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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 0-27192
ASCENT ENTERTAINMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1930707
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1225 Seventeenth Street, Suite 1800
Denver, Colorado 80202
(Address and Zip Code of principal executive offices)
Registrant's telephone number, including area code:
(303) 308-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on which
------------------- ------------------------------
Registered
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Common Stock, par value $.01 NASDAQ National Market.
11 7/8% Senior Secured Discount
Notes Due 2004 None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the
Registrant was $302,212,751 based on a price of $10.1565 per share, which was
the average of the bid and asked prices of such stock on March 15, 1999, as
reported on the NASDAQ National Market reporting system.
29,755,600 shares of Common Stock were outstanding on March 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement with respect to its annual meeting
of stockholders is incorporated herein to Part III of this document by
reference.
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TABLE OF CONTENTS
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Part I
Item 1. Business.............................................. 4
General Information................................... 4
Multimedia Distribution............................... 5
On Command Corporation................................ 5
General............................................... 5
OCC Operating and Growth Strategy..................... 6
Services and Products................................. 6
Technology............................................ 8
Sales and Marketing................................... 8
Installation and Service Operations................... 9
Hotel Contracts....................................... 9
Suppliers............................................. 9
Competition........................................... 10
International Markets................................. 11
Investment in OCC..................................... 11
Entertainment......................................... 11
Colorado Avalanche and Denver Nuggets................. 11
General............................................... 11
Sources of Revenue.................................... 12
Ticket Sales.......................................... 12
Television, Cable and Radio Broadcasting.............. 13
Sponsorships.......................................... 13
Other Sources......................................... 13
NBA and NHL Governance................................ 14
Collective Bargaining................................. 14
Competition........................................... 15
Broadcast Operations.................................. 15
The Pepsi Center...................................... 15
Network Services...................................... 17
Ascent Network Services............................... 17
Discontinued Operations............................... 17
Regulation............................................ 18
Patents Trademarks and Copyrights..................... 18
Employees............................................. 18
Item 2. Properties............................................ 18
Item 3. Legal Proceedings..................................... 19
Item 4. Submission of Matters to a Vote of Security Holders... 19
Executive Officers of the Registrant.............................. 19
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................... 21
Item 6. Selected Financial Data............................... 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 24
Item 7A. Qualitative and Quantitative Disclosures about
Market Risk........................................... 35
Item 8. Financial Statements and Supplementary Data........... 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 61
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Part III
Item 10. Directors and Executive Officers of the Registrant.... 61
Item 11. Executive Compensation................................ 61
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................ 61
Item 13. Certain Relationships and Related Transactions........ 61
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.............................................. 61
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PART I
Certain of the statements that follow are forward-looking and relate to
anticipated future operating results. Statements which look forward in time are
based on management's current expectations and assumptions, which may be
affected by subsequent developments and business conditions, and necessarily
involve risks and uncertainties. Therefore, there can be no assurance that
actual future results will not differ materially from anticipated results.
Although the company has attempted to identify some of the important factors
that may cause actual results to differ materially from those anticipated, those
factors should not be viewed as the only factors which may affect future
operating results.
ITEM 1. BUSINESS
GENERAL INFORMATION
Ascent Entertainment Group, Inc. ("Ascent" or the "Company") operates
diversified media and entertainment production and distribution businesses
characterized by well-known franchises. The Company conducts its business in
three reportable segments, Multimedia Distribution, Entertainment and Network
Services. In the Company's Multimedia Distribution segment, the Company's
approximately 57% owned publicly traded subsidiary, On Command Corporation ("On
Command" or "OCC"), is the leading provider (by number of hotel rooms served) of
in-room on-demand video entertainment and information services to the domestic
lodging industry. The Company's Entertainment segment is comprised of two
professional sports franchises - the National Hockey League ("NHL") Colorado
Avalanche (the "Avalanche") and the National Basketball Association ("NBA")
Denver Nuggets (the "Nuggets") and the Pepsi Center, a new state-of-the-art
sports and entertainment center in downtown Denver that the Company is
constructing through its subsidiary Ascent Arena Company, LLC. The Company
believes that the construction of the Pepsi Center will enhance the asset value
of its sports franchises, allow the Company to take advantage of the growing
popularity of the NHL and NBA, and augment the revenues and operating cash flows
of the two sports franchises. The Pepsi Center is scheduled to be completed by
the fall of 1999 and available for use in the 1999-2000 NHL and NBA seasons. The
Company's Network Services segment is comprised of the Company's Ascent Network
Services ("ANS") division. ANS is the primary provider of satellite
distribution support services that link the National Broadcasting Company
("NBC") television network with 181 of its affiliated stations nationwide.
Finally, on January 20, 1999, the Company sold a 90% interest in its subsidiary
Beacon Communications, LLC, the successor in interest to Beacon Communications
Corp. ("Beacon"), an independent motion picture and television production
company whose most recently produced films include AIR FORCE ONE, A THOUSAND
ACRES and PLAYING GOD, to an investment group which included Armyan Bernstein,
Beacon's Chief Executive Officer. The Company began accounting for Beacon as a
discontinued operation as of December 31, 1998. (See Note 2 to the Company's
Consolidated Financial Statements).
The Company is a Delaware corporation and was incorporated in 1995. The
Company was formed by COMSAT Corporation ("COMSAT") to organize COMSAT's
multimedia distribution and entertainment assets under one management group. An
initial public offering (the "Offering") of Ascent's common stock was
completed in December 1995. As a result of the Offering, COMSAT owned 80.67% of
the Company's common stock.
COMSAT originally became involved in the entertainment industry through
its acquisition of the multimedia distribution businesses, ANS and On Command
Video Corporation ("OCV"), and its initial acquisition of an interest in the
Nuggets. COMSAT expanded the Company by acquiring complementary entertainment
businesses, including increasing its investment in OCV and the Nuggets and
acquiring the Avalanche, Beacon, and other related interests. In 1996, the
Company formed OCC to combine OCV and the assets and certain liabilities of
Spectravision, Inc. ("SpectraVision"), at the time the second largest provider
of in-room on-demand video entertainment services to the domestic lodging
industry.
In connection with the Offering, the Company and COMSAT entered into a
Services Agreement, pursuant to which COMSAT provided certain services to the
Company; a Corporate Agreement, which provided COMSAT with certain control
rights, including with respect to the Company's board of directors, equity
securities, and Certificate of Incorporation and Bylaws; and a Tax Sharing
Agreement related to the treatment of Ascent as part of
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COMSAT's consolidated tax group (See Note 13 to the 1998 Consolidated Financial
Statements).
On June 27, 1997, COMSAT consummated the distribution of all of its
ownership interest in Ascent to the COMSAT shareholders on a pro-rata basis in a
transaction that was tax-free for federal income tax purposes (the
"Distribution") pursuant to a Distribution Agreement dated June 3, 1997, between
Ascent and COMSAT. The Distribution was intended, among other things, to afford
Ascent more flexibility in obtaining debt financing to meet its growing needs.
The Distribution Agreement terminated the Corporate Agreement, the Tax Sharing
Agreement and the Services Agreement. In addition, pursuant to the Distribution
Agreement, certain restrictions were put into place to protect the tax-free
status of the Distribution. Among the restrictions, Ascent was not allowed to
issue, sell, purchase or otherwise acquire stock or instruments which afford a
person the right to acquire the stock of Ascent until July 1998. Finally, as a
result of the Distribution, Ascent is no longer part of COMSAT's consolidated
tax group and accordingly, Ascent may be unable to recognize future tax benefits
and will not receive cash payments from COMSAT resulting from Ascent's operating
losses in 1998 and anticipated operating losses thereafter. (See Note 13 to the
1998 Consolidated Financial Statements.)
MULTIMEDIA DISTRIBUTION
On Command Corporation
General
OCC is the leading provider (by number of hotel rooms served) of in-room
on-demand video entertainment and information services to the domestic lodging
industry, according to a report published by Paul Kagan Associates, Inc., an
industry analyst. The Company believes that OCC's leading market position
results from a combination of its extensive installed room base, the quality of
its proprietary technology and its focus on customer service. OCC generally
provides its in-room video entertainment services pursuant to exclusive long-
term contracts, primarily with large national business and luxury hotel chains
such as Marriott, Hilton, Hyatt, Doubletree, Fairmont, Embassy Suites, The Four
Seasons and Holiday Inn. These hotels generally have higher occupancy rates than
economy and budget hotels, which is an important factor contributing to higher
buy rates for pay-per-view service. As of December 31, 1998, OCC had an
installed room base of approximately 929,000 rooms (of which 829,000 were served
by on-demand pay-per-view systems and 100,000 were only served by scheduled pay-
per-view systems) in approximately 3,220 hotels worldwide.
In addition to installing OCV systems in hotels served by OCV, OCV sells
its systems to certain other providers of in-room entertainment, including
Hospitality Network, Inc., which is licensed to use OCV's system to provide on-
demand, in-room entertainment and information services to certain gaming-based,
hotel properties, and, through September, 1998, MagiNet Corporation ("Maginet")
(formerly Pacific Pay Video Limited), which had been licensed to use OCV's
system to provide on-demand in-room entertainment in the Asia-Pacific region.
In September 1998, On Command revoked Maginet's license to use the OCV system
for violations of the license agreement and filed suit to recover past due
license fees. (See Item 3, Legal Proceedings.)
In October 1996, OCC acquired the assets and certain liabilities of
SpectraVision (the "Acquisition"). Immediately prior to the Acquisition, OCV,
formerly an 84% (78.4% on a fully diluted basis) owned subsidiary of the
Company, was merged with a subsidiary of OCC, On Command Merger Corporation, and
OCV as the surviving corporation became a wholly owned subsidiary of OCC (the
"Merger" and with the Acquisition, the "OCC Transactions"). Additionally, On
Command Development Corporation, a wholly owned subsidiary of OCC, develops
technologies to be used by OCV and SpectraVision to support and enhance OCV's
and SpectraVision's operations and to develop new applications to be marketed by
OCV and SpectraVision.
The Acquisition enhanced OCC's position as the leading provider of on-
demand in-room video entertainment services to the domestic lodging industry and
approximately doubled the number of installed rooms served by OCC. Through
December 31, 1998, OCC had converted approximately 137,000 hotel rooms
previously served by SpectraVision systems to OCC's on-demand system, resulting
in higher average room revenues and lower operating costs. The Acquisition
also increased OCC's international base of rooms better positioning it to expand
further into international markets, which represent a significant growth
opportunity for OCC. As of December 31, 1998, approximately 13.4% of OCC's hotel
rooms served, or 124,000 rooms, are located in international markets.
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OCC's primary on-demand system currently is the OCV system, a patented
video selection and distribution system that allows guests to select at any time
up to 50 motion pictures on computer-controlled television sets located in their
rooms. By comparison, hotels still equipped with SpectraVision technology
generally offer fewer choices if served by SpectraVision on-demand systems or
only offer hotel guests eight movies per day at scheduled times, or some
combination thereof. Management expects to have a substantial majority of
SpectraVision rooms converted to OCV's on-demand system by 2000. OCC also
provides in-room viewing of free-to-guest programming of select cable channels
(such as HBO, Showtime, ESPN, CNN, WTBS and the Disney Channel) and other
interactive services. The high speed, two-way digital communications capability
of the OCV system enables OCC to provide advanced interactive features, such as
video games, in addition to basic interactive services such as video checkout
and guest surveying. In addition to the design innovation and quality of its
products, OCC considers a focus on customer satisfaction as central to the
maintenance and growth of its business.
OCC Operating and Growth Strategy
The Company believes that the superior on-demand capability and range of
services offered as well as the system reliability and high quality service of
OCC's on-demand video technology, its long-term contracts primarily with
national business and luxury hotel chains and high pay-per-view movie room
revenue, differentiate OCC from its competitors. OCC's strategy is to increase
revenues and operating cash flows through the following initiatives: (i)
increase its installed hotel customer base by obtaining new contracts with
business and luxury hotels and select mid-priced hotels without current service,
converting hotels currently served by other providers whose contracts are
expiring and servicing hotels which are acquired or constructed by existing
customers; (ii) increase revenues and decrease costs in certain hotels acquired
in the Acquisition by installing OCV technology offering greater reliability,
broader selection and more viewing flexibility; (iii) create new revenue sources
through an expanding range of interactive and information services offered to
the lodging industry; and (iv) expand its room base in underserved foreign
markets. The Company estimates that OCC may incur capital expenditures of
approximately $65 to 90 million in 1999, a substantial portion of which will
relate to the conversion of SpectraVision rooms to OCV's on-demand system and
the upgrading of the OCC technology. These capital expenditures will be made
by the Company in furtherance of its goals of increasing revenues and operating
cash flows, enhancing asset value and achieving long-term growth.
Services and Products
OCC provides on-demand and, in some cases, scheduled in-room television
viewing of major motion pictures (including new releases) and independent non-
rated motion pictures for mature audiences for which a hotel guest pays on a
per-view basis, and beginning in the first quarter of 1999, on a pay-per-day
basis. Depending on the type of system installed and the size of the hotel,
guests can choose from up to 50 different movies with an OCV on-demand system.
Those rooms still equipped with SpectraVision's tape-based systems, which were
acquired in the Acquisition, offer hotel guests either eight movies a day at
predetermined times or on-demand selection from a library of videotapes the
extent of which varies depending on the size of the hotel and the date of the
technology.
OCC has substantially completed the integration of SpectraVision's
operating systems, financial reporting, sales, marketing and management
following the Acquisition. In addition, OCC has been actively pursuing the
renewal or extension of most of these contracts with hotel customers with
SpectraVision equipment by offering these customers the opportunity to obtain
OCC on-demand pay-per-view movie service and related services. As of December
31, 1998, OCC has converted approximately 137,000 rooms from SpectraVision's
systems to OCV's on-demand system. A significant portion of the installed base
of rooms acquired in the Acquisition remains to be converted. The conversion
from SpectraVision to OCV technology, which is ongoing, typically offers
financial benefits to OCC as a result of lower field service costs, increased
revenues and reduced system down time. There can be no assurance however, that
the conversion process will be completed on schedule or that the desired
financial improvements will continue to be realized. The inability to complete
the conversion process on schedule or to continue to realize such financial
improvements could have a material adverse effect on the results of operations
of OCC.
OCC obtains non-exclusive rights to show motion pictures from major
motion picture studios generally pursuant to a master agreement with each
studio. The license period and fee for each motion picture are negotiated
individually with each studio, which typically receives a percentage of that
picture's gross revenues generated by the pay-per-view system. Typically, OCC
obtains rights to exhibit major motion pictures during the "Hotel/Motel Pay-Per-
View Window," which is the time period after initial theatrical release and
before release for home video distribution or cable television exhibition. OCC
attempts to license pictures as close as possible to a motion
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picture's theatrical release date to benefit from the studios' advertising and
promotional efforts. OCC also obtains independent motion pictures, most of which
are non-rated and are intended for mature audiences, for a one-time flat fee
that is nominal in relation to the licensing fees paid for major motion
pictures.
OCC provides services under contracts with hotels that generally have a
term of five to seven years. Under these contracts, OCC installs its system into
the hotel at OCC's cost and OCC retains ownership of all equipment utilized in
providing the service. Traditionally, the hotel provides and owns the
televisions; however, based on certain economic evaluations, OCC has provided
televisions to certain hotels. OCC undertakes a significant investment when it
installs its system in a property, sometimes rewiring part of the hotel.
Depending on the size of the hotel property and the configuration of the system
installed, the installed cost of a new on-demand system with interactive and
video game services capabilities, including the head-end equipment, averages
from approximately $375 to $750 per room. If OCC does not provide televisions
to the hotel property, the average costs are $375 to $450 per room. OCC's
contracts with hotels generally provide that OCC will be the exclusive provider
of in-room, pay-per-view television entertainment services to the hotel and
generally permit OCC to set the movie price. The hotels collect movie viewing
charges from their guests and retain a commission equal to a percentage of the
total pay-per-view revenue that varies depending on the size and profitability
of the system. Certain contracts require OCC to upgrade systems to the extent
that new technologies and features are introduced during the term of the
contract. At the scheduled expiration of a contract, OCC generally seeks to
extend the term of the contract based on the competitive situation in the
market. Among its primary customers, Marriott, Holiday Inn and Hilton accounted
for approximately 24%, 11% and 10%, respectively, of OCC's revenues for the year
ended December 31, 1998. The loss of any of these customers, or the loss of a
significant number of other hotel chain customers, could have a material adverse
effect on OCC's results of operations or financial condition.
The revenues generated from OCC's pay-per-view service are dependent upon
the occupancy rate at the property, the "buy rate" or percentage of occupied
rooms that buy movies or other services at the property and the price of the
movie or service. Occupancy rates vary by property based on the property's
location and competitive position within its marketplace and over time based on
seasonal factors and general economic conditions. Buy rates generally reflect
the hotel's guest mix profile, the popularity of the motion pictures or services
available at the hotel and the guests' other entertainment alternatives. Buy
rates also vary over time with general economic conditions and the business of
OCC is closely related to the performance of the business and luxury hotel
segments of the lodging industry. Movie price levels are established by OCC
and are set based on the guest mix profile at each property and overall economic
conditions. Currently, OCV's movie prices typically range from $8.95 to $9.95
for the first purchase by the hotel guest and, in certain hotels with OCV
systems, $4.95 for each subsequent buy by the same guest on the same day. The
hotels equipped with SpectraVision systems do not discount second buys. The
current price for OCC's pay-per-day service is $15.99 per day. OCC has
experienced periods of, and may continue to experience periods of, declines and
increases in its movie buy-rates. While OCC takes all appropriate measures to
reverse declines or continue increases, there can be no assurance that OCC's
efforts to address such trends will be effective. In addition, as OCC tests and
begins marketing new programming alternatives for guests, there can be no
assurance that OCC's programming will timely meet market requirements, or that
demand for pay-per-view movies will not be adversely impacted by new services.
The hardware installed in OCV's systems consists of a microprocessor
controlling the television in each room, a hand held remote control, and a
central "head-end" video rack and system computer located elsewhere in the
hotel. The in-room terminal unit may be integrated within, or located behind,
the television. OCC emphasizes sales and installations of full-scale OCV video
on-demand systems to business and luxury hotels. Through 1997, OCC marketed
lower cost OCV VideoNOW systems to select mid-priced hotels. The VideoNOW system
worked with the hotel's existing televisions and telephones, allowing guests to
use their touchtone telephones to access movies and other programming. OCV has
discontinued the marketing of VideoNOW systems due to OCC's development of a
lower-cost scalable, on-demand system based substantially upon the OCV patented
system.
OCC also markets a free-to-guest service pursuant to which a hotel may
elect to receive one or more programming channels, such as HBO, Showtime, CNN,
ESPN, WTBS and other cable networks. OCC competes with local cable television
operators by customizing packages of programming to provide only those channels
desired by the hotel subscriber, which typically reduces the overall cost of the
services provided. OCC provides hotels free-to-guest services through a variety
of arrangements including having the hotel pay OCC a fixed monthly fee for each
service selected. Among the guest services provided are video check-out, room
service ordering and guest satisfaction survey. Guest services are also
currently made available in Spanish, French and certain other foreign languages.
In most cases, the guest services are made part of the contract for pay-per-view
services which typically runs for a term of five to seven years.
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OCC is testing and selectively deploying several new services to
complement its existing offerings and strengthen its growth strategy by creating
new potential revenue sources. New technology and services include a digital
server technology and high-speed, TV based and laptop connectivity internet
offering which has been in a technical and marketing test phase for several
months and, as noted above, a pay-per-day viewing option. OCC is also testing
shorter and more targeted non-movie programming on a lower cost pay-per-view
basis. The initial categories of content will include business, lifestyle, and
kids-only. In addition, OCC is in the process of testing a new sports category
of programming which provides hotel guests with a selection of out-of-market NBA
games not already being televised nationally. Other professional sports being
evaluated for this category are football, baseball and hockey. Finally, OCC
plans to expand its video game offerings and plans to include such interactive
innovations as PC-based games.
Technology
Technology in the entertainment and communications industry is
continuously changing as new technologies and developments continue to be
introduced, including developments arising in the cable (including wireless
cable), telecommunications and direct-to-home and direct broadcast satellite
industries. OCC's product development philosophy is to design high quality
entertainment and information systems which incorporate features allowing OCC to
add system enhancements as they become commercially available and economically
viable. The high speed, two-way digital communications capability of OCV's
system enables OCC to provide advanced interactive features, such as video
games, in addition to basic interactive services such as video checkout and
guest surveying. There can be no assurance however, that future technological
advances will not result in improved equipment or software systems that could
adversely affect OCC's competitive position. In order to remain competitive,
OCC must maintain the programming enhancements, engineering and technical
capability and flexibility to respond to customer demands for new or improved
versions of its systems and new technological developments, and there can be
no assurance that OCC will have the financial or technological resources to be
successful in doing so.
OCC's systems incorporate proprietary communications system designs with
commercially manufactured components and hardware such as video cassette
players, amplifiers and computers. Because systems generally use industry
standard interfaces, OCC can integrate new technologies as they become
economically viable.
Sales and Marketing
Prior to the Acquisition, substantially all of OCV's growth was derived
from obtaining contracts with hotels in the United States not under contract
with existing vendors or served by other vendors as the contracts covering such
hotels expired. OCC believes that, as a result of the Acquisition,
opportunities for additional growth in the United States will be more limited
than in the past. Therefore, OCC intends to focus its sales and marketing
efforts on (i) renewing and extending current contracts, (ii) unserved domestic
hotels, and (iii) new hotel customers in international markets. OCC believes it
has been successful at renewing its hotel contracts due to its large capital
investment in wiring infrastructure of the hotel and its high quality service
record. Further, OCC believes that, relative to the United States, many
international markets are under-served by the in-room entertainment industry.
OCC's marketing efforts are primarily focused on business and luxury
hotels with approximately 150 rooms or more, as OCC management believes that
such hotels consistently generate the highest revenues per room in the lodging
industry and have the highest potential for new service revenue growth. OCC also
targets smaller deluxe, luxury and upscale hotels and select mid-priced hotels
serving business travelers that meet its profitability criteria. In
connection with such smaller hotel segments, OCC has recently begun to employ
additional engineering development and marketing efforts to target hotels with
under 150 guest rooms. OCC intends to continue targeting established hotel
chains and certain business and luxury hotel management companies, and selected
independent hotels.
OCC markets its services to hotel guests by means of on-screen
advertising that highlights the services and motion picture selections of the
month as well as an in-room entertainment guide distributed to more than 804,000
hotel rooms each month.
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Installation and Service Operations
At December 31, 1998, OCC's installation and service organization
consisted of approximately 381 installation and service personnel in the United
States and Canada. OCC installation and service personnel are responsible for
all of the hotel rooms served by OCC. Installation and service personnel are
responsible for system maintenance and distribution of video cassettes. OCC's
installation personnel prepare site surveys to determine the type of equipment
to be installed at each hotel, install systems, train the hotel staff to operate
the systems, and perform quality control tests. OCC also uses local installation
subcontractors supervised by full-time OCC personnel to install its systems.
OCC maintains a toll-free technical support hot line that is monitored 24
hours a day by trained support technicians. The on-line diagnostic capability of
the OCV and SpectraVision systems enables the technician to identify and
resolve a majority of the reported system malfunctions from OCC's service
control center without visiting the hotel property. When a service visit is
required, the modular design of the OCV and SpectraVision systems generally
permits installation and service personnel to replace defective components at
the hotel site.
Hotel Contracts
OCC typically enters into a separate contract with each hotel for the
services provided. Contracts with the corporate-managed hotels in any one chain
generally are negotiated by that chain's corporate management, and the hotels
subscribe at the direction of the corporate management. In the case of
franchised or independently owned hotels, the contracts are generally negotiated
separately with each hotel. Existing contracts generally have a term of five or
seven years from the date the system becomes operational. At expiration, OCC
typically seeks to extend the term of the contract on terms competitive in the
market. At December 31, 1998, approximately 10% of the pay-per-view hotels
served by OCC have contracts that have expired and are on a month-to-month
basis. Approximately 8% of the pay-per-view hotels served by OCC have contracts
expiring in 1999. However, some of the SpectraVision hotel contracts, which OCC
classified internally as expiring, have two year automatic renewal provisions
and may continue to be in effect. As a result, the expiration rates set forth
above may overstate the actual number of hotel contracts that are expiring.
Suppliers
OCC contracts directly with various electronics firms for the manufacture
and assembly of its systems hardware, the design of which is controlled by OCC.
Historically, these suppliers have been dependable and able to meet delivery
schedules on time. OCC believes that, in the event of a termination of any of
its sources, alternate suppliers could be located without incurring significant
costs or delays. However, certain electronic component parts used with OCC's
products are available from a limited number of suppliers and can be subject to
temporary shortages because of general economic conditions and the demand and
supply for such component parts. In addition, some of the SpectraVision
systems currently installed in hotels require a high level of service and
repair. As these systems become older, servicing replacement parts will become
more difficult. If OCC were to experience a shortage of any given electronic
part, OCC believes that alternative parts could be obtained or system design
changes implemented. In such event, OCC could experience a temporary reduction
in the rate of new room installations and/or an increase in the cost of such
installations.
The head-end electronics are assembled at OCC's facilities for testing
prior to shipping. Following assembly and testing of equipment designed
specifically for a particular hotel, the system is shipped to each location,
where it is installed by OCC-employed and trained technicians, typically
assisted by independent contractors.
For those hotels for which OCC supplies televisions, OCC purchases such
televisions from a small number of television vendors. In the event of a
significant price increase for televisions by such vendors, OCC could face
additional, unexpected capital expenditure costs.
OCC also maintains direct contractual relations with various suppliers of
pay-per-view and free-to-guest programming, including the motion picture studios
and programming networks. OCC obtains its free-to-guest programming pursuant to
multi-year license agreements and pays its programming suppliers a monthly fee
based upon the number of rooms offering the service. OCC believes its
relationships with all suppliers are good.
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In addition, OCC receives satellite signal transmission services for much
of its domestic cable television programming from DirecTV, Inc. ("DirecTV").
While OCC believes that its relationship with DirecTV is good, an interruption
in DirecTV's' satellite service could interfere with OCC's ability to serve many
of its hotel customers' free-to-guest cable programming requirements.
Competition
There are several providers of in-room video entertainment to the
domestic lodging industry, several of which provide on-demand pay-per-view and
free-to-guest programming and other interactive services over the hotel
television. Internationally, there are more companies competing in the pay-per-
view lodging industry than in the United States.
Pay-per-view, the most profitable component of the services offered,
competes for a guest's time and entertainment resources with broadcast
television, free-to-guest programming and cable television services. In
addition, there are a number of potential competitors that could utilize their
existing infrastructure to provide in-room entertainment to the lodging
industry, including major hotel chains themselves, cable companies (including
wireless cable), telecommunications companies, and direct-to-home and direct
broadcast satellite companies. Some of these potential competitors are already
providing free-to-guest services to hotels and testing video-on-demand.
OCC is the leading provider (by number of hotel rooms served) of in-room
video entertainment and information services to the United States lodging
industry. OCC is also the leading provider (by number of hotels rooms served) of
in-room on-demand video entertainment and information services to the United
States lodging industry. OCC competes on a national scale primarily with
LodgeNet Entertainment Corporation ("LodgeNet") and on a regional basis with
certain other smaller entities. Based on publicly filed information, OCC
estimates that, at December 31, 1998, LodgeNet served approximately 597,000
pay-per-view rooms, of which 582,000 are equipped with on-demand service. At
December 31, 1998, OCC served approximately 929,000 rooms, of which
approximately 829,000 are on-demand rooms.
Competition with respect to new pay-per-view contracts centers on a
variety of factors, depending upon the circumstances important to a particular
hotel. Among the more important factors are (i) the features and benefits of the
entertainment and information systems, (ii) the quality of the vendor's
technical support and maintenance services and (iii) the financial terms and
conditions of the proposed contract. With respect to hotel properties already
receiving in-room entertainment services, the current provider may have certain
informational and installation cost advantages as compared to outside
competitors.
The Company believes that OCC's competitive advantages include (i)
technological leadership represented by its superior on-demand capability and
range of services offered, and (ii) system reliability and high quality
service. OCC believes that its growth (including OCV's growth over the previous
four years) reflects the strong competitive position of OCC's products and
services. The OCC system offers an expansive library of on-demand movies and
will allow OCC to upgrade and add new features to the OCC system during the
terms of the pay-per-view contracts.
OCC anticipates substantial competition in obtaining new contracts with
major hotel chains. The Company believes that hotels view the provision of in-
room on-demand entertainment both as a revenue source and as a source of
competitive advantage in that sophisticated hotel guests are increasingly
demanding a greater range of quality entertainment and informational
alternatives. At the same time, OCC believes that certain major hotel chains
have awarded contracts based primarily on the level and nature of financial and
other incentives offered by the pay-per-view service provider. While the Company
believes its competitive advantages will enable OCC to continue to offer
financial arrangements that are attractive to hotels, its competitors may
attempt to gain or maintain market share at the expense of profitability. OCC
may not always be willing to match the incentives provided by its competitors.
In addition, while the Company is addressing the likelihood of increased
demand for internet services in the hotel guest room, OCC may face additional
competition for guest time and resources from traditional as well as new
competitors. Some of these competitors may be better funded from both public
capital or private venture capital markets and have access to additional capital
resources which OCC does not have.
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The communications industry is subject to rapid technological change.
New technological developments could adversely affect OCC's operations unless it
is able to provide equivalent services at competitive prices.
International Markets
In addition to its operations in the fifty United States, OCC offers its
services in Canada, Mexico, Puerto Rico, the U.S. Virgin Islands, Hong Kong,
Singapore, Thailand, Australia, the Bahamas, Europe, and elsewhere in the Asia-
Pacific region.
OCC historically experienced higher international revenues and operating
cash flow per room than in the United States because of higher prices, higher
buy rates, and the general lack of programming alternatives. The effect of the
Asian economic crisis has contributed to a decline in revenues from that region.
In addition, OCC generally incurs greater capital expenditures and operating
costs outside of the United States. At December 31, 1998, OCC serviced 421
hotels with a total of 124,000 rooms located outside the United States.
The competition to provide pay-per-view services to international hotels
is even more dispersed than in the United States. Expansion of OCC's operations
into foreign markets involves certain risks that are not associated with further
expansion in the United States including availability of programming, government
regulation, currency fluctuations, language barriers, differences in signal
transmission formats, local economic and political conditions, and restriction
on foreign ownership and investment. Consequently, these risks may hinder OCC's
efforts to grow its base of hotel rooms in foreign markets.
Investment in OCC
The Company made its initial investment in OCV in 1991 and owned
approximately 84% of OCV (78.4% on a fully diluted basis) prior to the
Acquisition. In connection with the OCC Transactions, each stockholder of OCV
received (i) 2.84 shares of OCC common stock for each share of OCV common stock
previously held and (ii) Series A Warrants to purchase, on a cashless basis,
18.607% of a share of OCC common stock for each share of OCV common stock
previously held. Of the 21,750,000 shares of OCC common stock and Series A
Warrants to purchase 1,425,000 shares of OCC common stock distributed to the OCV
stockholders, Ascent received 17,149,766 shares of OCC common stock and Series A
Warrants to purchase 1,123,823 shares of OCC common stock. Hilton Hotels
Corporation, a former minority stockholder of OCV that is unaffiliated with the
Company but is a significant customer of OCC, received approximately 2,331,986
shares of OCC common stock and Series A Warrants to purchase approximately
152,786 shares.
The Company currently has no agreements or understandings with respect to
the minority stockholders of the Company or OCC, other than a letter agreement
dated April 19, 1996 with Gary Wilson Partners that provides that Gary Wilson
Partners will, so long as (a) it owns any shares of OCC common stock received
upon exercise of the Series C Warrant that it received for advisory and other
services that it provided in connection with the OCC Transactions and (b) the
Company continues to own 20% of the outstanding shares of OCC common stock, vote
its shares of OCC common stock in accordance with the instructions of the
Company.
ENTERTAINMENT
Colorado Avalanche and Denver Nuggets
General
The Company owns and operates franchises in two major professional sports
leagues, the Colorado Avalanche in the NHL and the Denver Nuggets in the NBA.
Both of these franchises are located in Denver, Colorado where residents have
historically supported successful local sports franchises. With the success of
the NHL and NBA over the past two decades as shown in higher ticket sales,
increased average attendance, increased merchandising sales and licensing fees,
more profitable national and local broadcast packages and increased expansion
fees, NHL and NBA sports franchises have increased in value and revenue
generation over that period.
The Company believes that the NHL in general has grown in popularity as
evidenced by aggregate league-wide ticket sales of approximately 15.7 million
and record revenues from ticket sales of approximately $613 million during the
1997-1998 season (a 3% decrease in number of tickets sold and a 3.3% increase in
revenues from the
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prior season). This popularity is further evidenced by the increase in the
expansion fee paid for an NHL expansion team from $6 million paid in 1979 to $80
million paid in 1998 and to be paid in 1999 and 2000 by each of the new NHL
expansion teams to be located in Nashville, Tennessee, Atlanta, Georgia,
Columbus, Ohio and Minneapolis-St. Paul, Minnesota, as approved by the NHL Board
of Governors in June 1997. The increased popularity of the NHL resulted in 1998
in a new five-year national broadcasting television rights agreement with the
ESPN and ABC television networks commencing in the 1999-2000 season with
aggregate license fees of $600 million compared to the five year television
rights agreement with FOX television network and a five year cable television
agreement with ESPN which provided for fees of $220 million over the same number
of seasons. In addition, in 1998, the NHL completed an exclusive four-year
broadcast agreement extension with its Canadian broadcaster through the 2001-
2002 season for aggregate license fees of approximately $192 million.
The NBA is a professional sports enterprise that has experienced a
significant rise in popularity over the past decade. The popularity of the NBA
is evidenced by the doubling of NBA ticket sales over the past decade to
approximately 16.9 million and record revenues from ticket sales of $651 million
during the 1997-1998 season (average game attendance increased by over 50% to
approximately 14,240 for the 1997-1998 season and league-wide ticket revenues
increased 9.6%). The NBA's popularity is further evidenced by the increase in
the expansion fee paid for an NBA expansion team in the last two decades from
$12 million paid in 1980 to $125 million paid in 1995. The current national
television contracts with NBC and Turner Sports, which commenced with the 1998-
1999 season, provide for $2.6 billion in aggregate fixed revenues to NBA member
teams over the four-year term of such contracts and such contracts also provide
for revenue sharing.
Due to labor difficulties, the scheduled start of the 1998-1999 NBA
regular season was delayed until February 5, 1999. Consequently, the Nuggets'
1998-1999 season will consist of 50 games, 25 of which will be played at the
Nuggets home arena. Additionally, the two exhibition games that the Nuggets
participated in prior to the beginning of the 1998-1999 NBA season produced no
revenue to the team. However, the impact to the Company of the decreases in
revenue at the Nuggets due to the delay of the 1998-1999 NBA season was
partially offset by the reduction in costs for the Nuggets for the 1998-1999
season, primarily a reduction in player salaries. (See Note 9 of the Company's
Consolidated Financial Statements and Management's Discussion and Analysis.)
In August 1997, the Company capitalized on the growing demand for popular
branded regional sports programming by entering into a license agreement with
Fox Sports Rocky Mountain ("Fox Sports"), a partnership between Liberty Media
Corporation ("Liberty") and Fox News Corporation (the "Fox Sports Agreement")
for the local television rights (over-the-air and cable) for the Nuggets and the
Avalanche. The Fox Sports Agreement has a term of seven years, and commenced
with the 1997-1998 playing season. The agreement provides for license fees that
may exceed $100 million if paid over the life of the agreement and significantly
increases revenues to the Company from these rights as compared to prior years.
As a result of the Fox Sports Agreement, Avalanche and Nuggets games will
continue to be distributed to over 2.7 million viewers in the seven states
served by Fox Sports.
The Company believes that it can achieve growth in revenues and operating
cash flow from the Avalanche and the Nuggets. The three key elements of the
Company's strategy to realize such growth are to: (i) complete the construction
of the Pepsi Center for the 1999-2000 season; (ii) continue the strong
performance of the Avalanche and take steps to improve the Nuggets' on-court
performance; and (iii) build on the existing base of the Company's sports
franchise assets and the recent Fox Sports Agreement through complementary
entertainment and distribution opportunities in the Rocky Mountain region.
Sources of Revenues
The Avalanche and the Nuggets derive a significant amount of their
revenues from the sale of tickets to home games, the licensing of local market
television, cable network and radio rights and from distributions under revenue-
sharing arrangements with the NBA and NHL, as well as other ancillary sources.
Ticket Sales. Each of the Avalanche and the Nuggets play an equal number of
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home games and away games during the 82-game NBA and 82-game NHL regular
seasons. In addition, the teams play approximately eight exhibition games prior
to the commencement of the regular season. As noted previously, for the 1998-
1999 NBA season, the Nuggets will play 50 games, split equally between home and
away and will play no exhibition games which generate ticket revenue. The
Avalanche and the Nuggets receive all revenues from the sale of tickets to
regular season home games (subject, in the case of the Nuggets, to an NBA gate
assessment) and no revenues from the sale of tickets to regular season away
games. Generally, the Avalanche and the Nuggets retain all revenues from the
sale of tickets to home exhibition games played in Denver and the Rocky Mountain
region (less appearance fees
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paid to the visiting team), and receive appearance fees for exhibition games
played elsewhere. If the Avalanche or the Nuggets compete successfully during
the regular season and make the playoffs in their respective league, the team
receives revenues from the sale of tickets to home playoff games, although a
portion of such ticket revenue is shared with the respective league. From the
1995-1996 season to the present, average ticket prices to the Avalanche games
have increased by 74.6%, and, from the1991-1992 season to the present, average
ticket prices to the Nugget games have increased by 87.2%. In the 1998-1999
season, average ticket prices for the Avalanche and Nuggets represented 118% and
76% of the average NHL and NBA ticket prices.
The seating capacity of Denver's McNichols Arena is approximately 17,000
for Nuggets basketball games and approximately 16,000 for the Avalanche hockey
games, including 18 executive suites containing a total of 284 seats. The
policy of the Avalanche and the Nuggets is to limit the number of season tickets
so that approximately 25% of the tickets are available on a per game basis. For
the 1998-1999 season, the Avalanche have sold 12,000 season tickets and the
Nuggets have sold approximately 5,600 season tickets. The Avalanche currently
enjoys the longest consecutive record of sell-out games in the NHL (over 170
games as of the date of this Annual Report on Form 10-K).
Television, Cable and Radio Broadcasting. The NHL and NBA, as agents for their
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respective members, license the national television rights for Avalanche and
Nuggets games, respectively. In 1998, the NHL entered into a new five-year
national television contract commencing in the 1999-2000 season with ESPN and
ABC with aggregate license fees of $600 million. In addition, in 1998, the NHL
completed an exclusive four-year extension of its broadcast agreement with its
Canadian broadcaster through the 2001-2002 season for aggregate license fees of
approximately $192 million. The NBA's current national television contracts with
NBC and Turner Sports commenced with the 1998-1999 season and provide for $2.6
billion in aggregate fixed revenues to NBA member teams over the four-year term
of such contracts and such contracts also provide for revenue sharing. Each
NHL or NBA member team shares equally in the license fees from their respective
national television contracts, except that pursuant to an agreement entered into
when the Nuggets and the other former American Basketball Association ("ABA")
teams joined the NBA, a portion of the NBA national television revenues
otherwise payable to each of the former ABA teams is paid to a group that owned
an ABA franchise that was not admitted to the NBA.
In August 1997, the Company capitalized on the growing demand for popular
branded regional sports programming by entering into the Fox Sports Agreement.
The Fox Sports Agreement has a term of seven years, commencing with the 1997-
1998 playing season, provides for license fees that may exceed $100 million if
paid over the life of the agreement and significantly increases revenues to the
Company from these rights as compared to prior years. In addition, both the
Nuggets and the Avalanche license the local rights to broadcast all games on
radio under agreements with KKFN, 950 AM.
Sponsorships. In 1998 each of the Avalanche and the Nuggets entered into long-
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term sponsorship agreements with the Pepsi-Cola Company ("Pepsi"), the Coors
Brewing Company ("Coors"), The Denver Post (the "Post") and US West, Inc.
("USWest"). The Pepsi sponsorship agreement is for a twenty year term and
grants Pepsi exclusive sponsorship and promotional rights in the non-alcoholic
beverage category. The Coors sponsorship agreement is for a ten year term and
provides Coors with exclusive sponsorship and promotional rights in the malt
beverage category. The Post sponsorship agreement is for a ten year term and
grants the Post sponsorship and promotional rights as the exclusive newspaper
sponsor for the teams. The US West sponsorship agreement is for a fifteen year
term and provides US West with exclusive sponsorship and promotional rights in
the telecommunications services category. Each of the foregoing agreements
significantly increases revenues to the Company from these rights as compared to
prior years and each agreement is subject to existing and future NBA and NHL
rules, regulations and sponsorship and licensing arrangements, as applicable.
Other Sources. Other sources of revenues for each of the Nuggets and the
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Avalanche include their pro rata share of franchise fees to be paid by expansion
teams upon entry to the NBA or NHL and promotional and novelty revenues,
including royalties from marketing and merchandising conducted by each of the
NBA and NHL. In 1995, the Nuggets recorded $9.2 million in revenues in
connection with the admission of two new franchises into the NBA. In
connection with obtaining the NHL's consent to the Company's acquisition of the
Avalanche franchise and relocation of the Avalanche to Denver, the Company
agreed that up to $2 million of the Avalanche's share of expansion fees from
each of the next four expansion teams will be retained by the NHL. In
connection with the NHL expansion described above, the Avalanche received
$944,000 in 1998 and are entitled to receive distributions out of such expansion
fees from the NHL of approximately $1.1 million in 1999 and $2.2 million in
2000.
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The Avalanche and the Nuggets also derive additional revenues through the
sale of signage, promotions and program advertising space to corporate sponsors,
arena concessions and parking and sales generated by team stores that sell NHL,
Avalanche, NBA and Nuggets branded goods.
Each member of the NBA and NHL assigns to its respective league the
exclusive rights to the merchandising of its team name, insignia and other
similar properties, subject to certain restrictions and limitations. Each of the
leagues then pay royalties to each of their respective teams in consideration of
the receipt of such rights. This assignment is subject to the Nuggets' and the
Avalanche's right to use their insignia and symbols in connection with the
promotion of the team in their home territory and retail sales in their home
arena and team owned stores. Each of the NBA and NHL licenses other companies to
manufacture and sell official NBA and NHL items such as warm-up jackets and
sweatshirts, as well as certain non-sports items.
NBA and NHL Governance
The NBA and the NHL are generally responsible for regulating the conduct
of their member teams. The NBA and the NHL establish the regular season and
playoff schedules for the teams. They also negotiate, on behalf of their
members, the leagues' national over-the-air and cable television contracts and
collective bargaining agreements with the NBA and NHL Players' Associations.
Because the NBA and NHL are joint ventures, each of their members generally has
joint and several liability for the league's liabilities and obligations and
shares in its profits. Any failure of other members of the NBA or the NHL to pay
their pro rata share of any such obligations could adversely affect the Nuggets
or the Avalanche, as the case may be. The success of the NBA and NHL and their
member teams depends in part on the competitiveness of the other teams in their
respective leagues and their ability to maintain fiscally sound franchises.
Certain NBA and NHL teams have at times encountered financial difficulties,
including the Pittsburgh Penguins who have filed for federal bankruptcy
protection, and there can be no assurance that the NBA or the NHL and their
respective members will continue to be able to operate on a fiscally stable and
effective basis. Under the terms of the constitution and by-laws of the NBA and
the NHL, league approval is required under certain circumstances, including in
connection with the sale or relocation of a member team.
Each of the NBA and the NHL is governed by a Board of Governors, which
consists of one representative from each member team. The Board of Governors of
each league selects the league Commissioner who administers the daily affairs of
the league, including dealings with the Players' Association, interpretations of
playing rules and arbitration of conflicts among members. The Commissioner
also has the power to impose sanctions, including fines and suspensions, for
violations of league rules.
The Commissioner of each of the NBA and NHL has the exclusive power to
interpret the constitution, by-laws, rules and regulations of their respective
league, and their interpretations are final and binding on the Company, the
Nuggets, the Avalanche and their personnel. In addition, member clubs of the NBA
and NHL may not resort to the courts to enforce or maintain rights or claims
against other member clubs, or to seek resolution of any dispute or
controversy between member clubs, but instead all such matters must be submitted
for final and binding determination to the respective Commissioner of such
league without any right of appeal to the courts or otherwise. Finally, each
of the NHL and the NBA prohibits the acquisition of 5% or more of the direct or
indirect ownership interests in a member club owned by a publicly traded company
without the respective league's prior consent. Neither the NBA nor the NHL,
nor any of their respective member clubs, nor any officer or employee of either
league or its member clubs, other than the Company, has reviewed in advance the
information being provided in this report, or assumes any responsibility for
the accuracy of any representations made by the Company to any potential
investors.
Collective Bargaining
The NHL and the NHL Players' Association entered into a seven-year NHL
Collective Bargaining Agreement on August 11, 1995 that took retroactive effect
as of September 6, 1993. Though the NHL Collective Bargaining Agreement does not
expire until September 15, 2000, both the NHL and NHL Players' Association had
the right to reopen negotiations at the end of the 1997-1998 season. However,
both parties have agreed to waive the right to reopen negotiations in connection
with an agreement that allowed NHL players to participate in the 1998 Winter
Olympics. In 1997, the NHL Collective Bargaining Agreement was extended through
the 2002-2003 season. The Company believes that the NHL Collective Bargaining
Agreement renders unlikely any player labor disruptions in the near future.
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On January 6, 1999, after a 189 day work stoppage, the NBA Players'
Association approved a new NBA Collective Bargaining Agreement, which was
subsequently ratified by the NBA owners on January 7, 1999. The NBA Collective
Bargaining Agreement has a six year term, with an option for a seventh year,
exercisable in the sole discretion of the NBA. The agreement provides for,
among other things, maximum and minimum total team salaries, with certain
exceptions, maximum and minimum individual player salaries, an escrow system
providing for a reduction of player salaries to the extent player salaries and
benefits exceed a pre-determined percentage of basketball related income ("BRI")
and an escrow "back-up" tax applicable to teams whose total team salaries exceed
the salary cap in years that total player benefits and salaries exceed a pre-
determined percentage of BRI.
Competition
The Nuggets and the Avalanche compete for sports fans' entertainment
dollars not only with each other and other major league sports, but also with
minor league sports, college athletics, other sports entertainment and non-
sports entertainment such as the Colorado Symphony, the Colorado Opera and the
Colorado Ballet, movies, local theater and recreational activities such as
skiing. During portions of their respective seasons, the Nuggets and the
Avalanche will experience competition from each other, professional football
(the Denver Broncos) and professional baseball (the Colorado Rockies). In
addition, the colleges and universities in the Rocky Mountain region, as well as
public and private schools, offer a full schedule of athletic events throughout
the year. The Nuggets and the Avalanche compete with other United States and
foreign teams, professional and otherwise, for available players and the
upcoming NHL expansion will increase the competition for talented players among
NHL teams. In this regard, there can be no assurance that the Avalanche will be
able to retain all of its key players in the event of an expansion draft or that
the rules regarding the expansion draft will not change to the detriment of the
Company. Ultimately, the success of each of the Nuggets and Avalanche will
depend upon each team's continued ability to retain and attract talented,
healthy players.
Broadcast Operations
In addition to its Denver sports franchises, the Company also owns a one-
third interest in Colorado Studios, a Denver television production company that
owns and operates mobile television production facilities. On behalf of Fox
Sports, Colorado Studios produces and transmits to the Rocky Mountain region
Nuggets and Avalanche games. Colorado Studios is equally owned by the Company,
Fox Sports and Norac, Inc., a Denver-based television production company.
The Pepsi Center
The Nuggets and the Avalanche currently play in McNichols Arena, one of
the oldest arenas in use in either the NBA or the NHL, with seating capacity and
configuration and other revenue generating attributes significantly less
advantageous than those of more modern facilities. The Company has entered into
the 1997 Denver Arena Agreement (the "Arena Agreement") with the City and County
of Denver ("City") setting forth the terms on which the Company, through Ascent
Arena Company, LLC (the "Arena Company"), will construct, own and manage the new
Pepsi Center in downtown Denver. Management believes that moving to the Pepsi
Center in the 1999-2000 NHL and NBA seasons will increase the revenues,
operating cash flows and asset value of the Company's two sports franchises.
The Pepsi Center will also create incremental revenue sources and cash flows
from other entertainment events and retail merchandising. Under current plans,
the Pepsi Center will increase seating capacity for the Avalanche and the
Nuggets from 16,000 and 17,000 seats, respectively, at McNichols Arena to 18,100
and 19,300 seats, respectively. For other events, seating capacity will be as
high as 20,000, depending on the configuration. The Pepsi Center will have 93
luxury suites available for lease (compared to 18 suites at McNichols Arena),
all of which have lease commitments with terms of five to ten years (at lease
amounts from $90,000 to $180,000 per year). The Pepsi Center will also have
over 1,854 club seats, approximately 1,400 of which have license commitments
with terms of two to five years, at license amounts from approximately $5,000 to
$8,000 per year, (compared to none at McNichols Arena) and enhanced concessions,
retail and restaurant facilities, including a 236-seat club level restaurant
(which McNichols Arena does not have). The Company anticipates that the added
luxury suites, club seats and increased seating capacity, combined with naming
rights, founding sponsor arrangements and enhanced facilities, will result in
significantly increased revenues to the Company. However, although construction
of the Pepsi Center is underway and currently on schedule for completion in the
fourth quarter of 1999, completion of construction does entail significant risks
including regulatory and licensing requirements, shortages of materials or
skilled labor, unforeseen engineering, environmental or geological problems,
work stoppages, weather interference, unanticipated cost increases and
challenges from local residents. No assurance can
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be given as to whether or when the proposed Pepsi Center will be completed or,
if completed, that the budgeted costs of the Pepsi Center will not be exceeded.
In addition, no assurance can be given that, once the Pepsi Center is completed,
attendance for the Pepsi Center events or revenues generated by the Pepsi Center
will achieve projected levels.
The Arena Company was formed for the purpose of developing plans for the
Pepsi Center as a privately financed arena in Denver for the Avalanche, the
Nuggets and other entertainment events, including among other things, concerts,
college sporting events, ice and dance performances, comedy shows and circuses.
On March 28, 1996, Ascent purchased from The Anschutz Corporation ("TAC") all of
TAC's interests in the proposed arena development project, including, among
other things, all of TAC's interest in the Arena Company, for $6.6 million in
cash and, contingent on the construction and occupancy of the new arena, an
additional payment of $5 million on a non-interest bearing basis plus a paid-
up suite license. The Company paid TAC the final installment on the $5 million
payment on July 15, 1998, and has no further cash payment obligation to TAC in
connection with the Pepsi Center.
On November 13, 1997, Ascent entered into the Arena Agreement with the
City. The Arena Agreement sets forth the terms whereby Ascent, through the Arena
Company, will construct, own and manage the Pepsi Center. These terms include:
(i) the Nuggets and the Avalanche would be released from their existing leases
at McNichols Arena upon the completion of the Pepsi Center; (ii) in
consideration for such release and other consideration from the City, upon
completion of the Pepsi Center, the land associated with the Pepsi Center will
be transferred to the City and the City will lease the land back to the Arena
Company for a period of 23 years (with a possible extension for two years),
after which the City will contribute the land back to the Arena Company; (iii)
the Arena Company will be entitled to rebates on property taxes for a 23-year
term (with a possible extension for two years), and rebates on sales and use
taxes during the construction of the Pepsi Center; and (iv) the City will be
entitled to annual payments out of sales taxes generated at the Pepsi Center and
other Company revenues in the aggregate amount of $1 million per year during the
first five years of operation, and subsequently increasing at a rate depending
on attendance.
Pursuant to a Land Purchase Agreement with Southern Pacific
Transportation Company ("SPT"), on November 14, 1997, the Arena Company
purchased approximately 50 acres of undeveloped land in downtown Denver, a
portion of which will serve as the site for the proposed Pepsi Center and
related parking. The land not used for the Pepsi Center and related parking will
be developed by Ascent into restaurant, retail and office facilities. The Land
Purchase Agreement provides for the Arena Company and SPT to effect a State-
approved voluntary environmental remediation plan on the site with SPT
responsible for substantially all of the costs thereof, and for SPT to provide
continuing indemnification with regard to certain other environmental
liabilities through 2022 on a declining percentage basis. However, there can be
no assurance that SPT will meet its obligation to fund the construction period
work under the voluntary cleanup plan or provide indemnification for other
environmental liabilities or that, after implementation of the voluntary
remediation plan, governmental authorities will not order the Arena Company to
perform additional remediation.
Development and construction of the Pepsi Center will cost approximately
$169.1 million. On July 29, 1998, the Company completed the offering of
approximately $140 million of single A rated asset backed taxable notes (the
"Arena Notes"). The Arena Notes, were sold by the Denver Arena Trust (the
"Trust"), a bankruptcy remote entity 100% beneficially owned by the Arena
Company, bear an interest rate of 6.94% and have a final maturity of twenty-one
years with an average life of ten years. The revenue streams that are
securitized in connection with the Arena Notes are contractually obligated fees
under the arena naming rights agreement with Pepsi, the founding sponsorship
agreements with Coors and US West and 89 of the Pepsi Center's luxury suite
licenses. In addition to the proceeds of the Arena Notes offering, development
and construction of the Pepsi Center is expected to require $30 to $60 million
in equity investments, $15 million of which has been invested by a subsidiary of
Liberty, $15 million of which has already been invested by the Company and the
remainder of which, as required, is expected to be invested by the Company. In
connection with Liberty's investment, Liberty's subsidiary will receive an
ownership interest in the Arena Company that includes an interest in the capital
of the Arena Company and a profits interest of approximately 6.5% representing
the right to receive distributions from the Arena Company measured by reference
to each of the Nuggets and the Avalanche. Liberty will not have any management
or operating rights with respect to the Arena Company, the Nuggets or the
Avalanche. In addition, Liberty was granted put rights beginning in July 2005
to require the Company to purchase from Liberty its then current ownership
interest at its fair market value. Likewise, the Company has a call right
beginning in July 2005 to purchase Liberty's interest at its then fair market
value. The Board of Governors for both the NBA and NHL have approved the
Liberty investment.
16
<PAGE>
Network Services
Ascent Network Services
ANS merged with and into the Company on May 30, 1997. Prior thereto, ANS
was a wholly-owned subsidiary of Ascent. ANS, as a division of the Company,
principally operates a nationwide network (excluding satellite transponders) for
satellite distribution of NBC's national television programming to the majority
of NBC's affiliate stations nationwide, as well as an installation, field
service and maintenance support business relating to such network. ANS also
provides satellite distribution field service and maintenance support for
networks operated by other customers. ANS has operated its satellite
distribution network for NBC since 1984 under the NBC Agreement, a 10-year
agreement that was extended in 1994 through the end of 1999. The Company is
currently in negotiations with NBC regarding an extension for an additional
three years through the end of 2002. Management believes the NBC Agreement will
be renewed for such three year period and that NBC, at the end of such renewal,
is likely to engage ANS to complete a full upgrade of the NBC distribution
network to digital technology. No assurance can be provided however, that such
renewal will be consummated, or that NBC will engage ANS to complete a full
digital upgrade at the end of such renewal or that such renewal or full upgrade
will be on terms as favorable to the Company as the current agreement.
ANS has historically been a stable source of revenues and operating cash
flows for the Company, generating approximately $20 million of revenues and $10
million of EBITDA annually since 1995. Ascent's strategy for maintaining and
expanding this source of cash flow is to renew and extend the NBC Agreement once
the current extension expires in 2002, and to be engaged for and complete
successfully the full digital upgrade of the NBC satellite distribution network.
The NBC Agreement was initially entered into in 1984, in connection with
ANS's construction, service and support of NBC's master earth station and
receiver earth stations at NBC affiliates. Pursuant to such contract, ANS
designed, built and continues to operate a Ku-band satellite distribution
network, for which the network control center is located in Florida. The Company
owns and operates the network (excluding the satellite transponders, which are
leased by NBC) and receives yearly payments from NBC in connection with such
operations. The network consists of the network control center, two master earth
stations, eight transmit/receive stations, 174 receive earth stations at NBC
affiliates, 56 portable uplink antennas, and six transportable transmit/receive
trucks.
In 1998, NBC issued a request for information from ANS and certain of its
other vendors with respect to an upgrade of each component of the NBC
distribution network to digital technology. In August 1996, ANS and NBC
executed a letter of intent pursuant to which ANS has procured and installed
certain of such digital equipment to provide MSNBC, LLC, a partnership between
NBC and Microsoft Corporation ("MSNBC") with network service, maintenance and
support. The partial digital upgrade service is being provided for a 10 year
term and is currently governed by the underlying NBC Agreement. The Company
anticipates finalizing a service agreement with MSNBC separate from the
underlying NBC Agreement in the first half of 1999 for the partial digital
upgrade service. The network service, maintenance and support provided to
MSNBC are related to and dependent upon the original NBC distribution network.
Discontinued Operations
Acquired in 1994, Beacon produced feature-length motion pictures for
theatrical distribution and television programming. Since its inception in 1990,
Beacon has produced nine motion pictures, including AIR FORCE ONE, A THOUSAND
ACRES, PLAYING GOD and THE COMMITMENTS. On January 20, 1999, the Company sold
ninety percent of the membership interests in Beacon to an investment group
which included Armyan Bernstein, Beacon's Chief Executive Officer. The purchase
price for the 90% interest was $19 million in cash, net of certain adjustments,
after which Ascent received approximately $16 million at closing. Ascent has
also received cash consideration of approximately $1 million in the first
quarter of 1999, post closing. After the sale Ascent has no obligations to fund
any of Beacon's liabilities or film development or production commitments. The
10% interest in Beacon being retained by Ascent is subject to limited purchase
and sale options between Ascent and the buyers at a price proportionate to the
initial purchase price. The Company began accounting for Beacon as a
discontinued operation as of December 31, 1998. See Note 2 to the Company's
Consolidated Financial Statements.
17
<PAGE>
Regulation
The Federal Communications Commission (the "FCC") has broad jurisdiction
over electronic communications. The FCC does not directly regulate On Command
Corporation's pay-per-view or free-to-guest services, other than certain select
SpectraVision hotels. However, the FCC's jurisdiction does encompass certain
aspects of ANS's satellite delivery operations.
Patents, Trademarks and Copyrights
The Company uses a number of trademarks for its products and services,
including "Ascent," "On Command," "OCV," "SpectraVision," "Denver Nuggets,"
"Colorado Avalanche" and others. Many of these trademarks are registered by the
Company, and those trademarks that are not registered are protected by common
law and state unfair competition laws. Because the Company believes that these
trademarks are significant to the Company's business, the Company has taken
affirmative legal steps to protect its trademarks in the past and intends to
actively protect these trademarks in the future. The Company believes that its
trademark position is adequately protected. The Company also believes that its
trademarks are generally well recognized by consumers of its products and are
associated with a high-level of quality and value.
OCV and SpectraVision own a number of patents and patent licenses
covering various aspects of OCC's pay-per-view and interactive systems.
Although OCV and SpectraVision maintain and protect these valuable assets, OCC
believes that the design, innovation and quality of OCV's and SpectraVision's
products and their relationships with their customers are at least as
important, if not more so, to the maintenance and growth of OCC.
Employees
The Company had approximately 1,040 employees at December 31, 1998,
excluding Beacon. The Company is subject to the NBA Collective Bargaining
Agreement and the NHL Collective Bargaining Agreement, relating to the players
for the Nuggets and the Avalanche, respectively. The Company considers its
relations with its employees to be good.
ITEM 2. PROPERTIES
The Company currently leases its principal offices in Denver, Colorado
under a lease which expires on May 31, 2000. The Company also leases facilities
for ANS from COMSAT in Maryland and for ANS in Palm Bay, Florida. In December
1996 OCC entered into a lease for facilities in San Jose, California and
relocated its headquarters and OCV's manufacturing facilities to that
location. In connection with the Acquisition, OCC acquired SpectraVision's
headquarters building in Plano, Texas and directed SpectraVision to assume
certain leases for office space throughout the United States, Canada, Mexico,
Puerto Rico, Hong Kong and Australia for its customer support operations. On
October 31, 1997, OCC sold the SpectraVision headquarters building for $4.5
million in cash.
The Avalanche and the Nuggets currently play their home games in Denver's
McNichols Arena, an indoor sports arena located in downtown Denver. McNichols
Arena is owned by the City and is made available to the Nuggets under a lease
agreement which extends until the conclusion of the 2005-2006 season. McNichols
Arena is made available to the Avalanche under a lease agreement which extends
until the conclusion of the 1998-1999 season.
The Nuggets and the Avalanche have an agreement with the City for use of
McNichols Arena as well as offices and training rooms. The lease, as modified
by the Arena Agreement (see Notes 5 and 9 of Notes to the Consolidated Financial
Statements), extends through the completion of the new arena and requires annual
maximum rental payments of $350,000 and $400,000 per year for the Nuggets and
Avalanche, respectively. The City is generally responsible for maintaining
McNichols Arena and providing administrative personnel such as ushers,
electricians, janitors, technicians and engineers. The Avalanche and the Nuggets
are responsible for providing police and fire safety personnel, announcers,
timers, scorers and statisticians. The Avalanche and the Nuggets also share in
revenue from food and beverage concessions and parking rights at McNichols
Arena.
18
<PAGE>
Construction of the Pepsi Center is underway and currently on schedule
for completion in the fourth quarter of 1999. Under the terms of the Arena
Agreement with the City, upon completion of construction of the Pepsi Center,
the Avalanche and the Nuggets will be released from their existing leases at
McNichols Arena, and the Nuggets and the Avalanche will be obligated to play in
the Pepsi Center for a term of 23 years (with a possible extension of two
years). See "Business-Entertainment-The Pepsi Center.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings in the ordinary
course of its business. However, the Company does not believe that any such
legal proceedings will have a material adverse effect on the Company's
financial position or results of operations. In addition, through its ownership
of the Avalanche and the Nuggets, the Company is a defendant along with other
NHL and NBA owners in various lawsuits incidental to the operations of the two
professional sports leagues. The Company will generally be liable, jointly and
severally, with all other owners of the NHL or NBA, as the case may be, for the
costs of defending such lawsuits and any liabilities of the NHL or NBA which
might result from such lawsuits. The Company does not believe that any such
lawsuits, singly or in the aggregate, will have a material adverse effect on the
Company's financial condition or results of operations. The Nuggets, along
with three other teams, have also agreed to indemnify the NBA, its member teams
and other related parties against certain ABA-related obligations and
litigation, including costs to defend such actions. The Company believes that
the ultimate disposition and the costs of defending these or any other
incidental NHL or NBA legal matters or of reimbursing related costs, if any,
will not have a material adverse effect on the Company's financial condition or
results of operations.
On September 11, 1998, OCC reached an agreement with LodgeNet to settle all
pending litigation between the companies. As a result the companies have
dismissed all pending litigation between the parties in the United States
federal District Courts in California and South Dakota, with no admission of
liability by either party. The terms of the confidential settlement include a
cross-license of each company's patented technologies at issue to the other
party and a covenant not to engage in patent litigation against the other party
for a period of five years. Each party is responsible for its own legal costs
and expenses, and in connection with the multiple cross-licenses, OCC expects to
receive royalty payments, net of legal fees and expenses, in an aggregate amount
of approximately $10.8 million. OCC received the first payment of approximately
$2.9 million (net of expenses) in September 1998 and expects to receive an
additional two payments of approximately $3.9 million (net of expenses) in each
of July 1999 and July 2000. OCC will recognize the additional royalty revenue
as the cash payments are received.
In September 1998, OCV filed suit against MagiNet, alleging a breach by
MagiNet of a license agreement between OCV and MagiNet, and terminating the
license agreement. OCV has also demanded the payment of license fees from
MagiNet which OCC believes were due and payable under the License Agreement and
have not been paid by MagiNet. MagiNet has counter-claimed against OCV,
alleging that OCV breached the license agreement, and alleging various torts by
OCV in its relationship with MagiNet.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G to the Annual Report on Form10-
K, included herein is the following table, which sets forth the names, ages at
March 3, 1999 and titles of the executive officers of the Company, and
biographical information with respect to such officers.
<TABLE>
<CAPTION>
Name Age Office
- ---- --- ------
<S> <C> <C>
Charles Lyons 44 Chairman of the Board, President and Chief Executive Officer
James A. Cronin, III 44 Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Director
Brian A.C. Steel 39 President and Chief Operating Officer, On Command Corporation
</TABLE>
19
<PAGE>
Arthur M. Aaron 41 Vice President, Business and Legal Affairs and
Secretary
David A. Holden 39 Vice President, Finance and Controller
Timothy Romani 36 President, Ascent Arena Company, LLC
There is no family relationship between an officer and any other officer
or director and no arrangement or understanding between an officer and any
other person pursuant to which he was selected as an officer.
MR. LYONS has been President, Chief Executive Officer and a director of
the Company and its predecessors since February 1992 and Chairman since June
1997. Mr. Lyons is Chairman of the Board of OCC.
MR. CRONIN has been Executive Vice President, Chief Operating Officer,
Chief Financial Officer and a director of the Company since June 1997. Prior
thereto he was Executive Vice President, Finance and Chief Operating Officer of
the Company since June 1996. From July to October 1996 Mr. Cronin was Executive
Vice President-Finance, acting Chief Financial Officer and acting Chief
Operating Officer of OCC. Mr. Cronin served as a financial and management
consultant from 1992 through June 1996. Mr. Cronin is a director of OCC and
Landair Services, Inc.
MR. STEEL has been President and Chief Operating Officer of OCC since
December 31, 1998. Prior thereto, Mr. Steel was Executive Vice President, Chief
Operating Officer and Chief Financial Officer of OCC since September 1996. He
has been a director of OCC since September 1996. Mr. Steel was Executive Vice
President Strategic Development, and Chief Financial Officer of TELE-TV, a video
services partnership among several regional telephone companies, from August
1995 to August 1996. Prior thereto, Mr. Steel was Vice President, Strategic
Development of Pacific Telesis Enhanced Services, of Pacific Telesis Group from
January 1994 to July 1995.
MR. AARON has been Vice President, Business and Legal Affairs of the
Company since April 1995. Prior thereto, he was a General Attorney in the Office
of the General Counsel of COMSAT since July 1993. Mr. Aaron has been Acting
General Counsel of OCC since April 1998.
MR. HOLDEN has been Vice President, Finance since June 1997 and
Controller of the Company since April 1996. Prior thereto, Mr. Holden was a
Senior Manager at Deloitte & Touche LLP ("Deloitte") from 1987 through 1996.
MR. ROMANI has been President of Ascent Arena Company, LLC since 1995.
Prior thereto, Mr. Romani was the Executive Director of the Illinois Sports
Facilities Authority from 1987 to 1995.
20
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of March 15, 1999, there were approximately 29,489 record holders of
shares of Common Stock, $.01 par value, of the Company ("Common Stock").
Ascent's Common Stock trades on the Nasdaq Stock Market, under the symbol
"GOAL." The Company's Transfer Agent and Registrar is The Bank of New York, 101
Barclay Street, New York, New York. The Company has not declared or paid any
dividends on the Common Stock and does not intend to do so in the foreseeable
future. For a description of certain restrictions on the Company's payment of
dividends, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 6 to the Company's Consolidated Financial
Statements.
The high and low closing prices for the Company's Common Stock for the
two fiscal years ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
December 31, 1998 $ 7.75 $ 7.00
September 30, 1998 $ 8.00 $ 6.25
June 30, 1998 $ 11.25 $ 11.00
March 31, 1998 $10.437 $10.187
December 31, 1997 $10.375 $ 9.938
September 30, 1997 $11.625 $11.313
June 30, 1997 $ 9.375 $ 8.250
March 31, 1997 $ 11.00 $ 10.00
</TABLE>
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the Company's consolidated financial statements and schedules and
accompanying notes and with "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" presented elsewhere in this document.
FIVE YEAR FINANCIAL SUMMARY
(Amounts in thousands, except per share and room data information)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- -------------- -------------- ------------
Statement of Operations Data:
- ----------------------------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $343,629 $333,575 (1) $252,333 (2) $195,352 $ 165,476
Operating Expenses............................ 277,766 282,146 215,088 200,787 (3) 154,913
Income (loss) from continuing
operations.................................. (39,993) (44,116) (34,650) (16,301) 10,563
Net Income (loss)............................. (49,725) (41,514) (36,034) (21,023) 5,600
Basic and diluted net income (loss) per
common share:
Loss from continuing operations............. (1.54) (1.47) (.97) (.67) .44
Net loss.................................... (1.67) (1.40) (1.21) (.87) .23
Weighted average number of
Common shares outstanding (4)............... 29,756 29,755 29,753 24,217 24,000
Other Financial Data:
- ---------------------
Capital Expenditures.......................... $141,893 $119,046 $ 88,833 $ 85,097 $ 90,053
</TABLE>
<TABLE>
<CAPTION>
Cash Flow Data:
<S> <C> <C> <C> <C> <C>
Net cash provided by continuing
operations activities...................... $ 85,151 $ 46,389 $ 23,798 $ 62,954 $ 39,093
Net cash used in investing activities....... (250,905) (108,978) (92,051) (180,027) (119,975)
Net cash provided by financing
activities................................. 166,607 77,248 82,988 124,406 81,554
EBITDA (5).................................... $ 65,863 $ 53,429 $ 37,245 $ 45,679 $ 49,124
Cash dividends per share...................... $ -- $ -- $ -- $ -- $ --
Balance Sheet Data (at end of period):
Total assets................................ $ 863,741 $ 728,926 $689,020 $ 496,679 $ 342,549
Total long-term debt........................ 441,707 259,958 50,000 70,000 207
Stockholder's equity........................ 176,526 227,698 269,585 301,269 268,197
</TABLE>
<TABLE>
<CAPTION>
Room Data:
Total Number of Guest-pay rooms
(at end of period):
<S> <C> <C> <C> <C> <C>
On-Demand................................... 829,000 765,000 709,000 361,000 248,000
Scheduled only (6).......................... 100,000 128,000 208,000 51,000 194,000
------- ------- ------- ------- -------
Total rooms................................ 929,000 893,000 917,000 412,000 442,000
======= ======= ======= ======= =======
</TABLE>
(1) Includes $24.1 million in revenues from SpectraVision. The results of
operations for the fourth quarter of 1996 include the results from
SpectraVision assets that were acquired on October 8, 1996. See Note 3 of
Notes to the Consolidated Financial Statements.
(2) Includes $9.2 million of NBA expansion fee revenue recorded in the second
quarter of 1995. In addition, the results of operations for the second and
third quarter of 1995 include the results of the Avalanche that was
acquired on July 1, 1995.
22
<PAGE>
(3) Includes a $10.9 million restructuring charge resulting from the
discontinuation of Satellite Cinema's lower margin, scheduled, satellite
delivered pay-per-view service.
(4) Gives effect to the 24,000-for-1 stock split of the outstanding Common
Stock effected upon consummation of the Offering.
(5) EBITDA represents earnings from continuing operations before interest
expense, income taxes, depreciation and amortization and other income
(expense). The most significant difference between EBITDA and cash
provided from operating activities is changes in working capital. EBITDA
is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the
basis of operating performance. In addition, management believes EBITDA
provides an important additional perspective on the Company's operating
results and the Company's ability to service its long-term debt and fund
the Company's continuing growth. EBITDA is not intended to represent cash
flows for the period, or to depict funds available for dividends,
reinvestment or other discretionary uses. EBITDA has not been presented as
an alternative to operating income or as an indicator of operating
performance and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles, which are presented and discussed in Item 7 under
Liquidity and Capital Resources. See the Consolidated Financial Statements
and the Notes thereto appearing elsewhere in this document. EBITDA for the
year ended December 31, 1995 excludes the provision for restructuring
during such period.
(6) Historically, the Company through its Satellite Cinema division, provided
satellite delivered (scheduled only) pay-per-view movies to the lodging
industry prior to its ownership of OCV. During the third quarter of 1995,
management of the Company decided to discontinue Satellite Cinema's
scheduled movie operations and focus solely on the business and luxury
hotels served by OCV's on-demand technology. Effective October 8, 1996 the
Company, through OCC, acquired the assets and certain liabilities of
SpectraVision, which assets included a certain number of scheduled only
pay-per-view rooms. In the third quarter of 1997, OCC assigned to Skylink
operating rights and sold assets associated with approximately 26,500 rooms
in the United States and Canada.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Consolidated
Financial Statements and Notes thereto and other financial information included
elsewhere in this Annual Report.
Certain of the statements that follow are forward-looking and relate to
anticipated future operating results. Statements which look forward in time are
based on management's current expectations and assumptions, which may be
affected by subsequent developments and business conditions, and necessarily
involve risks and uncertainties. Therefore, there can be no assurance that
actual future results will not differ materially from anticipated results.
Although the Company has attempted to identify some of the important factors
that may cause actual results to differ materially from those anticipated, those
factors should not be viewed as the only factors which may affect future
operating results.
Overview
- --------
The Company operates in three reportable segments: Multimedia Distribution,
which consists of OCC; Entertainment, which consists of three operating
segments, the Denver Nuggets, the Colorado Avalanche and the Arena Company; and
Network Services, which consists of Ascent Network Services. The financial
information which follows has been restated to conform with the Company's new
segment classifications as required under Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" which was implemented during the fourth quarter of 1998 (see Note
12 to the 1998 Consolidated Financial Statements).
Multimedia Distribution
- -----------------------
The Company made its initial investment in OCC in 1991 and owned approximately
84% of OCV prior to the Acquisition. As a result of consummating the
Acquisition, the Company owned approximately 57% (approximately 46% on a fully
diluted basis) of the outstanding common stock of OCC.
Prior to the Acquisition, OCV had experienced rapid growth in the prior three
and one half years, increasing its base of installed rooms from approximately
37,000 rooms in approximately 90 hotels at the end of 1992 to approximately
441,000 rooms in approximately 1,585 hotels at October 1996. Conversely,
SpectraVision, as a result of financial constraints and its bankruptcy filing in
June 1995, had experienced deterioration in its room base over the same period.
SpectraVision's room base, including both pay-per-view and free-to-guest, had
decreased from approximately 1,059,000 installed rooms in approximately 2,543
hotels at the end of 1992 to approximately 484,000 rooms, including both pay-
per-view and free-to-guest, in approximately 1,632 hotels at October 1996.
During the third quarter of 1995, management of the Company decided to
discontinue Satellite Cinema's scheduled movie operations and focus primarily on
the business and luxury hotels served by OCV's on-demand technology. In December
1995, certain assets and contracts relating to Satellite Cinema customers were
sold by OCV to Skylink Communications ("Skylink"). Effective October 8, 1996,
the Company, through OCC, acquired the assets and certain liabilities of
SpectraVision, which assets included a certain number of scheduled only rooms
(see Note 3 to the 1998 Consolidated Financial Statements). During the third
quarter of 1997, OCC assigned to Skylink operating rights and sold assets
associated with approximately 26,500 SpectraVision rooms located in the U.S. and
Canada.
The following table sets forth information with regard to pay-per-view rooms
installed as of December 31:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
Rooms Percent Rooms Percent Rooms Percent
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
On-Demand................ 829,000 89.2% 765,000 85.7% 709,000 77.3%
Scheduled................ 100,000 10.8% 128,000 14.3% 208,000 22.7%
------- ----- ------- ----- ------- -----
929,000 100.0% 893,000 100.0% 917,000 100.0%
======= ===== ======= ===== ======= =====
</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,
24
<PAGE>
as well as the continued upgrading and expansion of the products and services
offered by OCC, may require capital expenditures of approximately $65.0 million
to $90.0 million during 1999.
In conjunction with the Acquisition, OCC acquired, among other assets,
video systems and equipment. These specific assets, which were recorded at
their estimated fair market value of approximately $41,800,000 in October 1996,
are being depreciated over 36 months. Accordingly, OCC's 1999 fourth quarter
operating results will be impacted from a reduction in depreciation and
amortization expense charges relating to these specific assets.
Entertainment
- -------------
The Company made its initial investment in the Nuggets, one of 29
franchises in the NBA, in 1989 with the acquisition of a 62.5% interest in a
limited partnership that acquired the Nuggets. In 1991 and 1992, the Company
acquired the remaining interests in the partnership. In July of 1995, the
Company acquired the Avalanche, one of 26 franchises in the NHL. The Company
moved the franchise to Denver to share Denver's McNichols Arena with the
Nuggets, where the team commenced play under the Colorado Avalanche name in the
1995-1996 season.
The financial performance of the Nuggets and the Avalanche are, to a
large extent, dependent on their performance in their respective leagues. In
addition, due to the limitation of the facilities available at McNichols Arena,
the Company expects the Avalanche and the Nuggets to continue to experience
operating losses as long as both teams play in McNichols Arena. On November 13,
1997, the Arena Company entered into the Arena Agreement with the City, pursuant
to which Ascent will construct, own and operate the Pepsi Center in which the
Nuggets and Avalanche would play beginning in the 1999-2000 NHL and NBA playing
seasons. As a result of the Nuggets and the Avalanche playing in the Pepsi
Center and Ascent operating the Pepsi Center for other live events, completion
of the Pepsi Center is expected to result in increased revenues and improved
operating results for the Company's Entertainment segment.
Network Services
- ----------------
Through ANS, the Company provides satellite distribution support
services, principally to the NBC television network for which it is the primary
provider. In 1984, ANS entered into the ten-year NBC Agreement to design, build,
operate and support its satellite distribution network. In 1994, ANS and NBC
extended the term of the NBC Agreement to 1999. During the first half of 1999,
ANS anticipates the finalization of an agreement with NBC to extend the term of
the NBC Agreement through the end of 2002. In addition, in August 1996, the
Company and NBC executed a letter of intent pursuant to which the Company has
procured and installed certain digital technology equipment and has agreed to
provide MSNBC, LLC, a joint venture between NBC and Microsoft Corporation
("MSNBC"), with network service, maintenance and support. This partial digital
upgrade service, governed by the underlying NBC Agreement, is provided for under
a 10-year term. ANS and MSNBC currently anticipate finalizing a service
agreement separate from the underlying NBC Agreement in the first half of 1999
for the MSNBC partial digital upgrade service. The network service, maintenance
and support provided to MSNBC are related to and dependent upon the original NBC
distribution network. The Company anticipates that ANS will assist NBC in
completing the upgrade of the NBC distribution network to digital technology,
although no assurance can be provided in this regard. Such a digital upgrade, if
awarded to ANS, would not commence until 2002 or 2003.
Seasonality, Variability and Other
- ----------------------------------
The Company's businesses are subject to the effects of both seasonality
and variability.
The Multimedia Distribution segment revenues are influenced principally
by hotel occupancy rates and the "buy rate" or percentage of occupied rooms at
hotels that buy movies or other services at the property. Higher revenues are
generally realized during the summer months and lower revenues realized during
the winter months due to business and vacation travel patterns which impact the
lodging industry's occupancy rates. Buy rates generally reflect the hotel's
guest mix profile, the popularity of the motion pictures or services available
at the hotel and the guests' other entertainment alternatives.
The Entertainment segment revenues are influenced by various factors.
Revenues for the Nuggets and the Avalanche correspond to the NBA and NHL playing
seasons, which extend from the fall to late spring depending on the extent of
each team's post-season playoff participation. Accordingly, the Company realizes
the vast majority of its revenues from the Nuggets and the Avalanche during such
period.
25
<PAGE>
The 1998 fourth quarter financial results were significantly impacted by
the recently concluded NBA lockout. Specifically, on January 6, 1999, after a
189 day work stoppage, the NBA Players Association approved a new Collective
Bargaining Agreement (the "CBA of 1999") which was subsequently ratified by the
NBA owners on January 7, 1999 and signed on January 20, 1999. The CBA of 1999
has a six year term, with an option for seventh year, exercisable at the sole
discretion of the NBA. The agreement provides for, among other things, maximum
and minimum total team salaries, subject to various exceptions, and maximum and
minimum individual player salaries. As a result of the work stoppage, the
1998/99 season will consist of 50 games, versus a normal 82 game schedule, 25 of
which will be played at the Nuggets home arena. The Nuggets results of
operations as compared to prior years operations have and will continue to be
affected by the absence of games during the fourth quarter of 1998 and the
increase in the number of games during the first half of 1999. However, the
impact to the Company of the decreases in revenue due to the delay of the
1998/99 NBA season was partially offset by a reduction in costs, primarily
player salaries. The impact to the Company of the increases in revenues during
the first half of 1999 will likewise be offset by an increase in costs, again
primarily player salaries.
As a result of the operating losses expected to be incurred by OCC, the
Avalanche and the Nuggets, the Company expects to incur operating losses on a
consolidated basis during 1999. However, the Company expects to record positive
earnings before income taxes, depreciation and amortization and positive
operating cash flows during this period.
Results of Operations
- ---------------------
Consolidated Operations
The Company sold a controlling interest in its Beacon Communications
subsidiary on January 20, 1999 and, as a result, the Company has classified the
operating results of Beacon as discontinued operations as of December 31, 1998.
The consolidated financial statements have been restated for all periods
presented to reflect Beacon's results of operations and net assets as
discontinued operations.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
- ---------------------------------------------------------------------
The following table sets forth certain data as a percentage of revenues for the
period indicated:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
Amount Percent Amount Percent
---------- -------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues............................................................................ $343,629 100.0% $335,575 100.0%
Cost of services.................................................................... 270,114 78.6 273,742 81.5
Depreciation and amortization....................................................... 105,856 30.8 97,545 29.1
General and administrative.......................................................... 7,652 2.2 8,404 2.5
-------- ------ -------- ------
Loss from operations................................................................ (39,993) (11.6) (44,116) (13.1)
Other income (expense), net......................................................... 1,942 .5 (382) (.1)
Interest expense, net............................................................... (24,489) (7.1) (20,971) (6.2)
Income tax benefit.................................................................. 5,512 1.6 7,693 2.2
Minority interest................................................................... 11,211 3.3 14,319 4.2
-------- ------ -------- ------
Loss from continuing operations..................................................... (45,817) (13.3) (43,457) (13.0)
Income (loss) from discontinued operations, net..................................... (3,908) (1.1) 1,943 .6
-------- ------ -------- ------
Net loss............................................................................ $(49,725) (14.4)% $(41,514) (12.4)%
======== ====== ======== ======
</TABLE>
Revenues
- --------
Revenues for the year ended December 31, 1998 were $343.6 million, an
increase of $8.0 million or 2.4%, as compared to $335.6 million in revenues for
the year ended December 31, 1997. This increase is attributable to increases in
revenue of $16.7 million and $2.5 million within the Multimedia Distribution
segment and Network Services segment, respectively, offset by a $11.2 million
decrease in revenues within the Entertainment segment. The increase in revenues
at OCC is primarily attributable to increases in its on-demand movie business
from stronger buy rates in its core movie product, the non-recurrence of the
interruption in satellite service to a number of SpectraVision hotels which
occurred during the first quarter of 1997, and the receipt of the LodgeNet
royalty payments during the third quarter of 1998. The decrease in revenues in
the Entertainment segment is primarily attributable to a decrease in revenues of
$3.0 and $8.2 million at the Avalanche and Nuggets, respectively. While the
Avalanche realized increased revenues from regular season ticket and sponsorship
sales, the receipt of NHL expansion proceeds and increased
26
<PAGE>
regional broadcast revenues, these increases were substantially offset by a
decline in playoff revenues of $4.4 million. During the year ended December 31,
1998, the Nuggets realized increased distributions from the NBA's national
television contract and an increase in distributions under their regional
broadcasting agreement. These increases have been entirely offset from the
decline in revenues due to the NBA lockout which occurred during the second half
of 1998. The increase in Network Services revenues is attributable to an
increase in service and maintenance revenues from NBC affiliates and other
private networks.
Cost of Services
- ----------------
Cost of services for the year ended December 31, 1998 were $270.1
million, a decrease of $3.6 million or 1.3%, as compared to $273.7 million in
cost of services for the year ended December 31, 1997. This decrease is
attributable to lower operating costs at the Nuggets. Specifically, the Nuggets
experienced a decrease in cost of services of $10.5 million in 1998 as compared
to 1997; substantially all of which is attributable to the reduction in player
costs during the fourth quarter of 1998 during the NBA lockout. Partially
offsetting these decreases in cost of services at the Nuggets are increased
operating costs at the Avalanche (principally player salaries), OCC and ANS. OCC
experienced an increase in hotel commissions and free-to-guest expenses, both
associated with the increase in room revenue, and increased expenditures in
research and development and costs related to new products and initiatives.
Offsetting these increased costs at OCC is a decline in certain non-recurring
costs; those costs associated with the termination of satellite movie service
related to SpectraVision rooms and the non-recurrence of costs associated with
the interruption of satellite service which occurred during the first quarter of
1997. The increase in cost of services at ANS is attributable to an increase in
material costs associated with the increased sales revenues during 1998.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization for the year ended December 31, 1998 was
$105.9 million, an increase of $8.4 million or 8.6%, as compared to $97.5
million in depreciation and amortization for the year ended December 31, 1997.
Depreciation and amortization for Multimedia Distribution was $90.5 million
compared to $81.0 million for the year ended December 31, 1997. The increase is
primarily attributable to a higher installed room base and the conversion of
hotels served by SpectraVision equipment to OCC equipment. Depreciation and
amortization for Entertainment was $7.7 million compared to $8.8 million for the
year ended December 31, 1997. This decrease is primarily attributable to a
decline in amortization costs associated with player acquisition costs of the
Avalanche. Depreciation and amortization for Network Services was $7.5 million
for the year ended December 31, 1998, compared to $7.6 million for the year
ended December 31, 1997.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses (which include only those costs
incurred by the parent company, Ascent Entertainment Group, Inc.), for the year
ended December 31, 1998 were $7.7 million, as compared to $8.4 million in
general and administrative expenses for the year ended December 31, 1997. This
decrease is attributable to a reduction in expense associated with the Company's
stock appreciation rights and the non-occurrence of charges from COMSAT and
costs associated with the Distribution, partially offset by increased
compensation costs in 1998. In addition, the year-to-date results for 1997
reflect a favorable expense settlement.
Other Income (Expense)
- ----------------------
Other income for the year ended December 31 1998 was $1.9 million, as
compared to an expense of $382,000 for the year ended December 31, 1997. This
increase is primarily attributable to an increase in interest income recognized
on the Company's cash and cash equivalent balances.
Interest Expense
- ----------------
Interest expense, net of amounts capitalized, for the year ended
December 31, 1998 was $24.5 million, as compared to $21.0 million for the year
ended December 31, 1997. This increase is attributable to additional borrowings
incurred during 1998 combined with an increase in borrowing costs at Ascent,
primarily those costs related to the issuance of the Company's 11.875% Senior
Secured Discount Notes in December 1997.
27
<PAGE>
Income Tax Benefit
- ------------------
The Company recorded a $5.5 million income tax benefit from continuing
operations during the year ended December 31, 1998 as compared to an income tax
benefit of $7.7 million during the year ended December 31, 1997. The decline in
the Company's effective tax benefit in 1998 is due to Company's inability to
recognize tax benefits from its operating losses due to uncertainties regarding
its ability to realize a portion of the benefits associated with future
deductible temporary differences (deferred tax assets) and net operating loss
carryforwards, prior to their expiration. In addition, prior to the
Distribution on June 27, 1997, the Company was able to recognize tax benefits
from its taxable losses as a result of a tax sharing agreement with COMSAT so
long as Ascent was a member of the consolidated tax group of COMSAT (see Note 8
to the 1998 Consolidated Financial Statements).
Minority Interest
- -----------------
Minority interest reflects the losses attributable to the minority
interest in the Company's 57% owned subsidiary, OCC.
Discontinued Operations
- -----------------------
The Company's discontinued operations are comprised of the results of
Beacon Communications LLC. The loss from discontinued operations, net of taxes,
totaled $3.9 million during 1998 as compared to income of $1.9 million during
1997. The increased loss in 1998 is primarily attributable to a decline in
revenues at Beacon. In 1997, Beacon had three movie releases as compared to
none in 1998.
Net Loss
- --------
On a consolidated basis, including discontinued operations, the net loss
for the year ended December 31, 1998 was $50.7 million as compared to a net loss
of $41.5 million for the year ended December 31, 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
- ---------------------------------------------------------------------
The following table sets forth certain data as a percentage of revenues for the
period indicated:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
Amount Percent Amount Percent
--------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues................................................................................ $335,575 100.0% $252,333 100.0%
Cost of services........................................................................ 273,742 81.5 205,410 81.4
Depreciation and amortization........................................................... 97,545 29.1 71,895 28.5
General and administrative.............................................................. 8,404 2.5 9,678 3.8
-------- ------ -------- ------
Loss from operations.................................................................... (44,116) (13.1) (34,650) (13.7)
Other income (expense), net............................................................. (382) (.1) 533 .2
Interest expense, net................................................................... (20,971) (6.2) (10,715) (4.2)
Income tax benefit...................................................................... 7,693 2.2 9,114 3.6
Minority interest....................................................................... 14,319 4.2 6,812 2.6
-------- ------ -------- ------
Loss from continuing operations......................................................... (43,457) (13.0) (28,906) (11.5)
Income (loss) from discontinued operations.............................................. 1,943 .6 (6,794) (2.7)
Extraordinary loss, net................................................................. -- -- (344) (.1)
-------- ------ -------- ------
Net loss................................................................................ $(41,514) (12.4)% $(36,034) (14.3)%
======== ====== ======== ======
</TABLE>
28
<PAGE>
Revenues
- --------
Revenues for the year ended December 31, 1997 were $335.6 million, an
increase of $83.3 million, or 33.0%, from $252.3 million for the year ended
December 31, 1996. This increase in revenues is attributable to a revenue
increase of $74.6 million within the MultiMedia Distribution segment and a $9.2
million increase within the Entertainment segment, partially offset by a minimal
decrease in revenues in the Network Services segment. The significant increase
in revenues at OCC was due to a larger number of hotel rooms served, resulting
primarily from the acquisition of SpectraVision in October 1996. OCC's revenues
in 1997 were also affected by a satellite outage in January of 1997 affecting
certain SpectraVision properties and the termination and sale of approximately
40,000 rooms during the second-half of 1997 that were receiving satellite only
delivered movies. Management of OCC believes these two events reduced
Multimedia Distribution revenues in 1997 by approximately $3.0 million to $4.0
million. Entertainment revenues increased by $9.2 million in 1997 primarily as
a result of increases at the Avalanche. The Avalanche realized increased
revenues of $10.0 million from regular season ticket sales, sponsorship sales,
local broadcast revenues, and increased playoff and preseason revenues in spite
of playing fewer home games as compared to 1996. However, the increases in
revenues from the Avalanche were partially offset by declining revenues from the
Nuggets as compared to 1996. The decrease in Network Services' revenues is
attributable to a decrease in ancillary service revenues from NBC affiliates
during 1997.
Cost of Services
- ----------------
Cost of services for the year ended December 31, 1997 were $273.7 million,
an increase of $68.3 million, or 33.3%, as compared to $205.4 million for the
year ended December 31, 1996. The overall increase in cost of services is
attributable to increased costs at OCC due to the overall increase in number of
rooms served, resulting primarily from the acquisition of SpectraVision in
October 1996. The increase in cost of services at OCC is also due to higher
royalties on feature movies, higher hotel commission expenses on SpectraVision
rooms, and an increase in field service costs in order to support the acquired
SpectraVision equipment. In addition, OCC incurred additional costs in 1997 in
the development of its new digital technologies, for activities to integrate
SpectraVision and OCC's operational systems and the expansion of its
international presence. In addition, higher costs of services were incurred by
the Avalanche, resulting primarily from increased player costs.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization for the year ended December 31, 1997 was $97.5
million, an increase of $25.6 million or 35.6%, as compared to $71.9 million for
the year ended December 31, 1996 Depreciation and amortization for Multimedia
Distribution was $81.0 million for the year ended December 31, 1997, compared to
$55.3 million for the year ended December 31, 1996. The increase is attributable
to a higher installed room base and the resulting increase in depreciation at
OCC, combined with the incremental depreciation and amortization of the
intangible assets acquired in connection with the Acquisition in October 1996.
Depreciation and amortization for Entertainment was $8.8 million for the year
ended December 31, 1997, compared to $ 9.6 million for the year ended December
31, 1996. This decrease is attributable to a decline in amortization costs
associated with player acquisition costs at the Avalanche. Depreciation and
amortization for Network Services was $7.6 million for the year ended December
31, 1997, compared to $6.9 million for the year ended December 31, 1996. This
increase is attributable to an increase in capital expenditures at ANS in 1997
for the partial digital upgrade of the NBC satellite distribution network to
support the MSNBC network.
General and Administrative
- --------------------------
General and administrative expenses, (which include only those costs
incurred by the parent company, Ascent Entertainment Group, Inc.), for the year
ended December 31, 1997 were $8.4 million, as compared to general and
administrative expenses of $9.7 million for the year ended December 31, 1996.
This decrease primarily reflects the reduction of approximately $1.8 million in
certain general and administrative service charges from COMSAT and the non-
recurrence of moving, relocation and other travel costs incurred in 1996 offset
by increased professional services costs associated with the Distribution, the
recognition of expense during 1997 for the Company's stock appreciation rights,
and an increase in employment related costs necessary to support the Company's
continued growth. From January through June 1997, COMSAT provided only limited
administrative and support services to the Company and, since July 1997 has
provided none.
29
<PAGE>
Other Income (Expense)
- ----------------------
Other income (expense) was an expense of $382,000 the year ended December
31, 1997 as compared to $533,000 of other income during the year ended December
31, 1996. The increase in other expenses during 1997 is attributable to OCC's
recognition of a $917,000 loss on its investment in MagiNet during the fourth
quarter of 1997. While the Company recognized $2.3 million in losses on its
limited partnership investment in Elitch Gardens during 1996, these losses were
substantially offset by a gain of $1.9 million from the sale of investment
securities and other interest income recognized during 1996. Elitch Gardens, a
Denver amusement park, was sold in October 1996.
Interest Expense
- ----------------
Interest expense, net of amounts capitalized, for the year ended December
31,1997 was $21.0 million as compared to $10.7 million during the year ended
December 31, 1996. This increase is attributable to the additional borrowings
incurred during the fourth quarter of 1997 (primarily the assumption of debt in
the Acquisition) and throughout 1997 for capital expenditures, investment
requirements and the funding of operating requirements of the Company and its
subsidiaries; and to a lesser degree, an increase in financing costs as a result
of the amendment to the former Ascent Credit Facility in March 1997.
Income Tax Benefit
- ------------------
The Company recorded an income tax benefit from continuing operations of
$7.7 million during the year ended December 31, 1997 as compared to an income
tax benefit of $9.1 million for the year ended December 31, 1996. This decline
in the Company's effective tax benefit in 1997 is due to the Company's inability
to recognize tax benefits from its operating losses. Up to and until the
Distribution from COMSAT on June 27, 1997, the Company was able to recognize tax
benefits from its operating losses as part of its inclusion as a member of the
consolidated tax group of COMSAT. Accordingly, the Company recognized a tax
benefit of $8.6 million from its operating losses during the first half of 1997.
However, this benefit was partially offset by the Company's recognition of tax
expense of $800,000 to reflect OCC's tax on its income from foreign
jurisdictions during 1997. Furthermore, OCC, which files a separate return,
recognized no tax benefit from its operating losses due to uncertainties
regarding its ability to realize a portion of the benefits associated with
future deductible temporary differences (deferred tax assets) and net operating
loss carry forwards, prior to their expiration. (See Note 8 to the 1998
Consolidated Financial Statements.)
Minority Interest
- -----------------
Minority interest reflects the losses attributable to the minority interest
in the Company's 57% owned subsidiary, OCC.
Discontinued Operations
- -----------------------
The Company's discontinued operations are comprised of the results of Beacon
Communications Corp. Income from discontinued operations, net of taxes, of
Beacon totaled $1.9 million during 1997 as compared to a loss of $6.8 million
during 1997. The improved operating results in 1997 were primarily attributable
to a significant increase in revenues at Beacon and specifically, the revenues
recognized and operating margin realized from the motion picture "Air Force
One". In 1997, Beacon had three movie releases as compared to none in 1996.
Net Loss
- --------
On a consolidated basis, including discontinued operations and the
extraordinary item, the net loss for the year ended December 31, 1997 was $41.5
million as compared to a net loss of $36.0 million for the year ended December
31, 1996.
Business Segments
Ascent implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", during the fourth quarter of 1998. The
Company has classified its businesses into 3 reportable segments: Multimedia
Distribution, Entertainment and Network Services. The Multimedia Distribution
segment includes the video distribution and on-demand video entertainment
services provided by OCC to the lodging industry. The Entertainment Segment
includes 3 operating segments consisting of the Denver Nuggets, the
30
<PAGE>
Colorado Avalanche and Ascent Arena Company, the owner and manager of the new
arena. The Network Services segment includes the results of Ascent Network
Services and the video distribution services it provides to the NBC television
network and other private networks.
The financial information below has been restated to conform with the
discontinued operations presentation of Beacon and the Company's new segment
classifications as required by SFAS 131. The information set forth below is
based on the nature of the products and services offered by the Company. The
Company evaluates performance based on several factors of which the primary
financial measure is business segment operating income (loss) before interest,
depreciation and amortization, commonly referred to as EBITDA.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
(in Thousands, except other data)
Revenues:
- ---------
<S> <C> <C> <C>
Multimedia Distribution...................................................... $238,820 $222,103 $147,469
Entertainment................................................................ 82,353 93,532 84,357
Network Services............................................................. 22,456 19,940 20,507
-------- -------- --------
Total...................................................................... $343,629 $335,575 $252,333
======== ======== ========
Earnings Before Interest, Taxes and
- -----------------------------------
Depreciation (EBITDA):
----------------------
Multimedia Distribution...................................................... $ 72,045 $ 55,579 $ 41,804
Entertainment................................................................ (9,500) (5,026) (5,533)
Network Services............................................................. 10,970 11,280 10,652
Corporate.................................................................... (7,652) (8,404) (9,678)
-------- -------- --------
Total...................................................................... $ 65,863 $ 53,429 $ 37,425
======== ======== ========
Other Data:
- -----------
Number of OCC Rooms.......................................................... 929,000 893,000 917,000
Number of Regular Season Home Games:
------------------------------------
Avalanche................................................................... 37 41 45
Nuggets..................................................................... 28 40 43
Number of Playoff Home Games:
-----------------------------
Avalanche.................................................................. 4 9 11
</TABLE>
Multimedia Distribution
- -----------------------
For 1998, the Multimedia Distribution segment's revenues were $238.8
million versus $222.1 million in 1997, an increase of 7.5%. This increase is
primarily due to increases in On Command's on-demand movie business from new
hotel installations, continued conversions of hotels served by SpectraVision
equipment to OCC equipment, strong buy rates in On Command's core movie product,
the non-recurrence of the satellite outage experienced at SpectraVision
properties during the first quarter of 1997 and the receipt of the LodgeNet
royalty payment during the third quarter of 1998. During the third quarter of
1998, OCC received the first of three payments due from LodgeNet Entertainment
Corporation. The payments result from the litigation settlement and cross-
licensing agreement between the two companies. Net of legal costs and expenses,
OCC expects to receive $10.8 million of aggregate royalty payments. OCC
received the first payment of $2.9 million and expects to receive an additional
two payments of approximately $3.95 million in each of July 1999 and 2000. The
Multimedia Distribution segment revenues were $222.1 million in 1997 versus
$147.5 million in 1996, an increase of 50.6%. The increase in revenues at OCC
in 1997 was due to a larger number of hotel rooms served, resulting primarily
from the SpectraVision acquisition in October 1996. OCC's revenues in 1997 were
also affected by a satellite outage during the first quarter affecting certain
SpectraVision properties.
The Multimedia Distribution segment's EBITDA for 1998 was $72.0 million
versus $55.6 million in 1997, an increase of 29.5%. The MultiMedia Distribution
segment's EBITDA margin, as a percentage of revenues, also improved from 25.0%
in 1997 to 30.2% in 1998. The increase in both EBITDA and EBITDA margin for
1998 is primarily attributable to the increase in OCC's revenues for the year,
including the receipt of the LodgeNet royalty payment, and the non-recurrence of
the satellite outage that occurred during the first quarter of 1997. The
improvement is also attributable to the termination of expensive satellite
transmission of movies and lower per room free-to-guest costs due to negotiated
improvements in certain vendor contracts. The Multimedia Distribution segments
EBITDA was $55.6 million in 1997 versus $41.8 million in 1996, an increase of
33.0%. The increase in
31
<PAGE>
EBITDA at OCC in 1997 was primarily attributable to the increase in OCC's
revenues during the year. While EBITDA did improve, the EBITDA margin, as a
percentage of revenues, declined from 28.3% in 1996 to 25.0% in 1997. This
decline in EBITDA margin at OCC during 1997 is due an increase in costs
(primarily higher royalties, hotel commissions and field service costs) and a
lower recovery of free-to-guest programming costs. In addition, higher costs
were incurred in connection with the integration of SpectraVision's and OCV's
accounting and operational systems.
At December 31, 1998, OCC's installed room base was approximately 929,000
as compared to 893,000 at the end of 1997 and 917,000 at the end of 1996. In
1998, On Command installed its OCV on-demand system in 125,000 rooms, of which
approximately 70,000 rooms were conversions of SpectraVision properties, and
approximately 55,000 were new hotel installations. In 1997, OCC installed its
OCV on-demand system in 112,000 rooms, of which approximately 67,000 rooms were
conversions of SpectraVision properties, and approximately 45,000 were new hotel
installations. The decline in the 1997 year-end installed room total was due
primarily to the transfer of rooms to Skylink Cinema Corporation and losses
attributed to the termination of satellite broadcast movies services. The
hotels included in the transfer and termination of service consisted primarily
of rooms that did not adequately fit OCC's target economic profile.
Entertainment
- -------------
For 1998, revenues for the Entertainment segment were $82.4 million as
compared to 1997 revenues of $93.5 million. While the Avalanche realized
increase revenues from their regional broadcasting agreement with Fox Sports,
the receipt of NHL expansion proceeds and from regular season ticket sales and
sponsorship sales in spite of playing fewer home games in 1998 as compared to
1997, these increases were entirely offset by a decline in playoff revenues of
$4.4 million. The Avalanche had five fewer home playoff games as a result of
playing in only one playoff round as compared to three rounds of the playoffs in
1997. Revenues at the Nuggets declined by $8.2 million in 1998 as compared to
1997. While the Nuggets experienced an increase in revenues during the first
half of the year from improvements in distributions from the NBA national
television contract and increased revenues from their regional broadcasting
agreement with Fox Sports, these increases have been entirely offset from the
impact of the NBA lockout during the fourth quarter of 1998. Specifically, the
lockout resulted in decreased revenues of $11.6 million as compared to the
fourth quarter of 1997. The Entertainment segment revenues were $93.5 million
in 1997 versus $84.4 million in 1996, an increase of 10.8%. This increase in
revenues was primarily attributable to the Avalanche. The Avalanche realized a
$10.0 million increase in revenues from regular season ticket sales, sponsorship
sales, local broadcast revenues, and increased playoff and pre-season revenues,
in spite of playing fewer home games as compared to 1996.
The Entertainment segments EBITDA for 1998 was ($9.5 million) compared to
($5.0 million) in 1997. This decrease in the EBITDA is primarily attributable
to the decline in Avalanche playoff revenues, a reduction in the number of home
games for the Avalanche combined with an increase in player salaries. This
decrease was partially offset by improved operating results at the Nuggets which
are the result of increased revenues during the first half of 1998 combined with
a reduction in costs during the second half of the year, primarily player cost
savings from the NBA lockout. The Entertainment segments EBITDA for 1997 was
($5.0 million) versus $(5.5 million) in 1996, an increase of 9.1%. This
improvement in EBITDA is primarily attributable to improved operating results at
the Avalanche from higher revenues, partially offset by increased team costs at
Nuggets, primarily contract terminations.
Network Services
- ----------------
For 1998, the Network Services segment's revenues were $22.5 million versus
$19.9 million in 1997, an increase of 13.1%. The increased revenues for 1998
are attributable to an increase in equipment sales and service revenues from NBC
affiliates and other private networks. The Network Services segments revenues
were $19.9 million in 1997 versus $20.5 million in 1996, a decrease of 3.0%.
The decrease in revenues during 1997 is attributable to a decline in sales of
ancillary services to NBC and its affiliate networks.
The Network Services segment EBITDA for 1998 was $11.0 million versus $11.3
million in 1997. While revenues for the year increased primarily from low margin
equipment sales, EBITDA decreased during 1998 due to increased costs, primarily
those relating to the NBC contract of $400,000 in 1998, at ANS. The Network
Services segment EBITDA for 1997 was $11.3 million versus $10.7 million in 1996,
an increase of 5.6%. This increase was attributable to a reduction in operating
costs during 1997.
32
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The primary sources of cash and cash equivalents during the year ended
December 31, 1998 were cash from operating activities of $101.9 million,
borrowings under OCC's credit facility of $30.0 million and the collection of
$2.7 million on notes and other long-term receivables. In addition, while the
Company generated net cash proceeds from the Arena Note offering of $136.6
million, this cash was invested in restricted cash investment accounts pursuant
to an amended and restated Trust Agreement(see Note 6 to the 1998 Consolidated
Financial Statements.) Cash was expended primarily for property and equipment
as the Company continued to make investments to support business growth.
Specifically, capital expenditures of $83.2 million were made by OCC for the
continuing installation and conversion of on-demand systems and $54.6 million
was expended by the Arena Company for construction costs at the Pepsi Center.
Cash and cash equivalents have increased by $17.6 million since December 31,
1997 to $42.4 million at December 31, 1998. However, included in cash and cash
equivalents at December 31, 1998 is $21.1 million of cash received by the
Avalanche and the Nuggets relating to ticket sales for their 1998/99 playing
seasons.
Long-term debt of the Company at December 31, 1998 consists primarily of
the Company's Senior Secured Discount Notes (the "Senior Notes") totaling $142.5
million, $163.0 million outstanding under OCC's Credit Facility and $139.8
million outstanding on the non-recourse Arena Notes (see Note 6 to the 1998
Consolidated Financial Statements).
The Company's cash requirements during 1999 are expected to include (i) the
continuing conversion and installation by OCC of on-demand in-room video
entertainment systems, (ii) funding the construction costs of the Pepsi Center,
(iii) funding the operating requirements of Ascent and its subsidiaries, (iv)
the payment of interest under the Ascent credit facility, if such facility is
utilized, and the OCC credit facility, and (vi) the payment of interest and
principal due under the Arena Notes. The Company anticipates capital
expenditures in connection with the continued installation and conversion by OCC
of on-demand service may be approximately $65.0 to $90.0 million in 1999. The
Company anticipates that OCC's funding for its operating requirements and
capital expenditures for the continued conversion and installation by OCC of on-
demand services will be funded primarily through cash flows from OCC's
operations and financed under the OCC credit facility. The expenditures for
construction of the Pepsi Center, estimated to be approximately $90.0 to $100.0
million in 1999, will be funded from the proceeds of the Arena Notes, and as
necessary, additional advances from the Company as discussed in Note 6 to the
Company's 1998 Consolidated Financial Statements.
Management of the Company believes that the available cash, cash flows from
operating activities, and funds available under the Ascent credit facility and
the OCC credit facility (see Note 6 to the 1998 Consolidated Financial
Statements), together with the proceeds from the Arena Notes will be sufficient
for the Company and its subsidiaries to satisfy their growth and finance working
capital requirements during 1999. However, it is the Company's expectation that
cash flows from operations will be insufficient to cover planned capital
expenditures during 1999 and 2000 and, accordingly, the Company determined that
no cash interest would be payable on the Senior Notes until June 2003.
Thereafter, the Company's ability to pay interest on the Senior Notes and to
satisfy its other debt obligations will depend upon the future performance of
the Company and, in particular, on the successful implementation of the
Company's strategy, including conversion of the hotel rooms acquired in the
acquisition of SpectraVision, Inc. to OCC's on-demand technology, the upgrade
and expansion of OCC's technology and service offerings, the construction of the
Pepsi Center in Denver, and the ability to attain significant and sustained
growth in the Company's cash flow. There can be no assurance that the Company
will successfully implement its strategy or that the Company will be able to
generate sufficient cash flow from operating activities to meet its long-term
debt service obligations and working capital requirements. Based on the
Company's current expectation with respect to its existing businesses, the
Company does not expect to have cash flows after capital expenditures sufficient
to repay all of the Senior Notes at maturity and, accordingly, may have to
refinance the Senior Notes at or before their maturity. There can be no
assurance that any such financing could be obtained on terms that are acceptable
to the Company, or at all. In the absence of such financing, the Company could
be forced to sell assets.
As previously discussed, on June 27, 1997, COMSAT completed the Distribution
of the Ascent common stock held by COMSAT as a tax-free dividend to COMSAT's
shareholders. The Distribution was intended, among other things, to afford
Ascent more flexibility in obtaining debt financing to meet its growing needs.
The Distribution Agreement between Ascent and COMSAT, (see Note 13 to the 1998
Consolidated Financial Statements) terminated the Corporate Agreement between
Ascent and COMSAT which imposed restrictions on Ascent to ensure compliance with
certain capital structure and debt financing restrictions imposed on COMSAT by
33
<PAGE>
the Federal Communications Commission. As a result, Ascent's financial leverage
has increased and will increase in the future for numerous reasons. In
addition, pursuant to the Distribution Agreement, certain restrictions have been
put in place to protect the tax-free status of the Distribution. Among the
restrictions, Ascent is not allowed to sell, transfer or otherwise dispose of
assets that, in the aggregate, constitute more than 60% of its gross assets as
of the Distribution, other than in the ordinary course of business until July
1999 (see Note 13 to the 1998 Consolidated Financial Statements). Finally, as a
result of the Distribution, Ascent is no longer part of COMSAT's consolidated
tax group and accordingly, Ascent may be unable to recognize tax benefits and
will not receive cash payments from COMSAT resulting from Ascent's anticipated
operating losses during 1998 and thereafter.
Inflation
- ---------
Inflation has not significantly impacted the Company's financial position or
operations.
Information Systems and The Year 2000
General - The Year 2000 issue is the result of certain computer programs and
-------
firmware having been developed using two digits rather than four digits to
define the application year, such that computer programs that are date sensitive
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inablity to process
transactions or engage in normal business activities for the Company and its
subsidiaries and their customers who rely on their products.
The Company and its subsidiaries are actively engaged, but have not yet
completed, reviewing, correcting and testing all of their Year 2000 compliance
issues. Based on the current review and remediation, the primary Year 2000
compliance issue facing the Company is that OCC will be required to modify or
replace some of its internally developed information technology software
products. OCC utilizes embedded technology in all of its hotel systems design.
OCC's engineering department has completed the majority of its evaluation
process and is currently developing solutions to this and other Year 2000 issues
affecting its hotel systems. In addition, both OCC and the Company's other
subsidiaries have determined that they will be required to modify and/or replace
certain third-party software so that it will function properly with respect to
dates in the Year 2000 and thereafter. The Company presently believes that with
the proper modifications to its products and third-party software and the
replacement of non-compatible hardware, the Year 2000 issue will not pose
significant operation problems for the Company's subsidiaries or its customers.
The Company and its subsidiaries are currently on schedule to complete all
Year 2000 issues by June 1999. However, if such modifications and replacements
are not made, or completed timely, the Year 2000 issue could have a material
impact on the Company, its subsidiaries and their customers.
Costs - The total cost associated with required modification to become Year
-----
2000 compliant is not expected to be material to the Company's consolidated
financial position. The total cost to address the Year 2000 issues is estimated
to be less than $1.3 million. The total amount expended on Year 2000 through
December 31, 1998 was approximately $300,000. The costs of Year 2000 compliance
and the date on which the Company plans to complete the Year 2000 modifications
are based on management's best estimates, which were derived utilizing numerous
assumptions, including third parties' Year 2000 readiness and other factors.
Risks - The Company has and will continue to have communications with its
-----
significant suppliers and customers to determine the extent to which the Company
may be vulnerable in the event that those parties fail to address their own Year
2000 issues. The Company has taken steps to monitor the progress made by those
parties, and intends to test critical systems interfaces, as the year 2000
approaches. Specifically, there is some unknown level of risk at OCC with
respect to its hotel customers and conditions that would make a hotel unable to
register guests which, in turn, could affect OCC's revenue. A large number of
OCC's systems are interfaced with the hotel's property management system. If
this interface fails, all movie charges would require manual processing.
Processes to perform manual processing are in place in all of OCC's customers'
hotels and are occasionally utilized at times when the property management
system interface is not functioning. This typically causes a slightly higher
number of lost charges, which could be material if applied to a large number of
hotel customers.
Contingency Plans - While the Company has not completed a formal contingency
-----------------
plan for the Year 2000 problem, it has evalauted several anticipated scenarios
for failures affecting its critical business systems, including
34
<PAGE>
third-party hotel systems which could impact OCC as discussed above. Currently,
it is OCC's opinion that any of the potential scenarios can be managed by manual
means, although less efficient, while the necessary corrective actions are
taken. However, there can be no guarantee that the systems of third parties on
which the Company and its subsidiaries rely will be corrected in a timely
manner, that manual processing of OCC's movie charges would be accomplished, or
that the failure to properly convert by another company would not have a
material adverse effect on the Company or its subsidiaries.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. The Company's exposure to market risk for changes in
- ------------------
interest rates relate primarily to the Company's investment portfolio, including
restricted investments, and long-term debt obligations. The Company does not
use derivative financial instruments in its investment portfolio. The Company
places its investments with high credit quality issuers and, by policy and debt
restrictions, limits the amount of credit exposure to any one issuer. As stated
in its policy, the Company is averse to principal loss and ensures the safety
and preservation of its invested funds by limiting default risk and market risk.
The Company mitigates default risk by investing in only the safest and
highest credit quality securities. The portfolio includes only short-term
investment securities with active secondary or resale markets to ensure
portfolio liquidity. At December 31, 1998, the weighted average interest rate
on the Company's cash and cash equivalent balance of $42.4 million was 4.8%
consisting of fixed rate short-term investments. In addition, the Company's
weighted average interest rate on its restricted cash investments held in trust
at December 31, 1998 of $112.5 million was 5.6%. These restricted investments
are primarily variable rate money market instruments.
The Company does have cash flow exposure due to rate changes for portions of
its debt obligations. Specifically, no cash flow exposure exists on the
Company's Arena Notes and Senior Secured Discount Notes as they represent fixed-
rate obligations. (See Note 6 to the 1998 Consolidated Financial Statements).
However, revolving loans extended under the OCC Credit Facility generally bear
an interest rate that is variable and based on the London Interbank Offering
Rate ("LIBOR") and on certain operating ratios of OCC. At December 31, 1998,
OCC had $163.0 million outstanding, on the OCC Credit Facility and the weighted
average interest rate on the OCC Credit Facility was 5.9%. Assuming no increase
or decrease in the amount outstanding a hypothetical immediate 100 basis point
increase (or decrease) in interest rates would have increased (or decreased) the
Company's annual interest expense and cash outflow by $1.6 million during the
year ended at December 31, 1998.
Foreign Currency Risk. The Company, through OCC, transacts business in various
- ----------------------
foreign currencies, primarily in Canada, Asia and in certain European countries.
However, the Company believes the risks of foreign exchange rate fluctuations on
its present operations are not material to the Company's overall financial
condition. However, should the Company's international operations continue to
grow, the Company will consider using foreign currency contracts, swap
arrangements, or other financial instruments designed to limit exposure to
foreign exchange rate fluctuations.
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Ascent Entertainment Group, Inc.:
We have audited the accompanying consolidated balance sheets of Ascent
Entertainment Group, Inc. and its subsidiaries (the "Company") as of December
31, 1998 and 1997, and the related consolidated statements of operations,
comprehensive loss, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ascent
Entertainment Group, Inc. and its subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
Deloitte & Touche LLP
Denver, Colorado
February 24, 1999
36
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(in thousands, except par value amounts)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 42,425 $ 24,837
Receivables, net (Note 4)............................................................... 62,911 59,354
Prepaid expenses........................................................................ 16,436 15,839
Deferred income taxes (Note 8).......................................................... 417 2,577
Income taxes receivable (Note 8)........................................................ - 8,212
Other current assets.................................................................... 394 1,462
Net assets of discontinued operations (Note 2).......................................... 12,328 --
--------- --------
Total current assets 134,911 112,281
--------- --------
Property and equipment, net (Note 5).................................................... 388,762 336,805
Restricted cash held in trust(Note 6)................................................... 112,478 --
Goodwill, net........................................................................... 103,120 109,979
Franchise rights, net................................................................... 92,559 97,373
Investments (Note 3).................................................................... 5,533 5,979
Deferred income taxes (Note 8).......................................................... 3,866 --
Other assets, net....................................................................... 22,512 32,098
Net assets of discontinued operations (Note 2).......................................... -- 34,411
--------- --------
Total assets.............................................................................. $ 863,741 $728,926
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 6)........................................... $ 3,665 $ --
Accounts payable........................................................................ 32,551 24,182
Deferred income......................................................................... 50,941 46,727
Other taxes payable..................................................................... 7,890 10,875
Accrued compensation.................................................................... 9,229 12,130
Other accrued liabilities (Note 7)...................................................... 21,441 16,161
Income taxes payable (Note 8)........................................................... 1,821 2,213
--------- --------
Total current liabilities............................................................. 127,538 112,288
--------- --------
Long-term debt (Note 6)................................................................. 441,707 259,958
Other long-term liabilities (Note 7).................................................... 34,312 32,115
Deferred income taxes (Note 8).......................................................... -- 1,699
--------- --------
Total liabilities..................................................................... 603,557 406,060
--------- --------
Minority interest (Note 3).............................................................. 83,658 95,168
Commitments and contingencies (Notes 5, 6, and 9)....................................... -- --
Stockholders' equity (Note 10):
Preferred stock, par value $.01 per share, 5,000 shares authorized, none
outstanding............................................................................ -- --
Common stock, par value $.01 per share, 60,000 shares authorized, 29,756 shares
issued and outstanding................................................................. 297 297
Additional paid-in capital.............................................................. 306,358 307,248
Accumulated deficit..................................................................... (130,872) (81,147)
Accumulated other comprehensive income.................................................. 743 1,300
--------- --------
Total stockholders' equity............................................................ 176,526 227,698
--------- --------
Total liabilities and stockholders' equity................................................ $ 863,741 $728,926
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1998, 1997 and 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues (Notes 9 and 12, and Note 13 for related party revenues).................................. $343,629 $335,575 $252,333
-------- -------- --------
Operating expenses:
Cost of services................................................................................. 270,114 273,742 205,410
Depreciation and amortization.................................................................... 105,856 97,545 71,895
General and administrative....................................................................... 7,652 8,404 9,678
-------- -------- --------
Total operating expenses........................................................................ 383,622 379,691 286,983
-------- -------- --------
Loss from continuing operations.................................................................... (39,993) (44,116) (34,650)
Other income (expense), net........................................................................ 1,942 (382) 533
Interest expense, net (Notes 6 and 13)............................................................. (24,489) (20,971) (10,715)
-------- -------- --------
Loss from continuing operations before taxes, minority interest and
extraordinary item................................................................................ (62,540) (65,469) (44,832)
Income tax benefit (Note 8)........................................................................ 5,512 7,693 9,114
-------- -------- --------
Loss from continuing operations before minority interest and
extraordinary item................................................................................ (57,028) (57,776) (35,718)
Minority interest.................................................................................. 11,211 14,319 6,812
-------- -------- --------
Loss from continuing operations before extraordinary item.......................................... (45,817) (43,457) (28,906)
Income(loss) from discontinued operations, net of taxes(Note 2).................................... (3,908) 1,943 (6,794)
-------- -------- --------
Loss before extraordinary item..................................................................... (49,725) (41,514) (35,700)
Extraordinary item-loss on early extinguishment of debt, net of taxes.............................. -- -- (334)
-------- -------- --------
Net loss........................................................................................... $(49,725) $(41,514) $(36,034)
======== ======== ========
Basic and diluted net loss per common share:
Loss from continuing operations before extraordinary item......................................... $(1.54) $(1.47) $ (.97)
Discontinued operations........................................................................... (.13) .07 (.23)
Extraordinary loss on early extinguishment of debt, net of taxes.................................. -- -- (.01)
-------- -------- --------
Basic and diluted net loss per share............................................................... $(1.67) $(1.40) $ (1.21)
======== ======== ========
Weighted average number of common shares outstanding............................................... 29,756 29,755 29,753
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years ended December 31, 1998, 1997, and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net Loss.......................................................................................... $(49,725) $(41,514) $(36,034)
-------- -------- --------
Other comprehensive income (loss).................................................................
Unrealized gain (loss) on securities............................................................ (857) (80) 2,080
Income tax (expense) benefit related to items of other
comprehensive income (loss).................................................................... 300 28 (728)
-------- -------- --------
Other comprehensive income (loss), net of tax................................................... (557) (52) 1,352
-------- -------- --------
Comprehensive loss................................................................................ $(50,282) $(41,566) $(34,682)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Accumulated Comprehensive Stockholder's
Stock Capital Deficit Income Equity
------ ----------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996.................... $297 $304,571 $( 3,599) -- $ 301,269
-- -- -- -- --
Net loss.................................... -- -- ( 36,034) -- ( 36,034)
Adjustment of OCC investment (Note3)........ -- 1,178 -- -- 1,178
Capital Contribution from COMSAT
(Note 13).................................. -- 1,820 -- -- 1,820
Other comprehensive income (loss), net...... -- -- -- $1,352 1,352
------ -------- --------- ------ ---------
Balance at December 31, 1996.................. 297 307,569 ( 39,633) 1,352 269,585
Net loss.................................... -- -- ( 41,514) -- (41,514)
Other comprehensive income(loss), net....... -- -- -- (52) (52)
Other....................................... -- (321) -- -- (321)
------ -------- --------- ------ ---------
Balance at December 31, 1997.................. 297 307,248 (81,147) 1,300 227,698
Net loss.................................... -- -- (49,725) -- (49,725)
Other comprehensive income(loss), net....... -- -- -- (557) (557)
Other....................................... -- (890) -- -- (890)
------ -------- --------- ------ ---------
Balance at December 31, 1998.................. $297 $306,358 $(130,872) $ 743 $ 176,526
====== ======== ========= ====== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................................................... $ (49,725) $ (41,514) $ (36,034)
Adjustments to reconcile net loss to net cash provided by continuing operations:
Depreciation and amortization..................................................... 105,856 97,545 71,895
Minority interest in losses of subsidiaries....................................... (11,211) (14,319) (6,812)
(Income)Loss from discontinued operations......................................... 3,908 (1,943) 6,794
Equity in earnings of unconsolidated partnerships and joint ventures............. (1,106) (612) (346)
Accretion of discount on Senior Secured Notes..................................... 15,579 294 --
Provision for loss on investments................................................. 856 1,125 2,310
(Gain)Loss on disposals of property and equipment................................. 72 (1,016) 11
Extraordinary loss on extinguishment of debt, net................................. -- -- 334
Changes in operating assets and liabilities:......................................
Current assets................................................................... 7,286 (3,945) (6,675)
Current liabilities.............................................................. 13,245 19,698 (11,542)
Noncurrent assets................................................................ 1,858 (13,623) (3,740)
Noncurrent liabilities........................................................... (1,467) 4,701 7,031
Other............................................................................ -- (2) 572
--------- --------- ---------
Net cash provided by operating activities of continuing operations................ 85,151 46,389 23,798
Net cash provided by (used in) discontinued operations............................ 16,735 6,536 (21,865)
--------- --------- ---------
Net cash provided by operating activities......................................... 101,886 52,925 1,933
--------- --------- ---------
INVESTING ACTIVITIES:
Purchase of restricted cash investments........................................... (149,043) -- --
Sales of restricted cash investments.............................................. 36,565 -- --
Proceeds from notes and other long-term receivable................................ 2,704 2,951 6,684
Proceeds from sale of investments................................................. 396 1,920 3,608
Purchase of property and equipment................................................ (141,893) (119,046) (88,833)
Proceeds from sale of property and equipment...................................... -- 4,459 187
Investment in unconsolidated businesses........................................... -- -- (4,125)
Distributions from partnerships and joint ventures................................ 366 738 --
Net cash paid in acquisition of SpectraVision..................................... -- -- (9,572)
--------- --------- ---------
Net cash used in investing activities............................................. (250,905) (108,978) (92,051)
--------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds from issuance of Arena Notes......................................... 136,607 -- --
Net proceeds from issuance of Senior Secured Discount Notes....................... -- 122,231 --
Proceeds from borrowings under former credit facilities........................... -- 59,000 75,000
Repayment of borrowings under former credit facilities............................ -- (252,000) (145,000)
Proceeds from borrowings under credit facilities.................................. 30,000 133,000 205,537
Payments under revolving credit loans and other notes payable..................... -- -- (15,207)
Payment of SpectraVision debt..................................................... -- -- (40,000)
Capital Contribution from COMSAT.................................................. -- -- 1,820
Proceeds from issuance of subsidiary's equity instruments......................... -- 15,000 2,587
Common stock issued............................................................... -- 17 --
Other............................................................................. -- -- (1,749)
--------- --------- ---------
Net cash provided by financing activities......................................... 166,607 77,248 82,988
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.............................. 17,588 21,195 (7,130)
Cash and cash equivalents, beginning of year....................................... 24,837 3,642 10,772
--------- --------- ---------
Cash and cash equivalents, end of year............................................. $ 42,425 $ 24,837 $ 3,642
========= ========= =========
Supplemental cash flow information:
Interest paid..................................................................... $ 12,713 $ 16,712 $ 8,851
========= ========= =========
Income taxes paid................................................................. $ 581 $ 2,447 $ --
========= ========= =========
Non-cash investing and financing activities:
Reversal of accrual made in OCC purchase price allocation......................... $ -- $ 3,000 $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
41
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Note 1 -- Organization and Summary of Significant Accounting Policies:
The accounting and reporting practices of Ascent Entertainment Group, Inc.
(the "Company" or "Ascent") and its majority owned subsidiaries conform to
generally accepted accounting principles and prevailing industry practices. The
following is a summary of the Company's significant accounting and reporting
policies.
Basis of Presentation and Principles of Consolidation. The accompanying
consolidated financial statements include the accounts of Ascent and its
majority-owned subsidiaries which include On Command Corporation ("OCC"), the
Denver Nuggets Limited Partnership (the "Nuggets"), the Colorado Avalanche, LLC
(the "Avalanche"), and Ascent Arena Company, LLC (the "Arena Company"). Ascent
Network Services, Inc. ("ANS"), formerly a wholly owned subsidiary of Ascent,
was merged into Ascent and became an operating division of Ascent on May 30,
1997. Beacon Communications LLC. ("Beacon") is accounted for as a discontinued
operation (See Note 2). All significant intercompany transactions have been
eliminated.
OCC provides video distribution and pay-per-view video entertainment services
to the lodging industry and has operating subsidiaries or branches in the United
States, Canada, Mexico, Hong Kong, Singapore, Thailand, the United Kingdom,
Spain and Australia. ANS provides video distribution services to the National
Broadcasting Company ("NBC") television network and other private networks. The
Nuggets own a franchise in the National Basketball Association ("NBA"). The
Avalanche own a franchise in the National Hockey League ("NHL"). The Arena
Company owns and is managing the construction of a new arena in Downtown Denver.
Ascent executed an initial public offering (the "Offering") of its common
stock on December 18, 1995. Prior to the Offering, Ascent was a wholly owned
subsidiary of COMSAT Corporation ("COMSAT"). In addition, Ascent's relationship
with COMSAT was governed by three agreements entered into in connection with the
Offering: an Intercompany Services Agreement, a Corporate Agreement and a Tax
Sharing Agreement. Until June 27, 1997 COMSAT continued to own a majority
(80.67%) of Ascent's common stock and control Ascent.
On June 27, 1997, COMSAT consummated the distribution of its 80.67% ownership
interest in Ascent to the COMSAT shareholders on a pro-rata basis in a
transaction that was tax-free for federal income tax purposes (the
"Distribution"). Ascent and COMSAT entered into a Distribution Agreement and a
Tax Disaffiliation Agreement, both dated as of June 3, 1997 (see Notes 8 and 13)
in connection with the Distribution. Ascent and COMSAT also terminated the
Intercompany Services Agreement and Corporate Agreement entered into in
connection with the Offering resulting in, among other things, the termination
of the restriction on Ascent's incurring indebtedness without the consent of
COMSAT. As a result of the Distribution, Ascent became an independent publicly
held corporation. All costs incurred by Ascent during 1997 which were directly
associated with the Distribution have been charged to expense.
Cash and Cash Equivalents. Ascent considers highly liquid investments with a
maturity of three months or less at the time of purchase to be cash equivalents.
Restricted Cash Held in Trust. Restricted cash investments consist of
investment grade money market instruments with maturities of less than one year.
These investments are carried at amortized cost, which approxiamates fair value,
and are restricted as to withdrawal (see Note 6). Restricted investments are
held in the Company's name and held in a trust at a major financial institution.
Property and Equipment. Property and equipment is stated at cost, less
accumulated depreciation and amortization. Installed video systems consist of
video system equipment and related costs of installation at hotel locations.
Distribution systems to networks consist of equipment at network affiliates and
the related costs of installation. Construction in progress consists of
construction and pre-operating expenditures on the Denver Arena Project (see
Note 5) and purchased and manufactured parts of partially constructed video
systems at OCC.
The Company capitalizes interest incurred on funds used to construct the
Denver arena project (see Note 5). The capitalized interest is recorded as part
of the asset to which it relates and will be amortized over the asset's
estimated useful life, once the arena is operational. During the years ended
December 31, 1998 and 1997, $4,184,000 and $222,000 of interest costs were
capitalized respectively. No interest was capitalized in 1996.
42
<PAGE>
Depreciation and amortization are calculated using the straight-line method
over the estimated service life of each asset. The service lives for property
and equipment are: installed video systems, 3 to 7 years; distribution systems,
10 to 15 years; furniture, fixtures and equipment, 3 to 10 years; and buildings
and leasehold improvements, 3 to 20 years. Video systems and equipment acquired
in the acquisition of SpectraVision (see Note 3) are being depreciated over 36
months.
Goodwill. The consolidated balance sheets include goodwill related to the
acquisitions of On Command Video Corporation and the Nuggets by Ascent, and
SpectraVision by OCC (see Note 3). Goodwill is amortized over 10 to 25 years.
Accumulated goodwill amortization was $24,238,000 and $17,380,000 at December
31, 1998 and 1997, respectively.
Franchise Rights. Franchise rights were recorded in connection with the
purchases of the Nuggets beginning in 1989 and the Avalanche beginning in 1995.
Such rights are being amortized over 25 years. The amounts shown on the
consolidated balance sheets are net of accumulated amortization of $27,801,000
and $22,988,000 at December 31, 1998 and 1997, respectively.
Evaluation of Long-Lived Assets. The Company evaluates the potential impairment
of long-lived assets and long-lived assets to be disposed of in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
As of December 31, 1998 and 1997, management believes that there was not any
impairment of the Company's long-lived assets or any other such identifiable
intangibles.
Debt Issuance Costs. Costs associated with the issuance of the Company's Senior
Secured Discount notes, the Arena Notes and current credit facilities are
capitalized and amortized over the term of the related borrowing or facility.
Amortization of debt issuance costs is charged to operations and is included in
interest expense.
Deferred Compensation Costs. Certain current and former players of the Nuggets
and the Avalanche have contracts that provide for deferred compensation and
bonuses. Ascent records a charge to operations equal to the present value of the
future guaranteed payments in the period in which the compensation is earned. In
addition, certain players' contracts provide for guaranteed compensation
payments. (See Note 7).
Revenue and Cost Recognition. OCC installs pay-per-view video systems in
hotels, generally under five to seven-year agreements, whereby revenues are
recognized at the time of viewing. Revenue from the sale of video systems is
recognized when the equipment is shipped, except for systems requiring
installation by OCC, which is recognized upon completion of the installation.
Revenues from royalties are recognized when earned.
The Nuggets and Avalanche game admission and broadcasting revenues are
recognized as earned per home game during the teams' pre-season, regular season,
and potential post-season, which is generally from September to May of the
following calendar year. Certain team and game costs, principally gate
assessments, arena rentals and user fees, are recorded and expensed on the same
basis. Player salaries, related fringe benefits and insurance, are recognized on
a per-day basis during the teams' regular playing seasons. Advance ticket sales
and advance payments received on television, radio, concessionaire and marketing
contracts, and advance payments for team and game expenses, are recorded as
deferred revenues and deferred game expenses, respectively, and amortized
ratably as regular season games are played. Sponsor and concessionaire contracts
exceeding one year in length are deferred and amortized over the life of the
contract. Sponsor contracts one year in length are recognized as the services
are performed during the playing season.
Revenue from other services is recorded as services are provided.
General and administrative expense. General and administrative expenses include
only those costs incurred by the parent company, Ascent Entertainment Group,
Inc. Similar costs incurred by the Company's division and majority-owned
subsidiaries are included in the cost of services in the accompanying statements
of operations. For the years ended December 31, 1998, 1997, and 1996, the
Company's subsidiaries incurred related costs of $30,735,000, $28,298,000, and
$18,988,000, respectively.
43
<PAGE>
Research and Development Costs. Research and development costs are charged to
operations as incurred. These costs are included in cost of services in the
consolidated statements of operations. The amounts charged were $7,537,000,
$6,912,000 and $4,628,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Income Taxes. A current or deferred income tax liability or asset is recognized
for temporary differences which exist due to the recognition of certain income
and expense items for financial reporting purposes in periods different than for
tax reporting purposes. The provision for income taxes is based on the amount of
current and deferred income taxes payable or refundable at the date of the
financial statement as measured by the provisions of current tax laws.
Net Loss Per Share. The Company computes and presents its net loss per share in
accordance with SFAS No. 128 "Earnings Per Share". Net loss per share is
calculated using the income available to common stockholders divided by the
weighted average number of common shares outstanding in the respective years.
Dilutive shares were 29,756,000, 29,755,000 and 30,012,200, for the years ended
December 31, 1998, 1997, and 1996, respectively. The Company has not presented
diluted loss per share, which would include the impact of potential dilutive
common shares in the respective periods, because their inclusion would have been
antidilutive in all periods presented.
Use of Estimates, Significant Risks and Uncertainties. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Such management estimates
include the allowance for doubtful accounts receivable, the estimated useful
lives of video systems and property and equipment, intangible assets, including
goodwill and franchise rights, the reduction in construction in progress to its
net realizable value and the amounts of certain accrued liabilities.
The Company participates in the highly competitive multimedia distribution,
network services and entertainment industries and believes that changes in any
of the following areas could have a material adverse effect on the Company's
future financial position or results of operations: declines in hotel occupancy
as a result of general business, economic, seasonal or other factors; loss of
one or more of its major hotel chain customers; a decline in ticket sales and
other revenues by the sports franchises; ability to obtain additional capital to
finance capital expenditures; ability to retain senior management and key
employees, including players; ability to convert operational computer software
to be year 2000 compliant; and risks of technological obsolescence.
Recently Issued Accounting Standards. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which defines derivatives, requires that all derivatives be
carried at fair value, and provides for hedging accounting when certain
conditions are met. SFAS No. 133 will be effective for the Company's fiscal
year ending December 31, 2000. Although the Company has not fully assessed the
implications of SFAS No. 133, the Company does not believe adoption of SFAS No.
133 will have a material impact on the Company's financial position, results of
operations or cash flows.
In 1998, OCC early adopted Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use," which
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. In 1998, the OCC capitalized $4,100,000 of costs in
accordance with this SOP.
Reclassifications. Certain reclassifications have been made to the 1997 and
1996 financial statements to conform with the current year's presentation.
Note 2 -- Discontinued Operations:
On January 20, 1999, the Company sold 90% of its interest in Beacon to an
investor group controlled by Beacon's management and venture capital investors
(the "Buyers"). The purchase price for the 90% interest was $19,000,000 in
cash, net of certain adjustments, after which the Company received approximately
$16,000,000 at closing. The Company is entitled to receive future cash
consideration of approximately $1,000,000, which the Company expects to receive
in the first quarter of 1999. After the sale of its 90% interest, the Company
has no future obligations to fund any of Beacon's liabilities or film
development or production commitments. The 10% interest in Beacon retained by
the Company is subject to limited purchase and sale options between the Company
and the Buyers at a price proportionate to the purchase price. The Company's
remaining investment in Beacon will be accounted for using the cost method. In
the first quarter of 1999, the Company expects to report a gain on the sale of
its 90% interest in Beacon.
44
<PAGE>
The Company began accounting for Beacon as a discontinued operation as of
December 31, 1998 pursuant to guidance contained in Emerging Issues Task Force
Issue No. 95-18, "Accounting and Reporting for Discontinued Business Segment
when the Measurement Date occurs after the Balance Sheet date but before the
Issuance of the Financial Statements." Accordingly, the consolidated financial
statements have been restated for all prior years presented to reflect the
results of operations and net assets of Beacon as discontinued operations. The
income (loss) of Beacon, net of tax, for the three years ended December 31, 1998
is composed of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Revenues...................................................................... $28,195 $92,939 $ 5,787
======= ======= =======
Income (loss) from discontinued operations before taxes....................... $(4,798) $ 1,820 $(9,637)
Income tax benefit............................................................ 890 123 2,843
------- ------- -------
Income (loss) from discontinued operations.................................... $(3,908) $ 1,943 $(6,794)
======= ======= =======
</TABLE>
The net assets of the discontinued operations included in the consolidated
balance sheets as of December 31, 1998 and 1997, consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- --------------
(in thousands)
<S> <C> <C>
Current Assets (primarily receivables)................................................................ $ 3,062 $12,296
Film inventory, net................................................................................... 48,457 17,442
Intangible and other assets........................................................................... 10,651 14,732
Current liabilities................................................................................... (5,763) (4,726)
Non-recourse film financing........................................................................... (35,079) --
Other long term liabilities........................................................................... (9,000) (5,333)
-------- -------
Net assets of discontinued operations................................................................. $ 12,328 $34,411
======== =======
</TABLE>
Note 3 -- Acquisition and Other Investments:
Acquisition. Effective October 8, 1996, Ascent through its newly formed
- -----------
subsidiary, OCC, acquired the assets, properties and certain liabilities of
SpectraVision, Inc. (the "Acquisition"), a leading provider of in-room video
entertainment services to the lodging industry. Prior to the acquisition of
SpectraVision, On Command Video Corporation ("OCV"), formerly an 84% owned
subsidiary of Ascent, was merged with a subsidiary of OCC and became a wholly
owned subsidiary of OCC pursuant to an Agreement and Plan of Merger. At the
Closing Date, Ascent and the minority stockholders of OCV received 21,750,000
shares of OCC common stock (Ascent received 17,149,766 of these shares.) In
consideration of the acquisition of the assets and properties of SpectraVision
by OCC, 8,041,618 shares of OCC common stock were issued to the SpectraVision
bankruptcy estate for distribution to SpectraVision's creditors. An additional
208,382 shares, which were held in reserve pursuant to the Acquisition
Agreement, were subsequently distributed primarily to the SpectraVision
bankruptcy estate for the benefit of SpectraVision's creditors. Ascent owns
approximately 57% of the common stock of OCC as of December 31, 1998.
In connection with the Acquisition, OCC also issued warrants
representing the right to purchase a total of 7,500,000 shares of OCC common
stock (20% of the outstanding common stock of OCC, after exercise of the
warrants). The warrants have a term of 7 years and an exercise price of $15.27
per share. Series A Warrants to purchase on a cashless basis up to 1,425,000
shares of OCC common stock were issued to former OCV shareholders, of which
Ascent received warrants to purchase 1,123,823 shares; Series B warrants to
purchase for cash an aggregate of 2,625,000 shares of OCC common stock were
issued to the SpectraVision bankruptcy estate for distribution to creditors; and
Series C warrants were issued to OCC's investment advisors to purchase for cash
an aggregate of 3,450,000 shares of OCC common stock in consideration for
certain banking and advisory services provided in connection with the
transactions.
The acquisition of SpectraVision was accounted for under the purchase
method and, accordingly, the results of operations of SpectraVision are included
in the consolidated financial statements from the date of acquisition. The
aggregate purchase consideration was allocated to the acquired assets and
assumed liabilities of SpectraVision, based on their respective fair market
values. The fair value of tangible assets acquired and liabilities assumed was
approximately $66,000,000 and $64,000,000, respectively. In addition, $2,000,000
of the purchase
45
<PAGE>
price was allocated to purchased technology. The balance of the
purchase price, $87,636,000, was recorded as goodwill and is being amortized
over twenty years on a straight-line basis. The assets acquired and liabilities
assumed are as follows (in thousands):
<TABLE>
<S> <C>
Estimated fair value of assets acquired
(including intangibles of $92,636).............................................................................. $155,916
Liabilities assumed................................................................................................ (64,282)
--------
Net assets acquired at estimated fair value........................................................................ 91,634
Cash paid (net of cash received of $257)........................................................................... (9,572)
--------
Common stock and warrants issued................................................................................... $ 82,062
========
</TABLE>
The following unaudited pro forma consolidated results of operations for the
year ended December 31, 1996 is presented as if the SpectraVision acquisition
had been made at the beginning of 1996. The unaudited pro forma information is
not necessarily indicative of either the results of operations that would have
occurred had the purchase been made at the beginning of 1996 or the future
results of the combined operations.
<TABLE>
<CAPTION>
(in thousands, except per share information):
<S> <C>
Revenues................................................................................................................ $337,633
Net loss................................................................................................................ $(42,982)
Basic and diluted loss per common share................................................................................. $ (1.45)
</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.
Other Investments. Other Investments consist of the following at December 31,
- -----------------
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------- ------
(in thousands)
<S> <C> <C>
Marketable equity securities............................................................................ $1,145 $2,001
Investment in MagiNet Corporation....................................................................... 348 348
Investments in partnerships and joint ventures:
Elitch Gardens....................................................................................... -- 330
NBA partnerships..................................................................................... 2,966 2,438
Colorado Studios..................................................................................... 1,071 862
Other................................................................................................ 3 --
------ ------
Total other investments $5,533 $5,979
====== ======
</TABLE>
At December 31, 1998 and 1997, the Company's investment in marketable
equity securities consists of its investment in MetroMedia International Group.
This investment is considered to be available-for-sale and accordingly, the net
unrealized holding gain or loss, net of deferred income taxes, is reported in
accumulated other comprehensive income. In 1996, the gross realized gain from
the sale of a portion of these available-for-sale securities was $1,892,000 and
is included in other income (expense) in the accompanying financial statements.
The Company's investment in MagiNet Corporation (MagiNet), a private
company, is accounted for at cost (see Notes 9 and 13). In the fourth quarter of
1997, OCC recorded a loss of $917,000 on its investment in MagiNet due to a
dilution of its ownership interest in MagiNet. The Company's investments in
partnerships and joint ventures are accounted for using the equity method.
In September 1996, the Company recorded a $1,800,000 loss on its limited
partnership investment in Elitch Gardens, an amusement park in Denver, Colorado,
based on the announced sale of the amusement park to Premier Parks, Inc. The
Company's share of proceeds from the sale, which closed on October 30, 1996,
were subject to certain future adjustments. In December 1996 and June 1997, the
Company recorded additional losses of $510,000 and $129,000, respectively, on
its investment due to concerns over the liquidation of the partnership. The
Company received cash distributions, including a final distribution in December
1998, of $396,000, $1,900,000 and $1,716,000 in 1998, 1997 and 1996,
respectively, in connection with the sale of Elitch Gardens.
46
<PAGE>
Note 4 -- Receivables and Concentration of Credit Risk:
Receivables consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------- -------
(in thousands)
<S> <C> <C>
Trade receivables.................................................................................... $60,539 $56,648
Current portion of notes and long-term receivables................................................... 4,281 4,468
Less allowance for doubtful accounts................................................................. 1,909 1,762
------- -------
Receivables, net................................................................................. $62,911 $59,354
======= =======
</TABLE>
Ascent generates a substantial portion of its revenues from OCC and from
hotel guests' usage of OCC pay-per-view video systems located in various hotels
primarily throughout the United States, Canada, Mexico, Europe, Australia, and
the Far East. OCC performs periodic credit evaluations of its installed hotel
locations and generally requires no collateral. While the Company does maintain
allowances for potential credit losses, actual bad debts have not been
significant. The Company invests its cash in high-credit quality instruments
and/or institutions. These instruments are short-term in nature and, therefore,
bear minimal interest rate or credit risk.
Note 5 -- Property and Equipment:
Property and equipment consists of the following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
-------------- --------
(in thousands)
<S> <C> <C>
Land.......................................................................................... $ 20,533 $ 20,533
Buildings and leasehold improvements.......................................................... 1,863 1,922
Installed video systems....................................................................... 482,350 406,574
Distribution systems to networks.............................................................. 100,363 98,341
Furniture, fixtures and equipment............................................................. 26,631 18,419
-------- --------
Total...................................................................................... 631,750 545,789
Less accumulated depreciation and amortization................................................ 360,677 275,711
-------- --------
Net property and equipment in service......................................................... 271,073 270,078
Construction-in-progress...................................................................... 117,689 66,727
-------- --------
Property and equipment, net................................................................. $388,762 $336,805
======== ========
</TABLE>
Denver Arena Project. On May 7, 1997, the Arena Company entered into a Land
Purchase Agreement (the "Land Purchase Agreement") with Southern Pacific
Transportation Company ("SPT") pursuant to which on November 14, 1997 the Arena
Company purchased approximately 49 acres in Denver as the site for the
construction of an arena for a total purchase price of $20,533,000. The Land
Purchase Agreement provides for the Arena Company and SPT to effect a State-
approved voluntary environmental remediation plan on the site with SPT
responsible for substantially all of the costs thereof, and for SPT to provide
continuing indemnification with regard to certain other environmental
liabilities through 2022 on a declining percentage basis.
On November 13, 1997, Ascent and the Arena Company entered into a definitive
agreement (the "Arena Agreement") with the City and County of Denver (the
"City"). The Arena Agreement provides for Ascent to construct, own and manage a
new arena in the City through its subsidiary, the Arena Company. The Arena
Agreement also provides for the Arena Company to benefit from certain tax
incentives and for the release of the Nuggets and Avalanche from their existing
leases at the City's current arena, McNichols Arena, upon the completion of the
new arena. In addition, upon completion of the new arena, Ascent is to transfer
to the City the land associated with the arena and the City will lease the land
back to Ascent for a 25 year term. At the end of such term the City will
contribute the land back to Ascent.
On November 14, 1997, Liberty Denver Arena, LLC ("LDA") a subsidiary of
Liberty Media Corporation, invested $15,000,000 in the Arena Company. Pursuant
to the Operating Agreement between Ascent and LDA, LDA received an ownership
interest in the Arena Company that includes an interest in the capital of the
Arena Company and a profits interest of approximately 6.5% representing the
right to receive distributions from the Arena Company measured by the amount of
distributions received by the Company, as defined, from each of the Nuggets and
47
<PAGE>
Avalanche. LDA will not have any management or operating rights with respect to
the Arena Company, the Nuggets or the Avalanche. In addition, LDA was granted
put rights beginning in July 2005 to require the Company to purchase from LDA
its then current ownership interest at its fair market value. Likewise, the
Company has a call right beginning in July 2005 to purchase the LDA ownership
interest at its then fair market value. In connection with this transaction,
the Company recorded an increase in other long-term liabilities of $13,000,000
reflecting LDA's right to receive future distributions, if any, from the Nuggets
and Avalanche.
Development and construction of the new arena will cost approximately $169.1
million, including $5.7 million for construction cost overruns and other
contingencies. Ascent is financing a portion of the total costs of the new arena
from the net proceeds of the offering of the Arena Notes (see Note 6), with the
remaining costs to be funded from equity investments and intercompany loans to
the Arena Company from Ascent and LDA.
Other. On October 31, 1997, OCC sold the land and the building which housed the
SpectraVision spare part depot in Richardson, Texas for $4,500,000 in cash.
Note 6 -- Long-Term Debt:
Long-Term Debt consists of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------------
(in thousands)
<S> <C> <C>
OCC Credit Facility, variable rate, due 2002................................................... $163,000 $133,000
Senior Secured Discount Notes, 11.875%, due 2004, net of unamortized discount
of $82,463 and $98,042....................................................................... 142,537 126,958
Arena Notes, 6.94%, due 2019................................................................... 139,835 --
-------- --------
Total...................................................................................... 445,372 259,958
Less: Current maturities of long-term debt..................................................... 3,665 --
-------- --------
Total long-term debt....................................................................... $441,707 $259,958
======== ========
</TABLE>
OCC Credit Facility. OCC currently has a $200.0 million credit facility(the
- --------------------
"OCC Credit Facility"). The OCC Credit Facility matures in November 2002 and,
subject to certain conditions, can be renewed for two additional years. At
December 31, 1998, there was $37.0 million of available borrowings under the OCC
Credit Facility, subject to certain covenant restrictions.
Revolving loans extended under the OCC Credit Facility generally will bear
interest at LIBOR plus a spread that may range from 0.375% to 0.75% depending on
certain operating ratios of OCC. At December 31, 1998, the weighted average
interest rate on the OCC Credit Facility was 5.9%. In addition, a fee ranging
from .1875% to .25% per annum is charged on the unused portion of the OCC Credit
Facility, depending on certain OCC operating ratios. The OCC Credit Facility
contains customary covenants, including, among other things, compliance by OCC
with certain financial covenants.
Senior Secured Discount Notes. On December 22, 1997, Ascent completed the sale
- ------------------------------
of $225,000,000 principal amount at maturity of Senior Secured Discount Notes
due 2004 (the "Senior Notes"). The Senior Notes, which mature on December 15,
2004, were sold at a discount for an aggregate price of $126,663,750,
representing a yield to maturity of 11.875% computed on a semi-annual bond
equivalent basis from the date of issuance. Cash interest will not accrue on
the Senior Notes prior to December 15, 2002. Commencing December 15, 2002, cash
interest on the senior notes will accrue and thereafter will be payable on June
15 and December 15 of each year (commencing June 15, 2003) at a rate of 11.875%
per annum. The Senior Notes are redeemable, at the option of Ascent, in whole
or in part, on or after December 15, 2001, at specified redemption prices plus
accrued and unpaid interest. In addition, at any time prior to December 15,
2000, Ascent may redeem up to 35% of the originally issued principal amount at
maturity of the Senior Notes with the net cash proceeds of one or more sales of
its capital stock at a redemption price equal to 111.875% of the accreted value
thereof to the redemption date. The Senior Notes are senior secured
indebtedness of Ascent, secured by a pledge of all of the capital stock of OCC,
now owned or hereafter acquired by Ascent. The Senior Notes rank senior to all
existing and future subordinated indebtedness of Ascent and pari passu in right
of payment to all unsubordinated indebtedness of Ascent. The Senior Notes
contain restrictions, including, among other things, the Company's ability to
pay dividends, incur additional indebtedness and the making of loans,
investments and other defined payments. The net proceeds from the offering and
sale of the Senior Notes of approximately $121.0 million, after deducting debt
issuance costs, were used to repay outstanding indebtedness under Ascent's
former credit facility.
Arena Notes. On July 29, 1998, the Arena Company's beneficially owned trust,
- -----------
The Denver Arena Trust (the "Trust") issued and sold $139,835,000 principal
amount of 6.94% Arena Revenue Backed Notes (the "Arena
48
<PAGE>
Notes") due November 2019. The proceeds from the sale of the Arena Notes were
used by the Trust to purchase from the Arena Company revenue contracts related
to the naming rights, suite licensing and certain corporate sponsorships of the
Arena Company, and the underlying rights related to such contracts
(collectively, the "Revenue Rights.") The Arena Company will use the net
proceeds together with equity investments and intercompany loans from the
Company to fund the construction of the new arena, to be called the Pepsi
Center. The Arena Notes are non-recourse to the Arena Company but the Arena
Company is obligated to the noteholders to construct and operate the Pepsi
Center. Should a payment default occur absent a default in the Arena Company's
obligations to construct and operate the Pepsi Center, the noteholders will have
no recourse to the assets of the Company. Conversely, the Revenue Rights are not
available to the creditors of Ascent and/or the Arena Company. To secure the
Arena Company's obligations to construct and operate the new arena, the Arena
Company has pledged to the Trust substantially all of the Arena Company's
assets, including the Pepsi Center itself. These assets, if necessary, could be
pledged to a subsequent lender that agreed to an appropriate intercreditor
agreement with the Trust.
The Arena Notes provide for semi-annual payments of interest on May 15 and
November 15 of each year and annual payments of principal on November 15 of each
year commencing November 15, 1999. The amount of principal payable will be
equal to the lesser of the targeted principal distribution amount or the cash
available for such payment after application to all prior payment priorities.
The targeted principal distribution amount has been calculated so that based on
the projected revenues contractually obligated to be paid under the Revenue
Rights, the Arena Notes will be paid in full by November, 2014.
Pursuant to the Arena Notes, the Trust established restricted cash investment
accounts which, among other things, received the proceeds from the Revenue
Contracts, disburse funds for the development and construction of the Pepsi
Center, disburse required principal and interest payments and establish debt
service principal and interest reserve balances on behalf of the noteholders.
The Arena Notes also provide that, if the aggregate cash available in these
restricted cash accounts exceeds the required principal, interest and other
payments due, including the required reserve balances, the balance of such
excess cash available may be distributed to the Arena Company, subject to
certain covenant restrictions. The net proceeds from the offering of $136.6
million, combined with initial deposits from certain corporate sponsorships of
$5.0 million, deposits from suite licensing agreements of $5.9 million and
additional advances from the Company of $1.6 million were used to purchase
restricted cash investments. Subsequently, through December 31, 1998, the Trust
has sold $36.6 million of such investments to fund the construction of the
Arena.
Ascent Credit Facility. Concurrently with the sale of the Senior Notes, the
- ----------------------
Company and a bank entered into a second amended and restated loan and security
agreement (the "Ascent Credit Facility") to decrease the maximum amount of
borrowings under the Company's existing credit facility from $140.0 million to
$50.0 million and restate other terms and conditions of the previous agreement.
Available borrowings under the Ascent Credit Facility, as amended, will be
permanently reduced commencing in March 2000 and on a quarterly basis thereafter
in varying amounts through December 2002 when the facility will terminate. The
Ascent Credit facility requires the Company to repay and permanently reduce the
available borrowings thereunder with 100% of the net cash proceeds from the
issuance and sale of additional shares of the Company's capital stock and with
the net cash proceeds from sales of assets of the Company or its subsidiaries
(other than OCC), unless there exists no event of default and such proceeds are
reinvested in similar assets within 120 days. In addition, the Ascent Credit
Facility includes restrictions, on among other things, the Company's ability to
pay dividends and to make loans and investments. At December 31, 1998, there
was $50.0 million of available borrowings under the Ascent Credit Facility. In
conjunction with sale of its membership interests in Beacon (see Note 2), the
Company and the Bank amended the Ascent Credit facility to restate certain terms
and conditions of the agreement relating to Beacon.
The Ascent Credit facility is secured by first priority pledges of, and
liens on, the capital stock and/or partnership or membership interests in all of
the Company's subsidiaries other than OCC (collectively, the "Credit Facility
Guarantors"), and a negative pledge on all of the assets of the Credit Facility
Guarantors, with limited exceptions. The obligations of the Company under the
Ascent Credit Facility are guaranteed by the Credit Facility Guarantors.
At the Company's option, interest rates under the Ascent Credit Facility
will be a fluctuating rate of interest equal to either (i) an adjusted London
Interbank Offering Rate (LIBOR) plus an applicable borrowing margin or (ii) the
greater of the Federal Funds Effective Rate plus .5% plus an applicable
borrowing margin, or the bank's prime rate plus an applicable borrowing margin.
The applicable borrowing margin will be 2.75% (for LIBOR borrowing) and 1.50%
(for Base Rate borrowings) until December 31, 2000. Thereafter, the applicable
borrowing margin will range from
49
<PAGE>
2.00% to 2.75% for LIBOR borrowings or 0.75% to 1.50% for Base Rate borrowings,
based upon certain financial ratios of the Company. In addition, a fee of .50%
per annum is charged on the unused portion of the Ascent Credit Facility. The
Ascent Credit Facility also contains customary events of default requiring
Ascent to maintain certain financial covenants and events of default
specifically related to Ascent's Sports Teams and the construction of the arena.
In October 1996, upon the closing of the Company's previous credit facility
with the bank, Ascent extinguished borrowings of $145.0 million outstanding
under its then existing $175.0 million credit facility with a different bank.
The Company utilized funds received from OCC of $39.3 million and borrowed
$110.0 million under its new credit facility to extinguish its outstanding bank
obligations, including accrued interest, and other Ascent obligations. The
Company recorded an extraordinary loss of approximately $334,000, net of taxes,
of $157,000 during the fourth quarter of 1996 in connection with the
extinguishment of its previous credit facility.
Total minimum payments on long-term debt for the years subsequent to December
31, 1998, assuming the Senior Notes are not redeemed prior to maturity and the
OCC Credit facility is not extended, are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................................................ $ 3,665
2000........................................................................................ 9,485
2001........................................................................................ 5,075
2002........................................................................................ 168,600
2003........................................................................................ 6,155
Thereafter.................................................................................. 334,855
--------
Total................................................................................... $527,835
========
</TABLE>
Note 7 -- Deferred Compensation and Other Obligations
Deferred compensation and other obligations, which are included in
other long-term liabilities on the accompanying balance sheet, consists of the
following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------- -------
(in thousands)
<S> <C> <C>
Severance and other employment obligations, at varying interest
rates, payable through 2013........................................................................ $10,484 $ 8,595
Deferred compensation contracts, at varying interest rates, payable
------- -------
through 2021....................................................................................... 7,119 8,183
------- -------
Total........................................................................................... 17,603 16,778
Less: Imputed interest.............................................................................. 2,596 3,005
Current maturities (included in other accrued liabilities).......................................... 6,521 4,314
------- -------
Total........................................................................................... $ 8,486 $ 9,459
======= =======
</TABLE>
Total annual payments on long-term deferred compensation and other
obligations for the years subsequent to December 31, 1998 are as follows (in
thousands):
<TABLE>
<S> <C>
1999........................................................................................ $ 6,521
2000........................................................................................ 4,346
2001........................................................................................ 1,490
2002........................................................................................ 973
2003........................................................................................ 367
Thereafter.................................................................................. 3,906
-------
Total................................................................................. $17,603
=======
</TABLE>
Note 8 -- Income Taxes
Through June 27, 1997, the date of the Distribution, Ascent was a
member of COMSAT's consolidated tax group for federal income tax purposes.
Accordingly, Ascent prepared its tax provision based on Ascent's inclusion in
COMSAT's consolidated tax return pursuant to the tax sharing agreement entered
into in connection with the Offering (see Note 1). Such tax provision, up to the
Distribution, was calculated as if prepared on a separate return basis.
Pursuant to the tax sharing agreement and the tax disaffiliation agreement,
taxes payable or receivable with respect to
50
<PAGE>
periods that Ascent was included in COMSAT's consolidated tax group are settled
with COMSAT annually. At December 31, 1998 and 1997, Ascent's federal income tax
receivable from COMSAT was $1,196,000 and $7,945,000, respectively. The balance
due from COMSAT at December 31, 1998 is included in other long-term assets in
the accompanying financial statements. As a result of the Distribution (see
Notes 1 and 13), the Company ceased being a member of COMSAT's consolidated tax
group. Additionally, in conjunction with the SpectraVision acquisition, Ascent's
ownership in OCC decreased to approximately 57% and OCC began filing a separate
return commencing on October 9, 1996.
The components of income tax expense (benefit) on continuing operations
for the years ended December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- --------- ---------
Federal: (in thousands)
<S> <C> <C> <C>
Current................................................................. $ 851 $(6,014) $(12,852)
Deferred................................................................ (6,079) (2,675) 3,130
State and local........................................................... (175) 408 110
Foreign................................................................... (109) 588 498
------- ------- --------
Total................................................................. $(5,512) $(7,693) $ (9,114)
======= ======= ========
</TABLE>
The difference between the Company's income tax benefit computed at the
statutory federal tax rate and Ascent's effective tax rate for the years ended
December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Federal income tax benefit computed at the statutory rate.............................. $(21,889) $(22,121) $(15,690)
State income tax benefit, net of federal income tax benefit............................ (1,194) (1,110) (573)
Goodwill amortization.................................................................. 2,542 2,464 860
Foreign taxes.......................................................................... (109) 588 498
Changes in valuation allowance......................................................... 15,815 10,620 5,333
Other.................................................................................. (677) 1,866 458
-------- -------- --------
Income tax benefit $ (5,512) $ (7,693) $ (9,114)
======== ======== ========
</TABLE>
The net current and net non-current components of deferred tax assets and
liabilities as shown on the balance sheets at December 31, 1998 and 1997 are:
<TABLE>
<CAPTION>
1998 1997
-------------- --------
(in thousands)
<S> <C> <C>
Current deferred tax asset.................................................................... $ 417 $ 2,577
Non-current deferred tax asset (liability).................................................... 3,866 (1,699)
------ -------
Net deferred tax asset................................................................... $4,283 $ 878
====== =======
</TABLE>
The deferred tax assets and liabilities at December 31, 1998 and 1997 are:
<TABLE>
<CAPTION>
1998 1997
-------------- ---------
(in thousands)
Assets:
<S> <C> <C>
Net operating loss carryforwards....................................................... $ 38,426 $ 26,995
Alternative minimum tax credit carryforwards........................................... 11,123 10,202
Other accrued liabilities.............................................................. 13,124 9,464
Amortization of intangibles............................................................ 4,079 6,479
Contract revenue....................................................................... 3,237 1,954
Other.................................................................................. 2,850 1,269
Valuation allowance.................................................................... (55,200) (39,385)
-------- --------
Total deferred tax assets.............................................................. 17,639 16,978
-------- --------
Liabilities:
Property and equipment................................................................. (21) (909)
Franchise rights....................................................................... (11,003) (12,255)
Other.................................................................................. (2,332) (2,936)
-------- --------
Total deferred tax liabilities......................................................... (13,356) (16,100)
-------- --------
Net deferred asset $ 4,283 $ 878
======== ========
</TABLE>
51
<PAGE>
OCC has federal net operating loss carryforwards of approximately $ 100.0
million which expire beginning in 2010. However, because of the acquisition of
Spectra Vision by OCC, the pre-ownership change net operating loss carryforwards
(approximately $43.0 million) are subject under Section 382 of the Internal
Revenue Code to an annual limitation estimated to be approximately $6.0 million.
In addition, OCC has state net operating loss carryforwards of approximately $
66.0 million which expire beginning in 2000 and may be subject to limitation in
the event of certain defined changes in stock ownership. OCC's alternative
minimum tax credit carryforwards of approximately $1,595,000 and $251,000 are
available to offset future regular federal and state tax liabilities,
respectively.
The Company also has alternative minimum tax credit carryforwards of
approximately $9.5 million available to offset future regular federal tax
liabilities.
Note 9 -- Commitments and Contingencies
Employment and Consulting Agreements. Ascent has employment and consulting
- ------------------------------------
agreements with certain officers and entertainment talent. Virtually all of the
player agreements provide for guaranteed payments. Other contracts provide for
payments upon the fulfillment of their contractual terms and conditions, which
generally relate only to normal performance of employment duties.
Amounts required to be paid under such agreements (including approximately
$195,522,000 relating to player agreements) are as follows at December 31, 1998
(in thousands):
<TABLE>
<S> <C>
1999..................................................................................................... $ 65,541
2000..................................................................................................... 57,469
2001..................................................................................................... 37,319
2002..................................................................................................... 21,337
2003..................................................................................................... 21,430
Thereafter............................................................................................... 15,417
--------
Total............................................................................................... $218,513
========
</TABLE>
Facility and Equipment Leases. Ascent leased its Corporate headquarters from
- -----------------------------
COMSAT through June 1996 and continues to lease other facilities used by ANS
under a three year lease. Total rental payments to COMSAT were approximately
$46,000, $62,000 and $373,000 for the years ended December 31, 1998, 1997 and
1996, respectively. The Company has entered into an operating lease for its
corporate headquarters which expires in May 2000.
OCC leases its principal facilities under a non-cancelable operating
lease which expires in December 2003. Rental payments under this lease were
$1,553,000, $1,303,000 and $538,000 for years ended December 31, 1998, 1997 and
1996, respectively. In 1997 and 1996, the owner of this facility was a minority
stockholder of OCC. In addition to lease payments, OCC is responsible for taxes,
insurance and maintenance of the leased premises. OCC also leases certain other
office space under non-cancelable operating leases expiring from 1999-2004 from
unrelated parties.
The Nuggets and the Avalanche have an agreement with the City and
County of Denver (the "City") for use of the City's playing facility, McNichols
Arena, as well as offices and training rooms. The lease, as modified by the
Arena Agreement (see Note 5), extends through the completion of the new arena
and requires annual maximum rental payments, of $350,000 and $400,000 per year
for the Nuggets and Avalanche, respectively. The total payment for McNichols
Arena was $506,400, $750,000 and $700,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
The Company and it's subsidiaries also lease equipment under non-
cancelable operating leases which extend through 2004. Rental expense under all
non-cancelable leases was approximately $6,733,000, $7,395,000 and $5,572,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
The future minimum rental commitments under the Company's facility and
equipment leases at December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................................................................ $ 7,073
2000........................................................................................................ 2,927
2001........................................................................................................ 1,970
2002........................................................................................................ 1,783
2003........................................................................................................ 1,773
Thereafter.................................................................................................. 893
-------
Total.................................................................................................. $16,419
=======
</TABLE>
52
<PAGE>
Purchase Commitments - Excluding costs related to the construction of the new
- --------------------
arena (see Note 5), the Company has non-cancelable commitments for the purchase
of video systems and office equipment totaling $7,100,000 as of December 31,
1998.
Concession Agreement - On April 3, 1998, the Arena Company entered into two
- --------------------
separate ten year management agreements with Ogden Entertainment, Inc. ("Ogden")
and Levy Premium Food Service, Inc. ("Levy") pursuant to which Ogden agreed to
manage all of the concession operations at the new arena, except for Suites, the
Club Seats, the restaurants and floor seats (collectively, the premium areas),
which will be managed by Levy. Pursuant to the management agreements, the
Arena Company will receive $5,000,000 from Ogden and $3,000,000 from Levy during
1999 as manager contributions for the new arena. Under the terms of the
management agreements, the Arena Company will be contingently liable for the
unamortized portion of such manager contributions, plus other reasonable
damages, if the Arena Company should terminate the management agreements.
Litigation. On September 11, 1998, OCC reached an agreement with LodgeNet
- ----------
Entertainment Corporation ("LodgeNet") to settle all pending litigation between
the companies. As a result, the two providers of in-room entertainment and
information services to the lodging industry have dismissed all pending
litigation between the parties in United States Federal District Courts in
California and South Dakota, with no admission of liability by either party.
The terms of the confidential settlement include a cross-license of each
company's patented technologies at issue to the other party and a covenant not
to engage in patent litigation against the other party for a period of five
years. Each company is responsible for its own legal costs and expenses, and in
connection with the multiple cross-licenses, OCC expects to receive royalty
payments, net of legal fees and expenses, in an aggregate amount of
approximately $10,800,000. OCC received the first payment of approximately
$2,900,000 (net of expenses) in September 1998 and expects to receive an
additional two payments of approximately $3,950,000 (net of expenses) in July
1999 and July 2000. OCC will be recognizing the additional royalty revenue as
the cash payments are received.
In September 1998, OCV filed suit against MagiNet(see Note 3),
alleging a breach by MagiNet of a license agreement between OCV and MagiNet, and
terminating the license agreement. OCV has also demanded the payment of license
fees from MagiNet which OCC believes were due and payable under the License
Agreement and have not been paid by MagiNet. MagiNet has counter-claimed
against OCV, alleging that OCV breached the license agreement, and alleging
various torts by OCV in its relationship with MagiNet.
The Company is a party to certain other legal proceedings in the
ordinary course of its business. However, the Company does not believe that any
such legal proceedings will have a material adverse effect on the Company's
financial position or results of operations. In addition, through its ownership
of the Nuggets and the Avalanche, the Company is a defendant along with other
NBA and NHL owners in various lawsuits incidental to the operations of the two
professional sports leagues. The Company will generally be liable, jointly and
severally, with all other owners of the NBA or NHL, as the case may be, for the
costs of defending such lawsuits and any liabilities of the NBA or NHL which
might result from such lawsuits. The Company does not believe that any such
lawsuits, individually or in the aggregate, will have a material adverse effect
on the Company's financial position or results of operations. The Nuggets, along
with three other teams, have also agreed to indemnify the NBA, its member teams
and other related parties against certain American Basketball Association
("ABA") related obligations and litigation, including costs to defend such
actions. Management of Ascent believes that the ultimate disposition and the
costs of defending these or any other incidental NBA or NHL legal matters or of
reimbursing related costs, if any, will not have a material adverse effect on
the financial statements of the Company.
NBA Collective Bargaining - Under the terms of the NBA Collective Bargaining
- -------------------------
Agreement (the "CBA of 1995"), the NBA had the right to terminate the CBA of
1995 after the 1997/98 season if it was determined that the aggregate salaries
and benefits paid by all NBA teams exceeded 51.8% of projected basketball
related income ("BRI") for the 1997/98 season. On March 23, 1998, the Board of
Governors of the NBA voted to exercise that right and reopen the CBA of 1995
effective as of June 30, 1998, as it had been determined that the aggregate
salaries and benefits paid by the NBA teams for the 1997/98 season would exceed
51.8% of the projected BRI. Effective July 1, 1998, the NBA terminated the CBA
of 1995 and commenced a lockout of NBA players in support of its attempt to
reach a new collective bargaining agreement.
On January 6, 1999, after a 189 day work stoppage, the NBA Players'
Association approved a new NBA Collective Bargaining Agreement ("CBA of 1999"),
which was subsequently ratified by the NBA owners on January 7, 1999, and signed
on January 20, 1999. The CBA of 1999 has a six year term, with an option for a
seventh year,
53
<PAGE>
exercisable in the sole discretion of the NBA. The agreement provides for, among
other things, maximum and minimum total team salaries, subject to various
exceptions, and maximum and minimum individual player salaries.
As a result of the lockout, the scheduled start of the 1998/99 NBA
regular season was delayed until February 5, 1999. Consequently, the Nuggets'
1998/99 season will consist of 50 games versus a normal schedule of 82 games, 25
of which will be played at the Nuggets home arena. The Nuggets results of
operations as compared to the prior year's operation have and will be affected
by the absence of games during the fourth quarter of 1998 and the increase in
the number of games during the first half of 1999. However, the impact to the
Company from the decreases in revenue due to the delay of the 1998/99 NBA season
was partially offset by a reduction in costs for the Nuggets, primarily player
salaries during the last half of 1999.
Note 10 -- Stockholders' Equity
Stockholders' Rights Plan. On June 27, 1997, the Company adopted a
-------------------------
Rights Plan (the "Plan") and, in accordance with the Plan, declared a dividend
of one preferred share purchase right for each outstanding share of common
stock, payable July 10, 1997 to stockholders of record on that date. The Plan is
intended to enable all Ascent stockholders to realize the long term value of
their investment in the Company. The Plan will not prevent a takeover, but
should encourage anyone seeking to acquire the Company to negotiate with the
Board of Directors prior to attempting a takeover.
The rights become exercisable after a person or group acquires 15% or
more of the Company's common stock or announces an offer, the consummation of
which would result in the ownership of 15% or more of the Company's common
stock. Once exercisable, each right will entitle the holder other than the
person or group that has acquired 15% of the Company's shares to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $.01, at a price of $40.00, subject to adjustment. If a person or group
acquires 15% or more of Ascent's outstanding common stock, each right will
entitle its holder to purchase a number of shares of the Company's common stock
having a market value of two times the exercise price of the right. In the event
a merger or other business combination transaction is effected after a person or
group has acquired 15% or more of the Company's common stock, each right will
allow its holder to purchase a number of the resulting company's common shares
having a market value of two times the exercise price of the right. Following
the acquisition by a person or group of 15% or more of the Company's common
stock but prior to the acquisition of a 50% ownership interest, the Company may
exchange the rights at an exchange ratio of one share of common stock per right.
The Company may also redeem the rights at $.01 per right at any time prior to a
15% acquisition. The rights, which do not have voting power and are not entitled
to dividends until such time as they become exercisable, expire on July 2007.
Stock Option Plans. Ascent adopted the 1995 Key Employee Stock Plan
------------------
(the "Employee Plan") and the 1995 Non-Employee Directors Stock Plan (the
"Director Option Plan") contemporaneously with the Offering. The Employee Plan
provides for the issuance of stock options, restricted stock awards, stock
appreciation rights and other stock based awards and the Director's Option Plan
provides for the issuance of stock options and common stock. Options granted
under the Employee or Director Option Plans generally expire 10 years from the
date of grant. For each of the Plans, options are generally granted at prices
not less than the fair market value of the Company's common stock at the date of
grant. In order for the Distribution to be tax-free (see Notes 1 and 13), the
Distribution Agreement required Ascent to cancel substantially all of the
outstanding options, and not to have any plans or agreements to issue stock.
Therefore, in connection with the Distribution, the Director Option Plan was
terminated as it only provided for the issuance of common stock and stock
options. In addition, substantially all of the stock options previously granted
under the Employee Plan (1,283,750 options) were canceled and, in exchange,
option holders were issued stock appreciation rights ("SARs"), payable only in
cash, with an exercise price equal to $9.53 per share, based on the average
trading price of the Ascent common stock for five days commencing with the date
of the Distribution. In addition, under the Employee Plan, 120,000 SARs were
granted to certain officers and key employees of the Company in June 1997 and
22,000 SARs were granted to other employees in October 1997. The SARs permit the
optionee to surrender the SAR, in whole or in part, on any date that the fair
market value of the Company's common stock exceeds the exercise price for the
SAR and receive payment in cash. Payment would be equal to the excess of the
fair market value of the shares reflected by the surrendered SAR over the
exercise price for such shares. The SARs vest over either a three year or five
year period from the date of grant of the option for which they were exchanged.
In June 1997, the Company also adopted the 1997 Non-employee Directors Stock
Appreciation Rights Plan, approved by the stockholders in April 1998, pursuant
to which each non-employee director was granted a SAR with respect to 100,000
shares of Ascent common stock with a three year vesting period. The exercise
price for the non-employee directors SARs is $8.27 per share, the market price
on the date of the Distribution. The change in value of SARs is reflected in the
Company's
54
<PAGE>
statement of operations based upon the market value of the common stock. During
the years ended December 31, 1998 and 1997 the Company recorded an expense
(benefit) of ($424,000), and $424,000 relating to the SARs, respectively.
The weighted average remaining contractual life of the outstanding options
under the Director Option Plan at December 31, 1998 is approximately 7.5 years.
The following is a summary of changes in shares under the Company's Stock Option
Plans:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------
Options Weighted
Available for Number of Average
Grant Shares Exercise Price
-------------- ----------- --------------
<S> <C> <C> <C>
Balances, January 1, 1996............................................ 661,250 948,750 $15.00
Granted (weighted average fair value of $8.63)..................... (397,500) 397,500 18.14
Exercised.......................................................... -- -- --
Canceled/expired................................................... 3,000 (3,000) 15.00
-------- ---------- ------
Balances, December 31, 1996.......................................... 266,750 1,343,250 15.93
Conversion of options to SAR's..................................... -- (1,283,750) 15.92
Canceled/Expired................................................... -- (14,500) 15.00
Options granted.................................................... (8,000) 8,000 10.50
-------- ---------- ------
Balances, December 31, 1997.......................................... 258,750 53,000 15.31
Exercised.......................................................... -- -- --
Canceled/Expired................................................... -- (32,000) 16.31
Options granted.................................................... -- -- --
-------- ---------- ------
Balances, December 31, 1998.......................................... 258,750 21,000 $13.79
======== ========== ======
</TABLE>
In 1996, the Company adopted the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." Accordingly, no compensation
cost was recognized for the options granted under the Ascent Stock Option Plans
in 1996 and 1997. Had compensation cost for the Director's Option Plan in 1998
and 1997 and, both the Director's and Employee's Plans in 1996 been determined
based on the fair value at the grant date for awards made in those years
consistent with the provisions of SFAS No. 123, the Company's net loss and loss
per common share would have been increased to the proforma amounts as indicated
below (in thousands, except per share information):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net loss as reported................................................................. $(49,725) $(41,514) $(36,034)
Net loss pro forma................................................................... $(49,740) $(41,571) $(37,668)
Basic and diluted loss per share as reported......................................... $ (1.67) $( 1.40) $( 1.21)
Basic and diluted loss per share pro forma........................................... $ (1.67) $( 1.40) $( 1.27)
</TABLE>
Under SFAS 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective assumptions,
including future stock price volatility and expected time to exercise, which
greatly affect the calculated values and in which the Company has no significant
history or established trends. The Company's calculations were made using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1998, 1997 and 1996, respectively: expected life, 12-24 months
following the last vesting date of the award; stock volatility, 55.8%, 47.2% and
57.6%; risk free interest rates, 4.6%, 5.3% and 5.9%; and no dividends during
expected term. The Company's calculations are based on an option valuation
approach and forfeitures are recognized as they occur.
OCC Stock Option Plans. OCC has also adopted a stock incentive plan (the "OCC
- ----------------------
Plan"), expiring in 2006, under which employees of OCC may be granted stock
options, restricted stock awards, stock appreciation rights and other stock
based awards. Under the OCC plan options generally are granted at fair market
value on the date of grant. At December 31, 1998, the OCC Plan has 3,000,000
shares reserved for issuance and options to purchase 1,728,475 shares were
outstanding.
In addition, OCC has also adopted a stock option plan for its
independent directors (the "OCC Directors Plan"). The OCC Directors Plan
authorizes the granting of an award of 400 shares of the OCC's common stock and
a non-qualified option to purchase 4,000 shares of OCC's common stock (a
"Director Option") to each Independent Director on an annual basis. In 1998,
12,000 options were granted. No options were granted in 1997.
55
<PAGE>
OCC has also adopted the disclosure only provisions of SFAS 123. The
Company's share of OCC's pro forma compensation cost for 1998, 1997 and 1996
would be approximately $1,652,000, $2,326,000 and $476,000 or an additional loss
of $.06, $.08 and $.02 per share to the respective proforma amounts above.
COMSAT Stock Incentive Plans. COMSAT has stock incentive plans which provide
- ----------------------------
for the issuance of stock options, restricted stock awards, stock appreciation
rights and restricted stock units. Qualifying employees of the Company have been
participants of these plans. The amount of expense charged to the Company for
participation in these plans in 1998, 1997 and 1996 was $437,000, $688,000 and
$1,064,000, respectively.
Note 11 -- Employee Benefit Plans
Savings Plans. OCC, ANS, the Nuggets, and the Avalanche each participate in
- -------------
various 401(k) plans for qualifying employees. A portion of employee
contributions is matched by the respective entity. Matching contributions for
the years ended December 31, 1998, 1997 and 1996 were $1,091,000, $954,000 and
$1,266,000, respectively.
Nuggets. The Nuggets contribute annually to the NBA's General Manager, Coaches
- --------
and Trainers Pension Plan as well as the NBA Players Association Players'
Pension Plan (collectively, the "NBA Plans"). These multi-employer plans are
administered by the NBA and require the Nuggets to make annual contributions to
the NBA Plans equal to an amount stated pursuant to the actuarial valuation.
Contributions to the General Manager, Coaches and Trainers Plan charged to
expense were $223,000, $185,000 and $134,000 for the periods ended December 31,
1998, 1997 and 1996, respectively. Contributions to the Players' Plan charged to
expense were $265,000, $309,000 and $159,000 for the periods ended December
1998, 1997 and 1996, respectively. The Nuggets policy is to fund pension costs
determined by the NBA actuaries.
The NBA, in conjunction with the NBA Players Association, has
established a Pre- Pension Benefit Plan which is designed to pay benefits to
players subsequent to their retirement from the NBA but prior to the age of
qualification for the normal players' pension plan. There were no contributions
charged to expense under this plan for the years ended December 31, 1998, 1997
and 1996.
Avalanche. The Avalanche contributes monthly to the National Hockey League
- ---------
Pension Society ("NHL Plan") for the benefit of its players. This multi-employer
plan is administered by the NHL and requires the Avalanche to make contributions
to the NHL Plan for the applicable playing season equal to an amount stated
pursuant to an actuarial valuation. Contributions to the NHL Plan charged to
expense were $146,000, $142,000 and $210,000 for the years ended December 31,
1998, 1997, 1996, respectively.
The Avalanche is also required by the NHL to provide a pension or
equivalent benefit for its general manager and head coach. This benefit
corresponds to an established annual amount for each year of service beginning
the season following age 60. The Avalanche has chosen to fund this benefit
separately from the NHL plan for its various participants. For the years ended
December 31, 1998 and 1997, the amount of contributions to the General Manager
and Coaches Plan charged to expense was $16,000 and $36,000, respectively. The
Avalanche is also required by the NHL to provide a pension benefit to other
participants, however, the Avalanche makes available an employer matching
contribution in conjunction with its 401(k) plan which satisfies this funding
requirement. No contributions were made to the General Manager and Coaches plan
for the year ended December 31, 1996 as the 401(k) employer matching
contribution satisfied the funding requirements of the plan in that year.
Note 12 -- Business Segment Information
The Company implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", during the fourth quarter of 1998. In
accordance with SFAS No. 131, the Company has classified its businesses into 3
reporting segments: multimedia distribution, entertainment and network services.
The multimedia distribution segment includes the video distribution and on-
demand video entertainment services provided by OCC to the lodging industry.
The entertainment segment includes three operating segments, the Denver Nuggets
and the Colorado Avalanche franchises in the NBA and NHL, respectively, and the
Arena Company, the owner and manager of the new arena. The network services
segment includes the results of ANS and the video distribution services it
provides to the NBC television network and other private networks. Accordingly,
the financial information which follows has been restated to conform with the
Company's new segment classifications pursuant to SFAS 131.
56
<PAGE>
Information as to the operations of the Company is set forth below based on the
nature of the products and services offered. The Company evaluates performance
based on several factors, of which the primary financial measure is business
segment operating income (loss) before depreciation and amortization, corporate
expenses and interest expense("EBITDA"). The Company's income taxes are not
evaluated at the segment level and, therefore, are not included herein. The
accounting policies of the business segments are the same as those described in
the Summary of Significant Accounting Policies (see Note 1).
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1998 1997 1996
-------------- -------------- ---------
(in thousands)
<S> <C> <C> <C>
Revenue (from external customers):
Multimedia Distribution...................................................... $238,820 (1) $222,103 $147,469
Entertainment................................................................ 82,353 93,532 84,357
Network Services............................................................. 22,456 19,940 20,507
-------- ------------- --------
Total........................................................................ $343,629 $ 335,575 $252,333
======== ============= ========
Operating income (loss):
Multimedia Distribution (2).................................................. $(18,493) $ (25,446) $(15,502)
Entertainment................................................................ (17,162) (13,834) (15,143)
Network Services............................................................. 3,462 3,701 3,713
Corporate.................................................................... (7,800) (8,537) (7,718)
-------- ------------- --------
Total........................................................................ $(39,993) $ (44,116) $(34,650)
======== ============= ========
Earnings (loss) before interest, taxes, depreciation and
amortization (EBITDA):
Multimedia Distribution...................................................... $ 72,045 $ 55,579 $ 41,804
Entertainment................................................................ (9,500) (5,026) (5,533)
Network Services............................................................. 10,970 11,280 10,652
Corporate.................................................................... (7,652) (8,404) (9,678)
-------- ------------- --------
Total EBITDA................................................................. $ 65,863 $ 53,429 $ 37,245
-------- ------------- --------
Less reconciling item -depreciation and amortization......................... 105,856 97,545 71,895
-------- ------------- --------
Total operating income (loss) (39,993) (44,116) (34,650)
======== ============= ========
Interest revenue:
Multimedia Distibution....................................................... $ 489 $ 153 $ 104
Entertainment................................................................ 122 -- --
Network Services............................................................. 386 671 975
Corporate.................................................................... 1,142 346 121
-------- ------------- --------
Total........................................................................ $ 2,139 $ 1,170 $ 1,200
======== ============= ========
Interest expense, Net:
Multimedia Distribution...................................................... $ 9,834 $ 7,612 $ 1,613
Entertainment................................................................ 140 912 1,058
Corporate.................................................................... 14,515 12,447 8,044
-------- ------------- --------
Total........................................................................ $ 24,489 $ 20,971 $ 10,715
======== ============= ========
Capital expenditures:
Multimedia Distribution...................................................... $ 83,208 $ 91,796 $ 70,545
Entertainment................................................................ 56,455 25,132 10,042
Network Services............................................................. 2,071 1,859 7,893
Corporate.................................................................... 159 259 353
-------- ------------- --------
Total........................................................................ $141,893 $ 119,046 $ 88,833
======== ============= ========
Depreciation and leasehold amortization:
Multimedia Distribution...................................................... $ 81,808 $ 72,430 $ 50,758
Entertainment................................................................ 677 642 430
Network Services............................................................. 7,508 7,579 6,939
Corporate.................................................................... 151 133 53
-------- ------------- --------
Total........................................................................ $ 90,144 $ 80,784 $ 58,180
======== ============= ========
Amortization of intangible assets:
Multimedia (2)............................................................... $ 8,730 $ 8,595 $ 4,535
Entertainment................................................................ 6,982 8,166 9,180
-------- ------------- --------
Total........................................................................ $ 15,712 $ 16,761 $ 13,715
======== ============= ========
As of December 31,
------------------------
1998 1997
-------- -------------
Identifiable assets:
Multimedia Distribution.......................................................................... $421,797 $ 422,258
Entertainment.................................................................................... 363,813 208,144
Network Services................................................................................. 19,506 26,820
Corporate........................................................................................ 46,297 37,293
Discontinued operations.......................................................................... 12,328 34,411
-------- -------------
Total............................................................................................ $863,741 $ 728,926
======== =============
</TABLE>
57
<PAGE>
(1) The Multimedia Distribution segment for 1996 reflects the acquisition of
SpectraVision by OCC in October 1996 (see Note 2).
(2) The Multimedia Distribution segment's operating results reflect the
allocation of intangible asset amortization incurred by Ascent relating to the
acquisition of OCV by Ascent (see Note 1).
Significant customers. OCC has one customer, Marriott Corporation, which
- ---------------------
accounted for 17%, 14%, and 15% of consolidated revenues in 1998, 1997, and
1996, respectively. No other customer accounted for more than 10% of
consolidated revenues during 1998, 1997, and 1996.
Geographic Operating Information. The following represents total revenues for
- --------------------------------
the years ended December 31, 1998, 1997 and 1996 and long-lived assets as of
December 31, 1998 and 1997 by geographic territory (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Total Long-Lived Total Long-Lived Total
Revenues Assets Revenues Assets Revenues
<S> <C> <C> <C> <C> <C>
United States.............................................. $319,863 $700,340 $310,558 $602,919 $247,738
Canada..................................................... 12,690 17,984 13,251 6,596 2,186
All other foreign.......................................... 11,076 10,506 11,766 7,130 2,409
-------- -------- -------- -------- --------
Total...................................................... $343,629 $728,830 $335,575 $616,645 $252,333
======== ======== ======== ======== ========
</TABLE>
(1)- Net revenues are attributed to countries based on invoicing location of
customer.
Note 13 -- Related Party Transactions and Agreements with COMSAT
In connection with the Distribution, Ascent and COMSAT executed the
Distribution Agreement, dated June 3, 1997. The Distribution Agreement provided,
among other things, that COMSAT would distribute all of its holdings of Ascent
common stock to COMSAT shareholders on a pro-rata basis. COMSAT consummated the
Distribution on June 27, 1997 (see Note 1). In addition, while COMSAT has
received a ruling from the IRS that the Distribution will not be taxable to
COMSAT or its shareholders, such a ruling is based on the representations made
by COMSAT in the IRS ruling documents. Accordingly, in order to maintain the
tax-free status of the Distribution, Ascent is subject to numerous restrictions
under the Distribution Agreement, including restrictions on the following
activities: (i) Ascent shall not take any action, nor fail or omit to take any
action, that would cause the Distribution to be taxable or cause any
representation made in the ruling documents to be untrue in a manner which would
have an adverse effect on the tax-free status of the Distribution; (ii) until
July 1999, Ascent will continue the active conduct of its ANS satellite
distribution, service and maintenance business; (iii) until July, 1999, Ascent
will not sell, transfer or otherwise dispose of assets that, in the aggregate,
constitute more than 60% of its gross assets as of the Distribution, other than
in the ordinary course of business; (iv) until July, 1999, Ascent will not
voluntarily dissolve or liquidate or engage in any merger, consolidation or
other reorganization; and (v) until July, 1999, Ascent will not unwind the
merger of ANS with and into Ascent in any way.
The restrictions noted in items (ii) through (iv) above will be waived
with respect to any particular transaction if (a) COMSAT or Ascent have obtained
a ruling from the IRS in form and substance reasonably satisfactory to COMSAT
that such transaction will not adversely affect the tax-free status of the
Distribution, (b) COMSAT has determined in its sole discretion, exercised in
good faith solely to preserve the tax-free status of the Distribution that such
transaction could not reasonably be expected to have a material adverse effect
on the tax-free status of Distribution, or (c) Ascent obtains an unqualified tax
opinion in form and substance reasonably acceptable to COMSAT that such
transaction will not disqualify the Distribution's tax-free status.
Pursuant to the Distribution Agreement, Ascent will indemnify COMSAT
against any tax related losses incurred by COMSAT to the extent such losses are
caused by any breach by Ascent of its representations, warranties or covenants
made in the Distribution Agreement. In turn, COMSAT will indemnify Ascent
against any tax related losses incurred by Ascent to the extent such losses are
caused by any COMSAT action causing the Distribution to be taxable. To the
extent that tax related losses are attributable to subsequent tax legislation or
regulation, such losses will be borne equally by COMSAT and Ascent.
Prior to the Distribution, Ascent was charged by COMSAT for certain
general and administrative services. In 1996, charges for these services from
COMSAT were determined pursuant to an Intercompany Services Agreement ("Services
Agreement"). The Services Agreement, which was amended in December 1996 to
reflect a reduced level of
58
<PAGE>
services to be provided effective January 1, 1997, was terminated on June 27,
1997 in connection with the Distribution. Total charges incurred under the
Services Agreement were approximately $173,000 and $2,000,000 for the years
ended December 31, 1997 and 1996, respectively.
During the year ended December 31, 1997, Ascent paid COMSAT $245,000
in interest relating to intercompany obligations between the two entities. No
interest was paid during the years ended December 31, 1998 and 1996 to COMSAT.
In conjunction with the SpectraVision Acquisition (see Note 3), Ascent
and OCC entered into a Corporate Agreement (the "OCC Corporate Agreement"),
pursuant to which, among other things, OCC has agreed not to incur any
indebtedness without Ascent's prior consent, other than indebtedness under OCC's
Credit Facility (see Note 6), and indebtedness incurred in the ordinary course
of operations which together shall not exceed $182.0 million through December
31, 1999; provided, however, that such indebtedness may only be incurred in
compliance with the financial covenants contained in OCC's credit facility, with
any amendments to such covenants subject to the written consent of Ascent.
OCC earned revenues of approximately $22,955,000, $22,000,000 and
$18,900,000 for the years ended December 31, 1998, 1997, and 1996, respectively,
from Hilton and its affiliates. Accounts receivable from Hilton and its
affiliates at December 31, 1998 and 1997 were approximately $1,400,000 and
$753,000, respectively. Hilton is a minority stockholder of OCC.
OCC earned revenues of $83,000, $901,000 and $4,944,000 for the years
ended December 31, 1998, 1997, 1996 respectively, from MagiNet Corporation,
which is a related party by virtue of OCC's investment in its preferred stock
(see Note 3). Accounts receivable from MagiNet at December 31, 1998 and 1997
were insignificant.
Note 14 -- Financial Instruments and Off-Balance Sheet Risks:
Off Balance Sheet Risks. At December 31, 1998, Ascent was contingently liable
- -----------------------
to banks for $1,389,000 for outstanding letters of credit securing performance
of certain contracts. These guarantees expire in 1999.
Fair Value of Financial Instruments. The fair value of cash and cash
- -----------------------------------
equivalents, receivables, other current assets, accounts payable and other
accrued liabilities approximate their carrying value due to the short-term
nature of these financial instruments. The fair value of certain short-term and
long-term investments approximates their carrying value.
The fair value of Company's long-term debt, as shown below, was estimated by
obtaining a yield-adjusted price as of December 31, 1998, for each obligation
from an investment banker.
Carrying value Fair value
---------------- ----------
(In thousands)
Senior Secured Discount Notes, 11.875% $142,537 $139,305
Arena Notes, 6.94% 139,835 136,470
The fair values of the Company's remaining long-term liabilities and other
financial instruments not itemized above approximate their carrying values.
59
<PAGE>
Note 15 -- Quarterly Results of Operations (Unaudited):
The following is a summary of unaudited quarterly results of
operations for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Dec. 31 Sept. 30 June 30 March 31
--------------------- --------- --------- ---------
(In thousands, except per share data)
1998(1)
<S> <C> <C> <C> <C>
Revenues.................................................. $ 89,125 $71,897 $ 81,803 $100,804
Operating expenses........................................ 74,733 49,207 67,147 86,679
Depreciation and amortization............................. 27,109 26,599 26,279 25,869
Operating loss from continuing operations................. (12,717) (3,909) (11,623) (11,744)
Income (loss) from discontinued operations................ 1,528 (2,395) (3,727) 686
Net loss.................................................. (9,254) (9,572) (18,015) (12,884)
Basic and diluted loss per share.......................... (.32) (.32) (.60) (.43)
1997(1)
Revenues.................................................. $100,647 $65,582 $ 79,511 $ 89,835
Operating expenses........................................ 84,012 50,156 61,454 86,524
Depreciation and amortization............................. 24,873 24,130 24,191 24,351
Operating loss from continuing operations................. (8,238) (8,704) (6,134) (21,040)
Income (loss) from discontinued operations................ (4,637) 11,638 (2,615) (2,443)
Net loss.................................................. (12,758) (1,361) (9,747) (17,648)
Basic and diluted loss per share.......................... (.44) (.04) (.33) (.59)
</TABLE>
(1) Quarterly results for 1998 and 1997 have been restated to reflect the
results of operations of Beacon as discontinued operations (see Note 2).
60
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Except for the portion of Item 10 relating to Executive Officers which
is included in Part I of this Report, the information called for by Items 10
through 13 is incorporated by reference from the Ascent Entertainment Group,
Inc. 1999 Annual Meeting of Stockholders - Notice and Proxy Statement (to be
filed pursuant to Regulation 14A not later than 120 days after the close of the
fiscal year) which meeting involves the election of directors, in accordance
with General Instruction G to the Annual Report on Form 10-K.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report.
<TABLE>
<CAPTION>
Page
<S> <C>
(1) Consolidated Financial Statements and Supplementary Data of Registrant
Independent Auditors' Report............................................ 36
Consolidated Balance Sheets as of December 31, 1998 and 1997............ 37
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996..................................................... 38
Consolidated Statements of Comprehensive Loss for the years ended
December 31, 1998, 1997 and 1996........................................ 39
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996........................................ 40
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996..................................................... 41
Notes to Consolidated Financial Statements.............................. 42
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1997 and 1996........................................ 65
</TABLE>
Information required by the other schedules has been presented in the Notes
to the Consolidated Financial Statements, or such schedule is not
applicable and, therefore, has been omitted.
(b) Reports on Form 8-K.
None.
61
<PAGE>
(c) EXHIBITS: The following exhibits are listed according
to the number assigned in the table in Item 601
of Regulation S-K.
3.1(a) Amended and Restated Certificate of Incorporation of Ascent
Entertainment Group, Inc. (as amended through December 12, 1995)
(Incorporated by reference to Exhibit 3.1 to Registrant's Amendment
No. 4 to Registration Statement on Form S-1, Commission File No. 33-
98502).
3.1(b) Amended and Restated Bylaws of Ascent Entertainment Group, Inc.
(as amended through June 27, 1997). (Incorporated by reference to
Exhibit 3.1 to the Company's current report on Form 8-K filed on July
8, 1997 as amended by a Form 8-K/A filed on July 11, 1997).
4.1 Rights Agreement, dated as of June 27, 1997, between Ascent
Entertainment Group, Inc. and The Bank of New York. (Incorporated by
reference to Exhibit 4.1 to the Company's current report on Form 8-K
filed on July 8, 1997 as amended by a Form 8-K/A filed on July 11,
1997).
4.2 Indenture between the Registrant and The Bank of New York, as Trustee,
dated December 22, 1997. (Incorporated by reference from the exhibit
of the same number to Amendment No. 1 to the Registrant's Registration
Statement on Form S-4 (No. 333-44461) filed on January 28, 1998.)
4.3 Indenture between the Denver Arena Trust and The Bank of New York, as
Indenture Trustee, dated July 29, 1998.
10(a) Distribution Agreement between Ascent and COMSAT dated June 3,
1997. (Incorporated by reference to Exhibit 10(a) to the Company's
current report on Form 8-K filed on June 19, 1997).
10(b) Tax Disaffiliation Agreement between Ascent and COMSAT dated June
3, 1997. (Incorporated by reference to Exhibit 10(b) to the Company's
current report on Form 8-K filed on June 19, 1997).
10.1 Amended and Restated Employment Agreement by and between Ascent
Entertainment Group, Inc. and Charles Lyons. (Incorporated by
reference to Exhibit 10.1 to the Company's current report on Form 8-K
filed on July 8, 1997 as amended by a Form 8-K/A filed on July 11,
1997).
10.2 Amended and Restated Employment Agreement by and between Ascent
Entertainment Group, Inc. and James A. Cronin, III. (Incorporated by
reference to Exhibit 10.2 to the Company's current report on Form 8-
K filed on July 8, 1997 as amended by a Form 8-K/A filed on July 11,
1997). *
10.3 Employment Agreement by and between Ascent Entertainment Group, Inc.
and Arthur M. Aaron. (Incorporated by reference to Exhibit 10.3 to the
Company's current report on Form 8-K filed on July 8, 1997 as
amended by a Form 8-K/A filed on July 11, 1997).
10.4 Employment Agreement by and between Ascent Entertainment Group, Inc.
and David A. Holden. (Incorporated by reference to Exhibit 10.4 to the
Company's current report on Form 8-K filed on July 8, 1997 as
amended by a Form 8-K/A filed on July 11, 1997). *
10.5 Second Amended and Restated $50,000,000 Credit Agreement dated as of
December 22, 1997 among the Registrant, the lenders named therein
and NationsBank of Texas, N.A., as administrative agent.
(Incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 (No. 333-44461) filed
on January 28, 1998.)
10.6 First Amendment to Second Amended and Restated $50,000,000 Credit
Agreement dated as of December 22, 1997 among the Registrant, the
lenders named therein and NationsBank of Texas, N.A., as
administrative agent, dated July 16, 1998.
10.7 Second Amendment to Second Amended and Restated $50,000,000 Credit
Agreement dated as of December 22, 1997 among the Registrant, the
lenders named therein and NationsBank of Texas, N.A., as
administrative agent, dated January 20, 1999.
62
<PAGE>
10.8 $200,000,000 Credit Agreement dated as of November 24, 1997 among On
Command Corporation, the lenders named therein and NationsBank of
Texas, N.A., as administrative agent. (Incorporated by reference to
the exhibit of the same number to Amendment No. 1 to the Registrant's
Registration Statement on Form S-4 (No. 333-44461) filed on January
28, 1998.)
10.9 Purchase and Sale Agreement dated May 7, 1997, between Denver Arena
Company, LLC and Southern Pacific Transportation Company relating to
the purchase of land for the construction of the arena.
(Incorporated by reference to Exhibit 10.7 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
Commission File No. 0-27192).
10.10 Ascent Entertainment Group, Inc. 1997 Directors and Executives
Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.8
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, Commission File No. 0-27192).
10.11 Term Sheet for Local Television License Agreement for the Denver
Nuggets and the Colorado Avalanche between the Registrant and Fox
Sports Rocky Mountain. (Incorporated by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, Commission File No. 0-27192). (Confidential
treatment granted).
10.12 1997 Denver Arena Agreement by and among Ascent Arena Company, LLC,
The Denver Nuggets Limited Partnership, The Colorado Avalanche, LLC
and the City and County of Denver dated December 12, 1997.
(Incorporated by reference to the exhibit of the same number to
Amendment No. 1 to the Registrant's Registration Statement on Form S-4
(No. 333-44461) filed on January 28, 1998.)
10.13 Amendment to Employment Agreement between On Command Corporation and
Robert M. Kavner dated December 28, 1998 *
10.14 Amendment No. 1 to Employment Agreement between On Command Corporation
and Brian A.C. Steel dated December 28, 1998. *
10.15 Employment Agreement between Ascent Arena Company, LLC and Tim Romani
dated July 1, 1997.*
10.16 Sale and Servicing Agreement dated as of July 29, 1998 among Denver
Arena Trust and Ascent Arena Company, LLC and The Bank of New York as
Indenture Trustee.
10.17 Corporate Agreement dated as of October 8, 1997, between the
Registrant and On Command Corporation. (Incorporated by reference to
Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)
10.18 Master Services Agreement, dated as of August 3, 1993 by and
between Marriott International, Inc., Marriott Hotel Services, Inc.
and On Command Video. (Incorporated by reference to Exhibit 10.6 to
Amendment No. 2 to Registrant's Registration Statement on Form S-1
(No. 33-98502) filed on November 13, 1995.) (Confidential treatment
granted).
10.19 Ascent Entertainment Group, Inc. 1995 Key Employee Stock Plan.
(Incorporated by reference to Exhibit 10.16 to Registrant's Annual
Report on Form 10-K (No. 0-27192) filed March 29, 1996.)*
10.20 Ascent Entertainment Group, Inc. 1997 Non-Employee Director Stock
Appreciation Rights Plan*
10.21 Agreement for the Purchase and Sale of an Interest in Beacon
Communications, LLC dated January 20, 1999
21 Subsidiaries of Ascent Entertainment Group, Inc.
23.1 Consent of Deloitte & Touche LLP
* Compensatory plan or arrangement.
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 29, 1999.
ASCENT ENTERTAINMENT GROUP, INC.
By: /s/ Charles Lyons
Charles Lyons
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on March
29, 1999.
/s/ Charles Lyons
Charles Lyons
President, Chief Executive Officer and
Chairman of the Board (Principal Executive
Officer)
/s/ James A. Cronin, III
James A. Cronin, III
Executive Vice President, Chief Financial
Officer, Chief Operating Officer and
Director (Principal Financial Officer)
/s/ David A. Holden
David A. Holden
Vice President, Finance and Controller
(Principal Accounting Officer)
/s/ Charles M. Lillis
Charles M. Lillis (Director)
/s/ Charles M. Neinas
Charles M. Neinas (Director)
/s/ Peter Barton
Peter Barton (Director)
/s/ Paul A. Gould
Paul A. Gould (Director)
64
<PAGE>
ASCENT ENTERTAINMENT GROUP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged Charged Balance
Beginning to to other Deductions at end
of year expenses accounts(a) (b) of year
---------- -------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
1996: Allowance for loss on accounts $3,240 $ 758 $(1,775) $ (87) $2,136
receivable
1997: Allowance for loss on accounts $2,136 $1,255 $(1,245) $ (384) $1,762
receivable
1998: Allowance for loss on accounts $1,762 $1,307 $ (10) $(1.150) $1,909
receivable
</TABLE>
(a) - Recoveries of amounts previously reserved and other adjustments.
(b) - Uncollectible amounts written off.
65
<PAGE>
66
<PAGE>
EXHIBIT 4.3
================================================================================
INDENTURE
between
DENVER ARENA TRUST,
as Issuer Trust
and
THE BANK OF NEW YORK,
as Indenture Trustee
Dated as of July 29, 1998
DENVER ARENA TRUST
Arena Revenue Backed Notes
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
Section 1.01. Definitions....................................................................... 1
Section 1.02. Rules of Construction............................................................. 1
ARTICLE II
THE NOTES
Section 2.01. Form.............................................................................. 2
Section 2.02. Execution, Authentication, Delivery and Dating.................................... 2
Section 2.03. Registration; Registration of Transfer and Exchange............................... 3
Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes........................................ 4
Section 2.05. Persons Deemed Note Owners........................................................ 5
Section 2.06. Distribution of Principal and Interest; Defaulted Interest........................ 5
Section 2.07. Cancellation...................................................................... 6
Section 2.08. Conditions Precedent to the Authentication of the Notes........................... 6
Section 2.09. Release of Collateral............................................................. 8
Section 2.10. Book-Entry Notes.................................................................. 8
Section 2.11. Notices to Clearing Agency........................................................ 9
Section 2.12. Definitive Notes.................................................................. 9
Section 2.13. Tax Treatment.................................................................... 11
Section 2.14. Limitations on Transfer of the Notes............................................. 11
Section 2.15. CUSIP Numbers.................................................................... 11
ARTICLE III
COVENANTS
Section 3.01. Distribution of Principal and Interest........................................... 12
Section 3.02. Maintenance of Office or Agency.................................................. 12
Section 3.03. Money for Distributions to be Held in Trust...................................... 12
Section 3.04. Existence........................................................................ 14
Section 3.05. Protection of Collateral......................................................... 14
Section 3.06. Annual Opinions as to Collateral................................................. 15
Section 3.07. Performance of Obligations....................................................... 15
Section 3.08. Negative Covenants............................................................... 16
Section 3.09. Annual Statement as to Compliance................................................ 17
Section 3.10. Covenants of the Issuer Trust.................................................... 18
Section 3.11. Restricted Payments.............................................................. 18
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 3.12. Notice of Events of Default...................................................... 18
Section 3.13. Further Instruments and Acts..................................................... 18
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture.......................................... 19
Section 4.02. Application of Trust Money....................................................... 19
Section 4.03. Repayment of Moneys Held by Paying Agent......................................... 19
ARTICLE V
REMEDIES
Section 5.01. Events of Default................................................................ 20
Section 5.02. Acceleration of Maturity; Rescission and Annulment............................... 22
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee........ 22
Section 5.04. Remedies; Priorities............................................................. 25
Section 5.05. Optional Preservation of the Collateral.......................................... 26
Section 5.06. Limitation of Suits.............................................................. 26
Section 5.07. Unconditional Rights of Noteholders to Receive Principal and Interest............ 27
Section 5.08. Restoration of Rights and Remedies............................................... 27
Section 5.09. Rights and Remedies Cumulative................................................... 27
Section 5.10. Delay or Omission Not a Waiver................................................... 27
Section 5.11. Control by Noteholders........................................................... 28
Section 5.12. Waiver of Past Defaults.......................................................... 28
Section 5.13. Undertaking for Costs............................................................ 28
Section 5.14. Waiver of Stay or Extension Laws................................................. 29
Section 5.15. Action on Notes.................................................................. 29
Section 5.16. Performance and Enforcement of Certain Obligations............................... 29
Section 5.17. Environmental Site Assessment.................................................... 30
ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee...................................................... 30
Section 6.02. Rights of Indenture Trustee...................................................... 32
Section 6.03. Individual Rights of Indenture Trustee........................................... 32
Section 6.04. Indenture Trustee's Disclaimer................................................... 32
Section 6.05. Notices of Default............................................................... 33
Section 6.06. Reports by Indenture Trustee to Holders.......................................... 33
Section 6.07. Compensation and Indemnity....................................................... 33
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Section 6.08. Replacement of Indenture Trustee................................................. 34
Section 6.09. Successor Indenture Trustee by Merger............................................ 35
Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee................ 35
Section 6.11. Eligibility; Disqualification.................................................... 36
Section 6.12. Indenture Trustee's Application for Instructions from the Issuer Trust........... 36
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. Issuer Trust to Furnish Indenture Trustee Names and Addresses of Noteholders..... 37
Section 7.02. Preservation of Information...................................................... 37
Section 7.03. Reports by Indenture Trustee..................................................... 37
Section 7.04. 144A Information.................................................................. 37
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. Collection of Money.............................................................. 38
Section 8.02. Trust Accounts; Distributions.................................................... 38
Section 8.03. General Provisions Regarding Accounts............................................ 38
Section 8.04. Servicer's Monthly Statements.................................................... 39
Section 8.05. Release of Collateral............................................................ 39
Section 8.06. Opinion of Counsel............................................................... 40
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Noteholders........................... 40
Section 9.02. Supplemental Indentures with Consent of Noteholders.............................. 41
Section 9.03. Execution of Supplemental Indentures............................................. 42
Section 9.04. Effect of Supplemental Indentures................................................ 42
Section 9.05. Reference in Notes to Supplemental Indentures.................................... 43
Section 9.06. Amendments to Trust Agreement.................................................... 43
ARTICLE X
REDEMPTION OF NOTES
Section 10.01. Mandatory Redemption............................................................ 43
Section 10.02. Redemption at the Option of the Issuer; Election to Redeem...................... 44
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 10.03. Notice to Indenture Trustee; Deposits Into The Collection Account............... 44
Section 10.04. Notice of Redemption by the Indenture Trustee................................... 44
Section 10.05. Notes Payable on Optional Redemption Price or Mandatory Redemption Price........ 45
ARTICLE XI
MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc....................................... 45
Section 11.02. Form of Documents Delivered to Indenture Trustee................................ 46
Section 11.03. Acts of Noteholders............................................................. 47
Section 11.04. Notices, etc., to Indenture Trustee, Issuer Trust and Rating Agencies........... 47
Section 11.05. Notices to Noteholders; Waiver.................................................. 48
Section 11.06. Effect of Headings and Table of Contents........................................ 48
Section 11.07. Successors and Assigns.......................................................... 48
Section 11.08. Separability.................................................................... 49
Section 11.09. Benefits of Indenture........................................................... 49
Section 11.10. Legal Holidays.................................................................. 49
Section 11.11. Governing Law................................................................... 49
Section 11.12. Counterparts.................................................................... 49
Section 11.13. Recording of Indenture.......................................................... 49
Section 11.14. Trust Obligation................................................................ 49
Section 11.15. Inspection...................................................................... 50
</TABLE>
EXHIBITS
EXHIBIT A - Form of Note
EXHIBIT B-1 - Form of Rule 144A Transfer Certificate
EXHIBIT B-2 - Form of Purchaser's Letter for Institutional Accredited
Investor
EXHIBIT B-3 - Form of Transfer Affidavit
EXHIBIT C - Form of Legend
SCHEDULES
SCHEDULE A - Targeted Principal Payment Schedule
-iv-
<PAGE>
This Indenture dated as of July 29, 1998, between DENVER ARENA TRUST,
a Delaware business trust (the "Issuer Trust"), and THE BANK OF NEW YORK, a New
------------
York banking corporation (the "Indenture Trustee").
-----------------
RECITALS:
--------
The Issuer Trust has duly authorized the execution and delivery of
this Indenture to provide for the issuance of its secured Arena Revenue Backed
Notes (the "Notes") limited in principal amount and issued as in this Indenture
-----
provided;
All things necessary to make this Indenture a valid agreement of the
Issuer Trust in accordance with its terms have been done;
As collateral security for its obligations under this Indenture and
the Notes, the Issuer Trust has collaterally assigned to the Indenture Trustee
all of its right, title and interest in and to the Collateral pursuant to the
Security Agreement [Indenture Trustee];
The Indenture Trustee, on behalf of the Noteholders, acknowledges the
Grant in the Security Agreement [Indenture Trustee], accepts the trusts
hereunder and agrees to perform its duties required in this Indenture to the
best of its ability to the end that the interests of the Noteholders may
adequately and effectively be protected.
In consideration of the recitals and mutual covenants herein
contained, the Issuer Trust and the Indenture Trustee hereby agree as follows
for the benefit of each of them and for the equal and ratable benefit of the
holders of the Notes:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Except as otherwise specified herein or
-----------
as the context may otherwise require, capitalized terms used in this Indenture
shall have the respective meanings set forth in Appendix A to the Sale and
----------
Servicing Agreement, dated as of July 29, 1998, among the Issuer Trust, Ascent
Arena Company, LLC, as Transferor and Servicer, and the Indenture Trustee.
Section 1.02. Rules of Construction. Unless the context otherwise
---------------------
requires:
(i) a term has the meaning assigned to it;
S-A-1
<PAGE>
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect in the United States from time to time;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural and words in the
plural include the singular; and
(v) any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented (as provided in such documents) and includes (in
the case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person are
also to its permitted successors and assigns.
ARTICLE II
THE NOTES
Section 2.01. Form. The Notes shall be designated as the "Denver
----
Arena Trust, Arena Revenue Backed Notes". The Notes shall be in substantially
the form set forth in Exhibit A hereto, with such appropriate insertions,
---------
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof. Any portion of the text of any Note may
be set forth on the reverse thereof, with an appropriate reference thereto on
the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined by
the officers executing such Notes, as evidenced by their execution of such
Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes are set forth in Exhibit A hereto. The terms of each Note are part of
---------
the terms of this Indenture.
Section 2.02. Execution, Authentication, Delivery and Dating. The
----------------------------------------------
Notes shall be executed on behalf of the Issuer Trust by an Authorized Officer
thereof. The signature of any such Authorized Officer on the Notes may be manual
or facsimile.
Notes bearing the manual or facsimile signature of individuals who
were, at any time, Authorized Officers of the Issuer Trust shall bind the Issuer
Trust, notwithstanding that such individuals or any of them have ceased to hold
such offices prior to the authentication and delivery of such Notes or did not
hold such offices at the date of such Notes.
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<PAGE>
Subject to the satisfaction of the conditions set forth in Section
-------
2.08 hereof, the Indenture Trustee shall upon receipt of an Issuer Order
- ----
authenticate and deliver the Notes for original issue in the following principal
amount: $139,835,000. The aggregate principal amount of the Notes outstanding at
any time may not exceed such amount.
The Notes that are authenticated and delivered by the Indenture
Trustee to or upon the order of the Issuer Trust on the Closing Date shall be
dated July 29, 1998. All other Notes that are authenticated after the Closing
Date for any other purpose under the Indenture shall be dated the date of their
authentication. The Notes shall be issuable as registered Notes in the minimum
denomination of $5,000 and integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
Section 2.03. Registration; Registration of Transfer and Exchange.
---------------------------------------------------
The Issuer Trust shall cause to be kept a register (the "Note Register") in
-------------
which, subject to such reasonable regulations as it may prescribe, the Issuer
Trust shall provide for the registration of Notes and the registration of
transfers of Notes. The Indenture Trustee initially shall be the "Note
----
Registrar" for the purpose of registering Notes and transfers of Notes as herein
- ---------
provided. Upon any resignation of any Note Registrar, the Issuer Trust shall
promptly appoint a successor or, if it elects not to make such an appointment,
assume the duties of Note Registrar.
If a Person other than the Indenture Trustee is appointed by the
Issuer Trust as Note Registrar, the Issuer Trust will give the Indenture Trustee
prompt written notice of the appointment of such Note Registrar and of the
location, and any change in the location, of the Note Register, and the
Indenture Trustee shall have the right to inspect the Note Register at all
reasonable times and to obtain copies thereof, and the Indenture Trustee shall
have the right to rely upon a certificate executed on behalf of the Note
Registrar by an Executive Officer thereof as to the names and addresses of the
Noteholders and the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer Trust to be maintained as provided in Section 3.02
------------
hereof, the Issuer Trust shall execute, and the Indenture Trustee shall
authenticate and the Noteholder shall obtain from the Indenture Trustee, in the
name of the designated transferee or transferees, one or more new Notes in any
authorized denominations, of a like aggregate principal amount as such Note or
Notes.
At the option of the related Noteholder, Notes may be exchanged for
other Notes in any authorized denominations, of a like aggregate principal
amount, upon surrender of the Notes to be exchanged at the office or agency of
the Issuer Trust. Whenever any Notes
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<PAGE>
are so surrendered for exchange, the Issuer Trust shall execute, and the
Indenture Trustee shall authenticate and the Noteholder shall obtain from the
Indenture Trustee, the Notes which such Noteholder is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer Trust, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by, the
related Noteholder or such Noteholder's attorney duly authorized in writing.
No service charge shall be made to a Noteholder for any registration
of transfer or exchange of Notes, but the Issuer Trust may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 9.05 hereof not involving any transfer.
------------
The preceding provisions of this Section 2.03 notwithstanding, the
------------
Issuer Trust shall not be required to make, and the Note Registrar need not
register, transfers or exchanges of Notes selected for redemption or of any Note
for a period of 15 days preceding the due date for any payment with respect to
such Note.
Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
------------------------------------------
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer Trust and the Indenture
Trustee harmless, then, in the absence of notice to the Issuer Trust, the Note
Registrar or the Indenture Trustee that such Note has been acquired by a bona
fide purchaser, an Authorized Officer of the Issuer Trust shall execute, and
upon its request the Indenture Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
replacement Note; provided, however, that if any such destroyed, lost or stolen
-------- -------
Note, but not a mutilated Note, shall have become or within seven days shall be
due and payable, or shall have been called for redemption, instead of issuing a
replacement Note, the Issuer Trust may pay such destroyed, lost or stolen Note
when so due or payable or upon the Redemption Date without surrender thereof.
If, after the delivery of such replacement Note or payment of a destroyed, lost
or stolen Note pursuant to the proviso to the preceding sentence, a bona fide
purchaser of the original Note in lieu of which such replacement Note was issued
presents for payment such original Note, the Issuer Trust and the Indenture
Trustee shall be entitled to recover such replacement Note (or such payment)
from the Person to which it was delivered or any Person taking such replacement
Note from such Person to which such replacement Note was delivered or any
assignee of such Person, except a bona fide purchaser, and shall be entitled to
recover upon the security or indemnity provided
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<PAGE>
therefor to the extent of any loss, damage, cost or expense incurred by the
Issuer Trust or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section 2.04, the
------------
Issuer Trust may require the payment by the Holder of such Note of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 2.04 in
------------
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer Trust, whether or not
the mutilated, destroyed, lost or stolen Note shall be at any time enforceable
by anyone, and shall be entitled to all the benefits of this Indenture equally
and proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 2.04 are exclusive and shall preclude
------------
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 2.05. Persons Deemed Note Owners. Prior to due presentment
--------------------------
for registration of transfer of any Note, the Issuer Trust, the Indenture
Trustee and any agent of the Issuer Trust or the Indenture Trustee may treat the
Registered Holder as the Note Owner for the purpose of receiving payments of
principal and interest, if any, on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and none of the Issuer Trust,
the Indenture Trustee or any agent of the Issuer Trust or the Indenture Trustee
shall be affected by notice to the contrary.
Section 2.06. Distribution of Principal and Interest; Defaulted
--------------------------------------
Interest . (a) The Notes shall accrue interest at the Note Interest Rate, and
such interest shall be payable on each Distribution Date as specified in the
form of the Notes set forth in Exhibit A hereto, subject to Section 3.01 hereof.
--------- ------------
Each installment of interest or principal, if any, payable on any Note that is
punctually paid or duly provided for by the Issuer Trust on the applicable
Distribution Date shall be paid (i) with respect to Definitive Notes, to the
Person in the name of which such Note (or one or more Predecessor Notes) is
registered on the Record Date by check mailed first-class postage prepaid to
such Person's address as it appears on the Note Register on such Record Date, or
(ii) with respect to Book-Entry Notes, by wire transfer in immediately available
funds to the account designated by the nominee (initially, Cede & Co.) of the
Clearing Agency, except for the final installment of principal payable with
respect to such Note on a Distribution Date or on the Rated Final Maturity Date
(and except for the Optional Redemption Price or the Mandatory Redemption Price
for any Note called for redemption pursuant to Section 10.01 or Section 10.02
------------- -------------
hereof), which shall be payable as provided in Section 2.06(b) below. The funds
---------------
represented by any such installment returned undelivered shall be held in
accordance with Section 3.03 hereof.
------------
(b) The Targeted Principal Distribution Amount shall be payable in
accordance with the Targeted Principal Payment Schedule attached hereto as
Schedule A. Notwithstanding the foregoing, the entire unpaid principal amount of
- ----------
the Notes shall be due
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<PAGE>
and payable, if not previously paid, on the earlier of (i) the Rated Final
Maturity Date, (ii) the Optional Redemption Date, (iii) the Mandatory Redemption
Date, or (iv) the date on which an Event of Default shall have occurred and be
continuing, if the Indenture Trustee or the Majority Noteholders shall have
declared the Notes to be immediately due and payable in the manner provided in
Section 5.02 hereof.
- ------------
All principal payments on the Notes shall be made pro rata to the
Noteholders. The Indenture Trustee shall notify the Person in the name of which
a Note is registered at the close of business on the Record Date preceding the
Distribution Date on which the Issuer Trust expects that the final installment
of principal of and interest on such Note will be paid. Such notice shall be
mailed or transmitted by facsimile prior to such final Distribution Date and
shall specify that such final installment will be payable only upon presentation
and surrender of such Note and shall specify the place where such Note may be
presented and surrendered for payment of such installment. Notices in connection
with redemptions of Notes shall be mailed to Noteholders as provided in Section
-------
10.02 hereof.
- -----
Section 2.07. Cancellation. All Notes surrendered for payment,
------------
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall promptly be canceled by the Indenture Trustee. The Issuer Trust may at
any time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which Notes the Issuer Trust may have
acquired in any manner whatsoever, and all Notes so delivered shall promptly be
canceled by the Indenture Trustee. No Notes shall be authenticated in lieu of or
in exchange for any Notes canceled as provided in this Section 2.07, except as
------------
expressly permitted by this Indenture. All canceled Notes may be held or
disposed of by the Indenture Trustee in accordance with its standard retention
or disposal policy as in effect at the time unless the Issuer Trust shall direct
by an Issuer Order that they be returned to it; provided, however, that such
-------- -------
Issuer Order is timely and the Notes have not been previously disposed of by the
Indenture Trustee.
Section 2.08. Conditions Precedent to the Authentication of the
-------------------------------------------------
Notes. The Notes may be authenticated by the Indenture Trustee upon receipt by
- -----
the Indenture Trustee of the following:
(a) An Issuer Order authorizing the execution and authentication of
such Notes from the Issuer Trust.
(b) All of the items of Collateral specified in Section 2.04(a) of
---------------
the Sale and Servicing Agreement which shall be delivered to the Indenture
Trustee or its designee.
(c) An executed counterpart of the Trust Agreement.
(d) Opinions of Counsel addressed to the Indenture Trustee to the
effect that:
(i) all conditions precedent provided for in this Indenture
relating to the authentication of the Notes have been complied with;
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<PAGE>
(ii) the Issuer Trust has power and authority to execute,
deliver and perform its obligations under each Basic Document to which
it is a party and each such document is enforceable against the Owner
Trustee in accordance with its terms;
(iii) the Issuer Trust has been duly formed, is validly existing
as a business trust under the laws of the State of Delaware, 12 Del.
C. Section 3801 et seq., and has power, authority and legal right to
execute and deliver this Indenture and the Sale and Servicing
Agreement;
(iv) assuming due authorization, execution and delivery hereof
by the Indenture Trustee, the Indenture is the valid, legal and
binding obligation of the Issuer Trust, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent or preferential conveyance and
other similar laws of general application affecting the rights of
creditors generally and to general principles of equity (regardless of
whether such enforcement is considered in a Proceeding in equity or at
law);
(v) the Notes, when executed and authenticated as provided
herein and delivered against payment therefor, will be the valid,
legal and binding obligations of the Issuer Trust pursuant to the
terms of this Indenture, entitled to the benefits of this Indenture,
and will be enforceable in accordance with their terms, subject to
bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent or preferential conveyance and other similar laws of
general application affecting the rights of creditors generally and to
general principles of equity (regardless of whether such enforcement
is considered in a Proceeding in equity or at law);
(vi) the Trust Agreement authorizes the Issuer Trust to Grant
the Collateral to the Indenture Trustee as security for the Notes;
(vii) no authorization, approval or consent of any governmental
body having jurisdiction in the premises which has not been obtained
by the Issuer Trust is required to be obtained by the Issuer Trust for
the valid issuance and delivery of the Notes, except that no opinion
need be expressed with respect to any such authorizations, approvals
or consents as may be required under any state securities or "blue
sky" laws; and
(viii) any other matters as the Indenture Trustee may reasonably
request.
(e) An Officer's Certificate (which need not comply with the
requirements of Section 11.01 hereof) stating that:
-------------
(i) the Issuer Trust is not in Default under this Indenture
and the issuance of the Notes applied for will not result in any
breach of any of the
C-7
<PAGE>
terms, conditions or provisions of, or constitute a default under, the
Trust Agreement, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Issuer Trust is a party or by
which it is bound, or any order of any court or administrative agency
entered in any Proceeding to which the Issuer Trust is a party or by
which it may be bound or to which it may be subject, and that all
conditions precedent provided in this Indenture relating to the
authentication and delivery of the Notes applied for have been
complied with;
(ii) the Issuer Trust has Granted to the Indenture Trustee all
of its right, title and interest in and to the Collateral, and has
delivered or caused the same to be delivered to the Indenture Trustee;
(iii) attached thereto are true and correct copies of letters
signed by the Rating Agency confirming that the Notes have been rated
"A" by Fitch; and
(iv) all conditions precedent provided for in this Indenture
relating to the authentication of the Notes have been complied with.
Section 2.09. Release of Collateral. Except as otherwise provided
---------------------
in Section 11.01 hereof and Section 2.06(c) of the Sale and Servicing Agreement,
------------- ---------------
the Indenture Trustee shall release property from the lien of this Indenture
only upon receipt of an Issuer Request accompanied by an Officer's Certificate
and an Opinion of Counsel stating that such release would not adversely affect
the rights of the Noteholders. Written notice of such release of Collateral
shall be provided to the Rating Agency.
Section 2.10. Book-Entry Notes. The Notes, when authorized by an
----------------
Issuer Order, will be issued in book-entry form (the "Book-Entry Notes"), to be
----------------
delivered to The Depository Trust Company, the initial Clearing Agency, by or on
behalf of the Issuer Trust. The Book-Entry Notes shall be registered initially
on the Note Register in the name of Cede & Co., the nominee of the Clearing
Agency, and no Note Owner will receive a definitive Note representing such Note
Owner's interest in such Note, except as provided in Section 2.12 hereof.
------------
Unless and until Definitive Notes have been issued to such Note Owners pursuant
to Section 2.12 hereof:
------------
(i) the provisions of this Section 2.10 shall be in full force and
------------
effect with respect to such Notes;
(ii) the Note Registrar and the Indenture Trustee shall be entitled
to deal with the Clearing Agency for all purposes of this Indenture
(including the payment of principal of and interest on the Notes and the
giving of instructions or directions hereunder) as the sole Holder of the
Notes, and shall have no obligation to the Note Owners;
(iii) to the extent that the provisions of this Section 2.10 conflict
------------
with any other provisions of this Indenture, the provisions of this Section
-------
2.10 shall control;
----
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<PAGE>
(iv) the rights of Note Owners shall be exercised only through the
Clearing Agency and shall be limited to those established by law and
agreements between such Note Owners and the Clearing Agency and/or the
Clearing Agency Participants pursuant to the Note Depository Agreement.
Unless and until Definitive Notes are issued pursuant to Section 2.12
------------
hereof, the initial Clearing Agency will make book-entry transfers among
the Clearing Agency Participants and receive and transmit payments of
principal of and interest on the Notes to such Clearing Agency
Participants; and
(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Noteholders evidencing a specified
percentage of the Voting Interests of the Outstanding Notes, the Clearing
Agency shall be deemed to represent such percentage only to the extent that
it has received instructions to such effect from Note Owners and/or
Clearing Agency Participants owning or representing, respectively, such
required percentage of the beneficial interest in the Notes and has
delivered such instructions to the Indenture Trustee.
Section 2.11. Notices to Clearing Agency. Whenever a notice or
--------------------------
other communication to the Noteholders is required under this Indenture, unless
and until Definitive Notes shall have been issued to such Note Owners pursuant
to Section 2.12 hereof, the Indenture Trustee shall give all such notices and
------------
communications to the Clearing Agency and shall have no obligation to such Note
Owners.
Section 2.12. Definitive Notes. With respect to the Book-Entry
----------------
Notes, if (i) the Issuer Trust advises the Indenture Trustee in writing that the
Clearing Agency is no longer willing or able to properly discharge its
responsibilities with respect to such Book-Entry Notes and the Issuer Trust is
unable to locate a qualified successor, (ii) the Issuer Trust advises the
Indenture Trustee in writing that it elects to terminate the book-entry system
through the Clearing Agency or (iii) Note Owners representing beneficial
interests aggregating at least a majority of the Voting Interests of the
Outstanding Book-Entry Notes advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of such Note Owners, then the Clearing Agency shall notify
all Note Owners and the Indenture Trustee of the occurrence of such event and of
the availability of Notes registered in the name of the Note Owners (the
"Definitive Notes") to Note Owners requesting the same. Upon surrender to the
- -----------------
Indenture Trustee of the printed Notes representing the Book-Entry Notes by the
Clearing Agency, accompanied by registration instructions, the Issuer Trust
shall execute and the Indenture Trustee shall authenticate the Definitive Notes
in accordance with the instructions of the Clearing Agency. None of the Issuer
Trust, the Note Registrar or the Indenture Trustee shall be liable for any delay
in delivery of such instructions and each of them may conclusively rely on, and
shall be protected in relying on, such instructions. Upon the issuance of
Definitive Notes to such Note Owners, the Indenture Trustee shall recognize such
Note Owners as Noteholders.
(b) Notwithstanding the foregoing, Note Owners may transfer their
Book-Entry Notes, to transferees who will hold such Notes as Definitive Notes
and (ii) Noteholders
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<PAGE>
may transfer their Definitive Notes to transferees who will hold such Notes as
Book-Entry Notes, if the conditions set forth in this Section 2.12 are
------------
satisfied.
Any and all transfers from a Note Owner of a Book-Entry Note to a
transferee wishing to take delivery in the form of a Definitive Note will
require the transferee to take delivery subject to the restrictions on the
transfer of such Definitive Note described in the legend set forth on the face
of the such Definitive Note substantially in the form of Exhibit C attached
---------
hereto (the "Legend"), and such transferee agrees that it will transfer such a
------
Definitive Note only as provided therein and herein. No such transfer shall be
made and the Indenture Trustee shall not register any such transfer unless such
transfer is made in accordance with this Section 2.12(b) and Section 2.14.
--------------- ------------
Upon acceptance for exchange or transfer of a beneficial interest in a
Book-Entry Note for a Definitive Note as provided herein, the Indenture Trustee
shall endorse on (or cause the endorsement of) the schedule affixed to the
related Book-Entry Note (or on a continuation of such schedule affixed to the
such Book-Entry Note and made a part thereof) an appropriate notation evidencing
the date of such exchange or transfer. Unless determined otherwise by the
Indenture Trustee in accordance with applicable law, a Definitive Note issued
upon transfer of or exchange for a beneficial interest in a Book-Entry Note
shall bear the Legend.
If a Holder of a Definitive Note wishes at any time to transfer such
Definitive Note to a Person who wishes to take delivery thereof in the form of a
beneficial interest in a Book-Entry Note, such transfer may be effected only in
accordance with the applicable procedures of the Depository Institution, and in
accordance with this Section 2.12(b) and Section 2.14 hereof. Upon receipt by
--------------- ------------
the Indenture Trustee at the Corporate Trust Office of (1) the Definitive Note
to be transferred with an assignment and transfer, (2) written instructions
given in accordance with the applicable procedures from a participant directing
the Indenture Trustee to credit or cause to be credited to another specified
participant's account a beneficial interest in the Book-Entry Note, in an amount
equal to the Principal Balance of such Definitive Note to be so transferred, (3)
a written order given in accordance with the applicable procedures containing
information regarding the account of the participant to be credited with such
beneficial interest, and (4) transfer documentation received for a "Qualified
Institutional Buyer" pursuant to Section 2.14, the Indenture Trustee shall (i)
------------
cancel such Definitive Note, (ii) execute and deliver a new Note for the
Principal Balance of the Definitive Note so canceled, registered in the name of
Cede & Co. (or such other nominee of the Clearing Agency), and (iii) shall
instruct the Depository Institution to increase the Principal Balance of the
Book-Entry Note by the Principal Balance of the Definitive Note so canceled, and
to credit or cause to be credited to the account of the Person specified in such
instructions a corresponding Principal Balance of the Book-Entry Note.
Under no circumstances may an institutional "accredited investor"
under Regulation D of the Securities Act take delivery in the form of a
beneficial interest in a Book-Entry Note if such purchaser is not a "qualified
institutional buyer" as defined under Rule 144A under the Securities Act.
C-10
<PAGE>
An exchange of a beneficial interest in the Book-Entry Note for one or
more Definitive Notes, an exchange of one or more Definitive Notes for a
beneficial interest in the Book-Entry Note and an exchange of one or more
Definitive Notes for one or more other Definitive Notes (in each case, whether
or not such exchange is made in anticipation of subsequent transfer, and in the
case of the Book-Entry Note, so long as the Book-Entry Note remains outstanding
and is held by or on behalf of the Depository Institution), may be made only in
accordance with this Section 2.12(b) and Section 2.14 and in accordance with the
--------------- ------------
rules of the Depository Institution.
Section 2.13. Tax Treatment. The Issuer Trust has entered into
-------------
this Indenture, and the Notes will be issued, with the intention that for all
purposes, including federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
Trust secured by the Collateral. The Issuer Trust, by entering into this
Indenture, and each Noteholder, by its acceptance of a Note (and each Note Owner
by its acceptance of an interest in the applicable Book-Entry Note), agree to
treat the Notes for all purposes, including federal, state and local income,
single business and franchise tax purposes, as indebtedness of the Issuer Trust.
Section 2.14. Limitations on Transfer of the Notes. The Notes have
------------------------------------
not been and will not be registered under the Securities Act or any state
securities law and will not be listed on any exchange. No transfer of a
Definitive Note or exchange of a Definitive Note for a beneficial interest in a
Book-Entry Note (or vice versa) may be made unless such transfer is made
pursuant to an effective registration statement under the Securities Act and any
applicable state securities laws or is exempt from the registration requirements
under the Securities Act and such state securities laws. In the event that a
transfer of a Definitive Note, or transfer of a beneficial interest in a Book-
Entry Note to a transferee who wishes to take delivery thereof in the form of a
Definitive Note, is to be made in reliance upon an exemption from the Securities
Act and state securities laws, in order to assure compliance with the Securities
Act and such laws, the prospective transferee shall (A) in the event that the
transfer is made in reliance upon Rule 144A under the Securities Act, deliver a
certification substantially in the form of Exhibit B-3 hereto and cause the
-----------
transferring Noteholder to deliver a certification substantially in the form of
Exhibit B-1 hereto, or (B) in the event that the transfer is made to an
- -----------
institutional "accredited investor" within the meaning of Rule 501(a)(1), (2),
(3) or (7) of Regulation D under the Securities Act that is not a "qualified
institutional buyer," deliver a certification substantially in the form of
Exhibit B-2 hereto.
- -----------
Section 2.15. CUSIP Numbers. The Issuer Trust in issuing the Notes
--------------
may use "CUSIP" numbers (if then generally in use), and, if so, the Indenture
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
the Noteholders; provided that any such notice may state that no representation
--------
is made as to the correctness of such numbers either as printed on the Notes or
as contained in any notice of a redemption and that reliance may be placed only
on the other identification numbers printed on the Notes, and any such
redemption shall not be affected by any defect in or omission of such numbers.
The Issuer Trust will promptly notify the Indenture Trustee of any change in the
"CUSIP" numbers.
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<PAGE>
ARTICLE III
COVENANTS
Section 3.01. Distribution of Principal and Interest. The Issuer
--------------------------------------
Trust will duly and punctually pay (or cause to be paid) the principal of and
interest on the Notes in accordance with the terms of the Notes, the Sale and
Servicing Agreement and this Indenture. Without limiting the foregoing, subject
to and in accordance with Section 5.01(c) of the Sale and Servicing Agreement,
---------------
the Issuer Trust will cause to be distributed all amounts on deposit in the
Collection Account on each Distribution Date deposited therein pursuant to the
Sale and Servicing Agreement for the benefit of the Noteholders. Amounts
properly withheld under the Code by any Person from a payment to any Noteholder
of interest and/or principal shall be considered as having been paid by the
Issuer Trust to such Noteholder for all purposes of this Indenture. The Notes
shall be non-recourse obligations of the Issuer Trust and shall be limited in
right of payment to amounts available from the Collateral, as provided in this
Indenture. The Issuer Trust shall not otherwise be liable for payments on the
Notes. If any other provision of this Indenture shall be deemed to conflict
with the provisions of this Section 3.01, the provisions of this Section 3.01
------------ ------------
shall control.
Section 3.02. Maintenance of Office or Agency. The Issuer Trust will
-------------------------------
maintain in the Borough of Manhattan in The City of New York an office or agency
where Notes may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Issuer Trust in respect of the Notes
and this Indenture may be served. The Issuer Trust hereby initially appoints the
Indenture Trustee to serve as its agent for the foregoing purposes and to serve
as Paying Agent with respect to the Notes. The Issuer Trust will give prompt
written notice to the Indenture Trustee of the location, and of any change in
the location, of any such office or agency. If at any time the Issuer Trust
shall fail to maintain any such office or agency or shall fail to furnish the
Indenture Trustee with the address thereof, such surrenders, notices and demands
may be made or served at the Corporate Trust Office, and the Issuer Trust hereby
appoints the Indenture Trustee as its agent to receive all such surrenders,
notices and demands.
Section 3.03. Money for Distributions to be Held in Trust. All
-------------------------------------------
payments of amounts due and payable with respect to any Notes that are to be
made from amounts withdrawn from the Collection Account pursuant to Section
-------
5.01(c) of the Sale and Servicing Agreement shall be made on behalf of the
- -------
Issuer Trust by the Indenture Trustee, in its capacity as Paying Agent, and no
amounts so withdrawn from the Collection Account for payments of Notes shall be
paid over to the Issuer Trust except as provided in this Section 3.03.
------------
On or before the Business Day preceding each Distribution Date and the
Redemption Date, the Paying Agent shall deposit or cause to be deposited in the
Collection Account an aggregate sum sufficient to pay the amounts due on such
Distribution Date or the Redemption Date under the Notes, such sum to be held in
trust for the benefit of the Persons entitled thereto, and (unless the Paying
Agent is the Indenture Trustee) shall promptly notify the Indenture Trustee of
its action or failure so to act.
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<PAGE>
Any successor or additional Paying Agent shall be appointed by an
Issuer Order with written notice thereof to the Indenture Trustee. Any Paying
Agent appointed by the Issuer Trust shall be a Person which would be eligible to
be Indenture Trustee hereunder as provided in Section 6.11 hereof and will be,
------------
at the time of such appointment, a Depository Institution.
The Issuer Trust will cause each Paying Agent to execute and deliver
to the Indenture Trustee an instrument in which such Paying Agent shall agree
with the Indenture Trustee (and if the Indenture Trustee acts as Paying Agent,
it hereby so agrees), subject to the provisions of this Section, that such
Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and pay such sums to such Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by the Issuer
Trust (or any other obligor upon the Notes) of which it has actual
knowledge in the making of any payment required to be made with respect to
the Notes;
(iii) at any time during the continuance of any such default, upon
the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Notes if
at any time it ceases to meet the standards required to be met by a Paying
Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith; provided, however, that
-------- -------
with respect to withholding and reporting requirements applicable to
original issue discount (if any) on the Notes, the Issuer Trust shall have
first provided the calculations pertaining thereto.
The Issuer Trust may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds or
abandoned property, any money held by the Indenture Trustee or any Paying Agent
in trust for the
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<PAGE>
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged from
such trust and be paid to the Issuer Trust, and the related Noteholder shall
thereafter, as an unsecured general creditor, look only to the Issuer Trust for
payment thereof (but only to the extent of the amounts so paid to the Issuer
Trust), and all liability of the Indenture Trustee or such Paying Agent with
respect to such trust money shall thereupon cease; provided, however, that the
-------- -------
Indenture Trustee or such Paying Agent, before being required to make any such
repayment, shall at the expense of the Issuer Trust cause to be published, once
in a newspaper of general circulation in The City of New York customarily
published in the English language on each Business Day, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such publication, any unclaimed balance of
such money then remaining will be repaid to the Issuer Trust. The Indenture
Trustee shall also adopt and employ, at the expense of the Issuer Trust, any
other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Noteholder whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in moneys due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Noteholder).
Section 3.04. Existence. (a) Subject to subparagraph (b) of this
---------
Section 3.04, the Issuer Trust will keep in full effect its existence, rights
- ------------
and franchises as a business trust under the laws of the State of Delaware
(unless it becomes, or any successor Issuer Trust hereunder is or becomes,
organized under the laws of any other State or of the United States of America,
in which case the Issuer Trust will keep in full effect its existence, rights
and franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes and the Collateral.
(b) Any successor to the Owner Trustee appointed pursuant to Section
-------
10.2 of the Trust Agreement shall be the successor Owner Trustee under this
- ----
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to the
Owner Trustee, the Person succeeding to the Owner Trustee under the Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.
Section 3.05. Protection of Collateral. Upon receipt of written
------------------------
request from the Servicer in accordance with Section 11.06 of the Sale and
Servicing Agreement, the Issuer Trust will from time to time execute and deliver
all such reasonable supplements and amendments hereto and all such financing
statements, continuation statements, instruments of further assurance and other
instruments, and will take such other action necessary or advisable to:
C-14
<PAGE>
(i) provide further assurance with respect to the Grant of all or
any portion of the Collateral;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iv) enforce any rights with respect to the Collateral; or
(v) preserve and defend title to the Collateral and the rights of
the Indenture Trustee and the Noteholders in such Collateral against the
claims of all persons and parties.
Section 3.06. Annual Opinions as to Collateral. On or before March
--------------------------------
15th in each calendar year, beginning in 1999, the Servicer on behalf of the
Issuer Trust shall furnish to the Indenture Trustee an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been taken with
respect to the recording, filing, re-recording and refiling of this Indenture,
any indentures supplemental hereto, the Security Agreement [Indenture Trustee],
any supplements or amendments thereto, and any other requisite documents and
with respect to the execution and filing of any financing statements and
continuation statements as is necessary to maintain the lien and security
interest created by this Indenture and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto, the Security Agreement [Indenture Trustee], any
supplements or amendments thereto and any other requisite documents and the
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien and
security interest of this Indenture until March 15th of the following calendar
year. Upon written request of the Servicer, the Issuer Trust will file any
necessary UCC-3 continuation statements.
Section 3.07. Performance of Obligations. (a) The Issuer Trust
--------------------------
will not take any action and will use its best efforts not to permit any action
to be taken by others that would release any Person from any of such Person's
material covenants or obligations under any instrument or agreement included in
the Collateral or that would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument or agreement, except as expressly provided
in this Indenture, the Security Documents, the Arena Agreement or the Sale and
Servicing Agreement.
(b) The Issuer Trust may contract with or otherwise obtain the
assistance of other Persons to assist it in performing its duties under this
Indenture, and any performance of such duties by a Person identified to the
Indenture Trustee in an Officer's Certificate of the Issuer Trust shall be
deemed to be action taken by the Issuer Trust.
C-15
<PAGE>
(c) The Issuer Trust will punctually perform and observe all of its
obligations and agreements contained in this Indenture, in the Basic Documents
and in the instruments and agreements included in the Collateral.
(d) If the Issuer Trust shall have knowledge of the occurrence of an
Event of Default under the Sale and Servicing Agreement, the Issuer Trust shall
promptly notify the Indenture Trustee and the Rating Agency thereof in writing,
and shall specify in such notice the action, if any, the Issuer Trust is taking
with respect to curing such default. If such an Event of Default shall arise
from the failure of the Servicer to perform any of its duties or obligations
under the Sale and Servicing Agreement, the Issuer Trust shall take all
reasonable steps available to it to remedy such failure.
(e) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer Trust agrees (i) that it will not,
without the prior written consent of the Indenture Trustee, amend, modify,
waive, supplement, terminate or surrender, or agree to any amendment,
modification, supplement, termination, waiver or surrender of, the terms of any
Collateral (except to the extent otherwise provided in the Security Documents to
which it is a party and the Sale and Servicing Agreement) or waive timely
performance or observance by the Servicer or the Transferor of their respective
obligations under the Sale and Servicing Agreement; and (ii) that any such
amendment shall not (A) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, payments that are required to be made for the
benefit of the Noteholders (except to the extent otherwise provided in the
Security Agreement [Indenture Trustee] and the Sale and Servicing Agreement) or
(B) reduce the aforesaid percentage of the Notes that is required to consent to
any such amendment, without the consent of all of the Noteholders. If any such
amendment, modification, supplement or waiver shall so be consented to by the
Indenture Trustee, the Issuer Trust agrees, promptly following a request by the
Indenture Trustee to do so, to execute and deliver, in its own name and at its
own expense, such agreements, instruments, consents and other documents as the
Indenture Trustee may deem necessary or appropriate in the circumstances.
Notice of any such amendment, modification, supplement or waiver shall be
delivered by the Issuer Trust to the Rating Agency.
Section 3.08. Negative Covenants. So long as any Notes are
------------------
Outstanding, the Issuer Trust shall not:
(i) except as expressly permitted by this Indenture, the Security
Agreement [Indenture Trustee] or the Sale and Servicing Agreement, sell,
transfer, exchange or otherwise dispose of any of the properties or assets
of the Issuer Trust, including those included in the Collateral, unless
directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the principal or
interest payable in respect of, the Notes (other than amounts properly
withheld from such payments under the Code) or assert any claim against any
present or former Noteholder by reason of the payment of the taxes levied
or assessed upon any part of the Collateral;
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<PAGE>
(iii) engage in any business or activity other than as permitted by
the Trust Agreement, the Security Agreement [Indenture Trustee] and the
Sale and Servicing Agreement or other than in connection with, or relating
to, the issuance of Notes pursuant to this Indenture, or amend the Trust
Agreement as in effect on the Closing Date other than in accordance with
Section 11.1 thereof;
------------
(iv) issue debt obligations under any other indenture;
(v) incur or assume any indebtedness or guarantee any indebtedness
of any Person, except for such indebtedness as may be incurred by the
Issuer Trust in connection with the issuance of the Notes pursuant to this
Indenture;
(vi) dissolve or liquidate in whole or in part or merge or
consolidate with any other Person;
(vii) (A) permit the validity or effectiveness of this Indenture,
the Arena Agreement or the Security Documents to be impaired, or permit the
City Lien, the Security Documents or of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged except as set forth in
the City Intercreditor Agreements, or permit any Person to be released from
any covenants or obligations with respect to the Notes under this Indenture
except as may expressly be permitted by the City Intercreditor Agreements
or the Security Documents, (B) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance (other than the lien of
the Security Documents, this Indenture and the City Lien) to be created on
or extend to or otherwise arise upon or burden the Collateral or any part
thereof or any interest therein or the proceeds thereof (other than tax
liens, mechanics' liens and other liens that arise by operation of law, in
each case on the Site or the New Arena Facility and which shall be promptly
discharged) or (C) permit the lien of the Security Documents and of this
Indenture not to constitute a valid first priority (other than with respect
to any such tax, mechanics' or other lien) security interest in the
Collateral, subject to the terms of the City Intercreditor Agreements; or
(viii) take any other action or fail to take any action which may
cause the Issuer Trust to be taxable as (a) an association pursuant to
Section 7701 of the Code and the corresponding regulations or (b) as a
taxable mortgage pool pursuant to Section 7701(i) of the Code and the
corresponding regulations.
Section 3.09. Annual Statement as to Compliance. The Issuer Trust
---------------------------------
will deliver to the Indenture Trustee, within 120 days after the end of each
fiscal year of the Issuer Trust (commencing in the fiscal year 1998), an
Officer's Certificate stating, as to the Authorized Officer of the Issuer Trust
signing such Officer's Certificate, that:
(i) a review of the activities of the Issuer Trust during such year
and of its performance under this Indenture has been made under such
Authorized Officer's supervision; and
C-17
<PAGE>
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Issuer Trust has complied with all conditions and
covenants under this Indenture throughout such year (without regard to
notice requirements or grace periods), or, if there has been a default in
its compliance with any such condition or covenant, specifying each such
default known to such Authorized Officer and the nature and status thereof.
Section 3.10. Covenants of the Issuer Trust. All covenants of the
-----------------------------
Issuer Trust in this Indenture are covenants of the Issuer Trust and are not
covenants of the Owner Trustee. The Owner Trustee is, and any successor Owner
Trustee under the Trust Agreement will be, entering into this Indenture solely
as Owner Trustee under the Trust Agreement and not in its respective individual
capacity, and in no case whatsoever shall the Owner Trustee or any such
successor Owner Trustee be personally liable on, or for any loss in respect of,
any of the statements, representations, warranties or obligations of the Issuer
Trust hereunder, as to all of which the parties hereto agree to look solely to
the property of the Issuer Trust.
Section 3.11. Restricted Payments. The Issuer Trust shall not,
-------------------
directly or indirectly, (i) pay any dividend or make any payment (by reduction
of capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee, the Servicer, the Transferor, or any Affiliate
thereof, or any owner of a beneficial interest in the Issuer Trust or otherwise
with respect to any ownership or equity interest or security in or of the Issuer
Trust, (ii) redeem, purchase, retire or otherwise acquire for value any such
ownership or equity interest or security or (iii) set aside or otherwise
segregate any amounts for any such purpose; provided, however, that the Issuer
-------- -------
Trust may make, or cause to be made, payments to the Servicer, the Indenture
Trustee, the Owner Trustee, the Paying Agent, the Noteholders and the
Certificateholders as contemplated by, and to the extent funds are available for
such purpose under, the Sale and Servicing Agreement or the Trust Agreement.
Section 3.12. Notice of Events of Default . The Issuer Trust shall
---------------------------
give the Indenture Trustee and the Rating Agency prompt written notice of each
Event of Default hereunder and each default on the part of the Servicer or the
Transferor of their respective obligations under the Sale and Servicing
Agreement.
Section 3.13. Further Instruments and Acts. Upon request of the
----------------------------
Indenture Trustee, the Issuer Trust will execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper to
carry out more effectively the purpose of this Indenture.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture. This Indenture
---------------------------------------
shall cease to be of further effect with respect to the Notes (except as to (i)
Sections 3.03, 3.04 and 3.10 hereof, (ii) the rights, obligations and immunities
- ------------------- ----
of the Indenture Trustee hereunder
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<PAGE>
(including the rights of the Indenture Trustee under Section 6.07 hereof and the
------------
obligations of the Indenture Trustee under Section 4.02 hereof) and (iii) the
------------
rights of Noteholders as beneficiaries hereof with respect to the property so
deposited with the Indenture Trustee payable to all or any of them), and the
Indenture Trustee, on demand of and at the expense of the Issuer Trust, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture with respect to the Notes, when all of the following have occurred:
(A) either (1) all Notes theretofore authenticated and delivered
(other than Notes that have been destroyed, lost or stolen and that have been
replaced or paid as provided in Section 2.04 hereof) shall have been delivered
------------
to the Indenture Trustee for cancellation; or (2) all Notes not theretofore
delivered to the Indenture Trustee for cancellation shall have become due and
payable, and the Issuer Trust has irrevocably deposited or caused irrevocably to
be deposited with the Indenture Trustee cash or direct obligations of or
obligations guaranteed by the United States of America (which will mature prior
to the date such amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Indenture Trustee for cancellation; and
(B) the latest of (a) 18 months after payment in full of all
outstanding obligations under the Notes, (b) the payment in full of all unpaid
Trust Fees and Expenses and (c) the date on which the Issuer Trust has paid or
caused to be paid all other sums payable hereunder by the Issuer Trust; and
(C) the Issuer Trust shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel each meeting the applicable
requirements of Section 11.01(a) hereof and, subject to Section 11.02 hereof,
---------------- -------------
each stating that all conditions precedent herein provided for, relating to the
satisfaction and discharge of this Indenture with respect to the Notes, have
been complied with.
Section 4.02. Application of Trust Money. All moneys deposited
--------------------------
with the Indenture Trustee pursuant to Sections 3.03 and 4.01 hereof shall be
------------- ----
held in trust and applied by it, in accordance with the provisions of the Notes
and this Indenture, to the payment, either directly or through any Paying Agent,
as the Indenture Trustee may determine, to the Noteholders for the payment or
redemption of which such moneys have been deposited with the Indenture Trustee,
of all sums due and to become due thereon for principal and interest; but such
moneys need not be segregated from other funds except to the extent required
herein or in the Sale and Servicing Agreement or required by law.
Section 4.03. Repayment of Moneys Held by Paying Agent. In connection
----------------------------------------
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer Trust, be paid to the Indenture Trustee to be held and applied
according to Section 3.03 hereof and thereupon such Paying Agent shall be
------------
released from all further liability with respect to such moneys.
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<PAGE>
ARTICLE V
REMEDIES
Section 5.01. Events of Default. An "Event of Default," wherever used
----------------- ----------------
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body or
otherwise):
(a) notwithstanding that there may be insufficient sums in the
Collection Account for payment thereof on the related Distribution Date, default
in the payment of any interest on any Note when the same becomes due and
payable, and continuance of such default for a period of two (2) Business Days;
or
(b) notwithstanding that there may be insufficient sums in the
Collection Account for payment thereof on the related Distribution Date, default
in the payment of the principal of any Note when the same becomes due and
payable on the Rated Final Maturity Date; or
(c) default in the observance or performance of any covenant or
agreement of the Issuer Trust made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is elsewhere in
this Section specifically dealt with) or in any other Basic Document to which
the Issuer Trust is a party, or any representation or warranty of the Issuer
Trust made in this Indenture, any other Basic Document to which the Issuer Trust
is a party or in any certificate or other writing delivered pursuant hereto or
thereto or in connection herewith or therewith proving to have been incorrect in
any material respect as of the time when the same shall have been made, and such
default shall continue or not be cured, or the circumstance or condition in
respect of which such representation or warranty was incorrect shall not have
been eliminated or otherwise cured, for a period of 30 days after there shall
have been given, by registered or certified mail, to the Issuer Trust by the
Indenture Trustee, or to the Issuer Trust and the Indenture Trustee by the
Holders of at least 25% of the Voting Interests of the Outstanding Notes, a
written notice specifying such default or incorrect representation or warranty
and requiring it to be remedied and stating that such notice is a notice of
Default hereunder; or
(d) default in the observance or performance of any material covenant
or agreement of the Transferor made in the Trust Agreement, the Sale and
Servicing Agreement or any other Basic Document to which it is a party or any
representation or warranty of the Transferor made in the Trust Agreement, the
Sale and Servicing Agreement or any other Basic Document to which it is a party,
or in any certificate or other writing delivered pursuant thereto or in
connection therewith proving to have been incorrect in any material respect as
of the time when the same shall have been made, and such default shall continue
or not be cured, or the circumstance or condition in respect of which such
representation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 30 days after there shall have been given, by
registered or certified mail, to the Issuer Trust by the Indenture
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<PAGE>
Trustee, or to the Issuer Trust and the Indenture Trustee by the Holders of at
least 25% of the Voting Interests of the Outstanding Notes, a written notice
specifying such default or incorrect representation or warranty and requiring it
to be remedied and stating that such notice is a notice of Default hereunder;
provided, however, that if (i) such default cannot be cured within such 30 day
- -------- -------
period, (ii) such default is susceptible of being cured in the reasonable
opinion of the Transferor, (iii) no other Event of Default has occurred and is
continuing, (iv) the Transferor is proceeding with diligence and in good faith
to cure such default, (v) the existence of such default is not reasonably likely
to result in any Revenue Contractor being entitled to discontinue making
payments under its respective Revenue Agreement, and (vi) the Indenture Trustee
has received an Officer's Certificate of the Transferor with respect to clauses
(i), (ii), (iii), (iv) and (v) above, then such 30 day period shall be extended
by up to an additional 60 days as shall be necessary for the Transferor to
diligently cure such default; or
(e) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer Trust or any substantial
part of the Collateral in an involuntary case under any applicable federal or
state bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer Trust or for any substantial part of the
Collateral, or ordering the winding-up or liquidation of the Issuer Trust's
affairs, and such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; or
(f) the commencement by the Issuer Trust of a voluntary case under
any applicable federal or state bankruptcy, insolvency or other similar law now
or hereafter in effect, or the consent by the Issuer Trust to the entry of an
order for relief in an involuntary case under any such law, or the consent by
the Issuer Trust to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Issuer Trust or for any substantial part of the Collateral, or the making by
the Issuer Trust of any general assignment for the benefit of creditors, or the
failure by the Issuer Trust generally to pay its debts as such debts become due,
or the taking of any action by the Issuer Trust in furtherance of any of the
foregoing; or
(g) failure by the Transferor to pay the amount required to be paid
by it in the event of the mandatory redemption of the Notes pursuant to clauses
(iii) or (iv) of Section 10.01 hereof.
-------------
The Issuer Trust shall deliver to the Indenture Trustee, within five
days after the occurrence thereof, written notice in the form of an Officer's
Certificate of any event which with the giving of notice and the lapse of time
would become an Event of Default under clauses (c) and (d) above, the status of
such event and what action the Issuer Trust is taking or proposes to take with
respect thereto.
Section 5.02. Acceleration of Maturity; Rescission and Annulment. If
--------------------------------------------------
an Event of Default should occur and be continuing, then (i) if such Event of
Default arises under Section 5.01(e) or (f) hereof, automatically and without
----------------------
any further act by the Indenture Trustee, the Issuer Trust or any other Person
and without protest, presentment, demand or
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notice of any kind, all of which are hereby waived by the Issuer Trust, the
unpaid principal amount of the Notes, together with accrued and unpaid interest
shall be immediately due and payable and (ii) in all other cases, the Indenture
Trustee, at the direction or upon the prior written consent of the Majority
Noteholders, may declare all the Notes to be immediately due and payable, by a
notice in writing to the Issuer Trust (and to the Indenture Trustee if given
directly by the Majority Noteholders), and upon any such declaration the unpaid
principal amount of such Notes, together with accrued and unpaid interest
thereon shall become immediately due and payable.
At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the moneys due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
---------
Majority Noteholders, by written notice to the Issuer Trust and the Indenture
Trustee, may rescind and annul such declaration and its consequences if:
(a) the Issuer Trust has paid or deposited with the Indenture Trustee
a sum sufficient to pay:
1. all payments of principal and interest on all Notes and all other
amounts that would then be due hereunder or upon such Notes if the
Event of Default giving rise to such acceleration had not occurred;
and
2. all sums paid or advanced by the Indenture Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Indenture Trustee and its agents and counsel; and
(b) all Events of Default, other than the nonpayment of the principal
of the Notes that has become due solely by such acceleration, have been cured or
waived as provided in Section 5.12 hereof. No such rescission shall affect any
------------
subsequent default or impair any right consequent thereto.
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Indenture Trustee. (a) The Issuer Trust covenants that if (i) default is made in
- -----------------
the payment of any interest on any Note when the same becomes due and payable,
and such default continues for a period of two (2) Business Days, or (ii)
default is made in the payment of the principal of any Note when the same
becomes due and payable on the Rated Final Maturity Date, the Issuer Trust will,
upon demand of the Indenture Trustee, pay to the Indenture Trustee, for the
benefit of the Noteholders, the entire amount then due and payable on such Notes
for principal and interest, with interest upon the overdue principal and, to the
extent payment at such rate of interest shall be legally enforceable, upon
overdue installments of interest at the rate borne by the Notes and in addition
thereto such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its agents and counsel.
(b) In the event that the Issuer Trust shall fail to pay such amounts
upon such demand, the Indenture Trustee may, and shall at the direction of the
Majority
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Noteholders, institute a Proceeding for the collection of the sums so due and
unpaid, and may prosecute such Proceeding to judgment or final decree, and may
enforce the same against the Issuer Trust or other obligor upon such Notes and
collect in the manner provided by law out of the property of the Issuer Trust or
other obligor upon such Notes, wherever situated, the moneys adjudged or decreed
to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee may, in its discretion, and shall at the direction of the Majority
Noteholders, as more particularly provided in Section 5.04 hereof, proceed to
------------
protect and enforce its rights and the rights of the Noteholders by such
appropriate Proceedings as the Indenture Trustee shall deem most effective to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy or legal or equitable
right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer Trust or
any other obligor upon the Notes or any Person having or claiming an ownership
interest in the Collateral, Proceedings under the Bankruptcy Code or any other
applicable federal or state bankruptcy, insolvency or other similar law, or in
case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer Trust or its property or such other obligor or
Person, or in case of any other comparable judicial Proceedings relative to the
Issuer Trust or other obligor upon the Notes, or to the creditors or property of
the Issuer Trust or such other obligor, the Indenture Trustee, irrespective of
whether the principal of any Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Indenture Trustee shall have made any demand pursuant to the provisions of this
Section, shall be entitled and empowered by intervention in such Proceedings or
otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to file
such other papers or documents as may be necessary or advisable in order to
have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee, each predecessor
Indenture Trustee, and its agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred, and all advances
made, by the Indenture Trustee and each predecessor Indenture Trustee,
except as a result of negligence or bad faith) and of the Noteholders
allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Noteholders in any election of a trustee, a standby trustee
or Person performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders and the Indenture Trustee on their
behalf; and
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<PAGE>
(iv) to file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Indenture
Trustee or the Noteholders allowed in any judicial proceedings relative to
the Issuer Trust, its creditors and its property; and any trustee,
receiver, liquidator, custodian or other similar official in any such
Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee and, in the event that the Indenture
Trustee shall consent to the making of payments directly to such
Noteholders, to pay to the Indenture Trustee such amounts as shall be
sufficient to cover reasonable compensation to the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents, attorneys and
counsel, and all other expenses and liabilities incurred and all advances
made by the Indenture Trustee and each predecessor Indenture Trustee except
as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Noteholder or to authorize
the Indenture Trustee to vote in respect of the claim of any Noteholder in any
such Proceeding except, as aforesaid, to vote for the election of a trustee in
bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Indenture Trustee
without the possession of any of the Notes or the production thereof in any
trial or other Proceedings relative thereto, and any such action or Proceedings
instituted by the Indenture Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents, attorneys and
counsel, shall be for the ratable benefit of the Noteholders.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Noteholders, and it shall not be necessary to make any
Noteholder a party to any such Proceedings.
Section 5.04. Remedies; Priorities.
--------------------
(a) If an Event of Default shall have occurred and be continuing, the
Indenture Trustee may, and at the direction of the Majority Noteholders shall,
do one or more of the following (subject to Section 5.05 hereof):
------------
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the Notes
or under this Indenture with respect thereto, whether by declaration or
otherwise, enforce any judgment obtained, and collect from the Issuer Trust
and any other obligor upon such Notes moneys adjudged due;
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<PAGE>
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Collateral;
(iii) subject to the City Intercreditor Agreements, exercise any
remedies of a secured party under the UCC and take any other appropriate
action to protect and enforce the rights and remedies of the Indenture
Trustee or the Noteholders; and
(iv) sell the Collateral or any portion thereof or rights or
interest therein in a commercially reasonable manner as provided in the
Security Agreement [Indenture Trustee] and the other Security Documents. In
determining compliance with the Security Documents, the Indenture Trustee
shall obtain and rely upon an opinion of an Independent investment banking
or accounting firm of national reputation as to the feasibility of such
proposed action and as to the sufficiency of the Collateral for such
purpose.
(b) If the Indenture Trustee collects any money or property
pursuant to this Article V, it shall pay out the money or property in the
---------
following order (subject to the terms of the City Intercreditor Agreements):
FIRST: to the Indenture Trustee for the Indenture Trustee Fee then
due and unpaid and any costs or expenses incurred by it in connection with
the enforcement of the remedies provided for in this Article V and to the
Owner Trustee for the Owner Trustee Fee then due and unpaid;
SECOND: any amounts due and unpaid to the City pursuant to the Lease;
THIRD: to the Servicer for the Servicing Fee then due and unpaid,
unless the Servicer is the initial Servicer and there shall have occurred
and be continuing a Servicer Event of Default;
FOURTH: to the Custodian for the Custodian Fee, if any, then due and
unpaid;
FIFTH: to the Noteholders for amounts due and unpaid on the Notes
for interest and principal, pro rata according to the amounts due and
payable on the Notes;
SIXTH: to the Certificate Paying Agent, for any amounts to be
distributed pro rata to the Certificateholders pursuant to the Trust
Agreement and the City Intercreditor Agreements.
The Indenture Trustee may schedule a record date and Distribution Date
for any payment to be made to the Noteholders pursuant to this Section. At
least 15 days before such record date, the Indenture Trustee shall mail to each
Noteholder and the Issuer Trust a notice that states the record date, the
Distribution Date and the amount to be paid.
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<PAGE>
Section 5.05. Optional Preservation of the Collateral. If the
---------------------------------------
Notes have been declared to be due and payable under Section 5.02 hereof
------------
following an Event of Default and such declaration and its consequences have not
been rescinded and annulled, the Indenture Trustee may, but need not, elect to
maintain possession of the Collateral. It is the desire of the parties hereto
and the Noteholders that there be at all times sufficient funds for the payment
of principal of and interest on the Notes, and the Indenture Trustee shall take
such desire into account when determining whether or not to maintain possession
of the Collateral. In determining whether to maintain possession of the
Collateral, the Indenture Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Collateral for such purpose.
Section 5.06. Limitation of Suits. No Noteholder shall have any
-------------------
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(a) such Noteholder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% of the Voting Interests of the
Outstanding Notes have made written request to the Indenture Trustee to
institute such Proceeding in respect of such Event of Default in its own
name as Indenture Trustee hereunder;
(c) such Holder or Holders have offered to the Indenture Trustee
indemnity satisfactory to it against the costs, expenses and liabilities to
be incurred in complying with such request;
(d) the Indenture Trustee, for 60 days after its receipt of such
notice, request and offer of indemnity, has failed to institute such
Proceeding; and
(e) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60-day period by the Majority
Noteholders.
It is understood and intended that no Noteholder shall have any right
in any manner whatever by virtue of, or by availing of, any provision of this
Indenture to affect, disturb or prejudice the rights of any other Noteholder or
to obtain or to seek to obtain priority or preference over any other Noteholder
or to enforce any right under this Indenture, except in the manner herein
provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Noteholders, each
representing less than the Majority Noteholders, the Indenture Trustee in its
sole discretion may determine what action, if any, shall be taken,
notwithstanding any other provisions of this Indenture.
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<PAGE>
Section 5.07. Unconditional Rights of Noteholders to Receive
----------------------------------------------
Principal and Interest. Notwithstanding any other provisions in this
- ----------------------
Indenture, the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest on such Note
on or after the Rated Final Maturity Date or as otherwise provided in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder.
Section 5.08. Restoration of Rights and Remedies. If the Indenture
----------------------------------
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer Trust, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.
Section 5.09. Rights and Remedies Cumulative. Except as otherwise
------------------------------
set forth in the last paragraph of Section 2.04 hereof, no right or remedy
------------
herein conferred upon or reserved to the Indenture Trustee or to the Noteholders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. Delay or Omission Not a Waiver. No delay or omission
------------------------------
of the Indenture Trustee or any Noteholder to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
---------
to the Indenture Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.
Section 5.11. Control by Noteholders. The Majority Noteholders
----------------------
shall have the right to direct the time, method and place of conducting any
Proceeding for any remedy available to the Indenture Trustee with respect to the
Notes or exercising any trust or power conferred on the Indenture Trustee;
provided, however, that:
- -------- -------
(a) such direction shall not be in conflict with any applicable rule
of law or with this Indenture;
(b) subject to the express terms of Section 5.04 hereof, any
------------
direction to the Indenture Trustee to sell or liquidate the available
Collateral shall be by Noteholders representing not less than 100% of the
Voting Interests of all Notes Outstanding;
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<PAGE>
(c) if the conditions set forth in Section 5.05 hereof have been
------------
satisfied and the Indenture Trustee elects to retain the Collateral
pursuant to such Section, then any direction to the Indenture Trustee by
Noteholders representing less than 100% of the Voting Interests of all
Notes Outstanding to sell or liquidate the Collateral shall be of no force
and effect; and
(d) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction.
Notwithstanding the rights of the Noteholders set forth in this
Section 5.11, subject to Section 6.01 hereof, the Indenture Trustee need not
- ------------ ------------
take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to such
action.
Section 5.12. Waiver of Past Defaults. The Majority Noteholders
-----------------------
may waive any past Default or Event of Default and its consequences, except a
Default (a) in the payment of principal or interest on any of the Notes or (b)
in respect of a covenant or provision hereof that cannot be modified or amended
without the consent of each Noteholder. In the case of any such waiver, the
Issuer Trust, the Indenture Trustee and the Noteholders shall be restored to
their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other Default or Event of Default or impair
any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
Section 5.13. Undertaking for Costs. All parties to this Indenture
---------------------
agree, and each Noteholder by acceptance of the related Note (or a direct or
indirect beneficial interest therein) shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Indenture
Trustee for any action taken, suffered or omitted by it as Indenture Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
such suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; but the provisions of this Section shall
not apply to (a) any suit instituted by the Indenture Trustee, (b) any suit
instituted by any Noteholder, or group of Noteholders, in each case holding in
the aggregate more than 10% of the Voting Interests of the Outstanding Notes or
(c) any suit instituted by any Noteholder for the enforcement of the payment of
principal or interest on a Note on or after the related due date expressed in
such Note and in this Indenture (or, in the case of redemption, on or after the
Redemption Date).
Section 5.14. Waiver of Stay or Extension Laws. The Issuer Trust
--------------------------------
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead or in
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<PAGE>
any manner whatsoever, claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture or the Security
Agreement [Indenture Trustee], and the Issuer Trust (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Indenture Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
Section 5.15. Action on Notes. The Indenture Trustee's right to
---------------
seek and recover judgment on the Notes or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under or
with respect to this Indenture or the Security Agreement [Indenture Trustee].
Neither the lien of this Indenture or of the Security Agreement [Indenture
Trustee], nor any rights or remedies of the Indenture Trustee or the Noteholders
shall be impaired by the recovery of any judgment by the Indenture Trustee
against the Issuer Trust or by the levy of any execution under such judgment
upon any portion of the Collateral or upon any of the assets of the Issuer
Trust. Any money or property collected by the Indenture Trustee shall be
applied in accordance with Section 5.04(b) hereof.
---------------
Section 5.16. Performance and Enforcement of Certain Obligations.
--------------------------------------------------
(a) Promptly following a request from the Indenture Trustee to do so,
the Issuer Trust shall take all such lawful action as the Indenture Trustee may
request to compel or secure the performance and observance by the Transferor and
the Servicer, as applicable, of each of their obligations to the Issuer Trust
under or in connection with the Sale and Servicing Agreement, and to exercise
any and all rights, remedies, powers and privileges lawfully available to the
Issuer Trust under or in connection with the Sale and Servicing Agreement to the
extent and in the manner directed by the Indenture Trustee, including the
transmission of notices of default on the part of the Transferor or the Servicer
thereunder and the institution of legal or administrative actions or Proceedings
to compel or secure performance by the Transferor or the Servicer of each of
their obligations under the Sale and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the direction (which direction shall either be in
writing or by telephone confirmed in writing promptly thereafter) of the Holders
of 66-2/3% of the Voting Rights of the Notes Outstanding shall, exercise all
rights, remedies, powers, privileges and claims of the Issuer Trust against the
Transferor or the Servicer under or in connection with the Sale and Servicing
Agreement, including the right or power to take any action to compel or secure
performance or observance by the Transferor or the Servicer, as the case may be,
of each of their obligations thereunder and to give any consent, request,
notice, direction, approval, extension, or waiver under the Sale and Servicing
Agreement, and any right of the Issuer Trust to take such action shall be
suspended.
Section 5.17. Environmental Site Assessment. The Indenture Trustee
-----------------------------
shall not commence foreclosure of any mortgage on the Property unless a Phase I
(and if appropriate, Phase II) environmental site assessment of the Property is
conducted at the expense of the
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<PAGE>
Transferor, and no material environmental liabilities or potential material
liabilities are detected thereby.
ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee. (a) If an Event of
---------------------------
Default has occurred and is continuing, the Indenture Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of care
and skill in its exercise as a prudent person would use under the circumstances
in the exercise of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; provided, however, in the case of any such
-------- -------
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Indenture Trustee, the Indenture Trustee
shall be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture (but need not confirm or
investigate the accuracy of mathematical calculations or other facts stated
therein).
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 6.01;
------------
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Indenture Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.11 hereof.
------------
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this Section
-------------------------------- -------
6.01.
- ----
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<PAGE>
(e) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing with
the Issuer Trust.
(f) Money held in trust by the Indenture Trustee shall be segregated
from other funds except to the extent permitted by law or the terms of this
Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it; provided, however, that the Indenture Trustee
-------- -------
shall not refuse or fail to perform any of its duties hereunder solely as a
result of nonpayment of its normal fees and expenses and provided, further, that
-------- -------
nothing in this Section 6.01(g) shall be construed to limit the exercise by the
---------------
Indenture Trustee of any right or remedy permitted under this Indenture or
otherwise in the event of the Issuer Trust's failure to pay the Indenture
Trustee's fees and expenses pursuant to Section 6.07 hereof. In determining
------------
that such repayment or indemnity is not reasonably assured to it, the Indenture
Trustee must consider not only the likelihood of repayment or indemnity by or on
behalf of the Issuer Trust but also the likelihood of repayment or indemnity
from amounts payable to it from the Collateral pursuant to Section 6.07 hereof.
------------
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section.
(i) The Indenture Trustee shall not be required to take notice or be
deemed to have notice or knowledge of any Event of Default (other than any Event
of Default pursuant to Section 5.01(a) and (b) hereof) unless a Responsible
-----------------------
Officer of the Indenture Trustee shall have received written notice thereof or
otherwise shall have actual knowledge thereof. In the absence of receipt of
notice or such knowledge, the Indenture Trustee may conclusively assume that
there is no Event of Default.
Section 6.02. Rights of Indenture Trustee.
---------------------------
(a) The Indenture Trustee may rely conclusively on any document
believed by it to be genuine and to have been signed or presented by the proper
person. The Indenture Trustee need not investigate any fact or matter stated in
the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a
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<PAGE>
custodian or nominee and the Indenture Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with due
care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that such action or omission by the
-------- -------
Indenture Trustee does not constitute willful misconduct, negligence or bad
faith.
(e) The Indenture Trustee may consult with counsel of its selection,
and the advice or opinion of counsel with respect to legal matters relating to
this Indenture and the Notes shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) The rights, privileges, protections, immunities and benefits
given to the Indenture Trustee, including, without limitation, its rights to be
indemnified, are extended to, and shall be enforceable by, the Indenture Trustee
in each of its capacities hereunder, and to each agent, custodian and other
Person employed to act hereunder.
Section 6.03. Individual Rights of Indenture Trustee. The Indenture
--------------------------------------
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer Trust or its Affiliates with the
same rights it would have if it were not Indenture Trustee. Any Paying Agent,
Note Registrar, co-registrar or co-paying agent may do the same with like
rights. However, the Indenture Trustee must comply with Sections 6.11 and 6.12
------------- ----
hereof.
Section 6.04. Indenture Trustee's Disclaimer'. The Indenture Trustee
------------------------------
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be accountable for the Issuer
Trust's use of the proceeds from the Notes, or responsible for any statement of
the Issuer Trust in the Indenture or in any document issued in connection with
the sale of the Notes or in the Notes other than the Indenture Trustee's
certificate of authentication.
Section 6.05. Notices of Default. If a Default occurs and is
------------------
continuing and if it is known to a Responsible Officer of the Indenture Trustee,
the Indenture Trustee shall mail to each Noteholder notice of the Default within
90 days after it occurs. Except in the case of a Default in payment of
principal or interest on any Note (including payments pursuant to the mandatory
redemption provisions of such Note), the Indenture Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Noteholders.
Section 6.06. Reports by Indenture Trustee to Holders. The
---------------------------------------
Indenture Trustee shall deliver to each Noteholder such information as may be
required to enable such Holder to prepare its federal and state income tax
returns.
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<PAGE>
Section 6.07. Compensation and Indemnity. As compensation for its
--------------------------
services hereunder, the Indenture Trustee shall be entitled to receive, on each
Distribution Date, the Indenture Trustee's Fee (which compensation shall not be
limited by any law on compensation of a trustee of an express trust) and shall
be entitled to reimbursement by the Servicer for all reasonable out-of-pocket
expenses incurred or made by it, including costs of collection, in addition to
the compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Indenture Trustee's
agents, counsel, accountants and experts. The Issuer Trust agrees to cause the
Transferor to indemnify the Indenture Trustee against any and all loss, damage,
claim (whether asserted by the Issuer Trust or any Noteholder or any other
Person) liability or expense (including attorneys' fees and expenses) incurred
by it in connection with the administration of this trust and the performance of
its duties hereunder. The Indenture Trustee shall notify the Issuer Trust and
the Transferor promptly of any claim for which it may seek indemnity. Failure
by the Indenture Trustee so to notify the Issuer Trust and the Transferor shall
not relieve the Issuer Trust of its obligations hereunder. The Issuer Trust
shall defend or cause the Transferor to defend any such claim, and shall pay or
cause the Transferor to pay the reasonable fees and expenses of separate counsel
obtained by the Indenture Trustee with respect hereof, which counsel shall be
reasonably acceptable to the Transferor. Neither the Issuer Trust nor the
Transferor need reimburse any expense or indemnify against any loss, liability
or expense incurred by the Indenture Trustee through the Indenture Trustee's own
willful misconduct, negligence or bad faith.
The Indenture Trustee shall have a lien prior to the Notes as to all
property and funds held by it hereunder for any amount owing to it or any
predecessor Indenture Trustee pursuant to this Section 6.07, except with respect
------------
to funds held in trust for the benefit of the Noteholders.
The Issuer Trust's payment obligations to the Indenture Trustee
pursuant to this Section 6.07 shall survive the discharge of this Indenture.
------------
When the Indenture Trustee incurs expenses after the occurrence of a Default
specified in Section 5.01(a) hereof with respect to the Issuer Trust, the
---------------
expenses are intended to constitute expenses of administration under Title 11 of
the United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. Replacement of Indenture Trustee. No resignation or
--------------------------------
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture
------------
Trustee may resign at any time by so notifying the Issuer Trust. The Majority
Noteholders may remove the Indenture Trustee by so notifying the Indenture
Trustee and may appoint a successor Indenture Trustee. The Issuer Trust shall
remove the Indenture Trustee if:
(a) the Indenture Trustee fails to comply with Section 6.11 hereof;
------------
(b) the Indenture Trustee is adjudged a bankrupt or insolvent;
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<PAGE>
(c) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or
(d) the Indenture Trustee otherwise becomes incapable of performing
its obligations under this Indenture.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
Trust shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee and to the Issuer Trust. Upon
receipt of such written acceptance by the Issuer Trust, the resignation or
removal of the retiring Indenture Trustee shall become effective, and the
successor Indenture Trustee shall have all the rights, powers and duties of the
Indenture Trustee under this Indenture and the Security Agreement [Indenture
Trustee]. The successor Indenture Trustee shall mail a notice of its succession
to Noteholders. The retiring Indenture Trustee shall promptly transfer all
property held by it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer Trust or the Majority Noteholders may petition, at
the expense of the Issuer Trust, any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11 hereof, any
------------
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section 6.08, the Issuer Trust's obligations under Section 6.07 hereof
------------ ------------
shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. Successor Indenture Trustee by Merger. If the Indenture
-------------------------------------
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided,
--------
however, that such corporation or banking association shall otherwise be
- -------
qualified and eligible under Section 6.11 hereof. The Indenture Trustee
------------
shall provide the Rating Agency prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have
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<PAGE>
been authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. Appointment of Co-Indenture Trustee or Separate
-----------------------------------------------
Indenture Trustee. (a) Notwithstanding any other provisions of this
- -----------------
Indenture, at any time, for the purpose of meeting any legal requirement of any
jurisdiction in which any part of the Collateral may at the time be located, the
Indenture Trustee shall have the power and may execute and deliver all
instruments to appoint one or more Persons to act as a co-trustee or co-
trustees, or separate trustee or separate trustees, of all or any part of the
Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Noteholders, such title to the Collateral, or any part hereof,
and, subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Indenture Trustee may consider necessary
or desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 6.11 hereof
------------
and no notice to Noteholders of the appointment of any co-trustee or separate
trustee shall be required under Section 6.08 hereof.
------------
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Indenture Trustee shall be conferred or imposed upon and exercised
or performed by the Indenture Trustee and such separate trustee or co-
trustee jointly (it being understood that such separate trustee or co-
trustee is not authorized to act separately without the Indenture Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed the
Indenture Trustee shall be incompetent or unqualified to perform such act
or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Collateral or any portion thereof in
any such jurisdiction) shall be exercised and performed solely by such
separate trustee or co-trustee, pursuant to and at the direction of the
Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
----------
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture
Trustee, subject to all the provisions of this Indenture, specifically including
every provision of this Indenture
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<PAGE>
relating to the conduct of, affecting the liability of, or affording protection
to, the Indenture Trustee. Every such instrument shall be filed with the
Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Indenture and the Security Agreement [Indenture Trustee] on its behalf and
in its name. If any separate trustee or co-trustee shall die, become incapable
of acting, resign or be removed, all of its estates, properties, rights,
remedies and trusts shall vest in and be exercised by the Indenture Trustee, to
the extent permitted by law, without the appointment of a new or successor
trustee.
Section 6.11. Eligibility; Disqualification. The Indenture Trustee
-----------------------------
shall at all times be a corporation or a national banking association organized
and doing business under the laws of the United States of America, any State
thereof or the District of Columbia, authorized under such laws to exercise
corporate trust powers, having a commercial paper or other short term rating of
the highest short term rating category of the Rating Agency and a combined
capital and surplus of at least $50,000,000, and subject to supervision or
examination by federal or state authority. If such corporation or national
banking association publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
corporation or national banking association shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Indenture Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect specified in Section 6.08.
------------
Section 6.12. Indenture Trustee's Application for Instructions from
-----------------------------------------------------
the Issuer Trust. Any application by the Indenture Trustee for written
- ----------------
instructions from the Issuer Trust or the Servicer on behalf of the Issuer Trust
may, at the option of the Indenture Trustee, set forth in writing any action
proposed to be taken or omitted by the Indenture Trustee under this Indenture
and the date on and/or after which such action shall be taken or such omission
shall be effective. The Indenture Trustee shall not be liable for any action
taken by, or omission of, the Indenture Trustee in accordance with a proposal
included in such application on or after the date specified in such application
(which date shall not be less than seven (7) Business Days after the date any
Officer of the Issuer Trust actually receives such application, unless any such
Officer shall have consented in writing to any earlier date) unless prior to
taking any such action (or the effective date in the case of an omission), the
Indenture Trustee shall have received written instructions in response to such
application specifying the action to be taken or omitted.
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<PAGE>
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS'
Section 7.01. Issuer Trust to Furnish Indenture Trustee Names and
---------------------------------------------------
Addresses of Noteholders. The Issuer Trust will furnish or cause to be
- ------------------------
furnished to the Indenture Trustee (a) not more than five days after the earlier
of (i) each Record Date and (ii) three months after the last Record Date, a
list, in such form as the Indenture Trustee may reasonably require, of the names
and addresses of the Registered Holders, (b) at such other times as the
Indenture Trustee may request in writing, within 30 days after receipt by the
Issuer Trust of any such request, a list of similar form and content as of a
date not more than 10 days prior to the time such list is furnished; provided,
--------
however, that so long as the Indenture Trustee is the Note Registrar, no such
- -------
list shall be required to be furnished.
Section 7.02. Preservation of Information. The Indenture Trustee
---------------------------
shall preserve, in as current a form as is reasonably practicable, the names and
addresses of the Noteholders contained in the most recent list furnished to the
Indenture Trustee as provided in Section 7.01 hereof and the names and addresses
------------
of Noteholders received by the Indenture Trustee in its capacity as Note
Registrar. The Indenture Trustee may destroy any list furnished to it as
provided in such Section 7.01 upon receipt of a new list so furnished.
------------
Section 7.03. Reports by Indenture Trustee. The Indenture Trustee
----------------------------
shall comply with all of its obligations as set forth in Article VI of the Sale
and Servicing Agreement.
Section 7.04. 144A Information. The Servicer on behalf of the Issuer
----------------
Trust shall provide to the Indenture Trustee and the Indenture Trustee shall
provide to any Noteholder and any prospective transferee designated by any such
Noteholder information regarding the Notes and the Collateral and such other
information as shall be necessary to satisfy the condition to eligibility set
forth in Rule 144A(d)(4) under the Securities Act for transfer of any such Note
without registration thereof under the Securities Act pursuant to the
registration exemption provided by Rule 144A under the Securities Act. Each
Noteholder desiring to effect such a transfer shall, and does hereby agree to,
indemnify the Issuer Trust, the Owner Trustee, the Indenture Trustee and the
Company against any liability that may result if the transfer is not so exempt
or is not made in accordance with federal and state securities laws.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. Collection of Money.
-------------------
General. Except as otherwise expressly provided herein, the Indenture
-------
Trustee may demand payment or delivery of, and shall receive and collect,
directly and without intervention or assistance of any fiscal agent or other
intermediary, all money and other
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<PAGE>
property payable to or receivable by the Indenture Trustee pursuant to this
Indenture. The Indenture Trustee shall apply all such money received by it as
provided in this Indenture. Except as otherwise expressly provided in this
Indenture, if any default occurs in the making of any payment or performance
under any agreement or instrument that is part of the Collateral, the Indenture
Trustee may take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and any right to proceed
thereafter as provided in Article V hereof.
---------
Section 8.02. Trust Accounts. On or prior to the Closing Date, the
--------------
Servicer shall establish and maintain, in the name of the Indenture Trustee for
the benefit of the Noteholders, or on behalf of the Owner Trustee for the
benefit of the Certificateholders, the Trust Accounts as provided in Article V
---------
of the Sale and Servicing Agreement. The Indenture Trustee shall deposit
amounts into each of the Trust Accounts in accordance with the terms of the Sale
and Servicing Agreement and the Servicer's Remittance Report.
Section 8.03. General Provisions Regarding Accounts. (a) So long
-------------------------------------
as no Default or Event of Default shall have occurred and be continuing, all or
a portion of the funds in the Trust Accounts shall be invested in Permitted
Investments and reinvested by the Indenture Trustee at the specific written
direction of the Servicer in accordance with the provisions of Article V of the
-----------
Sale and Servicing Agreement. All income or other gain from investments of
moneys deposited in the Trust Accounts, except for the Debt Service Reserve
Account and the Capitalized Interest Account, shall be deposited by the
Indenture Trustee into the Collection Account in accordance with the provisions
of the Sale and Servicing Agreement, and any loss resulting from such
investments shall be charged to such account. The Servicer will not direct the
Indenture Trustee to make any investment of any funds or to sell any investment
held in any of the Trust Accounts unless the security interest Granted and
perfected in such account will continue to be perfected in such investment or
the proceeds of such sale, in either case without any further action by any
Person, and, in connection with any direction to the Indenture Trustee to make
any such investment or sale, the Servicer shall deliver to the Indenture Trustee
an Opinion of Counsel, acceptable to the Indenture Trustee, to such effect. The
Indenture Trustee shall have no liability whatsoever for any loss, fee, tax or
other charge in connection with any such investments or the liquidation thereof.
(b) Subject to Section 6.01(c) hereof, the Indenture Trustee shall not
---------------
in any way be held liable by reason of any insufficiency in any of the Trust
Accounts resulting from any loss on any Eligible Investment included therein
except for losses attributable to the Indenture Trustee's failure to make
payments on such Eligible Investments issued by the Indenture Trustee, in its
commercial capacity as principal obligor and not as trustee, in accordance with
their terms.
(c) If (i) the Servicer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts to the Indenture
Trustee by 11:00 a.m. Eastern Time (or such other time as may be agreed by the
Issuer Trust and Indenture Trustee) on any Business Day or (ii) a Default or
Event of Default shall have occurred and be continuing with
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<PAGE>
respect to the Notes but the Notes shall not have been declared due and payable
pursuant to Section 5.02 hereof or (iii) the Notes shall have been declared due
------------
and payable following an Event of Default, but amounts collected or receivable
from the Collateral are being applied in accordance with Section 5.05 hereof as
------------
if there had not been such a declaration, then the Indenture Trustee shall, to
the fullest extent practicable, invest and reinvest funds in the Trust Accounts
in one or more Eligible Investments.
Section 8.04. Servicer's Monthly Statements'. On each Distribution
-----------------------------
Date, the Indenture Trustee shall deliver the Servicer's Remittance Report with
respect to such Distribution Date to the Clearing Agency, the Rating Agency and
each Noteholder.
Section 8.05. Release of Collateral. (a) Subject to the payment of
---------------------
its fees and expenses pursuant to Section 6.07 hereof, the Indenture Trustee
------------
may, and when required by the provisions of this Indenture and the Security
Agreement [Indenture Trustee] shall, execute instruments to release property
from the lien of this Indenture and the Security Agreement [Indenture Trustee],
or convey the Indenture Trustee's interest in the same, in a manner and under
circumstances that are not inconsistent with the provisions of this Indenture
and the Security Agreement [Indenture Trustee]. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article VIII
------------
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Certificateholders pursuant to Section
-------
5.02(a) of the Sale and Servicing Agreement, or to the Servicer, the Indenture
- -------
Trustee, the Owner Trustee or the Custodian pursuant to Section 5.01(c) of the
---------------
Sale and Servicing Agreement, shall have been paid, release any remaining
portion of the Collateral that secured the Notes from the lien of this Indenture
and the Security Agreement [Indenture Trustee] and release to the Issuer Trust
or any other Person entitled thereto any funds then on deposit in the Trust
Accounts. The Indenture Trustee shall release property from the lien of this
Indenture and the Security Agreement [Indenture Trustee] pursuant to this
Subsection (b) only upon receipt of an Issuer Request accompanied by an
- --------------
Officer's Certificate and an Opinion of Counsel meeting the applicable
requirements of Section 11.01 hereof.
-------------
Section 8.06. Opinion of Counsel. The Indenture Trustee shall
------------------
receive at least seven days' prior notice when requested by the Issuer Trust to
take any action pursuant to Section 8.05(a) hereof, accompanied by copies of any
---------------
instruments involved, and the Indenture Trustee shall also receive, as a
condition to such action, an Opinion of Counsel, in form and substance
satisfactory to the Indenture Trustee, stating the legal effect of any such
action, outlining the steps required to complete the same, and concluding that
all conditions precedent to the taking of such action have been complied with
and such action will not materially and adversely impair the security for the
Notes or the rights of the Noteholders in contravention of the provisions of
this Indenture; provided, however, that such Opinion of Counsel shall not be
-------- -------
required to express an opinion as to the fair value of the Collateral. Counsel
rendering any such opinion may rely, without independent investigation, on the
accuracy and validity of any
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<PAGE>
certificate or other instrument delivered to the Indenture Trustee in connection
with any such action.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Noteholders.
------------------------------------------------------
(A) Without the consent of any Noteholder but with prior notice to the Rating
Agency, the Issuer Trust and the Indenture Trustee, when authorized by an Issuer
Order, at any time and from time to time, may enter into one or more indentures
supplemental hereto, in form satisfactory to the Indenture Trustee, for any of
the following purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture or the Security Agreement
[Indenture Trustee], or to better assure, convey and confirm unto the
Indenture Trustee any property subject or required to be subjected to the
lien of this Indenture or the Security Agreement [Indenture Trustee], or to
subject to the lien of this Indenture and the Security Agreement [Indenture
Trustee] additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another person to the Issuer Trust, and the
assumption by any such successor of the covenants of the Issuer Trust
herein and in the Notes contained;
(iii) to add to the covenants of the Issuer Trust, for the benefit of
the Noteholders, or to surrender any right or power herein conferred upon
the Issuer Trust;
(iv) to convey, transfer, assign, mortgage or pledge any property to
or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture that may be inconsistent with any
other provision herein or in any supplemental indenture or to make any
other provisions with respect to matters or questions arising under this
Indenture or in any supplemental indenture; provided, however, that such
-------- -------
action shall not adversely affect the interests of the Noteholders; or
(vi) to evidence and provide for the acceptance of the appointment
hereunder by a successor trustee with respect to the Notes and to add to or
change any of the provisions of this Indenture as shall be necessary to
facilitate the administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Article VI hereof.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
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<PAGE>
(b) The Issuer Trust and the Indenture Trustee, when authorized by an
Issuer Order, may, also without the consent of any Noteholder but with the prior
consent of the Rating Agency, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Noteholders under this Indenture; provided, however,
-------- -------
that such action shall not, as evidenced by (i) an Opinion of Counsel or (ii)
satisfaction of the Rating Agency Condition, adversely affect in any material
respect the interests of any Noteholder.
Section 9.02. Supplemental Indentures with Consent of Noteholders.
---------------------------------------------------
The Issuer Trust and the Indenture Trustee, when authorized by an Issuer Order,
also may, with prior consent of the Rating Agency, and with the consent of the
Majority Noteholders, by Act of such Noteholders delivered to the Issuer Trust
and the Indenture Trustee, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Noteholders under this Indenture; provided, however,
-------- -------
that no such supplemental indenture shall, without the consent of each
Noteholder:
(a) change the date of payment of any installment of principal or
interest on any Note, or reduce the Principal Balance thereof, the interest rate
thereon or the Termination Price with respect thereto, change the provisions of
this Indenture relating to the application of collections on, or the proceeds of
the sale of, the Collateral to payment of principal or interest on the Notes, or
change any place of payment where, or the coin or currency in which, any Note or
the interest thereon is payable, or impair the right to institute suit for the
enforcement of the provisions of this Indenture requiring the application of
funds available therefor, as provided in Article V hereof, to the payment of any
---------
such amount due on the Notes on or after the due date thereof (or, in the case
of redemption, on or after the Redemption Date);
(b) reduce the percentage of the Voting Interests of the Outstanding
Notes, the consent of the Holders of which is required for any such supplemental
indenture, or the consent of the Holders of which is required for any waiver of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this Indenture;
(c) modify or alter the provisions of the proviso to the definition
of the term "Outstanding" or "Voting Rights";
(d) reduce the percentage of the Voting Rights of the Notes required
to direct the Indenture Trustee to direct the Issuer Trust to sell or liquidate
the Collateral pursuant to Section 5.04 hereof;
------------
(e) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Basic Documents cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby;
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<PAGE>
(f) modify any of the provisions of this Indenture in such manner as
to affect the calculation of the amount of any payment of interest or principal
due on any Note on any Distribution Date or to affect the rights of the
Noteholders to the benefit of any provisions for the mandatory redemption of the
Notes contained herein; or
(g) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any of the Revenue Agreements
or, except as otherwise permitted or contemplated herein, terminate the lien of
this Indenture on any property at any time subject hereto or deprive any
Noteholder of the security provided by the lien of this Indenture.
In connection with requesting the consent of the Noteholders pursuant
to this Section 9.02, the Indenture Trustee shall mail to the Noteholders a
------------
notice setting forth in general terms the substance of such supplemental
indenture. It shall not be necessary for any Act of Noteholders under this
Section 9.02 to approve the particular form of any proposed supplemental
- ------------
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Section 9.03. Execution of Supplemental Indentures. In executing, or
------------------------------------
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
----------
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02 hereof, shall be fully protected in relying
------------- ----
upon, an Officer's Certificate and an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture. The Indenture Trustee may, but shall not be obligated to, enter into
any such supplemental indenture that affects the Indenture Trustee's own rights,
duties, liabilities or immunities under this Indenture or otherwise.
Section 9.04. Effect of Supplemental Indentures. Upon the
---------------------------------
execution of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be, and shall be deemed to be, modified and amended in
accordance therewith, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this Indenture of the
Indenture Trustee, the Issuer Trust and the Noteholders shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be, and shall be deemed to be, part of the terms
and conditions of this Indenture for any and all purposes.
Section 9.05. Reference in Notes to Supplemental Indentures. Notes
---------------------------------------------
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
----------
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer Trust or the
Indenture Trustee shall so determine, new Notes so modified as to conform, in
the opinion of the Indenture Trustee and the Issuer Trust, to any
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such supplemental indenture may be prepared and executed by the Issuer Trust and
authenticated and delivered by the Indenture Trustee in exchange for Outstanding
Notes.
Section 9.06. Amendments to Trust Agreement.
-----------------------------
Subject to Section 11.1 of the Trust Agreement, the Indenture Trustee
------------
shall, upon receipt of an Issuer Order, consent to any proposed amendment to the
Trust Agreement or an amendment to or waiver of any provision of any other
document relating to the Trust Agreement, such consent to be given without the
necessity of obtaining the consent of any Noteholder upon satisfaction of the
requirements set forth under Section 11.1 of the Trust Agreement. Nothing in
-------------
this Section shall be construed to require that any Person obtain the consent of
the Indenture Trustee to any amendment or waiver or any provision of any
document where the making of such amendment or the giving of such waiver without
obtaining the consent of the Indenture Trustee is not prohibited by this
Indenture or by the terms of the document that is the subject of the proposed
amendment or waiver.
ARTICLE X
REDEMPTION OF NOTES
Section 10.01. Mandatory Redemption.
--------------------
The Notes are subject to mandatory redemption, in whole but not in
part, at the Mandatory Redemption Price, as follows: (i) in the event that
Insurance Proceeds are paid in respect of substantial damage to the New Arena
Facility and the Servicer has certified to the Indenture Trustee that such
damage is irreparable; (ii) in the event that Condemnation Proceeds are paid in
respect of a substantial portion of the New Arena Facility, and the Servicer has
certified to the Indenture Trustee that such property is irreplaceable and that
the remaining property is inadequate for continued use as a first class sports
arena facility; (iii) subject to the receipt by the Indenture Trustee of the
prior written consent of the Majority Noteholders in accordance with Section
-------
11.04, in the event that any Revenue Contractor becomes entitled to terminate
- -----
its payment obligations under its respective Revenue Agreement due to any breach
or termination of any User Agreement by the applicable Team Owner and the
failure of the Arena Company to thereafter replace the applicable Team with
another NBA or NHL team within the grace periods provided for in such Revenue
Agreements; and (iv) subject to the receipt by the Indenture Trustee of the
prior written consent of the Majority Noteholders in accordance with Section
-------
11.04, in the event of a failure by the Arena Company to complete construction
- -----
of the New Arena Facility by the Outside Completion Date. Upon the occurrence of
the events described, all available funds in the Trust Accounts on the Mandatory
Redemption Date will be applied to pay the Mandatory Redemption Price. Upon the
occurrence of the events described in clauses (iii) or (iv), the Transferor
shall be liable to the Noteholders for any shortfall in the Mandatory Redemption
Price to be paid after application of all funds available in the Collection
Account. In the event of a partial casualty or condemnation, any insurance or
condemnation proceeds payable to the Indenture Trustee shall be deposited in the
Collection Account and paid as described in the Sale and Servicing Agreement.
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Section 10.02. Redemption at the Option of the Issuer; Election to
---------------------------------------------------
Redeem.
- ------
The Notes are subject to redemption in whole, but not in part, at the
direction of the Majority Certificateholders on any Distribution Date or Monthly
Distribution Date on or after the Distribution Date in July, 2001, by causing
the Issuer Trust to give notice pursuant to Section 10.03 hereof.
-------------
Payments of interest and Targeted Principal Payments due prior to the
Redemption Date, shall continue to be payable to the Holders of the Notes called
for redemption as of the relevant Record Dates according to their terms and the
provisions hereof.
Section 10.03. Notice to Indenture Trustee; Deposits Into the
----------------------------------------------
Collection Account.
- ------------------
Upon the occurrence of the events causing a Mandatory Redemption as
described in Section 10.01 and receipt of sufficient funds therefor in the
-------------
Collection Account, the Indenture Trustee shall notify the Issuer Trust, the
Securityholders and the Rating Agency of the Mandatory Redemption Date at least
30 days and no more than 60 days prior to the Mandatory Redemption Date.
In the event of any redemption pursuant to Section 10.01 or Section
------------- -------
10.02 hereof, the Servicer on behalf of the Issuer Trust shall, at least 30 days
and no more than 60 days, prior to the Mandatory Redemption Date or the Optional
Redemption Date, as applicable, notify the Indenture Trustee and the Rating
Agency of such Redemption Date and shall cause to be deposited into the
Collection Account on such notification date an amount equal to the aggregate of
(i) Mandatory Redemption Price or the Optional Redemption Price, as applicable,
(ii) any Trust Fees and Expenses due and unpaid as of the Redemption Date and
(iii) any other amounts payable to the Noteholders and the Indenture Trustee
under the Basic Documents.
Section 10.04. Notice of Redemption by the Indenture Trustee.
---------------------------------------------
Upon receipt of the notice and the deposits set forth in Section 10.03
-------------
above, the Indenture Trustee shall provide notice of redemption by first-class
mail, postage prepaid, mailed no later than the Business Day following the day
on which such deposit was made, to each Holder of record on the Record Date next
preceding such Business Day, at such Holder's address appearing in the Note
Register.
All notices of redemption shall identify the Notes (including CUSIP
numbers) to be redeemed and shall state:
(1) the Redemption Date;
(2) the Optional Redemption Price or Mandatory Redemption Price, as
applicable and the amount thereof allocable to the Original Principal Balance of
a Note; and
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(3) that on the Redemption Date, a pro rata portion of the Optional
Redemption Price or the Mandatory Redemption Price, as applicable, will become
due and payable upon each such Note, and that interest thereon shall cease to
accrue on such date.
Notice of redemption of Notes shall be given by the Indenture Trustee
in the name and at the expense of the Issuer Trust. Failure to give notice of
redemption, or any defect therein, to any Noteholder shall not impair or affect
the validity of the redemption of any other Note.
Section 10.05. Notes Payable on Optional Redemption Date or
--------------------------------------------
Mandatory Redemption Date.
- -------------------------
Notice of redemption having been given as provided in Section 10.04
-------------
hereof, the Notes to be redeemed shall, on the Redemption Date, become due and
payable at the Optional Redemption Price or the Mandatory Redemption Price, as
applicable, and on such date of redemption (unless the Issuer Trust shall
default in the payment of the Optional Redemption Price), such Notes shall cease
to bear interest.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc. (a) Upon
-----------------------------------------
any application or request by the Issuer Trust to the Indenture Trustee to take
any action under any provision of this Indenture, the Issuer Trust shall furnish
to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with except that, in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or opinion
has read or has caused to be read such covenant or condition and
the definitions herein or in the Sale and Servicing Agreement
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained
in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is
necessary to enable
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<PAGE>
such signatory to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
Section 11.02. Form of Documents Delivered to Indenture Trustee.
------------------------------------------------
In any case where several matters are required to be certified by, or covered by
an opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one Person, or that they be
so certified or covered by only one document, but one Person may certify or give
an opinion with respect to some matters and one or more other Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer
Trust may be based, insofar as it relates to legal matters, upon a certificate
or opinion of, or representations by, counsel, unless such officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer, the Transferor or the Issuer Trust, stating
that the information with respect to such factual matters is in the possession
of the Servicer, the Transferor or the Issuer Trust, unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated into
one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
Trust shall deliver any document as a condition of the granting of such
application, or as evidence of the Issuer Trust's compliance with any term
hereof, it is intended that the truth and accuracy, at the time of the granting
of such application or at the effective date of such certificate or report (as
the case may be), of the facts and opinions stated in such document shall in
such case be conditions precedent to the right of the Issuer Trust to have such
application granted or to the sufficiency of such certificate or report. The
foregoing shall not, however, be construed to affect the Indenture Trustee's
right to rely upon the truth and accuracy of any statement or opinion contained
in any such document as provided in Article VI hereof.
----------
Section 11.03. Acts of Noteholders. (a) Any request, demand,
-------------------
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided, such action shall become effective
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<PAGE>
when such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer Trust. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument or
---
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Indenture
------------
Trustee and the Issuer Trust, if made in the manner provided in this Section
-------
11.03.
- -----
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by examination of the Note
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by any Noteholder shall bind the Holder of every Note
issued upon the registration thereof or in exchange therefor or in lieu thereof,
in respect of anything done, omitted or suffered to be done by the Indenture
Trustee or the Issuer Trust in reliance thereon, whether or not notation of such
action is made upon such Note.
Section 11.04. Notices, etc., to Indenture Trustee, Issuer Trust and
-----------------------------------------------------
Rating Agency. Any request, demand, authorization, direction, notice, consent,
- -------------
waiver or Act of Noteholders or other documents provided or permitted by this
Indenture shall be in writing and if such request, demand, authorization,
direction, notice, consent, waiver or act of Noteholders is to be made upon,
given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the Issuer Trust
shall be sufficient for every purpose hereunder if made, given, furnished
or filed in writing to or with the Indenture Trustee at its Corporate Trust
Office, or
(ii) the Issuer Trust by the Indenture Trustee or by any Noteholder
shall be sufficient for every purpose hereunder if in writing and made,
given, furnished or filed with the Issuer Trust addressed to: Denver Arena
Trust, c/o Wilmington Trust Company, 1100 North Market Street, Wilmington,
Delaware 19890, or at any other address previously furnished in writing to
the Indenture Trustee by the Issuer Trust. The Issuer Trust shall promptly
transmit any notice received by it from the Noteholders to the Indenture
Trustee.
Notices required to be given to the Rating Agency by the Issuer Trust,
the Indenture Trustee or the Owner Trustee shall be in writing, personally
delivered or mailed by certified mail, return receipt requested, to Fitch IBCA,
Inc., One State Street Plaza, New York, New York 10004, Attention: ABS
Surveillance Group.
Section 11.05. Notices to Noteholders; Waiver. Where this Indenture
------------------------------
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each
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<PAGE>
Noteholder, at the applicable address as it appears on the Note Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Noteholders is given
by mail, neither the failure to mail such notice nor any defect in any notice so
mailed to any particular Noteholder shall affect the sufficiency of such notice
with respect to other Noteholders, and any notice that is mailed in the manner
herein provided shall conclusively be presumed to have duly been given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In the event that, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Indenture Trustee
shall be deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agency, failure
to give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute a Default or Event of
Default.
Section 11.06. Effect of Headings and Table of Contents. The Article
----------------------------------------
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
Section 11.07. Successors and Assigns. All covenants and agreements
----------------------
in this Indenture and the Notes by the Issuer Trust shall bind its successors
and assigns, whether so expressed or not. All agreements of the Indenture
Trustee in this Indenture shall bind its successors, co-trustees and agents.
Section 11.08. Separability. In case any provision in this Indenture
------------
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 11.09. Benefits of Indenture. Nothing in this Indenture or
---------------------
in the Notes, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, and the Noteholders, and any
other party secured hereunder, and any other Person with an ownership interest
in any part of the Collateral, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 11.10. Legal Holidays. In any case where the date on which
--------------
any payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which
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<PAGE>
nominally due, and no interest shall accrue for the period from and after any
such nominal date.
Section 11.11. GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED AND
-------------
CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
Section 11.12. Counterparts. This Indenture may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original, and all of such counterparts shall together constitute but one and the
same instrument.
Section 11.13. Recording of Indenture. If this Indenture is subject
----------------------
to recording in any public recording offices, such recording is to be effected
by the Issuer Trust and at its expense accompanied by an Opinion of Counsel to
the effect that such recording is necessary either for the protection of the
Noteholders or any other Person secured hereunder or for the enforcement of any
right or remedy granted to the Indenture Trustee under this Indenture.
Section 11.14. Trust Obligation. No recourse may be taken, directly
----------------
or indirectly, with respect to the obligations of the Issuer Trust, the Owner
Trustee or the Indenture Trustee on the Notes or, except as expressly provided
for in Article VI hereof, under this Indenture or any certificate or other
----------
writing delivered in connection herewith or therewith, against (i) the Indenture
Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer Trust or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer Trust, the Owner Trustee or the Indenture
Trustee or of any successor or assign of the Indenture Trustee or the Owner
Trustee in its individual capacity, except as any such Person may expressly have
agreed (it being understood that the Indenture Trustee and the Owner Trustee
have no such obligations in their individual capacity) and except that any such
partner, owner or beneficiary shall be fully liable, to the extent provided by
applicable law, for any unpaid consideration for stock, unpaid capital
contribution or failure to pay any installment or call owing to such entity. For
all purposes of this Indenture, in the performance of any duties or obligations
of the Issuer Trust hereunder, the Owner Trustee shall be subject to, and be
entitled to the benefits of, the terms and provisions of Articles VI, VII and
VIII of the Trust Agreement.
Section 11.15. Inspection. The Issuer Trust agrees that, on
----------
reasonable prior notice, it will permit any representative of the Indenture
Trustee, during the Issuer Trust's normal business hours, to examine all the
books of account, records, reports and other papers of the Issuer Trust, to make
copies and extracts therefrom, to cause such books to be audited by Independent
certified public accountants, and to discuss the Issuer Trust's affairs,
finances and accounts with the Issuer Trust's officers, employees, and
Independent certified public accountants, all at such reasonable times and as
often as may reasonably be requested. The Indenture Trustee shall hold, and
shall cause its representatives to hold, in confidence all such information
except to the extent disclosure may be required by law (and all reasonable
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<PAGE>
applications for confidential treatment are unavailing) and except to the extent
that the Indenture Trustee may reasonably determine that such disclosure is
consistent with its obligations hereunder.
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<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Issuer Trust,
and the Indenture Trustee have caused this Indenture to be duly executed by
their respective officers, thereunto duly authorized, all as of the day and year
first above written.
DENVER ARENA TRUST
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Owner
Trustee
By: /s/ Emmett R. Harmon
-----------------------------------------------
Name: Emmett R. Harmon
Title: Vice President
THE BANK OF NEW YORK, as Indenture Trustee
By: /s/ Walter N. Gitlin
-----------------------------------------------
Name: Walter N. Gitlin
Title: Vice President
Consented to and Approved by:
ASCENT ARENA COMPANY, LLC,
in its capacity as Servicer under the
Sale and Servicing Agreement
By: Ascent Arena and Development Corporation,
a Delaware corporation, as managing member
By: /s/ Timothy D. Romani
------------------------------------------
Name: Timothy D. Romani
Title: President
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<PAGE>
EXHIBIT 10.6
FIRST AMENDMENT
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this
"First Amendment") is dated as of the 16th day of July, 1998, and entered into
among ASCENT ENTERTAINMENT GROUP, INC., a Delaware corporation (the "Borrower"),
the Lenders signatory thereto, and NATIONSBANK, N.A., (successor by merger to
NationsBank of Texas, N.A.), a national banking association, individually and as
Administrative Agent (in such latter capacity, the "Administrative Agent").
WITNESSETH:
----------
WHEREAS, the Borrower, the Lenders, and the Administrative Agent entered
into a Second Amended and Restated Credit Agreement, dated as of December 22,
1997 (as amended, restated, waived or otherwise modified from time to time, the
"Credit Agreement"); and
WHEREAS, the Lenders, the Administrative Agent, and the Borrower have
agreed to amend the Credit Agreement to make certain changes to the terms
therein upon the terms and conditions set forth below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower the Lenders and the Administrative Agent agree as follows:
SECTION 1. Definitions.
-----------
(a) Definitions, Generally. Unless specifically defined or redefined
----------------------
below, capitalized terms used herein shall have the meanings ascribed thereto in
the Credit Agreement.
(b) Definition of Guarantor. The definition of "Guarantor" in Article I
-----------------------
on page 12 of the Credit Agreement shall be deleted in its entirety and the
following shall be substituted in its stead:
"Guarantors" shall mean: Ascent Sports Holdings, Ascent
----------
Sports, Ascent Arena and Development Corporation, Ascent Arena
Company, LLC, Ascent Arena Operating Company, LLC, Beacon, Beacon
Music Publishing, Inc., Club Pictures, Inc. and Daily Double
Music Co., and all other wholly owned direct or indirect
Subsidiaries of the Borrower from time to time.
<PAGE>
(c) Definition of Non-Recourse Arena Financing. The definition of "Non-
------------------------------------------
Recourse Arena Financing" in Article I on pages 17 and 18 of the Credit
Agreement shall be deleted in its entirety and the following shall be
substituted in its stead:
"Non-Recourse Arena Financing" shall mean Indebtedness
----------------------------
incurred by Ascent Arena Company, LLC or any Subsidiary of Ascent
Arena Company, LLC (including any trust or other entity in which
Ascent Arena Company, LLC has a beneficial interest) in
connection with the financing of the Arena/Complex (I) as to
which neither the Borrower nor any other Subsidiary of the
Borrower (A) provides credit support (including any undertaking,
agreement or instrument which would constitute Indebtedness) or
has given or made other written assurances regarding repayment
(except with respect to the limited construction Guarantee
permitted by Section 6.01(e) hereof), (B) is directly or
indirectly personally liable (except with respect to the limited
construction Guarantee permitted by Section 6.01(e) hereof) or
(C) constitutes the lender and (ii) the obligees of which will
have recourse solely against the assets comprising such project
(including rights under contracts to which the Ascent Arena
Company, LLC or any Subsidiary of Ascent Arena Company, LLC is a
party, such as a lessor under leases thereto) for repayment of
the principal of and interest on such Indebtedness and fees,
indemnities, expense reimbursements or other amounts of whatever
nature accrued or payable in connection with such Indebtedness
and that has terms and provisions reasonably satisfactory in form
and substance to, and approved in writing by, the Administrative
Agent in respect of the matters referred to in clause (I) or
clause (ii) above.
(d) Definition of Operating and Management Agreement. The following
------------------------------------------------
definition of "Operating and Management Agreement" is added to Article I on
page 19 of the Credit Agreement:
"Operating and Management Agreement" shall mean the
----------------------------------
agreement between Ascent Arena Company, LLC and Ascent Arena
Operating Company, LLC dated as of July 29, 1998, pursuant to
which Ascent Arena Operating Company, LLC will provide certain
management services to Ascent Arena Company, LLC with respect to
the operation, maintenance and control of the Arena/Complex.
SECTION 2. Amendment to Section 6.01(c) of the Credit Agreement. Section
----------------------------------------------------
6.01(c) in Article VI on page 64 of the Credit Agreement shall be deleted in its
entirety and the following Section 6.01(c) shall be substituted in its stead:
(c) so long as there exists no Default or Event of Default
both before and after giving effect to the incurrence of such
Indebtedness, Ascent Arena Company, LLC or any Subsidiary of
Ascent Arena Company, LLC may incur Non-Recourse Arena Financing;
2
<PAGE>
SECTION 3. Amendment to Section 6.02(h) of the Credit Agreement. Section
----------------------------------------------------
6.02(h) in Article VI on page 66 of the Credit Agreement shall be deleted in its
entirety and the following Section 6.02(h) shall be substituted in its stead:
(h) Liens granted by Ascent Arena Company, LLC and any
Subsidiary of Ascent Arena Company, LLC securing any permitted
Non-Recourse Arena Financing or the City and County of Denver's
interest in the Arena/Complex, but only to the extent such Liens
are limited to the realty, fixtures, equipment and other assets
comprising the Arena/Complex (including rights under contracts to
which the Ascent Arena Company, LLC or any Subsidiary of Ascent
Arena Company, LLC is a party, such as a lessor under leases
relating thereto);
SECTION 4. Amendment to Section 6.04 of the Credit Agreement. Section
-------------------------------------------------
6.04 in Article VI on page 68 of the Credit Agreement shall be amended by (I)
deleting subsections (f) and (g) in their entirety, (ii) substituting the
following Sections 6.04(f) and (g) in their stead, and (iii) adding a new
section 6.04(h) before the final two "Notwithstanding" clauses as follows:
(f) in addition to those permitted Investments in (a)
through (e) above, so long as there exists no Default or Event of
Default both before and after giving effect to any such
Investment, other Investments made by the Borrower up to a
maximum amount outstanding at any one time of $10,000,000, but no
such Investment under this subsection (f) shall be made in On
Command Corp.;
(g) so long as there exists no Default or Event of Default
both before and after giving effect to any such Investment,
Investments made by Ascent Arena Company, LLC that constitute
loans or advances to its member that is not the Borrower or any
Subsidiary of the Borrower, but only in accordance with Arena
Operating Agreement; and
(h) so long as there exists no Default or Event of Default
both before and after giving effect to any such Investment,
Investments made by Ascent Arena Company, LLC in two new
Subsidiaries: Ascent Arena Operating Company, LLC and the Denver
Arena Trust, a Delaware business trust in which Ascent Arena
Company, LLC has the beneficial interest, created to effectuate
the Non-Recourse Arena Financing.
SECTION 5. Amendment to Section 6.05(b) of the Credit Agreement. Section
----------------------------------------------------
6.05(b) in Article VI on pages 68 and 69 of the Credit Agreement shall be
deleted in its entirety and the following Section 6.05(b) shall be substituted
in its stead:
(b) sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or any
substantial part of its assets (whether now owned or hereafter
acquired) or any amount of Capital Stock of any Subsidiary of the
Borrower, except that (I) the Borrower and any Subsidiary of the
Borrower
3
<PAGE>
may sell or dispose of inventory and obsolete equipment in the
ordinary course of business, (ii) so long as there exists no
Default or Event of Default both before and after giving effect
thereto the Borrower or any of its Subsidiaries may (A) make an
Asset Disposition, so long as (I) the cumulative aggregate
consideration for all such Asset Dispositions after the date
hereof shall not exceed $10,000,000, and (II) such assets are not
used in the operation of the Nuggets Sub or the Avalanche Sub or
the related Teams, and (B) in addition to Asset Dispositions
permitted by subsection (A) above, make an Asset Disposition, so
long as (I) the cumulative aggregate consideration for all such
Asset Dispositions after the date hereof (but excluding the
proceeds from sales of those assets described on Schedule 6.05
-------------
hereto) shall not exceed $10,000,000 and (II) such assets are not
used in the operation of the Nuggets Sub or the Avalanche Sub or
the related Teams, (iii) so long as there exists no Default or
Event of Default both before and after giving effect thereto the
Borrower or any of its Subsidiaries may sell the Capital Stock
described on Schedule 6.05 hereto, (iv) so long as there exists
-------------
no Default or Event of Default both before and after giving
effect thereto, the Borrower, Nuggets Sub or the Ascent Arena
Company, LLC may convey the real estate used for the
Arena/Complex to the City and County of Denver, (v) so long as
there exists no Event of Default both before and after giving
effect thereto, any Wholly Owned Subsidiary of the Borrower may
transfer all or any part of its assets to the Borrower, (vi) so
long as there exists no Default or Event of Default both before
and after giving effect thereto, the Borrower may consummate the
sale leaseback transaction described on Schedule 6.03 hereto,
-------------
(vii) so long as there exists no Default or Event of Default both
before and after giving effect thereto, Borrower may sell, assign
or otherwise dispose of those certain revenue contracts described
on Schedule 6.05(b) hereto in connection with the Non-Recourse
----------------
Arena Financing, and (viii) the Borrower may consummate an On
Command Corp. Stock Sale. Notwithstanding anything to the
contrary herein or in any other Loan Paper, under no circumstance
may the Borrower or any Subsidiary of the Borrower sell, dispose
of or transfer any of the Capital Stock owned by the Borrower,
any Subsidiary of the Borrower or On Command Corp. and its
Subsidiaries, except the Capital Stock described on Schedule 6.05
-------------
hereto and pursuant to any On Command Corp. Stock Sale.
SECTION 6. Amendment to Section 6.06 of the Credit Agreement. Section
-------------------------------------------------
6.06 in Article VI on page 69 of the Credit Agreement shall be deleted in its
entirety and the following Section 6.06 shall be substituted in its stead:
SECTION 6.06. Dividends and Distributions; Restrictions on
--------------------------------------------
Ability of Subsidiaries to Pay Dividends. The Borrower will not,
----------------------------------------
and will not cause or permit any of its Subsidiaries to, declare
or pay, directly or indirectly, any dividend or make any other
distribution (by reduction of capital or otherwise), whether in
cash, property, securities or a combination thereof, with respect
to any shares of its Capital Stock or directly or indirectly
redeem, purchase, retire or
4
<PAGE>
otherwise acquire for value (or permit any Subsidiary of the
Borrower to purchase or acquire) any shares of any class of its
Capital Stock or set aside any amount for any such purpose;
provided, however, that (I) any Subsidiary of the Borrower may
-------- -------
declare and pay dividends or make other distributions to another
Wholly Owned Subsidiary or to the Borrower, (ii) the Borrower may
declare and pay dividends or make other distributions that
consist solely of common stock of the Borrower, (iii) the
Borrower may make redemptions or repurchases of its Capital Stock
in connection with employee stock options upon termination of
such employment, for an aggregate amount of consideration paid
from and after the date hereof of up to $10,000,000, in
connection with any employee stock option or incentive plans,
(iv) the Borrower may make dividends of Preferred Stock in
accordance with the terms and provisions of Section 6.01(g)
hereof, (v) so long as there exists no Default or Event of
Default both before and after giving effect to any such
distribution, distributions by Ascent Arena Company, LLC to its
member that is not the Borrower or its Subsidiary in accordance
with the Arena Operating Agreement, and (vi) so long as there
exist no Default or Event of Default both before and after giving
effect to any such distribution, Borrower may distribute or
otherwise convey the real estate used for the Arena/Complex to
the Nuggets Sub.
SECTION 7. Amendment to Section 6.08 of the Credit Agreement. Section
-------------------------------------------------
6.08 in Article VI on page 70 of the Credit Agreement shall be deleted in its
entirety and the following Section 6.08 shall be substituted in its stead:
SECTION 6.08. Limitation on Restrictive Agreements. The Borrower
------------------------------------
will not, and will not cause or permit any of its Subsidiaries
to, enter into any indenture, agreement, instrument, financing
document or other arrangement which, directly or indirectly,
contains any financial covenants or prohibits or restrains, or
has the effect of prohibiting or restraining, or imposes
materially adverse conditions upon: (a) the incurrence of
Indebtedness, (b) the granting of Liens, (c) the making or
granting of Guarantees, (d) the payment of dividends or
distributions, (e) the purchase, redemption or retirement of any
Capital Stock, (f) the making of loans or advances, (g) transfers
or sales of property or assets (including Capital Stock) by the
Borrower or any of its Subsidiaries, other than restrictions on
the granting of Liens on, or the transfer of, assets that are
encumbered by Liens permitted under clauses (b), (h) and (i) of
Section 6.02 hereof with respect to the property or assets
covered by such Lien only, or (h) the making of amendments,
changes, waivers or consents with respect to this Agreement and
the Loan Papers, provided that, notwithstanding the foregoing,
(I) Nuggets Sub, Avalanche Sub, Ascent Arena Company, LLC and the
Subsidiaries of Ascent Arena Company, LLC may enter into
restrictive agreements relating solely to the Ascent Arena
Company, LLC and the Subsidiaries of Ascent Arena Company, LLC
and the Arena/Complex, each exclusively in connection with the
Non-Recourse Arena Financing, the
5
<PAGE>
Arena/Complex or the interest of the City and County of Denver in
the Arena/Complex acceptable to the Administrative Agent, (ii)
Ascent Arena Company, LLC may enter into the Arena Operating
Agreement, (iii) Ascent Arena Company, LLC and Ascent Arena
Operating Company, LLC may enter into the Operating and
Management Agreement, (iv)Beacon may enter into restrictive
agreements relating solely to Beacon, its Subsidiaries and the
related Motion Pictures invested in by Beacon and its
Subsidiaries, each exclusively in connection with Non-Recourse
Film Indebtedness, (v) the Borrower may enter into any such
restrictive agreements relating to any Preferred Stock permitted
under Section 6.01(g) hereof so long as no such restrictive
agreement shall be effective or binding on the Borrower or any of
its Subsidiaries until the earlier of (A) the Maturity Date and
(B) the payment in full of the Obligations and the termination of
the Commitments, and (vi) the Borrower may issue the Senior Notes
and enter into the Senior Notes Documentation.
SECTION 8. Affirmation. The Borrower hereby acknowledges and agrees that
-----------
nothing in this First Amendment shall affect the Borrower's obligations under
the Credit Agreement or the other Loan Papers executed in connection therewith
(except as specifically provided in this First Amendment), which remain valid,
binding and enforceable, and except as amended hereby, unamended, or shall
constitute a waiver by the Lenders of any of their rights or remedies, now or at
any time in the future, with respect to any requirement under the Credit
Agreement or the other Loan Papers or with respect to an Event of Default or
Default, occurring now or at any time in the future.
SECTION 9. Conditions Precedent. This First Amendment shall not be
--------------------
effective until
(a) all proceedings of the Borrower taken in connection with this
First Amendment and the transactions contemplated hereby shall be
satisfactory in form and substance to the Administrative Agent and Lenders
signatory hereto,
(b) Ascent Arena Operating Company, LLC shall have executed a
Guaranty of the Obligations, and the Administrative Agent shall have
received all other Loan Papers and documentation required by it to
satisfactorily evidence the Obligations,
(c) the Administrative Agent shall have received an opinion of
counsel to the Borrower in form and substance acceptable to it, as to the
enforceability of this First Amendment and all the Loan Papers, and as to
such other matters as requested by the Administrative Agent,
(d) the Administrative Agent and Lenders shall have each received
such documents, instruments, and certificates, copies of resolutions, etc.,
each in form and substance satisfactory to the Lenders, as the Lenders
shall deem necessary or appropriate in connection with this First Amendment
and the transactions contemplated hereby, and
6
<PAGE>
(e) reimbursement for Administrative Agent for Donohoe, Jameson &
Carroll, P.C.'s reasonable fees and expenses rendered through the date
hereof.
SECTION 10. Representations and Warranties. The Borrower represents and
------------------------------
warrants to the Lenders and the Administrative Agent that (a) this First
Amendment constitutes its legal, valid, and binding obligations, enforceable in
accordance with the terms hereof (subject as to enforcement of remedies to any
applicable bankruptcy, reorganization, moratorium, or other laws or principles
of equity affecting the enforcement of creditors' rights generally), (b) there
exists no Event of Default or Default under the Credit Agreement after giving
effect to this First Amendment, (c) its representations and warranties set forth
in the Credit Agreement and other Loan Papers are true and correct on the date
hereof after giving effect to this First Amendment, (d) it has complied with all
agreements and conditions to be complied with by it under the Credit Agreement
and the other Loan Papers by the date hereof, (e) the Credit Agreement, as
amended hereby, and the other Loan Papers remain in full force and effect, and
(f) no notice to, or consent of, any Person is required under the terms of any
agreement of the Borrower in connection with the execution of this First
Amendment.
SECTION 11. Further Assurances. The Borrower shall execute and deliver
------------------
such further agreements, documents, instruments, and certificates in form and
substance satisfactory to the Administrative Agent, as the Administrative Agent
or any Lender may deem reasonably necessary or appropriate in connection with
this First Amendment.
SECTION 12. Counterparts. This First Amendment and the other Loan Papers
------------
may be executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of any such agreement,
it shall not be necessary to produce or account for any counterpart other than
one signed by the party against which enforcement is sought.
SECTION 13. PRIOR WAIVER; ENTIRE AGREEMENT. THIS FIRST AMENDMENT AND THE
------------------------------
OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
SECTION 14. GOVERNING LAW. (A) THIS FIRST AMENDMENT AND ALL LOAN PAPERS
-------------
SHALL BE DEEMED CONTRACTS MADE UNDER THE LAWS OF TEXAS AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO THE
EXTENT FEDERAL LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF ALL OR ANY PART OF THIS FIRST AMENDMENT AND ALL LOAN PAPERS.
WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AND EACH SUBSIDIARY
AGREES THAT THE COURTS OF
7
<PAGE>
TEXAS WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH.
(B) THE BORROWER AND EACH SUBSIDIARY HEREBY WAIVES PERSONAL SERVICE OF ANY
LEGAL PROCESS UPON IT. IN ADDITION, THE BORROWER AND EACH SUBSIDIARY AGREES
THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT
REQUESTED) DIRECTED TO THE BORROWER AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER
THE CREDIT AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
RECEIPT BY THE BORROWER. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.
SECTION 15. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
--------------------
THE BORROWER, EACH SUBSIDIARY AND EACH LENDER HEREBY WAIVES ANY RIGHT THAT IT
MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT,
EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS FIRST AMENDMENT, THE
OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE
SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
================================================================================
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
================================================================================
8
<PAGE>
IN WITNESS WHEREOF, this First Amendment to Credit Agreement is executed as of
the date first set forth above.
BORROWER: ASCENT ENTERTAINMENT GROUP, INC.
By: /s/ James A.Cronin, III
----------------------------------------
Name: James A. Cronin, III
Its: Executive Vice President, Chief Operating
Officer and Chief Financial Officer
LENDERS: NATIONSBANK, N.A. (successor by merger to
NationsBank of Texas, N.A.), as Administrative
Agent, and individually as a Lender
By: /s/ Roselyn M. Reid
----------------------------------------
Name: Roselyn M. Reid
Its: Vice President
KEYBANK NATIONAL ASSOCIATION
By: /s/ Richard J. Ameny, Jr.
----------------------------------------
Name: Richard J. Ameny, Jr.
Its: Assistant Vice President
PARIBAS (formerly BANQUE PARIBAS)
By: /s/ David J. Pastre / Thomas G. Brandt
---------------------------------------
Name: David J. Pastre / Thomas G. Brandt
Its: Vice President / Director
9
<PAGE>
NATEXIS BANQUE - BFCE
By: /s/ Iain A. Whyte
----------------------------------------
Name: Iain A. Whyte
Its: Vice President
10
<PAGE>
EXHIBIT 10.7
SECOND AMENDMENT
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this
"Second Amendment") is dated as of the 15th day of January 1999, and entered
into among ASCENT ENTERTAINMENT GROUP, INC., a Delaware corporation (the
"Borrower"), the Lenders signatory thereto, and NATIONSBANK, N.A., (successor by
merger to NationsBank of Texas, N.A.), a national banking association,
individually and as Administrative Agent (in such latter capacity, the
"Administrative Agent").
WITNESSETH:
----------
WHEREAS, the Borrower, the Lenders, and the Administrative Agent entered
into a Second Amended and Restated Credit Agreement, dated as of December 22,
1997, as amended by that First Amendment to the Second Amended and Restated
Credit Agreement dated as of July 16, 1998 (as amended, restated, waived or
otherwise modified from time to time, the "Credit Agreement"); and
WHEREAS, the Lenders, the Administrative Agent, and the Borrower have
agreed to amend the Credit Agreement to make certain changes to the terms
therein upon the terms and conditions set forth below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower the Lenders and the Administrative Agent agree as follows:
SECTION 1. Definitions.
-----------
(a) Definitions, Generally. Unless specifically defined or redefined
----------------------
below, capitalized terms used herein shall have the meanings ascribed thereto in
the Credit Agreement.
(b) Definition of Beacon. The definition of "Beacon" on page 5 of the
--------------------
Credit Agreement shall be amended in its entirety to read as follows:
"Beacon" shall mean Beacon Communications, LLC, a Delaware
------
limited liability company.
(c) Definition of Consolidated Total Indebtedness. The definition of
---------------------------------------------
"Consolidated Total Indebtedness" on page 7 of the Credit Agreement shall be
amended in its entirety to read as follows:
<PAGE>
"Consolidated Total Indebtedness" shall mean, for any
-------------------------------
Person, all Indebtedness of such Person and its consolidated
subsidiaries (other than Indebtedness referred to in clause (h)
of the definition of such term), determined on a consolidated
basis in accordance with GAAP; provided, however, that
-------- -------
Consolidated Total Indebtedness of the Borrower shall not include
Non-Recourse Arena Financing so long as it is incurred in
compliance with the provisions of this Agreement.
(d) Definition of EBITDA. The definition of "EBITDA" on page 8 of the
--------------------
Credit Agreement shall be amended in its entirety to read as follows:
"EBITDA" shall mean, with respect to the Borrower and its
------
Subsidiaries on a consolidated basis for any period, the
consolidated net income of the Borrower and its Subsidiaries for
such period, computed in accordance with GAAP, plus, to the
extent deducted in computing such consolidated net income and
without duplication, the sum of (a) income tax expense, (b)
interest expense, (c) depreciation and amortization expense, (d)
allocation of income to minority interests in earnings of
consolidated subsidiaries and (e) extraordinary losses (including
restructuring provisions) during such period minus, to the extent
added in computing such consolidated net income and without
duplication, (y) extraordinary gains during such period and (z)
allocation of losses to minority interests in earnings of
consolidated subsidiaries. EBITDA shall be calculated in
accordance with GAAP as in effect and applied by the Borrower on
the date of this Agreement and, accordingly, shall exclude the
effects of any changes in GAAP or its application by the Borrower
after the date hereof.
(e) Definition of Film Cash Flow. The definition of "Film Cash Flow" on
----------------------------
page 11 of the Credit Agreement shall be deleted in its entirety.
(f) Definition of Film Inventory. The definition of "Film Inventory" on
----------------------------
page 11 of the Credit Agreement shall be deleted in its entirety.
(g) Definition of Guarantee. The definition of "Guarantee" on page 11 of
-----------------------
the Credit Agreement shall be amended in its entirety to read as follows:
"Guarantee" of or by any Person shall mean any obligation,
---------
contingent or otherwise, of such Person guaranteeing or having
the economic effect of guaranteeing any Indebtedness of any other
Person (the "primary obligor") in any manner, whether directly or
---------------
indirectly, and including any obligation of such Person, direct
or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase
(or to advance or supply funds for the purchase of) any security
for the payment of such Indebtedness, (b) to purchase or lease
property, securities or services for the purpose of assuring the
owner of such Indebtedness of the payment of such Indebtedness or
(c) to maintain working capital,
2
<PAGE>
equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness, and (d) to guaranty the
obligations, payments by or performance of, a Person that is not
a wholly owned direct or indirect Subsidiary of the Borrower;
provided, however, that the term Guarantee shall not include
-------- -------
endorsements for collection or deposit in the ordinary course of
business.
(h) Definition of Guarantors. The definition of "Guarantors" on page 12
------------------------
of the Credit Agreement shall be amended in its entirety to read as follows:
"Guarantors" shall mean: Ascent Sports Holdings, Ascent
----------
Sports, Ascent Arena and Development Corporation, Ascent Arena
Company, LLC, Ascent Arena Operating Company, Ascent Beacon
Corporation and all other wholly owned direct or indirect
Subsidiaries of the Borrower from time to time.
(i) Definition of Motion Pictures. The definition of "Motion Pictures" on
-----------------------------
page 15 of the Credit Agreement shall be deleted in its entirety.
(j) Definition of Non-Recourse Film Indebtedness. The definition of "Non-
--------------------------------------------
Recourse Film Indebtedness" on page 18 of the Credit Agreement shall be deleted
in its entirety.
(k) Definition of Permitted Investments. The definition of "Permitted
-----------------------------------
Investments"on page 19 and 20 of the Credit Agreement shall be amended in its
entirety to read as follows:
"Permitted Investments" shall mean:
---------------------
(a) direct obligations of, or obligations the principal of
and interest on which are unconditionally guaranteed by, the
United States of America (or by any agency thereof to the extent
such obligations are backed by the full faith and credit of the
United States of America), in each case maturing within one year
from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270
days from the date of acquisition thereof and having, at such
date of acquisition, the highest credit rating obtainable from
Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc.
or from Moody's Investors Service, Inc.;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within one year from the
date of acquisition thereof issued or guaranteed by or placed
with, and money market deposit accounts issued or offered by, any
domestic office of any commercial bank which bank or office is
organized under the Laws of the United States of America or any
State thereof which has a combined capital and surplus and
undivided profits of not less than $250,000,000;
3
<PAGE>
(d) fully collateralized repurchase agreements with a term
of not more than 30 days for underlying securities of the type
described in clause (a) above entered into with any institution
meeting the qualifications specified in clause (c) above; and
(e) Investments in the Capital Stock of Beacon, provided
that the aggregate amount of all such Investments in the Capital
Stock of Beacon for the Borrower and its Subsidiaries shall not
exceed 10% of the Capital Stock of Beacon.
SECTION 2. Amendment to Section 1.02. Section 1.02 of the Credit
-------------------------
Agreement shall be amended in its entirety to read as follows:
SECTION 1.02. Terms Generally. The definitions in Section
---------------
1.01 shall apply equally to both the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter
forms. The words "include", "includes" and "including" shall be
deemed to be followed by the phrase "without limitation". All
references herein to Articles, Sections, Exhibits and Schedules
shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context
shall otherwise require. Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to
time; provided, however, that for purposes of determining
compliance with the covenants contained in Article VI hereof, all
accounting terms herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP as
in effect on the date of this Agreement and applied on a basis
consistent with the application used in the financial statements
referred to in Section 3.05 hereof. All financial covenant
calculations relating to Applicable Margin, Sections 6.09 and
6.10 and otherwise calculated under this Agreement shall be
calculated as if all assets (a) acquired by the Borrower or any
of its Subsidiaries during any period for which any financial
covenants are being calculated were acquired on the first day of
such period, and (b) sold by the Borrower or any of its
Subsidiaries during any period for which any financial covenants
are being calculated were sold on the first day of such period.
SECTION 3. Amendment to Section 3.22. Section 3.22 of the Credit
-------------------------
Agreement shall be amended in its entirety to read as follows:
SECTION 3.22. INTENTIONALLY DELETED.
SECTION 4. Amendment to Section 6.01(d). Section 6.01(d) of the Credit
----------------------------
Agreement shall be amended in its entirety to read as follows:
4
<PAGE>
(d) INTENTIONALLY DELETED;
SECTION 5. Amendment to Section 6.02(i). Section 6.02(i) of the Credit
----------------------------
Agreement shall be amended in its entirety to read as follows:
(i) INTENTIONALLY DELETED;
SECTION 6. Amendment to Opening Paragraph of Section 6.04. The opening
----------------------------------------------
paragraph of Section 6.04 shall be amended in its entirety to read as follows:
SECTION 6.04. Investments, Acquisitions, Loans and
Advances. The Borrower will not, and will not cause or permit any
of its Subsidiaries to, purchase, hold or acquire any Capital
Stock, evidences of indebtedness (other than restructured
receivables) or other securities of, make or permit to exist any
loans or advances to, or make or permit to exist any investment
or any other interest in, or make any acquisition of assets of
any other Person as a going concern (each, an "Investment"),
----------
except:
SECTION 7. Amendment to Section 6.05(b). Section 6.05(b) of the Credit
----------------------------
Agreement shall be amended in its entirety to read as follows:
(b) sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or any
substantial part of its assets (whether now owned or hereafter
acquired) or any amount of Capital Stock of any Subsidiary of the
Borrower or all or any substantial part of the assets of any
Subsidiary of the Borrower, except that (i) the Borrower and any
Subsidiary of the Borrower may sell or dispose of inventory and
obsolete equipment in the ordinary course of business, (ii) so
long as there exists no Default or Event of Default both before
and after giving effect thereto the Borrower or any of its
Subsidiaries may (A) make an Asset Disposition, so long as (I)
the cumulative aggregate consideration for all such Asset
Dispositions after the date hereof shall not exceed $10,000,000,
and (II) such assets are not used in the operation of the Nuggets
Sub or the Avalanche Sub or the related Teams, and (B) in
addition to Asset Dispositions permitted by subsection (A) above,
make an Asset Disposition, so long as (I) the cumulative
aggregate consideration for all such Asset Dispositions after the
date hereof (but excluding the proceeds from sales of those
assets described on Schedule 6.05 hereto) shall not exceed
-------------
$10,000,000 and (II) such assets are not used in the operation of
the Nuggets Sub or the Avalanche Sub or the related Teams, (iii)
so long as there exists no Default or Event of Default both
before and after giving effect thereto the Borrower or any of its
Subsidiaries may sell the Capital Stock described on Schedule
--------
6.05 hereto, (iv) so long as there exists no Default or Event of
----
Default both before and after giving effect thereto, the
Borrower, Nuggets Sub or the Ascent Arena Company, LLC may convey
the real estate used for the
5
<PAGE>
Arena/Complex to the City and County of Denver, (v) so long as
there exists no Event of Default both before and after giving
effect thereto, any Wholly Owned Subsidiary of the Borrower may
transfer all or any part of its assets to the Borrower, (vi) so
long as there exists no Default or Event of Default both before
and after giving effect thereto, the Borrower may consummate the
sale leaseback transaction described on Schedule 6.03 hereto,
-------------
(vii) the Borrower may consummate an On Command Corp. Stock Sale,
and (viii) the Borrower and its Subsidiaries may sell all or
substantially all of Beacon and all of Beacon's Subsidiaries.
Notwithstanding anything to the contrary herein or in any other
Loan Paper, under no circumstance may the Borrower or any
Subsidiary of the Borrower sell, dispose of or transfer any of
the Capital Stock owned by the Borrower, any Subsidiary of the
Borrower or On Command Corp. and its Subsidiaries, except (A) the
Capital Stock described on Schedule 6.05 hereto, (B) pursuant to
-------------
any On Command Corp. Stock Sale and (C) all or substantially all
of Beacon.
SECTION 8. Amendment to Section 6.05. Section 6.05 of the Credit
-------------------------
Agreement shall be amended by adding the following paragraph at the end of
Section 6.05 as follows:
In connection with any asset sale permitted by this Section 6.05
or otherwise consented to by the Lenders in accordance with the
terms of this Agreement from time to time, the Administrative
Agent is hereby authorized by each Lender to (i) execute any and
all releases deemed appropriate by it to release such assets of
the Borrower and its Subsidiaries (including, without limitation,
Capital Stock owned by the Borrower and its Subsidiaries)
constituting Collateral or otherwise, from all Liens and security
interests securing all or any portion of the Obligations, (ii)
return to the Borrower any such Collateral or other assets in the
possession of the Administrative Agent, (iii) after the permitted
sale by any Subsidiary of the Borrower of all of its assets and
Properties, or after the sale by the Borrower or any of its
Subsidiaries of the Capital Stock of any of their Subsidiaries,
release any such sold Person who has executed a guaranty of the
Obligations from the terms and conditions of such guaranty and
(iv) take such other action as the Administrative Agent deems
necessary or appropriate in connection with such transactions and
in furtherance of the effectuation thereof.
SECTION 9. Amendment to Section 6.08. Section 6.08 of the Credit
-------------------------
Agreement shall be amended in its entirety to read as follows:
SECTION 6.08. Limitation on Restrictive Agreements. The
------------------------------------
Borrower will not, and will not cause or permit any of its
Subsidiaries to, enter into any indenture, agreement, instrument,
financing document or other arrangement which, directly or
indirectly, contains any financial covenants or prohibits or
restrains, or has the effect of prohibiting or restraining, or
imposes materially adverse conditions upon: (a) the incurrence of
Indebtedness, (b) the granting of Liens, (c) the making or
6
<PAGE>
granting of Guarantees, (d) the payment of dividends or
distributions, (e) the purchase, redemption or retirement of any
Capital Stock, (f) the making of loans or advances, (g) transfers
or sales of property or assets (including Capital Stock) by the
Borrower or any of its Subsidiaries, other than restrictions on
the granting of Liens on, or the transfer of, assets that are
encumbered by Liens permitted under clauses (b), (h) and (i) of
Section 6.02 hereof with respect to the property or assets
covered by such Lien only, or (h) the making of amendments,
changes, waivers or consents with respect to this Agreement and
the Loan Papers, provided that, notwithstanding the foregoing,
(I) Nuggets Sub, Avalanche Sub, Ascent Arena Company, LLC and the
Subsidiaries of Ascent Arena Company, LLC may enter into
restrictive agreements relating solely to the Ascent Arena
Company, LLC and the Subsidiaries of Ascent Arena Company, LLC
and the Arena/Complex, each exclusively in connection with the
Non-Recourse Arena Financing, the Arena/Complex or the interest
of the City and County of Denver in the Arena/Complex acceptable
to the Administrative Agent, (ii) Ascent Arena Company, LLC may
enter into the Arena Operating Agreement, (iii) Ascent Arena
Company, LLC and Ascent Arena Operating Company, LLC may enter
into the Operating and Management Agreement, (iv) the Borrower
may enter into any such restrictive agreements relating to any
Preferred Stock permitted under Section 6.01(g) hereof so long as
no such restrictive agreement shall be effective or binding on
the Borrower or any of its Subsidiaries until the earlier of (A)
the Maturity Date and (B) the payment in full of the Obligations
and the termination of the Commitments, and (v) the Borrower may
issue the Senior Notes and enter into the Senior Notes
Documentation.
SECTION 10. Amendment to Section 6.11. Section 6.11 of the Credit
-------------------------
Agreement shall be amended in its entirety to read as follows:
SECTION 6.11. INTENTIONALLY DELETED.
SECTION 11. Addition of Section 6.13. A new Section 6.13 shall be added
------------------------
to Article VI of the Credit Agreement to read as follows:
SECTION 6.13 Creation or Acquisition of New Subsidiaries.
-------------------------------------------
The Borrower will not, and will not cause or permit any of its
Subsidiaries to, create or acquire any new Subsidiary, unless in
each case concurrently with such creation or acquisition each of
the following conditions is satisfied: (a) any new Subsidiary is
a 100% owned direct or indirect Subsidiary of the Borrower, (b)
any new Subsidiary has executed a guaranty of the Obligations in
form and substance substantially similar to the guaranties
executed by the other Subsidiaries, (c) 100% of the Capital Stock
of such new Subsidiary shall be subject to a first and prior
pledge to the Administrative Agent on behalf of the Lenders to
secure the Obligations pursuant to a pledge agreement
substantially similar to the pledge agreements in existence
pledging the Capital Stock of the existing Subsidiaries to the
Administrative Agent,
7
<PAGE>
(d) 100% of the Capital Stock of such new Subsidiary shall be in
the possession of the Administrative Agent together with stock
powers executed in blank, and (e) the Administrative Agent shall
have received all resolutions, corporate documentation and other
items reasonably requested by the Administrative Agent related to
the formation of the new Subsidiary together with legal opinions
in form and substance acceptable to Special Counsel.
SECTION 12. Deletion of Schedule 1.01. Schedule 1.01 to the Credit
-------------------------
Agreement shall be deleted in its entirety.
SECTION 13. Deletion of Schedule 3.22. Schedule 3.22 to the Credit
-------------------------
Agreement shall be deleted in its entirety.
SECTION 14. Waiver. The Administrative Agent and the Lenders hereby waive
------
any provisions of the Credit Agreement necessary solely to permit the sale by
the Borrower of all or substantially all of Beacon in accordance with the terms
of that certain Agreement for the Purchase and Sale of an Interest in Beacon
Communications, LLC, by and among Ascent Entertainment Group, Inc., Ascent
Beacon Corporation, Beacon Communications, LLC and Boomtown Investments, LLC.
SECTION 15. Affirmation. The Borrower hereby acknowledges and agrees that
-----------
nothing in this Second Amendment shall affect the Borrower's obligations under
the Credit Agreement or the other Loan Papers executed in connection therewith
(except as specifically provided in this Second Amendment), which remain valid,
binding and enforceable, and except as amended hereby, unamended, or shall
constitute a waiver by the Lenders of any of their rights or remedies, now or at
any time in the future, with respect to any requirement under the Credit
Agreement or the other Loan Papers or with respect to an Event of Default or
Default, occurring now or at any time in the future.
SECTION 16. Conditions Precedent. This Second Amendment shall not be
--------------------
effective until
(a) all proceedings of the Borrower taken in connection with this
Second Amendment and the transactions contemplated hereby shall be
satisfactory in form and substance to the Administrative Agent and Lenders
signatory hereto,
(b) the Administrative Agent shall have received executed copies
of all documentation related to the sale by the Borrower of 90% of its
ownership interest in Beacon Communications, LLC, including all merger
documentation and purchase and sale documentation,
(c) the Administrative Agent shall have received an opinion of
counsel to the Borrower in form and substance acceptable to it, as to the
enforceability of this Second Amendment and all the Loan Papers, and as to
such other matters as requested by the Administrative Agent,
8
<PAGE>
(d) the Administrative Agent shall have received a Compliance
Certificate computed after giving effect to the sale of Beacon, calculated
for the remainder of the term of this Agreement and evidencing pro forma
compliance with all terms and conditions of this Agreement and the other
Loan Papers,
(e) the Administrative Agent and Lenders shall have each received
such documents, instruments, and certificates, copies of resolutions, etc.,
each in form and substance satisfactory to the Lenders, as the Lenders
shall deem necessary or appropriate in connection with this Second
Amendment and the transactions contemplated hereby, and
(f) reimbursement for Administrative Agent for Donohoe, Jameson &
Carroll, P.C.'s reasonable fees and expenses rendered through the date
hereof.
SECTION 17. Representations and Warranties. The Borrower represents and
------------------------------
warrants to the Lenders and the Administrative Agent that (a) this Second
Amendment constitutes its legal, valid, and binding obligations, enforceable in
accordance with the terms hereof (subject as to enforcement of remedies to any
applicable bankruptcy, reorganization, moratorium, or other laws or principles
of equity affecting the enforcement of creditors' rights generally), (b) there
exists no Event of Default or Default under the Credit Agreement after giving
effect to this Second Amendment, (c) its representations and warranties set
forth in the Credit Agreement and other Loan Papers are true and correct on the
date hereof after giving effect to this Second Amendment, (d) it has complied
with all agreements and conditions to be complied with by it under the Credit
Agreement and the other Loan Papers by the date hereof, (e) the Credit
Agreement, as amended hereby, and the other Loan Papers remain in full force and
effect, and (f) no notice to, or consent of, any Person is required under the
terms of any agreement of the Borrower in connection with the execution of this
Second Amendment.
SECTION 18. Further Assurances. The Borrower shall execute and deliver
------------------
such further agreements, documents, instruments, and certificates in form and
substance satisfactory to the Administrative Agent, as the Administrative Agent
or any Lender may deem reasonably necessary or appropriate in connection with
this Second Amendment.
SECTION 19. Counterparts. This Second Amendment and the other Loan Papers
------------
may be executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of any such agreement,
it shall not be necessary to produce or account for any counterpart other than
one signed by the party against which enforcement is sought.
SECTION 20. PRIOR WAIVER; ENTIRE AGREEMENT. THIS SECOND AMENDMENT AND THE
------------------------------
OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
9
<PAGE>
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
SECTION 21. GOVERNING LAW. (A) THIS SECOND AMENDMENT AND ALL LOAN PAPERS
-------------
SHALL BE DEEMED CONTRACTS MADE UNDER THE LAWS OF TEXAS AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO THE
EXTENT FEDERAL LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF ALL OR ANY PART OF THIS SECOND AMENDMENT AND ALL LOAN PAPERS.
WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AND EACH SUBSIDIARY
AGREES THAT THE COURTS OF TEXAS WILL HAVE JURISDICTION OVER PROCEEDINGS IN
CONNECTION HEREWITH.
(B) THE BORROWER AND EACH SUBSIDIARY HEREBY WAIVES PERSONAL SERVICE OF ANY
LEGAL PROCESS UPON IT. IN ADDITION, THE BORROWER AND EACH SUBSIDIARY AGREES
THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT
REQUESTED) DIRECTED TO THE BORROWER AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER
THE CREDIT AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
RECEIPT BY THE BORROWER. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.
SECTION 22. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
--------------------
THE BORROWER, EACH SUBSIDIARY AND EACH LENDER HEREBY WAIVES ANY RIGHT THAT IT
MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT,
EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS SECOND AMENDMENT, THE
OTHER LOAN PAPERS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE
SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
================================================================================
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
================================================================================
10
<PAGE>
IN WITNESS WHEREOF, this Second Amendment to Credit Agreement is executed
as of the date first set forth above.
BORROWER: ASCENT ENTERTAINMENT GROUP, INC.
/s/ Arthur M. Aaron
------------------------------------------------
By: Arthur M. Aaron
Its: Vice President, Business and Legal Affairs
LENDERS: NATIONSBANK, N.A. (successor by merger to
NationsBank of Texas, N.A.), as Administrative
Agent, and individually as a Lender
/s/ Roselyn Drake
------------------------------------------------
By: Roselyn Drake
Its: Vice President
KEYBANK NATIONAL ASSOCIATION
/s/ Mary K. Young
------------------------------------------------
Name: Mary K. Young
Title: Assistant Vice President
PARIBAS (formerly BANQUE PARIBAS)
/s/ Thomas G. Brandt / Ernie Sibal
------------------------------------------------
Name: Thomas G. Brandt / Ernie Sibal
Title: Director / Assistant Vice President
11
<PAGE>
NATEXIS BANQUE - BFCE
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
12
<PAGE>
EXHIBIT 10.13
CONFIDENTIAL
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
This AMENDMENT dated as of December 28, 1998 is made to the EMPLOYMENT
AGREEMENT dated as of September 11, 1996 (the "Agreement"), by and between On
Command Corporation, a Delaware corporation (the "Company"), and Robert M.
Kavner, a resident of the State of California (the "Executive").
WHEREAS, the Company and the Executive desire to change the terms and
conditions of the Company's employment of the Executive to the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
made herein, and intending to be legally bound hereby, the Company and the
Executive agree as follows:
1. Change of Employment; Consulting Period. Effective December 31, 1998
---------------------------------------
(the "Effective Date"), the Executive shall resign as President, Chief Executive
Officer and a director of the Company, and as an officer or director of all of
the Company's subsidiaries. The Company shall retain the Executive as a non-
exclusive consultant for a period commencing on the Effective Date and ending on
December 31, 1999 (the "Consulting Period").
2. Compensation and Fringe Benefits. (a) Base Compensation. As
-------------------------------- -----------------
compensation for his consulting services, the Company shall pay the Executive
base compensation of $350,000 for the Consulting Period, with payments to be
made ratably in installments in accordance with the Company's regular practice
for compensating executive personnel.
(b) Bonus Compensation. As compensation for his service to the
------------------
Company during 1998, the Executive will receive a bonus of $350,000 to be paid
in the first week in January 1999.
(c) Fringe Benefits. During the Consulting Period, the Executive
---------------
also shall be entitled to participate in group health, dental and disability
insurance programs, and any group profit sharing, deferred compensation, life
insurance or other benefit plans as are generally made available by the Company
to the senior executives of the Company. Such benefits in all events shall
include payment or reimbursement of (i) documented expenses reasonably incurred
in connection with travel and entertainment related to the Company's business
and affairs and performed at the request of a director or senior executive of
the Company, and (ii) Executive's reasonable legal fees and costs incurred in
connection with the drafting, negotiation and execution of this Amendment. All
benefits described in the foregoing (i) and (ii) that are reported by the
Company as earned or unearned income
<PAGE>
will be "grossed up" by the Company in connection with federal and state tax
obligations to provide Executive with appropriate net tax coverage so that the
benefits received by the Executive from the foregoing clauses (i) and (ii). The
Company reserves the right to modify or terminate from time to time the fringe
benefits provided to the senior management group, provided that the fringe
--------
benefits provided to the Executive shall not be materially reduced on an overall
basis during the Consulting Period and provided further that the benefits
provided in clauses (i) and (ii) above shall not be reduced at all.
(d) Stock Options. As of the Effective Date, the Executive agrees
-------------
to the cancellation of any and all options ("Options") previously granted to him
to purchase shares of the Company's common stock, par value $0.01 per share,
whether vested or unvested, and the Executive shall surrender his original stock
option agreements representing the Options upon execution of this Amendment.
3. Continuing Provisions. During the Consulting Period, Sections 3,
---------------------
4, 6, 9, 10, 11, 12, 13, 14 and 15 of the Agreement shall remain in full force
and effect, and any references therein to the "Employment Period" shall be
deemed references to the Consulting Period, and all other sections of the
Agreement shall have no further force or effect after the execution of this
Amendment.
4. Non-Competition. (a) As an inducement for the Company to enter into
---------------
this Amendment, the Executive agrees that during the Consulting Period, the
Executive shall not, without the prior written consent of the Board, undertake
employment or services for a company engaged in a business which is or has
publicly announced its intention to become directly competitive with the
business then being primarily conducted by the Company, with respect to any
geographic area in which the Company then engages in such business, if the loyal
and complete fulfillment of the duties of the competitive employment or services
would call upon Executive to reveal, to make judgments on or otherwise to use
Trade Secrets of the Company (as defined in Section 3 of the Agreement) to which
Executive had access by reason of his employment by the Company.
(b) Non-Solicitation of Employees. During the Consulting Period,
-----------------------------
the Executive will not (for his own benefit or for the benefit of any person or
entity other than the Company) solicit, or assist any person or entity other
than the Company to solicit, any officer, director, executive or employee (other
than an administrative or clerical employee) of the Company to leave his or her
employment.
2
<PAGE>
(c) Reasonableness; Interpretation. The Executive acknowledges and
------------------------------
agrees, solely for purposes of determining the enforceability of this Section 4
(and not for purposes of determining the amount of money damages or for any
other reason), that (i) the markets served by the Company are national and
international and are not dependent on the geographic location of executive
personnel or the businesses by which they are employed; (ii) the length of the
non-competition period is equal to the term of the Consulting Period; and (iii)
the above covenants are manifestly reasonable on their face, and the parties
expressly agree that such restrictions have been designed to be reasonable and
no greater than is required for the protection of the Company. In the event that
the covenants in this Section 4 shall be determined by any court of competent
jurisdiction in any action to be unenforceable by reason of their extending for
too great a period of time or over too great a geographical area or by reason of
their being too extensive in any other respect, they shall be interpreted to
extend only over the maximum period of time for which they may be enforceable,
and/or over the maximum geographical area as to which they may be enforceable
and/or to the maximum extent in all other respects as to which they may be
enforceable, all as determined by such court in such action.
(d) Investment. Nothing in this Amendment shall be deemed to
----------
prohibit the Executive from owning equity or debt investments in any
corporation, partnership or other entity which is competitive with the Company,
provided that such investments (i) are passive investments and constitute five
- --------
percent (5%) or less of the outstanding equity securities of such an entity the
equity securities of which are traded on a national securities exchange or other
public market, or (ii) are approved by the Board.
5. Mutual Release. (a) In consideration for the Company entering into
--------------
this Amendment and for the benefits described herein, the Executive and his
successors and assigns release and absolutely discharge the Company, its
affiliates and their respective shareholders, directors, employees, agents,
attorneys, legal successors and assigns (the "Company Released Parties") of and
------------------------
from any and all claims, actions, and causes of actions whether now known or
unknown, which the Executive now has, or at any other time had, or shall or may
have against the Company Released Parties based upon or arising out of any
matter, cause, fact, thing, act or omission whatsoever occurring or existing at
any time to and including the Effective Date, including but not limited to, any
claims under the Agreement or of breach of contract, wrongful termination or
national origin, race, age, sex, sexual orientation, disability or other
discrimination under the Civil Rights Act of 1964, the Age Discrimination in
3
<PAGE>
Employment Act of 1967, the American with Disabilities Act, the Fair Employment
and Housing Act or any other applicable law, all as they have or may be amended.
(b) In consideration for the Executive entering into this Amendment and
for the benefits to the Company described herein, the Company and its successors
and assigns release and absolutely discharge the Executive and his successors
and assigns (the "Executive Released Parties") of and from any and all claims,
--------------------------
actions, and causes of actions whether now known or unknown, which the Company
now has, or at any other time had, or shall or may have against the Executive
Released Parties based upon or arising out of any matter, cause, fact, thing,
act or omission whatsoever occurring or existing at any time to and including
the Effective Date, including but not limited to, any claims under the Agreement
or of breach of contract.
(c) Each party acknowledges that he or it has read Section 1542 of the
Civil Code of the State of California which states:
A general release does not extend to claims which the creditor does not know
or suspect to exist in his favor at the time of executing the release, which
if known by him must have materially affected his settlement with the debtor.
Each hereby waives any right or benefit which he or it has or may have under
Section 1542 of the Civil Code of the State of California to the full extent
that he or it may lawfully waive such rights and benefits pertaining to the
subject matter of this general release of claims.
6. Press Release. Public announcements to be made by the Company
-------------
announcing the changes in the Executive's offices and responsibilities reflected
in this Amendment shall be subject to the mutual approval of the parties,
subject to the Company's compliance with applicable laws and regulations.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
December 28, 1998.
/s/ Robert M.Kavner
------------------------------
Robert M. Kavner, Executive
ON COMMAND CORPORATION
By: /s/ Charlie Lyons
---------------------------
Title: Chairman
5
<PAGE>
EXHIBIT 10.14
CONFIDENTIAL
AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT
--------------------------------------
This AMENDMENT, dated as of December 28, 1998, is made to the
EMPLOYMENT AGREEMENT dated as of September 11, 1996 (the "Agreement"), by and
between On Command Corporation, a Delaware corporation (the "Company"), and
Brian A. C. Steel, a resident of the State of California (the "Executive").
WHEREAS, the Company and the Executive desire to amend certain of the
terms and conditions of the Agreement in connection with the Executive becoming
President of the Company to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements made herein, and intending to be legally bound hereby, the Company
and the Executive agree as follows:
1. Definition of "NEWCO". The first parenthetical in the introductory
---------------------
paragraph of the Agreement is hereby amended to read as follows:
("NEWCO" or the "Company")
2. Change in Title; Duties.
-----------------------
Sections 1(a) and 1(b) of the Agreement are hereby deleted and replaced in
their entirety by the following:
(a) Employment and Employment Period. The Company shall employ the
--------------------------------
Executive for a period (the "Employment Period") commencing on September
11, 1996 (the "Effective Date") and continuing thereafter for a term ending
on September 11, 2000 unless terminated in accordance with the provisions
of this Agreement. Executive shall be employed by the Company to serve as
Vice President, Chief Operating Officer and Chief Financial Officer from
the Effective Date to December 31, 1998, and as President and Chief
Operating Officer from December 31, 1998 through the remainder of the
Employment Period. In the event that the Company desires to extend the
employment of the Executive, it must give written notice of such desire by
September 11, 1999, and after such notice the parties shall enter
<PAGE>
into an exclusive negotiation period of not less than six months, unless
otherwise mutually agreed upon by the parties in writing. Each 12 month
period ending on September 11 is sometimes referred to herein as a "year of
the Employment Period."
(b) Offices, Duties and Responsibilities. Effective on the
------------------------------------
Effective Date, Executive shall be elected Executive Vice President,
Chief Operating Officer and Chief Financial Officer of NEWCO. On
December 31, 1998, Executive shall be elected President and Chief
Operating Officer of the Company. The Executive shall report directly
and solely to the Chief Executive Officer and the Board of Directors
of the Company (the "Board"), or if there is no Chief Executive
Officer, to the Chairman of the Board and the Board of Directors of
the Company. The Executive's offices initially shall be located at
OCV's present headquarters. Throughout the Employment Period, the
Company shall cause the Executive to be a member of the Board. Until
December 31, 1998, the Executive shall have all duties and authority
customarily accorded a chief operating officer and chief financial
officer, and from December 31, 1998, the Executive shall have all
duties customarily accorded a president and chief operating officer,
including, without limitation, the lead responsibility with full
autonomy, subject to the customary authority and direction of the
Board (and the Chairman of the Board or Chief Executive Officer, as
the case may be), to direct and develop the operating capabilities and
performance of the Company. The Executive shall be a member of any
senior executive/management committees which may be established from
time to time by the Board. The Executive shall not be required to
perform services other than those comparable in scope, dignity and
stature to those customarily performed by officers of the same rank at
companies similar to the Company.
3. Notification of Chief Executive Search. A new Subsection (d) is hereby
--------------------------------------
added to Section 1 of the Agreement to read as follows:
(d) New Chief Executive Search. In the event that the Company,
--------------------------
or any authorized representative of the Company, undertakes or
authorizes a search for a
2
<PAGE>
new chief executive officer or president of the Company, or solicits,
or engages in any substantive discussions with, any person (or
representative of any person) to become the chief executive officer or
president of the Company, then and in such event, the Company will
promptly notify the Executive about the existence of such search,
solicitation or discussions as a courtesy to Executive, it being
understood that details about the same need not be provided by the
Company to the Executive.
4. Base Compensation. The following sentence is hereby added at the end
-----------------
of Section 2(a) of the Agreement:
Commencing December 31, 1998, the Executive's Base Salary shall be
increased to $375,000 per year.
5. Bonus Compensation. The following sentence is hereby added at the end
------------------
of Section 2(b) of the Agreement:
Notwithstanding anything in the foregoing to the contrary, the parties
agree that the Compensation Committee will act in good faith to
establish parameters or guidelines which will contemplate that the
target level established for an Annual Bonus of 70% of Base Salary
shall not be treated as a "cliff" target; rather, in the event the
Company fails to meet 100% of the target level for a given period but
nevertheless achieves a substantial part of the targeted performance,
then and in such event, the parameters or guidelines will contemplate
that Executive shall qualify for an Annual Bonus for such period,
albeit at a level below 70% of Base Salary.
6. Fringe Benefits. Clause (v) of Section 2(c) of the Agreement is
---------------
amended in its entirety to read as follows:
(v) Executive's reasonable legal fees and costs incurred in connection
with the drafting, negotiation and execution of this Agreement and
amendments and proposed amendments hereto, including negotiations
contemplated by clause (IX) of Section 5(a) of this Agreement
7. Stock Option Term. A new Clause (w) is hereby inserted immediately
-----------------
prior to Clauses (x) and (y) in Section 2(e) of the Agreement to read as
follows:
3
<PAGE>
(w) One year after the date upon which a termination of
employment occurs as a result of an Executive Election Event described
in Clause (IX) of Section 5(a) of this Agreement;
8. Termination. The Executive Election Event set forth in Clause (IX) of
-----------
Section 5(a) of the Agreement is hereby deleted and replaced in its entirety by
the following:
(IX) (A) the election or appointment by the Board of Directors of a
Chief Executive Officer other than the Executive, or (B) the failure
of the Compensation Committee of the Board, prior to June 1, 1999, to
review the Executive's entire compensation package provided under this
Agreement and to propose increases or other amendments thereto as
determined by the Compensation Committee in its sole discretion in
light of the changes occurring in Executive's employment on December
31, 1998 (it being understood that the Compensation Committee shall
have no obligation to propose any such increases or other amendments),
or (C) the Executive and the Company failing to execute, on or before
August 1, 1999, mutually satisfactory amendments to this Agreement
either incorporating the proposals made by the Compensation Committee
under the immediately preceding clause (B) or containing other
amendments to this Agreement that are mutually satisfactory to the
Executive and the Company; (provided that in the event the Executive
exercises his Executive Election as a result of any of the conditions
set forth in this clause (IX), then the Executive need provide only
five (5) days advance written notice in lieu of the sixty (60) days
advance written notice required by the first sentence of Section 5(a)
above and the Company, in full satisfaction of all of the Company's
obligations under this Agreement and in respect of the termination of
the Executive's employment with the Company, shall, (a) through the
first anniversary of his termination, pay the Executive his Base
Salary, together with fringe benefits that are described in the
introductory clause and prior to the proviso of Section 2(c) of this
Agreement, (b) pay the Executive an Annual Bonus for the year in which
his employment is terminated at the maximum amount payable under this
Agreement, prorated through the date of his termination; and (c) a pro
rata portion of the Option and any other stock options granted to the
Executive under the Company's option plan or any
4
<PAGE>
successor plan that were scheduled to vest during the year of termination
shall vest as of the date of such termination of his employment.
9. No Other Amendments. Except as specifically set forth in this
-------------------
Amendment, all other provisions of the Agreement shall remain in full force and
effect during the Employment Period and, as applicable, thereafter to the extent
set forth in the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
By: /s/ Brian Steel
-------------------------------
Brian Steel, Executive
ON COMMAND CORPORATION
By: /s/ Charles Lyons
------------------------------
Title: Chairman of the Board
5
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
--------------------
This AGREEMENT made as of July 1, 1997, by and between Denver Arena
Company, LLC, a Colorado limited liability company (the "Company"), whose
members are Ascent Entertainment Group, Inc., a Delaware corporation ("Ascent"),
and Ascent Arena Corporation, a Delaware corporation and a wholly owned
subsidiary of Ascent ("Arena"), and Timothy D. Romani, a resident of the State
of Colorado (the "Executive").
WHEREAS, Ascent through Ascent Sports, Inc., a wholly owned subsidiary of
Ascent ("Sports"), controls The Denver Nuggets Limited Partnership (the
"Basketball Club"), a Delaware limited partnership which owns and operates the
Denver Nuggets professional basketball team (the "Basketball Team"), a franchise
of the National Basketball Association (the "NBA"); and
WHEREAS, Ascent and Sports are the sole members with joint and several
management authority of Colorado Avalanche, LLC, (the "Hockey Club"), a Colorado
limited liability company which owns and operates the Colorado Avalanche
professional hockey team (the "Hockey Team"), a franchise of the National Hockey
League (the "NHL"); and
WHEREAS, the Company has proposed constructing, owning and managing,
possibly with other joint venture partners, a new state-of-the-art arena in the
Denver metropolitan area in which the Basketball Team and the Hockey Team would
play their home games (the "Arena Project"); and
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to become an employee of the Company, on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
made herein, and intending to be legally bound hereby, the Company and the
Executive agree as follows:
1. Employment; Duties. (a) Employment and Employment Period. The
------------------ --------------------------------
Company shall employ the Executive to serve as (i) President of the Company and
General Manager of the Arena Project and (ii) such office with an affiliate of
the Company as reasonably determined by the President and CEO of Ascent in
connection with the sales and marketing of the proposed arena. Such employment
shall be for a continuous period (the "Employment Period") commencing July 1,
1997 (the "Effective Date") and ending on July 1, 2002 with respect to the
office set forth in
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clause (i) above, and for such periods as reasonably determined by the President
and CEO of Ascent with respect to the offices set forth in clause (ii) above.
(b) Duties and Responsibilities. The Executive shall report to the
---------------------------
President and CEO of Ascent, or its successor entity, which position is
currently held by Charlie Lyons. The Executive shall have such duties and
responsibilities in connection with the Arena Project as designated by the
President and CEO of Ascent from time to time. The Executive shall be generally
responsible for the matters set forth on Exhibit A attached hereto, and in the
event that the President and CEO of Ascent proposes to add any significant
duties and responsibilities which are beyond the scope of the matters set forth
on Exhibit A, then prior to the Executive being required to assume such duties
and responsibilities the Company agrees to negotiate in good faith with the
Executive regarding whether there should be a commensurate increase in the
Executive's compensation as set forth in Section 2. The Executive shall be
primarily responsible for recruiting and hiring the Arena Project staff and
consultants, including establishing the terms and conditions of employment or
engagement, in accordance with policies and procedures of the Company and
Ascent, which includes consultation with officers of Ascent as appropriate. The
project staff and consultants will report directly to and be under the direct
supervision of the Executive.
(c) Devotion to Interests of the Company. During the Employment Period,
------------------------------------
the Executive shall render his business services solely in the performance of
his duties hereunder. The Executive shall use his best efforts to promote the
interests and welfare of the Company and its affiliates. Notwithstanding the
foregoing, the Executive shall be entitled to undertake such outside activities
as do not unreasonably interfere with the performance of his duties hereunder
and are approved in advance by President and CEO of Ascent, such approval not to
be unreasonably withheld.
2. Compensation and Fringe Benefits. In consideration for the services to
--------------------------------
be performed and the obligations incurred by the Executive hereunder, and
subject to the terms and conditions hereof, during the Employment Period the
Executive shall be entitled to the following compensation and benefits.
(a) Base Compensation. Effective as of January 1, 1997, the Company shall
-----------------
pay the Executive a minimum annual base salary ("Base Salary") at the rates per
year set forth below with
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payments made in installments in accordance with the Company's regular practice
for compensating executive personnel, provided that in no event shall such
payments be made less frequently than twice per month.
January 1, 1997 thru June 30, 1998 $200,000
July 1, 1998 thru June 30, 1999 $210,000
July 1, 1999 thru June 30, 2000 $220,000
July 1, 2000 thru June 30, 2001 $230,000
July 1, 2001 thru June 30, 2002 $240,000
The Base Salary for the Executive may be reviewed by the President and CEO of
Ascent during the Employment Period for further increases in his sole discretion
each year during the Employment Period commencing the second year of the
Employment Period, subject to the approval of the Compensation Committee of the
Board of Directors of Ascent (the "Compensation Committee") in its sole
discretion. The Company shall include in the first paycheck prepared after the
Executive executes this Agreement the amount necessary to effect the increase to
$200,000 of the Executive's Base Salary as of January 1, 1997.
(b) Bonus Compensation. (i) Annual Bonus. The Executive will be eligible
------------------ ------------
to receive bonuses ("Annual Bonus") during the Employment Period in accordance
with the following parameters: (A) the target bonus for each year during the
Employment Period shall be 30% of Base Salary for achieving 100% of the target
level for the performance measures; and (B) the performance measures, the
relative weight to be accorded each performance measure and the amount of bonus
payable in relation to the target bonus for achieving more or less than 100% of
the target level for the performance measures shall be determined for each year
during the Employment Period by the President and CEO of Ascent, after
consultation with the Executive, subject to the approval of the Compensation
Committee. Annual Bonuses shall be payable at such time as deemed appropriate by
the President and CEO of Ascent and as approved by the Compensation Committee.
(ii) Achievement Bonus. In addition, the Company shall pay the following
-----------------
Executive performance bonuses in not less than the following amounts upon
accomplishment of the following events, 50% of each such amount to be payable
upon or within fifteen (15) days after determination that the event has been
accomplished , and the remaining 50% of such amount to be deposited into a
deferred compensation account to be established by Ascent and payable pursuant
to the terms set forth in clause 2(f) below:
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(A) Agreement in Principle Bonus. Bonus in a lump sum amount of
----------------------------
$100,000 upon execution by Ascent or its affiliates and the City and County
of Denver (the "City") of an agreement in principle, which need not be
definitive documentation, but which sets forth all of the material terms of
an agreement between Ascent and the City for the construction of the Arena.
(B) Groundbreaking Bonus. Bonus in a lump sum amount of
--------------------
$100,000 upon groundbreaking by the Company constituting actual
commencement of the construction by the Company of the Arena Project
("Groundbreaking").
(C) Suite Bonus. Bonus in a lump sum of $100,000 upon the
-----------
Company, or its designee, entering into binding and enforceable agreements
to lease suites, beginning the first full year of operations at the new
arena and continuing for initial terms of at least five (5) years, which
agreements will produce revenues totaling at least $8,500,000.
(D) Completion Performance Bonus. Bonus in a lump sum of
----------------------------
$150,000 if the date on which the Arena Project is completed (the
"Completion Date") occurs on or before the scheduled completion date (the
"Scheduled Completion Date") set forth on the schedule attached hereto as
Exhibit B, as such schedule may be amended by mutual agreement of the
Executive and the President and CEO of Ascent. The bonus provided in the
preceding sentence shall still be paid if the Completion Date occurs within
150 days after the Scheduled Completion Date, provided that the amount of
the bonus shall decrease by $25,000 for each 30 day period following the
Scheduled Completion Date in which the Completion Date actually occurs. For
purposes of this Agreement, the Completion Date shall occur on such date as
the architect for the Arena Project certifies that the scope of the
contract has been substantially performed and completed.
(E) Budget Performance Bonus. Bonus in a lump sum of $150,000
------------------------
if the Arena Project is finally completed for an amount (the "Construction
Budget") equal to or less than the projected amount of the budget for the
Arena Project set forth on the budget attached hereto as Exhibit C (the
"Projected Construction Budget"), as such budget may be amended by mutual
agreement of the Executive and the President and CEO of Ascent. The bonus
provided in the preceding sentence shall still be paid if the Construction
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Budget exceeds the Projected Construction Budget by up to $5,000,000,
provided that the amount of the bonus shall decrease by $25,000 for each
$1,000,000 that the Construction Budget exceeds Projected Construction
Budget.
(c) Fringe Benefits. The Executive also shall be entitled to fringe
---------------
benefits commensurate with those of an executive of similar management level of
Ascent and its affiliates (excluding On Command Corporation), including
participation in the 1995 Key Employee Stock Plan, the Ascent Savings and Profit
Sharing Plan (or successor 401(k) savings plan) and health, life and disability
insurance programs. In this regard, the Executive shall be able to select
between the benefit programs offered by either Ascent or Sports. Additionally,
the Company shall provide the Executive with a car allowance during the
Employment Period equal to $1,000 per month.
(d) Business Expenses. The Company shall reimburse the Executive for
-----------------
(i) all reasonable expenses incurred in connection with travel and entertainment
related to the Company's business and affairs, in accordance with Ascent's
policies and procedures with respect to such reimbursements as in effect from
time to time (which shall include, without limitation, reimbursement of cellular
telephone charges relating to business usage), and (ii) Executive's reasonable
legal fees and costs incurred in connection with the drafting, negotiation and
execution of this Agreement; provided that such fees and costs shall not exceed
$10,000.
(e) Tickets. For so long as the Executive maintains his permanent
-------
residence in Colorado and, in each case, Ascent controls the Basketball Team,
Hockey Team or the Arena and has the authority to grant such complimentary
tickets, Executive shall have the complimentary use of (i) four (4) season
tickets in a prime location for both the Basketball Team and the Hockey Team and
(ii) four (4) tickets in a prime location to every event held at the new arena
for which the Company or its affiliates control the right to receive more than a
nominal number of tickets. The Executive agrees that these tickets shall not be
club seats nor suites.
(f) Deferred Compensation Account. The Company shall establish a
-----------------------------
deferred compensation account qualifying as a "rabbi trust" (the "Deferred
Account") into which 50% of the bonuses earned by the Executive pursuant to
Section 2(b)(ii) shall be deposited and held pursuant hereto. Funds deposited in
the Deferred Account pursuant to this Agreement shall be invested
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pursuant to the direction of the Executive and he shall bear all risk of loss
for all such investment decisions. Amounts deposited into the Deferred Account
pursuant to this Agreement shall be paid to the Executive on the earlier of(i)
July 1, 2002, (ii) the date the Executive is terminated by the Company without
"cause" (as defined in Section 5(d) below), for disability, as provided in
Section 6(a) below, or as a result of the Executive's death, as provided in
Section 6(b) below), or (iii) the date the Executive terminated his employment
pursuant to Section 5(c) below, or (iv) by mutual consent of the Employee and
the Company.
(g) Stock Appreciation Rights. Effective on the date on which
-------------------------
COMSAT Corporation ("COMSAT") distributes its interest in Ascent common stock to
COMSAT shareholders (the "Distribution Date"), the Company shall cause Ascent to
grant to the Executive stock appreciation rights ("SARs") under Ascent's 1995
Key Employee Stock Plan payable only in cash but based upon the appreciation of
50,000 shares of Ascent Common Stock. The exercise price of the SARs shall be
equal to $9.5250, which was the average of the high and low sales price of the
Ascent Common Stock for the five trading days following the Distribution Date.
The SARs shall be exercisable pursuant to the following schedule:
(i) 2,500 SARs on or after June 27, 1997;
(ii) an additional 2,500 SARs on or after December 18, 1997;
(iii) an additional 10,000 SARs on or after June 27, 1998;
(iv) an additional 5,000 SARs on or after December 18, 1998;
(v) an additional 10,000 SARs on or after June 27, 1999; and
(vi) an additional 20,000 SARs on or after June 27, 2000.
Notwithstanding the foregoing, 100% of the SARs shall immediately vest and
become immediately exercisable, without any further action by the Executive,
upon the occurrence of any "change of control" as defined in Section 14(a)
below, or upon the occurrence of any event that results in Ascent's Common Stock
no longer being traded on any of the New York Stock Exchange, American Stock
Exchange or NASDAQ National Market System (including, without limitation, as a
result of any "going private" transaction with Ascent). Such SARs shall be
represented by a SAR agreement containing appropriate terms consistent with the
provisions of this Agreement. The SARs, to
6
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the extent they remain unexercised, shall automatically and without further
notice terminate and become of no further force and effect at the time of the
earliest of the following to occur: (x) three months after the date upon which a
termination for cause by the Company (as provided in Section 5(d)) shall have
become effective and final; or (y) ten years after the Effective Date. In the
event of any stock split, stock dividend, spin-off, reclassification,
recapitalization, merger, consolidation, subdivision, combination or other
change which affects the character or amount of Ascent's common stock after the
Distribution Date and prior to the exercise and/or expiration of all of the
SARs, the number and exercise price of and/or the formula for determining the
value of such unexercised SARs shall be adjusted in order to make such SARs, as
nearly as may be practicable, equivalent in nature and value to the SARs that
would have existed had such change not taken place. In addition, if Ascent
adopts a stock-based incentive plan that in Executive's sole judgment provides
for any term(s) more favorable to the grantee than any term(s) set forth above,
Executive will be entitled to the benefit of such more favorable term(s) with
respect to the SARs, other than with respect to the vesting schedule thereof,
but in no event will any term(s) applicable to the SARs be less favorable to
Executive than those set forth above. During the Employment Period, the
Executive may be granted additional stock-based incentives as determined by the
Compensation Committee in its sole discretion. Notwithstanding any other
provision of this Agreement except Section 5(d), the Compensation Committee may
in its discretion provide that any stock-based incentives granted to the
Executive which have not vested prior to his termination of employment shall
continue to vest in accordance with their original terms as if the Executive's
employment had not terminated.
(h) Conflicting Provisions. Solely to the extent of any conflict
----------------------
between the provisions of this Agreement and the provisions of any agreement
between Executive, on the one hand, and Ascent and/or any of its affiliated or
related entities, on the other hand, relating to stock-based incentives
(including the SARs), life insurance, health insurance, any other employee
equity participation, profit sharing or retirement plan, group health plan or
other employee benefits (individually and collectively referred to herein as the
"Fringe Benefits"), the provisions of this Agreement will control.
7
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3. Trade Secrets; Return of Documents and Property.
-----------------------------------------------
(a) Executive acknowledges that during the course of his
employment he will receive secret, confidential and proprietary information
("Trade Secrets") of the Company and its affiliates and of other companies with
which the Company and its affiliates do business on a confidential basis and
that Executive will create and develop Trade Secrets for the benefit of the
Company and its affiliates. Trade Secrets shall include, without limitation,
architectural and engineering data, customer and other marketing data, custom
databases, "know-how," formulae, secret processes or machines, inventions,
computer programs (including documentation of such programs) and other
information of a similar nature to the extent not available to the public, and
plans for future development. All Trade Secrets disclosed to or created by
Executive during the Employment Period shall be deemed to be the exclusive
property of the Company. The Executive acknowledges that Trade Secrets have
economic value to the Company due to the fact that Trade Secrets are not
generally known to the public or the trade and that the unauthorized use or
disclosure of Trade Secrets is likely to be detrimental to the interests of the
Company and its affiliates. Executive therefore agrees to hold in strict
confidence and not to disclose to any third party any Trade Secret acquired or
created or developed by Executive during the term of this Agreement except (i)
when Executive is required to use or disclose any Trade Secret in the proper
course of the Executive's rendition of services to the Company or its Affiliates
hereunder, (ii) when such Trade Secret becomes public knowledge other than
through a breach of this Agreement, or (iii) when Executive is required to
disclose any Trade Secret pursuant to any valid court order in which the
Executive is compelled to disclose such Trade Secret. The Executive shall notify
the Company immediately of any such court order in order to enable the Company
to contest such order's validity. After termination of this Agreement, the
Executive shall not use or otherwise disclose Trade Secrets unless such
information (x) becomes public knowledge or is generally known in the
entertainment industry among executives comparable to the Executive other than
through a breach of this Agreement, (y) is disclosed to the Executive by a third
party who is entitled to receive and disclose such Trade Secret, or (z) is
required to be disclosed pursuant to any valid court order, in which case the
Executive shall notify the Company immediately of any such court order in order
to enable the Company to contest such order's validity.
8
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4. Discoveries and Works. All discoveries and works made or
---------------------
conceived by the Executive in connection with and during his employment by the
Company pursuant to this Agreement, jointly or with others, that relate to the
Company's activities ("Discoveries and Works") shall be owned by the Company.
Discoveries and Works shall include, without limitation, architectural and
engineering developments, marketing plans and proposals, and other works of
authorship, inventions, computer programs (including documentation of such
programs), technical improvements, processes and drawings. The Executive shall
(i) promptly notify, make full disclosure to, and execute and deliver any
documents requested by, the Company to evidence or better assure title to such
Discoveries and Works in the Company, (ii) assist the Company in obtaining or
maintaining for itself at its own expense United States and foreign copyrights,
trade secret protection or other protection of any and all such Discoveries and
Works, and (iii) promptly execute, whether during his employment by the Company
or thereafter, all applications or other endorsements necessary or appropriate
to maintain copyright and other rights for the Company and to protect their
title thereto.
5. Termination. This Agreement shall remain in effect during the
-----------
Employment Period, and this Agreement and Executive's employment with the
Company may be terminated as follows:
(a) Subject to Section 5(c) below, this Agreement may be
terminated by the Company, for any reason or for no reason, with or without
notice to the Executive.
(b) Prior to the Completion Date, this Agreement may be
terminated by the Executive at any time upon 60 days advance written notice to
the Company; after the Completion Date, this Agreement may be terminated by the
Executive at any time upon 30 days advance written notice to the Company.
(c) After the Groundbreaking, if this Agreement is terminated by
the Company without "cause", as defined below, or by the Executive because (i)
the Company, without the Executive's express written consent, substantially
reduces his responsibilities as described in this Agreement, or (ii) a "Change
of Control Event" (as defined in Section 14(a) below) has occurred, then the
Executive shall be entitled to receive the following benefits for a period (the
"Severance Period") equal to the longer of (x) one year following such
termination or (y) the remaining period until July 1, 2002: (i) Base Salary
determined
9
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in accordance with Section 2(a); and (ii) such bonuses as are based upon the
accomplishment of any of the events set forth in Section 2(b) in a percentage
equal to the percentage with respect to which the Executive made contributions
to the accomplishment of such events, taking into consideration the Executive's
involvement on the Arena Project since March 1, 1995; and (iii) if the SARs or
any other equity incentives granted during the Employment Period have not
previously vested, such incentives shall vest and become exercisable or payable,
as the case may be. Unless the Company provides clear and persuasive evidence to
the contrary, the Executive's percentage contribution to any such event shall be
based upon his total time of service since March 1, 1995 divided by the total
time from March 1, 1995 to accomplishment or reasonably projected date of
accomplishment of the relevant event.
(d) For purposes of this Agreement, the Company shall have
"cause" to terminate the Executive's employment hereunder upon (i) the continued
and deliberate failure of the Executive to perform his material duties, in a
manner substantially consistent with the manner reasonably prescribed by the
President and CEO of Ascent and in accordance with the terms of this Agreement
(other than any such failure resulting from his incapacity due to physical or
mental illness), which failure continues for thirty business days following the
Executive's receipt of written notice from the President and CEO of Ascent
specifying the manner in which the Executive is in default of his duties, (ii)
the engaging by the Executive in intentional serious misconduct that is
materially injurious to the Company or its affiliates or their respective
reputations, which misconduct, if it is reasonably capable of being cured, is
not cured by the Executive within thirty business days following the Executive's
receipt of written notice from the President and CEO of Ascent specifying the
serious misconduct engaged in by the Executive, (iii) the conviction of the
Executive of commission of a felony involving dishonesty or moral turpitude,
whether or not such felony was committed in connection with the business of the
Company or its affiliates, (iv) willful and intentional refusal of the Executive
to conform to the rules and regulations of the NBA or the NHL which are
applicable to the Executive, (v) physical or mental incapacity or death, in
either case, as a result of intentional self-injury or drug or alcohol abuse, or
(iv) any breach by the Executive of Section 7 hereof. If the Company shall
terminate the Executive's employment for "cause," the Company, in full
satisfaction of all of the Company's obligations under this Agreement and in
respect of the termination of the Executive's employment with the Company, shall
10
<PAGE>
pay the Executive his Base Salary through the date of termination of his
employment, provided that any SARs or any stock options or other equity
--------
incentives granted to the Executive under the Option Plan or any successor plan
shall terminate three months after the date of termination of his employment for
"cause".
(e) The Executive has the duty to mitigate his damages, if any,
arising from any termination of his employment by the Company, other than from a
termination for cause, or by the Executive or the Company pursuant to Section
5(f). The Executive has a duty to seek out employment in a professional or
sports management position. One hundred percent (100%) of any cash compensation
the Executive received or will receive in any fiscal year of his employment by
another entity or self-employment will be credited against the Company's annual
Base Salary obligations under this Agreement.
(f) In addition to the foregoing termination events, if the
Company terminates this Agreement prior to Groundbreaking without "cause" as
defined in Section 5(d), or if the Groundbreaking has not occurred prior to
November 1, 1997, then either the Executive or the Company shall have the right
to terminate this Agreement on 30 days prior written notice, and in the event of
a termination pursuant to this clause, the Severance Period shall be equal to
two years following the date of such termination.
(g) In the event that the Executive terminates this Agreement
pursuant to Section 5(c) above as a result of a Change in Control Event, then
the Executive agrees to use his best efforts to effect an orderly transition to
a new person or persons who will assume his duties and responsibilities in
connection with the Arena Project, including assisting in hiring such person or
persons, training related to the Arena Project, introductions to professionals
working on the Arena Project, and identifying and providing all relevant
documentation and information within the control of the Executive.
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6. Disability; Death. (a) If, prior to the expiration or
-----------------
termination of the Employment Period, the Executive shall be unable to perform
his duties by reason of disability or impairment of health for at least six
consecutive calendar months, the Company shall have the right to terminate this
Agreement by giving 60 days written notice to the Executive to that effect, but
only if at the time such notice is given such disability or impairment is still
continuing. Following the expiration of the notice period, the Employment Period
shall terminate with the payment of the Executive's Base Salary for the month in
which the Employment Period terminates; provided, however, that (i) the
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Executive shall be entitled to receive the performance bonuses determined in
accordance with Section 2(b) and Section 5(c), and (ii) the SARs or any other
incentives granted to the Executive shall become fully vested and shall
terminate in accordance with their terms, but in no event less than one year
after such termination, notwithstanding the limitations of Section 2(g) of this
Agreement. In the event of a dispute as to whether the Executive is disabled
within the meaning of this paragraph (a), or the duration of any disability,
either party may request a medical examination of the Executive by a doctor
appointed by the Chief of Staff of a hospital selected by mutual agreement of
the parties, or as the parties may otherwise agree, and the written medical
opinion of such doctor shall be conclusive and binding upon the parties as to
whether the Executive has become disabled and the date when such disability
arose. The cost of any such medical examinations shall be borne by the Company.
(b) If, prior to the expiration or termination of the Employment
Period, the Executive shall die, the Company shall pay to the Executive's estate
his Base Salary through the end of the month in which the Executive's death
occurred, at which time the Employment Period shall terminate without further
notice; provided, however, that (i) the Executive's estate shall be entitled to
-------- -------
receive the performance bonuses determined in accordance with Section 2(b) and
Section 5(c), and (ii) the SARs or any other incentives granted to the Executive
shall become fully vested and shall terminate one year after the date of
termination of the Executive's employment for death, notwithstanding the
limitations of Section 2(g) of this Agreement.
(c) Nothing contained in this Section 6 shall impair or
otherwise affect any rights and interests of the Executive under any
compensation plan or arrangement of the Company or its affiliates.
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7. Non-Competition. (a) The Executive acknowledges that: (i) the
---------------
business of the Company (the "Business") is conducted in the State of Colorado;
(ii) the reputation and goodwill of the Company, which constitutes a part of the
Business, are an integral part of the success of the Business throughout the
areas where the Company conducts its business; and (iii) if the Executive
deprives the Company of any of the Business's reputation and goodwill or in any
manner utilizes its reputation and goodwill in competition with the Business,
the Company will be deprived of the benefits of its Business. Accordingly, as an
inducement for the Company to enter into this Agreement, the Executive agrees
that for a period commencing as of the Effective Date and running through the
earlier of (w) the date the Company terminates the Executive's employment
without cause, (x) the end of the Employment Period if the Executive remains
employed by the Company for the entire Employment Period, (y) one year following
termination of the Executive's employment by the Company for "cause" as defined
in Section 5(d) hereof, or (z) six months following termination of the
Executive's employment by the Executive for any reason (other than a substantial
reduction of his responsibilities or Change in Control Event pursuant to Section
5(c) hereof or pursuant to Section 5(f) hereof, in which case the provisions of
this paragraph (a) shall not apply) (the "Non-Competition Period"), the
Executive shall not in the State of Colorado, without the prior written consent
of the President and CEO of Ascent, engage or participate, directly or
indirectly, as principal, agent, employee, employer, consultant, stockholder,
partner or in any other individual capacity whatsoever, in the conduct or
management of, or own any stock or any other equity investment in or debt of,
any arena or sports complex construction, development or management business
which is or could reasonably expected to be competitive with any business
conducted or intended to be conducted by the Company or its Affiliates in
constructing, developing or managing the Arena Project.
(b) Non-Solicitation of Employees. During the Non-Competition
-----------------------------
Period, the Executive will not (for his own benefit or for the benefit of any
person or entity other than the Company or its affiliates) solicit, or assist
any person or entity other than the Company or its affiliates to solicit, any
officer, director, executive or employee (other than an administrative or
clerical employee) of the Company or its affiliates to leave his or her
employment.
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(c) Reasonableness; Interpretation. The Executive acknowledges
------------------------------
and agrees that (i) the markets served by the Company include the State of
Colorado and are not dependent on the geographic location of executive personnel
or the businesses by which they are employed; (ii) the length of the Non-
Competition Period is linked to the term of the Employment Period and the
severance benefit provided for in Section 5(c); and (iii) the above covenants
are reasonable as an inducement for the Company to enter into this Agreement,
and the parties expressly agree that such restrictions have been designed to be
reasonable and no greater than is required for the protection of the Company. In
the event that the covenants in this Section 7 shall be determined by any court
of competent jurisdiction in any action to be unenforceable by reason of their
extending for too great a period of time or over too great a geographical area
or by reason of their being too extensive in any other respect, they shall be
interpreted to extend only over the maximum period of time for which they may be
enforceable, and/or over the maximum geographical area as to which they may be
enforceable and/or to the maximum extent in all other respects as to which they
may be enforceable, all as determined by such court in such action.
(d) Investment. Nothing in this Agreement shall be deemed to
----------
prohibit the Executive from owning equity or debt investments in any
corporation, partnership or other entity which is competitive with the Company
or its Affiliates, provided that such investments (i) are passive investments
--------
and constitute five percent (5%) or less of the outstanding equity securities of
such an entity the equity securities of which are traded on a national
securities exchange or other public market, or (ii) are approved by the CEO of
Ascent.
8. Liability Insurance. The Executive shall be covered under the
-------------------
liability insurance policy for directors and officers of Ascent and its
affiliates to the same extent as other officers of Ascent and its affiliates.
9. Enforcement. The Executive acknowledges that a breach of the
-----------
covenants or provisions contained in Sections 3, 4, and 7 of this Agreement will
cause irreparable damage to the Business, the Company and its affiliates, the
exact amount of which will be difficult to ascertain, and that the remedies at
law for any such breach will be inadequate. Accordingly, the Executive agrees
that if the Executive breaches or threatens to breach any of the covenants or
provisions contained in Sections 3, 4, and 7 of this Agreement, in addition to
any other remedy which may be available at law or in equity, the Company shall
be
14
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entitled to specific performance and injunctive relief, without posting bond.
10. Severability. Should any provision of this Agreement be
------------
determined to be unenforceable or prohibited by any applicable law, such
provision shall be ineffective to the extent, and only to the extent, of such
unenforceability or prohibition without invalidating the balance of such
provision or any other provision of this Agreement, and any such
unenforceability or prohibition in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
11. Assignment. The Executive's rights and obligations under this
----------
Agreement shall not be assignable by the Executive. The Company's rights and
obligations under this Agreement shall be binding on the successors and assigns
of the Company; provided, however, that this Agreement shall not be assignable
by the Company, except in connection with a Change in Control Event.
12. Notices. All notices and other communications which are required
-------
or may be given under this Agreement shall be in writing and shall be deemed to
have been duly given when received if personally delivered; when transmitted if
transmitted by telecopy, electronic or digital transmission method, provided
--------
that in such case it shall also be sent by certified or registered mail, return
receipt requested; the day after it is sent, if sent for next day delivery to a
domestic address by recognized overnight delivery service (e.g., Federal
----
Express); and upon receipt, if sent by certified or registered mail, return
receipt requested. Unless otherwise changed by notice, in each case notice
shall be sent to:
If to Executive, addressed to:
Timothy D. Romani
1396 Gold Mine Lane
Evergreen, CO 80439
15
<PAGE>
If to the Company, addressed to:
Charles Lyons
Denver Arena Company, LLC
c/o Ascent Entertainment Group, Inc.
1200 Seventeenth Street
Denver, Colorado 80202
Telecopier No.: (303) 595-0127
With a copy to:
Ascent Entertainment Group, Inc.
Attention: Vice President, Legal Affairs
1200 Seventeenth Street
Denver, Colorado 80202
Telecopier No.: (303) 595-0127
Attention: Vice President, Business/Legal Affairs
13. Miscellaneous. This Agreement constitutes the entire agreement,
-------------
and supersedes all prior agreements, of the parties hereto relating to the
subject matter hereof, and there are no written or oral terms or representations
made by either party other than those contained herein. No amendment,
supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. The validity,
interpretation, performance and enforcement of the Agreement shall be governed
by the laws of the State of Colorado. The headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
14. Change of Control.
-----------------
(a) If, prior to the termination of the Employment Period, there
is a "Change of Control Event" (as hereinafter defined in this paragraph (a)),
the Executive shall have the right to terminate this Agreement in accordance
with Section 5(c) by giving notice either prior to such Change in Control Event
becoming effective or up to 180 days following such Change in Control Event, but
termination pursuant to such notice shall not take effect in accordance with
Section 5(c) in any event prior to 120 days following such Change of Control
Event, however payment on behalf of the Executive shall be made as set forth in
Section 5(c). The expiration of such 180-day notice period shall not affect the
Executive's right to give notice otherwise under Section 5(c). A "Change of
Control Event" shall mean and include either (x) Ascent no longer having
beneficial ownership, directly
16
<PAGE>
or indirectly, of at least 50% of the Company, or (y) the occurrence of any of
the following with respect to Ascent, or any of the following becoming highly
likely to occur, in the determination of the Ascent Board of Directors: (i) the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the
then outstanding shares of common stock of Ascent (the "Outstanding Company
Common Stock") or (B) the combined voting power of the then outstanding voting
securities of Ascent entitled to vote generally in the election of directors
(the "Outstanding Company Voting Securities"); provided, however, that for
purposes of this clause (i), the following acquisitions shall not constitute a
Change of Control: (1) any acquisition directly from Ascent, (2) any acquisition
by Ascent, (3) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by Ascent or any corporation controlled by Ascent or (4)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (1), (2) and (3) of clause (iii) below; or (ii) individuals who, as of
the date hereof, constitute the Board of Directors of Ascent (the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by Ascent's shareholders,
was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or (iii) consummation of a reorganization, merger
or consolidation or sale or other disposition of all or substantially all of the
assets of Ascent (a "Business Combination"), in each case, unless, following
such Business Combination, (1) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business
17
<PAGE>
Combination (including, without limitation, a corporation which as a result of
such transaction owns Ascent or all or substantially all of Ascent's assets
either directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (2) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of Ascent or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (3) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or (iv) approval by the stockholders of
Ascent of a complete liquidation or dissolution of Ascent.
(b) In the event that Ascent adopts any "change of control"
provisions applicable to any Ascent benefits plans providing for
the accelerated vesting and/or payment of any benefits for its
senior management group, to the extent that such provisions give
Executive greater rights than those provided in paragraph (a)
above, such provisions shall apply to the Executive to the same
extent as other Ascent senior executives on a favored nations
basis with respect to the benefits affected by such Ascent
provisions.
15. Indemnification and Gross-up for Excise Taxes.
---------------------------------------------
(a) The Company hereby indemnifies the Executive and holds the
Executive harmless from and against any and all liabilities, costs and expenses
(including, without limitation, reasonable attorneys' fees and costs) the
Executive may incur as a result of the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") or any similar provision
of state or local income tax law (the "Excise Tax"), to the end that the
Executive shall be placed in the same tax position with respect to all payments
under this Agreement and all other payments from the Company to the Executive in
the nature of compensation as the Executive would have been in if the
18
<PAGE>
Excise Tax had never been enacted. In furtherance of such indemnification, the
Company shall pay to the Executive a payment (the "Gross-Up Payment") in an
amount such that, after payment by the Executive of all taxes, including income
taxes and the Excise Tax imposed on the Gross-Up Payment and any interest or
penalties (other than interest and penalties imposed by reason of the
Executive's failure to file timely tax returns or to pay taxes shown due on such
returns and any tax liability, including interest and penalties, unrelated to
the Excise Tax or the Gross-Up Amount), the Executive shall be placed in the
same tax position with respect to all payments under this Agreement and all
other payments from the Company to the Executive in the nature of compensation
as the Executive would have been in if the Excise Tax had never been enacted. At
such time or times necessary to carry out the purposes of this Section 15 in
view of the withholding requirement of Section 4999(c)(1) of the Code, but in no
event later than December 31 of each year in which the Executive receives a
payment from the Company under this Agreement or in the nature of compensation,
the Company shall pay to the Executive one or more Gross-Up Payments for all
payments under this Agreement and any other payments in the nature of
compensation which the Company determines are "excess parachute payments" under
Section 280G(b)(1) of the Code ("Excess Parachute Payments"). If, through a
determination of the Internal Revenue Service or any state or local taxing
authority (a "Taxing Authority"), or a judgment of any court, the Executive
becomes liable for an amount of Excise Tax not covered by the Gross-Up Payment
payable pursuant to the preceding sentence, the Company shall pay the Executive
an additional Gross-up Payment to make the Executive whole for such additional
Excise Tax; provided, however, that, pursuant to Section 15, the Company shall
have the right to require the Executive to protest, contest, or appeal any such
determination or judgment. For purposes of this Section 15, any amount which the
Company is required to withhold under Sections 3402 or 4999 of the Code or under
any other provision of law shall be deemed to have been paid to the Executive.
(b) Upon payment to the Executive of a Gross-Up Payment, the Company shall
provide the Executive with a written statement showing the Company's computation
of such Gross-Up Payment and the Excess Parachute Payments and Excise Tax to
which it relates, and setting forth the Company's determination (which shall be
reasonably determined) of the amount of gross income the Executive is required
to recognize as a result of such payments and the Executive's liability for the
Excise Tax. The Executive shall cause the Executive's federal, state, and local
income tax returns for the period in which the Executive receives such
19
<PAGE>
Gross-Up Payment to be prepared and filed in accordance with such statement, and
upon such filing, the Executive shall certify in writing to the Company that
such returns have been so prepared and filed. At the Executive's request, the
Company shall furnish to the Executive, at no cost to the Executive, assistance
in preparing the Executive's federal, state, and local income tax returns for
the period in which the Executive receives such Gross-Up Payment in accordance
with such statement. Notwithstanding the provisions of Section 15(a), the
Company shall not be obligated to indemnify the Executive from and against any
tax liability, cost or expense (including, without limitation, any liability for
the Excise Tax or attorneys' fees or costs) to the extent such tax liability,
cost or expense is attributable to the Executive's failure to comply with the
provisions of the Section 15(b).
(c) If any controversy arises between the Executive and a Taxing Authority
with respect to the treatment on any return of the Gross-Up Amount, or of any
payment the Executive receives from the Company as an Excess Parachute Payment,
or with respect to any return which a Taxing Authority asserts should show an
Excess Parachute Payment, including, without limitation, any audit, protest to
an appeals authority of a Taxing Authority or litigation (a "Controversy"), the
Company shall have the right, solely with respect to a Controversy, to direct
the Executive to protest or contest any proposed adjustment or deficiency,
initiate an appeals procedure with any Taxing Authority, commence any judicial
proceeding, make any settlement agreement, or file a claim for refund of tax,
and the Executive shall not take any of such steps without the prior written
approval of the Company. If the Company elects, the Executive shall be
represented in any Controversy by attorneys, accountants, and other advisors
selected by the Company, and the Company shall pay the fees, costs and expenses
of such attorneys, accountants, or advisors, and any tax liability the Executive
may incur as a result of such payment. The Executive shall promptly notify the
Company of any communication with a Taxing Authority, and the Executive shall
promptly furnish to the Company copies of any written correspondence, notices,
or documents received from a Taxing Authority relating to a Controversy. The
Executive shall cooperate fully with the Company in the handling of any
Controversy by furnishing to the Company any information or documentation
relating to or bearing upon the Controversy; provided, however, that the
Executive shall not be obligated to furnish to the Company copies of any portion
of the Executive's tax returns which do not bear upon, and are not affected by,
the Controversy.
20
<PAGE>
(d) The Executive shall pay over to the Company, within ten (10) days
after the Executive's receipt thereof, any refund the Executive receives from
any Taxing Authority of all or any portion of the Gross-Up Payment or the Excise
Tax, together with any interest the Executive receives from such Taxing
Authority on such refund. For purposes of this Section 15(d), a reduction in
the Executive's tax liability attributable to the previous payment of the Gross-
Up Amount or the Excise Tax shall be deemed to be a refund. If the Executive
would have received a refund of all or any portion of the Gross-Up Payment or
the Excise Tax, except the a Taxing Authority offset the amount of such refund
against other tax liabilities, interest, or penalties, the Executive shall pay
the amount of such offset over to the Company together with the amount of
interest the Executive would have received from the Taxing Authority if such
offset had been an actual refund, within ten (10) days after receipt of notice
from the Taxing Authority of such offset.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
/s/ Timothy D. Romani
-------------------------------------
Timothy D. Romani, Executive
DENVER ARENA COMPANY, LLC
BY: ASCENT ENTERTAINMENT GROUP, INC.
By /s/ Charlie Lyons
-----------------------------------
Charlie Lyons
Chairman, President and
Chief Executive Officer
GUARANTY
Ascent Entertainment Group, Inc. hereby guarantees the performance of the
obligations of Denver Arena Company, LLC (the "Company") in the Employment
Agreement dated as of July 1, 1997 between the Company and Timothy D. Romani.
ASCENT ENTERTAINMENT GROUP, INC.
21
<PAGE>
By:/s/ Charlie Lyons
----------------------------------
Charlie Lyons
Chairman, President and
Chief Executive Officer
22
<PAGE>
EXHIBIT A
---------
DUTIES AND RESPONSIBILITIES
TIMOTHY D. ROMANI
President and General Manager, Arena Project
(a) General responsibility for the design and construction of the Arena
Project in accordance with policies and procedures of the Company and
Ascent, including
(i) selecting and managing all personnel and professional service
contracts necessary to the project,
(ii) establishing and maintaining project budgets, accounts and
schedules,
(iii) securing all government approvals required for project
execution,
(iv) in consultation with the President and CEO and Executive Vice
President, Chief Operating Officer and Chief Financial Officer of
Ascent, selecting and arranging for project financing,
(v) coordinating all project consultants, designers and contractors
for project planning and execution,
(vi) determining staffing requirements, selecting and managing all
administrative staff,
(vii) furnishing periodic reports to the President and CEO and
Executive Vice President and Chief Operating Officer of Ascent which
describe the project status with specific information pertaining to
budget, schedule, requisitions and forecast, and
(viii) coordinating and overseeing all project pre-opening and start-
up activities.
(b) Upon completion of the Arena Project, general responsibility for the
management and operations of the facilities, including,
23
<PAGE>
(i) placing Arena Project in service and managing operations of the
facilities including determining staffing requirements, recruitment,
selection, and hiring of all staff and consultants necessary for the
full usage and function of the facilities, and
(ii) such other facility development or related duties as agreed upon
by the Executive and the President and CEO of Ascent in accordance
with this Agreement.
24
<PAGE>
EXHIBIT B
---------
COMPLETION DATE
In connection with the provisions of Section 2(b)(ii)(D) of this
Agreement, the Completion Date is hereby established as October 1, 1999. This
Completion Date anticipates a construction start no later than October 31, 1997
and any delay to that construction start date will require an adjustment to the
Completion Date to be mutually agreed upon by the parties.
25
<PAGE>
EXHIBIT C
---------
PROJECT BUDGET
In connection with the provisions of Section 2(b)(ii)(E) of this
Agreement, the Project Budget is hereby established at $139,250,000.00. The
following itemization is intended to provide a general and flexible breakdown of
the Project Budget and is not to be utilized, in any way, toward interpreting
the provisions of Section 2(b)(ii)(E):
Construction Hard Costs $ 94,750,000
Concession Build-out $ 7,350,000
Arena FFE 4,500,000
Scoreboard 4,500,000
Permits, Testing & Fees 1,500,000
Construction Management 4,500,000
Architectural, Engineering & Consultants 8,400,000
Legal Services 2,150,000
Start-Up Consultants 700,000
Sales & Marketing Costs 800,000
Pre-Opening Administrative Costs 1,000,000
Property Tax During Construction 850,000
Insurance Fees During Construction 2,250,000
Project Contingency $ 6,000,000
TOTAL PROJECT BUDGET $139,250,000
This budget excludes capitalized interest costs and payments made in
connection with acquiring the interests of The Anschutz Corporation in the Arena
Project. This budget assumes a groundbreaking on or before October 31, 1997 and
a completion date of October 1, 1999. Any material revision to this
construction schedule would require an adjustment to this budget, to be mutually
agreed upon by the parties to this Agreement.
26
<PAGE>
EXHIBIT 10.16
THIS INSTRUMENT PREPARED BY
AND AFTER RECORDING RETURN TO:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: Linda Grant Williams, Esq
================================================================================
SALE AND SERVICING AGREEMENT
Dated as of July 29, 1998
among
DENVER ARENA TRUST
(Issuer Trust)
and
ASCENT ARENA COMPANY, LLC
(Transferor and Servicer)
and
THE BANK OF NEW YORK
(Indenture Trustee)
DENVER ARENA TRUST
ARENA REVENUE BACKED NOTES
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS
-----------
Section 1.01 Definitions.............................................................................. 1
Section 1.02 Other Definitional Provisions............................................................ 1
ARTICLE II
CONVEYANCE OF THE TRUST ASSETS
------------------------------
Section 2.01 Conveyance of the Trust Assets........................................................... 2
Section 2.02 Ownership and Possession of Contract Files............................................... 2
Section 2.03 Books and Records........................................................................ 3
Section 2.04 Delivery of Trust Asset Documents........................................................ 3
Section 2.05 Acceptance by the Indenture Trustee of the Trust Assets; Certification by the Custodian.. 4
Section 2.06 Construction and Operation of New Arena Facility......................................... 5
Section 2.07 Transferor Indemnities................................................................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 3.01 Representations and Warranties of the Transferor......................................... 7
Section 3.02 Representations and Warranties of the Servicer.......................................... 11
Section 3.03 Transferor's Obligation to Cure......................................................... 12
ARTICLE IV
ADMINISTRATION AND SERVICING
----------------------------
Section 4.01 Duties of the Servicer.................................................................. 13
Section 4.02 Maintenance of Filings.................................................................. 15
Section 4.03 Subsequent Revenue Agreements........................................................... 16
Section 4.04 Subservicing............................................................................ 16
Section 4.05 Successor Servicers..................................................................... 18
Section 4.06 144A Information........................................................................ 18
Section 4.07 Administrative Duties of Servicer....................................................... 18
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
-------------------------------
Section 5.01 Collection Account...................................................................... 20
Section 5.02 Distributions to Certificateholders and Noteholders..................................... 23
Section 5.03 Debt Service Coverage Account, Debt Service Reserve Account, Capitalized Interest Account,
Construction Fund Account, Lease Reserve Account and Paying Account..................... 24
Section 5.04 Trust Accounts; Trust Account Property.................................................. 28
ARTICLE VI
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
----------------------------------------------------
Section 6.01 Statements.............................................................................. 30
Section 6.02 Specification of Certain Tax Matters.................................................... 32
ARTICLE VII
GENERAL SERVICING PROCEDURE
---------------------------
Section 7.01 Security Interest....................................................................... 33
Section 7.02 Lockbox Agreement; Lockbox Account; Lockbox Bank........................................ 33
Section 7.03 Servicing Compensation.................................................................. 34
Section 7.04 Statement as to Compliance and Financial Statements..................................... 34
Section 7.05 Independent Public Accountants Servicing Report......................................... 35
Section 7.06 Right to Examine Servicer Records....................................................... 35
Section 7.07 Reports to the Indenture Trustee; Collection Account Statements......................... 36
Section 7.08 Financial Statements.................................................................... 36
Section 7.09 Accounting and Reports.................................................................. 36
ARTICLE VIII
THE SERVICER
------------
Section 8.01 Indemnification; Third Party Claims..................................................... 37
Section 8.02 Merger or Consolidation of the Servicer................................................. 39
Section 8.03 Limitation on Liability of the Servicer and Others...................................... 39
Section 8.04 Servicer Not to Resign; Assignment...................................................... 40
Section 8.05 Relationship of Servicer to Issuer Trust and the Indenture Trustee...................... 40
Section 8.06 Servicer May Own Securities............................................................. 40
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX
DEFAULT
-------
Section 9.01 Servicer Events of Default.............................................................. 41
Section 9.02 Indenture Trustee to Act; Appointment of Successor...................................... 42
Section 9.03 Waiver of Defaults...................................................................... 44
Section 9.04 Accounting Upon Termination of Servicer................................................. 44
Section 9.05 Transferor Defaults..................................................................... 44
ARTICLE X
TERMINATION
-----------
Section 10.01 Termination............................................................................. 45
Section 10.02 Notice of Termination................................................................... 46
ARTICLE XI
MISCELLANEOUS PROVISIONS
------------------------
Section 11.01 Acts of Noteholders..................................................................... 46
Section 11.02 Amendment............................................................................... 46
Section 11.03 Recordation of Agreement................................................................ 47
Section 11.04 Duration of Agreement................................................................... 47
Section 11.05 Governing Law........................................................................... 47
Section 11.06 Notices................................................................................. 47
Section 11.07 Severability of Provisions.............................................................. 48
Section 11.08 No Partnership.......................................................................... 48
Section 11.09 Counterparts............................................................................ 48
Section 11.10 Successors and Assigns.................................................................. 48
Section 11.11 Headings................................................................................ 48
Section 11.12 Actions of Securityholders.............................................................. 49
Section 11.13 Reports to Rating Agency................................................................ 49
Section 11.14 Certificateholders...................................................................... 50
Section 11.15 Limitation of Liability................................................................. 50
Section 11.16 Third Party Beneficiaries............................................................... 50
Section 11.17 Limitation on Recourse.................................................................. 50
</TABLE>
-iii-
<PAGE>
EXHIBITS
EXHIBIT A - List of Revenue Agreements
EXHIBIT B - Form of Servicer's Remittance Report to Indenture Trustee
EXHIBIT C - Construction Phase Agreement
EXHIBIT D - Security Agreement [Excess Collateral]
EXHIBIT E - Operating and Management Agreement
EXHIBIT F - Legal Description of the Property
-iv-
<PAGE>
This Sale and Servicing Agreement is entered into effective as of July
29, 1998, among DENVER ARENA TRUST, a Delaware business trust (the "Issuer
------
Trust"), ASCENT ARENA COMPANY, LLC, a Colorado limited liability company as
- -----
Transferor (in such capacity, the "Transferor") and Servicer (in such capacity,
----------
the "Servicer"), and THE BANK OF NEW YORK, a New York banking corporation, as
--------
Indenture Trustee on behalf of the Noteholders (in such capacity, the "Indenture
---------
Trustee").
- -------
W I T N E S S E T H:
In consideration of the mutual agreements herein contained, the Issuer
Trust, the Transferor, the Servicer and the Indenture Trustee hereby agree as
follows for the benefit of each of them and for the benefit of the holders of
the Notes and the Trust Certificates issued hereunder:
ARTICLE I
DEFINITIONS
-----------
Section 1.01 Definitions.
-----------
Except as otherwise expressly provided herein, capitalized terms used
herein shall have the meanings assigned to such terms in Appendix A attached
----------
hereto.
Section 1.02 Other Definitional Provisions.
-----------------------------
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under GAAP. To the extent that the definitions of accounting terms
in this Agreement or in any such certificate or other document are inconsistent
with the meanings of such terms under GAAP, the definitions contained in this
Agreement or in any such certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; and Article, Section,
Schedule and Exhibit references contained in this Agreement are references to
Articles, Sections, Schedules and Exhibits in or to this Agreement unless
otherwise specified.
F-1
<PAGE>
(d) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
ARTICLE II
CONVEYANCE OF THE TRUST ASSETS
------------------------------
Section 2.01 Conveyance of the Trust Assets.
------------------------------
(a) As of the Closing Date, in consideration of the Issuer Trust's
delivery of cash to be disbursed pursuant to the Construction Phase Agreement
and the Trust Certificates to the Transferor or its designee, the Transferor,
concurrently with the execution and delivery hereof, does hereby sell, transfer,
assign, set over and otherwise convey to the Issuer Trust, without recourse, but
subject to the other terms and provisions of this Agreement, all of the right,
title and interest of the Transferor in and to the Trust Assets.
(b) As of the Closing Date, the Issuer Trust acknowledges the
conveyance to it of the Trust Assets, including all right, title and interest of
the Transferor in and to the Trust Assets, receipt of which is hereby
acknowledged by the Issuer Trust. Concurrently with such delivery and in
exchange therefor, pursuant to the Indenture and the Security Agreement
[Indenture Trustee], the Issuer Trust has collaterally assigned the Trust Estate
to the Indenture Trustee, and has executed and caused the Notes to be
authenticated and delivered by the Indenture Trustee to the Noteholders upon the
order of the Issuer Trust. In addition, the Issuer Trust, pursuant to the
instructions of the Transferor, has executed and caused the Trust Certificates
to be authenticated and delivered to the Transferor or its designee, upon the
order of the Transferor.
Section 2.02 Ownership and Possession of Contract Files.
------------------------------------------
Upon the issuance of the Notes, the ownership of each Trust Asset and
the contents of the related Indenture Trustee's Contract File shall be vested in
the Issuer Trust and collaterally assigned to the Indenture Trustee for the
benefit of the Noteholders, and the Custodian shall take possession of the
Indenture Trustee's Contract Files as contemplated in Section 2.05 hereof.
------------
Possession of the Servicer's Contract Files on behalf of and for the benefit of
the Noteholders shall remain with the Servicer.
F-2
<PAGE>
Section 2.03 Books and Records.
-----------------
Each of the Servicer and the Custodian shall be responsible for
maintaining, and shall maintain, a complete set of books and records for each
Trust Asset which shall be clearly marked to reflect the ownership of each Trust
Asset by the Issuer Trust and the pledge of each Trust Asset to the Indenture
Trustee for the benefit of the Noteholders.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the Trust
Assets from the Transferor to the Issuer Trust and such property shall not be
property of the Transferor. If the assignment and transfer of the Trust Assets
to the Issuer Trust pursuant to this Agreement or the conveyance of the Trust
Assets is held or deemed not to be a sale or is held or deemed to be a pledge of
security for a loan, the Transferor intends that the rights and obligations of
the parties shall be established pursuant to the terms of this Agreement and
that, in such event, (i) the Transferor shall be deemed to have granted and does
hereby grant to the Issuer Trust a first priority security interest in the
entire right, title and interest of the Transferor in and to the Trust Assets
and all proceeds thereof and (ii) this Agreement shall constitute a security
agreement under applicable law. On the Closing Date, the Transferor shall cause
to be filed UCC-1 financing statements naming the Issuer Trust as the "secured
party" and describing the Trust Assets being sold by the Transferor to the
Issuer Trust with the office of the Secretary of State of Colorado and in such
other offices as may be required to perfect the security interests granted under
this Section 2.03, within or without the State of Colorado, under the Uniform
Commercial Code as in effect in the State of Colorado.
Section 2.04 Delivery of Contract Files and Other Conditions to
--------------------------------------------------
Closing.
- -------
The parties hereby agree that the obligation of the Issuer Trust to
(i) disburse the purchase price to be paid to the Transferor in accordance with
the Construction Phase Agreement and (ii) issue the notes pursuant to the
Indenture, is subject to the fulfillment of each of the following conditions on
the Closing Date:
(a) The Transferor shall deliver or cause to be delivered to the
Custodian, as the designated agent of the Indenture Trustee, each of the
following documents (collectively, the "Indenture Trustee's Contract Files"):
----------------------------------
(i) the originally executed version of each Revenue Agreement, including all
then existing schedules and exhibits thereto, (ii) the originally executed
version of each Pledged Contract, including all then existing schedules and
exhibits thereto, and each Security Document (including conformed copies of the
recorded Construction Phase Mortgage and Assignment of Construction Phase
Mortgage, including all then existing schedules and exhibits thereto), and (iii)
all Insurance Policies and the originally executed payment and performance bonds
naming the Issuer Trust or the Indenture Trustee as additional insureds, loss
payees or dual obligees, as applicable. The Indenture Trustee shall cause the
Custodian to take and maintain continuous physical possession of the Indenture
Trustee's Contract Files in the State of New York and, in connection therewith,
shall act solely as agent for the Noteholders in accordance with the terms
hereof and not as agent for the Transferor or any other party.
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(b) The Transferor shall deliver or cause to be delivered to the
Servicer each of the following documents (collectively, the "Servicer's Contract
-------------------
Files"): copies of the Revenue Agreements, the Pledged Contracts and the
- -----
Security Documents, including all then existing schedules and exhibits attached
thereto.
(c) The Transferor, at its own expense, shall record this Agreement,
a Declaration and Notice of Rights, the Easement Agreement [Luxury Suite License
Agreements], the Easement Agreement [Major Revenue Agreements], and an
Assignment and Conveyance with respect to each Revenue Agreement (which may be a
blanket assignment if permitted by applicable law) in the appropriate records.
The Transferor shall also record in Colorado the Construction Phase Mortgage and
the other documents specified in Section 3.04 of the Construction Phase
Agreement. The original of this Agreement and each Security Document recorded
shall be returned to the Indenture Trustee for inclusion in the Indenture
Trustee's Contract Files. In the event that any such document is lost or
returned unrecorded because of a defect therein, the Transferor shall promptly
prepare a substitute document or cure such defect, as the case may be, and
thereafter the Transferor shall be required to submit each such document for
recording.
(d) All conditions precedent to the Issuer Trust's obligation to
enter into the transactions contemplated herein and in the other Basic Documents
and to make the initial disbursement under the Construction Phase Agreement as
set forth in Article III of the Construction Phase Agreement shall have been
satisfied.
Section 2.05 Acceptance by the Indenture Trustee of the Trust Assets;
--------------------------------------------------------
Certification by the Custodian.
------------------------------
(a) The Indenture Trustee agrees to cause the Custodian to execute
and deliver on the Closing Date an acknowledgment of receipt of the Indenture
Trustee's Contract Files. The Indenture Trustee declares that it will cause the
Custodian to hold such documents and any amendments, replacements or supplements
thereto, as well as any other assets included in the Trust Estate and delivered
to the Custodian, in trust, upon and subject to the conditions set forth herein.
The Indenture Trustee agrees to cause the Custodian to review the Indenture
Trustee's Contract Files delivered to it and to cause the Custodian to deliver
to the Transferor, the Indenture Trustee, the Issuer Trust and the Servicer,
within five Business Days after the Closing Date, a certification (the
"Custodian's Certification") to the effect that (i) all documents required to be
-------------------------
delivered to the Indenture Trustee pursuant to Section 2.04 are in the
------------
possession of the Custodian on the Indenture Trustee's behalf, and (ii) all
documents delivered by the Transferor to the Custodian pursuant to Section 2.04
------------
hereof have been reviewed by the Custodian and have not been mutilated or
damaged and appear regular on their face (handwritten additions, changes or
corrections shall not constitute irregularities if initialed by the Obligor).
Neither the Issuer Trust nor the Custodian shall be under any duty or obligation
to inspect, review or examine any such documents, instruments, certificates or
other papers to determine that they are genuine, enforceable or appropriate for
the represented purpose or that they are other than what they purport to be on
their face. In performing any such review, the Custodian may conclusively rely
on the Transferor as to the purported genuineness of any such
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<PAGE>
document and any signature thereon. Neither the Issuer Trust nor the Custodian
shall have any responsibility for determining whether any document is valid and
binding, whether the text of any assignment or endorsement is in proper or
recordable form, whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction or whether a blanket assignment is
permitted in any applicable jurisdiction. If a material defect in a document
constituting part of the Indenture Trustee's Contract Files is discovered, then
the Transferor shall comply with the cure provisions of Section 3.03 hereof.
------------
(b) The Servicer's Contract Files shall be held in the custody of the
Servicer for the benefit of, and as agent for, the Noteholders and the Indenture
Trustee for so long as the Indenture continues in full force and effect; after
the Indenture is terminated in accordance with the terms thereof, the Servicer's
Contract Files shall be held in the custody of the Servicer for the benefit of,
and as agent for, the Certificateholders. The Servicer shall promptly report to
the Indenture Trustee any failure by it to hold the Servicer's Contract Files as
herein provided and shall promptly take appropriate action to remedy any such
failure. In acting as custodian of such documents, the Servicer agrees not to
assert any legal or beneficial ownership interest in the Trust Assets. The
Servicer agrees to indemnify the Securityholders, the Indenture Trustee, and the
Owner Trustee for any and all liabilities, obligations, losses, damages,
payments, costs or expenses of any kind whatsoever which may be imposed on,
incurred by or asserted against the Indenture Trustee, the Securityholders or
the Owner Trustee as the result of any act or omission by the Servicer relating
to the maintenance and custody of such documents which have been delivered to
the Servicer; provided, however, that the Servicer will not be liable for any
portion of any such amount resulting from the gross negligence or misconduct of
any Securityholder, the Owner Trustee or the Indenture Trustee; and provided,
further, that the Servicer will not be liable for any portion of any such amount
resulting from the Servicer's compliance with any instructions or directions
consistent with this Agreement issued to the Servicer by the Indenture Trustee
or the Owner Trustee. The Indenture Trustee shall have no duty to monitor or
otherwise oversee the Servicer's performance as custodian hereunder.
Section 2.06 Construction and Operation of New Arena Facility.
------------------------------------------------
(a) The Transferor hereby agrees, for the benefit of the Issuer
Trust, the Servicer, the Indenture Trustee and the Noteholders, that it shall
complete the construction of the New Arena Facility in a timely manner in
accordance with and pursuant to the terms and conditions of this Agreement, the
Arena Agreement and the Construction Phase Agreement and shall cause the Teams
to play all home games at the New Arena Facility in accordance with the Team
Commitments and cause the New Arena Facility to be operated and maintained by
the Operator (as defined below) in accordance with the Operating and Management
Agreement, a copy of which is attached as Exhibit E hereto, the Arena Agreement
---------
and the Lease. The Transferor has appointed its Affiliate, Ascent Arena
Operating Company, Inc., as the Operator (the "Operator"), under the Operating
and Management Agreement.
(b) The Construction Phase Mortgage (and upon its release and the
conveyance of the Property to the City, the Leasehold Mortgage), is being
executed and
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delivered, and all material contracts related to the construction and operation
of the New Arena Facility are being pledged by the Transferor to the Issuer
Trust to secure the performance of the Transferor of its obligations under
Section 2.06 (a) above pursuant to the Security Agreement [Excess Collateral]
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and the Assignment of Pledged Contracts. The Issuer Trust's interests in such
Pledged Contracts together with the Issuer Trust's interests under the
Construction Phase Mortgage, the Revenue Agreements and the Revenue Agreement
Rights, are further pledged to the Indenture Trustee pursuant to the Security
Agreement [Indenture Trustee] and the Assignment of Pledged Contracts [Indenture
Trustee] to secure the Issuer Trust's obligation to repay the Notes.
(c) When (i) the construction of the New Arena Facility has been
completed, (ii) the Construction Consultant has so certified to the Issuer Trust
and the Indenture Trustee, (iii) the Certificate of Substantial Completion has
been delivered by the Transferor to the City, (iv) all conditions to conveyance
of the Property as set forth in Section 3.6.1 of the Arena Agreement have been
satisfied or waived by the City, (v) the Issuer Trust and the Indenture Trustee
have received from a title insurance company satisfactory to them, either (A) a
paid title insurance policy in respect of the Leasehold Mortgage or (B) an
irrevocable agreement satisfactory to the Issuer Trust and the Construction
Consultant from such company to issue a paid title insurance policy upon
recordation of the Leasehold Mortgage, in either case such policy shall be in
form and substance satisfactory to the Issuer Trust and the Construction
Consultant, and shall contain such endorsements and reinsurance agreements as
they shall require, together with an as-built ALTA survey of the real property
described in Exhibit A to the Leasehold Mortgage and the New Arena Facility and
---------
other improvements located thereon, and (vi) all conditions precedent to the
commencement of payments under the Revenue Agreements have been satisfied,
waived or are otherwise reasonably likely to be satisfied; then the Indenture
Trustee and the Issuer Trust shall release and reconvey the Construction Phase
Mortgage to the Transferor and Nuggets LP, and require the execution,
recordation and delivery of the Leasehold Mortgage in their favor in lieu
thereof. If and when the Issuer Trust has been replaced by a New Qualified
Mortgagee, and such New Qualified Mortgagee has entered into the Intercreditor
Agreement [New Qualified Mortgagee] then, and only then, shall the security
interests in the Excess Collateral be released in whole at the Transferor's
expense; otherwise, they shall remain in full force and effect. No release of
the Excess Collateral other than as described herein shall be valid unless
executed by the Indenture Trustee. The Indenture Trustee and the Issuer Trust,
upon the Transferor's written request and at the Transferor's expense, shall
deliver to the Transferor all documents reasonably necessary to evidence such
release.
(d) The parties hereby agree that the amount of damages that will be
incurred by the Issuer Trust if the Transferor does not perform its obligations
hereunder and thereby causes a Transferor Default to occur is indefinite and
difficult to ascertain. Accordingly, the parties hereby agree that in the event
that the Transferor does not perform such obligations, subject to Section 11.17
-------------
hereof, the Transferor shall pay to the Issuer Trust, as liquidated damages, an
amount equal to the Outstanding Amount, any unpaid interest and costs and
expenses of any enforcement.
F-6
<PAGE>
Section 2.07 Transferor Indemnities
----------------------
The Transferor hereby agrees that it shall be obligated to return all
security deposits received by it under the Luxury Suite License Agreements and
any other cash payments or deposits received by it under any of the other
Revenue Agreements pursuant to the terms of such agreements and agrees to
indemnify and hold harmless the Issuer Trust against any and all claims or
damages with respect to such cash payments or deposits. The Transferor further
agrees that to the extent it has received cash payments or deposits which are
subject to return or forfeiture under any of the Pledged Contracts, or to the
extent it is obligated to indemnify any Pledged Contract Obligor under any of
the Pledged Contracts, the Transferor shall indemnify and hold harmless the
Issuer Trust against any and all claims or damages with respect to such cash
payments or deposits or such indemnity obligations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 3.01 Representations and Warranties of the Transferor.
------------------------------------------------
The Transferor hereby represents and warrants to the Servicer, the
Indenture Trustee, the Noteholders and the Issuer Trust that as of the Closing
Date (except as otherwise specifically provided herein):
(a) The Transferor is a limited liability company duly organized,
validly existing, and in good standing under the laws of the State of Colorado,
with full power and authority to own its assets and to conduct its business as
such assets are currently owned and such business is presently conducted and has
all licenses necessary to carry on its business as now being conducted, and has,
and had at all relevant times, full corporate power to execute and deliver each
of the Initial Revenue Agreements, the Pledged Contracts, the Construction Phase
Agreement and the Security Documents to which it is a party; the Transferor has
the power and authority to execute and deliver this Agreement and to perform in
accordance herewith; the execution, delivery and performance of this Agreement
(including all instruments of transfer to be delivered pursuant to this
Agreement) by the Transferor and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action of the Transferor; this Agreement evidences the valid, binding and
enforceable obligation of the Transferor; and all requisite action has been
taken by the Transferor to make this Agreement valid, binding and enforceable
upon the Transferor in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally or the application of
equitable principles in any proceeding, whether at law or in equity;
(b) The Transferor is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of its assets or the conduct of
its business shall require such qualifications;
F-7
<PAGE>
(c) The consummation of the transactions contemplated by this
Agreement will not result in (i) the breach of any terms or provisions of the
articles of organization or operating agreement of the Transferor, (ii) the
breach of any term or provision of, or conflict with or constitute a default
under or result in the acceleration of any obligation under, any material
agreement, indenture, loan or credit agreement or other material instrument to
which the Transferor or its assets is subject, or (iii) the violation of any
law, rule, regulation, order, judgment or decree to which the Transferor or its
assets is subject;
(d) The Transferor is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal, state,
municipal or other governmental agency, which default might reasonably be
expected to have a materially adverse effect on the condition (financial or
otherwise) or operations of the Transferor or its assets or that would
reasonably be expected to have a materially adverse effect on its performance
hereunder;
(e) Each of the Initial Revenue Agreements, the Pledged Contracts and
the Security Documents to which it is a party has been duly and validly
authorized, executed and delivered by the Transferor and constitutes a legal,
valid and binding obligation of the Transferor, enforceable against the
Transferor in accordance with its terms subject as to enforceability to
applicable bankruptcy, reorganization, insolvency, moratorium or other similar
laws affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law);
(f) There are no actions or proceedings against, or investigations
of, the Transferor currently pending with regard to which the Transferor has
received service of process and no action or proceeding against, or
investigation of, the Transferor is, to the knowledge of the Transferor,
threatened or otherwise pending before any court, administrative agency or other
tribunal that (A) if determined adversely, would prohibit its entering into this
Agreement or render the Notes invalid, (B) seek to prevent the issuance of the
Notes or the consummation of any of the transactions contemplated by this
Agreement or (C) if determined adversely, would prohibit or materially and
adversely affect (i) the ability of the Transferor to perform its obligations
hereunder and under the Initial Revenue Agreements, the Pledged Contracts, and
the Security Documents to which it is a party, (ii) the sale of the Trust Assets
to the Issuer Trust or (iii) the performance by the Transferor of its
obligations under, or the validity or enforceability of, this Agreement or the
Notes;
(g) No consent, approval, authorization or order of any court or
governmental agency or body, other than the City pursuant to the Arena
Agreement, is required for: (1) the execution, delivery and performance by the
Transferor of, or compliance by the Transferor with, this Agreement, the Initial
Revenue Agreements, the Pledged Contracts and the Security Documents to which it
is a party, (2) the issuance of the Notes, and (3) the sale of the Trust Assets
under this Agreement and the consummation of the transactions required of it by
this Agreement, except such as shall have been obtained on or before the Closing
Date;
F-8
<PAGE>
(h) No Officer's Certificate, statement, report or other document
prepared by the Transferor and furnished or to be furnished by it pursuant to
this Agreement or the other Basic Documents contains any untrue statement of
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading; and the information pertaining to
each Revenue Agreement set forth on Exhibit A hereto is true and accurate in all
---------
material respects;
(i) The Transferor is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations hereunder; it will not be rendered insolvent by the execution and
delivery of this Agreement or by the performance of its obligations hereunder;
and no petition of bankruptcy (or similar insolvency proceeding) has been filed
by or against the Transferor prior to the date hereof;
(j) The Transferor has transferred the Trust Assets without any
intent to hinder, delay or defraud any of its creditors;
(k) The Transferor is the lawful owner of the Trust Assets with the
full right to transfer the Trust Assets free from any and all claims and
encumbrances whatsoever, except for the City's subordinate Lien under the Arena
Agreement as described in the City Intercreditor Agreements, and the Trust
Assets, upon the transfer thereof to the Issuer Trust as contemplated herein,
will be free and clear of all liens, claims and encumbrances, except for the
City's subordinate Lien under the Arena Agreement as described in the City
Intercreditor Agreements; this Agreement constitutes a valid sale, transfer,
assignment, and conveyance to the Issuer Trust of all right, title, and interest
of the Transferor in, to, and under all the Trust Assets now existing and
hereafter created, and any related agreements under which the Trust Assets arose
or will arise, all moneys due or to become due with respect thereto and all
proceeds (as defined in the UCC as in effect in New York and all of the states
where the Transferor's chief executive office or books and records relating to
the Trust Assets are located) of such Trust Assets and any property relating
thereto, and such property will be held by the Issuer Trust free and clear of
any Lien of any Person claiming through or under the Transferor, except for the
City's subordinate Lien under the Arena Agreement as described in the City
Intercreditor Agreements;
(l) All filings and recordings required to perfect the title of the
Issuer Trust to the Trust Assets purchased hereunder have been accomplished and
are in full force and effect, and the Transferor shall at its expense perform
all acts and execute all documents requested by the Issuer Trust, the Servicer
or the Indenture Trustee at any time to evidence, perfect, maintain, and enforce
the title of the Issuer Trust in such Trust Assets and the security interest of
the Issuer Trust in the Excess Collateral and the security interest and priority
of the Indenture Trustee in the Collateral, including filing of continuation
statements as required by applicable state law; the Transferor will, at the
reasonable request of the Issuer Trust, the Servicer, or the Indenture Trustee,
execute and file additional financing statements reasonably satisfactory in form
and substance to the Servicer, the Issuer Trust or the Indenture Trustee, as the
case may be;
F-9
<PAGE>
(m) Each Initial Revenue Agreement and Pledged Contract (i) contains
all of the understandings and agreements between the Transferor and the related
Obligor with respect to the subject matter thereof, (ii) is in existence and in
full force and effect as of the Closing Date, and (iii) has not been modified or
amended, and the provisions have not been waived at any time since the effective
date of such Initial Revenue Agreement and Pledged Contract;
(n) No default exists under the terms of any of the Initial Revenue
Agreements, and all Required Payments due on or prior to the Closing Date have
been made in full by the related Revenue Contractor;
(o) There are no offsets, counterclaims or other defenses available
to the Revenue Contractor under any Initial Revenue Agreement against the
Transferor;
(p) Except as otherwise expressly disclosed in a letter addressed to
the Issuer Trust (i) the Property has been evaluated by environmental
investigations and studies as disclosed in the VCUP; (ii) Hazardous Materials at
the Property are being addressed pursuant to the VCUP; (iii) the VCUP was
reviewed and approved by the CDPHE pursuant to Colorado's Voluntary Cleanup &
Redevelopment Act; and (iv) EPA reviewed an earlier version of the VCUP which
did not include certain additional source removal work, concurred with the
cleanup and monitoring proposals set forth therein, and concluded that under the
circumstances, EPA intervention under CERCLA and the federal Clean Water Act was
not warranted.
(q) The New Arena Facility is covered by customary hazard insurance
policies, special hazard insurance policies, general and specific liability
insurance policies and such other insurance policies as are customary and usual
in the sports arena industry and for the jurisdiction in which the New Arena
Facility is located; all Insurance Policies relating to the New Arena Facility
have been issued by an insurer rated at least "A6" by A.M. Best, and such
Insurance Policies are in full force and effect, have been issued in amounts
which are customary and usual in the sports arena industry and for the
jurisdiction in which the New Arena Facility is located, and name the Issuer
Trust and the Indenture Trustee as loss payees thereunder to the extent of the
Outstanding Amount of the Notes;
(r) Any and all requirements of any federal, state or local law
applicable to the Initial Revenue Agreements and Pledged Contracts and the use,
operation, maintenance and construction of the New Arena Facility have been
complied with in all material respects to the extent now required; and
(s) Upon the execution and delivery of this Agreement by the parties
hereto, the Issuer Trust, or its designees, will have the sole and exclusive
right and authority to enter into any Subsequent Revenue Agreement, subject to
the City Intercreditor Agreements.
It is understood and agreed that the representations and warranties
set forth in this Section 3.01 shall survive delivery of the Indenture Trustee's
------------
Contract Files to the Custodian (as the agent of the Indenture Trustee), the
conveyance of the Trust Assets to the Issuer Trust, the grant of a security
interest in the Trust Assets to the Indenture Trustee and the
F-10
<PAGE>
issuance of the Notes, and shall inure to the benefit of the Noteholders, the
Servicer, the Indenture Trustee, the Owner Trustee and the Issuer Trust. Upon
discovery by any of the Transferor, the Servicer, the Indenture Trustee or the
Issuer Trust of a breach of any of the foregoing representations and warranties
that materially and adversely affects the value of any Trust Asset or the
interests of the Noteholders therein, the party discovering such breach shall
give prompt written notice (but in no event later than two Business Days
following such discovery) to the other parties. The obligations of the
Transferor set forth in Section 3.03 hereof to cure any breach shall constitute
-----------
the sole remedy available hereunder to the Noteholders, the Servicer, the
Indenture Trustee or the Issuer Trust respecting a breach of the representations
and warranties contained in this Section 3.01.
------------
Section 3.02 Representations and Warranties of the Servicer.
----------------------------------------------
The Servicer hereby represents and warrants to and covenants with the
Issuer Trust, the Indenture Trustee, the Noteholders, and the Transferor that as
of the Closing Date or as of such other date specifically provided herein:
(a) The Servicer is duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its organization, with full power
and authority to own its assets and to conduct its business as such assets are
currently owned and such business is presently conducted and has all licenses
necessary to carry on its business as now being conducted; the Servicer has the
power and authority to execute and deliver this Agreement and to perform in
accordance herewith; the execution, delivery and performance of this Agreement
by the Servicer and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary action of the Servicer;
this Agreement evidences the valid, binding and enforceable obligation of the
Servicer; and all requisite action has been taken by the Servicer to make this
Agreement valid, binding and enforceable upon the Servicer in accordance with
its terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium and other, similar laws relating to or affecting creditors' rights
generally or the application of equitable principles in any proceeding, whether
at law or in equity;
(b) The Servicer is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals in all
jurisdictions in which the ownership or lease of its assets or the conduct of
its business shall require such qualifications;
(c) The consummation of the transactions contemplated by this
Agreement will not result in (i) the breach of any terms or provisions of the
organizational documents of the Servicer, (ii) the breach of any term or
provision of, or conflict with or constitute a default under or result in the
acceleration of any obligation under, any material agreement, indenture, loan or
credit agreement or other material instrument to which the Servicer, its members
or its assets is subject, or (iii) the violation of any law, rule, regulation,
order, judgment or decree to which the Servicer or its members or its assets is
subject;
(d) The Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal, state,
municipal or other governmental agency, which default might have consequences
that would materially and
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<PAGE>
adversely affect the condition (financial or otherwise) or operations of the
Servicer, its members or its assets or might have consequences that would
materially and adversely affect its performance hereunder;
(e) There are no actions or proceedings against, or investigations
of, the Servicer currently pending with regard to which the Servicer has
received service of process and no action or proceeding against, or
investigation of, the Servicer is, to the knowledge of the Servicer, threatened
or otherwise pending before any court, administrative agency or other tribunal
that (A) if determined adversely, would prohibit its entering into this
Agreement or render the Notes invalid, (B) seek to prevent the issuance of the
Notes or the consummation of any of the transactions contemplated by this
Agreement or (C) if determined adversely, would prohibit or materially and
adversely affect the performance by the Servicer of its obligations under, or
the validity or enforceability of, this Agreement or the Notes;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of, or compliance by the Servicer with, this
Agreement, or for the consummation of the transactions contemplated by this
Agreement, except for such consents, approvals, authorizations and orders, if
any, that have been obtained prior to the Closing Date;
(g) The Servicer is an Eligible Servicer and shall service and
administer contracts and receivables in accordance with Accepted Servicing
Procedures;
(h) No Officer's Certificate, statement, report or other document
prepared by the Servicer and furnished or to be furnished by it pursuant to this
Agreement or any other Basic Document contains any untrue statement of material
fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading; and
(i) The Servicer is solvent and will not be rendered insolvent as a
result of the performance of its obligations pursuant to this Agreement;
It is understood and agreed that the representations and warranties
set forth in this Section 3.02 shall survive delivery of the Indenture Trustee's
------------
Contract Files to the Indenture Trustee and shall inure to the benefit of the
Issuer Trust, the Transferor, the Noteholders, the Indenture Trustee and the
Owner Trustee. Upon discovery by any of the Transferor, the Servicer, the
Indenture Trustee or the Issuer Trust of a breach of any of the foregoing
representations and warranties that materially and adversely affects the value
of any Trust Asset or the interests of the Noteholders therein, the party
discovering such breach shall give prompt written notice (but in no event later
than two Business Days following such discovery) to the other parties.
Section 3.03 Transferor's Obligation to Cure.
-------------------------------
(a) Upon discovery by the Servicer, the Transferor, the Custodian,
the Issuer Trust, the Indenture Trustee or any Noteholder of a breach of any of
the representations and warranties set forth in Section 3.01, or a deficiency in
------------
the documents delivered pursuant to
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<PAGE>
Section 2.04(a) hereof, which materially and adversely affects the value of the
Trust Assets or the interests of the Noteholders in the related Trust Asset
(each such Trust Asset, a "Defective Trust Asset"), the party discovering such
---------------------
breach or the failure to deliver a document shall give prompt written notice to
the others. The Transferor shall promptly, but in any event within 60 days of
the earlier of its discovery or its receipt of notice of any breach of a
representation or warranty or document deficiency, cure such breach in all
material respects.
(b) It is understood and agreed that the obligation of the Transferor
set forth in this Section 3.03 to cure a Defective Trust Asset constitutes the
------------
sole remedy hereunder of the Indenture Trustee, the Issuer Trust, the Servicer
and the Noteholders respecting a breach of the representations and warranties
contained in Section 3.01 hereof, or the failure to deliver a document pursuant
------------
to Section 2.04(a). Any cause of action against the Transferor relating to or
arising out of a defect in any Indenture Trustee's Contract File as contemplated
by Section 2.05 hereof or against the Transferor relating to or arising out of a
------------
breach of any representations and warranties made in Section 3.01 hereof shall
------------
accrue as to any Trust Asset upon (i) discovery of such defect or breach by any
party and notice thereof to the Transferor or notice thereof by the Transferor
to the Indenture Trustee, and (ii) failure by the Transferor to cure such defect
or breach as specified above.
(c) Neither the Issuer Trust nor the Indenture Trustee shall have any
duty to conduct any affirmative investigation other than as specifically set
forth in this Agreement as to the occurrence of any condition requiring the cure
of any breach of a representation and warranty pursuant to this Section or the
eligibility of any Trust Asset for purposes of this Agreement.
ARTICLE IV
ADMINISTRATION AND SERVICING
-----------------------------
Section 4.01 Duties of the Servicer.
----------------------
(a) Servicing Standard. The Servicer, as an independent contractor,
------------------
shall service and administer (or cause a Subservicer to service and administer)
the Trust Assets in accordance with and as described in this Agreement, the
Indenture, the Operating and Management Agreement, the Construction Phase
Agreement, the Security Documents and the Revenue Agreements and shall have full
power and authority, acting alone, to do any and all things in connection with
such servicing and administration which the Servicer may deem necessary or
desirable and consistent with the terms of this Agreement, the Indenture, the
Operating and Management Agreement, the Construction Phase Agreement, the
Security Documents and the Revenue Agreements and the ordinary servicing and
administrative practices of prudent institutions administering assets similar to
the Trust Assets. Notwithstanding anything to the contrary contained herein,
the Servicer, in servicing and administering the Trust Assets, shall employ or
cause to be employed procedures (including collection, foreclosure, liquidation
and management and liquidation procedures) and exercise the same care that it
customarily employs and exercises in servicing and administering assets of
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<PAGE>
the same type as the Trust Assets for its own account, all in accordance with
Accepted Servicing Procedures of prudent owners and servicers of assets of the
same type as the Trust Assets and giving due consideration to the Noteholders'
reliance on the Servicer. The Servicer has and shall maintain the facilities,
procedures and experienced personnel necessary to comply with the servicing
standard set forth in this subsection (a) and the duties of the Servicer set
forth in this Agreement and the Indenture relating to the servicing and
administration of the Trust Assets. In performing its obligations hereunder and
under the Indenture and the Operating and Management Agreement, the Servicer
shall at all times act in good faith in a commercially reasonable manner in
accordance with applicable law and the Contracts.
Notwithstanding any provision to the contrary herein, neither the
Servicer nor any Subservicer on behalf of the Servicer shall have any obligation
to advance its own funds for any delinquent payments under any Revenue
Agreement.
(b) Enforcement, Waivers, Modifications and Extensions. The Servicer
--------------------------------------------------
shall make reasonably diligent efforts to collect all payments called for under
the terms and provisions of the Contracts, enforce the Obligors' obligations
under their respective Contracts, manage the New Arena Facility in accordance
with the Revenue Agreements, and administer the Operating and Management
Agreement and the Revenue Agreement Rights and shall, to the extent such
procedures shall be consistent with this Agreement, the Operating and Management
Agreement and the Indenture, follow Accepted Servicing Procedures. On behalf of
the Noteholders, the Servicer shall use all reasonable efforts, consistent with
Accepted Servicing Procedures, to enforce, and maintain rights in respect of,
the Contracts. The Servicer may in its discretion extend the Due Date with
respect to any Required Payment for a period (with respect to each payment as to
which the Due Date is extended) not greater than 30 days after the initially
scheduled due date for such Required Payment (including within such maximum 30
day grace period, any grace periods set forth in any Revenue Agreement).
The Servicer shall have the right, on behalf of and in the name of the
Issuer Trust, to amend, modify or restate any of the Revenue Agreements;
provided, however, that if in the reasonable judgment of the Servicer, such
amendment, modification or restatement (i) could reasonably be expected to
materially impair the operation of the New Arena Facility, or (ii) is likely to
cause any Revenue Contractor to be entitled to reduce, interrupt or terminate
its payment obligations under its Revenue Agreement (as such payment obligations
are set forth in each such Revenue Agreement sold to the Issuer Trust and
delivered to the Indenture Trustee on the Closing Date), the Servicer shall
obtain the express prior written consent thereto of the Issuer Trust and the
Indenture Trustee. Immediately following delivery of the Revenue Agreements by
the Servicer, on behalf of the Issuer Trust, to the Indenture Trustee or its
representative, on the Closing Date, the Servicer shall execute amended and
restated Revenue Agreements for each of Pepsi and Coors in such manner as to
conform them to the form previously reviewed and approved by the transaction
counsel prior to the Closing Date.
(c) The Servicer shall service and administer the Trust Assets in
accordance with applicable state and federal law and shall provide to the
Obligors any reports required to be provided to them thereby.
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<PAGE>
The Servicer shall cause to be performed any and all acts required to
be performed by the Servicer to preserve the rights and remedies of the Issuer
Trust and the Indenture Trustee in any Insurance Policies applicable to the
Trust Assets or the New Arena Facility including, without limitation, in each
case, any necessary notifications of insurers, assignments of policies or
interests therein, and establishments of co-insured, joint loss payee and
mortgagee rights in favor of the Issuer Trust and the Indenture Trustee.
The Servicer agrees that, so long as it shall continue to serve in the
capacity contemplated under the terms of this Agreement, it shall remain in good
standing under the laws governing its creation and existence and qualified under
the laws of each state in which it is necessary to perform its obligations under
this Agreement or in which the nature of its business requires such
qualification; it shall maintain all licenses, permits and other approvals
required by any law or regulations as may be necessary to perform its
obligations under this Agreement and to retain all rights to service and
administer the Trust Assets; and it shall not dissolve or otherwise dispose of
all or substantially all of its assets.
The Issuer Trust shall execute, at the written direction of the
Servicer, any limited or special powers of attorney and other documents to
enable the Servicer or any Subservicer to carry out their servicing and
administrative duties hereunder, and the Issuer Trust shall not be accountable
for the actions of the Servicer or any Subservicers under such powers of
attorney and shall be indemnified by such parties with respect to such actions.
The Servicer shall delegate its duties with respect to the Contracts, as set
forth in Section 4.01(a), Section 4.01(b), and in this Section 4.01(c) to the
--------------- --------------- ---------------
Operator under the Operating and Management Agreement.
Section 4.02 Maintenance of Filings.
----------------------
The Servicer shall take such steps as are reasonably necessary to
maintain the perfection of the Issuer Trust's security interest in the Excess
Collateral and the Indenture Trustee's security interests in the Collateral,
including the filing of financing statements. Each of the Indenture Trustee,
the Transferor, and the Issuer Trust agree to cooperate with the Servicer in
preparing, executing and filing such statements. The filing of any such
statement with respect to the Transferor and the Issuer Trust shall not be
construed as any indication of an intent of any party contrary to the expressed
intent set forth in Section 2.03 hereof. If the Servicer fails to file any such
------------
financing statements or continuation statements at least one month prior to the
expiration thereof, the Servicer does hereby make, constitute and appoint the
Indenture Trustee its attorney-in-fact, with full power and authority, to
execute and file in its name and on its behalf any such financing statements or
continuation statements required under this Section 4.02.
------------
Section 4.03 Subsequent Revenue Agreements.
-----------------------------
In the event that any Revenue Agreement is terminated, the Servicer
shall, on behalf of the Issuer Trust, the Indenture Trustee and the Noteholders,
use reasonable efforts to promptly negotiate, execute and deliver a Subsequent
Revenue Agreement with the Revenue Contractor or a successor obligor relating to
the underlying Revenue Agreement Rights of the
F-15
<PAGE>
terminated Revenue Agreement. In finding a replacement Obligor and negotiating a
Subsequent Revenue Agreement, the Servicer shall, to the extent consistent with
Accepted Servicing Procedures, attempt to enter into a Revenue Agreement which
is no less favorable to the Issuer Trust than the terms and provisions of the
terminated Revenue Agreement, giving due consideration to the maximization, on a
present value basis, of revenues under such Subsequent Revenue Agreement, and
the credit of the successor Obligor. The Issuer Trust shall execute, at the
written direction of the Servicer, any limited or special powers of attorney and
other documents to enable the Servicer or any Subservicer to carry out their
duties pursuant to this Section 4.03, and the Owner Trustee shall not be
------------
accountable for the actions of the Servicer or any Subservicers under such
powers of attorney and shall be indemnified by such parties with respect to such
actions. The Servicer shall promptly deliver an originally executed version of
any Subsequent Revenue Agreement, and any related documentation and agreements,
to the Indenture Trustee, or upon the direction of the Indenture Trustee, to the
Custodian, and such Subsequent Revenue Agreement and related documentation shall
become part of the Trust Estate and the Indenture Trustee's Contract Files and a
copy of such Subsequent Revenue Agreement shall be held by the Servicer as part
of the Servicer's Contract Files. Prior notice of the execution and delivery of
any Subsequent Revenue Agreement shall be delivered by the Servicer to the
Rating Agency. The Servicer shall take such steps as are reasonably necessary to
ensure the perfection and priority of the Indenture Trustee's and the
Noteholders' security interests in any Subsequent Revenue Agreements, including,
without limitation, the filing of financing statements, and the Indenture
Trustee and the Issuer Trust shall cooperate with the Servicer in ensuring any
such perfection and priority of interests.
Section 4.04 Subservicing.
------------
(a) The Servicer is entering into the Operating and Management
Agreement with the Operator and may enter into other Subservicing Agreements for
any additional servicing and administration of any of the Trust Assets with any
institution that is an Eligible Servicer and in compliance with the laws of each
state necessary to enable it to perform its obligations under such Subservicing
Agreement. The Servicer shall give written notice to the Issuer Trust and the
Indenture Trustee of the appointment of any other Subservicer. So long as no
Event of Default or Servicer Event of Default has occurred and is continuing,
the Servicer shall be entitled to terminate any Subservicing Agreement in
accordance with terms and conditions of such Subservicing Agreement and to
either service the related Trust Assets directly or enter into a Subservicing
Agreement with a successor subservicer which qualifies hereunder.
In the event of termination of any Subservicer, and unless a successor
Subservicer has otherwise been appointed, all servicing obligations of such
Subservicer shall be assumed simultaneously by the Servicer without any
additional act or deed on the part of such Subservicer or the Servicer, and the
Servicer shall service directly the related Trust Assets.
Each Subservicing Agreement shall include the provision that such
agreement may be immediately terminated by the Indenture Trustee in the event
that the Servicer shall,
F-16
<PAGE>
for any reason, no longer be the Servicer. In no event shall any Subservicing
Agreement require the Indenture Trustee, as successor Servicer, for any reason
whatsoever to pay compensation to a Subservicer in order to terminate such
Subservicer.
(b) Notwithstanding any Subservicing Agreement, any of the provisions
of this Agreement relating to agreements or arrangements between the Servicer
and a Subservicer or reference to actions taken through a Subservicer or
otherwise, the Servicer shall remain obligated and primarily liable to the
Issuer Trust, the Indenture Trustee and the Noteholders for the servicing and
administration of the Trust Assets in accordance with the provisions of this
Agreement without diminution of such obligation or liability by virtue of such
Subservicing Agreements or arrangements or by virtue of indemnification from the
Subservicer and to the same extent and under the same terms and conditions as if
the Servicer alone were servicing and administering the Trust Assets. For
purposes of this Agreement, the Servicer shall be deemed to have received
payments on Trust Assets when the Subservicer has actually received such
payments and, unless the context otherwise requires, references in this
Agreement to actions taken or to be taken by the Servicer in servicing the Trust
Assets include actions taken or to be taken by the Operator or any other
Subservicer on behalf of the Servicer. The Servicer shall be entitled to enter
into any agreement with a Subservicer for indemnification of the Servicer by
such Subservicer, and nothing contained in this Agreement shall be deemed to
limit or modify such indemnification.
(c) In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default or a Servicer Event of
Default), the successor Servicer, on behalf of the Issuer Trust, the Indenture
Trustee and the Noteholders pursuant to Section 4.05 hereof, shall thereupon
------------
assume all of the rights and obligations of the Servicer under each Subservicing
Agreement that the Servicer may have entered into, unless the successor Servicer
elects to terminate any Subservicing Agreement in accordance with its terms.
The successor Servicer shall be deemed to have assumed all of the Servicer's
interest therein and to have replaced the Servicer as a party to each
Subservicing Agreement to the same extent as if the Subservicing Agreements had
been assigned to the assuming party, except that the Servicer shall not thereby
be relieved of any liability or obligations under the Subservicing Agreements
which accrued prior to the transfer of servicing to the successor Servicer. The
Servicer, at its expense and without right of reimbursement therefor, shall,
upon request of the successor Servicer, deliver to the assuming party all
documents and records relating to each Subservicing Agreement and the Trust
Assets then being serviced and an accounting of amounts collected and held by it
and otherwise use its best efforts to effect the orderly and efficient transfer
of the Subservicing Agreements to the assuming party.
(d) As part of its servicing activities hereunder, the Servicer, for
the benefit of the Issuer Trust, the Indenture Trustee and the Noteholders,
shall enforce the obligations of each Subservicer under the related
Subservicing Agreement. Such enforcement, including, without limitation, the
legal prosecution of claims and the pursuit of other appropriate remedies, shall
be in such form and carried out to such an extent and at such time as the
Servicer, in its good faith business judgment, would require were it the owner
of the related Trust Assets. The Servicer shall pay the costs of such
enforcement at its own expense and
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<PAGE>
shall be reimbursed therefor only (i) from a general recovery resulting from
such enforcement to the extent, if any, that such recovery exceeds all amounts
due in respect of the related Trust Asset or (ii) from a specific recovery of
costs, expenses or attorneys' fees against the party against which such
enforcement is directed.
(e) Any Subservicing Agreement that may be entered into and any other
transactions or services relating to the Trust Assets involving a Subservicer
shall be deemed to be between the Subservicer and the Servicer alone and none of
the Issuer Trust, the Indenture Trustee or the Noteholders shall be deemed
parties thereto or shall have any claims, rights, obligations, duties or
liabilities with respect to the Subservicer in its capacity as such except as
set forth in subsection (c) of this Section 4.04.
------------
Section 4.05 Successor Servicers.
-------------------
In the event that the Servicer is terminated pursuant to Section 9.01
------------
hereof, or resigns pursuant to Section 8.04 hereof or otherwise becomes unable
------------
to perform its obligations under this Agreement, the Indenture Trustee will
appoint a successor servicer in accordance with the provisions of Section 9.02
------------
hereof; provided, however, that any successor servicer shall satisfy the
requirements of an Eligible Servicer and shall be approved by the Rating Agency
(upon receipt by the Rating Agency of thirty (30) days written notice thereof).
Section 4.06 144A Information.
----------------
The Servicer shall provide to the Indenture Trustee, if requested,
information regarding the Notes and the Trust Assets and such other information
as the Indenture Trustee shall be required to deliver to any Noteholder and any
prospective transferee designated by any such Noteholder to satisfy the
condition of eligibility set forth in Rule 144A(d)(4) under the Securities Act.
Section 4.07 Administrative Duties of Servicer
---------------------------------
(a) Duties with Respect to the Basic Documents. The Servicer shall
------------------------------------------
consult with the Owner Trustee as the Servicer deems appropriate regarding the
duties of the Issuer Trust under the Basic Documents. The Servicer shall
monitor the performance of the Issuer Trust and shall advise the Owner Trustee
when action is necessary to comply with the Issuer Trust's duties under the
Basic Documents. The Servicer shall prepare for execution by the Issuer Trust or
shall cause the preparation by other appropriate Persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall be the duty
of the Issuer Trust to prepare, file or deliver pursuant to the Basic Documents.
In furtherance of the foregoing, the Servicer shall take all necessary action
that is the duty of the Issuer Trust to take pursuant to the Indenture,
including, without limitation, any applicable provisions of the Indenture.
(b) Duties with Respect to the Issuer Trust
---------------------------------------
(i) In addition to the duties of the Servicer set forth in this
Agreement or any of the Basic Documents, the Servicer shall perform such
calculations and
F-18
<PAGE>
shall prepare for execution by the Issuer Trust or the Owner Trustee or shall
cause the preparation by other appropriate Persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall be the duty
of the Issuer Trust or the Owner Trustee to prepare, file or deliver pursuant to
state and federal tax and securities laws. In accordance with the directions of
the Issuer Trust or the Owner Trustee, the Servicer shall administer, perform or
supervise the performance of such other activities in connection with the Issuer
Trust as are not covered by any of the foregoing provisions and as are expressly
requested by the Issuer Trust or the Owner Trustee and are reasonably within the
capacity of the Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Basic Documents to the contrary, the Servicer shall be responsible for promptly
notifying the Owner Trustee and the Paying Agent in the event that any
withholding tax is imposed on the Issuer Trust's payments (or allocations of
income) to a Certificateholder. Any such notice shall be in writing and specify
the amount of any withholding tax required to be withheld by the Owner Trustee
or the Paying Agent pursuant to such provision.
(c) Tax Matters. The Servicer shall prepare and file, on behalf of
-----------
the Issuer Trust, all tax returns, tax elections, financial statements and such
annual or other reports of the Issuer Trust as are necessary for the preparation
of tax reports as provided in Article V of the Trust Agreement and Section 7.09
------------
hereof. All tax returns will be executed as provided in Article V of the Trust
Agreement and Section 7.09 hereof.
------------
(d) Records. The Servicer shall maintain appropriate books of account
-------
and records relating to Servicer performance under this Agreement, which books
of account and records shall be accessible for inspection by the Owner Trustee
at any time during normal business hours and upon reasonable advance notice.
(e) Additional Information to be Furnished to the Issuer Trust. The
----------------------------------------------------------
Servicer shall furnish to the Owner Trustee from time to time such additional
information regarding the Issuer Trust or the Basic Documents as the Owner
Trustee shall reasonably request.
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
-------------------------------
Section 5.01 Collection Account.
------------------
(a) Establishment of Collection Account. As of the Closing Date, the
-----------------------------------
Servicer, for the benefit of the Securityholders, shall cause to be established
and maintained a Collection Account (the "Collection Account"), which shall be a
------------------
separate Eligible Account, entitled "Collection Account, The Bank of New York,
as Indenture Trustee, in trust for the Denver Arena Trust Arena Revenue Backed
Notes." The Collection Account shall be maintained with any depository
institution which satisfies the requirements set forth in the definition of
Eligible Account. The creation of any Collection Account shall be evidenced by a
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<PAGE>
letter agreement between the Servicer and such depository institution. Funds in
the Collection Account shall be invested in accordance with Section 5.04 hereof.
------------
(b) (1) Deposits to Collection Account. The Indenture Trustee shall
------------------------------
withdraw from the Lockbox Account and deposit into the Collection Account on a
daily basis, and to the extent received by the Servicer, the Servicer shall
deposit or cause to be deposited, within two (2) Business Days after receipt
thereof, into the Collection Account, in each case to be retained therein in
trust for the benefit of the Securityholders:
(i) all payments received on account of Revenue Agreements;
(ii) all Insurance Proceeds, Condemnation Proceeds, liquidated
damage payments, payments from performance and payment bonds, indemnity payments
and the proceeds of any action to liquidate any portion of the Collateral;
(iii) the Mandatory Redemption Price or the Optional Redemption
Price paid pursuant to the Indenture;
(iv) funds on deposit in the Capitalized Interest Account, Debt
Service Reserve Account, Debt Service Coverage Account, Construction Fund
Account and Lease Reserve Account that are required to be transferred to the
Collection Account as described herein; and
(v) interest and gains on funds held in the Collection Account.
The Servicer shall be entitled to retain and not deposit into the
Collection Account any amounts received by it with respect to a Trust Asset that
constitute additional servicing compensation pursuant to Section 7.03 hereof,
------------
and such amounts retained by the Servicer shall be excluded from the
calculation of the Servicing Compensation that is distributable to the Servicer
from the Collection Account on the next Distribution Date.
The Indenture Trustee shall make other deposits into the Collection
Account as required pursuant to Section 5.03.
------------
(2) Withdrawals from Collection Account.
----------------------------------
The Indenture Trustee, at the written direction of the Servicer, shall
make the following withdrawals from the Collection Account:
(i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error;
(ii) to withdraw the $5,000,000 initial payment under the US
West Agreement and deposit such amount in the Construction Fund Account;
(iii) to make the payments set forth in Section 8.01(e) hereof;
---------------
F-20
<PAGE>
(iv) to distribute the Mandatory Redemption Price or Optional
Redemption Price to Noteholders on the Redemption Date; and
(v) to clear and terminate the Collection Account in
connection with the termination of this Agreement.
(c) Distributions from Collection Account. On each Distribution Date,
-------------------------------------
the Indenture Trustee (based on the information provided by the Servicer
contained in the Servicer's Remittance Report for such Distribution Date) shall
distribute the Available Collection Amount from the Collection Account by 9:00
a.m. (New York City time) for application in the following order of priority:
(i) (A) to the Servicer, an amount equal to the Servicing
Compensation (net of any amounts retained prior to deposit into the Collection
Account pursuant to subsection (b)(1) above) and all unpaid Servicing
Compensation from prior Distribution Dates, (B) to the Indenture Trustee, an
amount equal to the Indenture Trustee Fee and all unpaid Indenture Trustee Fees
from prior Distribution Dates, (C) to the Owner Trustee, an amount equal to the
Owner Trustee Fee and all unpaid Owner Trustee Fees from prior Distribution
Dates, and (D) to the Custodian, an amount equal to the Custodian Fee, if any,
and all unpaid Custodian Fees from prior Distribution Dates; and
(ii) to the City, any amounts due and unpaid (after the
expiration of any applicable cure periods) pursuant to the Lease between the
City and the Transferor to the extent funds on deposit in the Lease Reserve
Account are insufficient to make such payment;
(iii) to the Paying Account, up to an amount equal to the
Noteholders' Interest Distribution Amount for such Distribution Date;
(iv) to the Debt Service Reserve Account to the extent the
amount on deposit therein on such Distribution Date is less than the Required
Debt Service Reserve Amount, an amount equal to such shortfall;
(v) if such Distribution Date is in the month of November, to
the Paying Account, up to an amount equal to the Targeted Principal Distribution
Amount for such Distribution Date until the Principal Balance of each Note is
reduced to zero;
(vi) to the Debt Service Coverage Account, the Debt Service
Coverage Amount for such Distribution Date;
(vii) if a Lease Reserve Trigger Event shall have occurred, to
the Lease Reserve Account, to the extent the amount on deposit therein on such
Distribution Date is less than the Lease Reserve Amount, an amount equal to such
shortfall;
(viii) to the Indenture Trustee, the Issuer Trust and the
Servicer, as applicable, to reimburse for expenditures made or incurred in
connection with the exercise of rights or remedies under the Basic Documents;
and
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<PAGE>
(ix) if no Event of Default has occurred and is continuing, the
remaining amount to the Certificate Paying Agent for distribution to the
Certificateholders.
(d) Release of Excess Cash. On each Monthly Distribution Date (but
----------------------
not on the Distribution Date in May and November), the Indenture Trustee shall,
based on information provided by the Servicer on the immediately prior
Determination Date, withdraw from the Collection Account the amount of funds
therein in excess of the amount required to make the distributions pursuant to
Sections 5.01(c)(i), (ii) (iii) and (v) on the Distribution Date occurring in
- ------------------------------- ---
the next following November, and distribute such funds as follows:
(i) to the Debt Service Reserve Account to the extent the
amount on deposit therein on the Determination Date related to such
Monthly Distribution Date is less than the Required Debt Service
Reserve Amount determined as of the immediately prior Distribution
Date;
(ii) to the Debt Service Coverage Account to the extent the
amount on deposit therein on the Determination Date related to such
Monthly Distribution Date is less than the Debt Service Coverage
Amount determined on such related Determination Date;
(iii) if a Lease Reserve Trigger Event shall have occurred, to
the Lease Reserve Account to the extent the amount on deposit therein
on the Determination Date related to such Monthly Distribution Date is
less than the Lease Reserve Amount;
(iv) to the Indenture Trustee, the Issuer Trust and the
Servicer, as applicable, to reimburse for expenditures made or
incurred in connection with the exercise of rights or remedies under
the Basic Documents; and
(v) if no Event of Default has occurred and is continuing, the
remaining amount to the Certificate Paying Agent for distribution to
the Certificateholders.
(e) Certain Principal Distributions. Amounts deposited in the
-------------------------------
Collection Account in respect of Insurance Proceeds, Condemnation Proceeds,
liquidated damage payments, payments from performance and payment bonds,
indemnity payments and the proceeds of any action to liquidate any portion of
the Collateral which are not applied or to be applied to a mandatory redemption
of the Notes pursuant to Section 10.01 of the Indenture, shall be distributed to
the Noteholders, pro rata, on the Distribution Date next following the date
which is fifteen (15) days after the receipt thereof, as a payment of principal
of the Notes. In the event any such distribution is made to the Noteholders
pursuant to this Section 5.01(e), the Servicer shall prepare and send to the
--------------
Indenture Trustee, and the Indenture Trustee shall send to all Securityholders
and the Rating Agency, a revised Targeted Principal Payment Schedule which shall
amend the remaining Targeted Principal Distribution Amounts on such schedule by
reducing each such remaining Targeted Principal Distribution Amount pro rata
F-22
<PAGE>
based on the amount thereof so that the total of all remaining Targeted
Principal Payments are reduced by the amount of such distribution.
Section 5.02 Distributions to Certificateholders and Noteholders.
---------------------------------------------------
(a) Distributions to Certificateholders. On each Distribution Date,
-----------------------------------
the Indenture Trustee shall distribute to the Certificate Paying Agent amounts
required in accordance with Section 5.01(c)(ix) hereof for distribution to the
-------------------
Certificateholders. On each Monthly Distribution Date, the Indenture Trustee
shall distribute to the Certificate Paying Agent amounts required in accordance
with Section 5.01(d)(v) hereof for distribution to the Certificateholders. All
------------------
distributions made on the Trust Certificates on each Distribution Date will be
made pro rata among the Certificateholders of record on the next preceding
Monthly Distribution Date based on their Percentage Interest, without preference
or priority of any kind, and, except as otherwise provided in the next
succeeding sentence, shall be made by wire transfer of immediately available
funds to the account of each such Certificateholder, if such Certificateholder
shall own of record a Trust Certificate in Percentage Interest of at least a 10%
and shall have so notified the Indenture Trustee, and otherwise by check mailed
to the address of such Certificateholder appearing in the Certificate Register.
The final distribution on each Trust Certificate will be made in like manner,
but only upon presentment and surrender of such Trust Certificate at the
location specified in the notice to Certificateholders of such final
distribution. Any amount so distributed to the Certificateholders shall not be
subject to any claim or interest of the Noteholders.
(b) Distributions to Noteholders. All distributions made on the
----------------------------
Notes on each Distribution Date will be made on a pro rata basis among the
Noteholders of record on the next preceding Record Date based on the Principal
Balance represented by their respective Notes, without preference or priority of
any kind, and, except as otherwise provided in the next succeeding sentence,
shall be made by wire transfer of immediately available funds to the account of
each such Noteholder, if each such Noteholder shall own of record Notes in
original Denominations aggregating at least $1,000,000 and shall have so
notified the Indenture Trustee at least fifteen (15) days prior to the relevant
payment date, and otherwise by check mailed to the address of each such
Noteholder appearing in the Note Register. The final distribution on each Note
will be made in like manner, but only upon presentment and surrender of such
Note at the location specified in the notice to Noteholders of such final
distribution.
Section 5.03 Debt Service Coverage Account, Debt Service Reserve
---------------------------------------------------
Account, Capitalized Interest Account, Construction Fund Account, Lease Reserve
- -------------------------------------------------------------------------------
Account and Paying Account.
- --------------------------
(a) Establishment and Administration of Debt Service Coverage
---------------------------------------------------------
Account.
- -------
(i) No later than the Closing Date, the Servicer, for the
benefit of the Noteholders, shall cause to be established and maintained a Debt
Service Coverage Account, which shall be a separate Eligible Account, entitled
"Debt Service Coverage Account, The Bank of New York, as Indenture Trustee, in
trust for the Denver Arena Trust Arena Revenue
F-23
<PAGE>
Backed Notes." Funds in the Debt Service Coverage Account shall be invested in
accordance with Section 5.04 hereof.
------------
(ii) With respect to the Distribution Date occurring in the
month of November in each year commencing November 1999, the Indenture Trustee
shall deposit into the Debt Service Coverage Account pursuant to Section
-------
5.01(c)(vi) and retain therein in trust for the benefit of the Noteholders, an
- -----------
amount equal to the shortfall, if any, between (i) the Projected Revenue, as
defined below, for the period from such Distribution Date to the Distribution
Date occurring in the following November and (ii) the amount of revenue required
to provide a minimum Debt Service Coverage Ratio of 125%. Such deposit shall be
made only to the extent of the Available Collection Amount on such Distribution
Date after distribution of the amounts described in clauses (i) through (v) in
Section 5.01(c) above. Amounts on deposit in the Debt Service Coverage Account
- ---------------
shall be transferred to the Collection Account on the Distribution Date
occurring in the following November. The Projected Revenue shall equal all
revenue under the Revenue Agreements contractually obligated to be paid for the
period from the date of determination of Projected Revenues to the following
November Distribution Date, except for payments due in respect of Luxury Suite
License Agreements that expire within such period that had not been renewed, in
which case the Projected Revenue for such period for each such expiring Luxury
Suite License Agreement shall be assumed to be equal to 75% of the total amount
of payments contractually obligated to be paid during such period. With respect
to Luxury Suite License Agreements that had terminated prior to the date of
determination and that have not been renewed or replaced or that were 90 days or
more delinquent on such date, the Projected Revenue shall be equal to zero. On
each monthly Determination Date, the Servicer shall determine the Debt Service
Coverage Amount for the one year period commencing on the prior November
Distribution Date. The Debt Service Coverage Amount shall equal the shortfall,
if any, between (A) the sum of revenue collected since the prior November
Distribution Date plus Projected Revenue (as defined below) for the period up to
the following November Distribution Date and (B) the amount of revenue required
to provide a minimum Debt Service Ratio of 125% for such one year period. The
Debt Service Coverage Amount shall reflect the actual level of the renewals of
expiring Luxury Suite License Agreements and shall be recalculated on each
Determination Date. Any funds on deposit in the Debt Service Coverage Account in
excess of the Debt Service Coverage Amount, after giving effect to such monthly
recalculation, shall be released to the Certificate Paying Agent for
distribution to the Certificateholders on the Monthly Distribution Date and on
the Distribution Date in May of each year so long as no Event of Default has
occurred and is continuing on such date. On the earlier of (A) the Rated Final
Maturity Date or (B) the Distribution Date, the Mandatory Redemption Date or the
Optional Redemption Date on which the Outstanding Amount shall be reduced to
zero, the Indenture Trustee shall transfer all funds remaining on deposit in the
Debt Service Coverage Account to the Collection Account.
(b) Establishment and Administration of Debt Service Reserve Account.
----------------------------------------------------------------
(i) No later than the Closing Date, the Servicer, for the
benefit of the Noteholders, shall cause to be established and maintained a Debt
Service Reserve Account, which shall be a separate Eligible Account, entitled
"Debt Service Reserve Account, The Bank
F-24
<PAGE>
of New York, as Indenture Trustee, in trust for the Denver Arena Trust Arena
Revenue Backed Notes." Funds in the Debt Service Reserve Account shall be
invested in accordance with Section 5.04 hereof.
------------
(ii) On the Closing Date, the Transferor shall deposit or cause
to be deposited into the Debt Service Reserve Account and retain therein in
trust for the benefit of the Noteholders, the Required Debt Service Reserve
Amount. The Required Debt Service Amount on the Closing Date and on each
Distribution Date shall be the amount equal to the interest that will accrue on
the Outstanding Amount of the Notes (determined after giving effect to the
distributions to be made on such Distribution Date) over a one year period at
the Note Interest Rate. On each Distribution Date, the Indenture Trustee shall
deposit or caused to be deposited into the Debt Service Reserve Account the
amount required by Section 5.01(c)(iv).
-------------------
(iii) With respect to the Distribution Date occurring in the
month of May in each year (commencing May 2000), the Indenture Trustee shall,
not later than 5:00 p.m. on the Business Day immediately preceding such
Distribution Date, withdraw from funds in the Debt Service Reserve Account and
deposit to the Collection Account an amount equal to the excess, if any, of the
amount required to make the payments required on such Distribution Date pursuant
to Sections 5.01(c)(i), (ii) and (iii) over the amount on deposit in the
-----------------------------------
Collection Account. In addition, at such time, the Indenture Trustee shall
transfer from the Debt Service Reserve Account to the Collection Account any
amount remaining on deposit in the Debt Service Reserve Account which exceeds
the Required Debt Service Reserve Amount for such Distribution Date. On the
earlier of (A) the Rated Final Maturity Date or (B) the Distribution Date, the
Mandatory Redemption Date or the Optional Redemption Date on which the
Outstanding Amount shall be reduced to zero, the Indenture Trustee shall
transfer all funds remaining on deposit in the Debt Service Reserve Account to
the Collection Account.
(c) Establishment and Administration of Capitalized Interest Account.
----------------------------------------------------------------
(i) No later than the Closing Date, the Servicer, for the
benefit of the Noteholders, shall cause to be established and maintained a
Capitalized Interest Account, which shall be a separate Eligible Account,
entitled "Capitalized Interest Account, The Bank of New York, as Indenture
Trustee, in trust for the Denver Arena Trust Arena Revenue Backed Notes." Funds
in the Capitalized Interest Account shall be invested in accordance with Section
-------
5.03(c)(ii) and Section 5.04 hereof.
- ----------- ------------
(ii) On the Closing Date, the Transferor shall deposit or cause
to be deposited into the Capitalized Interest Account and retain therein in
trust for the benefit of the Noteholders, the Capitalized Interest Amount. The
Capitalized Interest Amount (which shall not be a negative amount) is equal to
(A) the distributions to be made pursuant to Sections 5.01(c)(i) and (iii)
-----------------------------
during the period commencing on the Closing Date and ending on the Distribution
Date occurring in November 1999 at the Note Interest Rate on the Original
Principal Balance of the Notes minus (B) the income to be received on the
Permitted Investments specified by the Transferor on the Closing Date in which
such deposit is invested.
F-25
<PAGE>
Funds deposited in the Capitalized Interest Account shall be invested by the
Indenture Trustee on the Closing Date, as so directed by the Transferor.
(iii) With respect to each Distribution Date up to and including
the Distribution Date occurring in November 1999, the Indenture Trustee shall,
not later than 5:00 p.m. on the Business Day immediately preceding such
Distribution Date, withdraw the amount necessary to make the payments required
under Sections 5.01(c)(i) and (iii) from the Capitalized Interest Account and
-----------------------------
deposit the same into the Collection Account. On the Distribution Date occurring
in November 1999, any funds remaining in the Capitalized Interest Account after
the withdrawal of the amount required to pay the Trust Fees and Expenses and
Noteholders' Interest Distribution Amount for such Distribution Date shall be
transferred to the Collection Account and the Capitalized Interest Account shall
be closed.
(d) Establishment and Administration of Construction Fund Account.
-------------------------------------------------------------
(i) No later than the Closing Date, the Servicer, for the
benefit of the Noteholders, shall cause to be established and maintained a
Construction Fund Account, which shall be a separate Eligible Account, entitled
"Construction Fund Account, The Bank of New York, as Indenture Trustee, in trust
for the Denver Arena Trust Arena Revenue Backed Notes." Funds in the
Construction Fund Account shall be invested in accordance with Section 5.04
------------
hereof.
(ii) On the Closing Date, the Transferor shall deposit or cause
to be deposited $139,835,000 into the Construction Fund Account. The funds in
the Construction Fund Account shall be disbursed by the Indenture Trustee on a
monthly basis upon its receipt of a notice from the Issuer Trust and the
Construction Consultant stating that the conditions for disbursement set forth
in the Construction Phase Agreement have been satisfied and indicating the
amount to be disbursed and the recipients thereof. All funds, if any, remaining
in the Construction Fund Account upon completion of construction of the New
Arena Facility and the payment of the Construction Contractor in connection
therewith, shall be transferred to the Collection Account.
(e) Establishment and Administration of Lease Reserve Account.
---------------------------------------------------------
(i) No later than the Closing Date, the Servicer, for the
benefit of the Noteholders, shall cause to be established and maintained an
account (the "Lease Reserve Account"), which shall be a separate Eligible
----------------------
Account, entitled "Lease Reserve Account, The Bank of New York, as Indenture
Trustee, in trust for the Denver Arena Trust Arena Revenue Backed Notes." Funds
in the Lease Reserve Account shall be invested in accordance with Section 5.04
------------
hereof.
(ii) If on any Distribution Date, any funds in the Collection
Account are distributed pursuant to Section 5.01(c)(ii) above (a "Lease Reserve
------------------- -------------
Trigger Event"), the Indenture Trustee shall withdraw from the Collection
- -------------
Account and deposit into the Lease Reserve Account an amount equal to three
times the aggregate annual payment due under the Lease for the one year period
prior to such Distribution Date (the "Lease Reserve Amount").
--------------------
F-26
<PAGE>
Such withdrawal from the Collection Account shall be made only to the extent of
the Available Collection Amount on such Distribution Date after payment of the
amounts described in Section 5.01(c)(i) through (vi) above. To the extent the
-------------------------------
amount on deposit in the Lease Reserve Account on any Distribution Date after a
Lease Reserve Trigger Event is less than the Lease Reserve Amount, deposits to
the Lease Reserve Account shall be made by the Indenture Trustee as set forth in
the preceding sentence. Amounts on deposit in the Lease Reserve Account shall be
used solely to make the payments, if any, required to be made pursuant to
Section 5.01(c)(ii) above. On the earlier of (A) the Rated Final Maturity Date
- -------------------
or (B) the Distribution Date, the Mandatory Redemption Date or the Optional
Redemption Date on which the Outstanding Amount shall be reduced to zero, the
Indenture Trustee shall transfer all funds remaining on deposit in the Lease
Reserve Account to the Collection Account.
(f) Establishment and Administration of Paying Account.
--------------------------------------------------
(i) No later than the Closing Date, the Servicer, for the
benefit of the Noteholders, shall cause to be established and maintained an
account (the "Paying Account"), which shall be a separate Eligible Account,
--------------
entitled "Paying Account, The Bank of New York, as Indenture Trustee, in trust
for the Denver Arena Trust Arena Revenue Backed Notes." Funds in the Paying
Account shall be invested in accordance with Section 5.04 hereof.
------------
(ii) On each Distribution Date, the Indenture Trustee shall
withdraw from the Collection Account and deposit into the Paying Account the
amount to be distributed to Noteholders in respect of the Noteholders' Interest
Distribution Amount and the Targeted Principal Distribution Amount, if any, for
such Distribution Date, in accordance with Section 5.01(c)(iii) and (v) hereof.
----------------------------
With respect to any Mandatory Redemption Date or Optional Redemption Date, the
Indenture Trustee shall withdraw from the Collection Account and deposit into
the Paying Account the Mandatory Redemption Price or the Optional Redemption
Price, as the case may be, in accordance with Section 10.03 of the Indenture.
Section 5.04 Trust Accounts; Trust Account Property.
--------------------------------------
(a) Control of Trust Accounts. Each of the Trust Accounts established
-------------------------
hereunder has been pledged by the Issuer Trust to the Indenture Trustee under
the Indenture and shall be subject to the lien of the Indenture. In addition to
the provisions hereunder, each of the Trust Accounts shall also be established
and maintained pursuant to the Indenture. Amounts distributed from each Trust
Account in accordance with the Indenture and this Agreement shall be released
from the lien of the Indenture upon such distribution thereunder or hereunder.
The Indenture Trustee shall possess all right, title and interest in and to all
funds on deposit from time to time in the Trust Accounts and in all proceeds
thereof (including all income thereon) and all such funds, investments, proceeds
and income shall be part of the Trust Account Property and the Trust Estate. If,
at any time, any Trust Account ceases to be an Eligible Account, the Indenture
Trustee (or the Servicer on its behalf) shall, within ten Business Days (or such
longer period, not to exceed 30 calendar days, as to which the Rating Agency may
consent) (i) establish a new Trust Account as an Eligible Account, (ii)
terminate
F-27
<PAGE>
the ineligible Trust Account, and (iii) transfer any cash and investments from
such ineligible Trust Account to such new Trust Account.
With respect to the Trust Accounts, the Indenture Trustee agrees, by
its acceptance hereof, that each such Trust Account shall be subject to the sole
and exclusive custody and control of the Indenture Trustee for the benefit of
the Noteholders and the Issuer Trust, as the case may be, and the Indenture
Trustee shall have sole signature and withdrawal authority with respect thereto.
The Servicer shall have the power, revocable by the Indenture Trustee,
to instruct the Indenture Trustee to make withdrawals and payments from the
Trust Accounts for the purpose of permitting the Indenture Trustee to carry out
its respective duties herein and under the Indenture.
(b) (1) Investment of Funds. So long as no Event of Default shall
-------------------
have occurred and be continuing, the funds held in any Trust Account shall be
invested in Permitted Investments, as specifically directed by the Servicer in
writing. In any case, funds in any Trust Account must be available for
withdrawal without penalty, and any Permitted Investments must mature or
otherwise be available for withdrawal, not later than the Business Day
immediately preceding the Distribution Date next following the date of such
investment and shall not be sold or disposed of prior to its maturity subject to
subsection (b)(2) of this Section; except for Permitted Investments in the
Capitalized Interest Account which must mature on or before the Business Day
immediately preceding the Distribution Dates occurring in November 1998, May
1999 and November 1999, in amounts sufficient to provide for the distributions
under Sections 5.01(c)(i) and (iii) to be made on such Distribution Dates. All
-----------------------------
interest and any other investment earnings on amounts or investments held in any
Trust Account, except for the Debt Service Reserve Account and the Capitalized
Interest Account, shall be deposited into the Collection Account immediately
upon receipt by the Indenture Trustee and shall comprise a portion of the
Available Collection Amount. With respect to the Debt Service Reserve Account,
so long as no Event of Default has occurred and is continuing and the amount on
deposit in the Debt Service Reserve Account exceeds the Required Debt Service
Reserve Amount, all interest and any other investment earnings with respect to
such excess amount shall be deposited into the Collection Account on receipt.
All income or other gain from investments in the Capitalized Interest Account
will remain in such account to be applied to the payment of interest to the
Noteholders on each Distribution Date up to and including the Distribution Date
occurring in November 1999. All Permitted Investments in which funds in any
Trust Account are invested must be held by or registered in the name of "The
Bank of New York, as Indenture Trustee, in trust for the Denver Arena Trust
Arena Revenue Backed Notes."
(2) Insufficiency and Losses in Trust Accounts. If any amounts are
------------------------------------------
needed for disbursement from any Trust Account held by or on behalf of the
Indenture Trustee and sufficient uninvested funds are not available to make such
disbursement, the Indenture Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in such Trust Account.
The Indenture Trustee shall not be liable for any investment loss or other
F-28
<PAGE>
charge resulting therefrom, unless such loss or charge is caused by the failure
of the Indenture Trustee or Owner Trustee, respectively, to perform in
accordance with this Section 5.04.
------------
If any losses are realized in connection with any investment in any
Trust Account pursuant to this Agreement and the Indenture, then the Transferor
shall deposit the amount of such losses (to the extent not offset by income from
other investments in such Trust Account) into such Trust Account immediately
upon the realization of such loss. All interest and any other investment
earnings on amounts held in any Trust Account shall be taxed to the Issuer Trust
and for federal and state income tax purposes the Issuer Trust shall be deemed
to be the owner of each Trust Account.
(c) Subject to Sections 6.01 and 6.02 of the Indenture, the Indenture
Trustee shall not in any way be held liable by reason of any insufficiency in
any Trust Account held by the Indenture Trustee resulting from any investment
loss on any Permitted Investment included therein (except to the extent that the
Indenture Trustee is the obligor and has defaulted thereon).
(d) With respect to the Trust Account Property, the Indenture Trustee
acknowledges and agrees that:
(1) any Trust Account Property that is held in deposit accounts shall
be held solely in the Eligible Accounts, subject to the last sentence of
subsection (a) of this Section 5.04; and each such Eligible Account shall
------------
be subject to the sole and exclusive dominion, custody and control of the
Indenture Trustee; and, without limitation on the foregoing, the Indenture
Trustee shall have sole signature authority with respect thereto;
(2) any Trust Account Property that constitutes Physical Property
shall be delivered to the Indenture Trustee in accordance with paragraph
(a) of the definition of "Delivery" in Appendix A hereto and shall be held,
----------
pending maturity or disposition, solely by the Indenture Trustee or a
financial intermediary (as such term is defined in Section 8-313(4) of the
UCC) acting solely for the Indenture Trustee;
(3) any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" in Appendix A hereto and shall be maintained by
----------
the Indenture Trustee, pending maturity or disposition, through continued
book-entry registration of such Trust Account Property as described in such
paragraph; and
(4) any Trust Account Property that is an "uncertificated security"
under Article 8 of the UCC and that is not governed by clause (3) above
shall be delivered to the Indenture Trustee in accordance with paragraph
(c) of the definition of "Delivery" in Appendix A hereto and shall be
----------
maintained by the Indenture Trustee, pending maturity or disposition,
through continued registration of the Indenture Trustee's (or its
nominee's) ownership of such security.
F-29
<PAGE>
(e) The Servicer shall have the power, revocable by the Indenture
Trustee or by the Owner Trustee with the consent of the Indenture Trustee, to
instruct the Indenture Trustee to make withdrawals and payments from the Trust
Accounts for the purpose of permitting the Servicer or the Owner Trustee to
carry out their respective duties hereunder or under the Indenture or the Trust
Agreement, as the case may be.
(f) The Indenture Trustee shall have no liability whatsoever for any
loss, fee, tax or other charge on any investment, reinvestment or liquidation of
an investment hereunder.
ARTICLE VI
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
----------------------------------------------------
Section 6.01 Statements.
----------
(a) No later than the Determination Date related to each Distribution
Date, the Servicer shall deliver to the Indenture Trustee by facsimile, the
receipt and legibility of which shall be confirmed by telephone, and with hard
copy thereof to be delivered no later than one (1) Business Day after such
Determination Date, the Servicer's Remittance Report, setting forth the date of
such report (day, month and year), the name of the Issuer Trust (i.e. "Denver
Arena Trust") and the date of this Agreement, all in substantially the form set
out in Exhibit B hereto.
---------
(b) On each Distribution Date, Indenture Trustee shall distribute,
based on information provided by the Servicer, a statement (the "Distribution
------------
Statement") to the Owner Trustee, the Securityholders and the Rating Agency,
- ---------
stating the date of original issuance of the Notes (day, month and year), the
name of the Issuer Trust (i.e. "Denver Arena Trust"), the date of this
Agreement and the following information:
(i) the Available Collection Amount for the related
Distribution Date;
(ii) the aggregate Principal Balance of the Notes before and
after giving effect to any distributions made to the Noteholders on such
Distribution Date;
(iii) the amount of principal, if any, and interest to be
distributed to the Noteholders on the related Distribution Date and the Targeted
Principal Distribution Amount for such Distribution Date, if any;
(iv) any amount to be distributed to Certificateholders on such
Distribution Date;
(v) the Servicing Compensation, the Indenture Trustee Fee, the
Owner Trustee Fee and the Custodian Fee, if any, for such Distribution Date;
F-30
<PAGE>
(vi) certain performance information, including, without
limitation, delinquency information with respect to the Revenue Agreements
indicating which Revenue Agreements are Delinquent, 30 days Delinquent, 60 days
Delinquent, 90 days Delinquent and any Revenue Agreement which is more than 90
days Delinquent;
(vii) a listing of Revenue Contractors and Revenue Agreements
subject to bankruptcy proceedings, and the aggregate amount outstanding under
the related Revenue Agreements;
(viii) a listing of any Revenue Agreements which have been
terminated, the aggregate amount remaining unpaid under each such Revenue
Agreement, and any related Subsequent Revenue Agreement entered into and the
aggregate amount owed by the Revenue Contractor under any such Subsequent
Revenue Agreement;
(ix) the amount of any Insurance Proceeds, Condemnation
Proceeds, liquidated damage payments, payments from performance and payment
bonds, indemnity payments and the proceeds of any action to liquidate any
portion of the Collateral; and
(x) the amount of the expenditures made or incurred by the
Indenture Trustee, the Issuer Trust and the Servicer, as applicable, in
connection with the exercise of rights or remedies under the Basic Documents.
In the case of information furnished to Noteholders pursuant to
subclause (b)(iii) of this Section 6.01, the amounts shall be expressed as a
------------
dollar amount per Note with a $1,000 Denomination.
All reports prepared by the Indenture Trustee of the withdrawals from
and deposits into the Collection Account will be based in whole or in part upon
the information provided to the Indenture Trustee by the Servicer, and the
Indenture Trustee may fully rely upon and shall have no liability with respect
to such information provided by the Servicer.
(c) Within a reasonable period of time after the end of each calendar
year, the Indenture Trustee shall prepare and distribute to each Person that at
any time during the calendar year was a Noteholder such information as is
reasonably necessary to provide to such Person a statement containing the
information set forth in subclause (b)(iii) of this Section 6.01, aggregated for
------------
such calendar year or applicable portion thereof during which such Person was a
Noteholder.
(d) On each Distribution Date, the Indenture Trustee shall forward to
the Certificateholders a copy of the Distribution Statement in respect of such
Distribution Date and a statement setting forth the amounts actually distributed
to such Certificateholders on such Distribution Date, together with such other
information as the Indenture Trustee deems necessary or appropriate.
(e) Within a reasonable period of time after the end of each calendar
year, the Indenture Trustee shall prepare and distribute to each Person that at
any time during the
F-31
<PAGE>
calendar year was a Certificateholder, if requested in writing by such Person, a
statement containing the information provided pursuant to the previous paragraph
aggregated for such calendar year or applicable portion thereof during which
such Person was a Certificateholder.
(f) The Indenture Trustee shall forward to each Securityholder,
during the term of this Agreement, such periodic, special or other reports,
including information tax returns or reports required with respect to the Notes
and the Trust Certificates, as shall be necessary, reasonable, or appropriate
with respect to such Securityholders, or otherwise with respect to this
Agreement, all such reports or information, in the case of the Trust
Certificates, to be provided by and in accordance with such applicable
instructions and directions as the Majority Certificateholders may reasonably
require.
(g) Reports furnished by the Servicer and the Indenture Trustee
pursuant to this Agreement shall be deemed confidential and of a proprietary
nature and shall not be copied or distributed except in connection with the
purposes and requirements of this Agreement. No Person entitled to receive
copies of such reports shall use the information therein for the purpose of
soliciting the customers of the Transferor or the Servicer or for any other
purpose except as set forth in this Agreement.
Section 6.02 Specification of Certain Tax Matters.
------------------------------------
The Indenture Trustee shall comply with all requirements of the Code
and applicable state and local law with respect to the withholding from any
distributions made to any Securityholder of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting requirements in
connection therewith, giving due effect to any applicable exemptions from such
withholding and effective certifications or forms provided by the recipient.
Any amounts withheld pursuant to this Section 6.02 shall be deemed to have been
------------
distributed to the Noteholders or Certificateholders, as the case may be, for
all purposes of this Agreement or the Indenture.
ARTICLE VII
GENERAL SERVICING PROCEDURE
---------------------------
Section 7.01 Security Interest
-----------------
The Servicer hereby covenants and agrees that it shall not sell,
pledge, assign or transfer to any other Person, or grant, create, incur, assume
or suffer to exist any Lien (in favor of any Person other than the Issuer Trust
or Indenture Trustee) on, any Trust Asset sold and assigned to the Issuer Trust,
whether now existing or hereafter created, or any interest therein, and the
Servicer shall defend the right, title and interest of the Issuer Trust in, to
and under any Trust Asset sold and assigned to the Issuer Trust, whether now
existing or hereafter created, against all claims of third parties claiming
through or under the Servicer or the Transferor, provided, however, that nothing
-------- -------
in this Section 7.01 shall prevent or be deemed to
------------
F-32
<PAGE>
prohibit the Servicer from suffering to exist upon any of the Trust Assets any
Lien specifically permitted under the terms of the related Revenue Agreement.
Section 7.02 Lockbox Agreement; Lockbox Account; Lockbox Bank.
------------------------------------------------
(a) The Servicer shall (i) direct each Revenue Contractor in writing,
on or before July 1, 1999, to make all payments required under the Revenue
Agreements to the Lockbox Account, (ii) maintain, and keep in full force and
effect, the Lockbox Agreement, except to the extent otherwise permitted under
the terms of this Agreement, and (iii) ensure that the Lockbox Account shall be
free and clear of, and defend the Lockbox Account against, any writ, order,
stay, judgment, warrant of attachment or execution or similar process.
(b) The parties hereto hereby acknowledge that the Lockbox Bank has
been appointed by the Servicer to hold the Lockbox Account and the Trust
Accounts, and that the Lockbox Bank is not an agent of the Indenture Trustee,
and is acting under this Agreement as an independent contractor.
(c) The Indenture Trustee shall not be liable by reason of any act or
omission of the Lockbox Bank.
(d) The Servicer hereby agrees to indemnify each of the Indenture
Trustee or any predecessor Indenture Trustee and their respective agents for,
and shall hold each such Person harmless against, any and all loss, damage,
claims, liability or expense, including taxes (other than taxes based upon,
measured by or determined by the income of the Indenture Trustee), arising out
of or in connection with the acceptance or administration by each such Person of
the trust or trusts hereunder, including the costs and expenses incurred by each
such Person in defending itself against any claim (whether asserted by the
Servicer, any Holder of a Note or any other Person) or any liability resulting
from the exercise or performance of any of the powers or duties of such Person
hereunder, except to the extent that such loss, damage, claim, liability or
expense is due to such Person's own gross negligence or willful misconduct.
The provisions of this Section 7.02(d) shall survive the termination
---------------
of this Agreement.
Section 7.03 Servicing Compensation.
----------------------
As compensation for its services hereunder, the Servicer shall be
entitled to receive from the Collection Account the Servicing Fee, out of which
the Servicer shall pay any servicing fees owed or payable to any Subservicer.
Additional servicing compensation in the form of administrative fees,
insufficient funds charges, and late payment charges and penalties shall be part
of the Servicing Compensation payable to the Servicer and any Subservicer
hereunder and shall be paid either by the Servicer's retaining such additional
servicing compensation prior to deposit into the Collection Account pursuant to
Section 5.01(b)(1) hereof or, if deposited into the Collection Account, as part
- ------------------
of the Servicing Compensation withdrawn from the Collection Account pursuant to
Section 5.01(c)(i) hereof.
- ------------------
F-33
<PAGE>
The Servicer and any Subservicer shall be required to pay all expenses
incurred by them in connection with their servicing activities hereunder and
shall not be entitled to reimbursement therefor except as specifically provided
for herein. The Transferor also agrees to pay (i) all reasonable costs and
expenses incurred by any successor Servicer or the Indenture Trustee in
replacing the Servicer or any Subservicer in the event of a default by the
Servicer or any Subservicer in the performance of their respective duties under
the terms and conditions of this Agreement and (ii) the annual monitoring fees
of the Rating Agency.
Section 7.04 Statement as to Compliance and Financial Statements.
---------------------------------------------------
The Servicer will deliver to the Indenture Trustee, the Owner Trustee
and the Rating Agency not later than 90 days following the end of each fiscal
year of the Servicer (beginning in 1999 with respect to the 1998 fiscal year),
an Officer's Certificate stating that (i) a review of the activities of the
Servicer and the Issuer Trust during the preceding year and of performance under
this Agreement has been made under such officer's supervision and (ii) to the
best of such officer's knowledge, based on such review, each of the Servicer and
the Issuer Trust has fulfilled all of its obligations under this Agreement and
the Indenture throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof and what action the Servicer proposes
to take with respect thereto.
Contemporaneously with the submission of the Officer's Certificate
required by the preceding paragraph, the Servicer shall deliver to the Indenture
Trustee a copy of its annual financial statements prepared in the ordinary
course of business. The Servicer shall, upon the request of the Issuer Trust,
deliver to such party any unaudited quarterly financial statements of the
Servicer.
The Servicer agrees to make available to the Issuer Trust and the
Indenture Trustee on a reasonable basis a knowledgeable officer of the Servicer
for the purpose of answering reasonable questions respecting recent developments
affecting the Servicer or the financial statements of the Servicer and to permit
the Issuer Trust and the Indenture Trustee on reasonable notice to inspect the
Servicer's servicing facilities during normal business hours for the purpose of
satisfying the Issuer Trust and the Indenture Trustee that the Servicer has the
ability to service the Trust Assets in accordance with this Agreement.
The Servicer shall also furnish and certify to the requesting party
such other information as to (i) its organization, activities and personnel
relating to the performance of the obligations of the Servicer hereunder, (ii)
its financial condition, (iii) the Trust Assets and (iv) the performance of the
obligations of any Subservicer under the related Subservicing Agreement, in each
case as the Indenture Trustee or the Issuer Trust may reasonably request from
time to time.
Section 7.05 Independent Public Accountants' Servicing Report.
------------------------------------------------
(a) The Servicer shall cause a firm of Independent Accountants (which
may provide other services to the Servicer) to prepare, and the Servicer shall
deliver to the
F-34
<PAGE>
Indenture Trustee, the Issuer Trust and the Rating Agency, a report addressed to
the Servicer, which may be included as part of the Servicer's or any
Subservicer's customary auditing activities, for the information and use of the
Indenture Trustee, Securityholders and Issuer Trust on or before May 31 of each
year, beginning May 31, 1999, to the effect that such firm has performed certain
procedures in connection with the Servicer's compliance with the servicing
procedures of this Agreement, identifying the results of such procedures and
including any exceptions noted.
(b) The report of the Independent Accountants shall also indicate
that such accounting firm is independent of the Servicer within the meaning of
the Code of Professional Ethics of the American Institute of Certified Public
Accountants.
Section 7.06 Right to Examine Servicer Records.
---------------------------------
Each Securityholder, the Indenture Trustee, the Issuer Trust and each
of their respective agents shall have the right upon reasonable prior notice,
during normal business hours and as often as reasonably required, to examine,
audit and copy, at the expense of the Person making such examination, any and
all of the books, records or other information of the Servicer (including
without limitation any Subservicer to the extent provided in the related
Subservicing Agreement), whether held by the Servicer or by another on behalf of
the Servicer, which may be relevant to the performance or observance by the
Servicer of the material terms, covenants or conditions of this Agreement. In
the case of the supervisory agents and examiners of the Issuer Trust, Indenture
Trustee and the Securityholders, access to the documentation regarding the Trust
Assets required by applicable state and federal regulations shall be afforded
without charge but only upon reasonable request and during normal business hours
at the offices of the Servicer designated by it. Each Securityholder, the
Indenture Trustee and the Issuer Trust agree that any information obtained
pursuant to the terms of this Agreement shall be held confidential.
The Servicer also agrees to make available on a reasonable basis to
the Securityholders or any prospective Securityholder a knowledgeable financial
or accounting officer for the purpose of answering reasonable questions
respecting recent developments affecting the Servicer or the financial
statements of the Servicer and to permit the Securityholders and any prospective
Securityholder to inspect the Servicer's servicing facilities during normal
business hours for the purpose of satisfying the Securityholders and such
prospective Securityholder that the Servicer has the ability to service and
administer the Trust Assets in accordance with this Agreement.
Section 7.07 Reports to the Indenture Trustee; Collection Account
----------------------------------------------------
Statements.
- ----------
If the Collection Account is not maintained with the Indenture
Trustee, then not later than 25 days after each Record Date, the Servicer shall
forward to the Indenture Trustee a statement, certified by a Servicing Officer,
setting forth the status of the Collection Account as of the close of business
on the preceding Record Date and showing, for the period covered by such
statement, the aggregate of deposits into the Collection Account for each
category of deposit specified in Section 5.01(b)(1) hereof, the aggregate of
------------------
withdrawals from the
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Collection Account for each category of withdrawal specified in Section
-------
5.01(b)(2) and (3) hereof.
- ---------- ---
Section 7.08 Financial Statements.
--------------------
The Servicer understands that, in connection with the transfer of the
Notes, Noteholders may request that the Servicer make available to the
Noteholders and to prospective Noteholders annual financial statements of the
Servicer for one or more of the most recently completed five fiscal years for
which such statements are available, which request shall not be unreasonably
denied.
Section 7.09 Accounting and Reports
----------------------
For all purposes of this Section 7.09, the Servicer shall act on
------------
behalf of the Owner Trustee who in turn shall be acting on behalf of the Issuer
Trust. The Servicer shall deliver to each Certificateholder, as may be required
by the Code and applicable Treasury Regulations, or as may be requested by such
Certificateholder, such information, reports or statements as may be necessary
to enable each Certificateholder to prepare its federal and state income tax
returns. Consistent with the Issuer Trust's characterization for tax purposes
as a security arrangement for the issuance of non-recourse debt so long as the
Transferor or any other Person is the sole Certificateholder, no federal income
tax return shall be filed on behalf of the Issuer Trust unless either (i) the
Servicer shall receive an opinion of counsel that, based on a change in
applicable law occurring after the date hereof, or as a result of a transfer by
the Transferor permitted by Section 3.4 of the Trust Agreement, the Code
requires such a filing or (ii) the Internal Revenue Service shall determine that
the Trust is required to file such a return. In the event that there shall be
two or more Certificateholders, (x) the Servicer shall prepare or shall cause to
be prepared federal and, if applicable, state or local partnership tax returns
required to be filed by the Issuer Trust and shall remit such returns to the
Transferor (or if the Transferor no longer owns any Trust Certificates, the
Certificateholder selected by a majority of the Certificateholders (by
Percentage Interest) for such purpose) at least five days before such returns
are due to be filed, and (y) capital accounts shall be maintained for each
Certificateholder in accordance with the Treasury Regulations under Section
704(b) of the Code reflecting each such Certificateholder's pro rata share of
the income, gains, deductions, and losses of the Issuer Trust and contributions
to, and distributions from, the Issuer Trust. The Transferor (or such designee
Certificateholder, as applicable) shall promptly sign such returns and deliver
such returns after signature to the Servicer and such returns shall be filed by
the Servicer with the appropriate tax authorities. In the event that a "tax
matters partner" (within the meaning of Code Section 6231(a)(7)) is required to
be appointed with respect to the Issuer Trust, the Transferor is hereby
designated as tax matters partner or, if the Transferor is not a
Certificateholder, the Certificateholder selected by a majority of the
Certificateholders (by Percentage Interest) shall be designated as tax matters
partner. In no event shall the Servicer or the Transferor (or such designee
Certificateholder, as applicable) be liable for any liabilities, costs or
expenses of the Issuer Trust or the Certificateholders arising out of the
application of any tax law, including federal, state, foreign or local income or
excise taxes or any other tax imposed on or measured by income (or any interest,
penalty or addition with
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<PAGE>
respect thereto or arising from a failure to comply therewith) except for any
such liability, cost or expense attributable to any act or omission by the
Servicer or the Transferor (or such designee Certificateholder, as applicable)
as the case may be, in breach of its obligations under this Agreement.
ARTICLE VIII
THE SERVICER
------------
Section 8.01 Indemnification; Third Party Claims.
-----------------------------------
(a) The Servicer shall indemnify the Transferor, the Issuer Trust,
the Owner Trustee and the Indenture Trustee and their respective officers,
directors, employees and agents (each an "Indemnified Party") and hold harmless
-----------------
each of them against any and all claims, losses, damages, penalties, fines,
forfeitures, reasonable legal fees and related costs, judgments, and other costs
and expenses resulting from (i) any claim, demand, defense or assertion based on
or grounded upon, or resulting from, a breach of any of the Servicer's
representations and warranties and covenants contained in this Agreement or in
any way relating to the failure of the Servicer to perform its duties and
service and administer the Trust Assets in compliance with the terms of this
Agreement, the Indenture, the Operating and Management Agreement, the
Construction Phase Agreement, the Security Documents and the Revenue Agreements,
or (ii) with respect to the Issuer Trust, any indemnity claims against the
Issuer Trust pursuant to the Revenue Agreements entered into with each of Pepsi,
Coors and US West resulting from the assumption by the Issuer Trust of the
obligations of the Transferor thereunder; provided, however, that if the
Servicer is not liable pursuant to the provisions of Section 8.01(d) hereof for
---------------
its failure to perform its duties and service and administer the Trust Assets in
compliance with the terms of this Agreement, then the provisions of this Section
-------
8.01 shall have no force and effect with respect to such failure.
- ----
(b) The Transferor, the Issuer Trust, the Owner Trustee or the
Indenture Trustee, as the case may be, shall promptly notify the Servicer if a
claim is made by a third party with respect to a breach of any of the Servicer's
representations and warranties and covenants contained in this Agreement or in
any way relating to the failure of the Servicer to perform its duties and
service and administer the Trust Assets in compliance with the terms of this
Agreement. The Servicer shall promptly notify the Indenture Trustee and the
Issuer Trust of any claim of which it has been notified pursuant to this Section
-------
8.01 by a Person other than the Indenture Trustee or the Issuer Trust, as the
- ----
case may be, and, in any event, shall promptly notify the Issuer Trust and the
Indenture Trustee of its intended course of action with respect to any claim.
(c) The Servicer shall be entitled to participate in and, upon notice
to the Indemnified Party, assume the defense of any such action or claim in
reasonable cooperation with, and with the reasonable cooperation of, the
Indemnified Party. The Indemnified Party will have the right to employ its own
counsel in any such action in addition to the counsel of the Servicer, but the
fees and expenses of such counsel will be at the expense of such
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<PAGE>
Indemnified Party, unless (i) the employment of counsel by the Indemnified Party
at its expense has been authorized in writing by the Servicer, (ii) the Servicer
has not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, or
(iii) the named parties to any such action or proceeding (including any
impleaded parties) include both the Servicer and one or more Indemnified
Parties, and the Indemnified Parties shall have been advised by counsel that
there is a conflict of interest which renders common representation
inappropriate. The Servicer shall not be liable for any settlement of any such
claim or action unless the Servicer shall have consented thereto or be in
default on its obligations hereunder. Any failure by an Indemnified Party to
comply with the provisions of this Section 8.01 shall relieve the Servicer of
------------
liability only if such failure is materially prejudicial to the position of the
Servicer and then only to the extent of such prejudice.
(d) None of the Transferor, the Servicer or any of the directors,
officers, employees or agents of the Transferor or the Servicer, shall be under
any liability to the Issuer Trust or the Securityholders for any action taken,
or for refraining from the taking of any action, in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Transferor, the Servicer or any such person against the
remedies provided herein for the breach of the covenants set forth in Section
-------
2.06(a) hereof or any warranties, representations or other covenants made
- -------
herein, or against any specific liability imposed on the Transferor or the
Servicer herein, or against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in the performance of the
duties of the Servicer or the Transferor, as the case may be, or by reason of
reckless disregard of the obligations and duties of the Servicer or the
Transferor, as the case may be, hereunder. The Transferor, the Servicer and any
director, officer, employee or agent of the Transferor or the Servicer, may rely
in good faith on any document of any kind which, prima facie, is properly
executed and submitted by any Person respecting any matters arising hereunder.
(e) The Servicer, the Transferor and the Owner Trustee and any
director, officer, employee or agent of the Servicer, the Transferor or the
Owner Trustee shall be indemnified by the Issuer Trust and held harmless against
any loss, liability or expense incurred in connection with any audit,
controversy or judicial proceeding relating to a governmental taxing authority
or any legal action relating to this Agreement or the Securities, other than any
loss, liability or expense related to any specific Trust Asset or Trust Assets
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or negligence in the performance of
duties hereunder or by reason of reckless disregard of obligations and duties
hereunder. Except as otherwise provided herein, none of the Transferor, the
Owner Trustee or the Servicer shall be under any obligation to appear in,
prosecute or defend any legal action that is not related to its respective
duties under this Agreement; provided, however, that, except as otherwise
provided herein, any of the Transferor, the Owner Trustee or the Servicer may,
with the prior consent of the Indenture Trustee, in its discretion undertake any
such action which it may deem necessary or desirable with respect to this
Agreement and the rights and duties of the parties hereto and the interests
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<PAGE>
of the Securityholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Issuer Trust, and the Transferor, the Owner Trustee and the
Servicer shall be entitled to be reimbursed therefor out of the Collection
Account.
Section 8.02 Merger or Consolidation of the Servicer.
---------------------------------------
The Servicer shall keep in full effect its existence, rights and
franchises as a limited liability company, and will obtain and preserve its
qualification to do business as a foreign company and maintain such other
licenses and permits in each jurisdiction necessary to protect the validity
and enforceability of this Agreement or any of the Trust Assets and to perform
its duties under this Agreement; provided, however, that the Servicer may merge
or consolidate with any other entity upon the satisfaction of the conditions set
forth in the following paragraph.
Any Person into which the Servicer may be merged or consolidated, or
any entity resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such
merger, conversion, consolidation or succession to the Indenture Trustee, the
Issuer Trust and the Rating Agency.
Section 8.03 Limitation on Liability of the Servicer and Others.
--------------------------------------------------
The Servicer and any director, officer, employee or agent of the
Servicer may rely on any document of any kind which it in good faith reasonably
believes to be genuine and to have been adopted or signed by the proper
authorities respecting any matters arising hereunder. Subject to the terms of
Section 8.01 hereof, the Servicer shall have no obligation to appear with
- ------------
respect to, prosecute or defend any legal action which is not incidental to the
Servicer's duty to service the Trust Assets in accordance with this Agreement.
Section 8.04 Servicer Not to Resign; Assignment.
----------------------------------
The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) with the consent of the Indenture Trustee or (b) upon
determination that its duties hereunder are no longer permissible under
applicable law. Any such determination pursuant to clause (b) of the preceding
sentence permitting the resignation of the Servicer shall be evidenced by an
independent opinion of counsel to such effect delivered (at the expense of the
Servicer) to the Indenture Trustee. No resignation of the Servicer shall become
effective until a successor servicer, appointed pursuant to the provisions of
Section 9.02 hereof and satisfying the requirements of Section 4.05 hereof with
- ------------ ------------
respect to the qualifications of a successor Servicer, shall have assumed the
Servicer's responsibilities, duties, liabilities (other than those liabilities
arising prior to the appointment of such successor) and obligations under this
Agreement.
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<PAGE>
Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed by
the Servicer hereunder and any agreement, instrument or act purporting to effect
any such assignment, transfer, delegation or appointment shall be void.
The Servicer agrees to cooperate with any successor Servicer in
effecting the transfer of the Servicer's servicing responsibilities and rights
hereunder pursuant to the first paragraph of this Section 8.04, including,
------------
without limitation, the transfer to such successor of all relevant records and
documents (including the Servicer's Contract Files) and all amounts received
with respect to the Trust Assets and not otherwise permitted to be retained by
the Servicer pursuant to this Agreement. In addition, the Servicer, at its sole
cost and expense, shall prepare, execute and deliver any and all documents and
instruments to the successor Servicer and do or accomplish all other acts
necessary or appropriate to effect such termination and transfer of servicing
responsibilities.
Section 8.05 Relationship of Servicer to Issuer Trust and the
------------------------------------------------
Indenture Trustee.
- -----------------
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Agreement) to the Issuer Trust and the Indenture Trustee
under this Agreement is intended by the parties hereto to be that of an
independent contractor and not of a joint venturer, agent or partner of the
Issuer Trust or the Indenture Trustee.
Section 8.06 Servicer May Own Notes.
----------------------
Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Notes with the
same rights as it would have if it were not the Servicer or an Affiliate thereof
except as otherwise specifically provided herein. Notes so owned by or pledged
to the Servicer or such Affiliate shall have an equal and proportionate benefit
under the provisions of this Agreement, without preference, priority, or
distinction as among all of the Notes; provided, however, that any Notes owned
by the Servicer or any Affiliate thereof, during the time such Notes are owned
by them, shall be without voting rights for any purpose set forth in this
Agreement. The Servicer shall notify the Indenture Trustee promptly after it or
any of its Affiliates becomes the owner or pledgee of a Note.
ARTICLE IX
DEFAULT
-------
Section 9.01 Servicer Events of Default.
--------------------------
(a) In case one or more of the following events of default by the
Servicer (each, a "Servicer Event of Default") shall occur and be continuing:
-------------------------
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<PAGE>
(i) any failure by the Servicer to deposit in the Collection
Account in accordance with Section 5.01(b) hereof any payments in respect of the
---------------
Revenue Agreements received by the Servicer no later than the second Business
Day following the day on which such payments were received; or
(ii) failure by the Servicer to execute, on behalf of the
Issuer Trust, amended and restated Revenue Agreements with each of Pepsi and
Coors on the Closing Date as described in Section 4.01(b) hereof or to observe
or perform, in any material respect, any other covenants, obligations or
agreements of the Servicer as set forth in this Agreement or under the Operating
and Management Agreement, which failure continues unremedied for a period of 30
days after the date on which written notice of such failure, requiring the same
to be remedied and stating that such notice is a "Notice of Default" hereunder,
shall have been given (a) to the Servicer by the Indenture Trustee or the Issuer
Trust, or (b) to the Servicer by the Majority Noteholders; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or receiver
or liquidator in any insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Servicer and such decree or order
shall have remained in force, undischarged or unstayed for a period of 60 days;
or
(iv) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or relating to
the Servicer or of or relating to all or substantially all of the Servicer's
property; or
(v) the Servicer shall admit in writing its inability to pay
its debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its obligations; or
(vi) the Majority Noteholders shall receive notice from the
Servicer that the Servicer is no longer able to discharge its duties under this
Agreement;
(b) then, and in each and every such case, so long as a Servicer
Event of Default shall not have been remedied, the Indenture Trustee or the
Majority Noteholders, by notice in writing to the Servicer may, in addition to
whatever rights such Person may have at law or in equity to damages, including
injunctive relief and specific performance, terminate all the rights and
obligations of the Servicer under this Agreement and any Subservicer under the
Operating and Management Agreement and in and to the Trust Assets and the
proceeds thereof, as servicer under this Agreement. Upon receipt by the Servicer
of such written notice, all authority and power of the Servicer under this
Agreement, whether with respect to the Trust Assets or otherwise, shall, subject
to Section 9.02 hereof, pass to and be vested in a successor servicer, or the
------------
Indenture Trustee if a successor servicer cannot be retained in a timely manner,
and the successor servicer, or Indenture Trustee, as applicable, is hereby
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<PAGE>
authorized and empowered to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, any and all documents and other instruments and
do or cause to be done all other acts or things necessary or appropriate to
effect the purposes of such notice of termination, including, but not limited
to, the transfer and endorsement or assignment of the Trust Assets and related
documents. The Servicer agrees to cooperate with the successor servicer in
effecting (i) the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the successor servicer
for administration by it of all amounts which shall at the time be credited by
the Servicer to the Collection Account or thereafter received with respect to
the Trust Assets and (ii) the termination of any Subservicer's responsibilities
and rights under the Operating and Management Agreement.
(c) In the event that the Servicer is terminated as Servicer
hereunder, the Servicer hereby agrees that it shall immediately thereafter
relinquish all supervisory rights with respect to the Operator held by it under
the Operating and Management Agreement or in its capacity as owner of the New
Arena Facility.
Section 9.02 Indenture Trustee to Act; Appointment of Successor.
--------------------------------------------------
On and after the date the Servicer receives a notice of termination
pursuant to Section 9.01 hereof, or the Indenture Trustee receives the
------------
resignation of the Servicer evidenced by an Opinion of Counsel or accompanied by
the consents required by Section 8.04 hereof, or the Servicer is removed as
------------
servicer pursuant to this Article IX, then, subject to Section 4.05 hereof, the
------------
Majority Noteholders, with the approval of the Rating Agency, shall appoint a
successor servicer to be the successor in all respects to the Servicer in its
capacity as Servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
hereof; provided, however, that the successor servicer shall not be liable for
any actions of any prior servicer.
As compensation therefor, the successor servicer appointed pursuant to
the following paragraph, shall be entitled to all funds relating to the Trust
Assets which the Servicer would have been entitled to receive from the
Collection Account pursuant to Section 5.01(c) hereof as if the Servicer had
---------------
continued to act as servicer hereunder, together with other Servicing
Compensation in the form of administration fees, late payment charges or
otherwise as provided in Section 7.03 hereof. The Servicer shall not be
------------
entitled to any termination fee if it is terminated pursuant to Section 9.01
------------
hereof but shall be entitled to any accrued and unpaid Servicing Fee to the date
of termination.
Any collections received by the Servicer after removal or resignation
shall be endorsed by it to the Indenture Trustee and remitted directly to the
Indenture Trustee or, at the direction of the Indenture Trustee, to the
successor servicer. The compensation of any successor servicer so appointed
shall be the Servicing Fee, together with other Servicing Compensation provided
for herein. The Indenture Trustee, the Issuer Trust, the Custodian, the Servicer
and any such successor servicer shall take such action, consistent with this
Agreement, as shall be necessary to effect any such succession. The Servicer
agrees to
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<PAGE>
cooperate with the Indenture Trustee and any successor servicer in effecting the
termination of the Servicer's servicing responsibilities and rights hereunder
and shall promptly provide the Indenture Trustee or such successor servicer, as
applicable, all documents and records reasonably requested by it to enable it to
assume the Servicer's functions hereunder and shall promptly also transfer to
the Indenture Trustee or such successor servicer, as applicable, all amounts
which then have been or should have been deposited in any Trust Account
maintained by the Servicer or which are thereafter received with respect to the
Trust Assets. Neither the Indenture Trustee nor any other successor servicer
shall be held liable by reason of any failure to make, or any delay in making,
any distribution hereunder or any portion thereof caused by (i) the failure of
the Servicer to deliver, or any delay in delivering, cash, documents or records
to it or (ii) restrictions imposed by any regulatory authority having
jurisdiction over the Servicer hereunder. No appointment of a successor to the
Servicer hereunder shall be effective until written notice of such proposed
appointment shall have been provided by the Indenture Trustee to each
Securityholder, and the Issuer Trust and, except in the case of the appointment
of the Indenture Trustee as successor to the Servicer (when no consent shall be
required), the Majority Noteholders and the Issuer shall have consented thereto.
The Indenture Trustee may make such arrangements for the compensation
of such successor servicer out of payments on the Contracts as it and such
successor servicer shall agree; provided, however, that no such compensation
shall be in excess of that permitted the Servicer pursuant to Section 7.03
------------
hereof, together with other Servicing Compensation in the form of assumption
fees, late payment charges or otherwise as provided in this Agreement.
Section 9.03 Waiver of Defaults.
------------------
The Majority Noteholders may waive any events permitting removal of
the Servicer as servicer pursuant to this Article IX; provided, however, that
the Majority Noteholders may not waive a default in making a required
distribution on a Note or Trust Certificate without the consent of the related
Noteholder or Certificateholder. Upon any waiver of a past default, such
default shall cease to exist and any Servicer Event of Default arising therefrom
shall be deemed to have been remedied for every purpose of this Agreement. No
such waiver shall extend to any subsequent or other default or impair any right
consequent thereto except to the extent expressly so waived.
Section 9.04 Accounting Upon Termination of Servicer.
---------------------------------------
Upon termination of the Servicer under this Article IX, the Servicer
shall, at its own expense:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee the funds in any Trust Account maintained by
the Servicer;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee the Servicer's Contract Files and related
documents and statements in its possession;
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(c) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee and to the Issuer Trust and the
Securityholders a full accounting of all funds, including a statement showing
the Required Payments collected by it and a statement of moneys held in trust by
it for payments or charges with respect to the Contracts; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Trust Assets to its successor and to more fully and
definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the Servicer under this
Agreement.
Section 9.05 Transferor Defaults.
-------------------
(a) In case one or more of the following defaults by the Transferor
(each, a "Transferor Default") shall occur and be continuing:
(1) any failure of the Transferor to construct the New Arena
Facility in accordance with the Project Plans, the Construction Contract
and the Construction Phase Agreement on or before the Outside Completion
Date;
(2) any failure of the Transferor to operate and manage the New
Arena Facility in accordance with the Arena Agreement, the Lease, the
Operating and Management Agreement and the User Agreements, which failure
is likely to result in the termination of any Revenue Agreement by the
related Revenue Contractor or a material interruption in such Revenue
Contractor's payment obligation thereunder;
(3) receipt by the Issuer Trust or the Indenture Trustee from
the City of a notice of default by the Transferor in the observance or
performance of any material covenant or agreement under the Arena Agreement
or the Lease, and such default is not cured within the grace periods
provided by the City thereunder;
(b) then, and in each and every such case, so long as a Transferor
Default shall not have been remedied, the Indenture Trustee or the Majority
Noteholders, by notice in writing to the Transferor and Servicer may, in
addition to whatever rights such Person may have under the Construction Phase
Mortgage, the Leasehold Mortgage, the Security Agreement [Excess Collateral] or
the Security Agreement [Indenture Trustee], or at law or in equity to damages,
including injunctive relief and specific performance, terminate all the rights
and obligations of the Transferor under this Agreement and in and to the Trust
Assets and proceeds thereof, and in the event of a Transferor Default under
Section 9.05(a), assume all rights of the Transferor under the Construction
- ---------------
Phase Agreement, including any rights to proceeds from the Construction Fund
Account. Upon receipt by the Transferor and Servicer of such written notice,
all authority and power of the Transferor to cause completion of construction of
the New Arena Facility under the Construction Phase Agreement and to operate the
New Arena Facility under the Operating and Management Agreement, whether with
respect to the Trust Assets or otherwise, shall, subject to Section 9.02 hereof,
------------
pass to and be vested in a successor servicer or the Indenture Trustee if a
successor servicer cannot be retained in a timely manner, and the successor
servicer or the Indenture Trustee, as applicable,
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<PAGE>
is hereby authorized and empowered to execute and deliver, on behalf of the
Transferor and the Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments and do or cause to be done all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, including, but not limited to, the transfer and endorsement or
assignment of the Trust Assets and related documents. The Transferor and the
Servicer agree to cooperate with the successor servicer in effecting the
termination of such responsibilities and rights.
ARTICLE X
TERMINATION
-----------
Section 10.01 Termination.
-----------
This Agreement shall terminate upon notice from the Indenture Trustee
to each other party hereto of either: (a) the later of (i) the satisfaction and
discharge of the Indenture and the provisions thereof or (ii) the disposition of
all funds with respect to the last Trust Asset and the remittance of all funds
due hereunder and the payment of all amounts due and payable to the Indenture
Trustee, the Owner Trustee, the Issuer Trust and the Custodian; or (b) the
mutual consent of the Servicer, the Transferor and all Securityholders in
writing.
Section 10.02 Notice of Termination.
---------------------
Notice of termination of this Agreement shall be sent (i) by the
Indenture Trustee to the Noteholders in accordance with Section 11.05 of the
Indenture and (ii) by the Owner Trustee to the Certificateholders in accordance
with Section 11.4(b) of the Trust Agreement.
ARTICLE XI
MISCELLANEOUS PROVISIONS
------------------------
Section 11.01 Acts of Noteholders.
-------------------
Except as otherwise specifically provided herein, whenever action,
consent or approval of the Noteholders is required under this Agreement, such
action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Noteholders if the Majority
Noteholders agree to take such action or give such consent or approval.
Section 11.02 Amendment.
---------
(a) This Agreement may be amended from time to time by the Servicer,
the Transferor, the Indenture Trustee, the Owner Trustee and the Issuer Trust by
written agreement with notice thereof to the Securityholders, without the
consent of any of the Securityholders, to cure any error or ambiguity, to
correct or supplement any provisions
F-45
<PAGE>
hereof which may be defective or inconsistent with any other provisions hereof
or to add any other provisions with respect to matters or questions arising
under this Agreement; provided, however, that such action will not adversely
affect in any material respect the interests of the Securityholders. An
amendment described above shall be deemed not to adversely affect in any
material respect the interests of the Securityholders if either (i) an Opinion
of Counsel is obtained to such effect or (ii) the party requesting the amendment
obtains a letter from the Rating Agency confirming that the amendment, if made,
would not result in the downgrading or withdrawal of the rating then assigned by
the Rating Agency to the Notes.
(b) This Agreement may also be amended from time to time by the
Servicer, the Transferor, the Indenture Trustee, the Owner Trustee and the
Issuer Trust by written agreement, with the prior written consent of the
Majority Noteholders, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement, or of
modifying in any manner the rights of the Noteholders; provided, however, that
no such amendment shall (i) reduce in any manner the amount of, or delay the
timing of, collections of payments on Trust Assets or distributions which are
required to be made on the Notes, without the consent of the holders of 100% of
the Notes (excluding any Notes held by the Transferor), (ii) adversely affect in
any material respect the interests of any Noteholders in any manner other than
as described in clause (i), without the consent of the holders of 100% of such
Notes, or (iii) reduce the percentage of Notes, the consent of which is required
for any such amendment, without the consent of the holders of 100% of the Notes.
(c) It shall not be necessary for the consent of Securityholders
under this Section to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Owner
Trustee and the Indenture Trustee shall be entitled to receive and rely upon an
Opinion of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement. The Issuer Trust, the Owner Trustee and the
Indenture Trustee may, but shall not be obligated to, enter into any such
amendment which affects the rights, duties or immunities of the Issuer Trust or
the Indenture Trustee, as the case may be, under this Agreement.
Section 11.03 Recordation of Agreement.
------------------------
The parties hereby agree that this Agreement shall be recorded in the
appropriate public offices in Denver, Colorado.
Section 11.04 Duration of Agreement.
---------------------
This Agreement shall continue in existence and effect until terminated
as herein provided.
F-46
<PAGE>
Section 11.05 Governing Law.
-------------
(A) EXCEPT AS PROVIDED IN (B) BELOW, THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAW.
(B) THE CONVEYANCE OF THE TRUST ASSETS PURSUANT TO SECTION 2.01
HEREOF SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF COLORADO AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 11.06 Notices.
-------
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered at or mailed
by overnight mail, certified mail or registered mail, postage prepaid, to: (i)
in the case of the Issuer Trust, DENVER ARENA TRUST, c/o Wilmington Trust
Company, 1100 North Market Street, Rodney Square, Wilmington, Delaware 19890,
Attention: Corporate Trust Administration, or such other address as may
hereafter be furnished to the Securityholders and the other parties hereto in
writing, with copies to Richards, Layton & Finger, One Rodney Square, 902 King
Street, Wilmington, Delaware 19899; (ii) in the case of the Transferor and the
Servicer, Ascent Arena Company, LLC, 901 Auraria Parkway, Denver, Colorado
80204, Attention: Mr. Timothy Romani, or such other address as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Servicer or the Transferor, with copies to 101 Barclay Street, New York, New
York 10286; (iii) in the case of the Indenture Trustee, The Bank of New York,
101 Barclay Street, Floor 21 West, New York, New York 10286, Attention:
Corporate Trust Administration, or such other address as may hereafter be
furnished to the Securityholders and the other parties hereto in writing, and
(iv) in the case of the Securityholders, as set forth in the Note Register or
Certificate Register, as applicable. Any such notices shall be deemed to be
effective with respect to any party hereto upon the receipt of such notice by
such party, except that notices to the Securityholders shall be effective upon
mailing or personal delivery.
Section 11.07 Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
F-47
<PAGE>
Section 11.08 No Partnership.
--------------
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.
Section 11.09 Counterparts.
------------
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
Section 11.10 Successors and Assigns.
----------------------
This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Transferor, the Owner Trustee, the Issuer Trust, the Indenture
Trustee, and the Securityholders and their respective successors and permitted
assigns.
Section 11.11 Headings.
--------
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
Section 11.12 Actions of Securityholders.
--------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Servicer or the Issuer Trust. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Agreement and conclusive in favor of the Servicer and the Issuer
Trust if made in the manner provided in this Section 11.12.
-------------
(b) The fact and date of the execution by any Securityholder of any
such instrument or writing may be proved in any reasonable manner which, the
Servicer or the Issuer Trust deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind every holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Servicer or the Issuer Trust in reliance thereon, whether or not notation
of such action is made upon such Security.
F-48
<PAGE>
(d) The Servicer or the Issuer Trust may require additional proof of
any matter referred to in this Section 11.12 as it shall deem necessary.
-------------
Section 11.13 Reports to Rating Agency.
------------------------
(a) The Indenture Trustee shall provide to the Rating Agency copies
of statements, reports and notices, to the extent received or prepared in
connection herewith, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any termination of Revenue Agreements, and
copies of Subsequent Revenue Agreements;
(iii) notice of any termination, replacement, succession, merger
or consolidation of the Servicer, any Custodian or the Issuer Trust;
(iv) notice of final payment on the Notes;
(v) notice of any Servicer Event of Default;
(vi) copies of the annual independent accountants' report
delivered pursuant to Section 7.05 hereof, and copies of any compliance reports
------------
delivered by the Servicer including under Section 7.04 hereof;
------------
(vii) copies of any Distribution Statement pursuant to Section
-------
6.01(b) hereof;
- -------
(viii) notice of any Mandatory Redemption Date; and
(ix) notice of the occurrence of a Lease Reserve Trigger Event
as referred to in Section 5.03(e)(ii) hereof.
-------------------
(b) With respect to the requirement of the Indenture Trustee to
provide statements, reports and notices to the Rating Agency, such statements,
reports and notices shall be delivered to the Rating Agency at the following
addresses: (i) if to Fitch, One State Street Plaza, New York, New York 10004,
Attention: ABS Surveillance Group.
(c) The Indenture Trustee makes this covenant as a matter of courtesy
and accommodation only and shall not be liable to any Person for any failure to
comply therewith.
Section 11.14 Certificateholders.
------------------
(a) Any sums to be distributed or otherwise paid hereunder or under
the Trust Agreement to the Certificateholders shall be paid to such
Certificateholders pro rata based on their Percentage Interest;
F-49
<PAGE>
(b) Where any act or event hereunder is expressed to be subject to
the consent or approval of the Certificateholders, such consent or approval
shall be capable of being given by no fewer than the Majority
Certificateholders.
Section 11.15 Limitation of Liability.
-----------------------
It is expressly understood and agreed by the parties hereto that (a)
this Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally but solely as Owner Trustee of the Issuer Trust, in
the exercise of the powers and authority conferred and vested in it under the
Trust Agreement, (b) each of the representations, undertakings and agreements
herein made on the part of the Issuer Trust is made and intended not as personal
representations, undertakings and agreements by Wilmington Trust Company but is
made and intended for the purpose of binding only the Issuer Trust, and (c)
under no circumstances shall Wilmington Trust Company be personally liable for
the payment of any indebtedness or expenses of the Issuer Trust or be liable for
the breach or failure of any obligation, representation, warranty or covenant
made or undertaken by the Issuer Trust under this Agreement or the other Basic
Documents.
Section 11.16 Third Party Beneficiaries.
-------------------------
The parties hereby agree and acknowledge that each of the Revenue
Contractors shall be deemed to be third party beneficiaries of this Agreement.
Section 11.17 Limitation on Recourse.
----------------------
There will be full recourse to the Collateral with respect to the
obligations of the Transferor, the Servicer or any Subservicer under this
Agreement or the other Basic Documents as described herein and therein. The
Transferor, the Servicer or any Subservicer will not be held personally liable
or obligated for any of the obligations under the Basic Documents, except as may
be specifically provided in any Basic Document to which it is a party; provided,
however, that such entities will be personally liable for damages arising from
(i) fraud, misrepresentation, or misappropriation or misapplication of funds,
(ii) in the case of the Transferor, any breach of the obligations of the
Transferor to construct the New Arena Facility in a timely manner in accordance
with and pursuant to the terms and conditions of this Agreement, the Arena
Agreement, the Construction Phase Agreement and the Project Plans, or (iii) any
breach of the Team Commitments under the User Agreements, and such entities will
be liable for payment of their respective indemnity obligations under any of the
Basic Documents.
F-50
<PAGE>
IN WITNESS WHEREOF, the Issuer Trust, the Servicer, the Transferor and
the Indenture Trustee have caused their names to be signed by their respective
officers thereunto duly authorized, as of the day and year first above written,
to this Sale and Servicing Agreement.
ISSUER TRUST:
DENVER ARENA TRUST
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Owner
Trustee on behalf of the Issuer Trust
By: /s/ Emmett R. Harmon
-----------------------------------------
Name: Emmett R. Harmon
Title: Vice President
TRANSFEROR AND SERVICER:
ASCENT ARENA COMPANY, LLC
By: Ascent Arena and Development Corporation,
a Delaware corporation, as managing member
By: /s/ Timothy D. Romani
-----------------------------------------
Name: Timothy D. Romani
Title: President
INDENTURE TRUSTEE:
THE BANK OF NEW YORK
By: /s/ Walter N. Gitlin
-----------------------------------------
Name: Walter N. Gitlin
Title: Vice President
F-51
<PAGE>
EXHIBIT 10.20
1997 NON-EMPLOYEE DIRECTORS STOCK APPRECIATION RIGHTS PLAN
Ascent Entertainment Group, Inc., a Delaware corporation, has adopted the
1997 Non-Employee Directors Stock Plan (the "Plan"), effective as of June 27,
1997, and ratified on October 24, 1997, for the benefit of its eligible
Independent Directors (as such term is defined below).
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors to further the
growth, development and financial success of the Company by personally
benefitting through the ownership of Company stock appreciation rights which
recognize such growth, development and financial success.
(2) To enable the Company to attract and retain the services of
directors of the highest qualifications considered essential to both the short
term challenges confronting the Company and the long range success of the
Company by offering them an opportunity to own Company stock appreciation rights
which will reflect the growth, development and financial success of the Company.
ARTICLE I
DEFINITIONS
I.1 General. Wherever the following terms are used in this Plan they
-------
shall have the meaning specified below, unless the context clearly indicates
otherwise.
I.2 Board. "Board" shall mean the Board of Directors of the Company.
-----
I.3 Code. "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
I.4 Common Stock. "Common Stock" shall mean the common stock of the
------------
Company, par value $.01 per share, and any equity security of the Company issued
or authorized to be issued in the future, but excluding any warrants, options or
other rights to purchase Common Stock.
I.5 Company. "Company" shall mean Ascent Entertainment Group, Inc.,
-------
a Delaware corporation.
I.6 Corporate Transaction. "Corporate Transaction" shall mean any of
---------------------
the following:
1
<PAGE>
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Corporate
Transaction: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii)
and (iii) of subsection (c); or
(b) Individuals who, as of June 27, 1997, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to June 27, 1997 whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in
2
<PAGE>
the election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the Business Combination
and (iii) at least a majority of the members of the board of directors of
the corporation resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for such Business Combination; or
(d) Approval by the stockholders of the Company
of a complete liquidation or dissolution of the Company.
I.7 Director. "Director" shall mean a member of the Board.
--------
1.8 Exchange Act. "Exchange Act" shall mean the Securities Exchange
------------
Act of 1934, as amended.
1.9 Fair Market Value. "Fair Market Value" of a share of Common
-----------------
Stock as of a given date shall be (i) the closing price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any, on such date, or if shares were not traded on such date, then
on the closest preceding date on which a trade occurred, or (ii) if Common Stock
is not traded on an exchange, the closing price for the Common Stock on such
date as reported by NASDAQ or, if NASDAQ is not then in existence, by its
successor quotation system; or (iii) if Common Stock is not publicly traded, the
Fair Market Value of a share of Common Stock as established by the Board acting
in good faith.
1.10 Grant Date. "Grant Date" shall mean the date an Independent
----------
Director receives a grant of SARs pursuant to Section 3 of the Plan.
3
<PAGE>
1.11 Independent Director. "Independent Director" shall mean a
--------------------
Director who is not an officer or employee of the Company or any of its
Subsidiaries.
1.12 Holder. "Holder" shall mean an Independent Director granted an
------
SAR under this Plan.
1.13 Plan. "Plan" shall mean the 1997 Non-Employee Directors Stock
----
Plan.
1.14 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
----------
under the Exchange Act, as such Rule may be amended from time to time.
1.15 Stock Appreciation Right or SAR. "Stock Appreciation Right" or
-------------------------------
"SAR" shall mean a right to receive cash in an amount equal to the appreciation
in the Fair Market Value of the Common Stock from the date of grant through the
date of exercise as set forth in Article III of this Plan.
1.16 Subsidiary. "Subsidiary" shall mean any corporation in an
----------
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing fifty percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
1.17 Termination of Directorship. "Termination of Directorship"
---------------------------
shall mean the time when a Holder ceases to be a Director for any reason,
including, but not by way of limitation, a termination by resignation, failure
to be elected, death or retirement. The Board, in its sole and absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Directorship.
ARTICLE II
SHARES SUBJECT TO PLAN
II.1 Shares Subject to Plan. The shares subject to SARs shall be
----------------------
shares of the Company's Common Stock. The aggregate number of such shares which
will relate to SARs issued under the Plan shall not exceed seven hundred
thousand (700,000).
-------
II.2 Unexercised SARS. If any SARs issued under the Plan expire or
----------------
are canceled without having been fully exercised, the number of shares subject
to such SARs but as to which such SARs were not exercised prior to their
expiration or cancellation
4
<PAGE>
may again be subject to an SAR hereunder, subject to the limitations of Section
2.1.
ARTICLE III
GRANTING OF SARs
3.1 Eligibility. Each Independent Director of the Company shall be
-----------
eligible to be granted SARs at the times and in the manner set forth in Section
3.2.
3.2 Granting of SARs
----------------
(a) On June 27, 1997, each individual then serving on or elected to
the Board and continuing to serve after such date as an Independent Director
shall be granted an SAR with respect to 100,000 shares of Common Stock.
(b) Subsequent to June 27, 1997, each individual, other than those
individuals described in subsection (a) above, who is elected or appointed to
the Board of Directors and is an Independent Director shall be granted, on a
one-time basis, an SAR with respect to 100,000 shares of Common Stock.
ARTICLE IV
TERMS OF SARS
4.1 SAR Agreement. Each SAR grant shall be evidenced by a written
-------------
SAR Agreement, which shall be executed by the Holder and an authorized officer
of the Company and which shall contain such terms and conditions as the Board
shall determine, consistent with this Plan.
4.2 SAR Price. The exercise price per share of the shares of Common
---------
Stock subject to each SAR shall be the Fair Market Value of a share of Common
Stock on the date of grant of such SAR.
4.3 SAR Term. The term of a grant of SARs under the Plan shall be
--------
ten (10) years from the date the SARs are granted.
4.4 SAR Vesting
-----------
(a) Each SAR grant shall vest as follows:
<TABLE>
<CAPTION>
Percent of SAR grant
Date Which Is Exercisable
- ---- --------------------
<S> <C>
Prior to the first anniversary of the 0%
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Grant Date
After the first anniversary of the Grant Date 25%
After the second anniversary of the Grant Date 50%
After the third anniversary of the Grant Date 100%
</TABLE>
(b) Except as otherwise provided in this Plan, no portion of an SAR
grant which is unexercisable at a Termination of Directorship shall thereafter
become exercisable.
4.5 Consideration. In consideration of the granting of an SAR, the
-------------
Holder shall agree, in the written SAR Agreement, to serve as an Independent
Director of the Company or any Subsidiary until the next annual meeting of
stockholders of the Company. Nothing in this Plan or in any SAR Agreement
hereunder shall interfere with or restrict in any way the rights of the Company,
which are hereby expressly reserved, to remove any Holder as a Director at any
time for any reason whatsoever, with or without good cause.
ARTICLE V
EXERCISE OF SARS
5.1 Partial Exercise. Vested SARs may be exercised in whole or in
----------------
part. However, SARs shall not be exercisable with respect to fractional shares
and the Board may require that, by the terms of the SAR, a partial exercise be
with respect to a minimum number of shares.
5.2 Manner of Exercise. All or a portion of exercisable SARs shall
------------------
be deemed exercised upon delivery of all of the following to the Secretary of
the Company or his office:
(a) A written notice complying with the applicable rules established
by the Board stating that the SARs, or a portion thereof, are exercised. The
notice shall be signed by the Holder or such other person then entitled to
exercise the SARs or such portion; and
(b) In the event that SARs shall be exercised pursuant to Section 7.1
by any person or persons other than the Holder, appropriate proof of the right
of such person or persons to exercise the SARs.
6
<PAGE>
5.3 Conditions to Payment Pursuant to the SARs. The Company shall
------------------------------------------
not be required to make the cash payment related to the exercise of rights under
the SARs prior to fulfillment of all of the following conditions:
(a) The lapse of such reasonable period of time following the
exercise of the SARs as the Board may establish from time to time for reasons of
administrative convenience; and
(b) The retention out of the SAR exercise proceeds by the Company of
full payment for any applicable taxes.
5.4 Rights as Stockholders. The Holders of SARs shall not be, nor
----------------------
have any of the rights or privileges of, stockholders of the Company in respect
of such SARs.
5.5 Limitations on Exercise of SARs. No SAR may be exercised to any
-------------------------------
extent by anyone after the first to occur of the following events:
(a) the expiration of twelve months from the date of the Holder's
death;
(b) the expiration of twelve months from the date of the Holder's
Termination of Directorship by reason of his permanent and total disability
(within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of three months from the date of the Holder's
Termination of Directorship for any reason other than such Holder's death or his
permanent and total disability, unless the Holder dies within said three-month
period;
(d) the expiration of twelve months from the date of a Corporate
Transaction; or
(e) the expiration of ten years from the date the SARS were granted.
7
<PAGE>
ARTICLE VI
ADMINISTRATION
6.1 Duties and Powers of Board. It shall be the duty of the Board to
--------------------------
conduct the general administration of this Plan in accordance with its
provisions. The Board shall have the power to interpret this Plan and the
agreements pursuant to which SARs are granted, and to adopt such rules for the
administration, interpretation, and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any such grant
under this Plan need not be the same with respect to each Holder.
6.2 Majority Rule. The Board shall act by a majority of its members
-------------
in attendance at a meeting at which a quorum is present or by a consent,
memorandum or other written instrument signed by all members of the Board.
6.3 Compensation; Professional Assistance; Good Faith Actions. All
---------------------------------------------------------
expenses and liabilities which members of the Board incur in connection with the
administration of this Plan shall be borne by the Company. The Board may, but
is not required to, employ attorneys, consultants, accountants, appraisers,
brokers, or other persons. The Board, the Company and the Company's officers
and Directors shall be entitled to rely upon the advice, opinions or valuations
of any such persons. All actions taken and all interpretations and
determinations made by the Board in good faith shall be final and binding upon
all Holders, the Company and all other interested persons. No members of the
Board shall be personally liable for any action, determination or interpretation
made in good faith with respect to this Plan or the SARs granted pursuant to
this Plan, and all members of the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.
8
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Not Transferable. SARs under this Plan may not be sold, pledged,
----------------
assigned, or transferred in any manner other than by will or the laws of descent
and distribution. No SAR or interest or right therein shall be liable for the
debts, contracts or engagements of the Holder or his successors in interest or
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect.
During the lifetime of the Holder, only he or she may exercise an SAR
(or any portion thereof) granted to him or her under the Plan. After the death
of the Holder, any exercisable portion of an SAR may, prior to the time when
such portion becomes unexercisable under the Plan or the applicable SAR
Agreement, be exercised by his or her personal representative or by any person
empowered to do so under the deceased Holder's will or under the then applicable
laws of descent and distribution.
7.2 Amendment, Suspension or Termination of this Plan. Unless sooner
-------------------------------------------------
terminated under this Section 7.2, the Plan will terminate on June 27, 2007.
The Plan may be wholly or partially amended or otherwise modified, suspended or
terminated at any time or from time to time by the Board. However, without
approval of the Company's stockholders given within twelve months before or
after the action by the Board, no action of the Board may, except as provided in
Section 7.3, increase the limits imposed in Section 2.1 on the maximum number of
shares related to SARs which may be issued under this Plan, and no action of the
Board may be taken that would otherwise require stockholder approval as a matter
of applicable law, regulation or rule; provided, however, that by approving this
Plan stockholders will be authorizing an amendment of the Plan for the purpose
of converting the SARs to options to purchase shares of the Common Stock on
substantially the same terms as the existing SARs. Notwithstanding the
foregoing, except as permitted by the applicable exemptive conditions of Rule
16b-3, the provisions of this Plan relating to grant of SARs to Independent
Directors, including the amount, price and timing thereof, shall not be amended
more than once in any six-month period other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, as amended, or the
respective rules thereunder. No amendment, suspension or termination of this
Plan
9
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shall, without the consent of the Holders, alter or impair any rights or
obligations under any SARs theretofore granted, unless the award itself
otherwise expressly so provides. No SARs may be granted during any period of
suspension or after termination of this Plan.
7.3 Changes in Common Stock or Assets of the Company, Acquisition or
----------------------------------------------------------------
Liquidation of the Company and Other Corporate Events.
-----------------------------------------------------
(a) Subject to Section 7.3(e), in the event that the Board determines
that any dividend or other distribution (whether in the form of cash, Common
Stock, other securities, or other property), recapitalization, reclassification,
stock split, reverse stock split, reorganization, merger, consolidation, split-
up, spin-off, combination, repurchase, liquidation, dissolution, or sale,
transfer, exchange or other disposition of all or substantially all of the
assets of the Company, or exchange of Common Stock or other securities of the
Company, issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event, in
the Board's sole discretion, affects the Common Stock such that an adjustment is
determined by the Board to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan or with respect to an SAR then the Board shall, in such manner as
it may deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or other
securities or property) with respect to which SARS are granted under the
Plan (including, but not limited to, adjustments of the limitations in
Section 2.1 on the maximum number and kind of shares which may be issued
related to SARs),
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding SARs, and
(iii) the grant or exercise price with respect to any SARs.
(b) Subject to Section 7.3(e), in the event of any corporate
transaction or other event described in Section 7.3(a) which results in shares
of Common Stock being exchanged for or converted into cash, securities
(including securities of another corporation) or other property, the Board will
have the right to terminate this Plan as of the date of the event or
transaction, in which case all SARs granted under this Plan shall become the
10
<PAGE>
right to receive such cash, securities or other property, net of any applicable
exercise price.
(c) Subject to Sections 7.3(c)(vi) and 7.3(e), in the event of any
corporate transaction or other event described in Section 7.3(a) or any unusual
or nonrecurring transactions or events affecting the Company, any affiliate of
the Company, or the financial statements of the Company or any affiliate, or of
changes in applicable laws, regulations, or accounting principles, the Board in
its discretion is hereby authorized to take any one or more of the following
actions whenever the Board determines that such action is appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to any SARs granted
under this Plan, to facilitate such transactions or events or to give effect to
such changes in laws, regulations or principles:
(i) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Board may provide, either
automatically or upon the Holder's request, for either the purchase of any
such SAR for an amount of cash equal to the amount that would have been
received upon the exercise of such SAR had such SAR been currently
exercisable or payable or the replacement of such SAR with other rights or
property selected by the Board in its sole discretion;
(ii) In its sole and absolute discretion, the Board may provide,
either by the terms of such SAR or by action taken prior to the occurrence
of such transaction or event that it cannot be exercised after such event;
(iii) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Board may provide, either by the
terms of such SAR or by action taken prior to the occurrence of such
transaction or event, that for a specified period of time prior to such
transaction or event, such SAR shall be exercisable as to all shares
covered thereby, notwithstanding anything to the contrary in (a) Section
4.4 or (b) the provisions of such SAR;
(iv) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Board may provide, either by the
terms of such SARs or by action taken prior to the occurrence of such
transaction or event, that upon such event, such SAR be assumed by the
successor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar awards covering the stock of the
11
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successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices;
(v) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Board may make adjustments in the
number and type of shares of Common Stock (or other securities or property)
subject to outstanding SARs, and/or in the terms and conditions of such
SARs (including the grant or exercise price), and the criteria included in,
awards which may be granted in the future; and
(vi) The foregoing discretionary terms of this Section 7.3(c)
shall be permitted with respect to SARs to the extent that such discretion
would be inconsistent with the requirements of Rule 16b-3. In the event of
a Corporate Transaction, to the extent that the Board does not have the
ability under Rule 16b-3 to take or to refrain from taking the
discretionary actions set forth above, each SAR shall be exercisable as to
all shares covered thereby during the five days immediately preceding the
consummation of such Corporate Transaction and subject to such
consummation, notwithstanding anything to the contrary in Section 4.4, SARs
cannot be exercised following such event.
(d) Subject to Section 7.3(e) and 7.8, the Board may, in its
discretion, include such further provisions and limitations in any SAR
agreement, as it may deem equitable and in the best interests of the Company.
(e) No adjustment or action described in this Section 7.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would violate Section 16 of the Exchange Act or the
exemptive conditions of Rule 16b-3. The number of shares of Common Stock
subject to any SAR shall always be rounded to the next whole number.
7.4 Approval of Plan by Stockholders. This Plan will be submitted
--------------------------------
for the approval of the Company's stockholders within twelve months after the
date of the Board's initial adoption of this Plan. SARs may be granted prior to
such stockholder approval, provided that such SARs shall not be exercisable
prior to the time when this Plan is approved by the stockholders, and provided
further that if such approval has not been obtained at the end of said twelve-
month period, all SARs previously granted under this Plan shall thereupon be
canceled and become null and void.
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7.5 Forfeiture Provisions. Pursuant to its general authority to
---------------------
determine the terms and conditions applicable to SAR awards under the Plan, the
Board shall have the right (to the extent consistent with the requirements of
Rule 16b-3) to provide, in the terms of SAR awards made under the Plan, or to
require the recipient to agree by separate written instrument, that (a) any
proceeds, gains or other economic benefit actually or constructively received by
the recipient upon any receipt or exercise of the SARs, must be paid to the
Company, and (b) the award shall terminate and any unexercised portion of such
award (whether or not vested) shall be forfeited, if (i) a Termination of
Directorship occurs prior to a specified date, or within a specified time period
following receipt or exercise of the award, or (ii) the recipient at any time,
or during a specified time period, engages in any activity in competition with
the Company, or which is inimical, contrary or harmful to the interests of the
Company, as further defined by the Board.
7.6 Limitations Applicable to Section 16 Persons. Notwithstanding
--------------------------------------------
any other provision of this Plan, the Plan and any SAR granted to an Independent
Director who is then subject to Section 16 of the Exchange Act, shall be subject
to any additional limitations set forth in any applicable exemptive rule under
Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the
Exchange Act) that are requirements for the application of such exemptive rule.
To the extent permitted by applicable law, the Plan and the SARs granted
hereunder shall be deemed amended to the extent necessary to conform to such
applicable exemptive rule.
7.7 Effect of Plan Upon Incentive and Compensation Plans. The
----------------------------------------------------
adoption of this Plan shall be in lieu of, and the Board is terminating
effective June 27, 1997, any other compensation plans or arrangements for
Directors. The adoption of this Plan shall not affect any compensation or
incentive plans for officers or employees in effect for the Company or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the
Company (i) to establish any other forms of incentives or compensation for
employees of the Company or any Subsidiary or (ii) to grant or assume SARs or
other rights otherwise than under this Plan in connection with any proper
corporate purpose including but not by way of limitation, the grant or
assumption of SARs in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, partnership, firm or association.
7.8 Compliance with Laws. This Plan and the granting and vesting of
--------------------
SARs under this Plan are subject to compliance with all applicable federal and
state laws, rules and
13
<PAGE>
regulations. To the extent permitted by applicable law, the Plan and the SARs
granted hereunder shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
7.9 Titles. Titles are provided herein for convenience only and are
------
not to serve as a basis for interpretation or construction of this Plan.
7.10 Governing Law. This Plan and any agreements hereunder shall be
-------------
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of Ascent Entertainment Group, Inc. effective as of June 27, 1997,
and ratified by such Board of Directors on October 24, 1997.
Executed as of the 24th day of October, 1997
/s/ Arthur M. Aaron
----------------------------
Secretary
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EXHIBIT 10.21
AGREEMENT FOR THE
PURCHASE AND SALE OF AN INTEREST
IN
BEACON COMMUNICATIONS, LLC
THIS AGREEMENT (the "Agreement") is made and entered into as of the 20th
day of January, 1999, by and among ASCENT ENTERTAINMENT GROUP, INC., a Delaware
corporation (the "Ascent"); ASCENT BEACON CORPORATION, a Delaware corporation
("ABC") (Ascent and ABC are individually and collectively sometimes hereinafter
referred to as "Seller"); BEACON COMMUNICATIONS, LLC, a Delaware limited
liability company ("Beacon LLC"); and BOOMTOWN INVESTMENTS, LLC, a Delaware
limited liability company ("BT Investments"), and ANG CAPITAL CORPORATION, a
Delaware corporation ("ANG") (BT Investments and ANG are individually and
collectively sometimes hereinafter referred to as "Buyer"). This Agreement is
made with reference to the following facts:
R E C I T A L S
A. Beacon Communications Corp. ("BCC") was ninety percent (90%) owned by
Ascent and ten percent (10%) owned by ABC, and has been merged with and into
Beacon LLC, and Beacon LLC is owned entirely by Ascent (as to 90% of the
membership interests) and ABC (as to 10% of the membership interests). Prior to
the merger of BCC into Beacon LLC, Club Pictures, Inc. and Beacon Music
Publishing were merged into single- or two-member limited liability companies
wholly-owned by BCC and/or Beacon LLC and a subsidiary corporation or limited
liability company. 16th Round Production Corp., Lucifilms, Inc. and Lazarus
Pictures, Inc. have remained wholly-owned subsidiaries of Beacon LLC.
Individually and collectively, whether remaining in corporate form or merged
into limited liability companies, Club Pictures, Beacon Music Publishing, 16th
Round Production Corp., Lucifilms, Inc. and Lazarus Pictures, Inc. are referred
to as "Beacon Sub LLC."
B. BCC was, and Beacon LLC is, directly and through their respective
wholly-owned corporations and limited liability companies (all references to BCC
or Beacon LLC throughout this Agreement, including without limitation,
Paragraphs 4 and 5 and Schedule 2.1, shall include BCC or Beacon LLC and each of
their direct and indirect respective subsidiary corporations and subsidiary
limited liability companies), engaged in the business of the development,
financing, production and exploitation of theatrical and television films, music
sound tracks, and other related areas of the entertainment business (the
"Business").
C. After the merger of BCC into Beacon LLC, Ascent desires to sell, and
Buyer desires to purchase, ninety percent (90%) of all of the membership
interests in Beacon LLC (the "Interest") from Ascent.
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AGREEMENT
NOW, THEREFORE, in consideration of the covenants, agreements,
representations and warranties contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
1. PURCHASE AND SALE OF MEMBERSHIP INTEREST. Subject to the terms and
----------------------------------------
conditions hereof, Ascent hereby agrees to sell, transfer, deliver and assign to
Buyer, and Buyer agrees to purchase and receive from Seller, ninety percent
(90%) of all of the membership interests in Beacon LLC. ABC shall retain the
other ten percent (10%) of the membership interests in Beacon LLC. The Beacon
LLC Operating Agreement shall be amended and restated at the Closing, and the
Operating Agreement attached hereto as Exhibit "A" will become the new Operating
Agreement of Beacon LLC, effective as of the Closing.
2. ASSETS; ASSUMED LIABILITIES; EXCLUDED LIABILITIES.
-------------------------------------------------
2.1 Prior to the merger of BCC into Beacon LLC, Seller (which for
purposes of this Section 2.1, includes all subsidiaries and entities owned or
controlled by Seller, other than BCC) contributed to BCC any assets, tangible or
intangible, of whatever kind or nature, of Ascent that were being used by BCC
solely in the Business, the life and disability policies on Armyan Bernstein and
the life insurance policy on Marc Abraham, or related to the Assumed Liabilities
(as defined below), including, without limitation, all claims, offsets, defenses
and causes of action Seller has or may have related to the claims listed on
Exhibit 2.1A. After the merger, Beacon LLC owns all of the assets of BCC (the
"Assets"), wherever located, including, without limitation, cash, receivables,
all notes, securities, shares and ownership interests in subsidiaries and other
entities, completed and in-progress motion pictures, films, television projects,
music and record rights, music soundtracks and music publishing rights, all
copyrights, all intellectual property rights, all trade secrets, contracts,
scripts, development projects, intellectual property rights, story ideas, rights
to ideas created by employees or agents, or others, equipment, automobiles,
machines, supplies, trademarks, service marks, trade names, goodwill, name,
reputation, fictitious business names, the names "Beacon" and "Beacon
Communications," logos, designs, producing and production agreements, financing
and lending contracts, contracts for distribution of films, contracts for music,
songs, music soundtracks, music publishing (whether as to ownership obligations
or distribution), contracts for the services of actors, directors, writers and
other service providers, contracts and agreements for BCC and Beacon LLC to
provide services, contracts and options for stories, scripts and other
properties, the Universal Pictures and Sony Pictures agreements and contract
rights, rights to receive monies (including producer's fees, profits from motion
pictures, residuals, participations, cost and expense reimbursements), all other
contracts and rights related to the Business and the Assets (including any and
all rights under any insurance policy now or previously held by Seller or
COMSAT), deposits, claims, causes of action, the existing life insurance
policy(ies) on Armyan Bernstein and the existing life insurance policies(ies) on
Marc Abraham, the disability policy on Armyan Bernstein, corporate shares in all
BCC and Beacon LLC subsidiary corporations, membership and partnership interests
in all partnerships and limited liability companies in which BCC or Beacon LLC
directly or indirectly have any interest, computer software, accounting
software, books and records, files, ledgers, employee manuals, safety manuals
and plans, and all other proprietary, financial, legal, or relevant or helpful
information, documents and agreements relating to Beacon LLC, BCC, the Assets,
the Business, and the Assumed Liabilities (including, without limitation, any
liability, casualty, errors and omissions, and other insurance policies solely
related to any films in production, all BCC or Beacon LLC insurance policies
(but not Ascent Group policies covering BCC) and Beacon LLC under the merger has
2
<PAGE>
assumed and is subject to all of the debts, liabilities, commitments and
obligations of BCC, except for the Excluded Liabilities (as hereinafter defined)
(hereinafter referred to as the "Assumed Liabilities"). The Assumed Liabilities
also specifically include the claims described on Exhibit 2.1A(i) The Excluded
Liabilities are set forth on Schedule 2.1. All Excluded Liabilities shall remain
the sole obligation of Seller, and neither Beacon LLC, Buyer nor the owners of
Buyer (the "Principals") shall have any obligation with respect thereto (except
as otherwise provided on Schedule 2.1B), nor shall any payments from the Assets
be made with respect thereto. Seller, jointly and severally, agree to indemnify
Beacon LLC, Buyer, and Principals from any Excluded Liabilities and all matters
related thereto.
Notwithstanding anything to the contrary, Seller and Buyer agree
that the "Assets" do not include actual out-of-pocket bridge production
---
financing (but excluding development/pre-production expenditures) actually
advanced by Ascent for the films "Hurricane Carter" and "End of Days." Ascent
shall be entitled to receive from any third party production financing or other
funds received by BCC or Beacon LLC for any such project, as and when received,
whether before or after the Closing, an amount equal to the amount of bridge
production financing (but excluding development/pre-production expenditures)
advanced by Ascent as of the Closing for the films "Hurricane Carter" and "End
of Days." All amounts (if any) received over and above (i.e., any Production
---
Overages) development/pre-production expenditures (which will be for the benefit
of Buyer) and out-of-pocket bridge production financing (which will be for the
benefit of Seller) shall be for the sole benefit of Buyer.
Notwithstanding anything to the contrary, Seller and Buyer and
the Principals agree that the following amounts, whenever received, whether
before or after Closing, shall be for the sole benefit of, and belong to, Buyer,
and Seller shall not be entitled to retain any such amounts: (a) all producer's
fees due or paid to BCC or Beacon LLC for the films "G's Trippin,'" "Love of the
Game," "Hurricane Carter," and "End of Days" or other films in progress as of
the Closing, including, without limitation, "13 Days" and "Family Man"; (b) all
accrued development expenditures advanced by Ascent, BCC or Beacon LLC prior to
Closing, and (c) all Production Overages. Prior to the Closing, any such
producer's fees or development expenditures or Production Overages received by
Ascent, BCC or Beacon LLC shall be credited against (and reduce) the Purchase
Price (as defined in Section 3) on a dollar-for-dollar basis. After the Closing,
(i) any such producer's fees or development expenditures or Production Overages
received by Beacon LLC shall be delivered by Beacon LLC to Buyer, (ii) any such
producer's fees or development expenditures or Production Overages received by
Seller shall be immediately delivered to Buyer by wire transfer or endorsement
of the check received, and (iii) any out-of-pocket bridge production financing
advanced by Ascent (and not previously paid to Ascent) for the films "Hurricane
Carter" and "End of Days" received by Beacon LLC shall be immediately delivered
to Ascent by wire transfer or endorsement of the check received.
With respect to the $2,000,000 production investment to be made
for the Beacon LLC asset "G's Trippin,'" Seller shall contribute $500,000,
towards the cost thereof (to be made by a credit against the Purchase Price) and
Buyer shall fund the entire "G's Trippin'" investment obligation as and when
due. If such obligation is paid by Seller, BCC or Beacon LLC (other than from
funds to be transferred to Buyer at the Closing) prior to the Closing, then such
investment amount shall be added to (and increase) the Purchase Price to be paid
by Buyer on a dollar-for-dollar basis, less the $500,000 credit against the
----
Purchase Price with respect to "G's Trippin.'"
2.2 Except as specifically set forth in Section 2.1, above, BCC,
Beacon LLC, Buyer and the Principals have not agreed to assume, pay, perform or
discharge any debts, liabilities, commitments or
3
<PAGE>
obligations of Seller, and Seller shall indemnify and hold Buyer, Beacon LLC and
the Principals harmless from any debts, liabilities, commitments or obligations
of Seller other than those described in Section 2.1, above.
At the time of the assumption of the Assumed Liabilities by
Beacon LLC, Seller, BCC and Beacon LLC agreed that as between Beacon LLC and any
third parties, assumption by Beacon LLC of certain debts, liabilities,
commitments and obligations of Seller and BCC shall, in any event, be construed
and limited with reference to the aggregate of business and activities
previously carried on by Seller through BCC and to be acquired by Beacon LLC;
and, with respect to said assumption, none of the debts, liabilities,
commitments and obligations of the Seller or BCC are intended by Buyer and
Seller be expanded, increased, broadened or enlarged as to rights or remedies of
third parties against Beacon LLC as compared to such rights or remedies which
such parties would have had against the Seller or BCC had the acquisition of its
business and assets by Beacon LLC not taken place. Nothing contained in the
assumption of liabilities shall be deemed to foreclose Beacon LLC or Buyer from
contesting in good faith the Seller's or BCC's and Beacon LLC's duties and
liabilities to third parties.
2.3 Ascent will cooperate with Beacon LLC (to the extent legally
possible) to permit Beacon LLC, after the Closing, to continue any employee
benefit programs now currently offered to BCC or Beacon LLC employees [e.g.,
----
health insurance, life insurance, etc.] that Beacon LLC chooses to participate
in. During the period that Beacon LLC's employees participate in any such
employee benefit plans, Beacon LLC will prepay to Ascent, within ten (10)
business days of presentation of an invoice with an explanation of the estimated
costs, the full amount of such estimated costs. Any difference between the
actual costs to Ascent of such benefits for Beacon LLC employees, plus Ascent's
out-of-pocket costs in administering such benefit programs for Beacon LLC, and
the estimated costs shall be paid by Beacon LLC, or refunded by Ascent, as the
case may be, within ten days after a final reconciliation by Ascent. It is the
parties' intent that Beacon LLC terminate its participation in the Seller's
group plans and adopt its own "mirror" plans (to the extent it chooses to
continue such benefit program for Beacon LLC employees). Seller shall pay in
the normal course and in accordance with the terms of such plans any forfeitures
or positive account balances for Beacon LLC employees in any employee benefit
plans to Beacon LLC or Beacon LLC employees, as appropriate.
3. PURCHASE PRICE. Subject to the terms and conditions hereof, and less
---------------
credits to be given by Seller against the Purchase Price, in consideration of
the transfer of the Interest to Buyer, Buyer shall pay Seller at the Closing by
electronic transfer to an account to be designated by Ascent, the sum of
Nineteen Million Dollars ($19,000,000) (the "Purchase Price").
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND ABC. As of the Closing,
------------------------------------------------
Seller, jointly and severally, hereby represents and warrants to Buyer with
respect to Seller, ABC, BCC and Beacon LLC that:
4.1 AUTHORITY AND LEGALITY; NO CHANGES BY SELLER. Each of Ascent,
--------------------------------------------
BCC and ABC are a corporation, and Beacon LLC is a limited liability company,
duly organized and validly existing and in good standing under the laws of the
State of Delaware with all requisite corporate or entity power to enter into
this Agreement and to perform all of their respective obligations hereunder and
to own, lease or operate their properties and assets which they now own, lease
or operate. All of the shares, of all classes, of ABC are owned by Ascent. Set
forth on Schedule 4.1 is a true and complete list of all the direct and indirect
subsidiary corporations and limited liability companies and all entities BCC or
Beacon LLC have an
4
<PAGE>
ownership interest in, and the percentage and class of ownership in each entity.
Except as otherwise contemplated herein, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and
compliance with the terms hereof, have been duly authorized by all necessary
corporate action by Ascent, BCC and ABC and by all entity actions by Beacon LLC
or any affiliate; will not violate any existing provision of any law, rule, or
governmental regulation, or violate any existing term or provision of any order,
writ, judgment, injunction or decree of any government, governmental
instrumentality, public authority or court applicable to Ascent, BCC, ABC, or
Beacon LLC; will not require the prior consent, approval or action of any other
corporation or any person, firm, company, or public authority, except for
Seller's lenders, which consent has been obtained; will not conflict with or
result in a breach or default (or give any party the right to declare a breach
or default upon notice or passage of time, or both), and will not result in the
creation or imposition of any lien, charge, security interest or encumbrance of
any nature upon or in any of the Assets, of or pursuant to any of the terms,
conditions or provisions of the Certificate of Incorporation or Bylaws of
Seller, BCC or ABC, or the Certificate of Formation and Operating Agreement of
Beacon LLC, or of any indenture, mortgage, deed of trust, or any material
agreement or instrument to which Seller or BCC, or Beacon LLC or ABC is a party;
and this Agreement constitutes the legal, valid and binding agreement of Seller,
ABC, and Beacon LLC. Seller, ABC, and Beacon LLC each is, and BCC was, qualified
to do business and is (and BCC was) in good standing in each material
jurisdiction in which the nature of its business or the character of its
properties makes such qualification necessary. Except as otherwise disclosed on
Schedule 4.1.A, neither Seller nor any of its affiliates (other than BCC) have
entered into any material agreements or incurred any material obligations
binding on BCC or Beacon LLC, or affecting the Assets, and with respect to BCC
and Beacon LLC, has entered into any material agreements or incurred any
material obligations binding on BCC or Beacon LLC, or affecting the Assets,
other than through officers of BCC or of Beacon LLC excluding Charlie Lyons,
James A. Cronin, III, David Holden or Arthur Aaron.
4.2 TAXES. Seller, ABC, BCC and Beacon LLC have filed all tax
-----
returns required by law to have been filed and have paid all taxes, federal,
state, local or foreign, and penalties and interest due with respect to all
periods ending on or before the Closing Date, for returns and taxes due as of
that date, and will timely file all returns and pay all taxes, federal, state,
local or foreign, and penalties and interest due with respect to all periods up
through and including the Closing Date. Except as set forth on Schedule 4.2,
neither Seller or any of its subsidiaries or affiliates, nor BCC or Beacon LLC
has waived any statute of limitations applicable to its tax returns or tax
liabilities. Seller, BCC and Beacon LLC have withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, officer, director, creditor or third
party of BCC, Beacon LLC or any affiliated entity with respect to BCC's and
Beacon LLC's business. There are no liens or levies for taxes upon the Assets.
Except as set forth in Schedule 4.2, there has been no tax audits or
examinations of Ascent and its affiliates, including BCC, and no adjustments
made with respect to any previously filed tax returns. There are no pending
assessments.
5
<PAGE>
4.3 CERTIFICATES OF FORMATION AND OPERATING AGREEMENTS.
--------------------------------------------------
4.3.1 Prior to Closing, Seller has delivered to Buyer true,
accurate and complete copies of Beacon LLC's Certificate of Formation and
Operating Agreement, together with all amendments to each of same, and will
permit Buyer to examine the minute books of Beacon LLC, which contains complete
and accurate records of any and all proceedings and actions at all meetings or
taken by the written consent of Beacon LLC's members and manager(s). Seller
represents and warrants that at all times since formation (1) such Beacon LLC
has been and will be treated as, and will file income tax returns as, a
partnership for all federal, state and local taxing jurisdictions; (2) such
Beacon LLC has not made, and will not make, an election under Section 754 of the
United States Internal Revenue Code (the "Code") or any corresponding provision
of any state or local law; and (3) such Beacon LLC has elected to make any
allocations under Section 704(c) of the Code (and any state or local law) under
the "traditional" method.
4.3.2 Prior to Closing, Seller has delivered to Buyer true,
accurate and complete copies of each Beacon Sub LLC's Certificate of Formation
and Operating Agreement, together with all amendments to each of same, and will
permit Buyer to examine the minute books of each Beacon Sub LLC, which contains
complete and accurate records of any and all proceedings and actions at all
meetings or taken by the written consent of such Beacon Sub LLC's members and
manager(s). With respect to each Beacon Sub LLC, Seller represents and warrants
that at all times since formation, such (1) Beacon Sub LLC has been and will be
treated as, and will file income tax returns as, a partnership or a disregarded
entity for all federal, state and local taxing jurisdictions; (2) Beacon Sub LLC
has not made, and will not make, an election under the Code or any corresponding
provision of any state or local law; and (3) Beacon Sub LLC has elected to make
any allocations under Section 704(c) of the Code (and any state or local law)
under the "traditional" method.
4.4 OUTSTANDING MEMBERSHIP INTERESTS OF BEACON LLC; OUTSTANDING
-----------------------------------------------------------
OPTIONS AND WARRANTS.
--------------------
4.4.1 The authorized membership interests of Beacon LLC are as
set forth on Schedule 4.4.1. All such interests will be validly issued, fully
paid and non-assessable and issued and outstanding. All of such issued and
outstanding membership interests of Beacon LLC's membership interests are held
by Ascent and ABC, and owned by them in the proportions set forth on Schedule
4.4.1.
4.4.2 Seller and ABC are the lawful owners of all right, title
and interest in and to all of the issued and outstanding membership interests of
Beacon LLC and have good and marketable title thereto free and clear of any
claims, liens, pledges, encumbrances, equities or adverse rights of any kind
whatsoever. Ascent and ABC have the right, power and authority to sell, assign
and transfer the Interest (consisting of 90% of the membership interests of
Beacon LLC) pursuant to the terms of this Agreement and will convey same to
Buyer free and clear of any claims, liens, pledges, encumbrances, equities or
adverse rights of any kind whatsoever, except those granted to Armyan Bernstein
and Marc Abraham.
4.4.3 There are not any options, warrants, subscriptions or
other contracts, agreements, rights or claims outstanding for the purchase or
acquisition of, nor any securities convertible into, membership or other
interests in Beacon LLC whether issued, unissued, held in the treasury or
otherwise, and whether exercisable against Beacon LLC or any of its members.
There are no outstanding stock appreciation, phantom stock, profit participation
or similar rights with respect to BCC or Beacon LLC except those granted to
Armyan Bernstein and Marc Abraham.
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4.5 OUTSTANDING OWNERSHIP INTERESTS OF BEACON SUBSIDIARIES.
------------------------------------------------------
4.5.1 The authorized membership interests of each Beacon Sub LLC
are as set forth on Schedule 4.5.1. All such interests will be validly issued,
fully paid and non-assessable and issued and outstanding. All of such issued and
outstanding membership interests of each Beacon Sub LLC's membership interests
are held by Beacon LLC alone or in conjunction with another Beacon Sub LLC, and
owned by them in the proportions set forth on Schedule 4.5.1.
4.5.2 Beacon LLC and/or a Beacon Sub LLC are the lawful owners
of all right, title and interest in and to all of the issued and outstanding
membership interests of each Beacon Sub LLC and have good and marketable title
thereto free and clear of any claims, liens, pledges, encumbrances, equities or
adverse rights of any kind whatsoever. All of the membership interests in each
Beacon Sub LLC are owned by Beacon LLC alone or in conjunction with another
Beacon Sub LLC.
4.5.3 There are not any options, warrants, subscriptions or
other contracts, agreements, rights or claims outstanding for the purchase or
acquisition of, nor any securities convertible into, membership or other
interests in any Beacon Sub LLC whether issued, unissued, held in the treasury
or otherwise, and whether exercisable against Beacon LLC or any of its members.
There are no outstanding stock appreciation, phantom stock, profit participation
or similar rights with respect to any Beacon Sub LLC.
4.6 OFFICERS, DIRECTORS AND MANAGERS.
--------------------------------
4.6.1 The managers and officers of Beacon LLC prior to the
Closing will be as set forth in Schedule 4.6 A attached hereto. Each of the
managers and officers of Beacon LLC (except for those listed on Schedule 4.6B
[the "Retained Officers"]) will resign effective on the Closing Date and will
release such Beacon LLC from any claims which he, she or it may have against
Beacon LLC in a form mutually acceptable to the parties.
4.6.2 The managers and officers of each Beacon Sub LLC prior to
the Closing will be as set forth in Schedule 4.6 attached hereto. Each of the
managers and officers of each Beacon Sub LLC (except for the Retained Officers)
will resign effective on the Closing Date and will release Beacon LLC and each
Beacon Sub LLC from any claims which he, she or it may have against Beacon LLC
or any Beacon Sub LLC in a form mutually acceptable to the parties.
4.6.3 At the Closing, Seller will deliver a release of all
claims against BCC or Beacon LLC from all former directors and officers of BCC,
except for the Retained Officers, in a form mutually acceptable to the parties.
4.7 BOOK VALUE AND TAX BASIS. The Seller's and BCC's respective book
------------------------
values and tax basis of each category of the Assets and each material Assets and
any other assets held by BCC on November 30, 1998 is attached hereto as Schedule
4.7. Seller will update this Schedule, values and basis as of the Closing Date
and will deliver it to Buyer as soon as practical after the Closing Date. The
parties agreed that the Chairman of BCC and Beacon LLC, shall determine which,
if any, projects are to be abandoned for the periods from January 1, 1998
through the Closing.
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4.8 LITIGATION. Except as set forth on Schedule 4.8 prepared and
----------
delivered by Seller's management, there are no actions, suits, investigations,
or proceedings pending or, to the knowledge of Seller, threatened against
Seller, BCC or Beacon LLC with respect to, or arising out of, this Agreement or
the transactions contemplated hereby, or which could have a material adverse
effect on the Assets or the business or operations of BCC or Beacon LLC, at law
or in equity, or before or by any federal, state, municipal, or other
governmental department, commission, board, bureau, agency or instrumentality,
or before any arbitrator or private judge.
4.9 SALE BY SELLER ON AN "AS-IS, WHERE-IS" BASIS. Except for the
--------------------------------------------
specific representations made by Seller herein and in any other document or
certificate delivered by Seller pursuant to this Agreement, it is the intention
of Seller that its sale of the Interest is on an "as is, where is" basis.
Notwithstanding the foregoing, Seller does not have knowledge of any facts which
would make any representation or warranty of BCC or Beacon LLC contained in
this Agreement or in any certificate or schedule furnished pursuant hereto
untrue in any material respect or materially misleading, including, with respect
to representations or warranties made to the knowledge of BCC or Beacon LLC,
facts which would make sure representation or warranty untrue in any material
respect or materially misleading if known to BCC or Beacon LLC. To the
knowledge of Seller, Seller (which for purposes hereof includes all
subsidiaries and entities owned or controlled by Seller other than BCC or Beacon
LLC) has not taken any action, or omitted to take any action, which would have
the effect of making any of the representations or warranties of BCC or Beacon
LLC untrue in any material respect or materially misleading. Seller has made
its own determination as to the value of the Interest and is relying solely
thereon and not on any representation or warranty of any other person or party
in entering into this Agreement and selling the Interest.
4.10 KNOWLEDGE OF SELLER. Knowledge of Seller means actual
-------------------
knowledge of Charlie Lyons, James A. Cronin III, David Holden or Arthur Aaron
(collectively, "Seller's Executives"), and specifically excludes information
only known to directors or officers of BCC or Beacon LLC who are not officers or
directors of Ascent and which information they have not disclosed to any of
Seller's Executives.
4.11 MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or
-----------------------------------
warranty by Seller contained in this Agreement or in any certificate or schedule
furnished by Seller pursuant hereto contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statement of fact
contained therein not misleading.
5. REPRESENTATIONS AND WARRANTIES OF BEACON LLC. As of the Closing,
--------------------------------------------
Beacon LLC hereby represents and warrants to Buyer with respect to BCC and
Beacon LLC that:
5.1 FINANCIAL STATEMENTS. BCC has heretofore delivered to Seller,
--------------------
Buyer and the Principals the financial statement of BCC as of November 30, 1998
(the "Statement Date"). Said financial statement has been prepared by BCC
management in accordance with the books and records of BCC and common industry
accounting practices for a subsidiary of a parent company, applied on a basis
consistent with the financial statements of prior periods, contains and reflects
all necessary adjustments for a fair presentation of the financial condition of
BCC at the Statement Date, and with respect to any of BCC's contracts and
commitments, contains and reflects reserves for all material liabilities and for
all reasonably anticipated material losses and costs in excess of expected
receipts. For purposes of this Agreement, BCC's financial statements as of the
Statement Date shall be treated as Beacon LLC's financial statement as of that
date. Except as otherwise disclosed on Schedule 5.1, since the Statement Date
neither BCC nor Beacon LLC nor any of their controlled affiliates have entered
into any material agreements or incurred any material
8
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obligations binding on BCC or Beacon LLC, or affecting the Assets, other than
through Armyan Bernstein, in his capacity as Chairman of BCC and Manager of
Beacon LLC.
5.2 ABSENCE OF CERTAIN CHANGES. Other than as specifically permitted
--------------------------
by this Agreement, since the Statement Date, there has not been: (a) any
material adverse change in the financial condition, assets, liabilities or
business or prospects of BCC or Beacon LLC; (b) any damage, destruction or loss,
whether or not covered by insurance, adversely affecting the Assets or Beacon
LLC's properties or the Business; (c) except as set forth on Schedule 5.2, any
increase in the compensation payable or to become payable by Beacon LLC to any
of Beacon LLC's employees or agents, or any bonus payment or arrangement made to
or with any thereof; (d) any mortgage, pledge or subjection to lien, charge or
encumbrance of any kind of any of the Assets or Beacon LLC's assets, tangible or
intangible; (e) any sale or transfer of any of the Assets or BCC's or Beacon
LLC's assets, tangible or intangible, or any cancellation by BCC or Beacon LLC
of debts owed to BCC or Beacon LLC or claims by Beacon LLC against others,
except in the ordinary course of business, including transactions among BCC and
Beacon LLC, on one hand, and Seller and Seller's division, controlled-entities
and subsidiaries, on the other, consistent with past practices; (f) any
amendment, modification or termination of any contract, agreement or license to
which BCC or Beacon LLC is a party or by which it or any of the Assets are bound
or directly or indirectly affected, otherwise than in the ordinary course of
business, including transactions among Seller's divisions and subsidiaries
consistent with past practices; (g) any cash payments by BCC or Beacon LLC to
Seller or any affiliate other than for services provided or funds advanced for
bridge production financing in accordance with past practices of BCC and the
terms of this Agreement; and (h) any event or condition of any character
materially and adversely affecting BCC's or Beacon LLC's financial condition,
assets, liabilities, business, properties or prospects.
5.3 AUTHORITY TO CONDUCT BUSINESS. BCC and Beacon LLC are duly
-----------------------------
authorized to conduct the business of BCC and Beacon LLC as is presently or was
conducted under all material applicable laws, orders and regulations. BCC and
Beacon LLC each is in compliance in all material respects with all laws, orders
and regulations applicable to the Assets, properties (including the Assets),
business and operations of BCC and Beacon LLC, the noncompliance with which
would have a materially adverse impact on BCC or Beacon LLC, and no formal or
informal notice of any violation of any such laws, orders and regulations has
been received by BCC or Beacon LLC. To BCC's and Beacon LLC's knowledge, there
are no situations involving BCC or Beacon LLC which involved or involves (i) the
use of funds for unlawful contributions or unlawful expenses related to
political activity, or (ii) the making of any direct or indirect unlawful
payment to government officials or others, or the establishment or maintenance
of any unlawful or unrecorded funds, or (iii) the receipt of any illegal
discounts or rebates.
5.4 TITLE TO AND CONDITION OF ASSETS. BCC management has prepared
--------------------------------
and delivered to Buyer and Seller Schedule 5.4 which is a true and complete list
of all of the Assets containing an accurate description of the Assets and an
accurate summary of the principal terms of all leases and options to purchase
property included among the Assets, including the names of BCC's and Beacon
LLC's lessors, if any, and persons or entities against whom options to purchase
property are or will be exercisable. Except as set forth in Schedule 5.4,
neither BCC nor Beacon LLC has leased or licensed others to use any of the
Assets nor are the Assets subject to any such lease or license. Beacon LLC has
good and marketable title to all of the Assets and all other assets of Beacon
LLC free and clear of all liens, pledges, charges, encumbrances or equities of
any nature whatsoever except as set forth on Schedule 5.4.
5.5 CONTRACTS. BCC management has prepared and delivered to Buyer
---------
and Seller Schedule 5.5 which is a true and complete schedule of all material
contracts and commitments to which each
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of BCC and Beacon LLC is a party, by which it is bound, or under which it may be
directly or indirectly affected, insofar as the same relate to the Assets or the
Business. For the purposes of this Section 5.5, the term "material contracts and
commitments" shall be defined as (a) all contracts or commitments arising
outside of the ordinary course of business; (b) all contracts or commitments
involving an obligation which cannot, or in reasonable probability will not, be
performed or terminated within six (6) months from the date hereof; (c) all
other contracts or commitments providing for payments based in any manner upon
the receipts or profits of BCC or Beacon LLC; (d) all contracts or commitments
between BCC or Beacon LLC and Seller or any of Seller's subsidiaries or
affiliates; and (e) all contracts or commitments, whether in the ordinary course
of business or not, which contracts or commitments involve future payments,
performance of services or delivery of goods or materials to or by Beacon LLC of
an aggregate amount or value in excess of Twenty-five Thousand Dollars
($25,000). Except as set forth on Schedule 5.5, neither BCC nor Beacon LLC is in
default, nor is there any claim of default, under any such contracts made or
obligations owed by BCC or Beacon LLC, and neither BCC nor Beacon LLC has waived
any material right under any such contracts or obligations, nor is there any
basis for the other party or parties to any such contracts canceling the same.
All such contracts are fully assignable to Beacon LLC, and have been assigned
(or will be before Closing) and the transactions described herein shall not
affect the contracts (e.g., constituting a default or triggering any change in
---
the terms or conditions thereof).
5.6 COPYRIGHTS. BCC management has prepared and delivered to Buyer
----------
and Seller Schedule 5.6 which is a true and complete list of all of the foreign
and domestic copyright registrations or applications for registration thereof
for motion pictures, films, records, materials, designs or other copyrightable
subject matter used in the conduct of the business of BCC and/or Beacon LLC as
now conducted or in which either BCC or Beacon LLC has rights. Except as set
forth in Schedule 5.6, all copyrights used in the conduct of the business as now
conducted, including all copyrights with respect to all motion pictures, films,
records, materials, advertising, software and photographs (collectively, the
"Copyrights"), are solely owned by BCC and/or Beacon LLC, and will be owned by
Beacon LLC on the Closing Date. Neither BCC nor Beacon LLC (nor any affiliate,
including Seller) has received any notice from a third party asserting any
allegations of infringement of any copyrights held by third parties. Neither
BCC nor Beacon LLC has sold, licensed or transferred to Seller, any employee or
other person or entity any rights to any of the Copyrights, except as set forth
on Schedule 5.6. No person has asserted, and which has not been completely
resolved, that either Seller, BCC or Beacon LLC is infringing or has infringed,
any foreign or domestic copyright in connection with the Business.
5.7 PATENTS, TRADEMARKS, LICENSES AND CERTIFICATES. Beacon LLC uses
----------------------------------------------
no patents in the operation of its business. Beacon LLC owns, all of its right,
title and interest to the name "Beacon" and "Beacon Communications" and to any
copyrights, trademarks, trade names, service marks, logos, designs, domain names
and similar items, both foreign and domestic, using the name or term "Beacon" or
"Beacon Communications" (the "Marks"). Neither the Seller nor any of its
affiliates, nor any other person or entity, has any rights to license or use any
of the Marks or any derivation thereof. No Mark is the subject of any pending,
or to the knowledge of BCC or Beacon LLC threatened, litigation, arbitration,
interference, cancellation, adverse claim, or hearing. Neither BCC nor Beacon
LLC has infringed upon or violated the rights of any other person respecting
copyrights, patents, trademarks, trade names, logos, names or service marks.
Neither BCC nor Beacon LLC (nor any affiliate, including Seller) has received
any notice of any claim of infringement or violation.
5.8 LITIGATION. Except as set forth on Schedule 5.8 prepared and
----------
delivered by BCC management, there are no actions, suits, investigations, or
proceedings pending or, to the knowledge of BCC
10
<PAGE>
or Beacon LLC, threatened against Seller, BCC or Beacon LLC with respect to, or
arising out of, this Agreement or the transactions contemplated hereby, or which
could have a material adverse effect on the Assets or the business or operations
of BCC or Beacon LLC, at law or in equity, or before or by any federal, state,
municipal, or other governmental department, commission, board, bureau, agency
or instrumentality, or before any arbitrator or private judge.
5.9 EMPLOYEE RELATIONS. Except as set forth on Schedule 5.9
------------------
prepared and delivered by BCC management, neither BCC nor Beacon LLC is, or will
be at the Closing, subject to any agreements or employment contracts with any of
their employees or to any bonus arrangements, pension or other retirement plans,
or other similar benefit plans covering any of said employees. Beacon LLC will
have no obligations with respect to wage continuation, health insurance,
severance pay or accrued vacation obligations to any employee of BCC or Beacon
LLC or Seller for any period prior to and including the Closing Date. Except as
set forth on Schedule 5.9, none of BCC's or Beacon LLC's employees is
represented by any labor union or other collective bargaining agent; and neither
BCC nor Beacon LLC has any knowledge of any attempt to organize any of such
employees or any unit pursuant to any state or federal law such as, but not
limited to, the National Labor Relations Act. None of Seller, BCC, Beacon LLC or
an affiliate of any of them under the Employee Retirement Income Security Act
("ERISA") is or has ever been obligated to contribute to any employee benefit
plan or arrangement which constitutes a "multi-employer plan" as defined in
Section 3(37) of ERISA or a plan described in Section 4063(a) of ERISA. Seller,
BCC and Beacon LLC have made or accrued all contributions required under the
terms of such employee benefit plans to have been paid or accrued for services
ending on or prior to the Closing, and no accumulated funding deficiency (as
defined in Section 302 of ERISA and/or Section 412 of the Internal Revenue Code)
exists (whether or not waived). No plans of Seller, BCC or Beacon LLC are or
have ever been required to pay premiums to the Pension Benefit Guaranty
Corporation.
5.10 INSURANCE. There is listed on Schedule 5.10, prepared and
---------
delivered by BCC management, a true and complete list of all policies of fire,
liability, warranty, use and occupancy and other forms of insurance obtained by
BCC (including those to cover those films in production that are included in the
Assets, the "Film Policies") and all other insurance policies covering the
Assets, the Business, the properties, employees or business of BCC and Beacon
LLC, including any policies obtained and owned by Ascent and COMSAT and covering
BCC, Beacon LLC and the Assets as a result of BCC and Beacon LLC being
subsidiaries of Ascent (the "Beacon Policies") since December 1, 1994. Except
as noted, all Beacon Policies are duly in force and they are in amounts and
insure against such losses and risks as are generally maintained for comparable
businesses and properties. All Film Policies and other insurance policies
covering BCC, Beacon LLC, the Business, the Assets, the properties or employees
thereof (but excluding any policies obtained by Ascent and covering BCC and
Beacon LLC as a subsidiary of Ascent) ["Beacon-Specific Policy(ies)"], and
specifically including the life and disability policies on Armyan Bernstein and
the life insurance policy on Marc Abraham, have been, assigned to Beacon LLC,
and the sale of the Interest will not cause any Film Policy or Beacon-Specific
Policy to be terminated or canceled, and such policy shall remain in force until
the normal expiration of its terms (subject to payment of the normal premiums),
unless Beacon LLC elects to terminate the policy prior to that date. All of the
other Beacon Policies will continue to cover Beacon LLC and BCC for occurrences
prior to the Closing Date on the same terms as if the sale described herein had
not occurred. Seller will assist and cooperate with Beacon LLC in obtaining, at
Beacon LLC's expense, coverage with respect to occurrences on or prior to the
Closing Date. On or before the Closing, Buyer will be provided a summary of all
Beacon policies, and copies of each Beacon policy (including any policies
obtained by Ascent).
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5.11 BANKS. Schedule 5.11 prepared and delivered by BCC management
-----
sets forth (a) the name of each bank, trust company, stock and other broker with
which BCC or Beacon LLC have an account, credit line, or safe deposit box or
value or maintain any relations, (b) the name of all persons authorized to draw
thereon or to have access to any safe deposit box or vault, (c) the purpose of
each such account, safe deposit box or vault, and (d) the names of all persons
authorized by proxy, power of attorney or like instrument, to act on behalf of
either of BCC or Beacon LLC in matters concerning the Business or the Assets.
5.12 ENVIRONMENTAL AND HEALTH LAWS. Neither BCC nor Beacon LLC is
-----------------------------
in violation of any environmental law or any order or requirement of any court
or governmental authority to the extent such order or requirement pertains to
health or the environment, nor are the operations or assets of either BCC or
Beacon LLC, or the Assets subject to any remedial obligations under any
environmental law.
5.13 MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or
-----------------------------------
warranty by BCC or Beacon LLC contained in this Agreement or in any certificate
or schedule furnished by BCC or Beacon LLC pursuant hereto contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statement of fact contained therein not misleading. To the knowledge of BCC
and Beacon LLC, there is no fact that would materially adversely affect the
operations, business, assets or projects of BCC or Beacon LLC that has not been
disclosed in this Agreement or a Schedule thereto.
6. OBLIGATIONS AND COVENANTS OF SELLER, BCC AND BEACON LLC. Each of
-------------------------------------------------------
Seller, BCC and Beacon LLC hereby covenants and agrees as follows:
6.1 ACCESS AND INFORMATION. Seller, BCC and Beacon LLC will give
----------------------
Buyer and its counsel, accountants and other representatives full access, during
normal business hours, to all of the properties, books, contracts, commitments
and other records of BCC and Beacon LLC, and will furnish Buyer and such
representatives during such periods with all such information and data
concerning the Assets, the Assumed Liabilities and the assets, properties and
affairs of Beacon LLC as Buyer or such representatives shall request, and Buyer
and its representative, shall keep confidential (except to the extent that
disclosure may be required by law) any confidential information obtained under
this Agreement. Seller shall also provide all schedules, work papers and other
information showing the depreciation and the methodology therefor for the
amortization and depreciation of all Assets, and BCC's and Beacon LLC's methods
of accounting, and all information relating to differences in reporting for
financial (i.e.., book) purposes and income tax purposes and other matters
----
necessary or helpful in the preparation of BCC's and Beacon LLC's financial
statements and tax returns. Also, Seller and Beacon LLC will cooperate with
Buyer and use Seller's best reasonable efforts to have Seller's auditors and tax
preparers provide Buyer and its representatives access to, and copies of, all
information, schedules and work papers relating to BCC and Beacon LLC tax
returns, financial statements, methods of accounting, tax basis and book values,
methods of depreciation and amortization, and other matters necessary or helpful
for Buyer and Beacon LLC to prepare its books and records, financial statements
and tax returns. Post-Closing, Beacon LLC, shall cooperate in providing
information reasonably requested by Seller for Seller to prepare its financial
statements and tax returns.
7. REPRESENTATIONS AND WARRANTIES OF BUYER. As of the Closing, Buyer
---------------------------------------
hereby represents and warrants that:
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7.1 AUTHORITY AND LEGALITY. BT Investments is a limited liability
----------------------
company duly organized and validly existing and in good standing under the laws
of the State of Delaware with all requisite entity power to enter into this
Agreement and to perform all of its obligations hereunder. ANG is a corporation
organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite corporate power to enter into this Agreement and to
perform all of its obligations hereunder. Except as otherwise contemplated
herein, the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby by Buyer, and compliance with the terms
hereof, have been duly authorized by all necessary entity action; will not
violate any existing provision of any law, rule, or governmental regulation, or
violate any existing term or provision of any order, writ, judgment, injunction
or decree of any government, governmental instrumentality, public authority or
court applicable to Buyers, or require the prior consent, approval or action of
any other corporation or any person, firm or public authority; will not conflict
with or result in a breach or default (or give any party the right to declare a
breach or default upon notice or passage of time, or both) of any of the terms,
conditions or provisions of the Certificate of Formation or the Operating
Agreement of BT Investments or the Certificate of Incorporation or Bylaws of ANG
or of any indenture, mortgage, deed of trust, or any material agreement or
instrument to which Buyer is a party; and this Agreement constitutes the legal,
valid and binding agreement of Buyer.
7.2 MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or
-----------------------------------
warranty of Buyer contained in this Agreement or in any certificate or schedule
furnished pursuant hereto contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statement of fact
contained therein not misleading.
7.3 LITIGATION. Except as set forth on Schedule 7.3 prepared and
----------
delivered by Buyer, there are no actions, suits, investigations, or proceedings
pending or, to the knowledge of Buyer, threatened against Buyer, with respect
to, or arising out of, this Agreement or the transactions contemplated hereby,
or which could have a material adverse effect on the assets or businesses of
Buyer, or at law or in equity, or before or by any federal, state, municipal, or
other governmental department, commission, board, bureau, agency or
instrumentality, or before any arbitrator or private judge.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by Buyer or Seller (or their respective owners) shall survive
the Closing Date for a period of eighteen (18) months and any voluntary or
involuntary act of Buyer, the Principals, Beacon LLC or Seller. Notwithstanding
the preceding, (i) Seller's representations, warranties and agreements as to the
Membership Interests of Beacon LLC set forth in Paragraphs 4.4 and 4.5 hereof
shall survive indefinitely, and (ii) all representations, warranties and
agreements as to all tax obligations and tax matters of Seller, BCC and Beacon
LLC for all periods ending on and before the Closing shall survive for the
period of all relevant statutes of limitations. All representations, warranties
and agreements made by BCC or Beacon LLC shall survive the Closing Date for a
period of four (4) years and any voluntary or involuntary act of Buyer, the
Principals, Seller or Beacon LLC. Any investigation made by Buyer shall not
affect the representations and warranties hereunder or their survival as herein
contemplated.
9. FEDERAL SECURITIES ACT. The parties hereto understand that the
----------------------
membership interests to be transferred pursuant to the provisions of this
Agreement will not be registered under the Securities Act of 1933, as amended
(hereinafter referred to as the "Securities Act"), in reliance upon exemptions
contained in the Securities Act and General Rules and Regulations under the
Securities Act and promulgated by the Securities and Exchange Commission. Each
of Buyer hereby represents and warrants
13
<PAGE>
that the membership interests to be purchased pursuant to the terms of this
Agreement are not being acquired with a view to any distribution in violation of
the Securities Act and the Rules and Regulations promulgated thereunder. The
certificates for the membership interests to be delivered at the Closing will
bear an appropriate legend required by the Securities Act.
10. CLOSING. The sale and purchase of the membership interests shall
-------
place at a closing (the "Closing") which shall take place on January 15, 1999 at
5:00 p.m. at the offices of LeWinter & Rosman, A Professional Corporation, 16255
Ventura Boulevard, Suite 600, Encino, California 91436, or at such other time
and place as shall be determined by Seller and Buyer (the "Closing Date").
10.1 At the Closing, in addition to all of the other documents set
forth herein, Seller shall deliver to Buyer
(a) resignations and releases of each of the managers and
officers of Beacon LLC and each Beacon LLC Sub;
(b) an assignment sufficient to transfer the Interest on the
books of Beacon LLC to Buyer;
(c) the books and records of BCC and Beacon LLC;
(d) certificates, dated the Closing Date, executed by the
Chairman or a Vice President and by the Chief Financial Officer of such
corporation or two Managers of the Beacon LLC certifying that all
representations and warranties of Seller and Beacon LLC contained herein or in
any schedule, statement or certificate delivered in connection herewith are true
and correct on of the Closing, and that Seller and Beacon have duly performed
all obligations and covenants to be performed by each of them hereunder;
(e) an instrument from each of Seller's lenders or other
parties having a security interest or other lien or interest in the Interest,
any of the Assets or any of the other assets of BCC or Beacon LLC or having a
security interest in any significant Ascent assets releasing its security or
other lien or interest therein as of the Closing and a fully-executed UCC-3
forms (and/or other documents) and release of guarantees or other obligations of
Beacon LLC, BCC, and or any Beacon LLC Sub for such purpose. The liens for the
production loans for "G's Trippin,'" "Hurricane Carter" and "End of Days" shall
be excluded;
(f) an opinion of Seller's Vice President, business and legal
affairs, dated the Closing Date, in form reasonably satisfactory to Buyer's
counsel;
(g) an opinion of Seller's intellectual property counsel,
dated the Closing Date, in form satisfactory to Buyer's counsel, regarding the
Marks; and
(h) checks for 1998 bonuses for employees of BCC and Beacon
LLC.
10.2 Buyer's Delivery. At the Closing, Buyer shall deliver to Seller (a)
----------------
confirmation of the wire transfer of or delivery of a certified cashier's check
in the amount of the Purchase Price (less credits) as provided in Section 3.1,
above, and (b) a certificate, dated the Closing Date, executed by its Manager
and
14
<PAGE>
each of the Principals certifying that (i) all representations and warranties of
Buyer and the Principals contained herein or in any schedule, statement or
certificate delivered in connection herewith are true and correct as of the
Closing; and (ii) each of Buyer and the Principals shall have duly performed all
obligations and covenants to be performed by each of them hereunder.
10.3 Adjustments. From and after December 21, 1998, the Assets shall also
-----------
include all cash receipts of any type, including overhead contributions from
MCA, profit participations, fees, residuals, reimbursement and payments received
with respect to the Assets, the Business, and the operations of BCC and Beacon
LLC, including from all motion pictures and films that BCC or Beacon LLC is or
was involved with (other than recoveries of bridge production financing which
Ascent is entitled to keep under the terms of Paragraph 2.1) less direct
operating overhead (excluding interest on any intercompany advances, if any is
normally charged) expenditures of BCC and Beacon LLC for period after that date.
Expenditures are to be the usual and customary expenditures and within the
budget, and, in no event, are any Excluded Liabilities to be paid or any
expenditures which are to be paid by Seller under this Agreement to be paid.
All expenses of BCC or Beacon LLC related to the Assets or the Business which
are due and payable in the ordinary course up through and including the Closing
Date shall be paid by BCC or Beacon LLC in the ordinary course, without any
delay from past practices, and Seller shall provide the funds to make such
payments, if needed. Notwithstanding anything to the contrary, all items of
Excluded Liabilities and expenses which are to be paid by Seller under this
Agreement shall be paid by Seller and not by BCC or Beacon LLC. Except as
expressly set forth in the Agreement, there will be no liability or obligation
of Beacon LLC to reimburse or in any manner to repay any intercompany account
payable to Seller as of the Closing. No distributions shall be made to Seller,
except to reimburse Seller for the cost of salaries and other operating overhead
expenditures (consistent with past practices and prorated for periods extending
beyond January 1999)of BCC or Beacon LLC paid by Ascent plus recoveries of
bridge production financing which Ascent is entitled to keep under the terms of
Paragraph 2.1. Ascent may have BCC or Beacon LLC use any such funds received to
fund production (including development/financing) for "13 Days" and "Family
Man," but any BCC or Beacon LLC funds so used shall reduce on a dollar-for-
dollar basis Buyer's reimbursement obligations to Seller at the Closing with
respect to such financing, unless Ascent has funded BCC or Beacon LLC operating
and overhead expenditures in excess of receipts from December 21, 1998, in which
case, Buyer will reimburse Seller for the BCC or Beacon LLC funds used to fund
production for "13 Days" and "Family Man," but in no event shall such amount
exceed the out-of-pocket amount contributed by Ascent to fund BCC or Beacon LLC
operating expenditures.
11. SELLER'S INDEMNIFICATIONS. Seller, jointly and severally, shall
-------------------------
indemnify the Principals, Beacon LLC and Buyer as follows:
11.1 INDEMNIFICATION. Seller shall indemnify and hold the
---------------
Principals, Buyer and Beacon LLC harmless against and from any losses, costs,
damages, or liabilities, including in each case the costs and expenses
reasonably incurred by the Principals, Buyer or Beacon LLC for legal and
accounting services in defending actions or claims giving rise to such right of
indemnification, arising out of or based upon (a) the Excluded Liabilities; or
(b) any breach of any of Seller's warranties or agreements provided in this
Agreement or any misrepresentation in any certificate or document delivered by
Seller to Buyer hereunder. Recovery of the Principals, Buyer or Beacon LLC will
also include any legal fees and costs of the Principals, Buyer or Beacon LLC in
asserting their rights against Seller hereunder.
11.2 OPPORTUNITY TO DEFEND LITIGATION. If, after the Closing, any
--------------------------------
claim is made against the Principals, Beacon LLC or Buyer which, if sustained,
would constitute an Excluded Liability or a breach
15
<PAGE>
of warranty or agreement by Seller or which would give rise to a right of
indemnification, the Principals, Beacon LLC or Buyer shall cause written notice
of the claim to be mailed to Seller within thirty (30) days after the
Principals, Beacon LLC or Buyer receives a formal written demand for payment of
such claim. If Seller wishes to join in defending or compromising the claim and
so advises the Principals, Beacon LLC or Buyer in writing within ten (10) days
after receipt of the notice, the Principals, Beacon LLC or Buyer shall afford
Seller an opportunity to join therein at the sole expense of Seller and to
undertake the sole defense thereof. If Seller does elect to join therein and to
undertake the sole defense thereof with counsel reasonably acceptable to the
Principals, Beacon LLC and Buyer, the Principals, Beacon LLC or Buyer will not
compromise or settle such claim without Seller's consent. If Seller does not
elect to join in the defense and undertake the sole defense, the Principals,
Beacon LLC or Buyer shall have the right to make any settlement or compromise
which it, in its sole discretion, deems reasonable (including payment in full of
such claim) and obtain indemnification from Seller for the full amount thereof
and in such event the validity of such claim or amount of such settlement may
not then be challenged by Seller. In the event and for so long as Seller
actively is contesting or defending against any indemnified action or claim,
each of the Principals, Buyer and Beacon LLC will cooperate with the contest and
defense, and Seller's counsel in the contest or defense, make available its
personnel, and provide such testimony and access to its books and records as
shall be necessary in connection with the contest or defense, at no cost and
expense to Seller. The indemnified party shall have the right to employ counsel
separate from counsel employed by the indemnifying party in any such action and
to participate therein, but the fees and expenses of such counsel employed by
the indemnified party shall be at its expense.
11.3 LOSSES BY SUBSIDIARIES. For all purposes of this Agreement, any
----------------------
loss, liability, cost or expense suffered or incurred by any entity owned by
Buyer (including Beacon LLC) or Beacon LLC shall be deemed suffered or incurred
by Buyer, but Seller shall not be responsible for reimbursing more than one (1)
party for the same loss, liability, cost or expense or for paying any amount in
excess of the total loss, liability, cost or expense actually suffered or
incurred.
12. INDEMNIFICATION BY BUYER AND BEACON LLC. Buyer and Beacon LLC shall
---------------------------------------
jointly and severally indemnify Seller as follows:
12.1 INDEMNIFICATION. Buyer and Beacon LLC shall jointly and
---------------
severally indemnify and hold Seller harmless against and from any losses, costs,
damages, or liabilities, including in each case the costs and expenses
reasonably incurred by Seller for legal and accounting services in defending
actions or claims giving rise to such right of indemnification, arising out of
or based upon (a) any Assumed Liabilities; and (b) any breach of any of the
warranties of Buyer provided in this Agreement or any misrepresentation by Buyer
in any certificate or document delivered to Seller. Seller's recovery will
also include any legal fees and costs of Seller in asserting its rights against
Buyer and Beacon LLC hereunder.
12.2 OPPORTUNITY TO DEFEND LITIGATION. If, after the Closing, any
--------------------------------
claim is made against Seller which, if sustained, would arise out of an Assumed
Liability or constitute a breach of warranty or misrepresentation by Buyer or
which would give otherwise rise to a right of indemnification by Buyer or Beacon
LLC to Seller under this Agreement, Seller shall cause written notice of the
claim to be mailed to Buyer and Beacon LLC within thirty (30) days after Seller
receives a formal written demand for payment of such claim. If Buyer and/or
Beacon LLC wishes to join in defending or compromising the claim and so advises
Seller in writing within ten (10) days after receipt of the notice, Seller shall
afford them an opportunity to join therein at the sole expense of Buyer and
Beacon LLC and to undertake the sole defense thereof. If Buyer and Beacon LLC,
or any of them, elect to join therein and to undertake the sole defense
16
<PAGE>
thereof with counsel reasonably acceptable to Seller, then Seller will not
compromise or settle such claim without the consent of the defending party. If
neither Buyer nor Beacon LLC elect to join in the defense and undertake the sole
defense, Seller shall have the right to defend the action and to make any
settlement or compromise which it, in its sole discretion, deems reasonable
(including payment in full of such claim) and to obtain indemnification jointly
and severally from Buyer or Beacon LLC for the full amount thereof, and in such
event the validity of such claim or the amount of such settlement may not then
be challenged by Buyer or Beacon LLC. In the event and for so long as Buyer or
Beacon LLC actively is contesting or defending against any indemnified action or
claim, Seller will cooperate with the contest and defense, and counsel in the
contest or defense, make available Seller's personnel, and provide such
testimony and access to Seller's books and records as shall be necessary in
connection with the contest or defense, at no cost and expense to Buyer or
Beacon LLC. The indemnified party shall have the right to employ counsel
separate from counsel employed by the indemnifying party in any such action and
to participate therein, but the fees and expenses of such counsel employed by
the indemnified party shall be at its expense.
12.3 LOSSES BY SUBSIDIARIES. For all purposes of this Agreement, any
----------------------
loss, liability, cost or expense suffered or incurred by any Subsidiary of
Seller shall be deemed suffered or incurred by Seller, but Buyer and Beacon LLC
shall not be responsible for reimbursing more than one (1) party for the same
loss, liability, cost or expense or for paying any amount in excess of the total
loss, liability, cost or expense actually suffered or incurred.
13. INDEMNIFICATION BY BEACON LLC. Beacon LLC shall indemnify Buyer and
-----------------------------
the Principals as follows:
13.1 INDEMNIFICATION. Beacon LLC shall indemnify and hold Buyer and
---------------
the Principals harmless against and from any losses, costs, damages, or
liabilities, including in each case the costs and expenses reasonably incurred
by Buyer or the Principals for legal and accounting services in defending
actions or claims giving rise to such right of indemnification based upon any
breach of any of the warranties of BCC or Beacon LLC provided in this Agreement
or any misrepresentation by BCC or Beacon LLC in any certificate or document
delivered to Buyer or the Principals by either of them. Buyer's or the
Principal's recovery will also include any of their respective legal fees and
costs in asserting their rights against Beacon LLC hereunder.
13.2 OPPORTUNITY TO DEFEND LITIGATION. If, after the Closing, any
--------------------------------
claim is made against Buyer or the Principals which, if sustained, would
constitute a breach of warranty or agreement by Beacon LLC or which would give
rise to a right of indemnification, Buyer or the Principals shall cause written
notice of the claim to be mailed to Beacon LLC within thirty (30) days after any
of them receives a formal written demand for payment of such claim. If Beacon
LLC wishes to join in defending or compromising the claim and so advises Seller
in writing within ten (10) days after receipt of the notice, Buyer and the
Principals shall afford Beacon LLC an opportunity to join therein at the sole
expense of Beacon LLC and to undertake the sole defense thereof. If Beacon LLC
elects to join therein and to undertake the sole defense thereof with counsel
reasonably satisfactory to Buyer and the Principals, neither Buyer not the
Principals will compromise or settle such claim without Beacon LLC's consent.
If Beacon LLC does not elect to join in the defense and undertake the sole
defense, Buyer and the Principals shall have the right to defend the action and
to make any settlement or compromise which they, in their sole discretion, deem
reasonable (including payment in full of such claim) and to obtain
indemnification jointly and severally from Beacon LLC for the full amount
thereof, and in such event the validity of such claim or the amount of such
settlement may not then be challenged by Beacon LLC. In the event and for so
long as Beacon LLC actively is contesting or defending
17
<PAGE>
against any indemnified action or claim, Buyer and the Principals will cooperate
with the contest and defense, and counsel in the contest or defense, make
available their personnel, and provide such testimony and access to Buyer's
books and records as shall be necessary in connection with the contest or
defense, at no cost and expense to Beacon LLC. The indemnified party shall have
the right to employ counsel separate from counsel employed by the indemnifying
party in any such action and to participate therein, but the fees and expenses
of such counsel employed by the indemnified party shall be at its expense.
13.3 LOSSES BY SUBSIDIARIES. For all purposes of this Agreement, any
----------------------
loss, liability, cost or expense suffered or incurred by any Subsidiary of Buyer
shall be deemed suffered or incurred by Buyer, but Beacon LLC shall not be
responsible for reimbursing more than one (1) party for the same loss,
liability, cost or expense or for paying any amount in excess of the total
loss, liability, cost or expense actually suffered or incurred.
14. FEES AND EXPENSE. Each of the parties to this Agreement shall pay its
----------------
own expenses in connection with the transactions contemplated hereby. Seller
shall pay any transfer, documentary, sales or other taxes, fees, and expenses
which may be due with respect to the transfers described herein.
15. BROKER'S AND FINDER'S FEE. Seller and Buyer each represents and
-------------------------
warrants to the other that it (and with respect to Seller it represents that
each of BCC and Beacon LLC) has not incurred any broker's or finder's fee in
connection with the transactions contemplated hereby, and each agrees to
indemnify and hold the other harmless from any broker's or finder's fee or
alleged broker's or finder's fee incurred by the other or any claim by any party
that the other entered into any agreement calling for a broker's or finder's
fee.
16. PUBLIC STATEMENTS. Buyer, Seller and the Principals agree that to the
-----------------
fullest extent permitted by law, the terms of this Agreement are CONFIDENTIAL.
Buyer and Seller shall consult with each other with regard to all publicity,
general employee announcements and public announcements concerning this
Agreement and the transactions contemplated hereby and, except as required by
applicable law or the applicable rules or regulations of any governmental body
or stock exchange (including, without limitation, the NASDAQ Stock Market), no
party shall issue a press release or announcement concerning this Agreement and
the transactions contemplated hereby without the prior consent of the other
parties hereto, which consent shall not be unreasonably withheld. Prior to
making any filing with regard to this Agreement, Seller will redact as many of
the terms of this Agreement as may be permitted by law and shall provide Buyer
the opportunity to comment on the proposed disclosure prior to filing.
17. SUCCESSORS AND ASSIGNS. All covenants, representations, warranties
----------------------
and agreements of the parties contained herein shall be binding upon and inure
to the benefit of their respective successors and permitted assigns.
18. REMEDIES NOT EXCLUSIVE. Except as expressly provided, no remedy
----------------------
conferred by any entity of the specific provisions of this Agreement is
intended to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies by Buyer, Beacon LLC or Seller shall not
constitute a waiver of the right to pursue other available remedies.
18
<PAGE>
19. NOTICES. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed given or
delivered to the parties at the following addresses (or at such other address as
shall be given in writing by either party to the other) (i) when delivered
personally, (ii) if transmitted by facsimile when confirmation of transmission
is received, if received during normal business hours on a business day,
otherwise on the next business day, or (iii) if sent by United States certified
or registered mail, postage prepaid or by private courier, when received:
Buyer: BOOMTOWN INVESTMENTS, LLC
c/o LeWinter & Rosman, A Professional Corporation
16255 Ventura Boulevard, Suite 600
Encino, CA 91436
Attn.: Kevin O'Donnell, Manager
Fax No.: (818) 784-5096
and to: Armyan Bernstein, Member-Manager
c/o LeWinter & Rosman, A Professional Corporation
16255 Ventura Boulevard, Suite 600
Encino, CA 91436
Fax No.: (818) 784-5096
ANG: ANG Capital Corporation
c/o LeWinter & Rosman, A Professional Corporation
16255 Ventura Boulevard, Suite 600
Encino, CA 91436
Fax: (818) 784-5096
With copies to: LeWinter & Rosman, A Professional Corporation
16255 Ventura Boulevard, Suite 600
Encino, CA 91436
Attn.: Richard D. Rosman, Esq.
Fax No.: (818) 784-5096
Seller: Ascent Entertainment Group, Inc.
1225 Seventeenth Street
Suite 1800
Denver, CO 80202
Attn.: Charles Lyons, Chairman
Fax No.: (303) 308-0488
With copies to: Arthur Aaron, Esq.
c/o Ascent Entertainment Group, Inc.
1225 Seventeenth Street
Suite 1800
Denver, CO 80202
Fax No.: (303) 308-0489
19
<PAGE>
Beacon LLC: Beacon Communications, LLC
120 Broadway
Santa Monica, CA 90401
Attn.: Armyan Bernstein, Chairman
with copies to: LeWinter & Rosman, A Professional Corporation
16255 Ventura Boulevard, Suite 600
Encino, CA 91436
Attn.: Richard D. Rosman, Esq.
Fax No.: (818) 784-5096
20. ENTIRE AGREEMENT. This Agreement, together with all schedules,
exhibits, certificates and documents delivered in connection herewith or
referred to herein, contain the entire agreement between the parties hereto with
respect to the transactions contemplated herein, supersede all prior
negotiations between the parties, and cannot be amended, supplemented or
modified except by an instrument in writing signed by the party against whom the
enforcement of any such amendment, supplement or modification is sought.
21. CONSTRUCTION. This Agreement shall be construed and enforced in
------------
accordance with the laws of the State of California.
22. CAPTIONS AND SECTION HEADINGS. Captions and section headings used
-----------------------------
herein are for convenience only and are not a part of this Agreement and shall
not be used in construing it.
23. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The delivery of a
facsimile copy of an executed copy by a party hereto shall be deemed an
equivalent of delivery of any original signature by such party. Such party
shall also deliver an original copy of the executed document within three (3)
business days.
24. CORPORATE AUTHORITY. Any corporation signing this Agreement
-------------------
represents and warrants that said Agreement is executed in compliance with a
resolution of the Board of Directors of said corporation, duly adopted by said
Board and transcribed in full in the minutes of said corporation. Any
individual signing this Agreement on behalf of an entity represents and warrants
that he has full authority to do so.
25. INTERPRETATION. No provision of this Agreement is to be interpreted
--------------
for or against either party because that party or that party's legal
representative drafted such provision.
26. DISPUTE RESOLUTION. In the event of a dispute or disagreement among
------------------
the parties as to whether there has been a breach or default under this
Agreement, each party agrees to notify in writing the other party of the alleged
breach or default and both parties agree to discuss, negotiate and attempt to
resolve the alleged breach or default for a period of thirty (30) days after
notice. In the event the parties cannot reach an agreement to settle and
resolve their dispute, each party agrees to use the alternative dispute
mechanism set forth on Schedule 26 attached hereto as the exclusive means of
resolving the dispute.
20
<PAGE>
Notwithstanding anything to the contrary, either party may use a court
proceeding to seek and obtain a temporary restraining order or injunctive
relief.
27. FURTHER ASSURANCES. The parties hereto agree to execute such
------------------
additional documents and take such further action as may be reasonably necessary
to carry out the provisions of this Agreement. Without limiting the foregoing,
from time to time, at Buyer's request, whether on or after the Closing Date and
without further consideration or cost to Buyer or Beacon LLC, (a) Seller shall
execute and deliver such further instruments of conveyance and transfer and take
such other action as Buyer reasonably may require to more effectively convey and
transfer to Buyer the Interests and to Beacon LLC the Assets and the Business
which has been transferred and assigned to Beacon LLC and, if necessary, will
assist Beacon LLC, at Beacon LLC's request, in the collection or reduction to
possession of such property and to assist Buyer in understanding, contesting and
defending any Assumed Liabilities and any Excluded Liabilities; and (b) Seller
shall execute and deliver such documents and take all other actions reasonably
necessary or helpful for Beacon LLC, BT Investments or any Principal to assert
any claims it may have under any insurance policy now or previously held by
Seller or COMSAT).
28. NAME CHANGE. Not later than the next business day immediately
-----------
following the Closing, each Seller shall file an amendment to its respective
Certificate of Incorporation to change its respective corporate name so as not
to include the word "Beacon" or any other name or mark that has such a near
resemblance thereto as may be likely to cause confusion or mistake to the
public, or to otherwise deceive the public. Each such amendment shall be in a
form acceptable for filing with the appropriate public official or agency of the
respective State of incorporation of such Seller. A copy of the filed Amendment
shall promptly be supplied to Buyer.
29. TAX RETURNS AND EXAMINATIONS. All tax returns for BCC and Beacon LLC,
----------------------------
and their respective corporation subsidiaries and limited liability companies,
for periods up to and including the Closing Date which have not yet been filed
as of the date of this Agreement ("Pre-Closing Tax Returns") shall be prepared
in a manner consistent with past practices and applicable law, and in accordance
with the provisions of this Agreement and the agreements of the parties, and
shall be provided to Buyer to allow for Buyer's review prior to filing as to
matters that do or may affect Beacon LLC and/or Beacon Sub LLC (including,
without limitation, tax basis of Assets, expensing or capitalization of
expenditures, changes in methods of accounting, depreciation and amortization of
films and other assets, and abandonment of development projects).
Notwithstanding the above, Buyer and Seller agree that Buyer shall prepare all
Beacon LLC tax returns and Beacon Sub LLC tax return (but not for corporate
entities for periods ending on or before the Closing, which shall be prepared by
Seller) for periods after December 31, 1998. Any Pre-Closing Tax Returns
prepared by Seller shall be provided to Buyer for review and consultation; any
pre-Closing Tax Returns prepared by Buyer shall be provided to Seller for review
and consultation. Buyer and Seller intend and agree that such returns be filed
in a manner that reflects that Beacon LLC has a carryover tax basis in the
Assets of BCC, and that the merger of BCC into Beacon LLC is treated as a tax-
free contribution of assets by BCC to Beacon LLC and a distribution of
membership interests to Ascent. With respect to each merger or liquidation of
any BCC or Beacon LLC subsidiary corporation into a limited liability company,
there will also be a carryover basis in the assets. Seller will take all
reasonable steps to preserve Buyer's tax positions. Seller and Buyer agree to
consult and resolve in good faith any issue arising as a result of the review of
such Pre-Closing Tax Returns. In the event the parties are unable to resolve
any dispute within ten (10) days following the delivery of such Pre-Closing Tax
Returns, the parties shall jointly request Seller's or Buyer's accountants
(depending on whether Seller or Buyer prepared the tax return) to resolve any
issue at least five (5) days before the due date of any such Pre-Closing Tax
Return, in order that
21
<PAGE>
such Pre-Closing Tax Return may be timely filed. Except as expressly permitted
by this Paragraph 32, neither Seller nor any affiliate of Seller shall, without
the prior written consent of Buyer, file, or cause to be filed, any tax return
or amended tax return or claim for tax refund for any pre-Closing period, which
reasonably may materially adversely affect Beacon LLC or any subsidiary entity.
Buyer's consent may be withheld to the extent that any such tax return or claim
refund reasonably could materially adversely affect BCC, Beacon LLC or any
subsidiary entity of either (such as by increasing its income or decreasing its
deductions in years subsequent to the year involved in the return or claim for
refund or changing the tax basis of Beacon LLC's assets or methods of
accounting). The Seller has delivered to Buyer on or before the Closing, copies
of all tax returns of BCC, Beacon LLC, or portions of Seller's group returns
related to or affecting BCC or Beacon LLC, and all schedules and work papers,
and all material records and other documents relating thereto, and the parties
shall retain such documents until the expiration of the statute of limitation
(and, to the extent notified by any party, any extensions thereof) of the
taxable years to which such returns and other documents relate until the final
determination of any tax in respect of such years. Buyer shall have the right to
participate with Seller and represent the interests of BCC or Beacon LLC and any
transferred subsidiary of either in any tax audit or administrative or court
proceeding relating to any tax returns or portions thereof (including any
examination or proceeding relating to the income, methods of accounting,
properties or operations of the BCC, Beacon LLC, and any subsidiary entities of
either, for pre-Closing periods) relating to BCC, Beacon LLC or any subsidiary
entity, and Seller shall give Buyer prompt and timely notice of any such audit
or proceeding. In the event that Seller desires to compromise or settle any tax
claim, or to consent or agree to any adjustment, relating to BCC or Beacon LLC
or any transferred subsidiary entity for any pre-Closing period, Buyer and
Beacon LLC shall have the right to review and approve such compromise,
settlement, consent or agreement. Notwithstanding anything to the contrary
contained or implied in this Agreement, without the prior written approval of
Buyer, neither Seller nor any affiliate of Seller shall agree or consent to
compromise or settle, either administratively or after the commencement of
litigation, any issue or claim arising in any such audit or proceeding, or
otherwise agree or consent to any tax liability that will adversely affect
Beacon LLC or any transferred subsidiary entity should Beacon LLC or Buyer pick
up and pay for the defense; if Buyer does not do so, Seller may compromise or
settle.
30. SEVERABILITY. In the event that any covenant, condition or other
------------
provision herein contained is held to be invalid, void or illegal by any court
of competent jurisdiction, the same shall be deemed severable from the remainder
of this Agreement and shall in no way affect, impair or invalidate any other
covenant, condition or other provision herein contained. If such condition,
covenant or other provision shall be deemed invalid due to its scope or breadth,
such covenant, condition or other provision shall be deemed valid to the extent
of the scope or breadth permitted by law.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
Ascent: ASCENT ENTERTAINMENT GROUP, INC.
A Delaware Corporation
By: /s/ Charles Lyons
---------------------------------------------
Charles Lyons, Chairman
By: /s/ Arthur M. Aaron
---------------------------------------------
Arthur M. Aaron, Vice President
ABC: ASCENT BEACON CORP.
A Delaware Corporation
By: /s/ James A. Cronin, III
---------------------------------------------
Authorized Officer
By: /s/ Arthur M. Aaron
---------------------------------------------
Authorized Officer
Beacon LLC: BEACON COMMUNICATIONS LLC
A Delaware Limited Liability Company
By: /s/ James A. Cronin, III
---------------------------------------------
Authorized Member-Manager
By: /s/ Arthur M. Aaron
---------------------------------------------
Authorized Member-Manager
23
<PAGE>
Buyer: BOOMTOWN INVESTMENTS, LLC
A Delaware Limited Liability Company
By: /s/ Kevin O'Donnell
---------------------------------------------
Kevin O'Donnell, Manager
By: /s/ Armyan Bernstein
---------------------------------------------
Armyan Bernstein, Manager
and ANG CAPITAL CORPORATION
A Delaware Corporation
By: /s/ Armyan Bernstein
---------------------------------------------
Armyan Bernstein, President
24
<PAGE>
Exhibit 21
Subsidiaries of the Company
On Command Corporation
On Command Development Corporation
On Command Video Corporation
SpectraVision, Inc.
Spectradyne International, Inc.
On Command Hong Kong Limited
On Command Australia Pty Limited
On Command (Thailand) Limited
Spectradyne Singapore Pfc Limited
On Command Canada, Inc.
Kalevision Systems, Inc. Canada
Spectradyne International, Inc. Sucursal en Mexico
Ascent Sports Holdings, Inc.
Ascent Sports, Inc.
Ascent Arena and Development Corporation
Ascent Arena Company, LLC
The Denver Nuggets Limited Partnership
The Colorado Avalanche LLC
Ascent Beacon Corporation
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 33-
09067 and 33-09053 of Ascent Entertainment Group, Inc. on Form S-8 of our report
dated February 24, 1999, appearing in this Annual Report on Form 10-K of Ascent
Entertainment Group, Inc. for the year ended December 31, 1998.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 42,425
<SECURITIES> 0
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0
0
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<INCOME-PRETAX> (62,540)
<INCOME-TAX> 5,512
<INCOME-CONTINUING> (57,028)
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<EPS-DILUTED> (1.67)
</TABLE>
