 11 7/8% (computed on a
semi-annual bond equivalent basis), calculated from December 22, 1997. For
federal income tax purposes, original issue discount, taxable as ordinary
income, will be recognized by the holders of the Senior Notes annually in
advance of the receipt of cash in respect thereof. See "Certain Federal Income
Tax Consequences."
Cash interest will not accrue on the Senior Notes prior to December 15,
2002. Thereafter, cash interest on the Senior Notes will accrue at a rate of
11 7/8% per annum from December 15, 2002 or from the most recent interest
payment date to which interest has been paid or duly provided for, payable
semiannually in arrears on June 15 and December 15 in each year, commencing June
15, 2003, until the principal thereof is paid or duly provided for, to the
person in whose name the Senior Note (or any predecessor Senior Note) is
registered at the close of business on the May 31 or November 30 next preceding
such interest payment date. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
The principal of and premium, if any, and interest on the Senior Notes will
be payable, and the Senior Notes will be exchangeable and transferable, at the
office or agency of the Company in The City of New York maintained for such
purposes (which initially will be the office of the Trustee located at 101
Barclay Street, New York, New York 10286) or, at the option of the Company,
interest may be paid by check mailed to the address of the person entitled
thereto as such address appears in the security register; PROVIDED that all
payments with respect to Global Senior Notes and Certificated Senior Notes (as
such terms are defined below under "Book Entry, Delivery and Form"), the holders
of which have given wire transfer instructions to the Company will be required
to be made by wire transfer of immediately available funds to the accounts
specified by the holders thereof. The Senior Notes will be issued only in
registered form without coupons and only in denominations of $1,000 and any
integral multiple thereof. No service charge will be made for any registration
of transfer or exchange or redemption of Senior Notes, but the Company may
require payment in certain circumstances of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection therewith.
As of the Closing Date, all of the Company's Subsidiaries will be Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current or future Subsidiaries (other
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than the Arena Company, Ascent Arena and Development Corporation, Ascent Sports,
Inc., the Avalanche, the Nuggets, Beacon and its subsidiaries and, except as
provided in clause (ii) of the definition of "Restricted Subsidiary," OCC and
its subsidiaries (but not its foreign subsidiaries) and the successors to any of
the foregoing) as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants set forth in the Indenture.
Senior Notes that remain outstanding after the consummation of the Exchange
Offer and Exchange Senior Notes issued in connection with the Exchange Offer
will be treated as a single class of securities under the Indenture.
The Senior Notes will not be entitled to the benefit of any sinking fund.
RANKING
The Senior Notes will be senior secured (to the extent described under
"--Security" below) obligations of the Company and will rank PARI PASSU in right
of payment with all other existing and future senior obligations of the Company.
Loans under the New Ascent Credit Facility will be secured by perfected first
priority pledges of, and liens on, the Capital Stock of all the Subsidiaries of
the Company (other than the Capital Stock of OCC and its Subsidiaries) and liens
on the assets of ANS. Accordingly, while the Senior Notes rank PARI PASSU in
right of payment with the loans under the New Ascent Credit Facility, the Senior
Notes will be effectively subordinated to the loans outstanding under the New
Ascent Credit Facility to the extent of the value of the stock and assets
securing such loans. The Senior Notes will also be structurally subordinated to
all liabilities, including trade payables, and preferred stockholders (if any)
of the Company's Subsidiaries. As of September 30, 1997, on an as adjusted basis
after giving effect to the Offering and the use of proceeds therefrom, the
Company would have had approximately $254 million of consolidated indebtedness,
of which $127 million would have been senior secured debt and $127 million would
have been indebtedness of OCC. Subject to certain limitations, the Company and
its Restricted Subsidiaries may incur additional Indebtedness in the future. The
Company will be dependent upon access to cash flows or assets of its
Subsidiaries to make payments on the Senior Notes and the Company's ability to
obtain such access may be limited by law. See "Risk Factors--General--Structural
Subordination; Restrictions on Payments by Subsidiaries; Asset Encumbrances."
SECURITY
The Company and the Trustee have entered into a Pledge Agreement (the
"Pledge Agreement") pursuant to which the Senior Notes will be secured by a
first priority pledge of all of the Capital Stock of OCC owned by the Company as
of the date of the Indenture together with any such Capital Stock acquired by
the Company thereafter (the "Pledged Stock"), together with profits and proceeds
therefrom and property received with respect to the Pledged Stock in addition
thereto, in exchange for or in substitution therefor (collectively, the
"Collateral"). So long as no Event of Default has occurred and is continuing,
the Company will be entitled to receive and retain cash dividends and other cash
distributions on any of the Pledged Stock and will be entitled to vote the
Pledged Stock. Upon the occurrence of an Event of Default, the Trustee can vote
the Pledged Stock. In addition, upon an Event of Default, the Trustee can
realize upon and sell or otherwise dispose of all or any part of the Collateral
and will apply the proceeds of any sale or disposition, first to the payment of
costs and expenses of sale, second to amounts due to the Trustee, third to the
payment in full of all amounts due and unpaid on the Senior Notes and, finally,
any surplus to the Company or the applicable pledgor or to whomever may be
lawfully entitled to receive such surplus. The Senior Notes are not secured by
any lien on, or other security interest in, any other properties or assets of
the Company or any other properties or assets of any Restricted Subsidiary. The
security interest in the Collateral will not alter the effective subordination
of the Senior Notes to the creditors of OCC. The Collateral may only be sold and
the security interest therein may only be released in compliance with the
provisions of the covenant described below under "Repurchase at the Option of
Holders--Sale of Collateral or Loss of Control of OCC Board."
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OPTIONAL REDEMPTION
The Senior Notes will not be redeemable at the Company's option prior to
December 15, 2001. Thereafter, the Senior Notes will be redeemable, at the
option of the Company, as a whole or from time to time in part, on not less than
30 nor more than 60 days' prior notice (i) at the following redemption price
(expressed as a percentage of Accreted Value) together with accrued interest, if
any, to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on an interest payment date), if
redeemed during the 12-month period beginning on December 15, 2001:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2001........................................................................ 105.9375%
</TABLE>
and (ii) at the following Redemption Prices (expressed as percentages of
principal amount) together with accrued interest, if any, to the redemption date
(subject to the right of holders of record on the relevant record date to
receive interest due on an interest payment date), if redeemed during the
12-month period beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2002........................................................................ 102.9688%
2003 and thereafter......................................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, at any time or from time to time prior to
December 15, 2000, the Company may redeem, on one or more occasions, up to 35%
of the originally issued principal amount at maturity of the Senior Notes with
the net proceeds of one or more Equity Offerings at a redemption price equal to
111 7/8% of the Accreted Value thereof, plus accrued interest, if any, to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on an interest payment date); PROVIDED that,
immediately after giving effect to such redemption, at least 65% of the
originally issued principal amount at maturity of the Senior Notes remains
outstanding; and PROVIDED FURTHER that such redemptions shall occur within 45
days of the date of closing of each Equity Offering.
If less than all the Senior Notes are to be redeemed, the particular Senior
Notes to be redeemed will be selected not more than 60 days prior to the
redemption date by the Trustee by such method as the Trustee deems fair and
appropriate, PROVIDED that no Senior Note of $1,000 in principal amount at
maturity or less shall be redeemed in part. If any Senior Note is to be redeemed
in part only, the notice of redemption relating to such Senior Note shall state
the portion of the principal amount to be redeemed. A new Senior Note in
principal amount at maturity equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Senior Note.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs at any time, then each holder of Senior Notes
will have the right to require that the Company purchase such holder's Senior
Notes in whole or in part in integral multiples of $1,000, at a purchase price
in cash equal to (i) 101% of the Accreted Value of such Senior Notes, if the
Change of Control Payment Date is on or before December 15, 2002, and (ii) 101%
of the aggregate principal amount at maturity of the Senior Notes, plus accrued
and unpaid interest, if any, thereon to the date of purchase, if the Change of
Control Payment Date is after December 15, 2002, pursuant to the offer described
below (the "Change of Control Offer") and the other procedures set forth in the
Indenture.
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Within 30 days following any Change of Control, the Company will notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Senior Notes by first-class mail, postage prepaid, at its address appearing
in the security register, stating, among other things, (i) the purchase price
and the purchase date, which will be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed or such later date as is
necessary to comply with requirements under the Exchange Act; (ii) that any
Senior Note not tendered will continue to accrue interest; (iii) that, unless
the Company defaults in the payment of the purchase price, any Senior Notes
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest after the Change of Control purchase date; and (iv) certain
other procedures that a holder of Senior Notes must follow to accept a Change of
Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Senior Notes that might be tendered by holders of the Senior Notes
seeking to accept the Change of Control Offer. The failure of the Company to
make or consummate the Change of Control Offer or pay the applicable Change of
Control purchase price when due would result in an Event of Default and would
give the Trustee and the holders of the Senior Notes the rights described under
"Events of Default."
One of the events that constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of the Company's assets. This
term has not been interpreted under New York law (which is the governing law of
the Indenture) to represent a specific quantitative test. As a consequence, in
the event holders of the Senior Notes elect to require the Company to purchase
the Senior Notes and the Company elects to contest such election, there can be
no assurance as to how a court interpreting New York law would interpret the
phrase in many circumstances.
The existence of a holder's right to require the Company to purchase such
holder's Senior Notes upon a Change of Control may deter a third party from
acquiring the Company in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Senior Notes the right
to require the Company to repurchase such Senior Notes in the event of a highly
leveraged transaction or certain transactions with the Company's management or
its affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect holders of the Senior Notes, if such transaction is not a transaction
defined as a Change of Control. See "Certain Definitions" below for the
definition of "Change of Control". A transaction involving the Company's
management or its affiliates, or a transaction involving a recapitalization of
the Company, would result in a Change of Control if it is the type of
transaction specified in such definition.
The Company will comply with the applicable tender offer rules including
Rule-14e under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer, and any violation of
the provisions of the Indenture relating to such Change of Control Offer
occurring as a result of such compliance shall not be deemed an Event of Default
or an event that, with the passage of time or the giving of notice, would
constitute an Event of Default.
In addition to the obligations of the Company under the Indenture with
respect to the Senior Notes in the event of a "Change of Control," the New
Ascent Credit Facility also contains an event of default upon a "Change of
Control" as defined therein which obligates the Company to repay amounts
outstanding under the New Ascent Credit Facility upon an acceleration of the
indebtedness thereunder and entitles the lenders thereunder to exercise the
remedies available to a secured lender under applicable law and pursuant to the
terms of the New Ascent Credit Facility. Accordingly, any claims of such lenders
with respect to the assets of the Company that secure the obligations under the
New Ascent Credit Facility will be prior to any claims of the holders of the
Senior Notes with respect to such assets.
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<PAGE>
ASSET SALES
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale (other than a Collateral Sale governed by the
provisions of "--Sale of Collateral and Loss of Control of OCC Board") unless
(i) the consideration received by the Company or such Restricted Subsidiary for
such Asset Sale is not less than the fair market value of the assets sold (as
determined by the Board of Directors of the Company (or, in the case of an Asset
Sale by OCC, by the Board of Directors of OCC), whose good faith determination
will be conclusive) and (ii) the consideration received by the Company or the
relevant Restricted Subsidiary in respect of such Asset Sale consists of at
least 85% cash or Cash Equivalents.
If the Company or any Restricted Subsidiary engages in any such Asset Sale,
the Company may, at its option, within 12 months after such Asset Sale, (i)
apply all or a portion of the Net Cash Proceeds to the permanent reduction of
amounts outstanding under the Bank Credit Facilities or to the permanent
reduction of other senior Indebtedness of the Company or a Restricted Subsidiary
or (ii) invest (or enter into a legally binding agreement to invest) all or a
portion of such Net Cash Proceeds in properties and assets to replace the
properties and assets that were the subject of the Asset Sale or in properties
and assets of a nature or type or that will be used in a business similar or
related to the nature or type of the properties and assets of or the business of
the Company or its Restricted Subsidiaries, as the case may be, existing on the
Issue Date. If any such legally binding agreement to invest such Net Cash
Proceeds is terminated, the Company may, within 90 days of such termination or
within 12 months of such Asset Sale, whichever is later, invest such Net Cash
Proceeds as provided in clause (i) or (ii) (without regard to the parenthetical
contained in such clause (ii)) above. The amount of such Net Cash Proceeds not
so used as described in this paragraph constitutes "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5 million, the Company
will, within 30 days thereafter, make an offer to purchase Senior Notes from all
holders of Senior Notes, on a pro rata basis, in accordance with the procedures
set forth in the Indenture, at a purchase price in cash equal to (i) 100% of the
Accreted Value thereof, on the date of purchase, if such purchase date is on or
before December 15, 2002, and (ii) 100% of the aggregate principal amount at
maturity of the Senior Notes, plus accrued interest, if any, to the date such
offer to purchase is consummated, if such date of purchase is after December 15,
2002. To the extent that the aggregate Accreted Value and/or principal amount at
maturity of Senior Notes tendered pursuant to such offer to purchase is less
than the Excess Proceeds, the Company may use the remaining Excess Proceeds for
general corporate purposes. If the aggregate Accreted Value and/or principal
amount at maturity of Senior Notes validly tendered and not withdrawn by holders
thereof exceeds the Excess Proceeds, the Senior Notes to be purchased will be
selected on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds will be reset to zero.
SALE OF COLLATERAL OR LOSS OF CONTROL OF OCC BOARD
(a) The Company will not sell, assign, convey, transfer or otherwise dispose
of any of the Pledged Stock (a "Collateral Sale") unless each of the following
conditions is complied with:
(i) no Default shall have occurred and be continuing;
(ii) the aggregate gross consideration received by the Company for such
Pledged Stock is not less than the Current Market Price per share of Common
Stock of OCC determined as of the date of such sale;
(iii) the consideration received by the Company in respect of such
Pledged Stock consists of at least 85% cash or Cash Equivalents;
(iv) the Net Cash Proceeds from the sale of such Pledged Stock are paid
in full directly to the Trustee and are received by the Trustee free of any
Lien (other than the Lien of the Indenture); and
(v) the Company shall have complied with the other provisions of the
Indenture applicable to such sale.
The Company must apply the Net Cash Proceeds from such Collateral Sale as
described below under paragraph (b).
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(b) In the event that (i) the Company engages in a Collateral Sale permitted
under the foregoing paragraph (a) or (ii) the nominees of the Company elected to
the Board of Directors of OCC cease for any reason to constitute a majority of
the Board of Directors of OCC (each, a "Repurchase Offer Triggering Event"), the
Company shall be required to make an offer, within thirty Business Days after
the occurrence of such Repurchase Offer Triggering Event, to repurchase the
Senior Notes in whole in accordance with the procedures set forth in the
Indenture, at the following repurchase prices: (A) if the date of such
repurchase occurs on or prior to December 15, 2002, at a repurchase price equal
to the sum of the Accreted Value of the Senior Notes as of the repurchase date,
plus the Applicable Premium; or (B) if the date of such repurchase occurs after
December 15, 2002, at the redemption price then applicable under the provisions
of "Optional Redemption." In the case where the Repurchase Offer Triggering
Event is a Collateral Sale, upon the expiration of the offer to purchase Senior
Notes made by the Company pursuant to this paragraph (b), any Net Cash Proceeds
from the Collateral Sale not applied to the repurchase of Senior Notes tendered
by holders thereof may be retained by the Company, free of the Lien of the
Indenture and the Pledge Agreement. In the case where the Repurchase Offer
Triggering Event is the event described in clause (ii) of the first sentence of
this paragraph (b), upon the expiration of the offer to purchase Senior Notes
made by the Company pursuant to this paragraph (b), the Pledged Stock shall be
released from the security interest represented by the Pledge Agreement.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, take any of the following actions:
(a) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Capital Stock of the Company or any Restricted
Subsidiary, other than (i) dividends or distributions payable solely in
Qualified Equity Interests, (ii) dividends or distributions by a Restricted
Subsidiary payable to the Company or another Restricted Subsidiary, (iii)
pro rata dividends or distributions on common stock of Restricted
Subsidiaries (other than OCC) held by minority stockholders, provided that
such dividends do not in the aggregate exceed the minority stockholders' pro
rata share of such Restricted Subsidiaries' net income from the first day of
the Company's fiscal quarter during which the Issue Date occurs or (iv) pro
rata dividends or distributions on the common stock of OCC held by minority
stockholders out of legally available funds, PROVIDED that the aggregate
amount of any such dividends or distributions together with all other
Restricted Payments made by OCC since the Issue Date does not exceed an
amount equal to the excess, if any, of (A) Cumulative OCC EBITDA over (B)
the product of (x) Cumulative OCC Fixed Charges times (y) 1.5;
(b) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of Capital Stock, or any options, warrants or
other rights to acquire such shares of Capital Stock, of the Company, any
Restricted Subsidiary or any Affiliate of the Company (other than, in either
case, any such Capital Stock owned by the Company or any of its Restricted
Subsidiaries), other than (i) the redemption or retirement for value of any
stock appreciation rights with respect to the Company's Common Stock
outstanding as of the date of the Indenture and (ii) purchases, redemptions,
acquisitions or retirements for value of any shares of Capital Stock of OCC
or any options, warrants or other rights to acquire such shares of Capital
Stock, PROVIDED that the aggregate amount of any such purchases,
redemptions, acquisitions or retirements together with all other Restricted
Payments made by OCC since the Issue Date does not exceed an amount equal to
the excess, if any, of (A) Cumulative OCC EBITDA over (B) the product of (x)
Cumulative OCC Fixed Charges times (y) 1.5;
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
and
(d) make any Investment (other than a Permitted Investment) in any
Person (such payments or other actions described in (but not excluded from)
clauses (a) through (d) being referred to as
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"Restricted Payments"), unless at the time of, and immediately after giving
effect to, the proposed Restricted Payment:
(i) no Default or Event of Default has occurred and is continuing,
(ii) the Company could incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph of the covenant described under
"--Incurrence of Indebtedness and Issuance of Preferred Stock," and
(iii) the aggregate amount of all Restricted Payments made after the
Issue Date does not exceed the sum of:
(A) 50% of the aggregate Consolidated Adjusted Net Income of the
Company during the period (taken as one accounting period) from the first
day of the Company's fiscal quarter during which the Issue Date occurs to
the last day of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Adjusted Net Income is a loss, minus 100% of such amount),
plus
(B) the aggregate net cash proceeds received by the Company after the
Issue Date from the issuance or sale (other than to a Subsidiary) of
either (1) Qualified Equity Interests of the Company (excluding from this
computation proceeds of an Equity Offering received by the Company that
are used by it to redeem Senior Notes as discussed above) or (2) debt
securities or Disqualified Stock that have been converted into or
exchanged for Qualified Stock of the Company, together with the aggregate
net cash proceeds received by the Company at the time of such conversion
or exchange, plus
(C) an amount equal to the net reduction in Investments by the
Company and its Restricted Subsidiaries, subsequent to the date of the
Indenture, resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances or other transfers of assets,
in each case to the Company or any such Restricted Subsidiary or from the
Net Cash Proceeds from the sale of any such Investment, or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), but
only to the extent such amounts are not included in the calculation of
Adjusted Consolidated Net Income and not to exceed in the case of any
Investment the amount of the Investment previously made by the Company or
any Restricted Subsidiary in such Person or Unrestricted Subsidiary.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may take the following actions, so long as no Default or Event of Default has
occurred and is continuing or would occur:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would not have
been prohibited by the foregoing provisions;
(b) the repurchase, redemption or other acquisition or retirement for
value of any Qualified Equity Interests of the Company, in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, Qualified Equity Interests of the Company;
(c) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, shares of Qualified Equity Interests of the
Company;
(d) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or out of
the net cash proceeds of a substantially concurrent issuance or sale (other
than to a Restricted Subsidiary) of, Subordinated Indebtedness, so long as
the Company or a Restricted Subsidiary would be permitted to refinance such
original Subordinated Indebtedness with such new Subordinated Indebtedness
pursuant to clause (xii) of the definition of Permitted Indebtedness;
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(e) the repurchase of any Subordinated Indebtedness at a purchase price
not greater than 101% of the principal amount of such Subordinated
Indebtedness in the event of a change of control in accordance with
provisions similar to the covenant described above under the caption
"Repurchase at the Option of Holders--Change of Control"; PROVIDED that,
prior to or simultaneously with such repurchase, the Company has made the
Change of Control Offer as provided in such covenant with respect to the
Senior Notes and has repurchased all Senior Notes validly tendered for
payment in connection with such Change of Control Offer;
(f) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company, options on
any such shares or related stock appreciation rights or similar securities
issued after the date of the Indenture which are held by directors, officers
or employees or former directors, officers or employees (or their estates or
beneficiaries under their estates) or by any employee benefit plan, upon
death, disability, retirement or termination of employment or pursuant to
the terms of any employee benefit plan or any other agreement under which
such shares of stock or related rights were issued; PROVIDED that the
aggregate cash consideration paid for such purchase, redemption,
acquisition, cancellation or other retirement of such shares of Capital
Stock, options, stock appreciation rights or similar securities after the
Issue Date does not exceed $500,000 in any fiscal year;
(g) loans or advances to officers, directors and employees of the
Company or any of its Restricted Subsidiaries made in the ordinary course of
business after the date of the initial issuance of the Senior Notes in an
amount not to exceed $2 million in the aggregate at any one time
outstanding;
(h) Investments acquired in exchange for Qualified Equity Interests of
OCC issued by OCC;
(i) dividends, distributions, or repayment of capital contributions by
the Arena Company to its unaffiliated members in accordance with the terms
of the Operating Agreement of the Arena Company as in effect on the date of
the Indenture; and
(j) the making of any Investment by the Company in the Arena Company for
the purpose of funding the construction of the Pepsi Center prior to the
sale of the Arena Notes, or as required by the purchasers of the Arena
Notes, in any event not to exceed $50 million in the aggregate, including
amounts invested as of the Issue Date.
The actions described in clauses (b), (c), (e), (f), (g), (h), (i) and (j)
of this second paragraph of the covenant entitled "--Restricted Payments" will
be Restricted Payments that will be permitted to be taken in accordance with
this paragraph but will reduce the amount that would otherwise be available for
Restricted Payments under clause (iii) of the first paragraph of this covenant
and the actions described in clauses (a) and (d) of this paragraph will be
Restricted Payments that will be permitted to be taken in accordance with this
paragraph and will not reduce the amount that would otherwise be available for
Restricted Payments under clause (iii) of the first paragraph of this covenant.
For the purpose of making any calculations under the Indenture (i) if a
Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company will
be deemed to have made an Investment in an amount equal to the fair market value
of the net assets of such Restricted Subsidiary at the time of such designation
as determined by the Board of Directors of the Company, whose good faith
determination will be conclusive, (ii) any property transferred to or from an
Unrestricted Subsidiary will be valued at fair market value at the time of such
transfer, as determined by the Board of Directors of the Company, whose good
faith determination will be conclusive and (iii) subject to the foregoing, the
amount of any Restricted Payment, if other than cash, will be determined by the
Board of Directors of the Company, whose good faith determination will be
conclusive. Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officer's Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant described under "--Restricted Payments"
were computed.
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If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment in an Unrestricted Subsidiary or
other person that thereafter becomes a Restricted Subsidiary, the aggregate
amount of all Restricted Payments calculated under the foregoing provision will
be reduced by the lesser of (x) the net asset value of such Subsidiary at the
time it becomes a Restricted Subsidiary and (y) the initial amount of such
Investment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise), to the extent such net reduction is not included in the
Company's Consolidated Adjusted Net Income; PROVIDED that the total amount by
which the aggregate amount of all Restricted Payments may be reduced may not
exceed the lesser of (x) the cash proceeds received by the Company and its
Restricted Subsidiaries in connection with such net reduction and (y) the
initial amount of such Investment.
In computing the Consolidated Adjusted Net Income of the Company for
purposes of clause (iii)(A) of the first paragraph of this covenant, (i) the
Company may use audited financial statements for the portions of the relevant
period for which audited financial statements are available on the date of
determination and unaudited financial statements and other current financial
data based on the books and records of the Company for the remaining portion of
such period and (ii) the Company will be permitted to rely in good faith on the
financial statements and other financial data derived from its books and records
that are available on the date of determination. If the Company makes a
Restricted Payment that, at the time of the making of such Restricted Payment,
would in the good faith determination of the Company be permitted under the
requirements of the Indenture, such Restricted Payment will be deemed to have
been made in compliance with the Indenture notwithstanding any subsequent
adjustments made in good faith to the Company's financial statements affecting
Consolidated Adjusted Net Income of the Company for any period.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Company will not, and will not permit any Restricted Subsidiary to,
create, issue, assume, guarantee or in any manner become directly or indirectly
liable for the payment of, or otherwise incur (collectively, "incur"), any
Indebtedness (including Acquired Indebtedness and the issuance of Disqualified
Stock), except that (x) the Company may incur Indebtedness if, at the time of
such event, the Fixed Charge Coverage Ratio for the immediately preceding four
full fiscal quarters for which internal financial statements are available,
taken as one accounting period, would have been equal to at least 2.0 to 1.0 and
(y) OCC may incur Indebtedness if, at the time of such event, the OCC Fixed
Charge Coverage Ratio for the immediately preceding four full fiscal quarters
for which internal financial statements are available, taken as one accounting
period, would have been equal to at least 2.0 to 1.0.
In making the foregoing calculation for any four-quarter period that
includes the Issue Date, pro forma effect will be given to the Offering, as if
such transactions had occurred at the beginning of such four-quarter period. In
addition (but without duplication), in making the foregoing calculation, pro
forma effect will be given to: (i) the incurrence of such Indebtedness and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred and the
application of such proceeds occurred at the beginning of such four-quarter
period, (ii) the incurrence, repayment or retirement of any other Indebtedness
by the Company or its Restricted Subsidiaries since the first day of such
four-quarter period as if such Indebtedness was incurred, repaid or retired at
the beginning of such four-quarter period and (iii) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by the
Company or its Restricted Subsidiaries, as the case may be, since the first day
of such four-quarter period, as if such acquisition or disposition occurred at
the beginning of such four-quarter period. In making a computation under the
foregoing clause (i) or (ii), (A) the amount of Indebtedness
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under a revolving credit facility will be computed based on the average daily
balance of such Indebtedness during such four-quarter period, (B) if such
Indebtedness bears, at the option of the Company, a fixed or floating rate of
interest, interest thereon will be computed by applying, at the option of the
Company, either the fixed or floating rate and (C) the amount of any
Indebtedness that bears interest at a floating rate will be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Hedging Obligations applicable to such
Indebtedness if such Hedging Obligations have a remaining term at the date of
determination in excess of 12 months).
Notwithstanding the foregoing, the Company may, and may permit its
Restricted Subsidiaries to, incur the following Indebtedness ("Permitted
Indebtedness"):
(i) Indebtedness of the Company or any Restricted Subsidiary under the
Bank Credit Facilities or one or more other credit facilities (and the
incurrence by any Restricted Subsidiary of guarantees thereof) in an
aggregate principal amount at any one time outstanding not to exceed $275
million, less any amounts applied to the permanent reduction of such credit
facilities pursuant to the provisions of the covenant described above under
the caption "Repurchase at the Option of Holders--Asset Sales";
(ii) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date and listed on a schedule to the Indenture
(other than Indebtedness described under clause (i) above);
(iii) Indebtedness owed by the Company to any Wholly Owned Restricted
Subsidiary or owed by any Restricted Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary (provided that such Indebtedness is held by the
Company or such Restricted Subsidiary); PROVIDED, HOWEVER, that any
Indebtedness of the Company owing to any such Restricted Subsidiary is
unsecured and subordinated in right of payment from and after such time as
the Senior Notes shall become due and payable (whether at Stated Maturity,
acceleration, or otherwise) to the payment and performance of the Company's
obligations under the Senior Notes;
(iv) Indebtedness pursuant to the Senior Notes;
(v) Indebtedness of the Company or any Restricted Subsidiary under
Hedging Obligations incurred in the ordinary course of business;
(vi) Indebtedness of the Company or any Restricted Subsidiary consisting
of guarantees, indemnities or obligations in respect of purchase price
adjustments in connection with the acquisition or disposition of assets,
including, without limitation, shares of Capital Stock;
(vii) either (A) Capitalized Lease Obligations of the Company or any
Restricted Subsidiary or (B) Indebtedness under purchase money mortgages or
secured by purchase money security interests so long as (x) such
Indebtedness is not secured by any property or assets of the Company or any
Restricted Subsidiary other than the property and assets so acquired and (y)
such Indebtedness is created within 60 days of the acquisition of the
related property; provided that aggregate amount of Indebtedness under
clauses (A) and (B) does not exceed 5.0% of Consolidated Tangible Assets at
any one time outstanding;
(viii) Guarantees by any Restricted Subsidiary made in accordance with the
provisions of the covenant described under "--Guarantees of Indebtedness by
Restricted Subsidiaries";
(ix) So long as there exists no Default or Event of Default both before
and after giving effect to the incurrence of such Indebtedness, Non-Recourse
Arena Financing, in an aggregate amount not to exceed $130 million, plus
capitalized interest which accrues after incurring such Non-Recourse Arena
Financing and prior to the date the Indebtedness represented thereby
commences to pay cash interest;
(x) So long as there exists no Default or Event of Default before and
after giving effect to the incurrence of such Indebtedness, Non-Recourse
Film Indebtedness;
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(xi) Indebtedness of the Company not permitted by any other clause of
this definition, in an aggregate principal amount not to exceed $5 million
at any one time outstanding; and
(xii) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
outstanding Indebtedness, in whole or in part, other than Indebtedness
incurred pursuant to clause (i), (iii), (v), (vi), (vii), (ix), (x) or (xi)
of this definition, including any successive refinancings thereof, so long
as (A) any such new Indebtedness is in a principal amount that does not
exceed the principal amount so refinanced, plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing, plus
the amount of the expenses of the Company incurred in connection with such
refinancing, (B) in the case of any refinancing of Subordinated
Indebtedness, such new Indebtedness is made subordinate to the Senior Notes
at least to the same extent as the Indebtedness being refinanced and (C)
such refinancing Indebtedness does not have an Average Life less than the
Average Life of the Indebtedness being refinanced and does not have a final
scheduled maturity earlier than the final scheduled maturity, or permit
redemption at the option of the holder earlier than the earliest date of
redemption at the option of the holder, of the Indebtedness being
refinanced.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness outstanding or to be incurred meets the criteria of more
than one of the types of Indebtedness described in the above clauses, the
Company, in its sole discretion, may classify such item of Indebtedness and only
be required to include the amount and type of such Indebtedness in one of such
clauses.
LIENS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind on or against any of its properties or assets, including any shares of
stock or debt of any Restricted Subsidiary, whether owned at the Issue Date or
thereafter acquired, or any income, profits or proceeds therefrom, or assign or
otherwise convey any right to receive income thereon, unless (a) in the case of
any Lien securing Subordinated Indebtedness, the Senior Notes are secured by a
Lien on such property, assets or proceeds that is senior in priority to such
Lien and (b) in the case of any other Lien, the Senior Notes are equally and
ratably secured with the obligation or liability secured by such Lien.
Notwithstanding the foregoing, the Company may, and may permit any
Restricted Subsidiary to, incur the following Liens ("Permitted Liens"):
(i) Liens (other than Liens securing Indebtedness under the Bank Credit
Facilities) existing as of the Issue Date;
(ii) Liens on property or assets of the Company or any Restricted
Subsidiary securing Indebtedness under the Bank Credit Facilities or one or
more other credit facilities in a principal amount not to exceed the
principal amount of the outstanding Indebtedness permitted by clause (i) of
the definition of "Permitted Indebtedness";
(iii) Liens granted in favor of the Company or any Wholly Owned
Restricted Subsidiary;
(iv) Liens securing the Senior Notes or any guarantee entered into
pursuant to the covenant described under "--Guarantees of Indebtedness by
Restricted Subsidiaries";
(v) any interest or title of a lessor under any Capitalized Lease
Obligation that was not entered into in violation of the covenant described
under "--Incurrence of Indebtedness and Issuance of Preferred Stock";
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(vi) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by the Company or any Restricted Subsidiary; provided that such Lien does
not extend to any property or assets of the Company or any Restricted
Subsidiary other than the property and assets acquired in connection with
the incurrence of such Acquired Indebtedness;
(vii) Liens securing Hedging Obligations permitted to be incurred
pursuant to clause (v) of the definition of "Permitted Indebtedness";
(viii) Liens arising from purchase money mortgages and purchase money
security interests incurred in the ordinary course of the business of the
Company; provided that (A) the related Indebtedness is not secured by any
property or assets of the Company or any Restricted Subsidiary other than
the property and assets so acquired, (B) the Lien securing such Indebtedness
is created with 60 days of such acquisition and (C) the related Indebtedness
was not incurred in violation of the covenant described under "--Incurrence
of Indebtedness and Issuance of Preferred Stock";
(ix) statutory or common law Liens of landlords, carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in
the ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate proceedings and,
if required by GAAP, a reserve or other appropriate provision has been made
therefor;
(x) Liens for taxes, assessments, government charges or claims that are
being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted and, if required by GAAP, a reserve or other
appropriate provision has been made therefor;
(xi) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts for
the payment of money);
(xii) easements, rights-of-way, restrictions, municipal and zoning
ordinances and other similar charges or encumbrances, titled defects and
minor irregularities that do not interfere in any material respect with the
business of the Company or any Restricted Subsidiary incurred in the
ordinary course of business;
(xiii) Liens arising by reason of any judgment, decree or order of any
court, so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order have not been finally terminated or the period
within which such proceedings may be initiated has not expired;
(xiv) Liens granted by the Arena Company securing any permitted
Non-Recourse Arena Financing, but only to the extent such Liens are limited
to the realty, fixtures, equipment and other assets comprising the Pepsi
Center (including rights under contracts to which the Arena Company is a
party, such as as a lessor under leases relating thereto);
(xv) Liens granted by Beacon securing Non-recourse Film Indebtedness
permitted hereby, but only to the extent such Liens are limited and apply
only to the film negatives for the motion pictures financed with such
Indebtedness and any rights of the Company or the Restricted Subsidiaries or
the Company of ownership, distribution or exploitation of such motion
pictures;
(xvi) Liens incurred by the Arena Company in favor of the City in
connection with the Arena Agreement;
(xvii) Liens incurred or deposits made in connection with workers'
compensation, unemployment insurance and other types of social security;
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(xviii) Leases or subleases granted to others that do not materially
interfere with the business of the Company or any Restricted Subsidiary
incurred in the ordinary course of business, and Liens arising from filing
UCC statements in connection with such leases or subleases;
(xix) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (i) through (xviii); provided that
any such extension, renewal or replacement is no more restrictive in any
material respect than the Lien so extended, renewed or replaced and does not
extend to any additional property or assets.
Notwithstanding anything to the contrary herein, the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Lien of any kind, whether as a Permitted
Lien or otherwise, on or with respect to any of the Collateral or assign or
otherwise convey any right to receive income thereon, except for the Lien of the
Indenture and the Pledge Agreement.
DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make
any other distributions on or in respect of its Capital Stock, (b) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
loans or advances to the Company or any other Restricted Subsidiary or (d)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of:
(i) any agreement in effect on the Issue Date;
(ii) customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Restricted Subsidiary;
(iii) the refinancing or successive refinancing of Indebtedness incurred
under the agreements in effect on the Issue Date, so long as such
encumbrances or restrictions are no less favorable to the Company or any
Restricted Subsidiary than those contained in such original agreement;
(iv) any agreement or other instrument of a person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any person, or the properties or assets of
any person, other than the person, or the property or assets of the person,
so acquired;
(v) the Arena Agreement or the incurrence of Non-Recourse Arena
Financing;
(vi) the incurrence of Non-recourse Film Indebtedness;
(viii) customary restrictions on the assignment, transfer or subletting of
any properties or asset such as leases, licenses, contracts, or conveyances;
(ix) restrictions on the transfer or assignment of any properties or
assets agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, interfere
in any material respect with the rights of holders of the Senior Notes;
(x) secured Indebtedness otherwise permitted to be incurred pursuant to
the provisions of the covenant described above under "--Liens" the terms of
which limit the right of the debtor to dispose of the assets securing such
Indebtedness; or
(xi) with respect to a Restricted Subsidiary other than OCC, an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock, or properties or assets, of
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such Restricted Subsidiary, PROVIDED that the transaction contemplated
thereby shall be consummated not later than 90 days after the date of such
agreement.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not, in a single transaction or series of related
transactions, consolidate or merge with or into (whether or not the Company is
the surviving corporation), or directly and/or indirectly through its
Subsidiaries, sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Subsidiaries taken as a whole) in one or more
related transactions to, another corporation, person or entity unless:
(a) either (i) the Company is the surviving corporation or (ii) in the
case of a transaction involving the Company, the entity or the person formed
by or surviving any such consolidation or merger (if other than the Company)
or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (the "Surviving Entity") is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia and assumes all the obligations of the Company
under the Senior Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee;
(b) immediately after giving effect to such transaction and treating any
obligation of the Company in connection with or as a result of such
transaction as having been incurred as of the time of such transaction, no
Default or Event of Default has occurred and is continuing;
(c) the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could, immediately after such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, incur
at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the first paragraph of "--Incurrence of
Indebtedness and Issuance of Preferred Stock";
(d) if the Company is not the continuing obligor under the Indenture,
each Guarantor, unless it is the other party to the transaction described
above, has by supplemental indenture confirmed that its guarantee entered
into pursuant to the covenant described under "--Guarantees of Indebtedness
by Restricted Subsidiaries" applies to the Surviving Entity's obligations
under the Indenture and the Senior Notes;
(e) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of the covenant described under "--Liens" are complied with;
(f) immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth of the Company (or of the Surviving Entity
if the Company is not the continuing obligor under the Indenture) is equal
to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction; and
(g) the Company delivers, or causes to be delivered, to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an officers'
certificate and an opinion of counsel, each stating that such transaction
complies with the requirements of the Indenture.
The Indenture will provide that no Guarantor may consolidate with or merge
with or into any other person or convey, sell, assign, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any other person (other than the Company or another Guarantor) unless: (a)
subject to the provisions of the following paragraph, the person formed by or
surviving such consolidation or merger (if other than such Guarantor) or to
which such properties and assets are transferred assumes all of the obligations
of such Guarantor under the Indenture and its Guarantee, pursuant to a
supplemental
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indenture in form and substance satisfactory to the Trustee and (b) immediately
after giving effect to such transaction, no Default or Event of Default has
occurred and is continuing.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
In the event of any transaction described in and complying with the
conditions listed in the first paragraph of this covenant in which the Company
is not the continuing obligor under the Indenture, the Surviving Entity will
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and thereafter the Company will, except in the
case of a lease, be discharged from all its obligations and covenants under the
Indenture and Senior Notes.
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or suffer to exist any transaction with, or
for the benefit of, any Affiliate of the Company or any beneficial owner of 10%
or more of any class of the Capital Stock of the Company at any time outstanding
("Interested Persons"), unless (a) such transaction is on terms that are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that could have been obtained in a comparable arm's length transaction
with third parties who are not Interested Persons and (b) the Company delivers
to the Trustee (i) with respect to any transaction or series of related
transactions entered into after the Issue Date involving aggregate payments in
excess of $5 million, a resolution of the Board of Directors of the Company or
(in the case of a transaction involving OCC), a resolution of the Board of
Directors of OCC set forth in an officers' certificate certifying that such
transaction or transactions complies with clause (a) above and that such
transaction or transactions have been approved by the Board of Directors
(including a majority of the Disinterested Directors) of the Company or (in the
case of a transaction involving OCC) by the Board of Directors (including a
majority of the Disinterested Directors) of OCC and (ii) with respect to a
transaction or series of related transactions involving aggregate payments equal
to or greater than $10 million, a written opinion as to the fairness to the
Company or such Restricted Subsidiary of such transaction or series of
transactions from a financial point of view issued by an investment banking,
accounting or valuation firm of national standing.
The foregoing covenant will not restrict
(A) transactions among the Company and/or its Restricted Subsidiaries;
(B) the Company from paying reasonable and customary regular
compensation and fees to directors of the Company or any Restricted
Subsidiary who are not employees of the Company or any Restricted
Subsidiary; and
(C) transactions permitted by the provisions of the covenant described
under "--Restricted Payments."
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
The Company (a) will not permit any Restricted Subsidiary to issue any
Capital Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) will not, and will not permit any Restricted Subsidiary to,
transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any
Restricted Subsidiary to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary); provided, however, that this covenant will not prohibit
(i) the sale or other disposition of all, but not less than all, of the issued
and outstanding Capital Stock of a Restricted Subsidiary owned by the Company
and its Restricted Subsidiaries in compliance with the other provisions of the
Indenture, (ii) subject to
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compliance by the Company with the provisions of the covenant described above
under "Repurchase at the Option of Holders--Sale of Collateral or Loss of
Control of OCC Board" and other provisions of the Indenture, the issuance and
sale by OCC of any of its Common Stock (other than Disqualified Stock) to any
Person (other than to the Company or a Wholly Owned Restricted Subsidiary),
(iii) the ownership by directors of director's qualifying shares or the
ownership by foreign nationals of Capital Stock of any Restricted Subsidiary, to
the extent mandated by applicable law or (iv) issuances, sales, transfers or
conveyances of Qualified Equity Interests in a Restricted Subsidiary so long as
such sale complies with the provisions of the covenant described above under
"Repurchase at the Option of Holders--Asset Sales," and the Company applies the
Net Cash Proceeds from such transaction, if any, in accordance with such
covenant.
The Company will not permit any Restricted Subsidiary (other than OCC) to
issue any Preferred Stock.
PAYMENTS FOR CONSENT
The Indenture will provide that neither the Company nor any of its
Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
of any Senior Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the Senior Notes unless
such consideration is offered to be paid or is paid to all Holders of the Senior
Notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable for the
payment of any Indebtedness of the Company or any Indebtedness of any other
Restricted Subsidiary, unless (a) such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture providing for a guarantee of
payment of the Senior Notes by such Restricted Subsidiary and (b) with respect
to any guarantee of Subordinated Indebtedness by a Restricted Subsidiary, any
such guarantee is subordinated to such Restricted Subsidiary's guarantee with
respect to the Senior Notes at least to the same extent as such Subordinated
Indebtedness is subordinated to the Senior Notes, provided that the foregoing
provision will not be applicable to any guarantee by any Restricted Subsidiary
that existed at the time such person became a Restricted Subsidiary and was not
incurred in connection with, or in contemplation of, such person becoming a
Restricted Subsidiary.
Any guarantee by a Restricted Subsidiary of the Senior Notes pursuant to the
preceding paragraph may provide by its terms that it will be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer
to any person not an Affiliate of the Company of all of the Company's and the
Restricted Subsidiaries' Capital Stock in, or all or substantially all the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture), (ii) the release or discharge of the guarantee
that resulted in the creation of such guarantee of the Senior Notes, except a
discharge or release by or as a result of payment under such guarantee or (iii)
the designation of such Restricted Subsidiary as an Unrestricted Subsidiary in
accordance with the terms of the Indenture.
UNRESTRICTED SUBSIDIARIES
(a) The Board of Directors of the Company may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary so long as (i) neither the Company nor any Restricted Subsidiary is
directly or indirectly liable for any Indebtedness of such Subsidiary, (ii) no
default with respect to any Indebtedness of such Subsidiary would permit (upon
notice, lapse of time or otherwise) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity, (iii) any Investment in such Subsidiary made as a result of
designating such Subsidiary an
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Unrestricted Subsidiary will not violate the provisions of the covenant
described under "--Restricted Payments," (iv) neither the Company nor any
Restricted Subsidiary has a contract, agreement, arrangement, understanding or
obligation of any kind, whether written or oral, with such Subsidiary other than
those that might be obtained at the time of such redesignation from persons who
are not Affiliates of the Company, (v) neither the Company nor any Restricted
Subsidiary has any obligation to subscribe for additional shares of Capital
Stock or other equity interest in such Subsidiary, or to maintain or preserve
such Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results and (vi) such Unrestricted Subsidiary has at
least one director on its Board of Directors that is not a director or executive
officer of the Company and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Without limiting the generality of the foregoing, the Company may
designate any of its Subsidiaries existing as of the Issue Date (other than
those specifically listed under "Principal, Maturity and Interest" above) or any
successor to any of them as an Unrestricted Subsidiary and may sell, transfer or
otherwise dispose of any properties or assets of any such Subsidiary to an
Unrestricted Subsidiary in the ordinary course of business.
(b) The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary; provided that (i) no Default or Event of
Default has occurred and is continuing following such designation and (ii) the
Company could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the first paragraph of the covenant
described under "--Incurrence of Indebtedness and Issuance of Preferred Stock"
(treating any Indebtedness of such Unrestricted Subsidiary as the incurrence of
Indebtedness by a Restricted Subsidiary).
REPORTS
At all times from and after the earlier of (i) the date of the commencement
of an Exchange Offer or the effectiveness of the Shelf Registration Statement
(the "Registration") and (ii) the date six months after the Issue Date, in
either case, whether or not the Company is then required to file reports with
the Commission, the Company will file with the Commission all such annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Sections 13(a) or 15(d) under the
Exchange Act. The Company will also be required (a) to supply to the Trustee and
each holder of Senior Notes, or supply to the Trustee for forwarding to each
such holder, without cost to such holder, copies of such reports and other
documents within 15 days after the date on which the Company files such reports
and documents with the Commission or the date on which the Company would be
required to file such reports and documents if the Company were so required and
(b) if filing such reports and documents with the Commission is not accepted by
the Commission or is prohibited under the Exchange Act, to supply at the
Company's cost copies of such reports and documents to any prospective holder of
Senior Notes promptly upon written request. In addition, at all times prior to
the earlier of the date of the Registration and the date six months after the
Issue Date, the Company will, at its cost, deliver to each holder of the Senior
Notes quarterly and annual reports substantially equivalent to those that would
be required by the Exchange Act. Furthermore, at all times prior to the
Registration, the Company will supply at the Company's cost copies of such
reports and documents to any prospective holder of Senior Notes promptly upon
written request.
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EVENTS OF DEFAULT AND REMEDIES
The following will be "Events of Default" under the Indenture:
(a) default in the payment of any interest on any Senior Note when it
becomes due and payable, and continuance of such default for a period of 30
days;
(b) default in the payment of the principal of (or premium, if any, on)
any Senior Note when due;
(c) failure to perform or comply with the Indenture provisions described
above under "Repurchase at the Option of Holders--Change of Control,"
"--Asset Sales," "--Sale of Collateral or Loss of Control of OCC Board" and
"Certain Covenants--Restricted Payments," "--Incurrence of Indebtedness and
Issuance of Preferred Stock" or "--Merger, Consolidation or Sale of Assets";
(d) default in the performance, or breach, of any covenant or agreement
of the Company or any Restricted Subsidiary contained in the Indenture or
the Pledge Agreement (other than a default in the performance, or breach, of
a covenant or agreement that is specifically dealt with elsewhere herein),
and continuance of such default or breach for a period of 60 days after
written notice has been given to the Company by the Trustee or to the
Company and the Trustee by the holders of at least 25% in aggregate
principal amount at maturity of the Senior Notes then outstanding;
(e) (i) an event of default has occurred under any mortgage, bond,
indenture, loan agreement or other document evidencing an issue of
Indebtedness of the Company or any Restricted Subsidiary, which issue has an
aggregate outstanding principal amount of not less than $5 million, and such
default has resulted in such Indebtedness becoming, whether by declaration
or otherwise, due and payable prior to the date on which it would otherwise
become due and payable or (ii) a default in any payment when due at final
maturity of any such Indebtedness;
(f) failure by the Company or any of its Restricted Subsidiaries to pay
one or more final judgments the uninsured portion of which exceeds in the
aggregate $5 million, which judgment or judgments are not paid, discharged
or stayed for a period of 60 days;
(g) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary; or
(h) the Pledge Agreement shall cease to be in full force and effect or
enforceable in accordance with its terms, other than in accordance with its
terms, or the Company denies or disaffirms its obligations under the Pledge
Agreement or the obligations under the Pledge Agreement cease to be secured
by a perfected first priority security interest in any portion of the
Collateral purported to be pledged under the Pledge Agreement (other than in
accordance with its terms).
If an Event of Default (other than as specified in clause (g) above) occurs
and is continuing, the Trustee or the holders of not less than 25% in aggregate
principal amount at maturity of the Senior Notes then outstanding may, and the
Trustee at the request of such holders will, declare the Default Amount of, and
accrued and unpaid interest on, all of the outstanding Senior Notes immediately
due and payable and, upon any such declaration, such amounts will become due and
payable immediately.
If an Event of Default specified in clause (g) above occurs and is
continuing, then the Default Amount of, and accrued and unpaid interest on, all
of the outstanding Senior Notes will IPSO FACTO become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any holder of Senior Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount at maturity
of the outstanding Senior Notes, by written notice to the Company and the
Trustee, may rescind such declaration and its consequences if (i) the Company
has paid or deposited with
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the Trustee a sum sufficient to pay (A) all overdue interest on all Senior
Notes, (B) all unpaid principal of (and premium, if any, on) any outstanding
Senior Notes that has become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Senior Notes, (C) to
the extent that payment of such interest is lawful, interest upon overdue
interest and overdue principal at the rate borne by the Senior Notes and (D) all
sums paid or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel; and (ii) all Events of Default, other than the non-payment of the
Default Amount of (or premium, if any, on) or interest on the Senior Notes that
have become due solely by such declaration of acceleration, have been cured or
waived. No such rescission will affect any subsequent default or impair any
right consequent thereon.
No holder of any of the Senior Notes has any right to institute any
proceeding with respect to the Indenture or any remedy thereunder, unless the
holders of at least 25% in aggregate principal amount at maturity of the
outstanding Senior Notes have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding within 60 days after
receipt of such notice and the Trustee, within such 60-day period, has not
received directions inconsistent with such written request by holders of a
majority in aggregate principal amount at maturity of the outstanding Senior
Notes. Such limitations do not apply, however, to a suit instituted by a holder
of a Note for the enforcement of the payment of the Default Amount of, premium,
if any, or interest on such Note on or after the respective due dates expressed
in such Senior Note.
The holders of not less than a majority in aggregate principal amount at
maturity of the outstanding Senior Notes may, on behalf of the holders of all of
the Senior Notes, waive any past defaults under the Indenture or the Pledge
Agreement, except a default in the payment of the Default Amount (and premium,
if any) or interest on any Senior Note, or in respect of a covenant or provision
that under the Indenture cannot be modified or amended without the consent of
the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee will mail to each holder of the Senior Notes notice of
the Default or Event of Default within 90 days after the occurrence thereof.
Except in the case of a Default or an Event of Default in payment of the Default
Amount of (and premium, if any, on) or interest on any Senior Notes, the Trustee
may withhold the notice to the holders of the Senior Notes if a committee of its
trust officers in good faith determines that withholding such notice is in the
interests of the holders of the Senior Notes.
The Company is required to furnish to the Trustee annual statements as to
the performance by the Company and the Restricted Subsidiaries of their
obligations under the Indenture and as to any default in such performance. The
Company is also required to notify the Trustee within five days of becoming
aware of any Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or any Affiliate shall have any liability for any
obligations of the Company under the Senior Notes, the Indenture or any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Senior Notes by accepting a Senior Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Senior Notes. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, terminate the obligations of
the Company with respect to the outstanding Senior Notes ("legal defeasance").
Such legal defeasance means that the Company will be deemed to have paid and
discharged the entire Indebtedness represented by the
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outstanding Senior Notes, except for (i) the rights of holders of outstanding
Senior Notes to receive payments in respect of the principal of (and premium, if
any, on) and interest on such Senior Notes when such payments are due, (ii) the
Company's obligations to issue temporary Senior Notes, register the transfer or
exchange of any Senior Notes, replace mutilated, destroyed, lost or stolen
Senior Notes, maintain an office or agency for payments in respect of the Senior
Notes and segregate and hold such payments in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee and (iv) the legal defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to terminate the obligations of the Company with respect to
certain covenants set forth in the Indenture and described under "Certain
Covenants" above, and any omission to comply with such obligations would not
constitute a Default or an Event of Default with respect to the Senior Notes
("covenant defeasance").
In order to exercise either legal defeasance or covenant defeasance, (a) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the holders of the Senior Notes, money in an amount, or U.S.
Government Obligations (as defined in the Indenture) that through the scheduled
payment of principal and interest thereon will provide money in an amount, or a
combination thereof, sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay and discharge the principal of (and
premium, if any, on) and interest on the outstanding Senior Notes at maturity
(or upon redemption, if applicable, as of a date no later than December 15, 2001
provided that the Company shall have complied with the notice provisions set
forth under the Indenture in connection with such optional redemption) of such
principal or installment of interest; (b) no Default or Event of Default has
occurred and is continuing on the date of such deposit or, insofar as an event
of bankruptcy under clause (h) of "Events of Default" above is concerned, at any
time during the period ending on the 91st day after the date of such deposit;
(c) such legal defeasance or covenant defeasance may not result in a breach or
violation of, or constitute a default under, the Indenture or any material
agreement or instrument to which the Company is a party or by which it is bound;
(d) in the case of legal defeasance, the Company must deliver to the Trustee an
opinion of counsel stating that the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or since the date hereof,
there has been a change in applicable federal income tax law, to the effect, and
based thereon such opinion must confirm that, the holders of the outstanding
Senior Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such legal defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred; (e) in the case of
covenant defeasance, the Company must have delivered to the Trustee an opinion
of counsel to the effect that the Holders of the Senior Notes outstanding will
not recognize income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred; and (f) the Company must have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to either the
legal defeasance or the covenant defeasance, as the case may be, have been
complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Senior Note for a period of 15 days before a selection of Senior Notes to be
redeemed.
The registered Holder of a Senior Note will be treated as the owner of it
for all purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Modifications and amendments of the Indenture and the Pledge Agreement may
be made by the Company and the Trustee with the consent of the holders of a
majority in aggregate outstanding principal amount at maturity of the Senior
Notes; provided, however, that no such modification or amendment may, without
the consent of the holder of each outstanding Senior Note affected thereby,
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Senior Note, or reduce the principal amount or Accreted
Value thereof or the rate of interest thereon or any premium payable upon
the redemption thereof or amend or modify the calculation of Accreted Value
or Default Amount, or change the coin or currency in which any Senior Note
or any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the Stated
Maturity thereof (or, in the case of redemption, on or after the redemption
date);
(b) reduce the percentage in principal amount at maturity of outstanding
Senior Notes, the consent of whose holders is required for any waiver of
compliance with certain provisions of, or certain defaults and their
consequences provided for under, the Indenture or the Pledge Agreement;
(c) waive a default in the payment of principal of, or premium, if any,
or interest on the Senior Notes or reduce the percentage or aggregate
principal amount at maturity of outstanding Senior Notes the consent of
whose holders is necessary for waiver of compliance with certain provisions
of the Indenture or for waiver of certain defaults; or
(d) release any Pledged Stock from the Lien created by the Pledge
Agreement except in accordance with the terms thereof.
The holders of a majority in aggregate principal amount at maturity of the
Senior Notes outstanding may waive compliance with certain restrictive covenants
and provisions of the Indenture and the Pledge Agreement.
Without the consent of any holders, the Company and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental to the
Indenture for any of the following purposes: (1) to evidence the succession of
another person to the Company and the assumption by any such successor of the
covenants of the Company in the Indenture and in the Senior Notes; or (2) to add
to the covenants of the Company for the benefit of the holders, or to surrender
any right or power herein conferred upon the Company; or (3) to add additional
Events of Defaults; or (4) to provide for uncertificated Senior Notes in
addition to or in place of the certificated Senior Notes; or (5) to evidence and
provide for the acceptance of appointment under the Indenture by a successor
Trustee; or (6) to secure the Senior Notes; or (7) to cure any ambiguity, to
correct or supplement any provision in the Indenture that may be defective or
inconsistent with any other provision in the Indenture, or to make any other
provisions with respect to matters or questions arising under the Indenture,
PROVIDED that such actions pursuant to this clause do not adversely affect the
interests of the holders in any material respect; or (8) to comply with any
requirements of the Commission in order to effect and maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Bank of New York, the Trustee under the Indenture, is the initial paying
agent and registrar for the Senior Notes.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. Under the Indenture, the holders of a majority in outstanding
principal amount at maturity of the Senior Notes will have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee,
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subject to certain exceptions. If an Event of Default has occurred and is
continuing, the Trustee will exercise such rights and powers vested in it under
the Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein, contain limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that, if it
acquires any conflicting interest (as defined), it must eliminate such conflict
upon the occurrence of an Event of Default or else resign.
RELEASE OF COLLATERAL
Upon compliance by the Company with the conditions set forth below in
respect of any Repurchase Offer Triggering Event, and upon delivery by the
Company to the Trustee of an Opinion of Counsel to the effect that such
conditions have been met, the Trustee will release the Collateral from the Lien
of the Indenture and Pledge Agreement and reconvey the Collateral to the
Company.
The Company will have the right to obtain a release of the Collateral upon
compliance with the provisions of the covenant described above under "Repurchase
at the Option of Holders--Sale of Collateral or Loss of Control of OCC Board"
and the condition that the Company deliver to the Trustee the following:
(a) A notice from the Company (i) requesting the release of the Collateral,
(ii) specifying the value of the Collateral computed on the basis of the Current
Market Price per share of Common Stock of OCC on a date within 60 days of such
Company notice (the "Valuation Date"), and (iii) in the case where the
Repurchase Offer Triggering Event is a Collateral Sale, (x) stating that the
purchase price to be received is at least equal to the value of the Collateral
computed on the basis of the Current Market Price per share of Common Stock of
OCC on the Valuation Date, (y) confirming the sale of, or an agreement to sell,
the Collateral in a bona fide sale to a person that is not an Affiliate of the
Company or, in the event that such sale is to a Person that is an Affiliate,
confirming that such sale is made in compliance with the provisions of the
covenant described above under "Certain Covenants--Transactions with
Affiliates," and (z) confirming that such Collateral Sale complies with the
terms and conditions of the Indenture with respect thereto.
(b) An Officers' Certificate of the Company stating that (i) such Collateral
Sale complies with the terms and conditions of the Indenture with respect to
Collateral Sales, (ii) all Net Cash Proceeds from the sale of the Collateral
will be applied pursuant to the provisions of the Indenture in respect of
Collateral Sales, (iii) there is no Default or Event of Default in effect or
continuing on the date thereof, the Valuation Date or the date of such
Collateral Sale, as the case may be, (iv) the release of the Collateral will not
result in a Default or Event of Default under the Indenture and (v) all
conditions precedent in the Indenture relating to such release of Collateral
have been complied with, and
(c) All documentation required by the Trust Indenture Act prior to the
release of Collateral by the Trustee.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the third succeeding paragraph, the Senior Notes to
be resold as set forth herein will initially be issued in the form of one or
more Global Notes (the "Global Notes"). The Global Notes will be deposited on
the Closing Date with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note Holder").
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Senior Notes offered and sold in reliance on Regulation S will initially be
represented by a single, permanent Global Note in definitive, fully registered
book-entry form (the "Offshore Global Note") which will be registered in the
name of the Global Note Holder and deposited on behalf of the purchasers of the
Senior Notes represented thereby with a custodian for the Global Note Holder for
credit to the respective accounts of the purchasers (or to such other accounts
as they may direct) at the Euroclear System ("Euroclear") or Cedel Bank, societe
anonyme ("Cedel"). Prior to the 40th day after the later of the commencement of
the Offering and the Closing Date, interests in the Offshore Global Note may
only be held through Euroclear or Cedel.
Senior Notes offered and sold to "qualified institutional buyers" ("QIBs")
in reliance on Rule 144A under the Securities Act will be represented by a
single, permanent Global Note in definitive, fully registered book-entry form
(the "U.S. Global Note" and together with the Offshore Global Note, the "Global
Notes") which will be registered in the name of the Global Note Holder and
deposited on behalf of purchasers of the Senior Notes represented thereby with a
custodian for the Global Note Holder for credit to the respective accounts of
the purchasers (or to such other accounts as they may direct) at the Global Note
Holder.
Senior Notes that were (i) originally issued to or transferred to
institutional "accredited investors" (as such terms are defined under "Notice to
Investors" elsewhere herein) who are not QIBs (the "Non-Global Purchasers") or
(ii) issued as described below under "Certificated Senior Notes" will be issued
in registered, definitive, certificated form (the "Certificated Senior Notes").
Upon the transfer to a QIB or in an offshore transaction under Rule 903 or Rule
904 under Regulation S of Certificated Senior Notes initially issued to a
Non-Global Purchaser, such Certificated Senior Notes may, unless the Global
Notes have previously been exchanged in whole for Certificated Senior Notes, be
exchanged for an interest in a Global Note representing the principal amount of
the Senior Notes being transferred upon delivery of appropriate certificates to
the Trustee. For a description of certain restrictions on the transferability of
the Senior Notes, see "Notice to Investors."
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Notes and (ii) ownership of the Senior Notes
evidenced by the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to own, transfer or pledge Senior Notes
evidenced by the Global Notes will be limited to such extent. For certain other
restrictions on the transferability of the Senior Notes, see "Notice to
Investors."
Investors may hold their interests in the Offshore Global Note directly
through Cedel or Euroclear, if they are participants in such systems, or
indirectly through organizations which are participants in such
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systems. Beginning 40 days after the later of the commencement of the Offering
and the Issue Date (but not earlier), investors may also hold such interests
through organizations other than Cedel or Euroclear that are Participants in the
DTC system. Cedel and Euroclear will hold such interests in the Offshore Global
Note on behalf of their participants through customers' securities accounts in
their respective names on the books of their respective depositaries, which in
turn will hold such interests in the Offshore Global Note in customers'
securities accounts in the depositaries' names on the books of DTC.
So long as the Global Note Holder is the registered owner of any Senior
Notes, the Global Note Holder will be considered the sole Holder under the
Indenture of any Senior Notes evidenced by the Global Notes. Beneficial owners
of Senior Notes evidenced by the Global Notes will not be considered the owners
or Holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records of the Depositary or for maintaining,
supervising or reviewing any records of the Depositary relating to the Senior
Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Senior Notes registered in the name of the Global Note Holder on the
applicable record date will be payable by the Trustee to or at the direction of
the Global Note Holder in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names Senior Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Senior Notes. The Company believes, however, that it is currently the policy
of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Senior Notes will
be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a certificated Note for any reason, including to
sell Notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest
in the Global Notes in accordance with the normal procedures of DTC and in
accordance with the procedures set forth in the Indenture.
Before the 40th day after the later of the commencement of the Offering and
the Issue Date, transfers by an owner of a beneficial interest in the Offshore
Global Note to a transferee who takes delivery of such interest through the U.S.
Global Note will be made only in accordance with the applicable procedures and
upon receipt by the Trustee of a written certification from the transferor of
the beneficial interest in the form provided in the Indenture to the effect that
such transfer is being made to a person whom the transferor reasonably believes
is a QIB within the meaning of Rule 144A in a transaction meeting the
requirements of Rule 144A or an institutional "accredited investor."
Transfers by an owner of a beneficial interest in the U.S. Global Note to a
transferee who takes delivery of such interest through the Offshore Global Note,
whether before, on or after the 40th day after the later of the commencement of
the Offering and the Issue Date, will be made only upon receipt by the Trustee
of a certification to the effect that such transfer is being made in accordance
with Regulation S. Transfers of Physical Notes held by institutional "accredited
investors" to persons who will hold through the U.S. Global Note or the Offshore
Global Note will be subject to certifications provided by the Trustee.
CERTIFICATED SENIOR NOTES
Transferees of Senior Notes who are not QIBs as defined in Rule 144A under
the Securities Act may hold Senior Notes only in the form of Certificated Senior
Notes. All such Certificated Senior Notes would
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be subject to the legend requirements described herein under "Notice to
Investors." In addition, if (i) the Company notifies the Trustee in writing that
the Depositary is no longer willing or able to act as a depositary and the
Company is unable to locate a qualified successor within 90 days or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of Senior Notes in the form of Certificated Securities under the
Indenture then, upon surrender by the Global Note Holder of the Global Notes,
Certificated Senior Notes will be issued to each person that the Global Note
Holder and the Depositary identify as being the beneficial owner of the related
Senior Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Senior Notes and the Company and the Trustee may conclusively rely on, and will
be protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Senior Notes
represented by the Global Notes (including principal, premium, if any, and
interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Senior Notes, the Company will make all payments of principal, premium, if any,
and interest by wire transfer of immediately available funds to the accounts
specified by the Holders thereof or, if no such account is specified, by mailing
a check to each such Holder's registered address. Secondary trading in long-term
notes and debentures of corporate issuers is generally settled in clearinghouse
or next-day funds. In contrast, the Senior Notes represented by the Global Notes
are expected to be eligible to trade in the PORTAL market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Senior Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Senior Notes will also be settled in
immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised the Company that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear and Cedel following DTC's settlement date.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of any of the
documents incorporated by reference herein without charge by writing to Ascent
Entertainment Group, Inc., 1200 17th Street, Suite 2800, Denver, CO 80202,
Attention: Corporate Secretary.
CERTAIN DEFINITIONS
"Accreted Value" as of any date (the "Specified Date") means, with respect
to each $1,000 principal amount at maturity of Senior Notes:
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(i) if the Specified Date is one of the following dates (each a "Semi-Annual
Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
- ----------------------------------------------------------------------- -----------
<S> <C>
Issue Date............................................................. $ 562.95
June 15, 1998.......................................................... 595.05
December 15, 1998...................................................... 630.38
June 15, 1999.......................................................... 667.81
December 15, 1999...................................................... 707.46
June 15, 2000.......................................................... 749.47
December 15, 2000...................................................... 793.97
June 15, 2001.......................................................... 841.11
December 15, 2001...................................................... 891.05
June 15, 2002.......................................................... 943.95
December 15, 2002...................................................... $ 1,000.00;
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates, the
sum of (a) the Accreted Value for the Semi-Annual Accrual Date immediately
preceding the Specified Date and (b) an amount equal to the product of (x) the
Accreted Value for the immediately following Semi-Annual Accrual Date less the
Accreted Value for the immediately preceding Semi-Annual Accrual Date and (y) a
fraction, the numerator of which is the number of days actually elapsed from the
immediately preceding Semi-Annual Accrual Date to the Specified Date and the
denominator of which is 180; and
(iii) if the Specified Date is after December 15, 2002, $1,000.
"Acquired Indebtedness" means Indebtedness of a person (a) existing at the
time such person is merged with or into the Company or becomes a Subsidiary or
(b) assumed in connection with the acquisition of assets from such person.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person or any other person that owns,
directly or indirectly, 10% or more of such specified person's Capital Stock or
any executive officer or director of any such specified person or other person
or, with respect to any natural person, any person having a relationship with
such person by blood, marriage or adoption not more remote than first cousin.
For the purposes of this definition, "control", when used with respect to any
specified person, means the power to direct the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Applicable Premium" means, with respect to a Senior Note (or portion
thereof) being repurchased at any time pursuant to the provisions of "Repurchase
at the Option of Holders--Sale of Collateral or Loss of Control of OCC Board,"
the excess of (A) the present value at the repurchase date of the redemption
price at December 15, 2001 of such Senior Note (or portion thereof) being
repurchased, which present value shall be computed using a discount rate equal
to the Treasury Rate plus 100 basis points, over (B) the Accreted Value as of
the redemption date of such Senior Note (or portion thereof) being redeemed. For
purposes of this definition, the present values of the interest and principal
payments will be determined in accordance with generally accepted principles of
financial analysis.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of merger,
consolidation or similar arrangement) (collectively, a "transfer") by the
Company or any Restricted Subsidiary other than in the ordinary course of
business, and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of shares of Capital Stock of any of the Company's Restricted
Subsidiaries (which shall be deemed to include the sale, grant or conveyance
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of any interest in the income, profits or proceeds therefrom), in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions, (x) that have a fair market value in excess of $1,000,000
or (y) for Net Cash Proceeds in excess of $1,000,000. For the purposes of this
definition, the term "Asset Sale" does not include any transfer of properties or
assets (a) that is governed by the provisions of the Indenture described under
"Consolidation, Merger and Sale of Assets", (b) between or among the Company and
its Restricted Subsidiaries pursuant to transactions that do not violate any
other provision of the Indenture, (c) representing obsolete or permanently
retired equipment and facilities, (d) to an Unrestricted Subsidiary, if
permitted under the covenant described under the caption "Certain
Covenants--Restricted Payments," (e) that comprises a Collateral Sale, (f) the
sale of accounts receivable for cash at fair market value or (g) in an exchange
by OCC of operating rights and related assets associated with hotel rooms
installed with OCC in-room video entertainment systems for operating rights and
related assets associated with hotel rooms installed with a competitor's in-room
video entertainment systems.
"Average Life" means, as of the date of determination with respect to any
Indebtedness or Disqualified Stock, the quotient obtained by dividing (a) the
sum of the products of (i) the number of years from the date of determination to
the date or dates of each successive scheduled principal or liquidation value
payment of such Indebtedness or Disqualified Stock, respectively, multiplied by
(ii) the amount of each such principal or liquidation value payment by (b) the
sum of all such principal or liquidation value payments.
"Bank Credit Facilities" means the New Ascent Credit Facility and the New
OCC Credit Facility.
"Capital Stock" of any person means any and all shares, interests,
partnership interests, participations, rights in or other equivalents (however
designated) of such person's equity interest (however designated), whether now
outstanding or issued after the Closing Date.
"Capitalized Lease Obligation" means, with respect to any person, an
obligation incurred or assumed under or in connection with any capital lease of
real or personal property that, in accordance with GAAP, has been recorded as a
capitalized lease.
"Cash Equivalents" means (i) cash equivalents as determined in accordance
with GAAP and (ii) the principal amount of any Indebtedness for money borrowed
(as reflected in the Company's consolidated balance sheet) of the Company or any
Restricted Subsidiary that (x) is assumed by any transferee of any such assets
or other property in an Asset Sale or Collateral Sale, as applicable, or (y)
with respect to the sale or other disposition of all of the Capital Stock of any
Restricted Subsidiary, remains the liability of such Subsidiary subsequent to
such sale or other disposition, but only to the extent that such assumption,
sale or other disposition, as the case may be, is effected on a basis under
which there is no further recourse to the Company or any of its Restricted
Subsidiaries with respect to such liability.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
more than 35% of the voting power of all classes of Voting Stock of the
Company;
(b) the Company, either individually or in conjunction with one or more
Subsidiaries, sells, assigns, conveys, transfers, leases or otherwise
disposes of, or the Subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of, all or substantially all of the properties of the
Company and the Subsidiaries, taken as a whole (either in one transaction or
a series of related transactions), including Capital Stock of the
Subsidiaries, to any person (other than the Company or a Restricted
Subsidiary);
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(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the stockholders of the Company was
approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office; or
(d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than in a transaction that complies with
the provisions described under "Consolidation, Merger and Sale of Assets".
"Closing Date" means the date on which the Senior Notes are originally
issued under the Indenture.
"Consolidated Adjusted Net Income" means, for any period, the net income (or
net loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, (c) the portion of net income (or
loss) of any person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any Restricted
Subsidiary has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any Restricted
Subsidiary in cash during such period, (d) the net income (or loss) of any
person combined with the Company or any Restricted Subsidiary on a "pooling of
interests" basis attributable to any period prior to the date of combination and
(e) the net income (but not the net loss) of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary is at the date of determination restricted, directly
or indirectly, except to the extent that such net income is actually paid to the
Company or a Restricted Subsidiary thereof by loans, advances, intercompany
transfers, principal repayments or otherwise; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated Adjusted
Net Income will be reduced (to the extent not otherwise reduced in accordance
with GAAP) by an amount equal to (A) the amount of the Consolidated Adjusted Net
Income otherwise attributable to such Restricted Subsidiary multiplied by (B)
the quotient of (1) the number of shares of outstanding Common Stock of such
Restricted Subsidiary not owned on the last day of such period by the Company or
any of its Restricted Subsidiaries divided by (2) the total number of shares of
outstanding Common Stock of such Restricted Subsidiary on the last day of such
period.
"Consolidated EBITDA" means, for any period, the sum of, without
duplication, Consolidated Adjusted Net Income for such period, plus (or, in the
case of clause (d) below, plus or minus) the following items to the extent
included in computing Consolidated Adjusted Net Income for such period: (a)
Consolidated Fixed Charges for such period, plus (b) the provision for federal,
state, local and foreign income taxes of the Company and its Restricted
Subsidiaries for such period, plus (c) the aggregate depreciation and
amortization expense (excluding film amortization expense) of the Company and
its Restricted Subsidiaries for such period, plus (d) any other non-cash charges
for such period, and minus non-cash credits for such period, other than non-cash
charges or credits resulting from changes in prepaid assets or accrued
liabilities in the ordinary course of business; provided that fixed charges,
income tax expense, depreciation and amortization expense and non-cash charges
and credits of a Restricted Subsidiary will be included in Consolidated EBITDA
only to the extent (and in the same proportion) that the net income of such
Subsidiary was included in calculating Consolidated Adjusted Net Income for such
period.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity of the Company and its Restricted Subsidiaries as set forth on the most
recently available quarterly or annual consolidated balance sheet of the Company
and its Restricted Subsidiaries, less any amounts attributable to Disqualified
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Stock or any equity security convertible into or exchangeable for Indebtedness,
the cost of treasury stock and the principal amount of any promissory notes
receivable from the sale of the Capital Stock of the Company or any of its
Restricted Subsidiaries and less to the extent included in calculating such
stockholders' equity of the Company and its Restricted Subsidiaries, the
stockholders' equity attributable to Unrestricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign currency
adjustments under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52).
"Consolidated Tangible Assets" means, as of the date of determination, the
total assets, less goodwill and other intangibles shown on the balance sheet of
the Company and its Restricted Subsidiaries as of the most recent date for which
such a balance sheet is available, determined on a consolidated basis in
accordance with GAAP. At September 30, 1997, on a pro forma basis giving effect
to the Offering and the application of the proceeds therefrom, the Consolidated
Tangible Assets of the Company were approximately $512 million.
"Cumulative OCC EBITDA" means at any date of determination the cumulative
amount of OCC Consolidated EBITDA from and after the first day of the first
fiscal quarter commencing after the date of the Indenture to the end of the
fiscal quarter immediately preceding the date of determination or, if such
cumulative OCC Consolidated EBITDA for such period is negative, the amount
(expressed as a negative number) by which such cumulative OCC Consolidated
EBITDA is less than zero.
"Cumulative OCC Fixed Charges" means at any date of determination the
aggregate amount of OCC Fixed Charges paid, accrued or scheduled to be paid or
accrued by OCC and its Restricted Subsidiaries from and after the first day of
the first fiscal quarter commencing after the date of the Indenture to the end
of the fiscal quarter immediately preceding the date of determination.
"Current Market Price," when used with respect to the shares of Common Stock
of OCC as of any date of determination, means the average of the averages of the
high and low sales prices for such shares on the principal national security
exchange or quotation system on which such shares are quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the average of the closing bid
and asked prices of such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or a similar
generally accepted reporting service, or if not so available, in such manner as
furnished by any National Association of Securities Dealers, Inc. member firm
selected from time to time by the Board of Directors for that purpose, or a
price determined in good faith by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution, in each case for the
ten consecutive Trading Days ending on the third Trading Day prior to such date
of determination.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Default Amount" means (i) as of any date prior to December 15, 2002, the
Accreted Value of the Senior Notes (plus any premium thereon) as of such date
and (ii) as of any date on or after December 15, 2002, 100% of the principal
amount at maturity of the Senior Notes (plus any premium thereon).
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver a
resolution of the Board of Directors, to make a finding or otherwise take action
under the Indenture, a member of the Board of Directors who does not have any
material direct or indirect financial interest in or with respect to such
transaction or series of transactions.
"Disqualified Stock" means any class or series of Capital Stock that, either
by its terms, by the terms of any security into which it is convertible or
exchangeable or by contract or otherwise (i) is or upon the happening of an
event or passage of time would be, required under the terms of such security to
be redeemed prior to the final Stated Maturity of the Senior Notes, (ii) is
redeemable at the option of the
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holder thereof, at any time prior to such final Stated Maturity or (iii) at the
option of the holder thereof is convertible into or exchangeable for debt
securities at any time prior to such final Stated Maturity; provided that any
Capital Stock that would not constitute Disqualified Stock but for provisions
therein giving holders thereof the right to cause the issuer thereof to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Senior
Notes will not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in the covenants
described under "Repurchase at the Option of Holders--Change of Control" and
"--Asset Sales" described herein and such Capital Stock specifically provides
that the issuer will not repurchase or redeem any such stock pursuant to such
provision prior to the Company's repurchase of such Senior Notes as are required
to be repurchased pursuant to the provisions contained in the covenants
described under "Repurchase at the Option of Holders--Change of Control" and
"--Asset Sales."
"Equity Offering" means a public or private offering of Capital Stock (other
than Disqualified Stock) of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of
Consolidated EBITDA for such period to Fixed Charges for such period.
"Fixed Charges" means, for any period, without duplication, the sum of (a)
the amount that, in conformity with GAAP, would be set forth opposite the
caption "interest expense" (or any like caption) on a consolidated statement of
operations of the Company and its Restricted Subsidiaries for such period,
including, without limitation, (i) amortization of debt discount, (ii) the net
cost of interest rate contracts (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation, (iv) amortization of debt
issuance costs and (v) the interest component of Capitalized Lease Obligations,
plus (b) cash dividends paid on Preferred Stock and Disqualified Stock by the
Company and any Restricted Subsidiary (to any person other than the Company and
its Restricted Subsidiaries), computed on a tax effected basis, plus (c) all
interest on any Indebtedness of any person guaranteed by the Company or any of
its Restricted Subsidiaries or secured by a lien on the assets of the Company or
any of its Restricted Subsidiaries; provided, however, that Fixed Charges will
not include (i) any gain or loss from extinguishment of debt, including the
write-off of debt issuance costs, (ii) the fixed charges of a Restricted
Subsidiary to the extent (and in the same proportion) that the net income of
such Subsidiary was excluded in calculating Consolidated Adjusted Net Income
pursuant to clause (e) of the definition thereof for such period and (iii)
interest expense incurred in connection with the Non-Recourse Arena Financing
and any Non-Recourse Film Indebtedness.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as applied from time to
time by the Company in the preparation of its consolidated financial statements,
except that with respect to calculating compliance with financial covenants,
GAAP shall mean generally accepted accounting principles in the United States,
consistently applied, that are in effect on the Closing Date.
"Hedging Obligations" means the obligations of any person under (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and (ii) other agreements or arrangements designed to protect such
person against fluctuations in interest rates or the value of foreign
currencies.
"Indebtedness" means (without duplication), with respect to any person,
whether recourse is to all or a portion of the assets of such person and whether
or not contingent, (a) every obligation of such person for money borrowed, (b)
every obligation of such person evidenced by bonds, debentures, notes or other
similar instruments, (c) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person, (d) every obligation of such
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person issued or assumed as the deferred purchase price of property or services,
(e) the attributable value of every Capitalized Lease Obligation of such person,
(f) all Disqualified Stock of such person valued at its maximum fixed repurchase
price, plus accrued and unpaid dividends, (g) all obligations of such person
under or in respect of Hedging Obligations and (h) every obligation of the type
referred to in clauses (a) through (g) of another person and all dividends of
another person the payment of which, in either case, such person has guaranteed.
For purposes of this definition, the "maximum fixed repurchase price" of any
Disqualified Stock that does not have a fixed repurchase price will be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were purchased on any date on which Indebtedness is required
to be determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Stock, such fair market
value will be determined in good faith by the board of directors of the issuer
of such Disqualified Stock. Notwithstanding the foregoing, trade accounts
payable and accrued liabilities arising in the ordinary course of business and
any liability for federal, state or local taxes or other taxes owed by such
person will not be considered Indebtedness for purposes of this definition.
"Investment" in any person means, (i) directly or indirectly, any advance,
loan or other extension of credit (including, without limitation, by way of
guarantee or similar arrangement) or capital contribution to such person, the
purchase or other acquisition of any stock, bonds, notes, debentures or other
securities issued by such person, the acquisition (by purchase or otherwise) of
all or substantially all of the business or assets of such person, or the making
of any investment in such person, (ii) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary and (iii) the fair market value of the
Capital Stock (or any other Investment), held by the Company or any of its
Restricted Subsidiaries, of (or in) any person that has ceased to be a
Restricted Subsidiary. Investments exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A person will be deemed to own subject to a Lien any property that
such person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Net Cash Proceeds" means, with respect to any Asset Sale or Collateral
Sale, the proceeds thereof in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations when received in the form
of, or stock or other assets when disposed for, cash or cash equivalents (except
to the extent that such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary), net of (a) brokerage commissions and
other fees and expenses (including fees and expenses of legal counsel and
investment banks) related to such Asset Sale or Collateral Sale, (b) provisions
for all taxes payable as a result of such Asset Sale or Collateral Sale, (c)
payments made to retire Indebtedness where such Indebtedness is secured by the
assets that are the subject of such Asset Sale, (d) amounts required to be paid
to any person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets that are subject to the Asset Sale and (e)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale or Collateral Sale and retained by
the seller after such Asset Sale or Collateral Sale, including pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale or Collateral Sale.
"New Ascent Credit Facility" means the Second Amended and Restated Credit
Agreement dated as of December 22, 1997 among the Company, the lenders named
therein and NationsBank of Texas, N.A., as agent, as such agreement may be
amended, restated, supplemented, refinanced or otherwise modified from time to
time.
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"New OCC Credit Facility" means the First Amended and Restated Credit
Agreement dated as of November 19, 1997, among OCC, the lenders named therein
and NationsBank of Texas, N.A., as agent, as such agreement may be amended,
restated, supplemented, refinanced or otherwise modified from time to time.
"Non-Recourse Arena Financing" shall mean Indebtedness incurred by the Arena
Company in connection with the financing of the Pepsi Center (i) as to which
neither the Company nor any Restricted Subsidiary of the Company (other than the
Arena Company) (A) provides credit support (including any undertaking, agreement
or instrument which would constitute Indebtedness) or has given or made other
written assurances regarding repayment, (B) is directly or indirectly personally
liable or (C) constitutes the lender and (ii) the obligees of which will have
recourse for repayment of the principal of and interest on such Indebtedness and
any fees, indemnities, expense reimbursements or other amount of whatever nature
accrued or payable in connection with such Indebtedness solely against the
assets comprising such project (including rights of the Arena Company under
contracts to which the Arena Company is party, such as 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.
"Non-Recourse Film Indebtedness" shall mean Indebtedness of Beacon or its
Restricted Subsidiaries incurred solely for the purpose of financing motion
pictures (i) as to which neither the Company nor any Restricted Subsidiary of
the Company (A) provides credit support (including any undertaking, agreement or
instrument which would constitute Indebtedness) or has given or made other
written assurances regarding repayment, (B) is directly or indirectly personally
liable or (C) constitutes the lender and (ii) the obligees of which will have
recourse for repayment of the principal of and interest on such Indebtedness and
any fees, indemnities, expense reimbursements or other amount of whatever nature
accrued or payable in connection with such Indebtedness solely against (x) the
negatives for such motion pictures, (y) ownership, distribution or exploitation
rights with respect to such motion pictures or (z) standby letters or credit
constituting Indebtedness which itself qualifies as Non-Recourse Film
Indebtedness.
"OCC" means On Command Corporation, a Delaware corporation, approximately
57.0% (46% on a fully diluted basis) of whose outstanding Capital Stock is
owned, directly or indirectly, by the Company as of the date hereof.
"OCC Consolidated Adjusted Net Income" means, for any period, the net income
(or net loss) of OCC and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, (c) the portion of net income (or
loss) of any person (other than a Restricted Subsidiary), including Unrestricted
Subsidiaries, in which OCC or any of its Restricted Subsidiaries has an
ownership interest, except to the extent of the amount of dividends or other
distributions actually paid to OCC or any such Restricted Subsidiary in cash
during such period, (d) the net income (or loss) of any person combined with OCC
or any of its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination and (e) the net
income (but not the net loss) of any Restricted Subsidiary of OCC to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary is at the date of determination restricted, directly or
indirectly, except to the extent that such net income is actually paid to OCC or
a Restricted Subsidiary thereof by loans, advances, intercompany transfers,
principal repayments or otherwise; provided that, if any Restricted Subsidiary
of OCC is not a Wholly Owned Restricted Subsidiary, OCC Consolidated Adjusted
Net Income will be reduced (to the extent not otherwise reduced in accordance
with GAAP) by an amount equal to (A) the amount of the OCC Consolidated Adjusted
Net Income otherwise attributable to such Restricted Subsidiary multiplied by
(B) the quotient of (1) the number of shares of outstanding common stock of such
Restricted Subsidiary not owned on the last day of
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such period by OCC or any of its Restricted Subsidiaries divided by (2) the
total number of shares of outstanding Common Stock of such Restricted Subsidiary
on the last day of such period.
"OCC Consolidated EBITDA" means, for any period, the sum of, without
duplication, OCC Consolidated Adjusted Net Income for such period, plus (or, in
the case of clause (d) below, plus or minus) the following items to the extent
included in computing OCC Consolidated Adjusted Net Income for such period: (a)
OCC Consolidated Fixed Charges for such period, plus (b) the provision for
federal, state, local and foreign income taxes of OCC and its Restricted
Subsidiaries for such period, plus (c) the aggregate depreciation and
amortization expense of OCC and its Restricted Subsidiaries for such period,
plus (d) any other non-cash charges for such period, and minus non-cash credits
for such period, other than non-cash charges or credits resulting from changes
in prepaid assets or accrued liabilities in the ordinary course of business;
provided that fixed charges, income tax expense, depreciation and amortization
expense and non-cash charges and credits of a Restricted Subsidiary will be
included in OCC Consolidated EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
OCC Consolidated Adjusted Net Income for such period.
"OCC Fixed Charge Coverage Ratio" means, for any period, the ratio of OCC
Consolidated EBITDA for such period to OCC Fixed Charges for such period.
"OCC Fixed Charges" means, for any period, without duplication, the sum of
(a) the amount that, in conformity with GAAP, would be set forth opposite the
caption "interest expense" (or any like caption) on a consolidated statement of
operations of OCC and its Restricted Subsidiaries for such period, including,
without limitation, (i) amortization of debt discount, (ii) the net cost of
interest rate contracts (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation, (iv) amortization of debt
issuance costs and (v) the interest component of Capitalized Lease Obligations,
plus (b) cash dividends paid on Preferred Stock and Disqualified Stock by OCC
and any of its Restricted Subsidiaries (to any person other than the Company and
its Restricted Subsidiaries), computed on a tax effected basis, plus (c) all
interest on any Indebtedness of any person guaranteed by OCC or any of its
Restricted Subsidiaries or secured by a lien on the assets of OCC or any of its
Restricted Subsidiaries; provided, however, that OCC Fixed Charges will not
include (i) any gain or loss from extinguishment of debt, including the write-
off of debt issuance costs, and (ii) the fixed charges of a Restricted
Subsidiary of OCC to the extent (and in the same proportion) that the net income
of such Subsidiary was excluded in calculating OCC Consolidated Adjusted Net
Income pursuant to clause (e) of the definition thereof for such period.
"Permitted Investments" means any of the following:
(a) Investments in (i) securities with a maturity of one year or less
issued or directly and fully guaranteed or insured by the United States or
any agency or instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof); (ii)
certificates of deposit or acceptances with a maturity of one year or less
of any financial institution that is a member of the Federal Reserve System
having combined capital and surplus of not less than $500,000,000; (iii) any
shares of money market mutual or similar funds having assets in excess of
$500,000,000; and (iv) commercial paper with a maturity of one year or less
issued by a corporation that is not an Affiliate of the Company and is
organized under the laws of any state of the United States or the District
of Columbia and having a rating (A) from Moody's Investors Service, Inc. of
at least P-1 or (B) from Standard & Poor's Ratings Services of at least A-1;
(b) Investments by the Company or any Wholly Owned Restricted
Subsidiary in another person, if as a result of such Investment (i) such
other person becomes a Restricted Subsidiary or (ii) such other person is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Restricted Subsidiary;
(c) Investments by the Company or a Restricted Subsidiary in the
Company or a Restricted Subsidiary;
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(d) Investments in existence on the Closing Date;
(e) promissory notes or other evidences of Indebtedness received as a
result of Asset Sales or Collateral Sales permitted under the covenants
entitled "Repurchase at the Option of Holders--Asset Sales" and "--Sale of
Collateral or Loss of Control of OCC Board," respectively;
(f) the making of any Investment by OCC in any Person, so long as the
decision to take such action is approved by the Board of Directors of OCC
for a valid business purpose in the exercise of such Board's reasonable
business judgment, PROVIDED that the aggregate amount of any such
Investments by OCC shall not exceed $10 million at any one time outstanding;
and
(g) other Investments that do not exceed $10 million in the aggregate
at any one time outstanding.
"Pledge Agreement" means the Collateral Pledge and Security Agreement, dated
as of the Closing Date, made between the Company and the Trustee, governing the
Collateral held by the Trustee for the benefit of the holders of the Senior
Notes, as such agreement may be amended, restated, supplemented or otherwise
modified from time to time.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, partnership interests, participations, rights in or other equivalents
(however designated) of such person's preferred or preference stock, whether now
outstanding or issued after the Closing Date, and including, without limitation,
all classes and series of preferred or preference stock of such person.
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any person means any and all Capital Stock of such
person, other than Disqualified Stock.
"Repurchase Offer Triggering Event" shall have the meaning set forth in the
covenant entitled "Repurchase at the Option of Holders--Sale of Collateral or
Loss of Control of OCC Board."
"Restricted Subsidiary" means (i) any Subsidiary other than an Unrestricted
Subsidiary and (ii) OCC until such time as the Company has repurchased shares of
Common Stock of OCC pursuant to an offer to repurchase the Senior Notes made by
the Company in compliance with the provisions of "Repurchase at the Option of
Holders--Sale of Collateral or Loss of Control of OCC Board."
"Significant Subsidiary" means any Restricted Subsidiary of the Company that
together with its Subsidiaries, (a) for the most recent fiscal year of the
Company, accounted for more than 10% of the consolidated net sales of the
Company and its Subsidiaries or (b) as of the end of such fiscal year, was the
owner of more than 10% of the consolidated assets of the Company and its
Restricted Subsidiaries, in the case of either (a) or (b), as set forth on the
most recently available consolidated financial statements of the Company for
such fiscal year or (c) was organized or acquired after the beginning of such
fiscal year and would have been a Significant Subsidiary if it had been owned
during such entire fiscal year.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness or any installment of interest
thereon is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company that is
subordinated in right of payment to the Senior Notes.
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"Subsidiary" means any person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company
and/or one or more other Subsidiaries of the Company.
"Trading Day" means a day during which trading in securities generally
occurs on the principal national or regional securities exchange on which the
applicable security is then listed or, if the applicable security is not listed
on a national or regional securities exchange, on the Nasdaq National Market or,
if the applicable security is not quoted on the Nasdaq National Market, on the
principal other market on which the applicable security is then traded.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two Business Days prior to the
redemption date (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the then
remaining average life to stated maturity of the Senior Notes; provided,
however, that if the average life to stated maturity of the Senior Notes is not
equal to the constant maturity of a United States Treasury security for which a
weekly average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary in accordance
with the "Unrestricted Subsidiaries" covenant and (b) any Subsidiary of an
Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
any person (irrespective of whether or not, at the time, stock of any other
class or classes has, or might have, voting power by reason of the happening of
any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary, all of
the outstanding voting securities (other than directors' qualifying shares or
shares of foreign Restricted Subsidiaries required to be owned by foreign
nationals pursuant to applicable law) of which are owned, directly or
indirectly, by the Company.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes, subject to the limitations set forth
below, the material U.S. federal income tax consequences associated with the
acquisition, ownership and disposition of the Notes. The discussion is based
upon provisions of the Code, its legislative history, judicial authority,
current administrative rulings and practice, and existing and proposed Treasury
Regulations, including regulations concerning the treatment of debt instruments
issued with original issue discount (the "OID Regulations"), all as in effect
and existing on the date hereof. Legislative, judicial or administrative changes
or interpretations may be forthcoming that could alter or modify the validity of
the statements and conclusions set forth below. Any such changes or
interpretations may be retroactive and could adversely affect a holder of the
Notes. This discussion assumes that the Notes are or will be held as capital
assets (as defined in Section 1221 of the Code) by the holders thereof. Except
as otherwise described herein, this discussion applies only to a person who is a
holder who purchased Notes pursuant to the Offering at the "issue price" (as
defined below) and who is (i) a citizen or resident of the United States for
United States federal income tax purposes, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) a trust that is subject to the primary supervision of a court within the
United States and the control of a United States person as described in Section
7701(a)(30) of the Code (a "U.S. Holder"). This discussion does not purport to
deal with all aspects of U.S. federal income taxation that might be relevant to
particular holders in light of their personal investment circumstances or
status, nor does it discuss the U.S. federal income tax consequences to certain
types of holders subject to special treatment under the U.S. federal income tax
laws, such as certain financial institutions, insurance companies, dealers in
securities or foreign currency, tax-exempt organizations, or persons that hold
Notes that are a hedge against, or that are hedged against, currency risk or
that are part of a straddle or conversion transaction, or persons whose
functional currency is not the U.S. dollar. Moreover, the effect of any
applicable state, local or foreign tax laws is not discussed.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH PURCHASER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
SUCH PURCHASER'S PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF
THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES.
ORIGINAL ISSUE DISCOUNT
GENERAL
The Notes bear original issue discount ("OID"), and each U.S. Holder is
required to include in income (regardless of whether such U.S. Holder is a cash
or accrual basis taxpayer) in each year, in advance of the receipt of cash
payments on such Notes, that portion of the OID, computed on a constant yield
basis, attributable to each day during such year on which the U.S. Holder held
the Notes. See
"--Taxation of Original Issue Discount" below.
In the event of a failure to consummate the Exchange Offer or cause a Shelf
Registration Statement to be declared effective, there will be an increase in
the interest rate, taxable as additional income to holders. The Company does not
intend to treat the possibility of such additional interest as affecting the
computation of the yield to maturity on the Notes under the OID Regulations.
THE AMOUNT OF ORIGINAL ISSUE DISCOUNT
The amount of OID with respect to each Note is equal to the excess of (i)
its "stated redemption price at maturity" over (ii) its "issue price." Under the
OID Regulations, the "issue price" of the Notes is the initial offering price to
the public (not including any bond house, broker or similar person or
organization acting in the capacity of an underwriter, placement agent or
wholesaler) at which a substantial amount of
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the Notes are sold, and the "stated redemption price at maturity" of each Note
will include all payments to be made thereon, including any stated interest
payments. Payments of stated interest on the Notes are not separately included
in a U.S. Holder's income as interest, but rather are treated first as payments
of previously accrued OID and then as payments of principal which reduce the
U.S. Holders' basis in the Notes.
TAXATION OF ORIGINAL ISSUE DISCOUNT
A U.S. Holder of a debt instrument issued with OID is required to include in
gross income for U.S. federal income tax purposes an amount equal to the sum of
the "daily portions" of such OID for all days during the taxable year on which
the holder holds the debt instrument. The daily portions of OID required to be
included in a holder's gross income in a taxable year is determined upon a
constant yield basis by allocating to each day during the taxable year on which
the holder holds the debt instrument a pro rata portion of the OID on such debt
instrument which is attributable to the "accrual period" in which such day is
included. Accrual periods with respect to a Note may be of any length selected
by the U.S. Holder and may vary in length over the term of the Note as long as
(i) no accrual period is longer than one year and (ii) each scheduled payment of
interest or principal on the Note occurs on either the final or first day of an
accrual period. The amount of the OID attributable to each "accrual period" is
the product of (i) the "adjusted issue price" at the beginning of such accrual
period and (ii) the "yield to maturity" of the debt instrument (stated in a
manner appropriately taking into account the length of the accrual period). The
"yield to maturity" is the discount rate that, when used in computing the
present value of all payments to be made under the Note, produces an amount
equal to the issue price of the Note. The "adjusted issue price" of a Note at
the beginning of an accrual period is generally defined as the issue price of
the Note plus the aggregate amount of OID that accrued in all prior accrual
periods, less any cash payments on the Note. Accordingly, a U.S. Holder of a
Note is required to include OID thereon in gross income for U.S. federal tax
purposes in advance of the receipt of cash in respect of such income. The amount
of OID allocable to an initial short accrual period may be computed using any
reasonable method if all other accrual periods, other than a final short accrual
period, are of equal length. The amount of OID allocable to the final accrual
period at maturity of a Note is the difference between (x) the amount payable at
the maturity of the Note and (y) the Note's adjusted issue price as of the
beginning of the final accrual period.
EFFECT OF MANDATORY AND OPTIONAL REDEMPTIONS ON OID
Certain events such as a Change of Control, an Asset Sale or an Equity
Offering will result in certain redemption rights and obligations of the Company
with respect to the Notes as specified elsewhere herein. Under the OID
Regulations, computation of the yield and maturity of the Notes is not affected
by such redemption rights and obligations if, based on all the facts and
circumstances as of the issue date, the stated payment schedule of the Notes
(that does not reflect such events) is significantly more likely than not to
occur. In addition, the Company may redeem the Notes, in whole or in part, at
any time on or after December 15, 2001, at redemption prices specified elsewhere
herein plus accrued and unpaid interest to the date of redemption. Under the OID
Regulations, solely for purposes of the accrual of OID, it is assumed that the
issuer will exercise any unconditional option to redeem a debt instrument if
such exercise will lower the yield-to-maturity of the debt instrument. The
Company does not intend to treat the redemption provisions described in this
paragraph as affecting the computation of the yield to maturity of the Notes.
U.S. Holders may wish to consult their tax advisors regarding the treatment of
such contingencies under the OID Regulations.
TAX BASIS
A U.S. Holder's initial tax basis in a Note generally is equal to the
purchase price paid by such U.S. Holder for such Note. A U.S. Holder's tax basis
in a Note is increased by the amount of OID that is
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included in such U.S. Holder's income pursuant to the foregoing rules and is
decreased by the amount of any cash payments received.
MARKET DISCOUNT, ACQUISITION PREMIUM
If a U.S. Holder acquires a Note for an amount that is less than its revised
issue price (generally, adjusted issued price) at the time of acquisition, the
amount of such difference will be treated as "market discount" for U.S. federal
income tax purposes, unless such difference is less than a specified DE MINIMIS
amount. Under the market discount rules, a U.S. Holder is required to treat any
principal payment on, or any gain on the sale, exchange, retirement or other
disposition of, a Note as ordinary income to the extent of the market discount
which has not previously been included in income and is treated as having
accrued on such Note at the time of such payment or disposition. If a U.S.
Holder makes a gift of a Note, accrued market discount, if any, is recognized as
if such U.S. Holder had sold such Note for a price equal to its fair market
value. In addition, the U.S. Holder may be required to defer, until the maturity
of the Note or the earlier disposition of the Note in a taxable transaction, the
deduction of a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry such Note.
Any market discount is considered to accrue on a straight-line basis during
the period from the date of acquisition to the maturity date of the Note, unless
the U.S. Holder elects to accrue market discount on a constant interest method.
A U.S. Holder of a Note may elect to include market discount in income currently
as it accrues (on either a straight-line basis or constant interest method), in
which case the rules described above regarding the deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the Internal Revenue Service.
A U.S. Holder who acquires a Note for an amount that is greater than the
adjusted issue price of such Note but equal to or less than the sum of all
amounts payable on such Note after the purchase date is considered to have
purchased such Note at an "acquisition premium." Under the acquisition premium
rules of the Code and the OID Regulations, the amount of OID which such holder
must include in its gross income with respect to such Note for any taxable year
is reduced by the portion of such acquisition premium properly allocable to such
year.
SALE OR REDEMPTION
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by the Company) or other disposition of a Note
is a taxable event for U.S. federal income tax purposes. In such event, a U.S.
Holder will recognize gain or loss equal to the difference between (i) the
amount of cash plus the fair market value of any property received upon such
sale, exchange, redemption or other taxable disposition and (ii) the U.S.
Holder's adjusted tax basis therein. Except with respect to accrued market
discount, such gain or loss should be capital gain or loss and will be long-term
capital gain or loss if the Note will have been held by the U.S. Holder for more
than one year at the time of such sale, exchange, redemption or other
disposition. The excess of net long-term capital gains over net short-term
capital losses is taxed at a lower rate than ordinary income for certain
non-corporate taxpayers. On August 5, 1997, legislation was enacted which, among
other things, reduces to 20% the maximum rate of tax on long-term capital gains
on most capital assets held by an individual for more than 18 months. Gain on
most capital assets held by an individual more than one year and up to 18 months
is subject to tax at a maximum rate of 28%. The distinction between capital gain
or loss and ordinary income or loss is also relevant for purposes of, among
other things, limitations on the deductibility of capital losses.
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THE EXCHANGE OFFER
An exchange of Senior Notes for Exchange Senior Notes as described under
"The Exchange Offer" should have no federal income tax consequences to a holder
of a Senior Note. A U.S. Holder will have the same tax basis and holding period
in the Exchange Senior Note immediately after the exchange as it did in the
Senior Note.
HIGH-YIELD DISCOUNT OBLIGATIONS
The Notes will constitute "applicable high yield discount obligations"
("AHYDOs"), as the yield to maturity of such Notes equals or exceeds the sum of
the applicable federal rate in effect at the time of the issuance of the Notes
(the "AFR") plus five percentage points. For December 1997, the mid-term AFR is
5.93% (based on semi-annual compounding). Under Sections 163(e) and 163(i) of
the Code, a C corporation that is an issuer of debt obligations subject to the
AHYDO rules may not deduct any portion of OID on the obligations until such
portion is actually paid. A debt obligation is generally subject to the AHYDO
rules if (i) its maturity date is more than five years from the date of issue,
(ii) its yield to maturity equals or exceeds the sum of the AFR plus five
percentage points, and (iii) it bears "significant OID." A debt obligation will
bear significant OID for this purpose if, as of the close of any accrual period
ending more than five years after issuance, the total amount of income
includable by a holder with respect to the debt instrument exceeds the sum of
(i) the total amount of "interest" paid under the obligation before the close of
such accrual period and (ii) the product of the issue price of the debt
instrument and its yield to maturity.
NON-U.S. HOLDERS
Subject to the discussion of "backup" withholding below, payments of
principal, if any, and interest (including OID) by the Company or its agent (in
its capacity as such) to any holder who is a beneficial owner of a Note but is
not a U.S. Holder is not subject to U.S. federal withholding tax provided, in
the case of interest (including OID) that (i) such holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote, (ii) such holder is not a controlled
foreign corporation for U.S. tax purposes that is related to the Company through
stock ownership, and (iii) either (A) the beneficial owner of the Note certified
to the Company or its agent, under penalties of perjury, that it is not a U.S.
Holder and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") certified to the Company or its agent, under penalties of perjury,
that the certification described in clause (A) hereof has been received from the
beneficial owner by it or by another financial institution acting for the
beneficial owner. A holder of a Note who is not a U.S. Holder, and who does not
meet the requirements of the preceding sentence, would generally be subject to
U.S. federal withholding tax at a flat rate of 30% (or a lower applicable treaty
rate) on payments of interest (including OID) on the Notes.
If a holder of a Note who is not a U.S. Holder is engaged in a trade or
business in the United States and interest (including OID) on the Note is
effectively connected with the conduct of such trade or business, such holder,
although exempt from U.S. federal withholding tax as discussed in the preceding
paragraph (or by reason of the delivery of properly completed Form 4224), is
subject to U.S. federal income tax on such interest (including OID) and on any
gain realized on the sale, exchange or other dispositions of a Note in the same
manner as if it were a U.S. Holder. In addition, if such Non-U.S. Holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% of
its effectively connected earnings and profits for that taxable year, unless it
qualifies for a lower rate under an applicable income tax treaty.
Subject to the discussion of "backup" withholding below, any capital gain
realized upon the sale, exchange or retirement of a Note by a holder who is not
a U.S. Holder is not subject to U.S. federal
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income or withholding taxes unless (i) such gain is effectively connected with a
U.S. trade or business of the holder, or (ii) in the case of an individual, such
holder is present in the United States for 183 days or more in the taxable year
of the retirement or disposition and certain other conditions are met.
Notes held by an individual who is neither a citizen nor a resident of the
United States for U.S. federal income tax purposes at the time of such
individual's death is not subject to U.S. federal estate tax, provided that the
income from the Notes was not or would not have been effectively connected with
a U.S. trade or business of such individual and that such individual qualified
for the exemption from U.S. federal withholding tax (without regard to the
certification requirements) that is described above.
Regulations recently issued by the IRS, which will be effective for payments
made after December 31, 1998 (subject to certain transition rules), make
modifications to the certification procedures applicable to non-U.S. Holders. In
general, these regulations unify certification procedures and forms and clarify
and modify reliance standards. A Non-U.S. Holder should consult its own advisor
regarding the effect of the new Treasury Regulations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The "backup" withholding and information reporting requirements may apply to
certain payments of principal and interest (including OID) on a Note and to
certain payments of proceeds of the sale or retirement of a Note. The Company,
its agent, a broker, the Trustee or any paying agent, as the case may be, is
required to withhold tax from any payment that is subject to backup withholding
at a rate of 31% of such payment if the holder fails to furnish his taxpayer
identification number (social security number or employer identification
number), to certify that such holder is not subject to backup withholding, or to
otherwise comply with the applicable requirements of the backup withholding
rules. Certain holders (including, among others, all corporations) are not
subject to the backup withholding and reporting requirements.
Under current Treasury Regulations, backup withholding and information
reporting do not apply to payments made by the Company or any agent thereof (in
its capacity as such) to a holder of a Note who has provided the required
certification under penalties of perjury that it is not a U.S. Holder as set
forth in clause (iii) in the first paragraph under "--Non-U.S. Holders" or has
otherwise established an exemption (provided that neither the Company nor such
agent has actual knowledge that the holder is a U.S. Holder or that the
conditions of any other exemption are not in fact satisfied). Payments of the
proceeds from the sale by a holder who is not a U.S. Holder of a Note made to or
through a foreign office of a broker will not be subject to U.S. information
reporting or backup withholding, except that if the broker is a U.S. person, a
controlled foreign corporation for U.S. tax purposes or a foreign person 50% or
more of whose gross income is effectively connected with a United States trade
or business for a specified three-year period, U.S. information reporting may
apply to such payments.
Payments of the proceeds from the sale of a Note to or through the United
States office of a broker is subject to U.S. information reporting and backup
withholding unless the holder or beneficial owner certifies as to its non-U.S.
status or otherwise establishes an exemption from U.S. information reporting and
backup withholding.
In October 1997, United States Treasury Regulations were issued which alter
the foregoing rules in certain respects and which generally will apply to any
payments (including OID) in respect of a Note or proceeds from the sale of a
Note that are made after December 31, 1998. Among other things, such regulations
expand the number of foreign intermediaries that are potentially subject to
information reporting and address certain documentary evidence requirements
relating to exemption from the general backup withholding requirements. Holders
of the Notes should consult their tax advisors concerning possible application
of the final regulations to amounts of OID that they are required to include in
income as well as the possible application of such regulations to any payments
made on or with respect to the Notes.
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Any amounts withheld under the backup withholding rules from a payment to a
holder may be claimed as a credit against such holder's United States federal
income tax liability.
The Company is required to furnish certain information to the Internal
Revenue Service, and will furnish annually to record holders of Notes,
information with respect to interest and OID accruing during the calendar year.
The OID information will be based upon the adjusted issue price of the debt
instrument as if the holder were the original holder of the debt instrument. No
assurance can be given that the Internal Revenue Service will not challenge the
accuracy of the reported information. Subsequent holders who purchase Notes for
an amount other than the adjusted issue price and/or on a date other than the
last day of an accrual period will be required to determine for themselves the
amount of OID, if any, they are required to include in gross income for U.S.
federal income tax purposes.
NOTICE TO INVESTORS
Because the following instructions will apply to any Senior Notes held by
holders who do not participate in the Exchange Offer, holders of Senior Notes
are advised to consult legal counsel prior to making any offer, resale, pledge
or transfer of any of the Senior Notes.
The Senior Notes have not been registered under the Securities Act and may
not be offered or sold within the United States or to U.S. Persons (as such
terms are defined under the Securities Act) except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act. Accordingly, the Senior Notes are being offered hereby only (A)
to "qualified institutional buyers" (as defined in Rule 144A) in reliance on the
exemption from the registration requirements of the Securities Act provided by
Rule 144A, (B) to a limited number of institutional "accredited investors"
within the meaning of Rule 501(a)(1), (2), (3) and (7) under the Securities Act
and (C) pursuant to offers and sales that occur outside the United States within
the meaning of Regulation S under the Securities Act.
Each purchaser of the Senior Notes, by its acceptance thereof, will be
deemed to have acknowledged, represented to and agreed with the Company and the
Initial Purchaser as follows:
(1) It understands and acknowledges that the Senior Notes have not been
registered under the Securities Act or any other applicable securities law,
the Senior Notes are being offered for resale in transactions not requiring
registration under the Securities Act or any other securities laws,
including sales pursuant to Rule 144A under the Securities Act, and none of
the Senior Notes may be offered, sold or otherwise transferred except in
compliance with the registration requirements of the Securities Act or any
other applicable securities law, pursuant to an exemption therefrom or in a
transaction not subject thereto and in each case in compliance with the
conditions for transfer set forth in paragraph (4) below.
(2) It is either:
(a) a "Qualified Institutional Buyer" within the meaning of Rule 144A
under the Securities Act and is aware that any sale of the Senior Notes
to it will be made in reliance on Rule 144A. Such acquisition will be for
its own account or for the account of another Qualified Institutional
Buyer; or
(b) an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3)or (7) of Rule 501 under the Securities Act
or, if the Senior Notes are to be purchased for one or more accounts
("investor accounts") for which it is acting as fiduciary or agent
(except if it is a bank as defined in Section 3(a)(2) of the Securities
Act or a savings and loan association or other institution as described
in Section 3(a)(5)(A) of the Securities Act, whether acting in its
individual capacity or in a fiduciary capacity), each such investor
account is an institutional accredited investor on a like basis; in the
normal course of its business, it invests in or purchases securities
similar to the Senior Notes and it has such knowledge and experience in
financial and
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business matters that it is capable of evaluating the merits and risks of
purchasing any of the Senior Notes. It is aware that it (or any investor
account) may be required to bear the economic risk of an investment in
the Senior Notes for an indefinite period of time and it (or such
investor account) is able to bear such risk for an indefinite period; or
(c) a person that, at the time the buy order was originated, was
outside the United States and was not a U.S. Person (and was not
purchasing for the account or benefit of a U.S. Person (other than an
Initial Purchaser)) within the meaning of Regulation S under the
Securities Act.
(3) It acknowledges that none of the Company or the Initial Purchaser or
any person representing the Company or the Initial Purchaser has made any
representation to it with respect to the Company or the Offering or sale of
any Senior Notes, other than the information contained in this Offering
Memorandum, which Offering Memorandum has been delivered to it. Accordingly,
it acknowledges that no representation or warranty is made by the Initial
Purchaser as to the accuracy or completeness of such materials. It has had
access to such financial and other information as it has deemed necessary in
connection with its decision to purchase any of the Senior Notes, including
an opportunity to ask questions of and request information from the Company
and the Initial Purchaser, and it has received and reviewed all information
which it requested.
(4) It is purchasing the Senior Notes for its own account, or for one or
more investor accounts for which it is acting as a fiduciary or agent, in
each case for investment, and not with a view to, or for offer or sale in
connection with, any distribution thereof in violation of the Securities
Act, subject to any requirement of law that the disposition of its property
or the property of such investor account or accounts be at all times within
its or their control and subject to its or their ability to resell such
Senior Notes pursuant to Rule 144A, Regulation S or any exemption from
registration available under the Securities Act. It agrees on its own behalf
and on behalf of any investor account for which it is purchasing the Senior
Notes, and each subsequent holder of the Senior Notes by its acceptance
thereof will agree, to offer, sell or otherwise transfer such Senior Notes
prior to the date which is two years after the later of the date of the
original issue of the Senior Notes and the last date on which the Company or
any affiliate of the Company was the owner of such Senior Notes (the "Resale
Restriction Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the
Securities Act, (c) for so long as the Senior Notes are eligible for resale
pursuant to Rule 144A, to a person it reasonably believes is a Qualified
Institutional Buyer that purchases for its own account or for the account of
a Qualified Institutional Buyer to whom notice is given that the transfer is
being made in reliance on Rule 144A, (d) pursuant to offers and sales to
non-U.S. persons that occur outside the United States within the meaning of
Regulation S under the Securities Act, (e) to an institutional "accredited
investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Securities Act that is acquiring the security for its own
account or for the account of such an institutional "accredited investor"
for investment purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the Securities Act, (f)
pursuant to the exemption from registration under the Securities Act
provided by Rule 144 thereunder (if available) or (g) pursuant to any other
available exemption from the registration requirements of the Securities
Act, subject in each of the foregoing cases to any requirement of law that
the disposition of its property or the property of such investor account or
accounts be at all times within its or their control and to compliance with
any applicable state securities laws. The foregoing restrictions on resale
will not apply subsequent to the Resale Restriction Termination Date. If any
resale or other transfer of the Senior Notes is proposed to be made pursuant
to clause (e) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in the
form of Exhibit A hereto to the Trustee, which shall provide as applicable,
among other things, that the Transferee is an institutional "accredited
investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Securities Act that is acquiring such Senior Notes for
investment purposes and not with a view to, or for offer or sale in
119
<PAGE>
connection with, any distribution in violation of the Securities Act. Each
purchaser acknowledges that the Company and the Trustee reserve the right
prior to any offer, sale or other transfer pursuant to clause (e), (f) or
(g) prior to the Resale Restriction Termination Date of the Senior Notes to
require the delivery of an opinion of counsel, certifications and/or other
information satisfactory to the Company and the Trustee.
Each purchaser acknowledges that each certificate representing a Senior Note
will contain a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM,
OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE
HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH
ASCENT ENTERTAINMENT GROUP, INC. (THE "COMPANY") OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY)
(THE "RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY, (B)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
(C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE
IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE
501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR,"
FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F)
PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT
TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (I) PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE 40-DAY
RESTRICTED PERIOD WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES
ACT OR PURSUANT TO CLAUSES (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE
OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT, THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
120
<PAGE>
(5) It acknowledges that the Company, the Initial Purchaser and others
will rely upon the truth and accuracy of the foregoing acknowledgments,
representations, warranties and agreements and agrees that if any of the
acknowledgments, representations, warranties and agreements deemed to have
been made by its purchase of the Senior Notes are no longer accurate, it
shall promptly notify the Initial Purchaser. If it is acquiring any Senior
Notes as a fiduciary or agent for one or more investor accounts, it
represents that it has sole investment discretion with respect to each such
investor account and that it has full power to make the foregoing
acknowledgments, representations and agreements on behalf of each such
investor account.
A TRANSFER OF ANY SENIOR NOTES BEARING A RESTRICTED LEGEND DURING THE TIME
WHEN A REGISTRATION STATEMENT IS EFFECTIVE WITH RESPECT TO SUCH SECURITY MUST BE
MADE PURSUANT TO SUCH REGISTRATION STATEMENT AND THE TRANSFEROR MUST DELIVER TO
THE TRUSTEE A CERTIFICATE SET FORTH IN THE INDENTURE AS TO COMPLIANCE WITH
CERTAIN CONDITIONS TO TRANSFER.
Each purchaser of Senior Notes that is an institutional accredited investor
must execute and deliver a purchaser's letter for the benefit of the Initial
Purchaser and the Company, substantially in the form included as Annex A to this
Offering Memorandum, whereby such institutional accredited investor (a) agrees
to the restrictions on transfer set forth in clause (1) above, (b) confirms that
it (i) is acquiring Senior Notes having a minimum purchase price of at least
$100,000 for its own account and for each separate account for which it is
acting, (ii) is acquiring such Senior Notes for its own account or for certain
qualified institutional accounts as specified therein, and (iii) is not
acquiring the Senior Notes with a view to distribution thereof in a transaction
that would violate the Securities Act or the securities laws of any State of the
United States or any other applicable jurisdiction, and (c) acknowledges that
the registrar and transfer agent for the Senior Notes will not be required to
accept for registration or transfer any Senior Notes acquired by them, except
upon presentation of evidence satisfactory to the Company that the restrictions
on transfer set forth in clause (1) above have been complied with, and that any
such Senior Notes will be in the form of definitive physical certificates
bearing the legend set forth in clause (4) above.
The Senior Notes may not be sold or transferred to, and each purchaser, by
its purchase of the Senior Notes shall be deemed to have represented and
covenanted that, it is not acquiring the Senior Notes for or on behalf of, and
will not transfer the Senior Notes to, any pension or welfare plan (as defined
in Section 3 of the Employee Retirement Income Security Act of 1974 ("ERISA"))
except that such a purchase for or on behalf of a pension or welfare plan shall
be permitted:
(1) to the extent such purchase is made by or on behalf of a bank
collective investment fund maintained by the purchaser in which no plan
(together with any other plans maintained by the same employer or employee
organization) has an interest in excess of 10% of the total assets, in such
collective investment fund and the conditions of Section III of Prohibited
Transaction Class Exemption 91-38 issued by the Department of Labor are
satisfied;
(2) to the extent such purchase is made by or on behalf of an insurance
company pooled separate account maintained by the purchaser in which at any
time, while the Senior Notes or the Exchange Senior Notes are outstanding,
no plan (together with any other plans maintained by the same employer or
employee organization) has an interest in excess of 10% of the total of all
assets in such pooled separate account and the conditions of Section III of
Prohibited Transaction Class Exemption 90-1 issued by the Department of
Labor are satisfied;
(3) to the extent such purchase is made by or on behalf of an insurance
company general account, Prohibited Transaction Class Exemption 95-60
applies to exempt the purchase of the Senior Notes from the provisions of
Sections 406(a) and 407(a) of ERISA and Sections 4975(c)(1)(A), (B), (C) and
(D) of the Code;
121
<PAGE>
(4) to the extent such purchase is made on behalf of a plan by a
qualified professional asset manager ("QPAM") (as defined in Part V(a) of
Prohibited Transaction Class Exemption 84-14 issued by the Department of
Labor) and the assets of such plan when combined with the assets of other
plans established or maintained by the same employer (or affiliate thereof)
or employee organization and managed by such QPAM, do not represent more
than 20% of the total client assets managed by such QPAM, assuming the
conditions of Part I of such Exemption are otherwise satisfied;
(5) to the extent such plan is a governmental plan or church plan (as
defined in Section 3 of ERISA) which is not subject to the provisions of
Title I of ERISA or Section 4975 of the Code;
(6) to the extent such purchase is made on behalf of a plan by an
in-house asset manager (as defined in Part IV(a) of Prohibited Transaction
Class Exemption 96-23 issued by the Department of Labor) and the applicable
conditions of such exemption are satisfied; or
(7) to the extent one or more other prohibited transaction statutory or
administrative exemptions applies such that the purchase of the Senior Notes
by a plan will not constitute a non-exempt prohibited transaction.
In addition, the fiduciary of any employee benefit plan subject to Title I
of ERISA (a "Plan") should consider the fiduciary standards under ERISA in the
context of the Plan's particular circumstances before authorizing an investment
of such Plan's assets in the Senior Notes. Accordingly, such fiduciary should
consider whether the investment satisfies the diversification and prudence
requirements of ERISA and whether the investment is consistent with the
documents and instruments governing the Plan.
Certain employee benefit plans, such as governmental plans and church plans
that are not subject to the restrictions of ERISA may invest in the Senior Notes
without regard to the ERISA considerations in the preceding paragraph. The
investment in the Senior Notes by such employee benefit plans may, however, be
subject to other applicable federal, state and local laws, rules and
regulations, which should be carefully considered by such employee benefit plans
before investing in the Senior Notes.
Every Plan, governmental plan or church plan considering the acquisition of
the Senior Notes should consult with its counsel with respect to the potential
applicability of ERISA, the Code and any other relevant laws to such investment.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company,
the Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
122
<PAGE>
PLAN OF DISTRIBUTION
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and subject
to the immediately following sentence, the Company believes that the Exchange
Senior Notes that will be issued pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by the holders thereof without
further compliance with the registration and prospectus delivery provisions of
the Securities Act. However, any purchaser of Senior Notes who is an "affiliate"
of the Company or who intends to participate in the Exchange Offer for the
purpose of distributing the Exchange Senior Notes (i) will not be able to rely
on the interpretation by the staff of the Commission set forth in the
above-mentioned no-action letters, (ii) will not be able to tender its Senior
Notes in the Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the Senior Notes unless such sale or transfer is made
pursuant to an exemption from such requirements.
Each holder of the Senior Notes who wishes to exchange Senior Notes for
Exchange Senior Notes in the Exchange Offer will be required to represent that
(i) it is not an affiliate of the Company, (ii) any Exchange Senior Notes to be
received by it were acquired in the ordinary course of its business and (iii) at
the time of commencement of the Exchange Offer, it has no arrangement with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Senior Notes. In addition, in connection with any resales
of Exchange Senior Notes, any broker-dealer (an "Exchanging Dealer") who
acquired the Senior Notes for its own account as a result of market-making
activities or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
Exchanging Dealers may fulfill their prospectus delivery requirements with
respect to the Exchange Senior Notes (other than a resale of an unsold allotment
from the original sale of the Senior Notes) with the prospectus contained in the
Exchange Offer Registration Statement. Under the Registration Rights Agreement,
the Company is required to allow Exchanging Dealers to use the prospectus
contained in the Exchange Offer Registrattion Statement in connection with the
resale of such Exchange Senior Notes for the period starting on the Expiration
Date and ending on the close of business one year after the Expiration Date.
Each Exchanging Dealer who receives Exchange Senior Notes for its own account in
exchange for Senior Notes that were acquired by it as a result of market-making
activities or other trading activities will be required to acknowledge that it
will deliver a Prospectus in connection with any resale by it of such Exchange
Senior Notes.
The Issuer will not receive any proceeds from any sale of the Exchange
Senior Notes by Exchanging Dealers. Exchange Senior Notes received by Exchanging
Dealers for their own account pursuant to the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Senior
Notes or a combination of such methods of resale, at market prices prevailing at
the time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Exchanging Dealer and/or the purchasers
of any such Exchange Senior Notes. Any Exchanging Dealer that resells Exchange
Senior Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in the distribution of
such Exchange Senior Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of Exchange
Senior Notes and commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
At the time of the Offering the Initial Purchaser advised the Company that
it intended to make a market in the Exchange Senior Notes; however, it is not
obligated to do so and any such market making may be discontinued at any time,
without notice, in the sole discretion of the Initial Purchaser. Accordingly,
there can be no assurance as to the development or liquidity of any market that
may develop for the
123
<PAGE>
Exchange Senior Notes. The Senior Notes are not listed on a national securities
exchange or authorized for trading on the Nasdaq Stock Market. The Senior Notes
that are sold to Qualified Institutional Buyers are expected to be eligible for
trading in the PORTAL market. See "The Exchange Offer."
IN ORDER TO FACILITATE THE EXCHANGE OFFER, THE INITIAL PURCHASER MAY ENGAGE
IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
EXCHANGE SENIOR NOTES. SPECIFICALLY, THE INITIAL PURCHASER MAY BID FOR, AND
PURCHASE, THE EXCHANGE SENIOR NOTES IN THE OPEN MARKET. ANY OF THESE ACTIVITIES
MAY STABILIZE OR MAINTAIN THE MARKET PRICE OF THE EXCHANGE SENIOR NOTES ABOVE
INDEPENDENT MARKET LEVELS. THE INITIAL PURCHASER IS NOT REQUIRED TO ENGAGE IN
THESE ACTIVITIES AND MAY END ANY OF THESE ACTIVITIES AT ANY TIME.
NationsBank of Texas, N.A., an affiliate of NationsBanc Montgomery
Securities, Inc., is a lender and Agent under the New Ascent Credit Facility and
the New OCC Credit Facility, for which it is receiving customary fees. See
"Description of Certain Indebtedness."
The Issuer has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Notes (including broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
EXPERTS
The consolidated financial statements and related financial statement
schedule of Ascent Entertainment Group, Inc. as of December 31, 1996 and 1995
and for each of the three years in the period ended December 31, 1996 included
and incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports which are included
and incorporated by reference herein, and have been so included and incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing herein.
ASCENT ENTERTAINMENT GROUP HAS ITS PRINCIPAL OFFICES AT 1200 SEVENTEENTH
STREET, SUITE 2800, DENVER, COLORADO 80202, AND ITS TELEPHONE NUMBER IS (303)
626-7000. THE COMPANY IS A DELAWARE CORPORATION AND WAS INCORPORATED IN 1995.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed with the Commission pursuant to
the Exchange Act and are hereby incorporated by reference in the Offering
Memorandum:
<TABLE>
<CAPTION>
FORM DATE FILED
- ------------------------------------------------------------------- ------------------------
<S> <C>
8-K................................................................ December 24, 1997
10-Q............................................................... November 14, 1997
8-K................................................................ November 3, 1997
10-Q............................................................... August 14, 1997
8-K................................................................ July 29, 1997
8-K................................................................ July 8, 1997
8-A12G............................................................. July 1, 1997
8-K................................................................ June 19, 1997
10-Q............................................................... May 13, 1997
Schedule 14A....................................................... April 23, 1997
10-K............................................................... March 31, 1997
8-K................................................................ February 21, 1997
</TABLE>
124
<PAGE>
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
in this Prospectus and to be part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
125
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996:
Unaudited Condensed Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996........... F-2
Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 1997
and 1996............................................................................................... F-3
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1997
and 1996............................................................................................... F-4
Notes to Unaudited Condensed Consolidated Financial Statements for the nine months ended September 30,
1997 and 1996.......................................................................................... F-5
AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994:
Independent Auditors' Report............................................................................. F-12
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................. F-13
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994............... F-14
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994..... F-15
Consolidated Statements of Cash Flow for the years ended December 31, 1996, 1995 and 1994................ F-16
Notes to Consolidated Financial Statements for the years ended December 31, 1996, 1995 and 1994.......... F-17
</TABLE>
F-1
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 18,419 $ 3,963
Receivables, net......................................................... 57,512 54,695
Prepaid expenses......................................................... 20,336 11,247
Current portion of film inventory........................................ 15,922 --
Deferred income taxes.................................................... 5,409 3,580
Income taxes receivable (Note 7)......................................... 8,798 12,623
Other current assets..................................................... 1,770 2,759
-------- --------
Total current assets..................................................... 128,166 88,867
Property and equipment, net.............................................. 311,759 301,498
Goodwill, net............................................................ 124,501 132,805
Franchise rights, net.................................................... 98,577 102,189
Film inventory, net (Note 5)............................................. 30,797 76,234
Investments.............................................................. 7,226 9,150
Other assets, net........................................................ 33,805 31,899
-------- --------
TOTAL ASSETS............................................................... $ 734,831 $ 742,642
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 6)........................................... $ 192,000 $ 143,000
Accounts payable......................................................... 19,113 19,992
Deferred income.......................................................... 50,782 81,942
Income taxes payable..................................................... 4,202 6,970
Payable to COMSAT (Note 7)............................................... 541 4,662
Other accrued liabilities................................................ 58,949 38,629
-------- --------
Total current liabilities.............................................. 325,587 295,195
Long-term debt (Note 6).................................................... 50,000 50,000
Other long-term liabilities................................................ 13,004 14,645
Deferred income taxes...................................................... 7,716 5,742
-------- --------
Total liabilities........................................................ 396,307 365,582
Minority interest (Note 3)................................................. 97,661 107,475
STOCKHOLDERS' EQUITY (NOTE 9):
Preferred stock, par value $0.1 per share, 5,000,000 shares authorized,
none outstanding....................................................... -- --
Common stock, par value $.01 per share, 60,000,000 shares authorized;
29,755,600 and 29,754,000 issued and outstanding....................... 297 297
Additional paid-in capital............................................... 307,588 307,569
Accumulated deficit...................................................... (68,387) (39,633)
Other.................................................................... 1,365 1,352
-------- --------
Total stockholders' equity............................................. 240,863 269,585
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $ 734,831 $ 742,642
-------- --------
-------- --------
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
F-2
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
REVENUES.................................................................................. $ 318,714 $ 169,501
---------- ----------
OPERATING EXPENSES:
Cost of services........................................................................ 266,463 131,059
Depreciation and amortization........................................................... 75,689 48,637
General and administrative.............................................................. 5,921 7,723
---------- ----------
Total operating expenses............................................................ 348,073 187,419
---------- ----------
Operating loss............................................................................ (29,359) (17,918)
Other income (expense), net............................................................... 789 491
Interest expense.......................................................................... (16,329) (5,904)
---------- ----------
Loss before taxes and minority interest................................................... (44,899) (23,331)
Income tax benefit........................................................................ 5,907 7,081
---------- ----------
Loss before minority interest............................................................. (38,992) (16,250)
Minority interest in (income) loss of subsidiary, net of taxes............................ 10,237 (316)
---------- ----------
NET LOSS.................................................................................. $ (28,755) $ (16,566)
---------- ----------
---------- ----------
NET LOSS PER COMMON SHARE................................................................. $ (.97) $ (.56)
---------- ----------
---------- ----------
Weighted average number of common shares outstanding...................................... 29,755 29,752
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
F-3
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................................................... $ (28,755) $ (16,566)
Adjustments for non-cash expenses:
Depreciation and amortization........................................................ 75,689 48,637
Amortization of film inventory....................................................... 68,888 5,380
Provision for loss on investment..................................................... 129 1,800
Changes in operating assets and liabilities.......................................... (67,583) (10,972)
---------- -----------
Net cash provided by operating activities.............................................. 48,368 28,279
---------- -----------
INVESTING ACTIVITIES:
Proceeds from note receivable.......................................................... 2,189 2,900
Purchase of property and equipment..................................................... (68,293) (73,421)
Net expenditures for film production costs............................................. (19,233) (33,432)
Investments in unconsolidated business................................................. -- (4,125)
Distributions from partnerships and joint ventures..................................... 505 --
Proceeds from sale of investment....................................................... 1,920 1,892
---------- -----------
Net cash used in investing activities.................................................. (82,912) (106,186)
---------- -----------
FINANCING ACTIVITIES:
Repayment of long-term debt............................................................ -- (208)
Net short-term borrowings.............................................................. 49,000 68,000
Other.................................................................................. -- 576
---------- -----------
Net cash provided by financing activities.............................................. 49,000 68,368
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... 14,456 (9,539)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................................... 3,963 11,012
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................. $ 18,419 $ 1,473
---------- -----------
---------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.......................................................................... $ 11,454 $ 5,534
---------- -----------
---------- -----------
Income taxes paid...................................................................... $ 262 $ 414
---------- -----------
---------- -----------
NON-CASH INVESTING AND FINANCING ACTIVITY:
Reversal of accrual made in OCC purchase price allocation.............................. $ 3,000 $ --
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
F-4
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed consolidated financial statements of
Ascent Entertainment Group, Inc. ("Ascent" or the "Company") should be read in
the context of the 1996 consolidated financial statements and notes thereto
included elsewhere in this document. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The accompanying condensed consolidated financial statements reflect all
adjustments and disclosures which are, in the opinion of management, necessary
for a fair presentation. All such adjustments are of a normal recurring nature.
The results of operations for the interim periods are not necessarily indicative
of the results of the entire year. Certain fiscal 1996 amounts have been
reclassified to conform with the fiscal 1997 presentation. Such
reclassifications had no effect on net loss or stockholders' equity.
2. ORGANIZATION AND BASIS OF PRESENTATION
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"), Beacon Communications Corp. ("Beacon") and the
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. Significant
intercompany transactions have been eliminated.
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"). Until June 27, 1997 COMSAT
continued to own a majority (80.67%) of Ascent's common stock and control
Ascent. 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.
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 Note 7) 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 which are directly associated
with the Distribution have been charged to expense.
3. BUSINESS COMBINATION
As discussed in Note 2 to the Company's 1996 consolidated financial
statements presented elsewhere in this document, effective October 8, 1996,
Ascent through its newly formed subsidiary, OCC, acquired the assets, properties
and certain liabilities of SpectraVision, Inc., 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. Ascent owns
approximately 57% of the common stock of OCC as of September 30, 1997. The
acquisition
F-5
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS COMBINATION (CONTINUED)
of SpectraVision has been 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 the acquisition.
4. DENVER ARENA PROJECT
As discussed in Note 4 to the Company's 1996 consolidated financial
statements, on March 28, 1996, the Company entered into an agreement with The
Anschutz Corporation ("TAC") pursuant to which the Company purchased all of
TAC's interests in the proposed arena development project in Denver and related
goodwill, rights, plans, specifications, drawings, contracts, relationships,
approvals, permits and other work product of every kind that had been generated
by the efforts of TAC and Ascent with respect to the proposed arena (the "Arena
Assets"), and TAC agreed to use reasonable efforts to facilitate the development
and construction of the proposed arena. Ascent and TAC had worked together on
the proposed arena development from early 1994 until September 1995. In
consideration for TAC's interest in the Arena Assets and its agreement to
facilitate development of the proposed arena, Ascent paid TAC $6,600,000 in
cash. On a non-interest bearing basis, Ascent also agreed to pay TAC an
additional $5,000,000 and grant a paid-up suite license, contingent on
completion of the construction and occupancy of the proposed arena.
On May 7, 1997, the Company entered into a Land Purchase Agreement (the
"Agreement") with Southern Pacific Transportation Company ("SPT") pursuant to
which the Company would purchase approximately 49 acres in Denver as the site
for the proposed arena for a purchase price of $20,000,000. The Agreement is
similar to the previously expired agreement between SPT and the Company.
Pursuant to the Agreement, the closing of the land purchase needs to occur on or
before August 31, 1997 and consummation of the transaction is subject to several
conditions, including obtaining satisfactory financing. In connection with the
Agreement, the Company paid SPT an earnest money deposit of $750,000, which will
be credited against the purchase price at closing. The Agreement also provides
for SPT to effect a state-approved environmental clean-up plan on the site, and
to provide continuing partial indemnification with regard to certain
environmental liabilities. Subsequently, the Company has amended the Agreement
to extend the final date for closing of the land purchase first to October 31,
1997 and then to November 14, 1997. In connection with these extensions, the
Company paid SPT non-refundable deposits totaling $410,000. On November 14,
1997, the Company purchased the land pursuant to the Agreement as amended.
In connection with the proposed arena, on November 13, 1997, the Company
entered into a definitive agreement (the "Arena Agreement") with the City and
County of Denver (the "City"), the effectiveness of which is subject to the
satisfaction of certain conditions prior to December 15, 1997. 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 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
contributed 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. In
connection with such investment, upon consent of the NBA and NHL, LDA will
receive an ownership interest in the Arena Company that
F-6
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DENVER ARENA PROJECT (CONTINUED)
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 Avalanche. LDA
will not have any management or operating rights with respect to the Arena
Company, the Nuggets or the Avalanche. Prior to receipt of the league consents,
LDA will have a 50% interest in the Arena Company, and, if the consents are not
received, then after June 30, 1998, LDA may require Ascent to purchase, and
Ascent may require LDA to sell, LDA's interest in the Arena Company for
$15,000,000, plus interest payable at the election of Ascent, in either cash or
common stock of Ascent, or some combination thereof. The Board of Governors of
both the NBA and NHL have approved Liberty's investment and final comments are
expected to be executed by December 31, 1997.
5. FILM INVENTORY
Film inventory consists of the following at September 30, 1997 and December
31, 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Films released, less amortization....................................... $ 28,441 $ 3,382
Films in process and development........................................ 13,422 69,732
Development............................................................. 4,856 3,120
--------- ---------
Total film inventory............................................ $ 46,719 $ 76,234
--------- ---------
--------- ---------
</TABLE>
6. NOTES PAYABLE AND LONG-TERM DEBT
On March 23, 1997, OCC entered into an amendment to its revolving credit
facility with a bank (the "OCC Amendment"). Under the OCC Amendment, the amount
available under the OCC revolving credit facility was increased from $125.0
million to $150.0 million, and certain other terms were amended to clarify such
terms. At September 30, 1997, $50.0 million was outstanding as a long-term
revolving loan payable in 2001 while $77.0 million is considered a short-term
borrowing under the amended OCC credit facility. At September 30, 1997, there
was $23.0 million available for future borrowings under the amended OCC credit
facility, subject to certain covenant restrictions.
On March 23, 1997, Ascent entered into an amendment and restatement of its
revolving credit facility with a bank (the "Ascent Amended Facility"). The
Ascent Amended Facility provides, among other things, that the Ascent revolving
credit facility will only be renewable for two additional one year options
beyond October 7, 1997 if, prior thereto, Ascent has received not less than
$50.0 million in proceeds from a new debt financing which is subordinated to the
Ascent Amended Facility; for the maximum amount available to be borrowed under
the facility to be reduced from $200.0 million to $140.0 million; for the
elimination of the $125.0 million limit on available borrowings under the
facility prior to the receipt of NBA and NHL consents; that those financial
covenants contained in the Ascent Amended Facility related to the financial
results of OCC will not be applicable until December 31, 1997; for the $140.0
million of availability to be divided into a term loan of $50.0 million and a
revolving facility of $90.0 million; for the failure of Ascent to commence
construction on the new arena (see Note 4) prior to August 31, 1997 to be an
event of default; and for amendments to certain other financial covenants.
On August 12, 1997, Ascent obtained the bank's consent to (i) extend the
time for the commencement of construction on the new arena from August 31, 1997
to October 31, 1997 and (ii) extend the maturity
F-7
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
date for the revolving credit facility from October 7, 1997 to October 31, 1997,
still subject to Ascent obtaining not less than $50.0 million in subordinated
indebtedness by October 9, 1997. On October 9, 1997 the Company reached
agreement with the bank to extend the date by which Ascent has to raise
additional debt financing from October 9, 1997 to December 31, 1997. After
raising the additional debt financing, Ascent would be able to renew its current
facility for up to two more years after December 31, 1997. On October 9, 1997,
Ascent's lender agreed to the extension of the maturity date based on progress
in Ascent's efforts to raise financing through a private placement offering
which is expected to raise significantly in excess of $50.0 million in proceeds.
Pursuant to the Ascent Amended Facility, the amount available thereunder would
be decreased by an amount equal to the excess over $50.0 million raised. In
consideration for the bank to extend the credit agreement beyond two years,
Ascent is considering even a larger decrease in the amount to be available under
the credit agreement.
On October 31, 1997, Ascent obtained the bank's consent to extend the
October 31, 1997 deadline for commencing construction on the new arena to
November 30, 1997. The Company commenced construction on the new arena before
the November 30, 1997 deadline. Based on current market conditions, management
of Ascent believes that the Company will be successful in obtaining the required
funds through additional debt financing by December 31, 1997, although there can
be no assurances that conditions will not change or that other contingencies
will not arise which could impact Ascent's ability to raise the additional debt
financing on terms acceptable to Ascent. Accordingly, Ascent could be required
to refinance the Ascent Amended Facility which could require Ascent to sell
assets. At September 30, 1997, $25.0 million was available for future borrowings
under the Ascent Amended Facility, subject to certain covenant restrictions.
7. RELATED PARTY TRANSACTIONS AND AGREEMENTS WITH COMSAT
During the nine-month periods ended September 30, 1997 and 1996, Ascent paid
COMSAT $245,000 and $0 respectively, in interest relating to intercompany
obligations between the two entities. In addition, COMSAT has provided
administrative services to Ascent pursuant to an Intercompany Services Agreement
(the "Services Agreement"). The Services Agreement, which was amended in
December 1996 to reflect a reduced level of services to be provided effective
January 1, 1997, was terminated on June 27, 1997 in connection with the
Distribution. Total charges incurred under this agreement were approximately
$173,000 and $1,500,000 for the nine months ended September 30, 1997 and 1996,
respectively.
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 2). In conjunction with the SpectraVision
transaction, Ascent's ownership in OCC decreased to approximately 57% and OCC
began filing a separate return commencing on October 9, 1996. Pursuant to the
tax sharing agreement and the tax disaffiliation agreement, taxes payable or
receivable with respect to periods that Ascent was included in COMSAT's
consolidated tax group are settled with COMSAT annually. At September 30, 1997
and December 31, 1996, Ascent's federal income tax receivable from COMSAT was
$8,798,000 and $12,263,000, respectively. In conjunction with the Distribution
(see note 2), the Company will no longer be part of COMSAT's consolidated tax
group and accordingly, it may be unable to recognize tax benefits and will
receive no cash payments from COMSAT for operating losses incurred subsequent to
June 27, 1997.
F-8
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS AND AGREEMENTS WITH COMSAT (CONTINUED)
In connection with the Distribution, Ascent and COMSAT executed the
Distribution Agreement, dated June 3, 1997. The Distribution Agreement provides,
among other things, that COMSAT will distribute all of its holdings of Ascent
common stock to COMSAT shareholders on a pro-rata basis. 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 will be
subject to the following restrictions under the Distribution Agreement: (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 the second anniversary of
the Distribution, Ascent will continue the active conduct of its ANS satellite
distribution, service and maintenance business; (iii) until the first
anniversary of the Distribution, Ascent will not sell or otherwise issue to any
person, or redeem or otherwise acquire from any person, any Ascent stock or
securities exercisable or convertible into Ascent stock or any instruments that
afford any person the right to acquire stock of Ascent; (iv) for six months
after the Distribution, Ascent will not solicit any person to make a tender
offer for stock of Ascent, participate in or support any unsolicited tender
offer for stock of Ascent, or approve any proposed business combination or any
transaction which would result in any person owning 20% or more of the stock of
Ascent; (v) until the second anniversary of the Distribution, 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; (vi) until the second anniversary of the
Distribution, Ascent will not voluntarily dissolve or liquidate or engage in any
merger, consolidation or other reorganization; and (vii) until the second
anniversary of the Distribution, Ascent will not unwind the merger of ANS with
and into Ascent in any way.
The restrictions noted in items (ii) through (vii) above will be waived with
respect to any particular transaction if either 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, or 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, with respect to a transaction
occurring at least one year after the Distribution, 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.
8. LITIGATION
The Company and its subsidiaries are defendants, and may be potential
defendants, in lawsuits and claims arising in the ordinary course of their
businesses. While the outcomes of such claims, lawsuits, or
F-9
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LITIGATION (CONTINUED)
other proceedings cannot be predicted with certainty, management expects that
such liability, to the extent not provided for by insurance or otherwise, will
not have a material adverse effect on the financial condition of the Company.
9. STOCKHOLDERS' EQUITY
STOCKHOLDERS' RIGHTS' PLAN--On June 27, 1997, the Company's Board of
Directors 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 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--As discussed in Note 10 to the Company's 1996 financial
statements, the Company had two stock incentive plans, the 1995 Key Employee
Stock Plan (the "Key Employee Plan") and the 1995 Non-employee Directors Stock
Plan. In order for the Distribution to be tax-free, 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 1995 Non-employee Director's Stock Plan was terminated as
it only provided for the issuance of stock and stock options. In addition, the
stock options previously granted under the Key Employee Plan (1,273,250 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 Key
Employee Plan, 120,000 SARs were granted to certain officers and key employees
of the Company in June 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 will vest over either a three year or
F-10
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
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 (subject to stockholder approval)
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 will
be reflected in the Company's statement of operations based upon the market
value of the common stock. During the three and nine month periods ended
September 30, 1997 the Company recorded $741,000 in expense relating to the
SARs.
10. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share"
(EPS). This Statement establishes standards for computing and presenting
earnings per share. This Statement is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods; early
application is not permitted. The Company will adopt this Statement in the
fourth quarter of 1997 and will restate all prior period earnings per share data
presented as required.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to nonredeemable common stock by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
If SFAS 128 had been in effect during the three and six-month periods ended
September 30, 1997 and 1996, basic and diluted EPS would not have been
substantially different than primary EPS currently reported for the respective
periods.
In June 1997, the FASB adopted SFAS No. 130 "Reporting Comprehensive
Income", which requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from non-owner
sources; and SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information", which redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about a
Company's operating segments. Adoption of these statements will not impact the
Company's consolidated financial position, results of operations or cash flows.
While the Company has not completed its analysis of which operating segments it
will report under SFAS No. 131 in the future, it is required to and will adopt
both SFAS 130 and 131 in fiscal 1998.
11. SUBSEQUENT EVENTS
On October 31, 1997, OCC sold the building which housed the SpectraVision
spare part depot in Richardson, Texas for $4.5 million in cash.
In November 1997, OCC refinanced its existing $150.0 million revolving
credit facility and entered into an amended and restated credit agreement with
its lender. Under the restated OCC credit agreement, the amount available under
the credit facility was increased from $150.0 million to $200.0 million, and
certain other terms were amended; most notably, the inclusion of restrictions on
OCC's ability to pay dividends or make other distributions until the later of
January 1, 1999 or until certain operating ratios are attained. In connection
with OCC's refinancing, Ascent and the bank amended certain provisions of the
Ascent Amended Facility (see Note 6).
F-11
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (CONTINUED)
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. The net proceeds from the Offering of approximately $121
million plus available cash was used to repay outstanding indebtedness under
Ascent's existing credit facility. Cash interest will not accrue on the Senior
Notes prior to December 15, 2002. Concurrently with the sale of the Senior
Notes, the Company and the bank entered into a second amended and restated loan
and security agreement (the "New Ascent Credit Facility") to decrease the
maximum amount of borrowings under the Company's existing revolving credit loan
(See Note 6) from $140 million to $50 million and restate other terms and
conditions of the previous agreement. The available borrowings under the New
Ascent Credit Facility 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.
F-12
<PAGE>
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, 1996 and 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements 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 and its subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Denver, Colorado
March 23, 1997
F-13
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 3,963 $ 11,012
Receivables, net (Note 3)............................................................... 54,695 45,041
Deferred income taxes (Note 8).......................................................... 3,580 4,394
Income taxes receivable (Note 8)........................................................ 12,623 2,247
Prepaid expenses........................................................................ 11,247 6,558
Other current assets.................................................................... 2,759 3,656
---------- ----------
Total current assets.................................................................. 88,867 72,908
---------- ----------
---------- ----------
Property and equipment, net (Note 4).................................................... 301,498 220,602
Goodwill, net........................................................................... 132,805 47,393
Franchise rights, net................................................................... 102,189 107,962
Film inventory, net (Note 5)............................................................ 76,234 11,470
Investments............................................................................. 9,150 6,628
Other assets, net....................................................................... 31,899 37,453
---------- ----------
Total assets............................................................................ $ 742,642 $ 504,416
---------- ----------
---------- ----------
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings (Note 6).......................................................... $ 143,000 $ --
Current portion of long-term debt....................................................... -- 207
Accounts payable........................................................................ 19,992 6,783
Payable to COMSAT....................................................................... 4,662 7,217
Deferred income......................................................................... 81,942 38,060
Income taxes payable (Note 8)........................................................... 6,970 1,813
Other accrued liabilities............................................................... 38,629 33,764
---------- ----------
Total current liabilities............................................................. 295,195 87,844
---------- ----------
Long-term debt (Note 6)................................................................. 50,000 70,000
Other long-term liabilities (Note 7).................................................... 14,645 13,843
Deferred income taxes (Note 8).......................................................... 5,742 3,593
---------- ----------
Total liabilities....................................................................... 365,582 175,280
---------- ----------
Minority interest (Note 2).............................................................. 107,475 27,867
Commitments and contingencies (Notes 2, 4, 6, 9)........................................ -- --
Stockholders' equity (Note 10):
Preferred stock, par value $.01 per share, 5,000,000 shares authorized, none
outstanding......................................................................... -- --
Common stock, par value $.01 per share, 60,000,000 shares authorized, 29,754,000
issued and outstanding.............................................................. 297 297
Additional paid-in capital............................................................ 307,569 304,571
Accumulated deficit................................................................... (39,633) (3,599)
Unrealized gain on available for sale securities, net of taxes........................ 1,352 --
---------- ----------
Total stockholders' equity.............................................................. 269,585 301,269
---------- ----------
Total liabilities and stockholders' equity.............................................. $ 742,642 $ 504,416
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues (Note 3 and Note 14 for related party revenues)................ $258,120 $201,818 $165,476
------------ ------------ ------------
Operating expenses:
Cost of services........................................................ 217,949 154,676 107,452
Depreciation and amortization........................................... 74,812 53,675 38,820
General and administrative.............................................. 9,678 10,002 9,203
Provision for restructuring (Note 11)................................... -- 10,866 --
------------ ------------ ------------
Total operating expenses................................................ 302,439 229,219 155,475
Income (loss) from operations........................................... (44,319) (27,401) 10,001
Other income (expense), net............................................. 565 (2,070) 1,021
Interest expense........................................................ (10,715) (759) (326)
------------ ------------ ------------
Income (loss) before taxes, minority interest and extraordinary loss.... (54,469) (30,230) 10,696
Income tax benefit (expense) (Note 8)................................... 11,957 9,835 (4,831)
------------ ------------ ------------
Income (loss) before minority interest and extraordinary loss........... (42,512) (20,395) 5,865
Minority interest....................................................... 6,812 (628) (265)
------------ ------------ ------------
Income (loss) before extraordinary loss................................. (35,700) (21,023) 5,600
Extraordinary loss on early extinguishment of debt, net of taxes (Note
6).................................................................... (334) -- --
------------ ------------ ------------
Net income (loss)....................................................... $(36,034) $(21,023) $ 5,600
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per common share:
Before extraordinary loss............................................... $(1.20) $(.87) $.23
Extraordinary loss on early extinguishment of debt, net of taxes........ (.01) -- --
------------ ------------ ------------
Net income (loss) per share............................................. $(1.21) $(.87) $.23
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common shares outstanding.................... 29,753,000 24,217,000 24,000,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
ADDITIONAL AVAILABLE- TOTAL
BUSINESS COMMON PAID-IN ACCUMULATED FOR-SALE- STOCKHOLDERS'
EQUITY STOCK CAPITAL DEFICIT SECURITIES EQUITY
---------- ----------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994............ $ 181,181
Net income............................ 5,600
Net transfers from COMSAT and
subsidiaries........................ 81,416
----------
Balance at December 31, 1994.......... 268,197
Net loss.............................. (17,424)
Net transfers from COMSAT and
subsidiaries........................ 115,110
----------
Balance at December 17, 1995.......... 365,883
Net loss.............................. $ (3,599) $ (3,599)
Repayment of COMSAT loan.............. (140,000)
Incorporation of Ascent Entertainment
Group, Inc.......................... (225,883) $ 240 $ 225,643 225,883
Net proceeds from initial public
offering on December 18, 1995....... 57 78,928 78,985
---------- ----- ---------- ------------ ----------- ------------
Balance at December 31, 1995.......... -- 297 304,571 (3,599) 301,269
Net loss.............................. (36,034) (36,034)
Investment in OCC adjustment (Note
2).................................. 1,178 1,178
Capital contribution from COMSAT (Note
10)................................. 1,820 1,820
Unrealized gain on available-for-
sale-securities, net of taxes....... 1,352 1,352
---------- ----- ---------- ------------ ----------- ------------
Balance at December 31, 1996.......... $ -- $ 297 $ 307,569 $ (39,633) $ 1,352 $ 269,585
---------- ----- ---------- ------------ ----------- ------------
---------- ----- ---------- ------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)........................................................... $ (36,034) $ (21,023) $ 5,600
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization............................................. 74,812 53,675 38,820
Amortization of film inventory............................................ 8,442 4,904 --
Provision for loss on investments......................................... 2,310 -- --
Extraordinary loss on extinguishment of debt, net......................... 334 -- --
Provision for restructuring............................................... -- 10,866 --
Changes in operating assets and liabilities:
Current assets............................................................ (2,723) (10,034) (7,860)
Current liabilities....................................................... (19,203) 27,749 10,095
Noncurrent assets......................................................... (4,892) (1,872) (6,535)
Noncurrent liabilities.................................................... (341) (1,280) (1,981)
Other..................................................................... 572 786 421
---------- ---------- ----------
Net cash provided by operating activities..................................... 23,277 63,771 38,560
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from notes and other long-term receivable........................ 6,684 787 --
Proceeds from sale of investments......................................... 3,608 -- --
Net expenditures for film production costs................................ (21,050) (12,549) (181)
Purchase of property and equipment........................................ (88,859) (89,487) (87,681)
Investment in unconsolidated businesses................................... (4,125) (3,625) --
Acquisitions of businesses................................................ (9,572) (76,249) (33,148)
Other..................................................................... -- 600 1,035
---------- ---------- ----------
Net cash used in investing activities......................................... (113,314) (180,523) (119,975)
---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings under former credit facilities................... 75,000 70,000 --
Repayment of borrowings under former credit facilities.................... (145,000) (817) (1,348)
Proceeds from borrowings under revolving credit loans..................... 205,537 --
Payments under revolving credit loans and other notes payable............. (15,207) -- --
Payment of assumed debt from SpectraVision acquisition.................... (40,000) -- --
Capital Contribution from COMSAT.......................................... 1,820 -- --
Proceeds from issuance of subsidiary's stock.............................. 2,587 209 1,486
Repayment of COMSAT note.................................................. -- (140,000) --
Net transfers from COMSAT and its subsidiaries............................ -- 115,110 81,416
Common stock issued....................................................... -- 78,985 --
Other..................................................................... (1,749) 919 --
---------- ---------- ----------
Net cash provided by financing activities..................................... 82,988 124,406 81,554
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.......................... (7,049) 7,654 139
Cash and cash equivalents, beginning of year.............................. 11,012 3,358 3,219
---------- ---------- ----------
Cash and cash equivalents, end of year.................................... $ 3,963 $ 11,012 $ 3,358
---------- ---------- ----------
---------- ---------- ----------
Supplemental cash flow information:
Interest paid............................................................. $ 8,851 $ 166 $ 293
Income taxes paid......................................................... -- 1,482 7,271
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1--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
financial statements present the financial position and results of operations of
COMSAT Video Enterprises, Inc. ("CVE") which, until April 1995, was a wholly
owned subsidiary of COMSAT Corporation ("COMSAT"). In April 1995, COMSAT formed
COMSAT Entertainment Group, Inc. ("CEG") and contributed 100% of the stock of
CVE to CEG. Subsequently, CEG changed its name to Ascent Entertainment Group,
Inc. ("Ascent"). Accordingly, the Company operated as CVE up to April 1995 and
as Ascent after that date. The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries. Significant
intercompany transactions have been eliminated. Minority interest in the
financial statements consists of the interest of other stockholders in On
Command Corporation. The significant majority-owned subsidiaries of Ascent are
as follows:
On Command Corporation ("OCC") and its wholly-owned subsidiaries, On
Command Video Corporation ("OCV") and SpectraVision, Inc.
("SpectraVision")
Ascent Network Services, Inc. ("ANS"), (formerly CVE)
Denver Nuggets Limited Partnership ("Nuggets")
Beacon Communications Corp. ("Beacon")
Colorado Avalanche LLC ("Avalanche")
OCC provides video distribution and pay-per-view video entertainment
services to the lodging industry and has operating subsidiaries in the United
States, Canada, Mexico, Hong Kong, Singapore, Thailand 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"). Beacon is a producer of motion
pictures and television programming.
Ascent executed an initial public offering (the "IPO") of a portion of its
common stock on December 18, 1995. Prior to the IPO, Ascent split each share of
common stock outstanding into 24,000,000 shares of common stock. Earnings per
share and share amounts for all prior periods have been restated to reflect this
stock split. After the IPO, COMSAT continues to own a majority (80.67%) of
Ascent's common stock and continues to control Ascent. In addition, during 1996
Ascent's relationship with COMSAT was governed by agreements entered into in
connection with the Offering, including an Intercompany Services Agreement, a
Corporate Agreement and a Tax Sharing Agreement. The Corporate Agreement
restricts the Company from issuing additional equity securities or incurring
additional indebtedness without the consent of COMSAT (See Notes 6 and 14.)
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.
F-18
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 principally
of purchased and manufactured parts of partially constructed video systems and
the Company's expenditures through December 31, 1996 on the Denver arena project
(See Note 4.)
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, 20 years.
GOODWILL. The consolidated balance sheet includes goodwill related to the
acquisitions of SpectraVision by OCC, OCV by CVE, the Nuggets and Beacon.
Goodwill is amortized over 10 to 25 years. Accumulated goodwill amortization was
$13,801,000 and $8,593,000 at December 31, 1996 and 1995, 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 sheet are net of accumulated amortization of $18,172,000
and $13,398,000 at December 31, 1996 and 1995, 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 No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS No. 121"). SFAS No. 121 establishes procedures for review of
recoverability, and measurement of impairment if necessary, of long-lived assets
and certain identifiable intangibles held and used by an entity. SFAS No. 121
requires that those assets be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be fully
recoverable. SFAS No. 121 also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less estimated selling costs. As of January 1, 1996 and
December 31, 1996, management believes that there was not any impairment of the
Company's long-lived assets or any other such identifiable intangibles.
FILM INVENTORIES. Film inventories are stated at the lower of cost or net
realizable value. Revenue estimates and costs on a film-by-film basis are
reviewed periodically by management and are revised, if warranted, based upon
management's appraisal of current market conditions. When estimates of total
revenue indicate that a film will result in an ultimate loss, the entire loss is
recognized. It is reasonably possible that estimates of anticipated future gross
revenues and film carrying costs may be reduced materially in the near term due
to a significant degree of variability in the performance of theatrical films.
DEFERRED FINANCING COSTS. Costs incurred with the issuance of the Company's
current credit facilities are included in prepaid expenses, net of accumulated
amortization. Amortization is charged to operations over the respective lives of
the loan agreements and is included in interest expense. (See Note 6).
F-19
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the Company, which is recognized upon completion of the
installation. Revenues from video management services and royalties are
recognized when earned.
The Nuggets and Avalanche game admission and broadcasting revenues are
recognized as earned per home game during the teams' regular playing seasons,
generally from October to April of the following calendar year. Team and game
costs, principally gate assessments, arena rentals and user fees, are recorded
and expensed on the same basis. Team costs, principally player salaries, related
fringe benefits and insurance, are recognized on a per-day basis during the
teams' regular playing seasons. Accordingly, advance ticket sales and advance
payments on television, radio, concessionaire and marketing contracts, and
payments for team and game expenses not earned or incurred, are recorded as
deferred revenues and deferred game expenses, respectively, and amortized
ratably as regular season games are played.
Minimum guaranteed amounts from theatrical exhibition and revenues from home
videos, pay television and free television license agreements are recognized
when the applicable license period begins for each motion picture and such
motion picture is made available to the distributor for exploitation pursuant to
the terms of the applicable license agreement. Amounts in excess of the minimum
guarantee under such license agreements and other amounts (where no minimum
guarantee was given) are recognized when earned. Cash collected in advance of
the time of film availability is recorded as deferred revenue.
Film costs include the acquisition of story rights, the development of
stories, production, print and advertising costs (which benefit future periods)
and certain amounts of overhead related to production are capitalized as film
inventory. Such costs are amortized under the individual film forecast method.
Completed film costs are amortized in the proportion that each film's current
revenues bear to management's estimates of total remaining ultimate revenues
from all sources for such film. Estimated liabilities for royalties and profit
participations are accrued based upon recognized film revenues and expenses in
the same manner as film cost inventories.
Revenue from other services is recorded as services are provided.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
include those costs incurred by the parent company, Ascent Entertainment Group,
Inc. Similar costs incurred by the Company's majority-owned subsidiaries are
included in cost of services in the accompanying statements of operations. For
the years ended December 31, 1996, 1995 and 1994, the Company's subsidiaries
incurred related costs of $23,984,000, $10,844,000, and $5,441,000,
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
F-20
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 INCOME (LOSS) PER SHARE. Net income (loss) per common share is
calculated using the weighted average number of common and common equivalent
shares outstanding in the respective years. Except when inclusion of such shares
is antidilutive, common equivalent shares include net shares issuable upon the
assumed exercise of options using the treasury stock method, assuming purchases
at average market values.
Common equivalent shares were not included in the calculation of income
(loss) per share for 1996 and 1995, because their inclusion would have been
antidilutive. There were no common equivalent shares in 1994.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs are charged
to operations as incurred. These costs are included in cost of services on the
income statements. The amounts charged were $4,628,000, $2,734,000 and
$2,882,000 for the years ended December 31 1996, 1995 and 1994, respectively.
Included in these amounts were amounts for services purchased from COMSAT
affiliates of $132,000 for the year ended December 31, 1994. No such services
were purchased in 1996 and 1995.
CERTAIN 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, the
amortization of film costs based on future film revenues, the reduction in
construction in progress and film inventory to their net realizable value and
the amounts of certain accrued liabilities.
The Company participates in the highly competitive multimedia distribution
and entertainment industries and believes that changes in any of the following
areas could have a material adverse affect on the Company's future financial
position or results of operations: declines in hotel occupancy as a result of
general business, economic, 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; the timing and success of film releases; ability to obtain
additional capital to finance capital expenditures and film production costs;
ability to retain senior management and key employees; disruption of satellite
service; and risks of technological obsolescence.
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 the
Company's bank borrowings and other long-term liabilities approximates their
carrying value due to the variable nature of the interest associated with those
obligations.
F-21
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARD. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share." This Statement establishes standards for
computing and presenting earnings per share. This Statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; early application is not permitted. The Company will
adopt this Statement in the fourth quarter of 1997 and will restate all prior
period earnings per share data presented as required. The Company has not yet
determined the impact of adopting this Statement on its reported net income
(loss) per common share.
RECLASSIFICATIONS. Certain amounts in prior periods have been reclassified
to conform with the current year's presentation, most notably OCC has
reclassified certain income statement amounts in OCV's historical financial
statements to be consistent with the presentation used by SpectraVision and to
conform to a more common presentation used by providers on in-room entertainment
to the lodging industry. Specifically, OCV previously reflected certain costs as
a reduction of revenues and now classifies such costs as a cost of service. In
addition, certain amounts previously presented in the consolidated balance sheet
have been reclassified to conform with the 1997 presentation.
NOTE 2--ACQUISITION AND INVESTMENTS
The Company completed one acquisition per year in 1994, 1995 and 1996. These
acquisitions have been accounted for under the purchase method and, accordingly,
the results of operations of the acquired businesses are included in the
consolidated financial statements from the dates of acquisition. These
acquisitions are summarized as follows:
SPECTRAVISION, INC.--Effective October 8, 1996, Ascent through its newly
formed subsidiary, OCC, acquired the assets, properties and certain liabilities
of SpectraVision, Inc. (the "Acquisition") with an effective closing date of
October 8, 1996 (the "Closing Date"). The Acquisition was consummated pursuant
to an Acquisition Agreement dated August 13, 1996, among Ascent, OCC,
SpectraVision and the other parties named therein (the "Acquisition Agreement").
Pursuant to the Acquisition Agreement, OCC acquired all of the outstanding
capital stock of SpectraDyne, Inc. ("SpectraDyne") the primary operating
subsidiary of SpectraVision, together with certain other assets of SpectraDyne
and its affiliates. SpectraDyne subsequently changed its name to SpectraVision,
Inc. Prior to the Closing Date, OCV, formerly an 84% owned subsidiary of Ascent
(approximately 78.4% owned on a fully diluted basis), was merged (the "Merger")
with a subsidiary of OCC and became a wholly owned subsidiary of OCC pursuant to
an Agreement and Plan of Merger (the "Merger Agreement") by and among OCC,
SpectraVision, OCV and On Command Merger Corporation also dated August 13, 1996.
The Acquisition Agreement and the Merger Agreement were entered into to effect
the terms of the Agreement dated April 19, 1996 entered into among Ascent, OCV,
SpectraVision and the other parties named therein and to effectuate the
transactions contemplated thereby. In accordance with Emerging Issues Task
Forces Issue No. 95-19, "Determination of the Measurement Date for the Market
Price of Securities Issued in a Purchase Business Combination," the fair value
of the Acquisition consideration was determined as of April 19, 1996. The fair
value was based on an independent appraisal of the net assets acquired.
At the Closing Date, Ascent and the minority stockholders of OCV received
21,750,000 shares of OCC common stock (72.5% of the initial outstanding OCC
common stock). Of these shares, Ascent
F-22
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 2--ACQUISITION AND INVESTMENTS (CONTINUED)
received 17,149,766 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. Additionally, 208,382 shares were held in reserve
pending finalization of closing balance sheet pursuant to the Acquisition
Agreement. Of these, 196,382 shares of reserved stock were distributed to the
SpectraVision bankruptcy estate for the benefit of SpectraVision's creditors
with the remaining 12,000 shares distributed to Ascent and OCV minority
stockholders. Ascent owns approximately 57.2% of the outstanding common stock of
OCC at December 31, 1996.
In connection with the Acquisition and the Merger, 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 aggregate purchase consideration has been 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 $67,000,000 respectively. In addition,
$2,000,000 of the purchase price was allocated to purchased technology. The
balance of the purchase price, $90,636,000, was recorded as goodwill and is
being amortized over twenty years on a straight-line basis. The accompanying
financial statements reflect the preliminary allocation of the purchase price as
the purchase price allocation has not been finalized. The assets acquired and
liabilities assumed are as follows (in thousands):
<TABLE>
<S> <C>
Estimated fair value of assets acquired
(including intangibles of $92,636).............................. $ 158,916
Liabilities assumed............................................... (67,282)
---------
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
---------
---------
</TABLE>
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1996 and 1995 are presented as if the SpectraVision
acquisition had been made at the beginning of each period presented. The
unaudited pro forma information is not necessarily indicative of either the
F-23
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 2--ACQUISITION AND INVESTMENTS (CONTINUED)
results of operations that would have occurred had the purchase been made during
the periods presented or the future results of the combined operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
(IN THOUSANDS)
1996 1995
---------- ----------
<S> <C> <C>
Revenues.............................................................. $ 343,420 $ 325,804
Net loss.............................................................. $ (42,982) $ (34,749)
Loss per common share................................................. $ (1.45) $ (1.44)
</TABLE>
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.
COLORADO AVALANCHE LLC. In July 1995, Ascent acquired a NHL franchise and
related player contracts, management contracts and certain other assets from Le
Club de Hockey Les Nordiques located in Quebec, Canada. The franchise was
relocated to Denver, Colorado in time for the 1995-1996 NHL season, renamed the
Colorado Avalanche, and its results since July 1, 1995 have included in the
accompanying consolidated financial statements.
The cost of the acquisition was $75,840,000 which was allocated principally
to franchise rights and player contracts. As part of the purchase, Ascent
assumed contractual commitments to players aggregating $24,625,000 over three
years.
BEACON COMMUNICATIONS CORP. In December 1994, Ascent acquired the assets of
Beacon, a film and television production company based in Los Angeles. The
acquisition has been accounted for as a purchase and, accordingly, Beacon's
results of operations have been included in the accompanying consolidated
financial statements beginning on December 1, 1994. The cost of this acquisition
was $29,133,000, which was allocated to the net assets acquired, principally a
development, production and domestic distribution agreement (the "Distribution
Agreement"), two feature films and goodwill, based on their estimated fair
market values. The purchase price consisted of $16,180,000 in cash and
liabilities assumed of $12,953,000. The purchase agreement also calls for future
cash consideration, which is contingent on the production and performance of up
to thirteen motion pictures during the next five years, with a total pay-out not
to exceed $16,900,000. The contingent payments, if made, will be accounted for
in part, as additional costs of the acquired assets and in part, as additional
costs of the movies to be made. During 1996 and 1995, $1,000,000 and $800,000 of
contingent payments were paid in cash, respectively.
If Beacon had been acquired as of January 1, 1994, unaudited proforma
consolidated revenues would have been $183,205,000 for 1994 and the unaudited
proforma consolidated net loss would have been $9,677,000 for 1994,
respectively. The unaudited proforma consolidated loss per share would have been
$.40 for 1994.
F-24
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 2--ACQUISITION AND INVESTMENTS (CONTINUED)
OTHER INVESTMENTS. Other Investments consist of the following at December
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Marketable equity securities............................................... $ 2,080 $ --
Investment in MagiNet Corporation.......................................... 1,265 1,265
Investments in partnerships or
joint ventures:
Elitch Gardens......................................................... 2,379 3,041
NBA partnerships....................................................... 2,657 1,825
Colorado Studios....................................................... 769 497
--------- ---------
Total other investments.............................................. $ 9,150 $ 6,628
--------- ---------
--------- ---------
</TABLE>
At December 31, 1996, 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, net of deferred income taxes, is reported as a separate
component of stockholders' equity. 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, a private company, is accounted for
at cost (See Note 14). Investments in partnerships and joint ventures are
accounted for using the equity method.
The Company's investment in the limited partnership owning Elitch Gardens,
an amusement park in Denver, Colorado, was increased from 13% to 26% in March
1996, when Ascent purchased all of The Anschutz Corporation's (TAC) interest in
the limited partnership for $4,125,000 in cash (See Note 4). Subsequently, in
September, 1996, the Company recorded a $1,800,000 loss on its limited
partnership investment in Elitch Gardens, 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, are subject to certain future
adjustments. In December 1996, the Company recorded an additional loss of
$510,000 on its investment due to the Company's concerns over the liquidation of
the partnership. Prior to December 31, 1996, the Company had received
distributions of $1,716,000 and in January 1997, the Company received an
additional $1,900,000 of partnership distributions. Management of the Company
believes its remaining investment in Elitch Gardens is likely to be recovered
through an additional partnership distribution to be received in the first half
of 1997.
F-25
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 3--RECEIVABLES AND CONCENTRATION OF CREDIT RISK
Receivables consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Trade receivables....................................................... $ 52,426 $ 44,571
Current portion of notes and long-term receivables...................... 4,405 3,710
Less allowance for doubtful accounts.................................... 2,136 3,240
--------- ---------
Receivables, net.................................................... $ 54,695 $ 45,041
--------- ---------
--------- ---------
</TABLE>
Ascent generates a substantial portion of its revenues from OCC and from
hotel guest's usage of OCC pay-per-view video systems located in various hotels
primarily throughout the United States, Canada, Mexico 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 debt losses have not been significant. The
Company invests its cash in high-credit quality instruments. These instruments
are short-term in nature and, therefore, bear minimal risk.
OCC has one customer, including its affiliates, which accounted for 14%, 16%
and 14% of consolidated revenues in 1996, 1995 and 1994, respectively. A second
customer of OCC accounted for 17% of consolidated revenues in 1994. No other
customer accounted for more than 10% of consolidated revenues during 1996, 1995
and 1994.
Included in other long-term assets is a long term receivable of $5,655,000
and $9,714,000 at December 31, 1996 and 1995, respectively.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................................. $ 2,000 $ --
Buildings and leasehold improvements.................................. 2,997 883
Installed video systems............................................... 343,475 249,845
Distribution systems to networks...................................... 95,334 104,204
Furniture, fixtures and equipment..................................... 16,836 13,068
---------- ----------
Total........................................................... 460,642 368,000
Less accumulated depreciation and amortization........................ 200,452 181,648
---------- ----------
Net property and equipment in service................................. 260,190 186,352
Construction in progress.............................................. 41,308 34,250
---------- ----------
Property and equipment, net....................................... $ 301,498 $ 220,602
---------- ----------
---------- ----------
</TABLE>
DENVER ARENA PROJECT. On March 28, 1996, the Company entered into an
agreement with The Anschutz Corporation ("TAC") pursuant to which the Company
purchased all of TAC's interests in a proposed arena development project in
Denver and related goodwill, rights, plans, specifications, drawings,
F-26
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 4--PROPERTY AND EQUIPMENT (CONTINUED)
contracts, relationships, approvals, permits and other work product of every
kind that had been generated by the efforts of TAC and Ascent with respect to
the proposed arena (the "Arena Assets"), and TAC agreed to use reasonable
efforts to facilitate the development and construction of the proposed arena.
Ascent and TAC had worked together on the proposed arena development from early
1994 until September 1995. In consideration for TAC's interest in the Arena
Assets and its agreement to facilitate development of the proposed arena, Ascent
paid TAC $6,600,000 in cash. On a contingent and non-interest bearing basis
Ascent agreed to pay TAC an additional $5,000,000 and grant a paid-up suite
license, both contingent on the construction and occupancy of the proposed
arena. This obligation, net of discount, has been accrued and is included in the
accompanying balance sheet in other accrued liabilities ($2,500,000) and other
long-term liabilities ($2,000,000) at December 31, 1996. The Company has
classified costs of $11,540,000 and $2,445,000, representing the total
expenditures on the proposed arena at December 31, 1996 and 1995, respectively,
in Construction-in-Progress.
On March 28, 1996, the Company entered into a Land Purchase Agreement with
Southern Pacific Transportation Company ("SPT"), a company related to TAC,
pursuant to which the Company would purchase approximately 49 acres in Denver as
the site for the proposed arena for $20,000,000. Pursuant to the Land Purchase
Agreement, the closing of the land purchase had to have occurred on or before
June 28, 1996. The closing did not take place by this time and the Land Purchase
Agreement terminated. Although there can be no assurance, it is management's
belief that SPT will reinstate the Land Purchase Agreement on substantially
similar terms and the closing date for the agreement will be extended.
Consummation of the transaction is subject to several conditions, including
obtaining satisfactory financing and reaching agreements with the City and
County of Denver regarding the construction of the proposed arena and the
release of the Nuggets and the Avalanche from their existing leases at the City
and County of Denver's current arena, McNichols Arena. The Agreement also
provides for SPT to effect a state-approved environmental clean-up plan on the
site, and provide continuing partial indemnification with regard to certain
environmental liabilities. Management believes that these negotiations will be
successfully concluded, but there can be no assurance that Ascent will be able
to reach acceptable terms for the construction of the new arena.
NOTE 5--FILM INVENTORY
Film inventory consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Films released, less amortization....................................... $ 3,382 $ 6,330
Films in process and development........................................ 69,732 2,786
Development............................................................. 3,120 2,354
--------- ---------
Total film inventory.............................................. $ 76,234 $ 11,470
--------- ---------
--------- ---------
</TABLE>
The Company estimates that approximately 97% of unamortized released film
cost will be amortized over the next three fiscal years. In 1996, the Company
increased film inventory and deferred revenues by approximately $49,852,000 in
connection with the distribution rights relating to certain films under
development at December 31, 1996.
F-27
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 6--NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consists of the following at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
OCC revolving credit facility.......................................... $ 98,000 $ --
Ascent revolving credit facility....................................... 95,000 --
Note payable to OCV minority stockholders, paid
August 1996.......................................................... -- 207
Former Ascent credit facility, paid October 1996....................... -- 70,000
---------- ---------
Total............................................................ 193,000 70,207
Less: Short-term borrowings............................................ 143,000 --
Current maturities............................................... -- 207
---------- ---------
Total long-term debt............................................. $ 50,000 $ 70,000
---------- ---------
---------- ---------
</TABLE>
OCC REVOLVING CREDIT FACILITY. In conjunction with the SpectraVision
acquisition, OCC obtained a $125 million revolving credit facility, (the "OCC
Credit Facility"). The OCC Credit Facility consists of (i) a 364-day revolving
credit and competitive advance facility which, subject to certain conditions,
will be renewable for four 364-day periods, and (ii) a five year revolving
credit and competitive advance facility; provided, however, that any amounts
borrowed under the five year facility will reduce the amount available under the
364-day facility. At December 31, 1996, $50,000,000 was outstanding as a
long-term revolving loan and is repayable in 2001, while $48,000,000 is
considered a short-term borrowing.
Revolving loans extended under the OCC Credit Facility generally will bear
interest at the London Interbank Offering Rate ("LIBOR") plus a spread that may
range from 0.375% to 0.625% depending on certain operating ratios of OCC. At
December 31, 1996, the weighted average interest rate on the OCC Credit Facility
was 6.17%. 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. At December 31,
1996, OCC was in compliance with these covenants. The OCC Credit Facility limits
OCC's ability to incur indebtedness or pay dividends, but does not preclude OCC
from paying cash dividends on its Common Stock.
Upon the closing of the SpectraVision acquisition, OCC borrowed $92.0
million under its credit facility to (i) pay-off debt obligations of
SpectraVision of approximately $40.0 million, (ii) pay-off intercompany
obligations of OCV to Ascent and other OCC obligations of approximately $43.6
million and (iii) to pay certain administrative claims and other bankruptcy
costs of SpectraVision and its affiliated debtors of approximately $8.4 million.
On March 23, 1997, OCC entered into an amendment to the OCC Credit Facility
(the "OCC Amendment"). Under the OCC Amendment, the amount available under the
OCC Credit Facility was increased from $125.0 million to $150.0 million, and
certain other terms were amended to clarify such terms. At March 23, 1997, there
was $47.0 million of available borrowings under the amended OCC Credit Facility,
subject to certain covenant restrictions.
F-28
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 6--NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
ASCENT REVOLVING CREDIT FACILITY. In October 1996, Ascent also entered into
a new revolving credit facility (the "Ascent Credit Facility") with the same
bank as OCC. The Ascent Credit Facility provided for borrowings of up to $200
million, consisting of a 364-day secured revolving credit facility. This
facility, subject to certain conditions, was to be renewable for two 364-day
periods on October 9, 1997 and October 8, 1998 respectively. At December 31,
1996, the Company has classified all of its outstanding borrowings under the
Ascent credit facility as short-term borrowings.
Revolving loans extended under the Ascent Credit Facility generally will
bear interest at LIBOR plus a spread that may range from 1.75% to 2.50%
depending on certain operating ratios of Ascent. A fee of .5% per annum is
charged on the unused portion of the Ascent Credit Facility. At December 31,
1996, the weighted average interest rate on the Ascent Credit Facility was
8.05%. The Ascent Credit Facility provides that at no time will amounts
outstanding under the facility exceed (a) $125.0 million, until Ascent shall
have received consent from the NBA and NHL to pledge Ascent's interests in the
Nuggets and Avalanche, respectively, and thereafter (b) the sum of (i) up to
$100 million secured by first priority pledges of, and liens on, the equity
interests in all of Ascent's subsidiaries (excluding OCC), plus (ii) 50% of the
value of the OCC Common Stock owned by Ascent, secured by a pledge of such
stock. The Company expects to obtain the consents from the NBA and NHL during
the second quarter of 1997.
Upon the closing of the Ascent Credit Facility, 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 tax during the fourth quarter of 1996 in
connection with the extinguishment of its previous credit facility.
The Ascent Credit Facility also contained covenants requiring Ascent and OCC
to maintain certain financial covenants, limited Ascent's ability to incur
indebtedness and precludes Ascent from paying cash dividends on its Common
Stock. At December 31, 1996, Ascent was in compliance with these covenants. In
addition, the failure of Ascent to commence construction on the Denver Arena
Complex (see Note 4) prior to August 31, 1997 is an event of default under the
Ascent Credit Facility.
On March 23, 1997, Ascent entered into an amendment to the Ascent Credit
Facility (the "Ascent Amendment"). The Ascent Amendment provides, among other
things, that the Ascent Credit Facility will not be renewable for two additional
one year options beyond October 9, 1997 unless, prior thereto, Ascent has
received not less than $50.0 million in proceeds from a new debt financing which
is subordinated to the Ascent Credit Facility; for the maximum amount available
to be borrowed under the facility to be reduced from $200.0 million to $140.0
million; for the elimination of the $125.0 million limit on available borrowings
under the facility prior to receipt of NBA and NHL consents; that those
financial covenants contained in the Ascent Credit Facility related to the
financial results of OCC will not be measured until year end 1997; for the
$140.0 million of availability to be divided into a term loan of $50.0 million
and a revolving facility of $90.0 million; and for amendments to certain other
financial covenants. Based on current market conditions, management of Ascent
currently believes that they will be successful in obtaining the additional
subordinated debt by October 9, 1997. In addition, management currently believes
that they will have commenced construction on the Denver Arena Project prior to
August 31, 1997 or they will have made sufficient progress on the negotiations
involving the Denver Arena Project to enable Ascent to obtain an extension under
the Ascent Credit Facility. However, there can be no assurances that
F-29
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 6--NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
other contingencies will not arise which could impact Ascent's ability to obtain
this additional subordinated financing, that such financing will be available on
terms acceptable to Ascent or that negotiations with the City and County of
Denver on the Denver Arena Project will have been completed or progressed
significantly. If Ascent were not able to obtain the additional subordinated
financing, Ascent could be required to refinance the Ascent Credit Facility
which could require Ascent to reduce or reschedule planned capital investments,
reduce capital outlays, sell assets or equity. At March 23, 1997, there was
$33.0 million of available borrowings under the amended Ascent credit facility.
OTHER. As a consolidated subsidiary of COMSAT, Ascent is subject to
restrictions on its debt structure as a result of Federal Communications
Commission regulations applicable to COMSAT (see Note 14).
NOTE 7--DEFERRED COMPENSATION
Deferred compensation, which is included in other long-term liabilities on
the accompanying balance sheet, consists of the following at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred compensation contracts payable, at varying interest rates,
through 2002......................................................... $ 3,914 $ 3,571
Less: Imputed interest..................................................... 720 808
Current maturities................................................... 439 349
--------- ---------
Total................................................................ $ 2,755 $ 2,414
--------- ---------
--------- ---------
</TABLE>
Total annual payments on long-term deferred compensation for the years
subsequent to December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 439
1998................................................................ 1,154
1999................................................................ 749
2000................................................................ 800
2001................................................................ 550
Thereafter.......................................................... 222
---------
Total......................................................... $ 3,914
---------
---------
</TABLE>
NOTE 8--INCOME TAXES
For the periods presented in these financial statements, Ascent has been a
member of COMSAT's consolidated tax group for federal income tax purposes. OCV,
however, filed separate returns until the third quarter of 1995, at which time
Ascent's ownership interest increased to 84.7% (see Note 2). However, in
conjunction with the formation of OCC and acquisition of SpectraVision, Ascent's
ownership in OCC decreased to 57%. Accordingly, OCC will file a separate return
commencing on October 9, 1996. Ascent has prepared its tax provision based on
its inclusion in COMSAT's consolidated return. For years 1993 and
F-30
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 8--INCOME TAXES (CONTINUED)
thereafter, the provision as calculated would approximate the provision if
prepared on a separate return basis. In connection with the Offering, Ascent and
COMSAT entered into a tax allocation agreement that provides for cross
indemnification with respect to these periods.
In connection with the SpectraVision Acquisition, OCC has until July 15,
1997 to determine whether it will elect under Internal Revenue Code Section
338(h)(10) to treat the transaction as a purchase of assets for tax purposes.
The computation of deferred taxes for OCC has been made on the assumption that
OCC will make this election. However, management will continue to evaluate the
alternative tax treatments for the Acquisition and may choose to treat it as a
taxable stock purchase whereby the Company would assume carryover basis in
SpectraVision's assets, including net operating losses.
The current and deferred tax expenses have been allocated according to each
entity's separately computed tax liability. Taxes payable or receivable are
settled with COMSAT annually. For the years ended December 31, 1996 and 1995,
Ascent's federal taxes receivable from COMSAT were $12,623,000 and $2,247,000,
respectively.
The components of income tax expense (benefit) for the years ended December
31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current..................................................... $ (15,695) $ (1,589) $ 4,386
Deferred.................................................... 3,130 (8,125) 116
State and local............................................... 110 (121) 329
Foreign....................................................... 498 -- --
---------- --------- ---------
Total..................................................... $ (11,957) $ (9,835) $ 4,831
---------- --------- ---------
---------- --------- ---------
</TABLE>
F-31
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 8--INCOME TAXES (CONTINUED)
The difference between tax expense (benefit) computed at the statutory
federal tax rate and Ascent's effective tax rate is:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes (benefit) computed at the statutory
rate...................................................... $ (19,063) $ (10,580) $ 3,743
State income taxes, net of federal income tax (benefit)..... (573) (72) 214
Goodwill.................................................... 860 831 742
Foreign..................................................... 498 -- --
Valuation allowance......................................... 5,333 -- --
Other....................................................... 988 (14) 132
---------- ---------- ---------
Income tax expense (benefit).............................. $ (11,957) $ (9,835) $ 4,831
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The net current and net non-current components of deferred tax assets and
liabilities, tax effected, as shown on the balance sheet at December 31, 1996
and 1995 are:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current deferred tax asset.............................................. $ 3,580 $ 4,394
Non-current deferred tax liability...................................... (5,742) (3,593)
--------- ---------
Net asset (liability)................................................. $ (2,162) $ 801
--------- ---------
--------- ---------
</TABLE>
F-32
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 8--INCOME TAXES (CONTINUED)
The deferred tax assets and liabilities at December 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Alternative minimum tax credit...................................... $ 11,137 $ 9,145
Other accrued liabilities........................................... 8,471 4,607
Amortization of intangibles......................................... 4,261 2,539
Net operating loss carryforwards.................................... 2,876 --
Other............................................................... 847 543
Contract revenue.................................................... 582 649
Post retirement benefits............................................ -- 608
Tax basis in excess of book basis (338 election).................... 52,397 --
Valuation allowance................................................. (56,885) --
---------- ----------
Total deferred tax assets........................................... 23,686 18,091
---------- ----------
Liabilities:
Property and equipment.............................................. (13,242) (10,380)
Franchise rights.................................................... (11,620) (6,593)
Other............................................................... (986) (317)
---------- ----------
Total deferred tax liabilities...................................... (25,848) (17,290)
---------- ----------
Net asset (liability)............................................... $ (2,162) $ 801
---------- ----------
---------- ----------
</TABLE>
OCC has federal net operating loss carryforwards of approximately
$6,100,000, which expire beginning in 2012. In addition, OCC has California net
operating loss carryforwards of approximately $15,000,000 which expire beginning
in 2000 and may be subject to limitation in the event of certain defined changes
in stock ownership. Alternative minimum tax credit carryforwards of
approximately $1,700,000 and $250,000 are available to offset future regular
federal and state tax liabilities, respectively.
The Internal Revenue Service ("IRS") has examined the COMSAT returns through
1989 and is currently examining federal income tax returns for 1990 through
1994. In the opinion of Ascent, adequate provision has been made for income
taxes for all periods through 1996.
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.
F-33
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Amounts required to be paid under such agreements (including approximately
$118,821,000 relating to player agreements) are as follows at December 31, 1996
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997.............................................................................. $ 59,550
1998.............................................................................. 43,407
1999.............................................................................. 27,370
2000.............................................................................. 17,015
2001.............................................................................. 8,670
Thereafter........................................................................ 9,284
----------
Total........................................................................... $ 165,296
----------
----------
</TABLE>
FACILITY AND EQUIPMENT LEASES. Ascent leased its Corporate headquarters
from COMSAT through June, 1996. In connection with Ascent's relocation to Denver
in June of 1996, the Company entered into an operating lease for its corporate
headquarters which expires in August 1998.
OCC leases its principal facilities from one of its minority stockholders
under a non-cancelable operating lease which expires in December 2003. In
addition to lease payments, OCC is responsible for taxes, insurance and
maintenance of the leased premises. OCC also leases certain other office space
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 for the Nuggets extends through
June 30, 2008 and requires an annual rent payment of 5% of ticket sales revenue
with minimum and maximum guaranteed amounts of $250,000 and $350,000 per year,
respectively, through June 30, 1998. Thereafter, the $350,000 maximum payment is
no longer applicable. The term of the lease shall be shortened by one year, with
a maximum of two years, for each regular season that the Avalanche plays its
home games at McNichols Arena. The lease for the Avalanche is for two years
beginning with the 1995-1996 season with two one-year options (at the discretion
of the Avalanche). The rent is a maximum of $350,000 per season in the first two
years, and $400,000 per season in the option years. The total payment for
McNichols Arena was $700,000, $667,000 and $350,000 for the years ended December
31, 1996 and 1995 and 1994, respectively.
The Company also leases equipment under non-cancelable operating leases,
primarily those assumed in conjunction with the SpectraVision transaction (see
Note 2), which extend through 2000.
F-34
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
The future minimum rental commitments under the Company's facility and
equipment leases at December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997............................................................................... $ 14,334
1998............................................................................... 13,161
1999............................................................................... 12,212
2000............................................................................... 6,710
2001............................................................................... 1,677
Thereafter......................................................................... 4,175
---------
Total.......................................................................... $ 52,269
---------
---------
</TABLE>
Rental payments to COMSAT and the OCC minority stockholder referred to above
were approximately $911,000, $1,635,000, and $1,473,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. Rental expense under all
non-cancelable leases was approximately $5,774,000, $3,125,000, and $2,566,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
CONCESSION AGREEMENT. In conjunction with the purchase of the Nuggets,
Ascent assumed the rights and obligations of a concessions agreement (the
"Concessions Agreement") with Ogden Allied Leisure Services, Inc. ("Ogden") and
the City. The Concessions Agreement expires in 2001 and provides for the Nuggets
and the City to share in concession revenues according to formulas contained in
the Agreement. At December 31, 1996, under the terms of the Concessions
Agreement, the Nuggets were contingently liable for approximately $2,333,000,
plus other reasonable damages, if the Nuggets terminate the agreement. The
Nuggets have no present intention of terminating this agreement so long as the
Nuggets continue to play in McNichols Arena, and Ogden has expressed its
willingness to enter into a new agreement if the Nuggets relocate to a new arena
in Denver.
PROPERTY AND EQUIPMENT. As of December 31, 1996, OCC had noncancelable
commitments to purchase video systems totaling $6,600,000.
FILM RIGHTS. As of December 31, 1996, the Company had a purchase commitment
for undelivered film product of approximately $9,629,000.
OFF BALANCE SHEET RISKS. At December 31, 1996, Ascent was contingently
liable to banks for $389,000 for outstanding letters of credit securing
performance of certain contracts. These guarantees expire in 1997. The estimated
fair value of these instruments is not significant.
LITIGATION. 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 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 condition or results of operations. The Nuggets,
along
F-35
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
In 1990, a lawsuit was filed against OCV by a former employee alleging
wrongful termination and breach of contract. In March 1995, a verdict in a jury
trial was entered against OCV. In consideration for not appealing the verdict,
OCV entered into a settlement agreement with the plaintiff and recorded the
$856,000 after-tax cost of the settlement in the first quarter of 1995.
In 1995, OCV filed suit against a competitor alleging patent infringement
and seeking unspecified damages. In 1996, the competitor filed a counter suit
against OCV alleging patent infringement and seeking unspecified damages. OCV
intends to contest the counter suit vigorously and believes the claim is without
merit and will not result in a material adverse effect to OCV's financial
position or results of operations or cash flows.
NOTE 10--STOCKHOLDERS' EQUITY
STOCK OPTION PLANS. Ascent adopted the 1995 Key Employee Stock Plan and the
1995 Non-Employee Directors Stock Plan (the "Ascent Plans") contemporaneously
with the Offering. The Ascent Plans provide for the issuance of stock options,
restricted stock awards, stock appreciation rights and other stock based awards.
Options granted under the Ascent Plans expire in 2006. For each of the Ascent
plans, options are generally granted at prices not less than the fair market
value of the Company's stock at the date of grant. Under the terms of the Ascent
Plans, options vest over either a three year or five year period from the date
of grant. However, so long as COMSAT owns at least 80% of the common stock of
the Company, no options will vest until three years after the date of the grant
and accordingly, no options are exercisable at December 31, 1996. The weighted
average remaining contractual life of the options outstanding at December 31,
1996 is approximately 10 years. The following is a summary of changes in shares
under option.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
OPTIONS WEIGHTED
AVAILABLE AVERAGE
FOR NUMBER OF EXERCISE
GRANT SHARES PRICE
------------ ---------- -------------
<S> <C> <C> <C>
Balances, December 18, 1995............................................. 1,610,000 -- $ --
Granted (weighted average fair value of $9.01)........................ (949,750) 949,750 15.00
------------ ---------- ------
Balances, December 31, 1995............................................. 660,250 949,750 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............................................. 265,750 1,344,250 $ 15.93
------------ ---------- ------
------------ ---------- ------
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has
F-36
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
been recognized for the Ascent Plans. Had compensation cost for the Ascent Plans
been determined based on the fair value at the grant date for awards in 1995 and
1996 consistent with the provisions of SFAS No. 123, the Company's net loss and
loss per common share in 1996 would have been reduced to the proforma amounts as
indicated below (in thousands, except per share information).
<TABLE>
<CAPTION>
<S> <C>
Net loss--as reported............................................................. $ (36,034)
Net loss--pro forma............................................................... $ (37,668)
Loss per share--as reported....................................................... $ (1.21)
Loss per share--pro forma......................................................... $ (1.27)
</TABLE>
The proforma amounts for 1995 would not differ significantly from the
reported amounts in 1995 as the awards granted in 1995 were granted on December
18, 1995.
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 1996: expected life, 12-24 months following the last vesting
date of the award; stock volatility, 57.6%; risk free interest rates, 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 also has 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, 1996, the OCC plan has 3,000,000 shares reserved for
issuance and options to purchase 2,181,565 shares outstanding under the plan.
OCC has also adopted the disclosure only provisions of SFAS 123. The Company's
share of OCC's pro forma compensation cost for 1996 would be approximately
$475,000 or an additional loss of $.02 per share to the proforma amounts above.
STOCK INCENTIVE PLANS. COMSAT Corporation ("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 1996, 1995 and 1994 was
$1,471,000, $865,000 and $1,231,000, respectively.
OTHER MATTERS. In August 1996, the Company, OCV and Hilton Hotels
Corporation ("Hilton") entered into a letter agreement ("Letter
Agreement")providing for the cancellation of approximately 1,336,000 shares of
OCV common stock issued to Ascent pursuant to the Contribution Agreement entered
into between OCV and the Company in September 1995 ("Contribution Agreement").
The Contribution Agreement set forth the terms and conditions of the transaction
whereby OCV acquired certain assets from Ascent (see Note 14). As a result of
the cancellation of these shares, Ascent's ownership interest in OCV was reduced
from 84% to 83% (prior to the consummation of the SpectraVision transaction--see
Note 2). Pursuant to the Corporate Agreement between COMSAT and Ascent, COMSAT
had indemnified
F-37
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
Ascent with respect to the adjustment effected by the Letter Agreement and
accordingly, COMSAT contributed $1,820,000 to the Company in the fourth quarter
of 1996 in accordance with this obligation.
The Letter Agreement also provided for an extension of the date on which the
exercise price of approximately 1,166,000 warrants previously issued to Hilton
by OCV would expire from June 1, 1996 to the later of (i) 90 days after the
closing or the abandonment of the proposed transaction with SpectraVision or
(ii) December 1, 1996. On October 7, 1996, Hilton exercised its warrants under
the terms of the letter agreement and OCV received consideration of
approximately $10,685,000. In turn, OCV distributed a pro rata dividend to its
stockholders, consisting of a cash dividend to its minority stockholders of
$1,781,000 and a promissory note in the amount of $8,904,000 (which OCV had
received from Hilton) for Ascent's portion of the dividend, pursuant to the
letter agreement. In December 1996, Ascent received full payment on the
promissory note from Hilton.
The Letter Agreement also provided Hilton the right to put to Ascent all,
but not less than all, of the shares acquired from exercise of the Hilton
Warrants and still held by Hilton on the date 90 days after the closing of the
Acquisition of SpectraVision at the same exercise price at which Hilton
exercised its warrants. On January 5, 1997, this put right expired unexercised.
NOTE 11--EMPLOYEE BENEFIT PLANS
SAVINGS PLANS. OCC, ANS, the Nuggets, the Avalanche and Beacon 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, 1996, 1995 and 1994 were
$1,266,000, $600,000 and $557,000, respectively.
In conjunction with the amendment to the Intercompany Services Agreement
with COMSAT (see Note 13), the Company has established the Ascent Employee
Benefit Plan to cover Ascent employees at Beacon, ANS and the Corporate office.
These defined contribution plans did not have significant activity in 1996.
COMSAT PLANS. On January 1, 1996, Ascent elected to terminate its
participation in the COMSAT defined benefit pension plan, COMSAT's
postretirement benefit plan and the COMSAT supplemental pension plan for
executives discussed below.
COMSAT sponsored a noncontributory defined benefit pension plan for
qualifying employees at ANS and Beacon. Pension benefits were based on years of
service and compensation prior to retirement. Ascent's policy was to fund the
minimum actuarially computed contributions required by law as determined by
COMSAT's actuaries. Ascent contributions to the plan charged to expense were
$126,000 and $271,000 in 1995 and 1994, respectively.
COMSAT also sponsored an unfunded supplemental pension plan for executives.
Ascent's expense for this plan was $56,000 in 1995. No expense was recorded in
1994.
COMSAT provided health and life insurance benefits to qualifying retirees.
The expected cost of these benefits was recognized during the years in which
employees rendered service. COMSAT charged Ascent $314,000 and $425,000 in 1995
and 1994, respectively, for Ascent's share of postretirement benefit expense.
F-38
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 11--EMPLOYEE BENEFIT PLANS (CONTINUED)
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 $134,000, $94,000 and $45,000 for the periods ended
December 31, 1996, 1995 and 1994, respectively. Contributions to the Players'
Plan charged to expense were $159,000, $132,000 and $78,000 for the periods
ended December 1996, 1995 and 1994, 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, 1996, 1995 and 1994,
respectively.
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 $210,000 and $130,000 for the periods ended December 31, 1996 and
1995, 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. 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.
NOTE 12--PROVISION FOR RESTRUCTURING
During the third quarter of 1995, management of the Company decided to
discontinue the Satellite Cinema scheduled movie operations. As a result of this
decision, a restructuring charge of $10,866,000 was recorded in the third
quarter of 1995. The components of this restructuring charge included a
write-down of property and equipment of $5,140,000 to their estimated salvage
value, an accrual for severance costs of $1,010,000 and a charge of $4,716,000
for costs related to contractual commitments that would not be fulfilled.
Through December 31, 1996, the Company has made cash payments for severance
costs and contractual commitment costs totaling $4,787,000 and has written-off
other assets of $5,433,000 relating to contractual commitments. In the fourth
quarter of 1996, the Company evaluated its remaining restructuring accruals,
which are primarily for severance and contractual obligations to be paid through
September 1997, and reduced such accruals by $300,000. Although subject to
future adjustment, management of Ascent believes its remaining reserves of
$346,000 as of December 31, 1996, are adequate to complete the restructuring
plan of Satellite Cinema's operations. During the years ended December 31, 1995
and 1994, Satellite Cinema operations reflected revenues of $24,682,000 and
$34,753,000 and an operating income (loss), before allocation of general and
administrative expenses, of $(16,156,000) and $3,897,000, respectively.
F-39
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 12--PROVISION FOR RESTRUCTURING (CONTINUED)
In December 1995, certain assets and contracts relating to Satellite Cinema
customers were sold by OCV for a $4,000,000 promissory note due in June 1996. As
of December 31, 1995, Ascent did not record the note receivable due to the
uncertainty of its collection and included the net book value of the assets sold
of $1,689,000 in Other Long Term Assets in the accompanying balance sheet. In
1996, OCV received payments totaling approximately $3,300,000 representing a
negotiated settlement of the $4,000,000 promissory note.
NOTE 13--BUSINESS SEGMENT INFORMATION
Ascent reports operating results and financial data in two business
segments: multimedia distribution and entertainment. The multimedia distribution
segment includes video distribution and on-demand video entertainment services
to the lodging industry, and video distribution services to the NBC television
network and other private networks. The results of ANS and OCC are reported in
the multimedia distribution segment. The entertainment segment includes the
Denver Nuggets and the Colorado Avalanche franchises in the NBA and NHL,
respectively, and Beacon, a producer of theatrical films and television
programming.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Multimedia Distribution........................................... $ 167,976(1) $ 135,782 $ 125,823
Entertainment..................................................... 90,144(2) 66,036(2) 39,653
---------- ---------- ----------
Total............................................................. $ 258,120 $ 201,818 $ 165,476
---------- ---------- ----------
---------- ---------- ----------
Operating income (loss):
Multimedia Distribution........................................... $ (9,775 (1) $ 2,885 $ 18,140
Entertainment..................................................... (24,812) (9,418) 1,064
General and administrative........................................ (9,732) (10,002) (9,203)
Restructuring Reserve............................................. -- (10,866 (3) --
---------- ---------- ----------
Total............................................................. $ (44,319) $ (27,401) $ 10,001
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
Multimedia Distribution........................................... $ 457,746 $ 279,591 $ 251,724
Entertainment..................................................... 266,216 207,172 114,761
Other corporate................................................... 18,680 17,653 6,095
---------- ---------- ----------
Total............................................................. $ 742,642 $ 504,416 $ 372,580
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures:
Multimedia Distribution........................................... $ 78,793 $ 82,903 $ 89,073
Entertainment..................................................... 10,066 2,208 980
---------- ---------- ----------
Total............................................................. $ 88,859 $ 85,111 $ 90,053
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization:
Multimedia Distribution........................................... $ 62,232 $ 45,392 $ 34,891
Entertainment..................................................... 12,580 8,283 3,929
---------- ---------- ----------
Total............................................................. $ 74,812 $ 53,675 $ 38,820
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) The Multimedia Distribution segment for 1996 reflects the acquisition of
SpectraVision by OCC in October 1996 (see Notes 2 and 15).
F-40
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 13--BUSINESS SEGMENT INFORMATION (CONTINUED)
(2) Entertainment revenues in 1995 include $9,200,000 of NBA expansion fees and
in 1996, include a full year of operations for the Avalanche.
(3) Applies to Multimedia Distribution segment.
NOTE 14--RELATED PARTY TRANSACTIONS
Ascent is charged by COMSAT for certain general and administrative services,
such as treasury services, pension and insurance administration, legal services,
tax services, internal audit review, payroll and personnel benefits
administration, public relations and various other general corporate functions.
Prior to the Offering, the cost of administering these services was allocated to
Ascent using a formula which considered Ascent's proportionate share of sales,
payroll and properties. The amounts charged to Ascent under this method for
services were $4,540,000 and $3,073,000 for the years ended December 31, 1995
and 1994, respectively. Management believes that the allocation methods with
respect to all charges were reasonable. In 1996, charges for these services from
COMSAT were determined pursuant to the Intercompany Services Agreement
("Services Agreement") with charges totaling $2,000,000 plus other incidental
charges. On December 18, 1996, the Services Agreement was amended whereby COMSAT
will provide limited administrative and support services on a month-to-month
basis to the Company commencing in January 1997. Monthly charges for these
services will be approximately $15,000.
In conjunction with Ascent's Offering (see Note 1), the Company and COMSAT
entered into a Corporate Agreement (the "COMSAT Corporate Agreement"), pursuant
to which, among other things, the Company has agreed with COMSAT not to incur
any indebtedness without COMSAT's prior consent, other than indebtedness under
the Company's amended Credit Facilities (see Note 6), and indebtedness incurred
in the ordinary course of operations which together shall not exceed $270.0
million in the aggregate; provided that not more than $50.0 million of such
indebtedness may constitute long-term debt.
From April through July 1995, Ascent loaned $2,000,000 to one of its
directors. The loan, plus interest thereon at the prime rate plus one percent,
was repaid in full in November 1995.
During the third quarter of 1995, the Company entered into a Contribution
Agreement with OCV, whereby the Company contributed various assets and
liabilities (primarily installed video systems and related construction in
progress, accounts receivable, deferred income taxes and other assets) to OCV
with a net book value of approximately $56,539,000 in exchange for approximately
5,337,000 shares of common stock of OCV. This transfer of net assets and shares
between companies under common control has been accounted for at historical
cost. During the second quarter of 1996, the Company contributed some additional
assets and liabilities (installed video systems and related deferred income
taxes and other assets) to OCV in connection with the aforementioned
contribution agreement. These assets and liabilities had a net book value of
approximately $1,385,000. In August 1996, the Company, OCV and Hilton entered
into a letter of agreement providing for the cancellation of 1,336,470 shares of
common stock of OCV issued to Ascent pursuant to the Contribution Agreement (see
Note 10).
In conjunction with the Acquisition and Merger (see Note 2), 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 amended Credit
Facility (see Note 6), and indebtedness incurred in the ordinary course of
operations which together shall not exceed $116,000,000 through June 30, 1997,
and shall not exceed
F-41
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 14--RELATED PARTY TRANSACTIONS (CONTINUED)
$130,000,000 through December 31, 1997; provided, however, that (i) no more than
$50,000,000 of such indebtedness may constitute long term debt, and (ii)
indebtedness may only be incurred in compliance with the financial covenants
contained in OCC's existing credit facility (see Note 6), with any amendments to
such covenants subject to the written consent of Ascent.
OCC earned revenues of approximately $18,900,000, $15,000,000 and
$12,400,000 in 1996, 1995 and 1994, respectively, from Hilton and its
affiliates. Hilton is a minority stockholder of OCC.
OCC earned revenues of $4,944,000, and $3,362,000 for the years ended
December 31, 1996 and 1995 respectively, from MagiNet Corporation, which is a
related party by virtue of OCC's investment in its preferred stock (see Note 2).
Accounts receivable from MagiNet at December 31, 1996 were approximately
$1,000,000.
NOTE 15--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
DEC. 31 SEPT. 30 JUNE 30 MARCH 31
---------- ---------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1996(1)
Revenues............................................... $ 91,594 $ 38,141 $ 56,045 $ 72,340
Operating Expenses..................................... 91,820 28,333 46,921 60,553
Depreciation and Amortization.......................... 26,175 16,939 15,966 15,732
Operating loss......................................... (26,401 (2) (7,131) (6,842) (3,945)
Loss before extraordinary item......................... (19,134) (6,035) (6,256) (4,275)
Net Loss............................................... (19,468) (6,035) (6,256) (4,275)
Loss per share......................................... (.65) (.20) (.21) (.14)
1995(1)
Revenues............................................... $ 59,710 $ 39,952 $ 52,601 $ 49,555
Operating Expenses..................................... 56,263 32,888 34,004 41,523
Depreciation and Amortization.......................... 14,925 14,545 12,442 11,763
Provision for restructuring............................ -- 10,866(3) -- --
Operating income (loss)................................ (11,478) (18,347) 6,155(4) (3,731)
Net income (loss)...................................... (7,855) (13,733) 3,898 (3,333)
Income (loss) per share................................ (.32) (.57) .16 (.14)
</TABLE>
- ------------------------
(1) The Company has restated its Consolidated Financial Statements for the Year
ended December 31, 1995 and for the first three quarters of 1996. The net
effect of the restatement was to increase the previously reported 1995
operating loss by $2,410,000, net loss by $1,567,000 (net of a tax benefit
of $843,000) and loss per common share by $.07. The impact of the
restatement on previously reported 1996 quarterly information is not
material, and results in decreasing the previously reported net losses in
each of the first three quarters of 1996 by $67,000. The previously reported
quarterly information for 1995 and 1996 in the above tables has been
restated. For further information see the Company's Form 10-K/A filed on
February 19, 1997.
F-42
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 15--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED): (CONTINUED)
(2) Results for the fourth quarter of 1996 include $8.7 million of non-recurring
charges incurred by OCC and operating losses incurred by SpectraVision since
the date of acquisition. These non-recurring charges include costs relating
to asset write-downs, reserve and expense accruals associated with the
integration of SpectraVision, the alignment of the OCC's operating practices
for OCV and SpectraVision and the establishment of OCC as a new public
company.
(3) In the third quarter of 1995, a $10.9 restructuring charge was incurred
resulting from the discontinuation of Satellite Cinema's lower margin,
schedule, satellite delivered pay-per-view service (see Note 12).
(4) In the second quarter of 1995, the Company recognized an $8.8 million NBA
expansion fee payable to the Nuggets (an additional $.4 million was
recognized in the fourth quarter of 1995 upon resolution of certain
contingencies).
NOTE 16--SUBSEQUENT EVENTS
On January 11, 1997, SpectraVision experienced an interruption in service
caused by the loss of communication with a satellite used to deliver
pay-per-view programming to 950 of OCC's approximately 3,100 hotels. Of the
hotels affected, approximately 410 hotels continued to provide limited
pay-per-view services through alternate disk or tape-based systems.
By February 9, 1997, OCC was able to obtain alternate satellite service and
had restored full service to all the hotels affected. The Company believes the
loss of service will result in approximately $4,000,000 of decreased revenues
and incremental expenses in the first quarter of 1997.
F-43
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER TO EXCHANGE COVERED BY THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 12
Use of Proceeds................................ 23
The Exchange Offer............................. 24
Capitalization................................. 32
Selected Financial and Operating Information... 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 35
Business....................................... 48
Management..................................... 68
Common Stock Ownership of Certain Beneficial
Owners and Management........................ 73
Certain Restrictions Related to COMSAT
Distribution................................. 74
Description of Certain Indebtedness............ 75
Description of the Exchange Senior Notes....... 78
Certain U.S. Federal Income Tax Consequences... 113
Notice to Investors............................ 118
Plan of Distribution........................... 123
Experts........................................ 124
Incorporation of Certain Documents by
Reference.................................... 124
Index to Consolidated Financial Statements..... F-1
Exhibit Index.................................. II-1
</TABLE>
[LOGO]
PROSPECTUS
$225,000,000
ASCENT ENTERTAINMENT GROUP, INC.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT AT MATURITY OF ITS 11 7/8% SENIOR
SECURED DISCOUNT NOTES DUE 2004 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT FOR EACH $1,000 IN PRINCIPAL AMOUNT AT MATURITY OF ITS 11 7/8% SENIOR
SECURED DISCOUNT NOTES DUE 2004
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS
THE BANK OF NEW YORK
BY FACSIMILE
(ELIGIBLE INSTITUTIONS ONLY)
(212) 815-6339
CONFIRMATION BY PHONE
(212) 815-6337
THE BANK OF NEW YORK
CORPORATE TRUST SERVICES
WINDOW, GROUND LEVEL
101 BARCLAY STREET
NEW YORK, N.Y. 10286
ATTN: REORGANIZATION CENTER, ODELL ROMEO
JANUARY 30, 1998
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to the provisions of Article VIII of the Registrant's
Certificate of Incorporation filed as Exhibit 3(a) hereto and the provisions of
Article VIII of the Registrant's By-laws filed as Exhibit 3(b) hereto.
Generally, Section 145 of the General Corporation Law of the State of
Delaware (the "Delaware Corporation Law") permits a corporation to indemnify
certain persons made a party or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that such person is or
was a director or officer of the corporation or is or was serving at the request
of the corporation as a director or officer of another corporation or
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any such action, suit or proceeding if he acted in good faith and in a
manner that he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, if
he had no reasonable cause to believe that his conduct was unlawful. If,
however, any threatened, pending or completed action, suit or proceeding is by
or in the right of the corporation, the director or officer is not permitted to
be indemnified in respect of any claim, issue or matter as to which he is
adjudged to be liable to the corporation unless the Delaware Court of Chancery,
or such other court adjudicating the action, determines otherwise.
Additionally, there are in effect directors' and officers' liability
insurance policies which insure the Registrant's directors and officers against
certain liabilities that they may incur in such capacities
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<S> <C>
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.**
5(a) Opinion of Arthur M. Aaron, Vice President, Business and Legal Affairs and
Secretary of the Company, as to the legality of the Exchange Senior Notes to which
this registration statement applies being registered.
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).
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
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.**
10.6 $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.**
10.7 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).
10.8 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).
10.9 Second Amendment to Development, Production and Distribution Agreement between
Beacon Communications Corp. and Sony Pictures Entertainment, Inc. dated as of July
22, 1996. (Incorporated by reference to Exhibit 10.6 to Amendment No. 2 to the
Registration Statement of Form S-4 of On Command Corporation (No. 333-10407) filed
on September 26, 1996). (Confidential treatment granted).
10.10 Buena Vista International, Inc.--Beacon Communications Corp. Letter Agreement
dated as of April 1, 1996. (Incorporated by reference to Exhibit 10.1 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)
10.11 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 Registration Rights Agreement between the Registrant and NationsBanc Montgomery
Securities, Inc. dated December 22, 1997.**
10.13 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.**
10.14 Employment Agreement between the Registrant and Ellen Robinson. (Incorporated by
reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for
fiscal year ended December 31, 1996, Commission File No. 0-27192).*
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.15 Letter Agreement between the Registrant and Wesley D. Minami. (Incorporated by
reference to Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for
fiscal year ended December 31, 1996, Commission File No. 0-27192).*
10.16 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.)
21 Subsidiaries of Ascent Entertainment Group, Inc.**
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Arthur M. Aaron (contained in Exhibit 5(a))
24 Powers of Attorney authorizing signature of Charles Lyons, James A. Cronin, III,
Paul Gould, Peter Barton, Charles M. Neinas and Charles M. Lillis.**
25.1 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939 of The
Bank of New York, as Trustee under the Indenture, relating to the 11 7/8% Senior
Secured Discount Notes due 2004.**
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Securities Dealers, Commercial Banks, Trust Companies and Other
Nominees.
99.4 Form of Letter to Clients.
99.5 Guidelines for Certification of Taxpayer Identification Number on Form W-9.
</TABLE>
- ------------------------
* Indicates compensatory plan or arrangement.
** Previously filed.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
PROVIDED, HOWEVER, that the undertakings set forth in paragraphs (1)(i) and
(1)(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Securities and Exchange Commission by the
Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 and 13 of this Form, within one business day of receipt of
such request, and to send the incorporating documents by first class mail or
other equally prompt means. This includes information contained in the documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver, County of Denver, State of Colorado, on
January 28, 1998.
<TABLE>
<S> <C> <C>
ASCENT ENTERTAINMENT GROUP, INC.
(Registrant)
Date: January 28, 1998 By: /s/ ARTHUR M. AARON
-----------------------------------------
Arthur M. Aaron
VICE PRESIDENT, BUSINESS &
LEGAL AFFAIRS AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons by power of
attorney in the capacities and on the date indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ CHARLES LYONS*
- ------------------------------ President and Chief January 28, 1998
Charles Lyons Executive Officer
Executive Vice President,
/s/ JAMES A. CRONIN, III* Chief Financial Officer
- ------------------------------ and Chief Operating January 28, 1998
James A. Cronin, III Officer
/s/ DAVID A. HOLDEN*
- ------------------------------ Vice President, Finance January 28, 1998
David A. Holden and Controller
/s/ CHARLES LYONS*
- ------------------------------ Chairman of the Board January 28, 1998
Charles Lyons
/s/ JAMES A. CRONIN, III*
- ------------------------------ Director January 28, 1998
James A. Cronin, III
/s/ PETER BARTON*
- ------------------------------ Director January 28, 1998
Peter Barton
/s/ CHARLES M. NEINAS*
- ------------------------------ Director January 28, 1998
Charles M. Neinas
/s/ CHARLES M. LILLIS*
- ------------------------------ Director January 28, 1998
Charles M. Lillis
II-5
<PAGE>
<TABLE>
<C> <S> <C>
/s/ PAUL GOULD*
- ------------------------------ Director January 28, 1998
Paul Gould
</TABLE>
*By: /s/ ARTHUR M. AARON
-------------------------
Arthur M. Aaron
ATTORNEY-IN-FACT
II-6
<PAGE>
Exhibit 5(a)
January 21, 1998
Ascent Entertainment Group, Inc.
One Tabor Center
1200 Seventeenth Street
Denver, Colorado 80202
Re: Registration Statement on Form S-4 (the "Registration Statement")
Relating to Ascent Entertainment Group, Inc. Offer to Exchange
$1,000 in Principal Amount at Maturity of its 11 7/8% Senior
Secured Discount Notes Due 2004 which have been registered under
the Securities Act (the "Exchange Senior Notes") for each $1,000
in Principal Amount at Maturity of its Outstanding 11 7/8%
Senior Secured Discount Notes Due 2004 (the "Senior Notes").
Ladies and Gentlemen:
In connection with the proposed exchange by Ascent
Entertainment Group, Inc., a Delaware corporation (the
"Company"), of the Ascent Exchange Senior Notes for the Ascent
Senior Notes, I am of the opinion that:
1. The Exchange Senior Notes have been duly authorized, and, upon
issuance and delivery therefor in the manner contemplated by
the Indenture and Registration Rights Agreement, will be
validly issued, fully paid and nonassessable and will be
binding obligations of the Company.
I hereby consent to the filing of this opinion with
the Securities and Exchange Commission as Exhibit 5(a) to the
Registration Statement.
Very truly yours,
/s/ Arthur M. Aaron
----------------------------------
Arthur M. Aaron
Vice President, Business & Legal
Affairs and Secretary
<PAGE>
Exhibit 23.1
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-44461 of Ascent Entertainment Group, Inc. on Form S-4 of our report
dated March 23, 1997 included in the Annual Report on Form 10-K of Ascent
Entertainment Group, Inc. for the year ended December 31, 1996, and to the use
of our report dated March 23, 1997 appearing in the Prospectus, which is a part
of such Registration Statement. We also consent to the reference to us under
the headings "Summary Financial and Operating Information," "Selected Financial
and Operating Information" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 28, 1998
5
<PAGE>
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN DAYLIGHT TIME, ON
MARCH 2, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., EASTERN DAYLIGHT TIME, ON THE EXPIRATION
DATE.
- --------------------------------------------------------------------------------
ASCENT ENTERTAINMENT GROUP, INC.
1200 SEVENTEENTH STREET
SUITE 2800
DENVER, CO 80202
LETTER OF TRANSMITTAL
TO EXCHANGE 11 7/8% SENIOR SECURED DISCOUNT NOTES DUE 2004
EXCHANGE AGENT:
The Bank Of New York
TO: The Bank Of New York
FACSIMILE TRANSMISSION:
(Eligible Institutions Only)
(212) 815-6339
CONFIRM BY TELEPHONE TO:
(212) 815-6337
BY MAIL/HAND DELIVERY/OVERNIGHT DELIVERY:
The Bank Of New York
Corporate Trust Services Window, Ground Level
Attn: Reorganization Center, Odell Romeo
101 Barclay Street
New York, NY 10286
BY REGISTERED CERTIFIED MAIL:
The Bank of New York
101 Barclay Street, 7E
New York, N.Y. 10286
Attn: Reorganization Center, Odell Romeo
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated January 30,
1998 (the "Prospectus") of Ascent Entertainment Group, Inc., a Delaware
corporation (the "Issuer"), and this Letter of Transmittal for 11 7/8% Senior
Secured Discount Notes due 2004 which may be amended from time to time (this
"Letter"), which together constitute the Issuer's offer (the "Exchange Offer")
to exchange $1,000 in principal amount at maturity of its 11 7/8% Senior Secured
Discount Notes due 2004 (the "Exchange Notes") for each $1,000 in principal
amount at maturity of its outstanding 11 7/8% Senior Secured Discount Notes due
2004 (the "Senior Notes") that were issued and sold in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act").
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
<PAGE>
All holders of Senior Notes who wish to tender their Senior Notes must,
prior to the Expiration Date: (1) complete, sign, date and deliver this Letter,
or a facsimile thereof, to the Exchange Agent, in person or to the address set
forth above; and (2) tender his or her Senior Notes or, if a tender of Senior
Notes is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility"), confirm such book-entry transfer (a "Book-Entry Confirmation"), in
each case in accordance with the procedures for tendering described in the
Instructions to this Letter. Holders of Senior Notes whose certificates are not
immediately available, or who are unable to deliver their certificates or
Book-Entry Confirmation and all other documents required by this Letter to be
delivered to the Exchange Agent on or prior to the Expiration Date, must tender
their Senior Notes according to the guaranteed delivery procedures set forth
under the caption "The Exchange Offer--How to Tender" in the Prospectus. (See
Instruction 1).
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Senior Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Issuer shall be deemed to have accepted for
exchange validly tendered Senior Notes when, as and if the Issuer has given
written notice thereof to the Exchange Agent.
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of the
Prospectus or this Letter may be directed to the Exchange Agent, at the address
listed above, or Arthur M. Aaron, Vice President, Business & Legal Affairs and
Secretary, Ascent Entertainment Group, Inc., 1200 Seventeenth Street, Suite
2800, Denver, CO 80202, at (303) 626-7000.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER, CAREFULLY
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter and not defined herein shall have the
respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Senior Notes of which you are the holder. If the
space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Senior Notes on a separate signed schedule and affix that
schedule to this letter.
BOX 1
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
TO BE COMPLETED BY ALL TENDERING HOLDERS
-------------------------------------------------------------------------------------------
PRINCIPAL
PRINCIPAL AMOUNT AT
NAME(S) AND ADDRESS(S) AMOUNT AT MATURITY OF
OF REGISTERED HOLDER(S) CERTIFICATE MATURITY OF SENIOR NOTES
(PLEASE FILL IN IF BLANK) NUMBER(S)(1) SENIOR NOTES TENDERED(2)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
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TOTALS:
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed if Senior Notes are being tendered by book-entry
transfer.
(2) Unless otherwise indicated, the entire principal amount of Senior Notes
represented by a certificate or Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered.
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Issuer the principal amount of Senior Notes indicated
above. Subject to, and effective upon, the acceptance for exchange of the Senior
Notes, tendered with this Letter, the undersigned exchanges, assigns and
transfers to, or upon the order of, the Issuer all right, title and interest in
and to the Senior Notes tendered.
The undersigned constitutes and appoints the Exchange Agent as his or her
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuer) with respect to the tendered Senior Notes, with
full power of substitution, to: (a) deliver certificates for such Senior Notes;
(b) deliver Senior Notes and all accompanying evidence of transfer and
authenticity to or upon the order of the Issuer upon receipt by the Exchange
Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon the acceptance by the Issuer of the Senior Notes
tendered under the Exchange Offer; and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Senior Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full power
and authority to tender, exchange, assign and transfer the Senior Notes tendered
hereby and that the Issuer will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Issuer to be necessary or
desirable to complete the assignment and transfer of the Senior Notes tendered.
The undersigned agrees that acceptance of any tendered Senior Notes by the
Issuer and the issuance of Exchange Senior Notes in exchange therefor shall
constitute performance in full by the Issuer of its obligations under the
Registration Rights Agreement (as defined in the Prospectus) and that, upon the
issuance of the Exchange Senior Notes, the Issuer will have no further
obligations or liabilities thereunder (except in certain limited circumstances).
By tendering Senior Notes, the undersigned certifies (a) that it is not an
"affiliate" of the Issuer within the meaning of the Securities Act (an
"Affiliate"), that it is not a broker-dealer that owns Senior Notes acquired
directly from the Issuer or an Affiliate, that it is acquiring the Exchange
Senior Notes acquired directly from the Issuer or an Affiliate, that it is
acquiring the Exchange Senior Notes offered hereby in the ordinary course of the
undersigned's business and that the undersigned has no arrangement with any
person to participate in the distribution of such Exchange Senior Notes; or (b)
that it is an Exchanging Dealer (as defined in the Prospectus) and that it will
deliver a Prospectus in connection with any resale of the Exchange Senior Notes.
If the undersigned is an Exchanging Dealer that will receive Exchange Senior
Notes for its own account in exchange for Senior Notes, it represents that the
Senior Notes to be exchanged for the Exchange Senior Notes were acquired as a
result of market making activities or other trading activities and acknowledges
that it will deliver a Prospectus in connection with any resale of such Exchange
Senior Notes. By so acknowledging and by delivering a Prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Issuer and the Exchange Agent have agreed that, subject to the
provisions of the Registration Rights Agreement, the Prospectus, as it may be
amended or supplemented from time to time, may be used by an Exchanging Dealer
in connection with resales of Exchange Senior Notes received in exchange for
Senior Notes, where such Senior Notes were acquired by such Exchanging Dealer
for its own account as a result of market-making activities or other trading
activities, for a period ending one year after the Expiration Date (subject to
extension under certain limited circumstances described in the Prospectus) or,
if earlier, when all such Exchange Senior Notes have been disposed of by such
Exchanging Dealer. In that regard, each Exchanging Dealer, agrees that, upon
receipt of notice from the Issuer or the Exchange Agent of the occurrence of any
event or the discovery of any fact which makes any statement contained or
incorporated by reference in the Prospectus untrue in any material respect or
which causes the Prospectus to omit to state a material fact necessary in order
to make the statements contained or incorporated by reference therein, in light
of the circumstances under which they were made, not misleading or of the
occurrence of certain other events specified in the Registration Rights
Agreement, such Exchanging
<PAGE>
Dealer will suspend the sale of Exchange Senior Notes pursuant to the Prospectus
until the Issuer and the Exchange Agent have amended or supplemented the
Prospectus to correct such misstatement or omission and have furnished copies of
the amended or supplemented Prospectus to the Exchanging Dealer or the Issuer or
the Exchange Agent have given notice that the sale of the Exchange Senior Notes
may be resumed, as the case may be. If the Issuer or the Exchange Agent gives
such notice to suspend the sale of the Exchange Senior Notes, they shall extend
the one year period referred to above during which Exchanging Dealers are
entitled to use the Prospectus in connection with the resale of Exchange Senior
Notes by the number of days during the period from and including the date of the
giving of such notice to and including the date when Exchanging Dealers shall
have received copies of the supplemented or amended Prospectus necessary to
permit resales of the Exchange Senior Notes or to and including the date on
which the Issuer or the Exchange Agent has given notice that the sale of the
Exchange Senior Notes may be resumed, as the case may be.
The Issuer may accept the undersigned's tender by delivering written notice
of acceptance to the Exchange Agent, at which time the undersigned's right to
withdraw such tender will terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of the
undersigned under this Letter shall be binding upon the undersigned's heirs,
personal representatives, successors and assigns. Tenders may be withdrawn only
in accordance with the procedures set forth in the Instructions contained in
this Letter.
Unless otherwise indicated under "Special Delivery Instructions" below, the
Exchange Agent will deliver Exchange Senior Notes (and, if applicable, a
certificate for any Senior Notes not tendered but represented by a certificate
also encompassing Senior Notes which are tendered) to the undersigned at the
address set forth in Box 1.
The Exchange Offer is subject to the more detailed terms set forth in the
Prospectus and, in case of any conflict between the terms of the Prospectus and
the terms of this Letter, the Prospectus shall prevail.
/ / CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
/ / CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s): ____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Window Ticket Number (if available): _______________________________________
Name of Institution which Guaranteed Delivery: _____________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
BOX 2
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
WHETHER OR NOT SENIOR NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
This box must be signed by registered holder(s) of Senior Notes as their
name(s) appear(s) on certificate(s) for Senior Notes, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Letter. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below. (See Instruction 3)
X __________________________________________________________________________
X __________________________________________________________________________
SIGNATURE(S) OF OWNER(S) OR AUTHORIZED SIGNATORY
Date: __________________ , 1998
Name(s) ____________________________________________________________________
(PLEASE PRINT)
Capacity: __________________________________________________________________
Address: ___________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No.: _______________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (SEE INSTRUCTIONS 3 BELOW)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
___________________________________________________________________________
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
_________________________________________________________________________
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER
(INCLUDING AREA CODE) OF FIRM)
_________________________________________________________________________
(AUTHORIZED SIGNATURE)
_________________________________________________________________________
(TITLE)
_________________________________________________________________________
(PRINTED NAME)
Date: __________________ , 1998
- --------------------------------------------------------------------------------
<PAGE>
BOX 3
TO BE COMPLETED BY ALL TENDERING HOLDERS
PAYOR'S NAME:
<TABLE>
<C> <S> <C>
- -----------------------------------------------------------------------------------------
SUBSTITUTE Part I: PLEASE Social Security Number
FORM W-9 PROVIDE YOUR TIN IN OR -------------------------
Department of the Treasury THE BOX AT RIGHT AND Employer Identification Number
Internal Revenue Service CERTIFY BY SIGNING
AND DATING BELOW
-------------------------------------------------------
Part II: Check the box if you are NOT subject to
back-up withholding under the provisions of Section
2406(a)(1)(c) of the Internal Revenue Code because (1)
you have not been notified by the Service that you are
subject to back-up withholding as a result of failure
Payer's Request for Taxpayer to report all interest or dividends or (2) the Internal
Identification Number (TIN)
Revenue Service has notified you that you are no longer
subject to back-up withholding.
-------------------------------------------------------
Part III: Awaiting TIN / /
- -----------------------------------------------------------------------------------------
CERTIFICATION UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON
THIS FORM IS TRUE, CORRECT AND COMPLETE.
Signature Date
Name:
(PLEASE PRINT)
- -----------------------------------------------------------------------------------------
</TABLE>
BOX 4
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Senior Notes in a principal amount
not exchanged, or Exchange Senior Notes, are to be issued in the name of
someone other than the person whose signature appears in Box 2, or if Senior
Notes delivered by book-entry transfer which are not accepted for exchange
are to be returned by credit to an account maintained at the Book-Entry
Transfer Facility other than the account indicated above.
Issue and deliver:
(check appropriate boxes)
/ / Senior Notes not tendered
/ / Exchange Senior Notes, to:
(Please Print)
Name: ______________________________________________________________________
Address: ___________________________________________________________________
_____________________________________
Please complete the Substitute Form W-9 at Box 3.
Tax I.D. or Social Security Number: ________________________________________
- --------------------------------------------------------------------------------
<PAGE>
BOX 5
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Senior Notes in a principal amount
not exchanged, or Exchange Senior Notes, are to be sent to someone other
than the person whose signature appears in Box 2 or to an address other than
that shown in Box 1.
Deliver:
(Check appropriate boxes)
/ / Senior Notes not tendered
/ / Exchange Senior Notes, to:
(Please Print)
Name: ______________________________________________________________________
Address: ___________________________________________________________________
_____________________________________
Please complete the Substitute Form W-9 at Box 3.
Tax I.D. or Social Security Number: ________________________________________
- --------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Senior Notes
or a Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed copy of this Letter and any other documents required
by this Letter, must be received by the Exchange Agent at one of its addresses
set forth herein on or before the Expiration Date. The method of delivery of
this Letter, certificates for Senior Notes or a Book-Entry Confirmation, as the
case may be, and any other required documents is at the election and risk of the
tendering holder, but except as otherwise provided below, the delivery will be
deemed made when actually received by the Exchange Agent. If delivery is by
mail, the use of registered mail with return receipt requested, properly
insured, is suggested.
If tendered Senior Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Senior Notes to be issued in exchange
therefor are to be issued (and any untendered Senior Notes are to be reissued)
in the name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Senior Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Issuer and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Senior Notes and/or Senior Notes not exchanged are
to be delivered to an address other than that of the registered holder appearing
on the note register for the Senior Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Senior Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Senior Notes should contact such holder promptly and instruct such
holder to tender Senior Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Senior Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Senior Notes, either make appropriate arrangements to register
ownership of the Senior Notes in such beneficial owner's name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
Holders whose Senior Notes are not immediately available or who cannot
deliver their Senior Notes or a Book-Entry Confirmation, as the case may be, and
all other required documents to the Exchange Agent on or before the Expiration
Date may tender their Senior Notes pursuant to the guaranteed delivery
procedures set forth in the Prospectus. Pursuant to such procedure: (i) tender
must be made by or through an Eligible Institution; (ii) prior to the Expiration
Date, the Exchange Agent must have received from the Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by telegram,
facsimile transmission, mail or hand delivery) (x) setting forth the name and
address of the holder, the description of the Senior Notes and the principal
amount of Senior Notes tendered, (y) stating that the tender is being made
thereby and (z) guaranteeing that, within five New York Stock Exchange trading
days after the date of execution of such Notice of Guaranteed Delivery, this
Letter together with the certificates representing the Senior Notes or a
Book-Entry Confirmation, as the case may be, and any other documents required by
this Letter will be deposited by the Eligible Institution with the Exchange
Agent; and (iii) the certificates for all tendered Senior Notes or a Book-Entry
Confirmation, as the case may be, as well as all other documents required by
this Letter, must be received by the Exchange Agent within five New York Stock
Exchange trading days after the date of execution of such Notice of Guaranteed
Delivery, all as provided in the Prospectus under the caption "The Exchange
Offer--How to Tender."
The method of delivery of Senior Notes and all other documents is at the
election and risk of the holder. If sent by mail, it is recommended that
registered mail, return receipt requested, be used, proper insurance be
obtained, and the mailing be made sufficiently in advance of the Expiration Date
to permit delivery to the Exchange Agent on or before the Expiration Date.
<PAGE>
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a holder pursuant to the Exchange Offer if the holder does not
provide his or her taxpayer identification number (social security number or
employer identification number) and certify that such number is correct. Each
tendering holder should complete and sign the main signature form and the
Substitute Form W-9 included as part of the Letter of Transmittal, so as to
provide the information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is proved in a manner satisfactory to
the Issuer and the Exchange Agent.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Senior Notes to reach the Exchange Agent before the
Expiration Date, a tender may be effected if the Exchange Agent has received at
its office listed on the back cover hereof on or prior to the Expiration Date a
letter, telegram or facsimile transmission from an Eligible Institution setting
forth the name and address of the tendering holder, the principal amount of the
Senior Notes being tendered, the names in which the Senior Notes are registered
and, if possible, the certificate numbers of the Senior Notes to be tendered,
and stating that the tender is being made thereby and guaranteeing that within
five New York Stock Exchange trading days after the date of execution of such
letter, telegram or facsimile transmission by the Eligible Institution, the
Senior Notes in proper form for transfer, will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Senior Notes being
tendered by the above-described method (or a timely Book-Entry Confirmation) are
deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Issuer may, at its option, reject the tender.
Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Senior Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Senior Notes in exchange
for Senior Notes tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Senior Notes (or
a timely Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Senior Notes will be determined
by the Issuer, whose determination will be final and binding. The Issuer
reserves the absolute right to reject any or all tenders that are not in proper
form or the acceptance of which, in the opinion of the Issuer's counsel, would
be unlawful. The Issuer also reserves the right to waive any irregularities or
conditions of tender as to particular Senior Notes. All tendering holders, by
execution of this Letter, waive any right to receive notice of acceptance of
their Senior Notes. The Issuer's interpretation of the terms and conditions of
the Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding.
Neither the Issuer, the Exchange Agent nor any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount
of any Senior Note evidenced by a submitted certificate or by a Book-Entry
Confirmation is tendered, the tendering holder must fill in the principal amount
tendered in the fourth column of Box 1 above. All of the Senior Notes
represented by a certificate or by a Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
A certificate for Senior Notes not tendered will be sent to the holder, unless
otherwise provided in Box 5, as soon as practicable after the Expiration Date,
in the event that less than the entire principal amount of Senior Notes
represented by a submitted certificate is tendered (or, in the case of Senior
Notes will be credited to an account maintained by the holder with the
Book-Entry Transfer Facility).
<PAGE>
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. To be effective with respect to the
tender of Senior Notes, a notice of withdrawal must: (i) be received by the
Exchange Agent before the Issuer notifies the Exchange Agent that it has
accepted the tender of Senior Notes pursuant to the Exchange Offer; (ii) specify
the name of the person who tendered the Senior Notes; (iii) contain a
description of the Senior Notes to be withdrawn, the certificate numbers shown
on the particular certificates evidencing such Senior Notes and the principal
amount of Senior Notes represented by such certificates and a statement that
such holder is withdrawing his election to have such Senior Notes exchanged; and
(iv) be signed by the holder in the same manner as the original signature on
this Letter (including any required signature guarantee) or be accompanied by
evidence satisfactory to the Issuer that the person withdrawing the tender has
succeeded to the beneficial ownership of the Senior Notes being withdrawn. The
Exchange Agent will return the properly withdrawn Senior Notes promptly
following receipt of notice of withdrawal. All questions as to the validity of
notices of withdrawal, including time of receipt, will be determined by the
Issuer, and such determination will be final and binding on all parties.
3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If
this Letter is signed by the holder(s) of Senior Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
certificate(s) for such Senior Notes, without alteration, enlargement or any
change whatsoever.
If any of the Senior Notes tendered hereby are owned by two or more joint
owners, all owners must sign this Letter. If any tendered Senior Notes are held
in different names on several certificates, it will be necessary to complete,
sign and submit as many separate copies of this Letter as there are names in
which certificates are held.
If this Letter is signed by the holder of record and (i) the entire
principal amount of the holder's Senior Notes are tendered; and/or (ii)
untendered Senior Notes, if any, are to be issued to the holder of record, then
the holder of record need not endorse any certificates for tendered Senior
Notes, nor provide a separate bond power. In any other case, the holder of
record must transmit a separate bond power with this Letter.
If this Letter or any certificate or assignment is signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and proper evidence satisfactory to the
Issuer of their authority to so act must be submitted, unless waived by the
Issuer.
Signatures on this Letter must be guaranteed by an Eligible Institution,
unless Senior Notes are tendered: (i) by a holder who has not completed the Box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
this Letter; or (ii) for the account of an Eligible Institution. In the event
that the signatures in this Letter or notice of withdrawal, as the case may be,
are required to be guaranteed, such guarantee must be by an eligible guarantor
institution which is a member of The Securities Transfer Agents Medallion
Program (STAMP), The New York Stock Exchanges Medallion Signature Program (MSP)
or The Stock Exchanges Medallion Program (SEMP). If Senior Notes are registered
in the name of a person other than the signer of this Letter, the Senior Notes
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Issuer, in its sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the
Exchange Senior Notes or certificates for Senior Notes not exchanged are to be
issued or sent, if different from the name and address of the person signing
this Letter. In the case of issuance in a different name, the tax identification
number of the person named must also be indicated. Holders tendering Senior
Notes by book-entry transfer may request that Senior Notes not exchanged be
credited to such account maintained at the Book-Entry Transfer Facility as such
holder may designate.
<PAGE>
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose tendered Senior Notes are accepted for exchange must provide the
Exchange Agent (as payor) with his or her correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Exchange Agent is not provided with the correct
TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to the holder of the Exchange Senior Notes
pursuant to the Exchange Offer may be subject to back-up withholding. (If
withholding results in overpayment of taxes, a refund may be obtained.) Exempt
holders (including, among others, all corporations and certain foreign
individuals) are not subject to these back-up withholding and reporting
requirements. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
Under federal income tax laws, payments that may be made by the Issuer on
account of Exchange Senior Notes issued pursuant to the Exchange Offer may be
subject to back-up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the TIN
provided is correct (or that the holder is awaiting a TIN) and that: (i) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to back-up withholding as a result of failure to report all interest of
dividends; (ii) the Internal Revenue Service has notified the holder that he or
she is no longer subject to back-up withholding; or (iii) in accordance with the
Guidelines, such holder is exempt from back-up withholding. If the Senior Notes
are in more than one name or are not in the name of the actual owner, consult
the enclosed Guidelines for information on which TIN to report.
6. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the transfer of Senior Notes to it or its order pursuant to the
Exchange Offer. If, however, the Exchange Senior Notes or certificates for
Senior Notes not exchanged are to be delivered to, or are to be issued in the
name of, any person other than the record holder, or if tendered certificates
are recorded in the name of any person other than the person signing this
Letter, or if a transfer tax is imposed by any reason other than the transfer of
Senior Notes to the Issuer or its order pursuant to the Exchange Offer, then the
amount of such transfer taxes (whether imposed on the record holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of taxes or exemption from taxes is not submitted with this Letter, the
amount of transfer taxes will be billed directly to the tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. WAIVER OF CONDITIONS. The Issuer reserves the absolute right to amend
or waive any of the specified conditions in the Exchange Offer in the case of
any Senior Notes tendered.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Senior Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above, for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
IMPORTANT: THIS LETTER (TOGETHER WITH CERTIFICATES REPRESENTING TENDERED
SENIOR NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS) MUST
BE RECEIVED BY THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE (AS DEFINED
IN THE PROSPECTUS).
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTICE OF GUARANTEED DELIVERY
OF 11 7/8% SENIOR SECURED DISCOUNT NOTES
DUE 2004
As set forth in the Prospectus dated January 30, 1998 (the "Prospectus") of
Ascent Entertainment Group, Inc. (the "Issuer") under "The Exchange Offer -- How
to Tender" and in the Letter of Transmittal for the 11 7/8% Senior Secured
Discount Notes due 2004 (the "Letter of Transmittal"), this form or one
substantially equivalent hereto must be used to accept the Exchange Offer (as
defined below) of the Issuer if: (i) certificates for the above-referenced notes
(the "Senior Notes") are not immediately available, (ii) time will not permit
all required documents to reach the Exchange Agent (as defined below) on or
prior to the Expiration Date (as defined in the Prospectus) or (iii) the
procedures for book-entry transfer cannot be completed on or prior to the
Expiration Date (as defined below). Such form may be delivered by hand or
transmitted by facsimile transmission or letter to the Exchange Agent.
To: The Bank of New York
(the "Exchange Agent")
BY FACSIMILE:
(212) 815-6339
(Eligible Institutions Only)
CONFIRM BY TELEPHONE TO:
(212) 815-6337
(Eligible Institutions Only)
BY MAIL/HAND DELIVERY/OVERNIGHT DELIVERY:
The Bank of New York
Corporate Trust Services Window, Ground Level
Attn: Reorganization Center, Odell Romeo
101 Barclay Street
New York, N.Y 10286
BY REGISTERED CERTIFIED MAIL:
The Bank of New York
101 Barclay Street, 7E
New York, New York 10286
Attn: Reorganization Center, Odell Romeo
Delivery of this instrument to an address other than
as set forth above or transmittal of this instrument to
a facsimile number other than as set forth
above does not constitute a valid delivery.
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and conditions
set forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the
principal amount at maturity of Senior Notes set forth below pursuant to the
guaranteed delivery procedures described in the Prospectus and the Letter of
Transmittal.
The Exchange Offer will expire at 5:00 p.m., New York City time, on Monday,
March 2, 1998, unless extended by the Issuer. With respect to the Exchange
Offer, "Expiration Date" means such time and date, or if the Exchange Offer is
extended, the latest time and date to which the Exchange Offer is so extended by
the Issuer.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
<PAGE>
SIGNATURES
______________________________________________________
SIGNATURE OF OWNER
____________________________________________________
SIGNATURE OF OWNER (IF MORE THAN ONE)
Dated: _________________________________________, 1998
Name(s): _____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone No.: _______________________________________
Capacity (full title), if signing in a representative
capacity:
______________________________________________________
Taxpayer Identification or Social Security No.: ______
Principal amount of Senior Notes Exchanged:
$ ____________________________________________________
Certificate Nos. of Senior Notes (if available)
______________________________________________________
______________________________________________________
IF SENIOR NOTES WILL BE DELIVERED BY BOOK-ENTRY
TRANSFER, PROVIDE THE DEPOSITORY TRUST COMPANY ("DTC")
ACCOUNT NO.:
Account No. __________________________________________
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended, hereby guarantees (a) that the above-named person(s) own(s)
the above-described securities tendered hereby within the meaning of Rule 10b-4
under the Securities Exchange Act of 1934, (b) that such tender of the above-
described securities complies with Rule 10b-4, and (c) that delivery of such
certificates pursuant to the procedure for book-entry transfer, in either case
with delivery of a properly completed and duly executed Letter of Transmittal
(or facsimile thereof) and any other required documents, is being made within
five New York Stock Exchange trading days after the date of execution of a
Notice of Guaranteed Delivery of the above-named person.
______________________________________
Name of Firm:
______________________________________
______________________________________
Number and Street or P.O. Box
______________________________________
City State Zip Code
Tel. No. _____________________________
Fax No. ______________________________
______________________________________
(Authorized Signature)
Title:
______________________________________
Date:
______________________________________
NOTE: DO NOT SEND CERTIFICATES REPRESENTING NOTES WITH THIS NOTICE. NOTES
SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED
AND DULY EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT AT MATURITY OF
11 7/8% SENIOR SECURED DISCOUNT NOTES DUE 2004
FOR
EACH $1,000 IN PRINCIPAL AMOUNT AT MATURITY OF
OUTSTANDING 11 7/8% SENIOR SECURED DISCOUNT NOTES DUE 2004
THAT WERE ISSUED AND SOLD IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED
To: Securities Dealers, Commercial Banks
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus dated January 30, 1998 (as
the same may be amended or supplemented from time to time (the "Prospectus"))
and a form of Letter of Transmittal (the "Letter of Transmittal") relating to
the offer (the "Exchange Offer") by Ascent Entertainment Group, Inc. (the
"Issuer") to exchange up to $225,000,000 in aggregate principal amount at
maturity of its 11 7/8% Senior Secured Discount Notes due 2004 (the "Exchange
Senior Notes") for up to $225,000,000 in aggregate principal amount at maturity
of its outstanding 11 7/8% Senior Secured Discount Notes due 2004 that were
issued and sold in a transaction exempt from registration under the Securities
Act of 1933, as amended (the "Senior Notes").
We are asking you to contact your clients for whom you hold Senior Notes
registered in your name or in the name of your nominee. In addition, we ask you
to contact your clients who, to your knowledge, hold Senior Notes registered in
their own name. The Issuer will not pay any fees or commissions to any broker,
dealer or other person in connection with the solicitation of tenders pursuant
to the Exchange Offer. You will, however, be reimbursed by the Issuer for
customary mailing and handling expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Issuer will pay all transfer taxes, if
any, applicable to the tenderer of Senior Notes to it or its order, except as
otherwise provided in the Prospectus and the Letter of Transmittal.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter of Transmittal for your use in connection with the exchange of
Senior Notes and for the information of your clients (facsimile copies of
the Letter of Transmittal may be used to exchange Senior Notes);
3. A form of letter that may be sent to your clients for whose accounts you
hold Senior Notes registered in your name or the name of your nominee,
with space provided for obtaining the clients' instructions with regard
to the Exchange Offer;
4. A Notice of Guaranteed Delivery; and
5. Guidelines of the Internal Revenue Service for Certification of Taxpayer
Identification Number on Substitute Form W-9.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, on Monday, March 2, 1998, unless extended (the
"Expiration Date"). Senior Notes tendered pursuant to the Exchange Offer may be
withdrawn, subject to the procedures described in the Prospectus, at any time
prior to the Expiration Date.
To tender Senior Notes, certificates for Senior Notes or a Book-Entry
Confirmation, a duly executed and properly completed Letter of Transmittal or a
facsimile thereof, and any other required documents, must be received by the
Exchange Agent as provided in the Prospectus and the Letter of Transmittal.
<PAGE>
Questions and requests for assistance with respect to the Exchange Offer or
for additional copies of the enclosed material may be directed to the Exchange
Agent at its address set forth in the Prospectus or at (212) 815-6337.
Very truly yours,
/s/ Charles Lyons
ASCENT ENTERTAINMENT GROUP, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY PERSON AS AN AGENT OF THE ISSUER OR THE EXCHANGE AGENT, OR ANY AFFILIATE
THEREOF, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY
DOCUMENT ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR
THE ENCLOSED DOCUMENTS AND THE STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND
THE LETTER OF TRANSMITTAL.
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT AT MATURITY OF
11 7/8% SENIOR SECURED DISCOUNT NOTES DUE 2004
FOR
EACH $1,000 IN PRINCIPAL AMOUNT AT MATURITY OF
OUTSTANDING 11 7/8% SENIOR SECURED DISCOUNT NOTES DUE 2004
THAT WERE ISSUED AND SOLD IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED
To Our Clients:
Enclosed for your consideration is a Prospectus dated January 30, 1998 (as
the same may be amended or supplemented from time to time (the "Prospectus"))
and a form of Letter of Transmittal (the "Letter of Transmittal") relating to
the offer (the "Exchange Offer") by Ascent Entertainment Group, Inc. (the
"Issuer") to exchange up to $225,000,000 in aggregate principal amount at
maturity of its 11 7/8% Senior Secured Discount Notes due 2004 (the "Exchange
Senior Notes") for up to $225,000,000 in aggregate principal amount at maturity
of its outstanding 11 7/8% Senior Secured Discount Notes due 2004 that were
issued and sold in a transaction exempt from registration under the Securities
Act of 1933, as amended (the "Senior Notes").
The material is being forwarded to you as the beneficial owner of Senior
Notes carried by us for your account or benefit but not registered in your name.
A tender of any Senior Notes may be made only by us as the registered holder and
pursuant to your instructions. Therefore, the Issuer urges beneficial owners of
Senior Notes registered in the name of a broker, dealer, commercial bank, trust
company or other nominee to contact such registered holder promptly if they wish
to tender Senior Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to tender any
or all Senior Notes, pursuant to the terms and conditions set forth in the
Prospectus and Letter of Transmittal. We urge you to read carefully the
Prospectus and Letter of Transmittal before instructing us to tender your Senior
Notes.
Your instructions to us should be forwarded as promptly as possible in order
to permit us to tender Senior Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on Monday, March 2, 1998, unless extended (the "Expiration
Date"). Senior Notes tendered pursuant to the Exchange Offer may be withdrawn,
subject to the procedures described in the Prospectus, at any time prior to the
Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for the exchange of $1,000 in principal amount at
maturity of the Exchange Senior Notes for each $1,000 in principal amount at
maturity of the Senior Notes, of which $126,663,750 was outstanding as of
December 22, 1997. The terms of the Exchange Senior Notes are substantially
identical (including principal amount, interest rate, maturity, security and
ranking) to the terms of the Senior Notes, except that the Exchange Senior
Notes (i) are freely transferable by holders thereof (except as provided in
the Prospectus) and (ii) are not entitled to certain registration rights and
certain additional interest provisions which are applicable to the Senior
Notes under a Registration Rights Agreement dated as of December 22, 1997
(the "Registration Rights Agreement") between the Issuer and NationsBanc
Montgomery Securities, Inc., as Initial Purchaser.
2. The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New York
City time, on March 2, 1998, unless extended.
3. The Issuer has agreed to pay the expenses of the Exchange Offer except as
provided in the Prospectus and the Letter of Transmittal.
<PAGE>
4. Any transfer taxes incident to the transfer of Senior Notes from the
tendering holder to the Issuer will be paid by the Issuer, except as
provided in the Prospectus and the Letter of Transmittal.
The Exchange Offer is not being made to nor will exchange be accepted from
or on behalf of holders of Senior Notes in any jurisdiction in which the making
of the Exchange Offer or the acceptance thereof would not be in compliance with
the laws of such jurisdiction.
If you wish to have us tender any or all of your Senior Notes held by us for
your account or benefit, please so instruct us by completing, executing and
returning to us the instruction form that appears below. The accompanying Letter
of Transmittal is furnished to you for informational purposes only and may not
be used by you to tender Senior Notes held by us and registered in our name for
your account or benefit.
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of Ascent
Entertainment Group, Inc., including the Prospectus and the Letter of
Transmittal.
This form will instruct you to exchange the aggregate principal amount of
Senior Notes indicated below (or, if no aggregate principal amount is indicated
below, all Senior Notes) held by you for the account or benefit of the
undersigned, pursuant to the terms and conditions set forth in the Prospectus
and Letter of Transmittal.
- --------------------------------------------------------------------------------
Aggregate Principal Amount of Senior Notes to be exchanged
$________________________*
- --------------------------------------------------------------------------------
* I (we) agree that if I (we) sign these instruction forms without indicating
an aggregate principal amount of Senior Notes in the space above, all Senior
Notes held by you for my (our) account will be exchanged.
- ---------------------------------------------
Signature(s)
- ---------------------------------------------
- ---------------------------------------------
- ---------------------------------------------
- ---------------------------------------------
(Please print name(s) and address above
Dated , 1998
- ---------------------------------------------
(Area code and phone number)
- ---------------------------------------------
(Taxpayer identification or Social Security Number)
<PAGE>
Exhibit 99.5
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
GIVE THE SOCIAL SECURITY GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: NUMBER OF-- FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF--
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, The legal entity (Do not
or pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(5)
2. Two or more individuals The actual owner of the 10. Corporate account The corporation
(joint account) account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the 11. Religious, charitable, The organization
account) account or, if joint funds, or educational
either person(1) organization account
4. Custodian account of a The minor(2) 12. Partnership account The partnership
minor (Uniform Gift to held in the name of
Minors Act) the business
5. Adult and minor (joint The adult or, if the minor 13. Association, club or The organization
account) is the only contributor, other tax-exempt
the minor(1) organization
6. Account in the name of The ward, minor, or 14. A broker or registered The broker or nominee
guardian or committee incompetent person(3) nominee
for a designated ward,
minor, or incompetent
person
7. a. The usual revocable The grantor-trustee(1) 15. Account with the The public entity
savings trust account The actual owner(1) Department of
(grantor is also Agriculture in the
trustee) name of a public
b. So-called trust entity (such as a
account that is not State or local
a legal or valid government, school
trust under State district, or prison)
law that receives
agricultural program
payments
8. Sole proprietorship The owner(4)
account
</TABLE>
- --------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension trust.
<PAGE>
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for A Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A dealer in securities or commodities required to register in the U.S. or
a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- Payments of patronage dividends where the amount renewed is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above must still complete the Substitute Form W-9
enclosed herewith to avoid possible erroneous backup withholding. FILE THIS FORM
WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE EXEMPT ON THE
FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST,
DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments, other than interest, dividends and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6042, 6044, 6045, 6049, 6050A and 6050N.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes and to help verify the accuracy of the recipient's tax return. Payers
must be given the numbers whether or not recipients are required to file tax
returns. Payers must generally withhold 31% of taxable interest, dividend, and
certain other payments to a payee who does not furnish a taxpayer identification
number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure which is due to reasonable cause and
not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
