Document
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.  20549
 
FORM 10-Q
 
ý           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2019
OR
o              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
Commission File Number 001-34176
ASCENT CAPITAL GROUP, INC.
(Exact name of Registrant as specified in its charter)
State of Delaware
 
26-2735737
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
5251 DTC Parkway, Suite 1000
 
 
Greenwood Village, Colorado
 
80111
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (303) 628-5600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Series A Common Stock, par value $.01 per share
 
ASCMA
 
The Nasdaq Stock Market LLC
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 Exchange 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.  Yes ý  No o
 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ý  No o
 Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
 
Smaller reporting company x
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No ý
The number of outstanding shares of Ascent Capital Group, Inc.’s common stock as of May 1, 2019 was:
Series A common stock 12,108,012 shares; and Series B common stock 381,528 shares.


Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
 
 
PART I — FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1

Table of Contents

Item 1.  Financial Statements (unaudited)
ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
(unaudited)
 
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 

 
 

Cash and cash equivalents
$
76,300

 
105,921

Restricted cash
118

 
189

Trade receivables, net of allowance for doubtful accounts of $3,239 in 2019 and $3,759 in 2018
12,438

 
13,121

Prepaid and other current assets
35,018

 
32,202

Total current assets
123,874

 
151,433

Property and equipment, net of accumulated depreciation of $43,985 in 2019 and $40,827 in 2018
37,160

 
36,549

Subscriber accounts and deferred contract acquisition costs, net of accumulated amortization of $1,670,228 in 2019 and $1,621,242 in 2018
1,176,776

 
1,195,463

Deferred income tax asset, net
783

 
783

Operating lease right-of-use asset
19,840

 

Other assets
25,615

 
29,316

Total assets
$
1,384,048

 
1,413,544

Liabilities and Stockholders’ Deficit
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
13,083

 
12,668

Other accrued liabilities
49,653

 
36,006

Deferred revenue
12,698

 
13,060

Holdback liability
12,041

 
11,513

Current portion of long-term debt
1,859,109

 
1,895,175

Total current liabilities
1,946,584

 
1,968,422

Non-current liabilities:
 

 
 

Long-term holdback liability
1,979

 
1,770

Derivative financial instruments
9,287

 
6,039

Operating lease liabilities
16,567

 

Other liabilities
2,912

 
2,742

Total liabilities
1,977,329

 
1,978,973

Commitments and contingencies


 


Stockholders’ deficit:
 

 
 

Preferred stock, $0.01 par value. Authorized 5,000,000 shares; no shares issued

 

Series A common stock, $.01 par value. Authorized 45,000,000 shares; issued and outstanding 12,092,846 and 12,080,683 shares at March 31, 2019 and December 31, 2018, respectively
121

 
121

Series B common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 381,528 shares at both March 31, 2019 and December 31, 2018
4

 
4

Series C common stock, $0.01 par value. Authorized 45,000,000 shares; no shares issued

 

Additional paid-in capital
1,425,780

 
1,425,325

Accumulated deficit
(2,026,326
)
 
(1,998,487
)
Accumulated other comprehensive income, net
7,140

 
7,608

Total stockholders’ deficit
(593,281
)
 
(565,429
)
Total liabilities and stockholders’ deficit
$
1,384,048

 
1,413,544

 

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Amounts in thousands, except per share amounts
(unaudited) 
 
Three Months Ended 
 March 31,
 
2019
 
2018
Net revenue
$
129,606

 
133,753

Operating expenses:
 
 
 
Cost of services
26,764

 
32,701

Selling, general and administrative, including stock-based and long-term incentive compensation
32,512

 
37,406

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
49,145

 
54,411

Depreciation
3,158

 
2,621

 
111,579

 
127,139

Operating income
18,027

 
6,614

Other expense (income), net:
 
 
 
Interest income
(544
)
 
(481
)
Interest expense
37,894

 
38,652

Unrealized loss on derivative financial instruments
7,773

 

Refinancing expense
331

 

Other income, net
(259
)
 
(2,065
)
 
45,195

 
36,106

Loss before income taxes
(27,168
)
 
(29,492
)
Income tax expense
671

 
1,346

Net loss
(27,839
)
 
(30,838
)
Other comprehensive income (loss):
 
 
 
Unrealized holding loss on marketable securities, net

 
(3,077
)
Unrealized gain (loss) on derivative contracts, net
(468
)
 
14,406

Total other comprehensive income (loss), net of tax
(468
)
 
11,329

Comprehensive loss
$
(28,307
)
 
(19,509
)
 
 
 
 
Basic and diluted loss per share:
 
 
 
Net loss
$
(2.24
)
 
(2.51
)
 

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
(unaudited)
 
Three Months Ended 
 March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(27,839
)
 
(30,838
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
49,145

 
54,411

Depreciation
3,158

 
2,621

Stock-based and long-term incentive compensation
805

 
226

Deferred income tax expense

 
662

Amortization of debt discount and deferred debt costs
150

 
2,959

Unrealized loss on derivative financial instruments
7,773

 

Refinancing expense
331

 

Bad debt expense
3,335

 
3,017

Other non-cash activity, net
(264
)
 
41

Changes in assets and liabilities:
 

 
 

Trade receivables
(2,652
)
 
(2,672
)
Prepaid expenses and other assets
3,428

 
781

Subscriber accounts - deferred contract acquisition costs
(863
)
 
(898
)
Payables and other liabilities
11,306

 
17,644

Net cash provided by operating activities
47,813

 
47,954

Cash flows from investing activities:
 

 
 

Capital expenditures
(2,999
)
 
(3,310
)
Cost of subscriber accounts acquired
(28,850
)
 
(24,560
)
Purchases of marketable securities

 
(7,998
)
Proceeds from sale of marketable securities

 
5,495

Net cash used in investing activities
(31,849
)
 
(30,373
)
Cash flows from financing activities:
 

 
 

Proceeds from long-term debt
43,100

 
50,000

Payments on long-term debt
(79,316
)
 
(47,750
)
Payments of financing costs
(9,436
)
 

Value of shares withheld for share-based compensation
(4
)
 
(116
)
Net cash provided by (used in) financing activities
(45,656
)
 
2,134

Net increase (decrease) in cash, cash equivalents and restricted cash
(29,692
)
 
19,715

Cash, cash equivalents and restricted cash at beginning of period
106,110

 
10,465

Cash, cash equivalents and restricted cash at end of period
$
76,418

 
30,180

Supplemental cash flow information:
 

 
 

State taxes paid, net
$

 

Interest paid
25,886

 
22,920

Accrued capital expenditures
1,322

 
830

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders’ Deficit
Amounts in thousands
(unaudited)
 


 
 
 
 
 
 
 
 
Additional Paid-in Capital
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders' Deficit
 
Preferred Stock
 
Common Stock
 
 
Accumulated Deficit
 
 
 
 
Series A
 
Series B
 
Series C
 
 
 
 
Balance at December 31, 2018
$

 
121

 
4

 

 
1,425,325

 
(1,998,487
)
 
7,608

 
$
(565,429
)
Net loss

 

 

 

 

 
(27,839
)
 

 
(27,839
)
Other comprehensive loss

 

 

 

 

 

 
(468
)
 
(468
)
Stock-based compensation

 

 

 

 
459

 

 

 
459

Value of shares withheld for minimum tax liability

 

 

 

 
(4
)
 

 

 
(4
)
Balance at March 31, 2019
$

 
121

 
4

 

 
1,425,780

 
(2,026,326
)
 
7,140

 
$
(593,281
)
 


 
 
 
 
 
 
 
 
Additional Paid-in Capital
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders' Equity
 
Preferred Stock
 
Common Stock
 
 
Accumulated Deficit
 
 
 
 
Series A
 
Series B
 
Series C
 
 
 
 
Balance at December 31, 2017
$

 
120

 
4

 

 
1,423,899

 
(1,277,118
)
 
(4,233
)
 
$
142,672

Impact of adoption of Topic 606

 

 

 

 

 
(22,720
)
 

 
(22,720
)
Impact of adoption of ASU 2017-12

 

 

 

 

 
(605
)
 
605

 

Adjusted balance at January 1, 2018

 
120

 
4

 

 
1,423,899

 
(1,300,443
)
 
(3,628
)
 
119,952

Net loss

 

 

 

 

 
(30,838
)
 

 
(30,838
)
Other comprehensive income

 

 

 

 

 

 
11,329

 
11,329

Stock-based compensation

 

 

 

 
285

 

 

 
285

Value of shares withheld for minimum tax liability

 

 

 

 
(116
)
 

 

 
(116
)
Balance at March 31, 2018
$

 
120

 
4

 

 
1,424,068

 
(1,331,281
)
 
7,701

 
$
100,612


See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 
(1)    Basis of Presentation
 
The accompanying Ascent Capital Group, Inc. ("Ascent Capital" or the "Company") condensed consolidated financial statements represent the financial position and results of operations of Ascent Capital and its consolidated subsidiaries.  Monitronics International, Inc. and its consolidated subsidiaries (collectively, "Monitronics", doing business as Brinks Home SecurityTM), are the primary, wholly owned subsidiaries of the Company.  Monitronics provides residential customers and commercial client accounts with monitored home and business security systems, as well as interactive and home automation services, in the United States, Canada and Puerto Rico.  Monitronics customers are obtained through its direct-to-consumer sales channel (the "Direct to Consumer Channel") or its exclusive authorized dealer network (the "Dealer Channel"), which provides product and installation services, as well as support to customers. Its Direct to Consumer Channel offers both Do-It-Yourself and professional installation security solutions.

The Company's chief operating decision maker reviews internal financial information on a consolidated Monitronics basis, which excludes corporate Ascent Capital activities and consolidation eliminations not associated with the operation of Monitronics. Total assets related to corporate Ascent Capital activities are $53,132,000 and $107,815,000 as of March 31, 2019 and December 31, 2018, respectively. Net income (loss) before income taxes related to corporate Ascent Capital activities was $3,932,000 for the three months ended March 31, 2019, as compared to $(4,631,000) for the three months ended March 31, 2018.

The unaudited interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s (the "SEC") Regulation S-X. Accordingly, it does not include all of the information required by generally accepted accounting principles in the United States ("GAAP") for complete financial statements. The Company’s unaudited condensed consolidated financial statements as of March 31, 2019, and for the three months ended March 31, 2019 and 2018, include Ascent Capital and all of its direct and indirect subsidiaries. The accompanying interim condensed consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the Ascent Capital Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on April 1, 2019.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses for each reporting period.  The significant estimates made in preparation of the Company’s condensed consolidated financial statements primarily relate to valuation of subscriber accounts and valuation of deferred tax assets. These estimates are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts them when facts and circumstances change. As the effects of future events cannot be determined with any certainty, actual results could differ from the estimates upon which the carrying values were based.

Nasdaq Deficiency Notices

The Company’s Series A Common Stock is listed on the Nasdaq Global Select Market. As a Nasdaq listed company, the Company is required to satisfy Nasdaq’s continued listing requirements.

On November 26, 2018, the Company received a letter from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the market value of publicly held shares of the Company’s Series A common stock (“MVPHS”) for the last 30 consecutive business days was less than $15 million, which is the minimum market value of publicly held shares (the “MVPHS Requirement”) necessary to qualify for continued listing on the Nasdaq Global Select Market under Nasdaq Listing Rule 5450(b)(3)(C). In accordance with Nasdaq Listing Rule 5810(c)(3)(D), the Company has been provided 180 calendar days, or until May 28, 2019, to regain compliance with the MVPHS Requirement. To regain compliance, the Company’s MVPHS must be at least $15 million for at least ten consecutive business days during this 180-day period, at which point Nasdaq would provide written confirmation to the Company and close the matter. If the Company does not regain compliance within the 180-day compliance period, Nasdaq will provide notice to the Company that its Series A common stock is subject to delisting.

In addition, on December 28, 2018, the Company received a letter (the “Minimum Bid Notice”) from Nasdaq indicating that the closing bid price of its Series A common stock for the last 30 consecutive business days was less than $1.00, which is the minimum closing bid price (the “Minimum Bid Price Requirement”) necessary to qualify for continued listing on the Nasdaq

6

Table of Contents

Global Select Market under Nasdaq Listing Rule 5450(a)(1). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided 180 calendar days, or until June 26, 2019, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price of the Company’s Series A common stock must be at least $1.00 per share for at least ten consecutive business days during this 180-day period, at which point Nasdaq would provide written confirmation to the Company of compliance with the Minimum Bid Price Requirement and close the matter. If the Company does not regain compliance with the Minimum Bid Price Requirement by June 26, 2019, and the Nasdaq staff determines that it will not be able to cure the deficiency, or if it is not otherwise eligible for any additional compliance period, Nasdaq will provide notice that its Series A common stock is subject to delisting.

While Nasdaq’s rules permit the Company to appeal any delisting determination, there can be no assurance the Nasdaq’s staff would grant its request for continued listing. Further, there can be no assurance that the Company will be able to regain compliance with the MVPHS requirement or the Minimum Bid Price Requirement or maintain compliance with Nasdaq’s other continued listing requirements. If the Series A common stock is not eligible to be listed on Nasdaq, the Company intends to apply to have the Series A common stock quoted on the OTC Market.

In addition, a delisting of our Series A Common Stock from Nasdaq would negatively impact the Company because it could, among other things: (i) reduce the liquidity and market price of the Company’s common stock; (ii) reduce the amount of news and analyst coverage for the Company; (iii) reduce the number of investors willing to hold or acquire the Company’s common stock, which could negatively impact its ability to raise equity financing and the ability of our shareholders to sell its common stock; (iv) limit the Company’s ability to use a registration statement to offer and sell freely tradable securities, thereby preventing it from accessing the public capital markets; (v) impair the Company’s ability to provide liquid equity incentives to its employees; and (vi) have negative reputational impact for the Company with its customers, suppliers, employees and other persons with whom it transacts from time to time.

(2)    Going Concern

The Company has substantial indebtedness at March 31, 2019, including Monitronics' $585,000,000 principal of senior notes, maturing on April 1, 2020 (the "Senior Notes"), and its existing credit facility with a term loan in principal of $1,072,500,000 as of March 31, 2019, maturing September 30, 2022, and a revolving credit facility with an outstanding balance of $181,400,000 as of March 31, 2019, maturing September 30, 2021 (the term loan and the revolver, together, the "Credit Facility"). Ascent Capital has not guaranteed any of Monitronics' obligations under the Senior Notes and Credit Facility.

The maturity date for each of the term loan and the revolving credit facility under the Credit Facility is subject to a springing maturity 181 days prior to the scheduled maturity date of the Senior Notes, or October 3, 2019, if Monitronics is unable to refinance the Senior Notes by that date. Furthermore, Monitronics received a going concern qualification in connection with its standalone external audit report of its Annual Report on Form 10-K, for the year ended December 31, 2018, which constitutes a default under Monitronics’ Credit Facility (the "Going Concern Default"), and will report that its Consolidated Senior Secured Eligible RMR Leverage Ratio (as defined in the Credit Facility) exceeds the limits provided in the Credit Agreement for the quarter ended March 31, 2019 (the “Financial Covenant Default”), which constitutes an event of default under Monitronics’ Credit Facility. Any default under the Credit Facility may, upon the passage of time, mature into an event of default. At any time after the occurrence of an event of default under the Credit Facility, the lenders thereunder may, among other options, declare any amounts outstanding under the Credit Facility immediately due and payable and the revolving loan lenders thereunder may terminate any commitment to make further loans under the revolving credit facility under the Credit Facility. Any such acceleration may constitute an event of default under the indenture governing the Senior Notes.

Additionally, in connection with management's negotiations with its creditors, Monitronics did not make its Senior Notes interest payment of $26,691,000 due on April 1, 2019. The indenture governing the Senior Notes provides for a 30-day cure period on past due interest payments (the non-payment of the interest following the expiration of the 30-day cure period, the "Senior Notes Default"). The 30-day cure period under the indenture governing the Senior Notes has expired.

Monitronics obtained a waiver (as amended, the “Credit Facility Waiver”), from the required revolving lenders under the Credit Facility, which expired May 10, 2019, with respect to, among other things, the Going Concern Default and the Senior Notes Default, subject to the terms and conditions of the Credit Facility Waiver. The Credit Facility Waiver obtained from the Credit Facility revolving loan lenders allowed Monitronics to continue to borrow under the revolving credit facility under the Credit Facility, up to $195,000,000 at an alternate base rate plus 3.00%. Monitronics is seeking to amend and extend the Credit Facility Waiver including a waiver with respect to the Financial Covenant Default and such discussions are ongoing.


7

Table of Contents

Monitronics has obtained a forbearance, as amended, from the required term lenders under the Credit Facility, through May 15, 2019, with respect to, among other things, the Going Concern Default, the Senior Notes Default and the Financial Covenant Default, subject to the terms and conditions of the forbearance. The forbearance obtained from the Credit Facility term lenders provides that the term loan lenders will not exercise remedies with respect to an event of default that may occur from the Going Concern Default, the Senior Notes Default or the Financial Covenant Default. Despite the forbearance obtained from the Credit Facility term lenders, the Going Concern Default, the Senior Notes Default and the Financial Covenant Default, and any resulting event of default under the Credit Facility, are continuing, and will continue, absent a waiver from the required revolving and term loan lenders, as applicable.

Additionally, Monitronics has obtained a forbearance from the required holders of Senior Notes, through May 15, 2019, with respect to, among other things, the Senior Notes Default, subject to the terms and conditions of the forbearance. The forbearance obtained from the holders of Senior Notes provides, subject to the terms of the forbearance, that the holders of Senior Notes will not exercise remedies with respect to the Senior Notes Default.

Given these factors, management continues to conclude there is substantial doubt regarding the Company’s ability to continue as a going concern within one year from the issuance date of these condensed consolidated financial statements. 

Ascent Capital and Monitronics have engaged financial and legal advisors to assist them in considering potential alternatives to address the issues described above. As of the issuance date of these condensed consolidated financial statements, Monitronics has not refinanced the Senior Notes and there can be no assurance that any refinancing, or an alternative restructuring of its outstanding indebtedness will be possible on acceptable terms, if at all.

Monitronics’ failure to refinance the Senior Notes or to reach an agreement with its stakeholders on the terms of a restructuring would have a material adverse effect on its and our liquidity, financial condition and results of operations and may result in it filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan.

The Company’s condensed consolidated financial statements as of March 31, 2019 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

(3)    Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the "FASB") issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the lessee to recognize assets and liabilities for leases with lease terms of more than twelve months. The Company adopted ASU 2016-02 using a modified retrospective approach at January 1, 2019, as outlined in ASU 2018-11, Leases (Topic 842): Targeted Improvements. Under this method of adoption, there is no impact to the comparative condensed consolidated statements of operations and condensed consolidated balance sheets. The Company determined that there was no cumulative effect adjustment to beginning Accumulated deficit on the condensed consolidated balance sheets. The Company will continue to report periods prior to January 1, 2019 in its financial statements under prior guidance as outlined in Accounting Standards Codification Topic 840, "Leases". In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed carry forward of historical lease classifications.

Adoption of this standard did not materially impact the Company's Loss before income taxes and had no impact on the condensed consolidated statements of cash flows. Upon adoption as of January 1, 2019, the Company recognized an Operating lease right-of-use asset of $20,383,000 and a total Operating lease liability of $20,908,000. The difference between the two amounts were due to decreases in prepaid rent and deferred rent recorded under prior lease accounting in Prepaid and other current assets and Other accrued liabilities, respectively, on the condensed consolidated balance sheets. See note 12, Leases, for further information.


8

Table of Contents

(4)    Other Accrued Liabilities
 
Other accrued liabilities consisted of the following (amounts in thousands):
 
March 31,
2019
 
December 31,
2018
Accrued payroll and related liabilities
$
6,558

 
$
4,957

Interest payable
27,824

 
15,537

Income taxes payable
3,396

 
2,742

Operating lease liabilities
3,835

 

Other
8,040

 
12,770

Total Other accrued liabilities
$
49,653

 
$
36,006


(5)    Debt
 
Long-term debt consisted of the following (amounts in thousands):
 
March 31,
2019
 
December 31,
2018
Ascent Capital 4.00% Convertible Senior Notes due July 15, 2020 with an effective rate of 8.8%
$
20,209

 
$
90,725

Monitronics 9.125% Senior Notes due April 1, 2020 with an effective rate of 9.1%
585,000

 
585,000

Monitronics term loan, matures September 30, 2022, LIBOR plus 5.50%, subject to a LIBOR floor of 1.00%, with an effective rate of 8.3%
1,072,500

 
1,075,250

Monitronics $295 million revolving credit facility, matures September 30, 2021, LIBOR plus 4.00%, subject to a LIBOR floor of 1.00%, with an effective rate of 5.7%
181,400

 
144,200

 
1,859,109

 
1,895,175

Less current portion of long-term debt
(1,859,109
)
 
(1,895,175
)
Long-term debt
$

 
$


Ascent Capital Convertible Senior Notes
 
The Ascent Capital 4.00% Convertible Senior Notes due July 15, 2020 (the "Convertible Notes") total $21,101,000 in aggregate principal amount, mature on July 15, 2020 and bear interest at 4.00% per annum. Interest on the Convertible Notes is payable semi-annually on January 15 and July 15 of each year. On August 30, 2018, Ascent Capital entered into a Supplemental Indenture in which the Company surrendered its right to elect to deliver shares of common stock or a combination of cash and shares of common stock upon conversion of the Convertible Notes (the "Convertible Notes Supplemental Indenture"). Following the execution of the Convertible Notes Supplemental Indenture, the Company may satisfy its conversion obligation solely in cash.

See note 1, Basis of Presentation, for information about the potential of a delisting of our Series A Common Stock from Nasdaq, which may accelerate the due date of the entire outstanding principal amount of, and any accrued and unpaid interest and accrued and unpaid additional interest on all the Convertible Notes, to be due and payable immediately. Given this potential, the outstanding debt of the Convertible Notes has been classified as Current portion of long-term debt in the condensed consolidated balance sheets as of March 31, 2019.

On February 14, 2019, pursuant to the settlement of the Noteholder Action lawsuit (as described in note 10, Commitments, Contingencies and Other Liabilities), the Company repurchased and settled $75,674,000 in aggregate principal amount of Convertible Notes. Ascent Capital paid to the Noteholder Parties (as defined below) an aggregate amount of $70,666,176.28 in cash (the "Convertible Note Cash Settlement"), consisting of (i) an aggregate of $6,104,720.92 for professional fees and expenses incurred on the Noteholder Parties’ behalf, (ii) an aggregate of $2,000,000.00 in consideration for the Noteholder Parties’ Consents, (iii) an aggregate of $10,808,555.36 in consideration for and in full and final satisfaction of the settled claims as set forth in the Settlement Agreement and (iv) an aggregate of $51,752,900.00 on account of the Note Repurchase (as defined below).

On February 19, 2019, the Company commenced a cash tender offer to purchase any and all of the remaining outstanding Convertible Notes (the “Offer”). On March 22, 2019, the Company entered into transaction support agreements with holders of approximately $18,554,000 in aggregate principal amount of the Convertible Notes, pursuant to which the Company agreed to

9

Table of Contents

increase the purchase price for the Convertible Notes in the Offer to $950 per $1,000 principal amount of Convertible Notes, with no accrued and unpaid interest to be payable (as so amended, the “Amended Offer”) and such holders agreed to tender, or cause to be tendered, into the Amended Offer all Convertible Notes held by such holders. The Amended Offer expired on March 29, 2019 and was settled on April 1, 2019. A total of $20,841,000 in aggregate principal amount of Convertible Notes were accepted for payment pursuant to the Amended Offer.

Following the consummation of the transactions contemplated by the Settlement Agreement and the consummation of the Amended Offer, $260,000 in aggregate principal amount of Convertible Notes remain outstanding. The information in these condensed consolidated financial statements shall not constitute an offer to purchase nor a solicitation of an offer to sell the Convertible Notes or any other securities of the Company, nor shall there be any offer, solicitation or sale of such securities in any state or other jurisdiction in which such an offer, solicitation or sale would be unlawful.

The Convertible Notes are presented on the consolidated balance sheet as follows (amounts in thousands):
 
As of
March 31,
2019
 
As of
December 31,
2018
Principal
$
21,101

 
$
96,775

Unamortized discount
(836
)
 
(5,666
)
Deferred debt costs
(56
)
 
(384
)
Carrying value
$
20,209

 
$
90,725

 
The Company amortized $150,000 of the Convertible Notes debt discount and deferred debt costs into interest expense for the three months ended March 31, 2019, compared to $1,181,000 for the three months ended March 31, 2018. The Company accelerated amortization of discount and deferred debt costs of $5,008,000, which was accelerated due to repurchase of the Convertible Notes pursuant to the settlement of the Noteholder Action lawsuit. This acceleration resulted in the carrying value of the Convertible Notes settled in February 2019 to equal the Convertible Note Cash Settlement. For the remaining unamortized debt discount and deferred debt costs, the Company is using an effective interest rate of 14.0% to calculate the accretion of the debt discount, which is being recorded as interest expense over the expected remaining term to maturity of the Convertible Notes.  The Company recognized contractual interest expense of $316,000 for the three months ended March 31, 2019, compared to $968,000 for the three months ended March 31, 2018.

Monitronics Senior Notes

The Monitronics Senior Notes total $585,000,000 in principal, mature on April 1, 2020 and bear interest at 9.125% per annum.  Interest payments are due semi-annually on April 1 and October 1 of each year. The Senior Notes are guaranteed by all of Monitronics' existing domestic subsidiaries.  Ascent Capital has not guaranteed any of Monitronics' obligations under the Senior Notes.

In connection with management’s negotiations with its creditors, Monitronics did not make its Senior Notes interest payment of $26,691,000 due on April 1, 2019. The indenture governing the Senior Notes provides for a 30-day cure period on past due interest payments, which has expired, resulting in the Senior Notes Default. As such, the outstanding debt of the Senior Notes as of March 31, 2019 has been classified as Current portion of long-term debt in the condensed consolidated balance sheets. See note 2, Going Concern for further information.

Monitronics Credit Facility

On September 30, 2016, Monitronics entered into an amendment ("Amendment No. 6") with the lenders of its existing senior secured credit agreement dated March 23, 2012, and as amended and restated on April 9, 2015, February 17, 2015, August 16, 2013, March 25, 2013, and November 7, 2012 (the "Existing Credit Agreement"). Amendment No. 6 provided for, among other things, the issuance of a $1,100,000,000 senior secured term loan at a 1.5% discount and a new $295,000,000 super priority revolver (the Existing Credit Agreement together with Amendment No. 6, the "Credit Facility").

As of March 31, 2019, the Credit Facility term loan has a principal amount of $1,072,500,000, maturing on September 30, 2022. The term loan requires quarterly interest payments and quarterly principal payments of $2,750,000. The term loan bears interest at LIBOR plus 5.5%, subject to a LIBOR floor of 1.0%. The Credit Facility revolver has a principal amount outstanding of $181,400,000 and an aggregate of $1,000,000 under two standby letters of credit issued as of March 31, 2019, maturing on September 30, 2021. The Credit Facility revolver typically bears interest at LIBOR plus 4.0%, subject to a LIBOR

10

Table of Contents

floor of 1.0%. There is a commitment fee of 0.5% on unused portions of the Credit Facility revolver. As discussed in note 2, Going Concern, Monitronics obtained the Credit Facility Waiver, which expired May 10, 2019, with respect to, among other things the Going Concern Default and the Senior Notes Default, subject to certain terms and conditions. The Credit Facility Waiver, among other things, allowed Monitronics to continue to borrow under the revolving credit facility under the Credit Facility for up to $195,000,000 at an alternate base rate plus 3.0%. Monitronics is seeking to amend and extend the Credit Facility Waiver including a waiver with respect to the Financial Covenant Default. However, there can be no assurance that Monitronics will receive such a waiver and therefore, there can be no assurance that Monitronics will have availability of additional borrowings under the Credit Facility revolver. See note 2, Going Concern for further information.

The maturity date for each of the term loan and the revolving credit facility under the Credit Facility is subject to a springing maturity 181 days prior to the scheduled maturity date of the Senior Notes, or October 3, 2019, if Monitronics is unable to refinance the Senior Notes by that date. Furthermore, Monitronics was not in compliance with certain financial covenants under the Credit Facility as of March 31, 2019. See note 2, Going Concern for further information.

Given the factors discussed above, the outstanding debt of the Credit Facility term loan and the Credit Facility revolver as of March 31, 2019 continues to be classified as Current portion of long-term debt in the condensed consolidated balance sheets.

The Credit Facility is secured by a pledge of all of the outstanding stock of Monitronics and all of its existing subsidiaries and is guaranteed by all of Monitronics' existing domestic subsidiaries.  Ascent Capital has not guaranteed any of Monitronics' obligations under the Credit Facility.
 
In order to reduce the financial risk related to changes in interest rates associated with the floating rate term loan under the Credit Facility term loan, Monitronics has entered into interest rate swap agreements with terms similar to the Credit Facility term loan (all outstanding interest rate swap agreements are collectively referred to as the “Swaps”). Prior to December of 2018, all of the Swaps were designated as effective hedges of Monitronics' variable rate debt and qualified for hedge accounting. However, in December of 2018, given the potential for changes in Monitronics' future expected interest payments that the Swap hedged, all of the Swaps no longer qualified as a cash flow hedge and were de-designated as such. As a result of these interest rate swaps, Monitronics' effective weighted average interest rate (excluding the impacts of non-cash amortization of deferred debt costs and discounts) on the borrowings under the Credit Facility term loan was 8.04% as of March 31, 2019. In April of 2019, subsequent to March 31, 2019, all of the outstanding Swaps were settled and terminated with their respective counterparties. See note 6, Derivatives, for further disclosures related to the settlement of these derivative instruments. 

As of March 31, 2019, principal payments scheduled to be made on the Company’s debt obligations, assuming certain accelerated maturities due to potential events of default and subsequent transactions, are as follows (amounts in thousands):
Remainder of 2019
$
1,860,001

2020

2021

2022

2023

2024

Thereafter

Total principal payments
1,860,001

Less:


Unamortized deferred debt costs, discounts and premium, net
892

Total debt on condensed consolidated balance sheet
$
1,859,109


(6)    Derivatives

Monitronics utilizes Swaps to reduce the interest rate risk inherent in Monitronics' variable rate Credit Facility term loan. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatility. The Company incorporates credit valuation adjustments to appropriately reflect the respective counterparty's nonperformance risk in the fair value measurements. See note 7, Fair Value Measurements, for additional information about the credit valuation adjustments.


11

Table of Contents

Prior to December of 2018, all of the Swaps were designated and qualified as cash flow hedging instruments, with the effective portion of the Swaps' change in fair value recorded in Accumulated other comprehensive income (loss). However, in December of 2018, given the potential for changes in Monitronics' future expected interest payments that these Swaps hedged, all of the Swaps no longer qualified as a cash flow hedge and were de-designated as such. Before the de-designation, changes in the fair value of the Swaps were recognized in Accumulated other comprehensive income (loss) and were reclassified to Interest expense when the hedged interest payments on the underlying debt were recognized. After the de-designation, changes in the fair value of the Swaps are recognized in Unrealized loss on derivative financial instruments on the condensed consolidated statements of operations and comprehensive income (loss). For the three months ended March 31, 2019, the Company recorded an Unrealized loss on derivative financial instruments of $7,773,000. Amounts recognized in Accumulated other comprehensive income (loss) as of the de-designation date will be amortized to Interest expense on the condensed consolidated statements of operations and comprehensive income (loss) over the remaining term of the hedged forecasted transactions of the Swaps which were 3 month LIBOR interest payments. Amounts in Accumulated other comprehensive income (loss) expected to be recognized in Interest expense in the coming 12 months total approximately $2,005,000.

As of March 31, 2019, the Swaps’ outstanding notional balances, effective dates, maturity dates and interest rates paid and received are noted below:
Notional
 
Effective Date
 
Maturity Date
 
Fixed Rate Paid
 
Variable Rate Received
$
189,013,883

 
March 23, 2018
 
April 9, 2022 (a)
 
3.110%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
246,875,000

 
March 23, 2018
 
April 9, 2022 (a)
 
3.110%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
49,375,000

 
March 23, 2018
 
April 9, 2022 (a)
 
2.504%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
372,287,500

 
March 23, 2018
 
September 30, 2022 (a)
 
1.833%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
 
(a)        On April 30, 2019, the various counterparties and Monitronics agreed to settle and terminate all of the outstanding swap agreements, which required Monitronics to pay $8,767,000 in termination amount to certain counterparties and required a certain counterparty to pay $6,540,000 in termination amount to Monitronics.

The impact of the derivatives designated as cash flow hedges on the condensed consolidated financial statements is depicted below (amounts in thousands):
 
Three Months Ended 
 March 31,
 
2019
 
2018
Effective portion of gain recognized in Accumulated other comprehensive income (loss)
$

 
13,668

Effective portion of loss reclassified from Accumulated other comprehensive income (loss) into Net loss (a)
$
(468
)
 
(738
)
 
(a)        Amounts are included in Interest expense in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

(7)    Fair Value Measurements
 
According to the FASB ASC Topic 820, Fair Value Measurement, fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:
 
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active or inactive markets and valuations derived from models where all significant inputs are observable in active markets.
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable in any market.


12

Table of Contents

The following summarizes the fair value level of assets and liabilities that are measured on a recurring basis at March 31, 2019 and December 31, 2018 (amounts in thousands): 
 
Level 1
 
Level 2
 
Level 3
 
Total
March 31, 2019
 

 
 

 
 

 
 

Interest rate swap agreements - assets (a)
$

 
6,027

 

 
6,027

Interest rate swap agreements - liabilities (a)

 
(9,287
)
 

 
(9,287
)
Total
$

 
(3,260
)
 

 
(3,260
)
December 31, 2018
 

 
 

 
 

 
 

Interest rate swap agreements - assets (a)
$

 
10,552

 

 
10,552

Interest rate swap agreements - liabilities (a)

 
(6,039
)
 

 
(6,039
)
Total
$

 
4,513

 

 
4,513

 
(a)
Swap asset values are included in non-current Other assets and Swap liability values are included in non-current Derivative financial instruments on the condensed consolidated balance sheets.

The Company has determined that the significant inputs used to value the Swaps fall within Level 2 of the fair value hierarchy.  As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

Carrying values and fair values of financial instruments that are not carried at fair value are as follows (amounts in thousands):
 
March 31, 2019
 
December 31, 2018
Long term debt, including current portion:
 

 
 

Carrying value
$
1,859,109

 
1,895,175

Fair value (a)
1,216,665

 
1,273,502

 
(a) 
The fair value is based on market quotations from third party financial institutions and is classified as Level 2 in the hierarchy.

Ascent Capital’s other financial instruments, including cash and cash equivalents, accounts receivable and accounts payable are carried at cost, which approximates their fair value because of their short-term maturity.

(8)    Stockholders’ Deficit
 
Common Stock
 
The following table presents the activity in Series A Common Stock and Ascent Capital's Series B Common Stock, par value $0.01 per share (the "Series B Common Stock"), for the three months ended March 31, 2019 and 2018:
 
Series A
Common Stock
 
Series B
Common Stock
Balance at December 31, 2018
12,080,683

 
381,528

Issuance of stock awards
19,624

 

Restricted stock canceled for tax withholding
(7,461
)
 

Balance at March 31, 2019
12,092,846

 
381,528

 
 
 
 
Balance at December 31, 2017
11,999,630

 
381,528

Issuance of stock awards
13,153

 

Restricted stock canceled for tax withholding
(10,680
)
 

Balance at March 31, 2018
12,002,103

 
381,528



13

Table of Contents

Accumulated Other Comprehensive Income (Loss)
 
The following table provides a summary of the changes in Accumulated other comprehensive income (loss) for the three months ended March 31, 2019 (amounts in thousands):
 
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2018
$
7,608

Reclassifications of unrealized loss on derivatives into Net loss, net of income tax of $0 (a)
(468
)
Balance at March 31, 2019
$
7,140

 
(a)
Amounts reclassified into Net loss are included in Interest expense on the condensed consolidated statements of operations.  See note 6, Derivatives, for further information.

The following table provides a summary of the changes in Accumulated other comprehensive income (loss) for the three months ended March 31, 2018 (amounts in thousands):
 
Foreign
Currency
Translation
Adjustments
 
Unrealized
 Holding
 Gains and 
Losses on
Marketable
Securities, net (a)
 
Unrealized
 Gains and
Losses on
 Derivative
Instruments, net (b)
 
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2017
$
(758
)
 
3,900

 
(7,375
)
 
(4,233
)
Impact of adoption of ASU 2017-12

 

 
605

 
605

Adjusted balance at January 1, 2018
(758
)
 
3,900

 
(6,770
)
 
(3,628
)
Gain (loss) through Accumulated other comprehensive income (loss), net of income tax of $0

 
(1,014
)
 
13,668

 
12,654

Reclassifications of loss (gain) into Net loss, net of income tax of $0

 
(2,063
)
 
738

 
(1,325
)
Net current period Other comprehensive income (loss)

 
(3,077
)
 
14,406

 
11,329

Balance at March 31, 2018
$
(758
)
 
823

 
7,636

 
7,701

 
(a) 
Amounts reclassified into Net loss are included in Other income, net on the condensed consolidated statements of operations.
(b)
Amounts reclassified into Net loss are included in Interest expense on the condensed consolidated statements of operations.

(9)    Basic and Diluted Earnings (Loss) Per Common Share—Series A and Series B
 
Basic earnings (loss) per common share ("EPS") is computed by dividing net income (loss) by the weighted average number of shares of Series A and Series B Common Stock outstanding for the period.  Diluted EPS is computed by dividing net income (loss) by the sum of the weighted average number of shares of Series A and Series B Common Stock outstanding and the effect of dilutive securities, including the Company's outstanding stock options, unvested restricted stock and restricted stock units.

For all periods presented, diluted EPS is computed the same as basic EPS because the Company recorded a loss from continuing operations, which would make potentially dilutive securities anti-dilutive. Diluted shares outstanding excluded an aggregate of 404,718 unvested restricted shares and performance units for the three months ended March 31, 2019 because their inclusion would have been anti-dilutive. Diluted shares outstanding excluded an aggregate of 193,239 unvested restricted shares and performance units for the three months ended March 31, 2018 because their inclusion would have been anti-dilutive.
 
Three Months Ended 
 March 31,
 
2019
 
2018
Weighted average number of shares of Series A and Series B Common Stock
12,429,810

 
12,298,922


14

Table of Contents


(10)    Commitments, Contingencies and Other Liabilities

Legal

Monitronics was named as a defendant in multiple putative class actions consolidated in U.S. District Court (Northern District of West Virginia) on behalf of purported class(es) for persons who claim to have received telemarketing calls in violation of various state and federal laws. The actions were brought by plaintiffs seeking monetary damages on behalf of all plaintiffs who received telemarketing calls made by a Monitronics Authorized Dealer, or any Authorized Dealer's lead generator or sub-dealer. In the second quarter of 2017, Monitronics and the plaintiffs agreed to settle this litigation for $28,000,000 ("the Settlement Amount"). In the third quarter of 2017, Monitronics paid $5,000,000 of the Settlement Amount pursuant to the settlement agreement with the plaintiffs. In the third quarter of 2018, Monitronics paid the remaining $23,000,000 of the Settlement Amount. Monitronics recovered a portion of the Settlement Amount under its insurance policies held with multiple carriers. In the fourth quarter of 2018, Monitronics settled its claims against two such carriers in which those carriers agreed to pay Monitronics an aggregate of $12,500,000. In April of 2019, Monitronics settled a claim against one such carrier in which that carrier agreed to pay Monitronics $4,800,000.

In addition to the above, the Company is also involved in litigation and similar claims incidental to the conduct of its business, including from time to time, contractual disputes, claims related to alleged security system failures and claims related to alleged violations of the U.S. Telephone Consumer Protection Act. Matters that are probable of unfavorable outcome to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, management's estimate of the outcomes of such matters and experience in contesting, litigating and settling similar matters. In management's opinion, none of the pending actions are likely to have a material adverse impact on the Company's financial position or results of operations. The Company accrues and expenses legal fees related to loss contingency matters as incurred.

Other Legal Proceedings

On August 27, 2018, certain holders of Ascent Capital’s Convertible Notes caused an action to be filed in the Court of Chancery of the State of Delaware, captioned KLS Diversified Master Fund L.P. et. al. v. Ascent Capital Group, Inc. et al., C.A. No. 2018-0636 (as amended on September 5, 2018, October 1, 2018 and October 22, 2018, the “Noteholder Action”) against Ascent Capital and each of its directors and executive officers. On February 11, 2019, Ascent Capital and its directors and executive officers, on the one hand, and the holders of Convertible Notes that were plaintiffs in the Noteholder Action (together with certain of each of such holders’ respective affiliates, the “Noteholder Parties”) collectively holding $75,674,000 in aggregate principal amount of Convertible Notes, representing 78% of the aggregate principal amount of the Convertible Notes then outstanding, on the other hand, entered into a Settlement and Note Repurchase Agreement and Release (the “Settlement Agreement”), which, among other things as described herein, (i) provided for the settlement of the Noteholder Action and the mutual release of claims related thereto (the “Settlement”) and (ii) in connection with the Settlement, provided for the delivery by the Noteholder Parties of their respective written consents (the “Consents”) with respect to all Convertible Notes held by such Noteholder Parties to certain amendments described below (the “Amendments”) to the indenture governing the Convertible Notes (the "Indenture") and for the private repurchase (the “Note Repurchase”) by the Company of all Convertible Notes held by such Noteholder Parties. On February 14, 2019, the transactions contemplated in the Settlement Agreement (including the obtaining of the Consents and the Note Repurchase) were consummated and following the receipt of the Consents, the Company and the Trustee entered into the Second Supplemental Indenture, dated as of February 14, 2019 (the “Second Supplemental Indenture”), to the Indenture and the Amendments became effective. The Amendments effected by the Second Supplemental Indenture modified the Indenture to (i) remove references to subsidiary, subsidiaries and/or significant subsidiary, as applicable, of Ascent Capital from certain events of default provisions contained in Section 6.01 of the Indenture and (ii) allow conversion of Ascent Capital into a non-corporate legal form. Following the consummation of the transactions contemplated in the Settlement Agreement, on February 15, 2019, a Stipulation of Dismissal with respect to the Noteholder Action was filed in the Court of Chancery of the State of Delaware, pursuant to which the Noteholder Action was dismissed with prejudice.

The Settlement Agreement states that, in connection with the Settlement, Ascent Capital paid to the Noteholder Parties an aggregate amount of $70,666,176.28 in cash, consisting of (i) an aggregate of $6,104,720.92 for professional fees and expenses incurred on the Noteholder Parties’ behalf, (ii) an aggregate of $2,000,000.00 in consideration for the Noteholder Parties’ Consents, (iii) an aggregate of $10,808,555.36 in consideration for and in full and final satisfaction of the settled claims as set forth in the Settlement Agreement and (iv) an aggregate of $51,752,900.00 on account of the Note Repurchase.


15

Table of Contents

(11)    Revenue Recognition

Disaggregation of Revenue

Revenue is disaggregated by source of revenue as follows (in thousands):
 
Three Months Ended 
 March 31,
 
2019
 
2018
Alarm monitoring revenue
$
121,479

 
124,840

Product and installation revenue
6,534

 
8,147

Other revenue
1,593

 
766

Total Net revenue
$
129,606

 
133,753


Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
 
March 31,
2019
 
December 31,
2018
Trade receivables, net
$
12,438

 
13,121

Contract assets, net - current portion (a)
13,072

 
13,452

Contract assets, net - long-term portion (b)
14,634

 
16,154

Deferred revenue
12,698

 
13,060

 
(a)        Amount is included in Prepaid and other current assets in the unaudited condensed consolidated balance sheets.
(b)        Amount is included in Other assets in the unaudited condensed consolidated balance sheets.

(12)    Leases

The Company primarily leases buildings and equipment. The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right of use assets at the inception of the lease and accounts for these options when they are reasonably certain of being exercised. Certain real estate leases contain lease and non-lease components, which are accounted for separately.

Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

All of the Company's leases are currently determined to be operating leases.

Components of Lease Expense

The components of lease expense were as follows (in thousands):
 
Three Months Ended March 31, 2019
Operating lease cost (a)
$
131

Operating lease cost (b)
1,021

Total operating lease cost
$
1,152


 
(a)        Amount is included in Cost of services in the unaudited condensed consolidated statements of operations.
(b)        Amount is included in Selling, general and administrative, including stock-based and long-term incentive compensation in the unaudited condensed consolidated statements of operations.


16

Table of Contents

Remaining Lease Term and Discount Rate

The following table presents the weighted-average remaining lease term and the weighted-average discount rate:
 
As of March 31, 2019
Weighted-average remaining lease term for operating leases (in years)
10.3

Weighted-average discount rate for operating leases
11.8
%

All of the Company's lease contracts do not provide a readily determinable implicit rate. For these contracts, the Company's estimated incremental borrowing rate is based on information available either upon adoption of ASU 2016-02 or at the inception of the lease.

Supplemental Cash Flow Information

The following is the supplemental cash flow information associated with the Company's leases (in thousands):
 
For the Three Months Ended 
 March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
Operating cash flows from operating leases
1,097


Maturities of Lease Liabilities

As of March 31, 2019, maturities of lease liabilities were as follows:
Remainder of 2019
$
2,864

2020
3,649

2021
3,195

2022
3,069

2023
3,087

Thereafter
20,329

Total lease payments
$
36,193

Less: Interest
(15,791
)
Total lease obligations
$
20,402


Disclosures Related to Periods Prior to Adoption of ASU 2016-02

The Company adopted ASU 2016-02 using a modified retrospective method at January 1, 2019 as described in note 3, Recent Accounting Pronouncements. As required, the following disclosure is provided for periods prior to adoption. Minimum lease commitments as of December 31, 2018 that have initial or remaining noncancelable lease terms in excess of one year are as follows (in thousands):
Year Ended December 31:
 
2019
$
4,739

2020
4,263

2021
3,093

2022
3,068

2023
3,087

Thereafter
20,329

Minimum lease commitments
$
38,579



17

Table of Contents

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, marketing and operating strategies, new service offerings, the availability of debt refinancing, our ability to regain compliance with the continued listing rules of The Nasdaq Stock Market LLC ("Nasdaq"), transferring the Company's Series A common stock listing to the Nasdaq Capital Market or quotation on the OTC Market, obtaining or maintaining any requested waiver of forbearance with respect to the Credit Facility and Senior Notes (each as defined below), the ability of Ascent Capital and Monitronics to continue as going concerns, potential restructurings and strategic transactions, financial prospects and anticipated sources and uses of capital. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:
 
general business conditions and industry trends;
the availability and terms of capital, including the ability of Monitronics to refinance its existing debt or obtain future financing to grow its business;
Monitronics' ability to refinance the Senior Notes or to reach an agreement on the terms of a restructuring with its stakeholders.
Monitronics' high degree of leverage and the restrictive covenants governing its indebtedness;
our ability to satisfy the continued listing standards of Nasdaq (or to cure any continued listing standard deficiencies) with respect to our Series A Common Stock;
macroeconomic conditions and their effect on the general economy and on the U.S. housing market, in particular single family homes, which represent Monitronics' largest demographic;
uncertainties in the development of our business strategies, including the rebranding to Brinks Home Security and market acceptance of new products and services;
the competitive environment in which Monitronics operates, in particular, increasing competition in the alarm monitoring industry from larger existing competitors and new market entrants, including technology, telecommunications and cable companies;
the development of new services or service innovations by competitors;
Monitronics' ability to acquire and integrate additional accounts, including competition for dealers with other alarm monitoring companies which could cause an increase in expected subscriber acquisition costs;
technological changes which could result in the obsolescence of currently utilized technology with the need for significant upgrade expenditures, including the phase out of 3G and CDMA networks by cellular carriers;
the trend away from the use of public switched telephone network lines and the resultant increase in servicing costs associated with alternative methods of communication;
the operating performance of Monitronics' network, including the potential for service disruptions at both the main monitoring facility and back-up monitoring facility due to acts of nature or technology deficiencies, and the potential of security breaches related to network or customer information;
the outcome of any pending, threatened, or future litigation, including potential liability for failure to respond adequately to alarm activations;
the ability to continue to obtain insurance coverage sufficient to hedge our risk exposures, including as a result of acts of third parties and/or alleged regulatory violations;
changes in the nature of strategic relationships with original equipment manufacturers, dealers and other Monitronics business partners;
the reliability and creditworthiness of Monitronics' independent alarm systems dealers and subscribers;
changes in Monitronics' expected rate of subscriber attrition;
availability of, and our ability to retain, qualified personnel;
integration of acquired assets and businesses; and
the regulatory environment in which we operate, including the multiplicity of jurisdictions, state and federal consumer protection laws and licensing requirements to which Monitronics and/or its dealers are subject and the risk of new regulations, such as the increasing adoption of "false alarm" ordinances;

For additional risk factors, please see Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Form 10-K").  These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.
 

18

Table of Contents

The following discussion and analysis provides information concerning our results of operations and financial condition.  This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto included elsewhere herein and the 2018 Form 10-K.

Overview
 
Ascent Capital Group, Inc. ("Ascent Capital" or the "Company") is a holding company and its assets primarily consist of its wholly-owned subsidiary, Monitronics International, Inc. and its operating subsidiaries (collectively, "Monitronics", doing business as Brinks Home Security). Monitronics provides residential customers and commercial client accounts with monitored home and business security systems, as well as interactive and home automation services, in the United States, Canada and Puerto Rico. Monitronics customers are obtained through its direct-to-consumer sales channel (the "Direct to Consumer Channel") or its exclusive authorized dealer network (the "Dealer Channel"), which provides product and installation services, as well as support to customers. Its Direct to Consumer Channel offers both Do-It-Yourself and professional installation security solutions.

Attrition
 
Account cancellation, otherwise referred to as subscriber attrition, has a direct impact on the number of subscribers that Monitronics services and on its financial results, including revenues, operating income and cash flow.  A portion of the subscriber base can be expected to cancel its service every year. Subscribers may choose not to renew or to terminate their contract for a variety of reasons, including relocation, cost, switching to a competitor's service and limited use by the subscriber and thus low perceived value.  The largest categories of canceled accounts relate to subscriber relocation or the inability to contact the subscriber.  Monitronics defines its attrition rate as the number of canceled accounts in a given period divided by the weighted average of number of subscribers for that period.  Monitronics considers an account canceled if payment from the subscriber is deemed uncollectible or if the subscriber cancels for various reasons.  If a subscriber relocates but continues its service, this is not a cancellation.  If the subscriber relocates, discontinues its service and a new subscriber takes over the original subscriber's service continuing the revenue stream, this is also not a cancellation.  Monitronics adjusts the number of canceled accounts by excluding those that are contractually guaranteed by its dealers.  The typical dealer contract provides that if a subscriber cancels in the first year of its contract, the dealer must either replace the canceled account with a new one or refund to Monitronics the cost paid to acquire the contract. To help ensure the dealer's obligation to Monitronics, Monitronics typically maintains a dealer funded holdback reserve ranging from 5-8% of subscriber accounts in the guarantee period.  In some cases, the amount of the holdback liability is less than actual attrition experience.

The table below presents subscriber data for the twelve months ended March 31, 2019 and 2018:
 
 
Twelve Months Ended
March 31,
 
 
2019
 
2018
Beginning balance of accounts
 
958,719

 
1,036,794

Accounts acquired
 
111,376

 
87,957

Accounts canceled
 
(164,221
)
 
(159,845
)
Canceled accounts guaranteed by dealer and other adjustments (a)
 
(4,681
)

(6,187
)
Ending balance of accounts
 
901,193

 
958,719

Monthly weighted average accounts
 
936,430

 
998,137

Attrition rate - Unit
 
17.5
%
 
16.0
%
Attrition rate - RMR (b)
 
17.0
%
 
13.9
%
 
(a)
Includes canceled accounts that are contractually guaranteed to be refunded from holdback.
(b)
The recurring monthly revenue ("RMR") of canceled accounts follows the same definition as subscriber unit attrition as noted above. RMR attrition is defined as the RMR of canceled accounts in a given period, adjusted for the impact of price increases or decreases in that period, divided by the weighted average of RMR for that period.
 
The unit attrition rate for the twelve months ended March 31, 2019 and 2018 was 17.5% and 16.0%, respectively. The RMR attrition rate for the twelve months ended March 31, 2019 and 2018 was 17.0% and 13.9%, respectively. Contributing to the increase in unit and RMR attrition were fewer customers under contract or in the dealer guarantee period for the twelve months ended March 31, 2019, as compared to the prior period, increased non-pay attrition as well as some impact from competition

19

Table of Contents

from new market entrants. The increase in the RMR attrition rate for the twelve months ended March 31, 2019 was also impacted by a less aggressive price increase strategy in the first quarter of 2019.

Monitronics analyzes its attrition by classifying accounts into annual pools based on the year of acquisition.  Monitronics then tracks the number of accounts that cancel as a percentage of the initial number of accounts acquired for each pool for each year subsequent to its acquisition.  Based on the average cancellation rate across the pools, Monitronics' attrition rate is very low within the initial 12 month period after considering the accounts which were replaced or refunded by the dealers at no additional cost to Monitronics. Over the next few years of the subscriber account life, the number of subscribers that cancel as a percentage of the initial number of subscribers in that pool gradually increases and historically has peaked following the end of the initial contract term, which is typically three to five years.  Subsequent to the peak following the end of the initial contract term, the number of subscribers that cancel as a percentage of the initial number of subscribers in that pool declines.

Accounts Acquired
 
During the three months ended March 31, 2019 and 2018, Monitronics acquired 20,003 and 21,547 subscriber accounts, respectively, through its Dealer and Direct to Consumer Channels. The decrease in accounts acquired for the three months is due to year over year decline in accounts acquired from the Direct to Consumer Channel partially offset by year over year growth in accounts acquired from the Dealer Channel.

RMR acquired during the three months ended March 31, 2019 and 2018 was $964,000 and $987,000, respectively.

Strategic Initiatives

Given the recent decreases in the generation of new subscriber accounts in Monitronics' Dealer Channel and trends in subscriber attrition, it has implemented several initiatives related to account growth, creation costs, attrition and margin improvements.

Account Growth

Monitronics believes that generating account growth at a reasonable cost is essential to scaling its business and generating stakeholder value. In recent years, acquisition of new subscriber accounts through its Dealer Channel has declined due to the attrition of large dealers, efforts to acquire new accounts from dealers at lower purchase prices, changes in consumer buying behavior and increased competition from technology, telecommunications and cable companies in the market. Monitronics currently has several initiatives in place to improve account growth, which include:

Enhancing its brand recognition with consumers, which was recently bolstered by the rebranding to Brinks Home Security,
Recruiting high quality dealers into the Monitronics Authorized Dealer Program,
Assisting new and existing dealers with training and marketing initiatives to increase productivity,
Acquiring bulk accounts to supplement account generation,
Offering third party equipment financing to consumers which is expected to assist in driving account growth at lower creation costs, and
Growing the Direct to Consumer Channel under the Brinks Home Security brand.

Creation Costs

Monitronics also considers the management of creation costs to be a key driver in improving its financial results, as lower creation costs would improve its profitability and cash flows. The initiatives related to managing creation costs include:

Growing the Direct to Consumer Channel, including further leveraging our partnership with Nest Labs, Inc., with expected lower creation cost multiples,
Expanding the use and availability of third party financing to all of its sales channels, which will drive down net creation costs, and
Negotiating lower subscriber account purchase price multiples in its Dealer Channel.

20

Table of Contents

Attrition

While Monitronics has also experienced higher subscriber attrition rates in the past few years, it has continued to develop its efforts to manage subscriber attrition, which it believes will help drive increases in its subscriber base and stakeholder value. Monitronics currently has several initiatives in place to reduce subscriber attrition, which include:

Maintaining high customer service levels,
Effectively managing the credit quality of new customers,
Using predictive modeling to identify subscribers with a higher risk of cancellation and engaging with these subscribers to obtain contract extensions on terms favorable to Monitronics, and
Implementing effective pricing strategies.

Margin Improvement

Monitronics has also adopted initiatives to reduce expenses and improve its financial results, which include:

Reducing its operating costs by right sizing the cost structure to the business and leveraging its scale,
Implementing more sophisticated purchasing techniques, and
Increasing use of automation.

While the uncertainties related to the successful implementation of the foregoing initiatives could impact Monitronics' ability to achieve net profitability and positive cash flows in the near term, Monitronics believes it will position itself to improve its operating performance, increase cash flows and create stakeholder value over the long-term.

Adjusted EBITDA
 
We evaluate the performance of our operations based on financial measures such as revenue and "Adjusted EBITDA." Adjusted EBITDA is defined as net income (loss) before interest expense, interest income, income taxes, depreciation, amortization (including the amortization of subscriber accounts, dealer network and other intangible assets), restructuring charges, stock-based compensation, and other non-cash or non-recurring charges.  Ascent Capital believes that Adjusted EBITDA is an important indicator of the operational strength and performance of its business, including the business' ability to fund its ongoing acquisition of subscriber accounts, its capital expenditures and to service its debt.  In addition, this measure is used by management to evaluate operating results and perform analytical comparisons and identify strategies to improve performance.  Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate the financial performance of companies in the security alarm monitoring industry and is one of the financial measures, subject to certain adjustments, by which Monitronics' covenants are calculated under the agreements governing its debt obligations.  Adjusted EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles in the United States ("GAAP"), should not be construed as an alternative to net income or loss and is indicative neither of our results of operations nor of cash flows available to fund all of our cash needs.  It is, however, a measurement that Ascent Capital believes is useful to investors in analyzing its operating performance.  Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP.  Adjusted EBITDA is a non-GAAP financial measure.  As companies often define non-GAAP financial measures differently, Adjusted EBITDA as calculated by Ascent Capital should not be compared to any similarly titled measures reported by other companies.


21

Table of Contents

Results of Operations
 
The following table sets forth selected data from the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the periods indicated (dollar amounts in thousands).
 
Three Months Ended 
 March 31,
 
2019
 
2018
Net revenue
$
129,606

 
133,753

Cost of services
26,764

 
32,701

Selling, general and administrative, including stock-based and long-term incentive compensation
32,512

 
37,406

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
49,145

 
54,411

Interest expense
37,894

 
38,652

Income tax expense
671

 
1,346

Net loss
(27,839
)
 
(30,838
)
 
 
 
 
Adjusted EBITDA (a)
 
 
 
Monitronics business Adjusted EBITDA
$
73,739

 
70,039

Corporate Adjusted EBITDA
(1,020
)
 
(1,170
)
Total Adjusted EBITDA
$
72,719

 
68,869

Adjusted EBITDA as a percentage of Net revenue
 
 
 
Monitronics business
56.9
 %
 
52.4
 %
Corporate
(0.8
)%
 
(0.9
)%
 
 
 
 
Expensed Subscriber acquisition costs, net
 
 
 
Gross subscriber acquisition costs
$
7,315

 
11,690

Revenue associated with subscriber acquisition costs
(1,703
)
 
(1,512
)
Expensed Subscriber acquisition costs, net
$
5,612

 
10,178


(a) 
See reconciliation of Net loss to Adjusted EBITDA below.

Net revenue.  Net revenue decreased $4,147,000, or 3.1%, for the three months ended March 31, 2019, as compared to the corresponding prior year period. The decrease in net revenue is attributable to the lower average number of subscribers in the first quarter of 2019. This decrease was partially offset by an increase in average RMR per subscriber due to certain price increases enacted during the past twelve months. Average RMR per subscriber increased from $44.76 as of March 31, 2018 to $45.28 as of March 31, 2019. In addition, the Company recognized a $1,693,000 decrease in revenue for the three months ended March 31, 2019, as compared to a $325,000 increase in revenue for the three months ended March 31, 2018 related to changes in Topic 606 contract assets.

Cost of services.  Cost of services decreased $5,937,000, or 18.2%, for the three months ended March 31, 2019, as compared to the corresponding prior year period. The decrease for the three months ended March 31, 2019 is primarily attributable to decreased field service costs due to a lower volume of retention and move jobs being completed and a decrease in expensed subscriber acquisition costs. Subscriber acquisition costs, which include expensed equipment and labor costs associated with the creation of new subscribers, decreased to $1,794,000 for the three months ended March 31, 2019, as compared to $3,610,000 for the three months ended March 31, 2018. Cost of services as a percent of net revenue decreased from 24.4% for the three months ended March 31, 2018 to 20.7% for the three months ended March 31, 2019.
 
Selling, general and administrative.  Selling, general and administrative costs ("SG&A") decreased $4,894,000, or 13.1%, for the three months ended March 31, 2019, as compared to the corresponding prior year period. The decrease is primarily attributable to reduced subscriber acquisition costs in SG&A associated with the creation of new subscribers. Subscriber acquisition costs decreased to $5,521,000 for the three months ended March 31, 2019, as compared to $8,080,000 for the three months ended March 31, 2018. Additionally, there was $2,955,000 and $892,000 of severance expense related to transitioning Ascent Capital executive leadership and rebranding expense, respectively, that was recognized in the three months ended March 31, 2018 with no corresponding costs incurred in the three months ended March 31, 2019. These decreases are partially offset by increased consulting fees on integration / implementation of company initiatives. Other increases in SG&A contributing to the overall change period over period include deferred and incentive-based compensation costs and Topic 606

22

Table of Contents

contract asset impairment costs. SG&A as a percent of net revenue decreased from 28.0% for the three months ended March 31, 2018 to 25.1% for the three months ended March 31, 2019.

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets.  Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets decreased $5,266,000, or 9.7%, for the three months ended March 31, 2019, as compared to the corresponding prior year period. The decrease is related to a lower number of subscriber accounts purchased in the last twelve months ended March 31, 2019 compared to the prior corresponding period as well as the timing of amortization of subscriber accounts acquired prior to the first quarter of 2018, which have a lower rate of amortization in 2019 based on the applicable double declining balance amortization method.
 
Interest expense.  Interest expense decreased $758,000, or 2.0%, for the three months ended March 31, 2019, as compared to the corresponding prior year period. The decrease in interest expense is attributable to decreases in the Company's Convertible Notes principal balance and amortization of debt discount and deferred debt costs under the effective interest rate method partially offset by increased interest costs on the Credit Facility revolver due to a higher outstanding balance at March 31, 2019, and higher interest rates in the current year, as compared to the corresponding prior year period.
 
Income tax expense.  The Company had pre-tax loss of $27,168,000 and income tax expense of $671,000 for the three months ended March 31, 2019.  The Company had pre-tax loss of $29,492,000 and income tax expense of $1,346,000 for the three months ended March 31, 2018. Income tax expense for the three months ended March 31, 2019 is attributable to Monitronics' state tax expense incurred from Texas margin tax. Income tax expense for the three months ended March 31, 2018 is attributable to Monitronics' state tax expense incurred from Texas margin tax and the deferred tax impact from amortization of deductible goodwill related to Monitronics' business acquisitions.

Net loss. The Company had net loss of $27,839,000 for the three months ended March 31, 2019, as compared to $30,838,000 for the three months ended March 31, 2018. The decrease in net loss is primarily attributable to a decrease in operating expenses, of which the major components are discussed above, partially offset by the unrealized loss on derivative financial instruments.

Adjusted EBITDA. The following table provides a reconciliation of Net loss to total Adjusted EBITDA for the periods indicated (amounts in thousands):
 
Three Months Ended 
 March 31,
 
2019
 
2018
Net loss
$
(27,839
)
 
(30,838
)
Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets
49,145

 
54,411

Depreciation
3,158

 
2,621

Stock-based compensation
459

 
285

Long-term incentive compensation
286

 

Severance expense (a)

 
2,955

LiveWatch acquisition contingent bonus charges
63

 
62

Rebranding marketing program

 
892

Integration / implementation of company initiatives
1,581

 

Interest income
(544
)
 
(481
)
Interest expense
37,894

 
38,652

Unrealized loss on derivative financial instruments
7,773

 

Refinancing expense
331

 

Insurance recovery in excess of cost on Ascent Convertible Note litigation
(259
)
 

Unrealized gain on marketable securities, net

 
(1,036
)
Income tax expense
671

 
1,346

Adjusted EBITDA
$
72,719

 
68,869

 
(a) 
Severance expense related to transitioning executive leadership at Ascent Capital in 2018.


23

Table of Contents

Adjusted EBITDA increased $3,850,000, or 5.6%, for the three months ended March 31, 2019, as compared to the corresponding prior year period.  The increase is primarily the result of a decrease in cost of services partially offset by lower revenues as discussed above.

Monitronics' consolidated Adjusted EBITDA was $73,739,000 for the three months ended March 31, 2019, as compared to $70,039,000 for the three months ended March 31, 2018.

Expensed Subscriber acquisition costs, net.  Subscriber acquisition costs, net decreased to $5,612,000 for the three months ended March 31, 2019, as compared to $10,178,000 for the three months ended March 31, 2018. The decrease in subscriber acquisition costs, net is primarily attributable to decreased production volume in the Company's Direct to Consumer Channel year over year.

Liquidity and Capital Resources
 
At March 31, 2019, we had $76,300,000 of cash and cash equivalents. Subsequent to March 31, 2019, we used approximately $19,800,000 of our cash to pay holders of our Convertible Notes as part of an Amended Tender Offer (as defined below). We may use a portion of our remaining cash and cash equivalents to fund operations, decrease debt obligations, fund stock repurchases, or fund potential strategic acquisitions or investment opportunities.
 
Additionally, our other source of funds is our cash flows from operating activities which are primarily generated from the operations of Monitronics.  During the three months ended March 31, 2019 and 2018, our cash flow from operating activities was $47,813,000 and $47,954,000, respectively.  The primary drivers of our cash flow from operating activities are the fluctuations in revenues and operating expenses as discussed in "Results of Operations" above.  In addition, our cash flow from operating activities may be significantly impacted by changes in working capital.
 
During the three months ended March 31, 2019 and 2018, the Company used cash of $28,850,000 and $24,560,000, respectively, to fund subscriber account acquisitions, net of holdback and guarantee obligations.  In addition, during the three months ended March 31, 2019 and 2018, the Company used cash of $2,999,000 and $3,310,000, respectively, to fund its capital expenditures.

The existing long-term debt of the Company at March 31, 2019 includes the aggregate principal balance of $1,860,001,000 under (i) the Ascent Capital Convertible Notes totaling $21,101,000 in aggregate principal amount, maturing on July 15, 2020 and bearing interest at 4.00% per annum (ii) the Monitronics senior notes totaling $585,000,000 in principal, maturing on April 1, 2020 and bearing interest at 9.125% per annum (the "Senior Notes"), and (iii) the $1,100,000,000 senior secured term loan and $295,000,000 super priority revolver under the sixth amendment to the Monitronics secured credit agreement dated March 23, 2012, as amended (the "Credit Facility").  The Convertible Notes had an outstanding principal balance of $21,101,000 as of March 31, 2019.  Following the consummation of the Amended Tender Offer (as defined below), an aggregate principal amount of $260,000 of Convertible Notes remain outstanding. The Senior Notes have an outstanding principal balance of $585,000,000 as of March 31, 2019.  The Credit Facility term loan has an outstanding principal balance of $1,072,500,000 as of March 31, 2019 and requires principal payments of $2,750,000 per quarter with the remaining amount becoming due on September 30, 2022. The Credit Facility revolver has an outstanding balance of $181,400,000 and an aggregate of $1,000,000 under two standby letters of credit issued as of March 31, 2019, which becomes due on September 30, 2021.

On February 14, 2019, the Company repurchased $75,674,000 in aggregate principal amount of then outstanding Convertible Notes pursuant to the Settlement Agreement (as defined and described in Note 10, Commitments, Contingencies and Other Liabilities). Convertible Notes repurchased pursuant to the Settlement Agreement were cancelled.

On February 19, 2019, the Company commenced a cash tender offer to purchase any and all of its outstanding Convertible Notes (the “Tender Offer”). On March 22, 2019, the Company entered into transaction support agreements with holders of approximately $18,554,000 in aggregate principal amount of the Convertible Notes, pursuant to which the Company agreed to increase the purchase price for the Convertible Notes in the Tender Offer to $950 per $1,000 principal amount of Convertible Notes, with no accrued and unpaid interest to be payable (as so amended, the “Amended Tender Offer”) and such holders agreed to tender, or cause to be tendered, into the Amended Tender Offer all Convertible Notes held by such holders. The Amended Tender Offer was settled on April 1, 2019. A total of $20,841,000 in aggregate principal amount of Convertible Notes were accepted for payment pursuant to the Amended Tender Offer.

The maturity date for each of the term loan and the revolving credit facility under the Credit Facility is subject to a springing maturity 181 days prior to the scheduled maturity date of the Senior Notes, or October 3, 2019, if Monitronics is unable to refinance the Senior Notes by that date. Furthermore, Monitronics received a going concern qualification in connection with its

24

Table of Contents

standalone external audit report of its Annual Report on Form 10-K, for the year ended December 31, 2018, which constitutes a default under Monitronics’ Credit Facility (the "Going Concern Default"), and will report that its Consolidated Senior Secured Eligible RMR Leverage Ratio (as defined in the Credit Facility) exceeds the limits provided in the Credit Agreement for the quarter ended March 31, 2019 (the “Financial Covenant Default”), which constitutes an event of default under Monitronics’ Credit Facility. Any default under the Credit Facility may, upon the passage of time, mature into an event of default. At any time after the occurrence of an event of default under the Credit Facility, the lenders thereunder may, among other options, declare any amounts outstanding under the Credit Facility immediately due and payable and the revolving loan lenders thereunder may terminate any commitment to make further loans under the revolving credit facility under the Credit Facility. Any such acceleration may constitute an event of default under the indenture governing the Senior Notes.

Additionally, in connection with management's negotiations with its creditors, Monitronics did not make its Senior Notes interest payment of $26,691,000 due on April 1, 2019. The indenture governing the Senior Notes provides for a 30-day cure period on past due interest payments (the non-payment of the interest following the expiration of the 30-day cure period, the "Senior Notes Default"). The 30-day cure period under the indenture governing the Senior Notes has expired.
Monitronics obtained a waiver (as amended, the “Credit Facility Waiver”), from the required revolving lenders under the Credit Facility, which expired May 10, 2019, with respect to, among other things, the Going Concern Default and the Senior Notes Default, subject to the terms and conditions of the Credit Facility Waiver. The Credit Facility Waiver obtained from the Credit Facility revolving loan lenders allowed Monitronics to continue to borrow under the revolving credit facility under the Credit Facility, up to $195,000,000 at an alternate base rate plus 3.00%. Monitronics is seeking to amend and extend the Credit Facility Waiver including a waiver with respect to the Financial Covenant Default and such discussions are ongoing.

Monitronics has obtained a forbearance, as amended, from the required term lenders under the Credit Facility, through May 15, 2019, with respect to, among other things, the Going Concern Default, the Senior Notes Default and the Financial Covenant Default, subject to the terms and conditions of the forbearance. The forbearance obtained from the Credit Facility term lenders provides that the term loan lenders will not exercise remedies with respect to an event of default that may occur from the Going Concern Default, the Senior Notes Default or the Financial Covenant Default. Despite the forbearance obtained from the Credit Facility term lenders, the Going Concern Default, the Senior Notes Default and the Financial Covenant Default, and any resulting event of default under the Credit Facility, are continuing, and will continue, absent a waiver from the required revolving and term loan lenders, as applicable.

Additionally, Monitronics has obtained a forbearance from the required holders of Senior Notes, through May 15, 2019, with respect to, among other things, the Senior Notes Default, subject to the terms and conditions of the forbearance. The forbearance obtained from the holders of Senior Notes provides, subject to the terms of the forbearance, that the holders of Senior Notes will not exercise remedies with respect to the Senior Notes Default.

Nasdaq Deficiency Notices

Our Series A Common Stock is listed on the Nasdaq Global Select Market. As a Nasdaq listed company, we are required to satisfy Nasdaq’s continued listing requirements.

On November 26, 2018, we received a letter from Nasdaq indicating that the market value of publicly held shares of our Series A common stock (“MVPHS”) for the last 30 consecutive business days was less than $15 million, which is the minimum market value of publicly held shares (the “MVPHS Requirement”) necessary to qualify for continued listing on the Nasdaq Global Select Market under Nasdaq Listing Rule 5450(b)(3)(C). In accordance with Nasdaq Listing Rule 5810(c)(3)(D), we have been provided 180 calendar days, or until May 28, 2019, to regain compliance with the MVPHS Requirement. To regain compliance, our MVPHS must be at least $15 million for at least ten consecutive business days during this 180-day period, at which point Nasdaq would provide written confirmation to us and close the matter. If we do not regain compliance with the MVPHS Requirement within the 180-day compliance period, Nasdaq will provide notice to us that our Series A common stock is subject to delisting. We may transfer our Series A common stock to the Nasdaq Capital Market, provided we meet the listing requirements for that market, but there can be no assurance that we will meet those listing requirements. Alternatively, if the Series A Common Stock is not eligible to be listed on the Nasdaq Capital Market, we intend to apply to have the Series A Common Stock quoted on the OTC Market.

In addition, on December 28, 2018, we received a letter (the “Minimum Bid Notice”) from Nasdaq indicating that the closing bid price of our Series A common stock for the last 30 consecutive business days was less than $1.00, which is the minimum closing bid price (the “Minimum Bid Price Requirement”) necessary to qualify for continued listing on the Nasdaq Global Select Market under Nasdaq Listing Rule 5450(a)(1). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided 180 calendar days, or until June 26, 2019, to regain compliance with the Minimum Bid Price Requirement. To regain

25

Table of Contents

compliance, the closing bid price of our Series A common stock must be at least $1.00 per share for at least ten consecutive business days during this 180-day period, at which point Nasdaq would provide written confirmation to the Company of compliance with the Minimum Bid Price Requirement and close the matter. The Minimum Bid Notice provides that, if we do not regain compliance with the Minimum Bid Price Requirement by June 26, 2019, we may be eligible to transfer to the Nasdaq Capital Market and take advantage of an additional 180 calendar day compliance period. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and provide written notice of our intention to cure the minimum bid price deficiency during the second compliance period, by effecting a reverse split, if necessary. If we meet these requirements, we will be granted an additional compliance period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement, but there can be no assurance that we will meet those listing requirements. If we do not regain compliance with the Minimum Bid Price Requirement by June 26, 2019, and the Nasdaq staff determines that we will not be able to cure the deficiency, or if we are not otherwise eligible for any additional compliance period, Nasdaq will provide notice that our Series A common stock is subject to delisting. Alternatively, if the Series A Common Stock is not eligible to be listed on the Nasdaq Capital Market, we intend to apply to have the Series A Common Stock quoted on the OTC Market.

While Nasdaq’s rules permit us to appeal any delisting determination, there can be no assurance the Nasdaq’s staff would grant our request for continued listing. Further, there can be no assurance that we will be able to regain compliance with the MVPHS Requirement or the Minimum Bid Price Requirement or maintain compliance with Nasdaq’s other continued listing requirements. If the Series A common stock is not eligible to be listed on Nasdaq, the Company intends to apply to have the Series A common stock quoted on the OTC Market.

In addition, a delisting of our Series A Common Stock from Nasdaq would negatively impact us because it could, among other things: (i) reduce the liquidity and market price of our common stock; (ii) reduce the amount of news and analyst coverage for our company; (iii) reduce the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing and the ability of our shareholders to sell our common stock; (iv) limit our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets; (v) impair our ability to provide liquid equity incentives to our employees; and (vi) have negative reputational impact for us with our customers, suppliers, employees and other persons with whom we transact from time to time.

Radio Conversion Costs

Recently, Monitronics has become aware that certain cellular carriers of 3G and CDMA cellular networks will be retiring their 3G and CDMA networks by the end of 2022 and Monitronics currently estimates that the retirement of these networks will impact approximately 510,000 of its subscribers. Monitronics is working on plans to identify and offer equipment upgrades to this population of subscribers. While such plans are not finalized, Monitronics does expect to incur incremental expenses over the next three years related to retirement of 3G and CDMA networks. Total costs for the conversion of such customers are subject to numerous variables, including Monitronics' ability to work with its partners and subscribers on cost sharing initiatives.

Liquidity Outlook

In considering our liquidity requirements for the next twelve months, we evaluated our known future commitments and obligations including factors discussed above.  Ascent Capital and Monitronics have engaged financial and legal advisors to assist them in considering potential alternatives to address the issues described above. As of the issuance date of these condensed consolidated financial statements, Monitronics has not refinanced the Senior Notes and there can be no assurance that any refinancing, or an alternative restructuring of its outstanding indebtedness will be possible on acceptable terms, if at all.

Monitronics’ failure to refinance the Senior Notes or to reach an agreement with its stakeholders on the terms of a restructuring would have a material adverse effect on its and our liquidity, financial condition and results of operations, and may result in it filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan.

We will require the availability of funds to finance the strategy of our primary operating subsidiary, Monitronics, which is to grow through the acquisition of subscriber accounts.  We considered the expected cash flow from Monitronics, as this business is the driver of our operating cash flows. Monitronics had $23,931,000 of cash as of March 31, 2019 available to fund operations. The Credit Facility Waiver expired May 10, 2019. Monitronics is seeking to amend and extend the Credit Facility Waiver including a waiver with respect to the Financial Covenant Default. However, there can be no assurance that

26

Table of Contents

Monitronics will receive such a waiver and therefore, there can be no assurance that Monitronics will have availability of additional borrowings under the Credit Facility revolver. Without additional waivers or forbearances from its Credit Facility term and revolving lenders, there will be insufficient liquidity to finance Monitronics' operating strategy.

We may seek external equity or debt financing in the event of any new investment opportunities, additional capital expenditures or our operations require additional funds, but there can be no assurance that we will be able to obtain equity or debt financing on terms that would be acceptable to us or at all.  Our ability to seek additional sources of funding depends on our future financial position and results of operations, which are subject to general conditions in or affecting our industry and our subscribers and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

Item 3.  Quantitative and Qualitative Disclosure about Market Risk
 
Interest Rate Risk
 
We have exposure to changes in interest rates related to the terms of our debt obligations.  Monitronics uses derivative financial instruments to manage the exposure related to the movement in interest rates.  The derivatives are designated as hedges and were entered into with the intention of reducing the risk associated with variable interest rates on the debt obligations.  We do not use derivative financial instruments for trading purposes.
 
Tabular Presentation of Interest Rate Risk
 
The table below provides information about our outstanding debt obligations and derivative financial instruments that are sensitive to changes in interest rates. Interest rate swaps are presented at their fair value amount and by maturity date as of March 31, 2019.  Debt amounts represent principal payments by maturity date, assuming certain accelerated maturities due to potential events of default, as of March 31, 2019.
 
Year of Maturity
 
Fixed Rate
Derivative
Instruments, net (a)
 
Variable Rate
Debt
 
Fixed Rate
Debt
 
Total
 
 
(Amounts in thousands)
Remainder of 2019
 
$

 
$
1,253,900

 
$
606,101

 
$
1,860,001

2020
 

 

 

 

2021
 

 

 

 

2022
 
3,260

 

 

 
3,260

2023
 

 

 

 

2024
 

 

 

 

Thereafter
 

 

 

 

Total
 
$
3,260

 
$
1,253,900

 
$
606,101

 
$
1,863,261

 
(a) 
The derivative financial instruments reflected in this column include four interest rate swaps with a maturity date in 2022.  As a result of these interest rate swaps, Monitronics' effective weighted average interest rate (excluding the impacts of non-cash amortization of deferred debt costs and discounts) on the borrowings under the Credit Facility term loans was 8.04% as of March 31, 2019.  See notes 5, 6 and 7 to our accompanying condensed consolidated financial statements included in this Quarterly Report for further information.

Item 4.  Controls and Procedures
 
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer and chief financial officer (the "Executives"), of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, the Executives concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2019 to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
 

27

Table of Contents

There has been no change in the Company’s internal controls over financial reporting that occurred during the three months ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, its internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

On August 27, 2018, certain holders of Ascent Capital’s Convertible Notes caused an action to be filed in the Court of Chancery of the State of Delaware, captioned KLS Diversified Master Fund L.P. et. al. v. Ascent Capital Group, Inc. et al., C.A. No. 2018-0636 (as amended on September 5, 2018, October 1, 2018 and October 22, 2018, the “Noteholder Action”) against Ascent Capital and each of its directors and executive officers. On February 11, 2019, Ascent Capital and its directors and executive officers, on the one hand, and the holders of Convertible Notes that were plaintiffs in the Noteholder Action (together with certain of each of such holders’ respective affiliates, the “Noteholder Parties”) collectively holding $75,674,000 in aggregate principal amount of Convertible Notes, representing 78% of the aggregate principal amount of the Convertible Notes then outstanding, on the other hand, entered into a Settlement and Note Repurchase Agreement and Release (the “Settlement Agreement”), which, among other things as described herein, (i) provided for the settlement of the Noteholder Action and the mutual release of claims related thereto (the “Settlement”) and (ii) in connection with the Settlement, provided for the delivery by the Noteholder Parties of their respective written consents (the “Consents”) with respect to all Convertible Notes held by such Noteholder Parties to certain amendments described below (the “Amendments”) to the Indenture and for the private repurchase (the “Note Repurchase”) by the Company of all Convertible Notes held by such Noteholder Parties. On February 14, 2019, the transactions contemplated in the Settlement Agreement (including the obtaining of the Consents and the Note Repurchase) were consummated and following the receipt of the Consents, the Company and the Trustee entered into the Second Supplemental Indenture, dated as of February 14, 2019 (the “Second Supplemental Indenture”), to the Indenture and the Amendments became effective. The Amendments effected by the Second Supplemental Indenture modified the Indenture to (i) remove references to subsidiary, subsidiaries and/or significant subsidiary, as applicable, of Ascent Capital from certain events of default provisions contained in Section 6.01 of the Indenture and (ii) allow conversion of Ascent Capital into a non-corporate legal form. Following the consummation of the transactions contemplated in the Settlement Agreement, on February 15, 2019, a Stipulation of Dismissal with respect to the Noteholder Action was filed in the Court of Chancery of the State of Delaware, pursuant to which the Noteholder Action was dismissed with prejudice.

The Settlement Agreement states that, in connection with the Settlement, Ascent Capital paid to the Noteholder Parties an aggregate amount of $70,666,176.28 in cash, consisting of (i) an aggregate of $6,104,720.92 for professional fees and expenses incurred on the Noteholder Parties’ behalf, (ii) an aggregate of $2,000,000.00 in consideration for the Noteholder Parties’ Consents, (iii) an aggregate of $10,808,555.36 in consideration for and in full and final satisfaction of the settled claims as set forth in the Settlement Agreement and (iv) an aggregate of $51,752,900.00 on account of the Note Repurchase.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

(c) Purchases of Equity Securities by the Issuer

The Company did not purchase any of its own equity securities during the three months ended March 31, 2019. The following table sets forth information concerning shares withheld in payment of withholding taxes on certain vesting of stock awards of Series A Common Stock, in each case, during the three months ended March 31, 2019.
Period
 
Total Number 
of Shares
Purchased
(Surrendered) (1)
 
 
 
Average Price
Paid per Share
 
Total Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
 
Maximum Number (or
Approximate Dollar
Value) or Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs (1)
1/1/2019 - 1/31/2019
 
4,419

 
(2)
 
$
0.41

 

 
 
2/1/2019 - 2/28/2019
 
1,792

 
(2)
 
0.54

 

 
 
3/1/2019 - 3/31/2019
 
1,250

 
(2)
 
0.74

 

 
 
Total
 
7,461

 
 
 
$
0.49

 

 
 
 
(1)
  On June 16, 2011, the Company announced that it received authorization to implement a share repurchase program, pursuant to which it could purchase up to $25,000,000 of its shares of Series A Common Stock, from time to time.  On November 14, 2013, November 10, 2014 and September 4, 2015, the Company’s Board of Directors authorized, at each date, the repurchase of an incremental $25,000,000 of its Series A Common Stock. As of March 31, 2019,

28

Table of Contents

2,391,604 shares of Series A Common Stock had been purchased, at an average price paid of $40.65 per share, pursuant to these authorizations.  As of March 31, 2019, the remaining availability under the Company's existing share repurchase program will enable the Company to purchase up to an aggregate of approximately $2,771,000 of Series A Common Stock. The Company may also purchase shares of its Series B Common Stock, under the remaining availability of the program.

(2)
Represents shares withheld in payment of withholding taxes upon vesting of employees' restricted share awards.

Item 3.  Defaults Upon Senior Securities.

In connection with management’s negotiations with its creditors, Monitronics did not make its Senior Notes interest payment in the amount of $26,691,000 due on April 1, 2019, which is also the aggregate amount of interest payments that have not been paid as of the date of filing of this Quarterly Report on Form 10-Q. The indenture governing the Senior Notes provides for a 30-day cure period on past due interest payments, which has expired. For more information regarding the Senior Notes Default, see “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” and Note 2, Going Concern.

Item 6Exhibits
 
Listed below are the exhibits which are included as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
4.1
 
10.1
 
10.2
 
10.3
 
10.4
 
10.5
 
10.6
 
10.7
 
10.8
 
10.9
 
10.10
 
10.11
 
10.12
 

29

Table of Contents

10.13
 
31.1
 
31.2
 
32
 
101.INS
 
XBRL Instance Document. *
101.SCH
 
XBRL Taxonomy Extension Schema Document. *
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document. *
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document. *
101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document. *
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document. *


*
Filed herewith.
**
Furnished herewith.

SIGNATURES
 
Pursuant to the requirements 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.
 
 
 
 
 
ASCENT CAPITAL GROUP, INC.
 
 
 
 
 
 
 
 
 
 
Date:
May 14, 2019
 
By:
/s/ William E. Niles
 
 
 
 
William E. Niles
 
 
 
 
Chief Executive Officer, General Counsel and Secretary
 
 
 
 
 
 
 
 
 
 
Date:
May 14, 2019
 
By:
/s/ Fred A. Graffam
 
 
 
 
Fred A. Graffam
 
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
 
(Principal Financial and Accounting Officer)


30
Exhibit


Exhibit 10.2

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”), made on February 1, 2019, to be effective as of January 1, 2019 (“Effective Date”), is entered into by and between Ascent Capital Group, Inc. (the “Company”), and William E. Niles (“Executive”).

INTRODUCTION
The Company and Executive are parties to an Employment Agreement, as amended and restated effective April 1, 2018 (the “Prior Agreement”).
The Company desires to continue to employ Executive, and Executive desires to accept such employment, under the terms and conditions set forth herein. The Company and the Executive desire to amend and restate in its entirety the Prior Agreement on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
EMPLOYMENT; TERM; DUTIES
1.1    Employment. Upon the terms and conditions hereinafter set forth, the Company hereby continues to employ Executive, and Executive hereby accepts continued employment, as Chief Executive Officer, General Counsel and Secretary of the Company. Notwithstanding the foregoing, at the request of the Board of Directors of the Company, Executive shall resign from the position of Chief Executive Officer and resume Executive’s prior position of Executive Vice President, General Counsel and Secretary and such request shall not be a violation of the terms of this Agreement provided that all other terms of the Agreement remain the same including, for the avoidance of doubt, Base Salary and Target Bonus.

1.2    Term. Subject to Article IV below, Executive’s employment hereunder shall begin as of the Effective Date and terminate at the close of business on February 28, 2020 or such earlier date as provided for herein (the “Term”).

1.3    Duties. During the Term, Executive shall perform such executive duties for the Company and/or its subsidiaries or affiliates (together, “Affiliates”), consistent with his position hereunder. Executive shall devote his entire productive business time, attention and energies to the performance of his duties hereunder. Executive shall use his best efforts to advance the interests and business of the Company and its Affiliates. Executive shall abide by the rules, regulations and policies of the Company, as may be in effect from time to time. Notwithstanding the foregoing, during the Term, Executive may act for his own account in passive-type investments as provided in Section 5.3, or as a member of boards of directors of other companies, where the time allocated for those activities does not materially interfere with or create a conflict of interest with the discharge of his duties for the Company.






1.4    Reporting. Executive shall report directly to the Board of Directors of the Company.

1.5    Location. Except for services rendered during business trips as may be reasonably necessary, Executive shall render his services under this Agreement primarily from the principal executive offices of the Company in the Denver, Colorado metropolitan area.

1.6    Exclusive Agreement. Executive represents and warrants to the Company that there are no agreements or arrangements, whether written or oral, in effect which would prevent Executive from rendering his exclusive services to the Company during the Term.

ARTICLE II
COMPENSATION
2.1    Compensation. For all services rendered by Executive hereunder and all covenants and conditions undertaken by him pursuant to this Agreement, the Company shall pay, and Executive shall accept, as full compensation, the amounts set forth in this Article II.

2.2    Base Salary. Executive’s base salary shall be an annual salary of $600,000 (“Base Salary”), payable by the Company in accordance with the Company’s normal payroll practices. The Base Salary shall be reviewed on an annual basis during the Term for increase in the sole discretion of the compensation committee (the “Committee”) of the Board of Directors of the Company.

2.3    Bonus. For each fiscal year during the Term, in addition to the Base Salary, Executive shall be eligible for an annual discretionary bonus of 100% of Executive’s Base Salary (the “Target Bonus”). Executive’s entitlement to any bonus will be determined by the Committee in its sole discretion, based upon the achievement of such criteria as the Committee may establish in its sole discretion with respect to each fiscal year of the Term. Nothing in this Agreement shall be construed to guarantee the payment of any bonus to Executive. For the Purpose of calculating severance, the term “Target Bonus” shall mean an amount equal to 100% of Executive’s then Base Salary.

2.4    Deductions. The Company shall deduct from the compensation described in Sections 2.2 and 2.3, and from any other compensation payable pursuant to this Agreement, any federal, state or local withholding taxes, social security contributions and any other amounts which may be required to be deducted or withheld by the Company pursuant to any federal, state or local laws, rules or regulations.

2.5    Disability Adjustment. Any compensation otherwise payable to Executive pursuant to Sections 2.2 and 2.3 in respect of any period during which Executive is Disabled (as defined in Section 4.4) shall be reduced by any amounts payable to Executive for loss of earnings or the like under any insurance plan or policy sponsored by the Company.

ARTICLE III
BENEFITS; EXPENSES
3.1    Benefits. During the Term, Executive shall be entitled to participate in such group life, health, accident, disability or hospitalization insurance plans, pension plans and retirement plans as the Company may make available to its other senior executive employees as a group, subject to the terms and conditions of any such plans. Executive’s participation in all such plans shall be at a level, and on terms and conditions, that are commensurate with his positions and responsibilities at the Company.






3.2    Expenses. The Company agrees that Executive is authorized to incur reasonable and appropriate expenses in the performance of his duties hereunder and in promoting the business of the Company in accordance with the terms of the Company’s Travel & Entertainment Policy (as the same may be modified or amended by the Company from time to time in its sole discretion).

3.3    Vacation. Executive shall accrue a total of one hundred sixty (160) hours of vacation per year following the date of this Agreement.  If, at any time during the Term, Executive accumulates two hundred forty (240) hours of earned but unused vacation time (the “Accrual Cap”), Executive will not accrue additional vacation time until he has taken a portion of the previously earned vacation.  Executive will again accrue paid vacation time when his accumulated amount of earned but unused vacation time falls below the Accrual Cap.  Upon termination of Executive’s employment, any accrued but unused vacation time will be paid to Executive.

3.4    Key Man Insurance. The Company may secure in its own name or otherwise, and at its own expense, life, health, accident and other insurance covering Executive alone or with others, and Executive shall not have any right, title or interest in or to such insurance other than as expressly provided herein. Executive agrees to assist the Company in procuring such insurance by submitting to the usual and customary medical and other examinations to be conducted by such physicians as the Company or such insurance company may designate and by signing such applications and other written instruments as may be required by the insurance companies to which application is made for such insurance. Executive’s failure to submit to such usual and customary medical and other examinations shall be deemed a material breach of this Agreement.

ARTICLE IV
TERMINATION; DEATH; DISABILITY
4.1    Termination of Employment For Cause. In addition to any other remedies available to the Company at law, in equity or as set forth in this Agreement, the Company shall have the right, upon written notice to Executive, to terminate Executive’s employment hereunder at any time for “Cause” (a “Termination For Cause”). In the event of a Termination For Cause, Executive’s employment will terminate and the Company shall have no further liability or obligation to Executive (other than the Company’s obligation to pay Base Salary and vacation time accrued but unpaid as of the date of termination and reimbursement of expenses incurred prior to the date of termination in accordance with Section 3.2 above).

For purposes of this Agreement, “Cause” shall mean: (a) any act or omission that constitutes a breach by Executive of any of his material obligations under this Agreement; (b) the continued failure or refusal of Executive (i) to substantially perform the material duties required of him as an Executive of the Company and/or (ii) to comply with reasonable directions of the Board of Directors; (c) any material violation by Executive of any (i) policy, rule or regulation of the Company or (ii) any law or regulation applicable to the business of the Company or any of its Affiliates; (d) Executive’s material act or omission constituting fraud, dishonesty or misrepresentation, occurring subsequent to the commencement of his employment with the Company; (e) Executive’s gross negligence in the performance of his duties hereunder; (f) Executive’s conviction of, or plea of guilty or nolo contendere to, any crime (whether or not involving the Company) which constitutes a felony or crime of moral turpitude or is punishable by imprisonment of thirty (30) days or more, provided, however, that nothing in this Agreement shall obligate the Company to pay Base Salary or any bonus compensation or benefits during any period that Executive is unable to perform his duties hereunder due to any incarceration, and provided, further, that nothing shall prevent Executive’s termination





under any other subsection of this Section 4.1 if it provides independent grounds for termination; or (g) any other misconduct by Executive that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or any of its Affiliates.
Notwithstanding the foregoing, no purported Termination For Cause pursuant to (a), (b), (c), (d), (e) or (g) of the preceding paragraph of this Section 4.1 shall be effective unless all of the following provisions shall have been complied with: (i) Executive shall be given written notice by the Company of its intention to effect a Termination For Cause, such notice to state in detail the particular circumstances that constitute the grounds on which the proposed Termination For Cause is based; and (ii) Executive shall have ten (10) business days after receiving such notice in which to cure such grounds, to the extent such cure is possible, as determined in the sole discretion of the Company.
4.2    Termination of Employment Without Cause. During the Term, the Company may at any time, in its sole discretion, terminate the employment of Executive hereunder for any reason (other than those set forth in Section 4.1 above) upon written notice (the “Termination Notice”) to Executive (a “Termination Without Cause”). In such event, the Company shall pay Executive an amount equal to the sum of the following:

(a)    any Base Salary and vacation time accrued but unpaid as of the date of termination;

(b)    subject to Sections 4.5, 4.6, 4.7 and 5.3 below, an amount (the “Severance Payment”) equal to the sum of:

(i) if the termination of Executive’s employment occurs prior to a Change in Control (as defined in Section 4.9), the product of (i) the sum of Executive’s Base Salary plus the Target Bonus, both as in effect immediately prior to such Termination Without Cause multiplied by (ii) 2; or
(ii) if the termination of Executive’s employment occurs concurrently with or following a Change in Control, the product of (i) the sum of Executive’s Base Salary plus the Target Bonus, both as in effect immediately prior to such Termination Without Cause multiplied by (ii) 2.5;
(c)    any Bonus to which Executive has earned prior to the date upon which such Termination Without Cause occurs but which remains unpaid at the date of termination (“Unpaid Bonus”); and

(d)    any reimbursement for expenses incurred in accordance with Section 3.2.

Any Severance Payment to which Executive becomes entitled shall be payable in cash in a lump sum no later than the thirtieth (30th) day following the date of termination of Executive’s employment (or, if such day is not a business day, on the first business day thereafter).
In addition, subject to Sections 4.5 and 4.6 below, to the extent such coverage is available and is elected by Executive under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company shall contribute to the health insurance plan maintained by the Company and covering the Executive and his dependents as of the date of termination, or any successor plan maintained by the Company, that amount that reflects the proportionate part of the premium for such coverage that is paid by the Company as of the date of termination (the “Benefits Payments”), such Benefits Payments to be made monthly in accordance with the Company’s normal procedures for the payment of health insurance premiums, throughout





the period beginning on the date of termination and ending on the earlier of the 24-month anniversary of the date of termination and the expiration of the coverage period specified in COBRA, such period to be determined as of the date of termination (the “Reimbursement Period”) (i.e., Executive shall bear responsibility for that portion of the health insurance premiums in excess of the Benefits Payments), or, alternately, in the Company’s sole discretion, the Company shall reimburse Executive the amount of the Benefits Payment on a monthly basis during the Reimbursement Period, upon Executive’s submission to the Company of adequate proof of payment of the full COBRA premium by Executive; provided, however, that if Executive becomes employed with another employer during the Reimbursement Period and is eligible to receive health and/or medical benefits that are substantially comparable to those offered by the Company under such other employer’s plans, as determined by the Company, the Company’s payment obligation under this paragraph shall end. Executive will notify the Company of his eligibility for such other employer-provided benefits within thirty (30) days of attaining of such eligibility. Notwithstanding the foregoing, in the event that the Company’s payment obligation under this paragraph would violate the nondiscrimination rules applicable to non-grandfathered group health plans, or result in the imposition of penalties under the Patient Protection and Affordable Care Act of 2010 and the related regulations and guidance promulgated thereunder (“PPACA”), the Company and Executive agree to reform this paragraph in a manner as is necessary to comply with PPACA while still providing economically equivalent benefits. For the avoidance of doubt, Executive shall be responsible for paying any U.S. federal or state income taxes associated with the Benefits Payments.
At least ninety (90) days prior to the expiration of the Term, the Company shall deliver a written notice to Executive stating either (i) that the Company does not intend to offer Executive a new employment agreement to take effect at the expiration of the Term (a “Non-Renewal Notice”) or (ii) that the Company offers Executive a new employment agreement to take effect at the expiration of the Term upon terms (other than the length of the term of such new employment agreement) that are, in material respects, taken as a whole, at least as favorable to Executive as the terms of this Agreement, and the material terms of such offer shall be summarized or set forth in the notice (“Renewal Notice”). If the Company delivers a Non-Renewal Notice, or if the Company fails to deliver either a Renewal Notice or a Non-Renewal Notice on a timely basis as provided in the immediately preceding sentence, Executive’s employment shall be terminated at the expiration of the Term (or at such earlier date as may be set forth in the Non-Renewal Notice), and such termination shall be a Termination Without Cause, whereupon, subject to Sections 4.5, 4.6, 4.7, 4.8 and 5.3 below, Executive shall be entitled to receive the amounts and benefits as provided under this Section 4.2.
In addition, in the event of a Change in Control, the parties agree that Executive’s employment will be terminated without the necessity of further action by the Company or Executive on the date 30 days following the date of the Change in Control (or such earlier date as the parties may agree), and such termination shall be a Termination Without Cause, whereupon, subject to Sections 4.5, 4.6, 4.7, 4.8 and 5.3 below, Executive shall be entitled to receive the amounts and benefits as provided under this Section 4.2. At the request of the Company, Executive agrees to serve a non-employee director of the Board following his termination of employment, subject to the standard terms and conditions, including compensation and indemnification, as are provided to other non-employee directors.
Executive acknowledges that the payments and benefits described in this Section 4.2, together with any rights or benefits under any written plan or agreement which have vested on or prior to the termination date of Executive’s employment under this Section 4.2, constitute the only payments which Executive shall be entitled to receive from the Company hereunder in the event of any termination of his employment pursuant to this Section 4.2, and the Company shall have no further liability or obligation to him hereunder or otherwise in respect of his employment.
4.3    Termination of Employment With Good Reason. In addition to any other remedies available to Executive at law, in equity or as set forth in this Agreement, Executive shall have the right during the





Term, upon written notice to the Company, to terminate his employment hereunder upon the occurrence of any of the following events without the prior written consent of Executive: (a) a reduction in Executive’s then current Base Salary; (b) the relocation by the Company of Executive’s principal place of employment to a location more than 35 miles from Executive’s principal place of employment prior to such relocation, without Executive’s consent, or (c) a breach by the Company of any material provision of this Agreement (a “Termination With Good Reason”). For the avoidance of doubt, the change in Executive’s position as described in Section 1.1 shall not give rise to an event constituting a Termination With Good Reason.

Notwithstanding the foregoing, no purported Termination With Good Reason pursuant to Section 4.3(a), (b) or (c) shall be effective unless all of the following provisions shall have been complied with: (i) the Company shall be given written notice by Executive of the intention to effect a Termination With Good Reason, such notice to state in detail the particular circumstances that constitute the grounds on which the proposed Termination With Good Reason is based and to be given no later than ninety (90) days after the initial occurrence of such circumstances; (ii) the Company shall have thirty (30) days after receiving such notice in which to cure such grounds, to the extent such cure is possible and (iii) if the Company fails to cure such grounds within such 30-day period, Executive terminates his employment hereunder on the last day of such 30-day period.
In the event that a Termination With Good Reason occurs, then, subject to Sections 4.5, 4.6, 4.7 and 5.3 below, Executive shall have the same entitlement to the same amounts and benefits as provided under Section 4.2 for a Termination Without Cause.
Executive acknowledges that the payments and benefits referred to in this Section 4.3, together with any rights or benefits under any written plan or agreement which have vested on or prior to the termination date of Executive’s employment under this Section 4.3, constitute the only payments which Executive shall be entitled to receive from the Company hereunder in the event of any termination of his employment pursuant to this Section 4.3, and the Company shall have no further liability or obligation to him hereunder or otherwise in respect of his employment.
4.4    Death; Disability. In the event that Executive dies or becomes Disabled (as defined herein) during the Term, Executive’s employment shall terminate when such death or Disability occurs and the Company shall pay Executive (or his legal representative, as the case may be) as follows:

(a)    any Base Salary and vacation time accrued but unpaid as of the date of death or termination for Disability payable in a single lump sum cash payment within thirty (30) days of such termination of employment;

(b)    any reimbursement for expenses incurred in accordance with Section 3.2.; and

(c)    an amount equal to 18 months of Base Salary in effect immediately prior to such death or Disability payable in a single cash lump sum on the 60th business day following the termination date.

For the purposes of this Agreement, Executive shall be deemed to be “Disabled” or have a “Disability” if, because of Executive’s physical or mental disability, he has been substantially unable to perform his duties hereunder for twelve (12) work weeks in any twelve (12) month period. Executive shall be considered to have been substantially unable to perform his duties hereunder only if he is either (a) unable to reasonably and effectively carry out his duties with reasonable accommodations by the Company or (b) unable to reasonably and effectively carry out his duties because any reasonable accommodation which may be required





would cause the Company undue hardship. In the event of a disagreement concerning Executive’s purported Disability, Executive shall submit to such examinations as are deemed appropriate by three practicing physicians specializing in the area of Executive’s Disability, one selected by Executive, one selected by the Company, and one selected by both such physicians. The majority decision of such three physicians shall be final and binding on the parties.
Notwithstanding the foregoing, to the extent and for the period required by any state or federal family and medical leave law, upon Executive’s request (i) he shall be considered to be on unpaid leave of absence and not terminated, (ii) his group health benefits shall remain in full force and effect, and (iii) if Executive recovers from any such Disability, at that time, to the extent required by any state or federal family and medical leave law, upon Executive’s request, he shall be restored to his position hereunder or to an equivalent position, as the Company may determine, and the Term of Executive’s employment hereunder shall be reinstated effective upon such restoration. The Term shall not be extended by reason of such intervening leave of absence or termination, nor shall any compensation or benefits accrue in excess of those required by law during such intervening leave of absence or termination. Upon the expiration of any such rights, unless Executive has been restored to a position with the Company, he shall thereupon be considered terminated.
Executive acknowledges that the payments referred to in this Section 4.4, together with any rights or benefits under any written plan or agreement which have vested on or prior to the termination date of Executive’s employment under this Section 4.4, constitute the only payments which Executive (or his legal representative, as the case may be) shall be entitled to receive from the Company hereunder in the event of a termination of his employment for death or Disability, and the Company shall have no further liability or obligation to him (or his legal representatives, as the case may be) hereunder or otherwise in respect of his employment.
4.5    No Mitigation by Executive. Except as otherwise expressly provided herein, Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for herein be reduced by any compensation earned by Executive as the result of employment by another employer; provided, however, that if Executive becomes employed with another employer and is eligible to receive health and/or medical benefits under such other employer’s plans, Executive’s continued benefits and/or plan coverage as set forth in Section 4.2 or 4.3, as the case may be, shall be reduced to the extent that comparable benefits and/or coverage is provided under such other employer’s plans.

4.6    Severance Agreement and Release. In the event that Executive incurs a termination of employment pursuant to (i) a Termination Without Cause (as defined in Section 4.2 above), or (ii) a Termination With Good Reason (as defined in Section 4.3 above), payment by the Company of the amounts described in said sections shall be subject to the execution and delivery to the Company by Executive of a severance agreement and release (the “Release”) in a form substantially and materially similar to Attachment A hereto within the applicable time period described below.

The Release shall be delivered to Executive, in the case of a Termination Without Cause, at the time of delivery of the Termination Notice, and, in the case of a Termination With Good Reason, upon delivery of written notice by Executive to the Company. Executive shall have a period of twenty-one (21) days after the effective date of termination of this Agreement (the “Consideration Period”) in which to execute and return the original, signed Release to the Company. If Executive delivers the original, signed Release to the Company prior to the expiration of the Consideration Period and does not thereafter revoke such Release within any period of time provided therefor under applicable law, Executive shall, subject to Sections 4.7





and 5.3 below, be entitled to the Severance Payment as described in Section 4.2 (including by reason of Section 4.3, if applicable).
If Executive does not deliver the original, signed Release to the Company prior to the expiration of the Consideration Period, or if Executive delivers the original, signed Release to the Company prior to the expiration of the Consideration Period and thereafter revokes such Release within any period of time provided therefor under applicable law, then:
(a)    the Company shall pay Executive an amount equal to the sum of (i) any Base Salary and vacation time accrued but unpaid as of the date of termination, plus (ii) any reimbursement for expenses incurred in accordance with Section 3.2, plus (iii) any Unpaid Bonus; and

(b)    the Company shall have no obligation to pay to Executive the Severance Payment (as that term is defined in Section 4.2(b) above) or the Benefits Payments (as that term is defined in Section 4.2).

4.7    Continued Compliance. Executive and the Company hereby acknowledge that any Severance Payments and Benefits Payments payable by the Company under Section 4.2 (including by reason of Section 4.3) are part of the consideration for Executive’s undertakings under Article V below. Such amounts are subject to Executive’s continued compliance with the provisions of Article V. If Executive violates the provisions of Article V, then the Company will have no obligation to make any of the Severance Payments or Benefits Payments that remain payable by the Company under Section 4.2 (including by reason of Section 4.3) on or after the date of such violation.

4.8    Change in Control.

(a)For purposes of this Agreement, a “Change in Control” means any of the following that otherwise meets the definition of a “change in ownership,” a “change in effective control” or a “change in ownership of a substantial portion of the assets” of the Company within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury regulations promulgated thereunder:

(i)the acquisition by any person or group of ownership of stock of the Company that, together with stock already held by such person or group, constitutes more than 50% of the total fair market value or more than 50% of the total voting power of the stock of the Company;

(ii)the acquisition by any person or group, in a single transaction or in multiple transactions all occurring during the 12-month period ending on the date of the most recent acquisition by such person or group, assets from the Company that have a total gross fair market value equal to or exceeding 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; or

(iii)the acquisition by any person or group, in a single transaction or in multiple transactions all occurring during the 12-month period ending on the date of the most recent acquisition by such person or group, of ownership of stock of the Company possessing 30% or more of the total voting power of the stock of Company or the replacement of a majority of the Company’s Board of Directors during any 12-month period by directors whose





appointment or election is not endorsed by a majority of the members of the Company’s Board of Directors before the date of appointment or election.
For purposes of this Section 4.8, “person” and “group” have the meanings given to them for purposes of Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor provisions, and the term “group” includes any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act, or any successor provision. “Person” or “group” shall also mean the holders of Monitronics International Inc.’s Senior Unsecured Notes due April 1, 2020.
(b)Notwithstanding anything to the contrary in this Agreement, if the Executive is a “disqualified individual” (as defined in Code Section 280G(c)), and the payments and benefits provided for under this Agreement, together with any other payments and benefits which the Executive has the right to receive from the Company or any of its affiliates (or by any party to an agreement or arrangement with the Company or an affiliate in connection with a Change in Control), would constitute a “parachute payment” (as defined in Code Section 280G(b)(2)), then the payments and benefits provided for under this Agreement shall be either (i) reduced (but not below zero) so that the present value of such total amounts and benefits received by the Executive from the Company and its affiliates will be one dollar ($1.00) less than three times the Executive’s “base amount” (as defined in Code Section 280G(b)(3)) and so that no portion of such amounts and benefits received by the Executive shall be subject to the excise tax imposed by Code Section 4999 or (ii) paid in full, whichever produces the better net after-tax position to the Executive (taking into account any applicable excise tax under Code Section 4999 and any other applicable taxes). The reduction of payments and benefits hereunder, if applicable, shall be made by reducing, first, payments or benefits to be paid in cash hereunder in the order in which such payment or benefit would be paid or provided (beginning with such payment or benefit that would be made last in time and continuing, to the extent necessary, through to such payment or benefit that would be made first in time) and, then, reducing any benefit to be provided in kind hereunder in a similar order. The determination as to whether any such reduction in the amount of the payments and benefits provided hereunder is necessary shall be made by a nationally recognized accounting firm mutually agreed to by the Company and the Executive. If a reduced payment or benefit is made or provided and through error or otherwise that payment or benefit, when aggregated with other payments and benefits from the Company (or its affiliates) used in determining if a parachute payment exists, exceeds one dollar ($1.00) less than three times the Executive’s base amount when the operation of this provision would have provided otherwise, then the Executive shall immediately repay such excess to the Company upon notification that an overpayment has been made. For the avoidance of doubt, in no event will the Company be responsible for any excise tax that may be imposed on the Executive pursuant to Code Section 4999.

ARTICLE V

OWNERSHIP OF PROCEEDS OF EMPLOYMENT; NON-DISCLOSURE;
NON-COMPETITION
5.1    Ownership of Proceeds of Employment.

5.1.1.    The Company shall be the sole and exclusive owner throughout the universe in perpetuity of all of the results and proceeds of Executive’s services, work and labor in connection with Executive’s employment by the Company, free and clear of any and all claims,





liens or encumbrances. Executive shall promptly and fully disclose to the Company, with all necessary detail for a complete understanding of the same, any and all developments, client and potential client lists, know how, discoveries, inventions, improvements, conceptions, ideas, writings, processes, formulae, contracts, methods, works, whether or not patentable or copyrightable, which are conceived, made, acquired, or written by Executive, solely or jointly with another, while employed by the Company or within six months thereafter (whether or not at the request or upon the suggestion of the Company) and which are substantially related to the business or activities of the Company or any of its Affiliates, or which Executive conceives as a result of his employment by the Company or its Affiliates, or as a result of rendering advisory or consulting services to the Company or its Affiliates (collectively, “Proprietary Rights”).

5.1.2.    Executive hereby assigns and transfers, and agrees to assign and transfer, all his rights, title, and interests in the Proprietary Rights to the Company or its nominee. In addition, Executive shall deliver to the Company any and all drawings, notes, specifications, and data relating to the Proprietary Rights. All copyrightable Proprietary Rights shall be considered to be “works made for hire.” Whenever requested to do so by the Company, Executive shall execute and deliver to the Company any and all applications, assignments and other instruments and do such other acts that the Company shall request to apply for and obtain patents and/or copyrights in any and all countries or to otherwise protect the Company’s interest in the Proprietary Rights and/or to vest title thereto to the Company; provided, however, the provisions of this Section 5.1 shall not apply to any Proprietary Rights that Executive developed entirely on his own time without using the Company’s equipment, supplies, facilities or proprietary information, except for Proprietary Rights that (a) at the time of conception or reduction to practice of the Proprietary Rights, relate to the Company’s business, or actual or demonstrably anticipated research or development of the Company, or (b) result from any work performed by Executive for the Company.

5.1.3.    Executive shall assist the Company in obtaining such copyrights and patents during the term of this Agreement, and any time thereafter on reasonable notice and at mutually convenient times, and Executive agrees to testify in any prosecution or litigation involving any of the Proprietary Rights; provided, however, Executive shall be reasonably compensated for his time and reimbursed for any out-of-pocket expenses incurred in rendering such assistance or giving or preparing to give such testimony.

5.2    Non-Disclosure of Confidential Information.

5.2.1.    As used herein, “Confidential Information” means any and all information affecting or relating to the business of the Company and its Affiliates, including without limitation, financial data, customer lists and data, licensing arrangements, business strategies, pricing information, product development, intellectual, artistic, literary, dramatic or musical rights, works, or other materials of any kind or nature (whether or not entitled to protection under applicable copyright laws, or reduced to or embodied in any medium or tangible form), including without limitation, all copyrights, patents, trademarks, service marks, trade secrets, contract rights, titles, themes, stories, treatments, ideas, concepts, technologies, art work, logos, hardware, software, and as may be embodied in any and all computer programs, tapes, diskettes, disks, mailing lists, lists of actual or prospective customers and/or suppliers, notebooks, documents, memoranda, reports, files, correspondence, charts, lists and all other written, printed or otherwise recorded material of any kind whatsoever and any other





information, whether or not reduced to writing, including “know-how”, ideas, concepts, research, processes, and plans. “Confidential Information” does not include information that is in the public domain, information that is generally known in the trade, or information that Executive can prove he acquired wholly independently of his employment with the Company. Executive shall not, at any time during the Term or thereafter, directly or indirectly, disclose or furnish to any other person, firm or corporation any Confidential Information, except in the course of the proper performance of his duties hereunder or as required by law. Nothing in this Section 5.2 prohibits Executive from reporting possible violations of law or regulation to any governmental agency or entity (or of making any other protected disclosures). Promptly upon the expiration or termination of Executive’s employment hereunder for any reason or whenever the Company so requests, Executive shall surrender to the Company all documents, drawings, work papers, lists, memoranda, records and other data (including all copies) constituting or pertaining in any way to any of the Confidential Information.

5.2.2.    Pursuant to the Defend Trade Secrets Act of 2016, Executive shall not be held criminally or civilly liable under any Federal or state trade secret law for the disclosure of any Confidential Information that (i) is made (A) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney and (B) solely for the purpose of reporting or investigating a suspected violation of law or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

5.3    Non-Competition. In consideration of the Company disclosing and providing access to Confidential Information after the date hereof, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Executive and the Company, intending to be legally bound, hereby agree as follows. Executive shall not, during his employment or for a period of two years following his termination of employment, directly: (a) compete with the Company; or (b) have an interest in, be employed by, be engaged in or participate in the ownership, management, operation or control of, or act in any advisory or other capacity for, any Competing Entity which conducts its business within the Territory (as such terms are hereinafter defined); provided, however, that notwithstanding the foregoing, Executive may make solely passive investments in any Competing Entity the common stock of which is “publicly held,” and of which Executive shall not own or control, directly or indirectly, in the aggregate securities which constitute more than one (1%) percent of the voting rights or equity ownership of such Competing Entity; or (c) solicit or divert any business or any customer from the Company or assist any person, firm or corporation in doing so or attempting to do so; or (d) cause or seek to cause any person, firm or corporation to refrain from dealing or doing business with the Company or assist any person, firm or corporation in doing so or attempting to do so.

For purposes of this Section 5.3, (i) the term “Competing Entity” shall mean any entity which presently or during the period referred to above engages in any business activity in which the Company or any of its Affiliates is then engaged; and (ii) the term “Territory” shall mean any geographic area in which the Company or any of its Affiliates conducts business during such period.

In the event Executive breaches this Section 5.3 then, in addition to the remedies set for in Section 5.5, (x) Executive shall forfeit any Severance Payment and Benefits Payment otherwise payable pursuant to Section 4.2 or 4.3 above, and (y) the Company shall have no obligation to make any Severance Payment or any Benefits Payment under Section 4.2 or 4.3.






5.4    Non-Solicitation.

5.4.1.    Executive shall not, for a period of eighteen (18) months from the date of any termination or expiration of his employment hereunder, directly or indirectly: (a) acquire any financial interest in or perform any services for himself or any other entity in connection with a business in which Executive’s interest, duties or activities would inherently require Executive to reveal any Confidential Information; or (b) solicit or cause to be solicited the disclosure of or disclose any Confidential Information for any purpose whatsoever or for any other party.

5.4.2.    In consideration of the Company disclosing and providing access to Confidential Information after the date hereof, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Executive and the Company, intending to be legally bound, hereby agree as follows. Executive shall not, for a period of eighteen (18) months from the date of any termination or expiration of his employment hereunder, solicit, directly or indirectly, or cause or permit others to solicit, directly or indirectly, any person employed by the Company (a “Current Employee”) to leave employment with the Company. The term “solicit” includes, but is not limited to the following (regardless of whether done directly or indirectly): (i) requesting that a Current Employee change employment, (ii) informing a Current Employee that an opening exists elsewhere, (iii) assisting a Current Employee in finding employment elsewhere, (iv) inquiring if a Current Employee “knows of anyone who might be interested” in a position elsewhere, (v) inquiring if a Current Employee might have an interest in employment elsewhere, (vi) informing others of the name or status of, or other information about, a Current Employee, or (vii) any other similar conduct, the effect of which is that a Current Employee leaves the employment of the Company.

5.5    Breach of Provisions. In the event that Executive shall breach any of the provisions of this Article V, or in the event that any such breach is threatened by Executive, in addition to and without limiting or waiving any other remedies available to the Company at law or in equity, the Company shall be entitled to immediate injunctive relief in any court, domestic or foreign, having the capacity to grant such relief, without the necessity of posting a bond, to restrain any such breach or threatened breach and to enforce the provisions of this Article V. Executive acknowledges and agrees that there is no adequate remedy at law for any such breach or threatened breach and, in the event that any action or proceeding is brought seeking injunctive relief, Executive shall not use as a defense thereto that there is an adequate remedy at law.

5.6    Reasonable Restrictions. The parties acknowledge that the foregoing restrictions, the duration and the territorial scope thereof as set forth in this Article V, are under all of the circumstances reasonable and necessary for the protection of the Company and its business.






5.7    Protected Disclosures. Notwithstanding any provision to the contrary in this Agreement, nothing in this Agreement prohibits Executive from reporting possible violations of law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. Additionally, the parties acknowledge and agree that Executive does not need the prior authorization of the Company to make any such reports or disclosures and Executive is not required to notify the Company that Executive has made such reports or disclosures.

5.8    Definition. For purposes of this Article V, the term “Company” shall be deemed to include (i) any predecessor to, or successor of the Company, (ii) any subsidiary of the Company (including, without limitation, any entity in which the Company owns 50% or more of the issued and outstanding equity), and (iii) any entity that is under the control or common control of the Company (including, by way of illustration and not as a limitation, any joint venture to which the Company or one of its subsidiaries is a party).

ARTICLE VI

MISCELLANEOUS
6.1    Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, heirs, distributees, successors and assigns.

6.2    Assignment. The Company may assign this Agreement to any successor in interest to its business, or to any subsidiary of the Company, and Executive hereby agrees to be employed by such assignee as though such assignee were originally the employer named herein.  Executive hereby acknowledges that the services to be rendered by Executive are unique and personal, and, accordingly, Executive may not assign any of his rights or delegate any of his duties or obligations under this Agreement.

6.3    Notices. Any notice provided for herein shall be in writing and shall be deemed to have been given or made when personally delivered or three (3) days following deposit for mailing by first class registered or certified mail, return receipt requested, to the address of the other party set forth below or to such other address as may be specified by notice given in accordance with this Section 6.3:

(a)    If to the Company:

Ascent Capital Group, Inc.
5251 DTC Parkway, Suite 1000
Greenwood Village, Colorado 80111

Attention:    Chairman of the Board of Directors and Chairman,
Compensation Committee
(b)    If to Executive: William E. Niles at the most recent address for Executive listed in the payroll records of the Company.

6.4    Severability. If any provision of this Agreement, or portion thereof, shall be held invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability shall attach only to such provision or portion thereof, and shall not in any manner affect or render invalid or unenforceable any other provision of this Agreement or portion thereof, and this Agreement shall be carried out as if any such





invalid or unenforceable provision or portion thereof were not contained herein. In addition, any such invalid or unenforceable provision or portion thereof shall be deemed, without further action on the part of the parties hereto, modified, amended or limited to the extent necessary to render the same valid and enforceable.

6.5    Confidentiality. The parties hereto agree that they will not, during the Term or thereafter, disclose to any other person or entity the terms or conditions of this Agreement (excluding the financial terms hereof) without the prior written consent of the other party, except as required by law, regulatory authority or as necessary for either party to obtain personal loans or financing. Approval of the Company and of Executive shall be required with respect to any press releases regarding this Agreement and the activities of Executive contemplated hereunder.

6.6    Arbitration. Except as provided otherwise in Section 5.5, if any controversy, claim or dispute arises out of or in any way relates to this Agreement, the alleged breach thereof, Executive’s employment with the Company or termination therefrom, including without limitation, any and all claims for employment discrimination or harassment, civil tort and any other employment laws, excepting only claims which may not, by statute, be arbitrated, both Executive and the Company (and its directors, officers, employees or agents) agree to submit any such dispute exclusively to binding arbitration. Both Executive and the Company acknowledge that they are relinquishing their right to a jury trial in civil court. Executive and the Company agree that arbitration is the exclusive remedy for all disputes arising out of or related to Executive’s employment with the Company.

The arbitration shall be administered, at the election of the party initiating the arbitration proceeding, either by JAMS in accordance with the Employment Arbitration Rules & Procedures of JAMS then in effect and subject to JAMS Policy on Employment Arbitration Minimum Standards or by the American Arbitration Association in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association, except as provided otherwise in this Agreement. Arbitration shall be commenced and heard in Denver County, Colorado. Only one arbitrator shall preside over the proceedings. The arbitrator shall apply the substantive law (and the law of remedies, if applicable) of Colorado or federal law, or both, as applicable to the claim(s) asserted. In any arbitration, the burden of proof shall be allocated as provided by applicable law. The arbitrator shall have the authority to award any and all legal and equitable relief authorized by the law applicable to the claim(s) being asserted in the arbitration, as of the claim(s) were brought in a court of law. Either party may bring an action in court to compel arbitration under this Agreement and to enforce an arbitration award. Discovery, such as depositions or document requests, shall be available to the Company and Executive as though the dispute were pending in Colorado state court. The arbitrator shall have the ability to rule on pre-hearing motions, as though the matter were in a Colorado state court, including the ability to rule on a motion for summary judgment.

Unless otherwise permitted under applicable law, the fees of the arbitrator and any other fees for the administration of the arbitration that would not normally be incurred if the action were brought in a court of law (e.g., filing fees, room rental fees, etc.) shall be paid by the Company, provided that Executive shall be required to pay the amount of filing fees equal to that which Executive would be required to pay to file an action in Colorado state court. The arbitrator must provide a written decision which is subject to limited judicial review consistent with applicable law. If any part of this arbitration provision is deemed to be unenforceable by an arbitrator or a court of law, that part may be severed or reformed so as to make the balance of this arbitration provision enforceable.

6.7    Waiver. No waiver by a party hereto of a breach or default hereunder by the other party shall be considered valid unless in writing signed by such first party, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or any other nature.





6.8    Controlling Nature of Agreement. To the extent any terms of this Agreement are inconsistent with the terms or provisions of the Company’s Employee Handbook or any other personnel policy statements or documents, the terms of this Agreement shall control. To the extent that any terms and conditions of Executive’s employment are not covered in this Agreement, the terms and conditions set forth in the Employee Handbook or any similar document shall control such terms.

6.9    Entire Agreement. This Agreement sets forth the entire agreement between the parties with respect to the subject matter hereof, and supersedes any and all prior agreements or understanding between the Company and Executive, whether written or oral, fully or partially performed relating to any or all matters covered by and contained or otherwise dealt with in this Agreement, including the Prior Agreement.

6.10    Amendment. No modification, change or amendment of this Agreement or any of its provisions shall be valid unless in writing and signed by the party against whom such claimed modification, change or amendment is sought to be enforced.

6.11    Authority. The parties each represent and warrant that they have the power, authority and right to enter into this Agreement and to carry out and perform the terms, covenants and conditions hereof.

6.12    Applicable Law. This Agreement, and all of the rights and obligations of the parties in connection with the employment relationship established hereby, shall be governed by and construed in accordance with the substantive laws of the State of Colorado without giving effect to principles relating to conflicts of law.

6.13    Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

6.14    Compliance with Section 409A

(a)    This Agreement is intended to provide payments that are exempt from or compliant with the provisions of Section 409A of the Code and related regulations and Treasury pronouncements (“Section 409A”), and the Agreement shall be interpreted accordingly. To the extent any payment or benefit provided under this Agreement is subject to Section 409A, such benefit shall be provided in a manner that complies with Section 409A, including any IRS guidance promulgated with respect to Section 409A; provided, however, in no event shall any action to comply with Section 409A reduce the aggregate amount payable to Executive hereunder unless expressly agreed in writing by Executive.

(b)    All reimbursements or provision of in-kind benefits pursuant to this Agreement shall be made in accordance with Treasury Regulation § 1.409A-3(i)(1)(iv) such that the reimbursement or provision will be deemed payable at a specified time or on a fixed schedule relative to a permissible payment event. Specifically, the amount reimbursed or in-kind benefits provided under this Agreement during Executive’s taxable year may not affect the amounts reimbursed or provided in any other taxable year (except that total reimbursements may be limited by a lifetime maximum under a group health plan), the reimbursement of an eligible expense shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense was incurred, and the right to reimbursement or provision of in-kind benefit is not subject to liquidation or exchange for another benefit.

(c)To the extent required to comply with Section 409A (as determined by the Company), if Executive is a “specified employee,” as determined by the Company, as of his date of termination,





then all amounts due under this Agreement that constitute a “deferral of compensation” within the meaning of Section 409A, that are provided as a result of a “separation from service” within the meaning of Section 409A, and that would otherwise be paid or provided during the first six months following Executive’s date of termination, shall be accumulated through and paid or provided on the first business day that is more than six months after Executive’s date of termination (or, if Executive dies during such six month period, within thirty (30) days after Executive’s death). Each payment under this Agreement, including each payment in a series of installment payments, is intended to be a separate payment for purposes of Treas. Reg. § 1.409A-2(b).

(d)For all purposes of this Agreement, Executive shall be considered to have terminated employment with the Company when Executive incurs a “separation from service” with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code.

[Remainder of this page intentionally left blank]





IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

 
"COMPANY"
 
 
 
 
ASCENT CAPITAL GROUP, INC.
 
 
 
 
 
 
 
By:
/s/ William R. Fitzgerald
 
 
William R. Fitzgerald
 
 
Chairman
 
 
 
 
 
 
 
 
 
 
"EXECUTIVE"
 
 
 
 
 
 
 
By:
/s/ William E. Niles
 
 
William E. Niles






EXHIBIT A

SEVERANCE AGREEMENT AND GENERAL RELEASE
This Severance Agreement and General Release (the “Agreement”) is entered into by and between William E. Niles (“Executive”) and Ascent Capital Group, Inc. (the “Company”).
RECITALS
A.    Executive has been employed by the Company pursuant to an Employment Agreement dated as of January __, 2019, by and between Executive and the Company (including the Attachments thereto, the “Employment Agreement”), and the employment relationship with the Company has terminated effective [____________] (the “Termination Date”);
B.    Pursuant to Section 4.6 of the Employment Agreement, Executive and the Company wish to enter into an agreement to clarify and resolve any disputes that may exist between them arising out of the employment relationship and its termination, and any continuing obligations of the parties to one another following the end of the employment relationship;
C.    The Company has advised Executive to consult an attorney prior to signing this Agreement and has provided Executive with up to twenty-one (21) days to consider its severance offer and to seek legal assistance. Executive has either consulted an attorney of Executive’s choice or voluntarily elected not to consult legal counsel, and understands that Executive is waiving all potential claims against the Company;
D.    This Agreement is not and should not be construed as an admission or statement by either party that it or any other party has acted wrongfully or unlawfully. Both parties expressly deny any wrongful or unlawful action. Terms not defined herein shall have the meaning set forth in the Employment Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises contained below, it is agreed as follows:
1.    Termination of Employment. Executive’s employment with the Company has terminated effective as of the Termination Date. Subject to the terms of this Agreement, and except as otherwise expressly set forth in the Employment Agreement (i.e. obligations surviving termination of employment) Executive has no further employment duties or responsibilities to the Company after the Termination Date. Executive acknowledges that he has been paid all compensation due and owing to him as a consequence of his employment with the Company including any accrued but unused vacation and personal holidays, or bonuses.

2.    Severance and Benefits.

(a)    Severance Payments. Consistent with Section 4.2 of the Employment Agreement, subject to the execution of this Agreement by both parties, the Company shall pay to Executive an amount equal to $[__________] less applicable withholding taxes, (the “Severance”), representing [Describe amount and terms of the severance due pursuant to the terms of the Employment Agreement], which shall be payable on [Describe payment terms pursuant to terms of Employment Agreement]. The Severance shall





be paid in addition to Executive’s salary through the Termination Date and any accrued but unused vacation leave and personal holidays.

(b)    Expense Reimbursements. In accordance with Company policy (e.g., Travel & Entertainment Policy) and normal payroll practices, Executive also will receive reimbursement for documented expenses (incurred through the Termination Date) and submitted on or before [__________].

(c)    Benefits. The Company will also pay the employer-mandated premiums for Executive’s health insurance benefit through [Describe Terms of Employment Agreement]. All other benefits shall cease effective the date that Executive’s employment is terminated, except that Executive shall have the right to elect self-pay health insurance benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) after the Termination Date. In addition, subject to the execution of this Agreement by both parties and to the extent such coverage is available and is elected by Executive under COBRA, the Company shall contribute to the health insurance plan maintained by the Company and covering Executive and his dependents as of the date of termination, or any successor plan maintained by the Company, in an amount that reflects the proportionate part of the premium for such coverage that is paid by the Company as of the date of termination (the “Benefits Payments”), such Benefits Payments to be made monthly in accordance with the Company’s normal procedures for the payment of health insurance premiums, throughout the period beginning on the date of termination and ending on the earlier of the 24-month anniversary of the date of termination and the expiration of the coverage period specified in COBRA, such period to be determined as of the date of termination (the “Reimbursement Period”) (i.e., Executive shall bear responsibility for that portion of the health insurance premiums in excess of the Benefits Payments), or, alternately, in the Company’s sole discretion, the Company shall reimburse Executive the amount of the Benefits Payment on a monthly basis during the Reimbursement Period, upon Executive’s submission to the Company of adequate proof of payment of the full COBRA premium by Executive; provided, however, that if Executive becomes employed with another employer during the Reimbursement Period and is eligible to receive health and/or medical benefits under such other employer’s plans, the Company’s payment obligation under this Paragraph 2(c) shall be reduced to the extent that comparable benefits and/or coverage is provided under such other employer’s plans. Notwithstanding the foregoing, in the event that the Company’s group health plan is insured and under applicable guidance the reimbursement of COBRA premiums causes the Company’s group health plan to violate any applicable nondiscrimination rule, the Company and Executive agree to negotiate in good faith a mutually agreeable alternative arrangement. Executive will notify the Company of his eligibility for such other employer-provided benefits within thirty (30) days of attaining of such eligibility. Notwithstanding the foregoing, in the event that the Company’s payment obligation under this paragraph would violate the nondiscrimination rules applicable to non- grandfathered group health plans, or result in the imposition of penalties under the Patient Protection and Affordable Care Act of 2010 and the related regulations and guidance promulgated thereunder (“PPACA”), the Company and Executive agree to reform this paragraph in a manner as is necessary to comply with PPACA while still providing economically equivalent benefits. For the avoidance of doubt, Executive shall be responsible for paying any U.S. federal or state income taxes associated with the Benefit Payments.

(d)    No Mitigation by Executive. Pursuant to Section 4.5 of the Employment Agreement, except as otherwise expressly provided herein, Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any Severance payment provided for herein be reduced by any compensation earned by Executive as the result of employment by another employer; provided, however, that if Executive becomes employed with another employer and is eligible to receive health and/or medical benefits under such other employer’s plans, the Benefits Payments (as set forth in Paragraph 2(c) above) shall be reduced to the extent that comparable benefits and/or coverage is provided under such other employer’s plans.





(e)    Continued Compliance. Executive and the Company hereby acknowledge that the amounts and benefits payable by the Company under Paragraphs 2(a), and 2(c), above, are part of the consideration for Executive’s undertakings under Article V of the Employment Agreement and Paragraphs 8 and 9 below (“Covenants”). Such amounts and benefits are subject to Executive’s continued compliance with the Covenants. If Executive violates the provisions of the Covenants, then the Company will have no obligation to make any of the payments that remain payable by the Company under Paragraphs 2(a), or 2(c), above, on or after the date of such violation.

(f)    No Other Payments. Executive hereby acknowledges that the payments and benefits referred to in this Agreement, together with any rights or benefits under any written plan or agreement which have vested on or prior to the Termination Date, constitute the only payments which Executive shall be entitled to receive from the Company as a consequence of the termination of his employment with the Company, and the Company shall have no further liability or obligation to Executive hereunder or otherwise in respect of his employment.

3.    Valid Consideration. Executive and the Company agree that the Company’s payment of the Severance and the Benefit Payments without a signed release is not required by the Company’s policies or procedures or by any contractual obligation of the Company, and is given solely as consideration for Executive’s covenants under this Agreement, which both parties acknowledge and agree is sufficient and adequate consideration.

4.    Confidentiality of Severance Agreement. Executive agrees to keep the terms of this Agreement (including but not limited to the severance amount) completely confidential, and not to disclose any information concerning this Agreement or its terms to anyone other than Executive’s immediate family, legal counsel, or financial advisors, who will be informed of and bound by this confidentiality clause. In addition, Executive may show only Paragraphs 8 and 9 of this Agreement to any prospective employer, in order to facilitate Executive’s compliance with the obligations as stated therein.

5.    General Release of Claims.

(a)    Except for claims “carved-out” in Paragraph 5(c) below, Executive expressly waives any claims against the Company and releases the Company including the Company’s predecessor, successor, parent, subsidiary and affiliated entities, as well as its and their officers, Executives, directors, stockholders, managers, agents, representatives, attorneys and assigns, past and present (collectively referred to herein as the “Company Releasees”) from any and all claims, demands, and causes of action of every kind and nature, whether known or unknown, suspected or unsuspected, fixed or contingent, that Executive now owns or holds or at any time may have held or owned against the Company Releasees or any of them, arising out of or in any way related to any transaction, agreement, occurrence, act, or omission whatsoever occurring, existing, or omitted at any time before the date hereof (collectively “Claims”), including, without limitation, any Claims:

(i)Arising out of or in any way connected with Executive’s employment with the Company (including, without limitation, any claims for wages, severance pay, bonuses, employment benefits whether related to the Company’s policies or welfare benefit plans, or damages of any kind whatsoever) and the termination thereof;

(ii)Arising out of or in any way related to any employment agreement or any other contracts, express or implied, any covenant of good faith and fair dealings, express or implied, any theory of wrongful discharge, or any legal restriction on the Company’s right to terminate Executives;






(iii)Arising out of or in any way related to any federal, state, or other governmental statute or ordinance or wage order, including, without limitation, Title VII of the Civil Rights Act of 1964, the Federal Age Discrimination in Employment Act of 1967, as amended, the Equal Pay Act, as amended, the Older Workers Benefit Protection Act, the Americans with Disabilities Act of 1990, and/or to the extent waivable, any other federal, state or local law (statutory or decisional), regulation, or ordinance, or any other legal limitation on the employment relationship including but not limited to any claims arising out of any federal, state or local statutes, orders or regulations prohibiting discrimination on account or race, color, creed or religion, sex, sexual harassment, national origin, age, handicap or disability, marital status, height, weight, pregnancy, or sexual preference or orientation thereof, retaliation;

(iv)Arising out of common law, whether sounding in contract or in tort, including, but not limited to, causes of action for wrongful discharge, quantum meruit, negligence, infliction of emotional distress, defamation, misrepresentation, fraud, conspiracy, invasion of privacy, interference with business advantage, interference with prospective economic advantage, interference with contractual relationship, failure to pay compensation of any kind, and/or failure to pay equal compensation for equal work.

(b)    Executive further understands and acknowledges that:

(i)    This Agreement constitutes a voluntary waiver of any and all rights and claims Executive has against the Company Releasees as of the date of the execution of this Agreement, including rights or claims arising under the Age Discrimination in Employment Act;

(ii)    Executive has waived rights or claims pursuant to this Agreement in exchange for consideration, the value of which exceeds the payment or remuneration to which he was already entitled;

(iii)    Executive is hereby advised that he may consult with an attorney of his choosing concerning this Agreement prior to executing it;

(iv)    Executive has been afforded a period of at least 21 days to consider the terms of this Agreement, and in the event he should decide to execute this Agreement in fewer than 21 days, he has done so with the express understanding that he has been given and declined the opportunity to consider this Agreement for a full 21 days;

(v)Executive agrees that material and/or immaterial changes to this Agreement made by either party after the date Executive was given this Agreement do not affect or restart the running of the twenty-one (21) day period and Executive agrees to waive any such claim that a material and/or immaterial change to this Agreement extended the applicable running time period; and

(vi)Executive may revoke this subparagraph 5(b) of the Agreement at any time during the seven (7) days following the date of execution of this Agreement, and this subparagraph 5(b) of the Agreement shall not become effective or enforceable until such revocation period has expired (the “Effective Date”). Executive understands that his revocation under this subparagraph 5(b) of the Agreement constitutes rejection of the entire Severance amount and the Benefit Payments.

(c)    This Agreement does not release (i) claims that cannot be released as a matter of law; (ii) claims that relate to events which may occur after execution of this Agreement, nor shall it preclude Executive from filing a lawsuit for the exclusive purpose of enforcing Executive’s rights under this Agreement; (iii) any claim or right held by Executive (whether as an officer, director, stockholder or in any





other capacity) for coverage under the Company’s D&O policies or any similar coverage or protection provided under the organizational documents of the Company; or (iv) any right to receive a reward for the provision of information to any governmental authority. This Agreement shall not prohibit Executive from challenging the validity of the release of ADEA claims by seeking assistance from the Equal Employment Opportunity Commission (“EEOC”) or any other government agency. This Agreement shall not preclude Executive from filing a charge with, or cooperating in an investigation by, any government administrative agency with respect to any other right waived herein, provided that Executive does not seek any damages, remedies, or other relief from the Company for himself personally, which Executive covenants not to do.
 
6.    No Lawsuits. Executive represents that Executive has not filed any complaints, arbitration demands, charges or lawsuits against any of the Company Releasees with any governmental agency, or any arbitrator, or any court, including, but not limited, to the United States Equal Employment Opportunity Commission or the United States District Court. Executive further agrees that, to the extent permitted under applicable law, Executive will not initiate, assist, or encourage any actions unless compelled to do so by subpoena or court order. Executive agrees that if any claim is brought on Executive’s behalf by any governmental agency or third party, he agrees not to accept any monetary award or restitution resulting therefrom.

7.    Release of Unknown Claims. It is the intention of Executive and the Company that this Severance Agreement is a General Release which shall be effective as a bar to each and every Claim released hereby. Executive recognizes that Executive may have some Claims against the Company Releasees of which Executive is totally unaware and unsuspecting which Executive is giving up by execution of the General Release. It is the intention of Executive in executing this Agreement to forego each such Claim.

In connection with such waiver and relinquishment, Executive acknowledges that Executive is aware that Executive may hereafter discover facts in addition to, or different from, those which Executive now knows or believes to be true with respect to the subject matter of this Agreement, but that it is Executive’s intention hereby to fully, finally and forever to settle and release all released matters. In furtherance of such intention, the release given herein shall be and remain in effect as a full and complete release, notwithstanding the discovery or existence on any such additional facts. Executive expressly acknowledges that this Agreement is intended to include in its effect, without limitation, all of Executive’s Claims which Executive does not know or suspect to exist in Executive’s favor at the time of execution of this Agreement, and that this Agreement contemplates the extinguishment of any such Claims.
8.    Confidential Information.

(a)    Consistent with Section 5.2 of the Employment Agreement, Executive understands and agrees that trade secret restrictions apply to Executive, including but not limited to Executive’s agreement that Confidential Information learned by Executive in the course of Executive’s employment with the Company may not be used by Executive nor transmitted to any other person or entity.

(b)    Consistent with Section 5.2 of the Employment Agreement, Executive shall not, directly or indirectly, disclose or furnish to any other person, firm or corporation any Confidential Information, except as required by law (in which event Executive shall give prior written notice to the Company and shall cooperate with the Company and the Company’s counsel in complying with such legal requirements). As used herein, “Confidential Information” means any and all information affecting or relating to the business of the Company and its subsidiaries and affiliates, financial data, customer lists and data, licensing arrangements, business strategies, pricing information, product development, or other materials of any kind





or nature (whether or not entitled to protection under applicable copyright laws, or reduced to or embodied in any medium or tangible form), including without limitation, all copyrights, patents, trademarks, service marks, trade secrets, contract rights, titles, themes, stories, treatments, ideas, concepts, technologies, art work, logos, hardware, software, and as may be embodied in any and all computer programs, tapes, diskettes, disks, mailing lists, lists of actual or prospective customers and/or suppliers, notebooks, documents, memoranda, reports, files, correspondence, charts, lists and all other written, printed or otherwise recorded material of any kind whatsoever and any other information, whether or not reduced to writing, including “know-how”, ideas, work flows, concepts, research, processes, and plans. “Confidential Information” does not include information that is in the public domain, information that is generally known in the trade, or information that Executive can prove he acquired wholly independently of his employment with the Company. Notwithstanding any provision to the contrary in this Agreement, nothing in this Agreement prohibits Executive from reporting possible violations of law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. Additionally, the parties acknowledge and agree that Executive does not need the prior authorization of the Company to make any such reports or disclosures and Executive is not required to notify the Company that Executive has made such reports or disclosures.

9.    Non-Solicitation. Consistent with Section 5.4 of the Employment Agreement:

(a)    Executive shall not, for a period of eighteen (18) months from the Termination Date, directly or indirectly: (a) acquire any financial interest in or perform any services for himself or any other entity in connection with a business in which Executive’s interest, duties or activities would inherently require Executive to reveal any Confidential Information; or (b) solicit or cause to be solicited the disclosure of or disclose any Confidential Information for any purpose whatsoever or for any other party.

(b)    Executive agrees that for the period of eighteen (18) months following the execution date of this Agreement, Executive will not solicit, directly or indirectly, nor cause or permit others to solicit, directly or indirectly, any person employed by the Company (“Current Employee”) to leave employment with the Company. The term “solicit” includes, but is not limited to the following (regardless of whether done directly or indirectly): (i) requesting that a Current Employee change employment, (ii) informing a Current Employee that an opening exists elsewhere, (iii) assisting a Current Employee to find employment elsewhere, (iv) inquiring if a Current Employee “knows anyone who might be interested” in a position elsewhere, (v) inquiring if a Current Employee might have an interest in employment elsewhere, (vi) informing others of the name or status of, or other information about, a Current Employee, or (vii) any other similar conduct, the effect of which is that a Current Employee leaves the employment of the Company.

10.    Return of Company Property and Proprietary Information. Consistent with Sections 5.1 and 5.2 of the Employment Agreement, immediately upon termination of Executive’s employment, Executive has turned over to the Company all files, memoranda, records, credit cards, work papers, and other documents or physical property that Executive received from the Company or its employees or that Executive generated in the course of employment with the Company. Executive also has immediately turned over to the Company all embodiments of proprietary information (including, without limitation, notes, letters, documents, computer files and other records) which were in Executive’s possession or control and shall not retain any copies or summaries of such records or information. Furthermore, Executive agrees that the assignment of Proprietary Rights pursuant to Section 5.1 of the Employment Agreement remains in full force and effect.

11.    Reasonable Restrictions. Pursuant to Section 5.6 of the Employment Agreement, Executive acknowledges and agrees that the restrictions set forth in Paragraphs 8 and 9 of this Agreement, specifically





including the duration and territorial scope thereof, are under the circumstances reasonable and necessary for the protection of the Company and its business.

12.    No Work-Related Injuries. Executive represents and warrants to the Company, under penalty of perjury, that Executive has not suffered any work-related injuries.

13.    Cooperation. During the period commencing on the Termination Date and ending on the fourth anniversary thereof, Executive shall use reasonable efforts to make himself available as a witness in any action, investigation or other proceeding before any court, government agency, arbitrator, or mediator, in which he may be called to appear by the Company, regarding any business, property, or operations of the Company or any of its affiliates, parents or subsidiaries, and shall truthfully testify in any such action, proceeding or deposition in which he also appears. Upon request by Executive and prior approval by the Company, the Company shall reimburse Executive for reasonable travel expenses incurred by Executive in connection with any such appearance in which Executive is so called to appear.

14.    Severability. The provisions of this Agreement are severable, and if any part of it is found to be unlawful or unenforceable, the other provisions of this Agreement shall remain fully valid and enforceable to the maximum extent consistent with applicable law.

15.    Knowing and Voluntary Agreement. Executive represents and agrees that Executive has read this Agreement, understands its terms and the fact that Executive releases any claim Executive might have against the Company Releasees, understands that Executive has the right to consult counsel of choice and has either done so or knowingly waived the right to do so, and enters into this Agreement without duress or coercion from any source.

16.    Definition. Consistent with Section 5.8 of the Employment Agreement, for purposes of Paragraphs 7, 8, 9 and 10 of this Agreement, above, the term “Company” shall be deemed to include (i) any predecessor to, or successor of the Company, (ii) any subsidiary of the Company (including, without limitation, any entity in which the Company owns 50% or more of the issued and outstanding equity), and (iii) any entity that is under the control or common control of the Company (including, by way of illustration and not as a limitation, any joint venture to which the Company or one of its subsidiaries is a party).

17.    Entire Agreement. Except as otherwise expressly set forth in the Employment Agreement (i.e. obligations surviving termination of employment), this Agreement sets forth the entire understanding between Executive and the Company and supersedes any prior agreements or understandings, express or implied, pertaining to the terms of Executive’s employment with the Company and the termination of the employment relationship. Executive acknowledges that in executing this Agreement, Executive does not rely upon any representation or statement by any representative of the Company concerning the subject matter of this Agreement, except as expressly set forth in the text of the Agreement. This Agreement may only be modified by an amendment in writing executed by both parties.

18.    Arbitration: Any controversy, claim or dispute arising out of or in any way relating to this Agreement including, but not limited to, the performance or breach thereof, shall be determined exclusively by binding arbitration. Both Executive and the Company acknowledge that they are relinquishing their right to a jury trial in civil court.

The arbitration shall be in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association, except as provided otherwise in this Agreement. The arbitration shall be commenced and heard in the Englewood, Colorado metropolitan area. Only one arbitrator shall preside over the





proceedings. The arbitrator shall apply the substantive law (and the law of remedies, if applicable) of Colorado or federal law, or both, as applicable to the claim(s) asserted. In any arbitration, the burden of proof shall be allocated as provided by applicable law. The arbitrator shall have the authority to award any and all legal and equitable relief authorized by the law(s) applicable to the claim(s) being asserted in the arbitration, as if the claim(s) were brought in a court of law. Either party may bring an action in court to compel arbitration under this Agreement and to enforce an arbitration award. Discovery, such as depositions or document requests, shall be available to the Company and Executive as though the dispute were pending in Colorado state court. The arbitrator shall have the ability to rule on pre-hearing motions, as though the matter were in a Colorado state court, including the ability to rule on a motion for summary judgment.
The fees of the arbitrator and any other fees for the administration of the arbitration (e.g., room rental fees, etc.) shall be paid in equal shares by the Company and Executive. The arbitrator must provide a written decision which is subject to limited judicial review consistent with applicable law. If any part of this arbitration provision is deemed to be unenforceable by an arbitrator or a court of law, that part may be severed or reformed so as to make the balance of this arbitration provision enforceable.
19.    Non-Admission of Liability or Wrongdoing. By entering into this Agreement, neither Executive nor the Company admits any impropriety, illegality, wrongdoing or liability of any kind whatsoever, and on the contrary, each hereby expressly denies the same.

20.    Post-Employment Agreement. The parties acknowledge that this Agreement, including the arbitration provision contained in Paragraph 18 above, was negotiated and executed outside of the context of any employment relationship between the Company and Executive, which has ended.

21.    Counterpart Execution. This Agreement may be executed in counterparts so that when each Party has signed at least one counterpart of this Agreement, this Agreement shall be deemed fully executed as though each Party had signed one original of this Agreement.
[Signature Page Follows]





IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates indicated below.

 
 
 
Ascent Capital Group, Inc.
Dated:
 
 
By:
 
 
 
 
 
 
 
 
 
Name:
 
 
 
 
 
 
 
 
 
Its: