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, 2015
 
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

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
Accelerated filer  o
Non-accelerated filer  o
 
Smaller reporting company  o
(Do not check if a smaller reporting company)
 
 
 
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 April 24, 2015 was:

Series A common stock 12,924,285 shares; and
Series B common stock 384,086 shares.

Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
 
 
PART I — FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1
Table of Contents

Item 1.   Financial Statements.
ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
(unaudited)
 
March 31,
2015
 
December 31, 2014
Assets
 
 
 
Current assets:
 

 
 

Cash and cash equivalents
$
51,079

 
$
12,612

Restricted cash
123

 
18

Marketable securities, at fair value
94,854

 
122,593

Trade receivables, net of allowance for doubtful accounts of $2,296 in 2015 and $2,120 in 2014
13,959

 
13,796

Deferred income tax assets, net
6,346

 
6,346

Prepaid and other current assets
9,901

 
8,546

Assets held for sale
1,231

 
18,935

Total current assets
177,493

 
182,846

Property and equipment, net of accumulated depreciation of $32,382 in 2015 and $30,030 in 2014
36,407

 
36,010

Subscriber accounts, net of accumulated amortization of $794,883 in 2015 and $736,824 in 2014
1,399,520

 
1,373,630

Dealer network and other intangible assets, net of accumulated amortization of $59,052 in 2015 and $54,077 in 2014
41,181

 
44,855

Goodwill
563,011

 
527,502

Other assets, net
25,691

 
27,520

Total assets
$
2,243,303

 
$
2,192,363

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
5,424

 
$
6,781

Accrued payroll and related liabilities
4,263

 
4,077

Other accrued liabilities
43,876

 
30,727

Deferred revenue
15,981

 
14,945

Holdback liability
17,668

 
19,046

Current portion of long-term debt
9,166

 
9,166

Liabilities of discontinued operations
6,461

 
6,401

Total current liabilities
102,839

 
91,143

Non-current liabilities:
 

 
 

Long-term debt
1,676,995

 
1,618,324

Long-term holdback liability
4,816

 
5,156

Derivative financial instruments
9,447

 
5,780

Deferred income tax liability, net
16,882

 
15,875

Other liabilities
16,162

 
16,397

Total liabilities
1,827,141

 
1,752,675

Commitments and contingencies


 


Stockholders’ equity:
 

 
 

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 12,925,910 and 13,162,095 shares at March 31, 2015 and December 31, 2014, respectively
129

 
132

Series B common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 384,086 shares both at March 31, 2015 and December 31, 2014
4

 
4

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

 
—

Additional paid-in capital
1,433,412

 
1,441,291

Accumulated deficit
(1,004,766
)
 
(994,931
)
Accumulated other comprehensive income (loss), net
(12,617
)
 
(6,808
)
Total stockholders’ equity
416,162

 
439,688

Total liabilities and stockholders’ equity
$
2,243,303

 
$
2,192,363

 

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,
 
 
2015
 
2014
 
Net revenue
$
138,416

 
132,864

 
Operating expenses:
 

 
 

 
Cost of services
25,690

 
22,090

 
Selling, general, and administrative, including stock-based compensation
27,596

 
26,537

 
Amortization of subscriber accounts, dealer network and other intangible assets
63,141

 
61,780

 
Depreciation
2,398

 
2,758

 
Restructuring charges
—

 
547

 
Gain on disposal of operating assets
(1,050
)
 
—

 
 
117,775

 
113,712

 
Operating income
20,641

 
19,152

 
Other income (expense), net:
 

 
 

 
Interest income
516

 
878

 
Interest expense
(29,781
)
 
(28,773
)
 
Other income, net
926

 
986

 
 
(28,339
)
 
(26,909
)
 
Loss from continuing operations before income taxes
(7,698
)
 
(7,757
)
 
Income tax expense from continuing operations
(1,977
)
 
(1,621
)
 
Net loss from continuing operations
(9,675
)
 
(9,378
)
 
Discontinued operations:
 

 
 

 
Loss from discontinued operations
(160
)
 
(354
)
 
Income tax expense from discontinued operations
—

 
—

 
Loss from discontinued operations, net of income tax
(160
)
 
(354
)
 
Net loss
(9,835
)
 
(9,732
)
 
Other comprehensive income (loss):
 

 
 

 
Foreign currency translation adjustments
(277
)
 
55

 
Unrealized holding gains (losses) on marketable securities, net
(1,069
)
 
345

 
Unrealized loss on derivative contracts, net
(4,463
)
 
(1,671
)
 
Total other comprehensive loss, net of tax
(5,809
)
 
(1,271
)
 
Comprehensive loss
$
(15,644
)
 
(11,003
)
 
 
 
 
 
 
Basic and diluted loss per share:
 

 
 

 
Continuing operations
$
(0.73
)
 
(0.68
)
 
Discontinued operations
(0.01
)
 
(0.02
)
 
Net loss
$
(0.74
)
 
(0.70
)
 
 

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,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net loss
$
(9,835
)
 
(9,732
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

Loss from discontinued operations, net of income tax
160

 
354

Amortization of subscriber accounts, dealer network and other intangible assets
63,141

 
61,780

Depreciation
2,398

 
2,758

Stock-based compensation
1,626

 
1,662

Deferred income tax expense
1,021

 
877

Gain on disposal of operating assets
(1,050
)
 
—

Long-term debt amortization
1,163

 
1,063

Other non-cash activity, net
3,435

 
2,850

Changes in assets and liabilities:
 

 
 

Trade receivables
(2,265
)
 
(2,719
)
Prepaid expenses and other assets
(607
)
 
(441
)
Payables and other liabilities
6,292

 
10,866

Operating activities from discontinued operations, net
(100
)
 
(234
)
Net cash provided by operating activities
65,379

 
69,084

Cash flows from investing activities:
 

 
 

Capital expenditures
(2,728
)
 
(1,938
)
Cost of subscriber accounts acquired
(61,053
)
 
(53,789
)
Cash paid for acquisition, net of cash acquired
(56,343
)
 
—

Proceeds from sale of marketable securities
27,020

 
—

Increase in restricted cash
(105
)
 
(79
)
Proceeds from the disposal of operating assets
18,813

 
—

Other investing activities
—

 
(25
)
Net cash used in investing activities
(74,396
)
 
(55,831
)
Cash flows from financing activities:
 

 
 

Proceeds from long-term debt
91,400

 
42,900

Payments on long-term debt
(33,892
)
 
(27,192
)
Payments of financing costs
(551
)
 
—

Stock option exercises
—

 
665

Purchases and retirement of common stock
(9,473
)
 
(14,664
)
Bond hedge and warrant transactions, net
—

 
—

Other financing activities
—

 
—

Net cash provided by financing activities
47,484

 
1,709

Net increase in cash and cash equivalents
38,467

 
14,962

Cash and cash equivalents at beginning of period
12,612

 
44,701

Cash and cash equivalents at end of period
$
51,079

 
59,663

Supplemental cash flow information:
 

 
 

State taxes received, net
$
—

 
10

Interest paid
14,750

 
11,963


See accompanying notes to condensed consolidated financial statements.

4
Table of Contents

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


 
 
 
 
 
 
 
 
Additional
 
 
 
Accumulated
Other
 
Total
 
Preferred
 
Common Stock
 
Paid-in
 
Accumulated
 
Comprehensive
 
Stockholders’
 
Stock
 
Series A
 
Series B
 
Series C
 
Capital
 
Deficit
 
Loss
 
Equity
Balance at December 31, 2014
$
—

 
132

 
4

 
—

 
1,441,291

 
(994,931
)
 
(6,808
)
 
439,688

Net loss
—

 
—

 
—

 
—

 
—

 
(9,835
)
 
—

 
(9,835
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
(5,809
)
 
(5,809
)
Stock-based compensation
—

 
—

 
—

 
—

 
1,891

 
—

 
—

 
1,891

Value of shares withheld for tax liability
—

 


 
—

 
—

 
(300
)
 
—

 
—

 
(300
)
Purchases and retirement of common stock
—

 
(3
)
 
—

 
—

 
(9,470
)
 
—

 
—

 
(9,473
)
Balance at March 31, 2015
$
—

 
129

 
4

 
—

 
1,433,412

 
(1,004,766
)
 
(12,617
)
 
416,162

 
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. (“Monitronics”) is the primary, wholly owned, operating subsidiary of the Company.  On February 23, 2015, Monitronics acquired LiveWatch Security, LLC ("LiveWatch"), a Do-It-Yourself home security firm, offering professionally monitored security services through a direct-to-consumer sales channel (the "LiveWatch Acquisition"). On August 16, 2013, Monitronics acquired all of the equity interest of Security Networks LLC ("Security Networks") and certain affiliated entities (the "Security Networks Acquisition").

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 (“U.S. GAAP”) for complete financial statements. The Company’s unaudited condensed consolidated financial statements as of March 31, 2015 , and for the three months ended March 31, 2015 and 2014 , 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, 2014 , filed with the SEC on February 27, 2015 (the “2014 Form 10-K”).
 
The preparation of financial statements in conformity with U.S. 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 goodwill, other intangible assets, long-lived assets, deferred tax assets, derivative financial instruments, and the amount of the allowance for doubtful accounts. 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.
 
(2)       Recent Accounting Pronouncements
 
In April 2015, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-03, Interest - Imputation of Interest (Subtopic 835-30) . Under this update, the cost of issuing debt will no longer be recorded as a separate asset, unless it is incurred before the receipt of the funding from the associated debt liability. Instead, debt issuance costs will be presented as a direct deduction from the debt liability, similar to the presentation of debt discounts. The costs will continue to be amortized to interest expense using the effective interest rate method. The ASU requires retrospective application to all prior periods presented in the financial statements and is effective for annual and interim periods beginning after December 15, 2015. The Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows.

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . Under the update, revenue will be recognized based on a five-step model. The core principle of the model is that revenue will be recognized when the transfer of promised goods or services to customers is made in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB held meetings in February and March 2015 and agreed to propose amendments to this new standard and, in addition, plans to consider whether to defer the effective date of the standard. Absent a deferral of the effective date, the ASU will become effective for annual and interim periods beginning after December 15, 2016. The Company is currently evaluating the impact that adopting this ASU will have on its financial position, results of operations and cash flows.
 
(3)    LiveWatch Acquisition
 
On February 23, 2015 (the "Closing Date"), Monitronics acquired LiveWatch for a purchase price of approximately $61,115,000 (the "LiveWatch Purchase Price").  The LiveWatch Purchase Price includes approximately $3,988,000 of cash transferred directly to LiveWatch to fund transaction bonuses payable to LiveWatch employees as of the Closing Date. This cash is not included in the fair value of consideration transferred for the LiveWatch Acquisition.

6

The LiveWatch Acquisition was funded by borrowings from Monitronics' revolving credit facility, as well as cash contributions from Ascent Capital.

In connection with the LiveWatch Acquisition, Monitronics entered into employment agreements with certain key members of the LiveWatch management team which provide for retention bonuses of $6,000,000 (the "LiveWatch Retention Bonuses") to be paid on the second anniversary of the Closing Date, and performance based bonus arrangements payable on the fourth anniversary of the Closing Date, assuming certain performance metrics are met by LiveWatch during the first four years following the Closing Date (the "LiveWatch Performance Bonuses"). As of March 31, 2015, the LiveWatch Performance Bonuses are estimated to yield an aggregate payout of approximately $8,500,000 . The LiveWatch Retention Bonuses and LiveWatch Performance Bonuses (together, the "LiveWatch Acquisition Contingent Bonuses") are contingent upon the continued employment of the key members of the LiveWatch management team. As such, the LiveWatch Acquisition Contingent Bonuses are expensed ratably over the service period based on the estimated value of the payouts. For the three months ended March 31, 2015, the Company recognized $519,000 related to the LiveWatch Acquisition Contingent Bonuses, which are included in Selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive income (loss).
 
The LiveWatch Acquisition was accounted for as a business combination utilizing the acquisition method in accordance with FASB Accounting Standards Codification (“ASC”) Topic 805, Business Combinations .  Under the acquisition method of accounting, the fair value of the consideration transferred has been allocated to LiveWatch's tangible and identifiable intangible assets acquired and liabilities assumed based on their preliminary estimates of fair value as follows (amounts in thousands):
Cash
$
784

Trade receivables
273

Other current assets
599

Property and equipment
362

Subscriber accounts
24,900

Other intangible asset
1,300

Goodwill
35,509

Current liabilities
(6,600
)
Fair value of consideration transferred
$
57,127


The preliminary estimates of the fair value of assets acquired and liabilities assumed are based on available information as of the date of this report and may be revised as additional information becomes available, which primarily includes the finalization of the valuation report in relation to the subscriber accounts and the other intangible asset and the settlement of customary post closing working capital adjustments.

Goodwill in the amount of $35,509,000 was recognized in connection with the LiveWatch Acquisition and was calculated as the excess of the consideration transferred over the net assets recognized and represents the value to Monitronics for LiveWatch's recurring revenue and cash flow streams and its diversified business model and marketing channel. All of the goodwill acquired in the LiveWatch Acquisition is estimated to be deductible for tax purposes.

The subscriber accounts acquired in the LiveWatch Acquisition are amortized using the 14 -year 235% declining balance method. The other intangible asset acquired, which represents LiveWatch's trademark asset, is amortized on a straight-line basis over its estimated useful life of 10 years .

As of March 31, 2015, the Company incurred $946,000 of legal and professional services expense and other costs related to the LiveWatch Acquisition, which are included in Selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive income (loss).

Ascent Capital's results of operations for the three months ended March 31, 2015 include the operations of LiveWatch from the Closing Date. The effect of the LiveWatch Acquisition was not material to the Company's consolidated results for the periods presented and, accordingly, proforma financial disclosures have not been presented.
 
(4)    Investments in Marketable Securities
 
Ascent Capital owns marketable securities primarily consisting of diversified corporate bond funds. The following table presents the activity of these investments, which have all been classified as available-for-sale securities (amounts in thousands):
 
Three Months Ended March 31,
 
2015
 
2014
Beginning balance
$
122,593

 
129,496

Purchases
—

 
—

Sales at cost basis (a)
(26,670
)
 
—

Realized and unrealized gains (losses), net
(1,069
)
 
345

Ending balance
$
94,854

 
129,841

 
(a)          For the three months ended March 31, 2015, total proceeds from the sale of marketable securities were $27,020,000 , resulting in a pre-tax gain of $350,000 .
 
The following table presents the changes in Accumulated other comprehensive loss on the condensed consolidated balance sheets for unrealized and realized gains and losses of the investments in marketable securities (amounts in thousands): 
 
Three Months Ended March 31,
 
2015
 
2014
Accumulated other comprehensive income (loss)
 

 
 

Beginning balance
$
(1,788
)
 
1,498

Unrealized gains (losses), net of income tax of $0
(719
)
 
345

Realized gain recognized into earnings, net of income tax of $0 (a)
(350
)
 
—

Ending balance
$
(2,857
)
 
1,843

 
(a)          The realized gain of the sale of marketable securities for the three months ended March 31, 2015 is included in Other income, net on the consolidated statements of operations and comprehensive income (loss).

(5)      Assets Held for Sale

In the first quarter of 2015, the Company completed the sale of certain assets held for sale with a net book value of $17,704,000 for a gain of approximately $1,047,000 . At March 31, 2015 , the Company has $1,231,000 classified as assets held for sale on the condensed consolidated balance sheet. The Company currently expects to complete the sale of this real estate property during the next twelve months.

(6)      Other Accrued Liabilities
 
Other accrued liabilities consisted of the following (amounts in thousands):
 
March 31,
2015
 
December 31,
2014
Interest payable
$
27,837

 
$
15,594

Income taxes payable
4,524

 
3,577

Legal accrual
1,038

 
872

Other
10,477

 
10,684

Total Other accrued liabilities
$
43,876

 
$
30,727



7

(7)    Long-Term Debt
 
Long-term debt consisted of the following (amounts in thousands):
 
March 31,
2015
 
December 31,
2014
Ascent Capital 4.00% Convertible Senior Notes due July 15, 2020
$
78,420

 
$
77,531

Monitronics 9.125% Senior Notes due April 1, 2020
585,242

 
585,251

Monitronics term loans, mature March 23, 2018, LIBOR plus 3.25%, subject to a LIBOR floor of 1.00%
892,199

 
894,208

Monitronics $315 million revolving credit facility, matures December 22, 2017, LIBOR plus 3.75%, subject to a LIBOR floor of 1.00%
130,300

 
70,500

 
1,686,161

 
1,627,490

Less current portion of long-term debt
(9,166
)
 
(9,166
)
Long-term debt
$
1,676,995

 
$
1,618,324


Convertible Notes
 
The convertible notes total $103,500,000 in aggregate principal amount, mature on July 15, 2020 and bear interest at 4.00% per annum (the “Convertible Notes”). Interest on the Convertible Notes is payable semi-annually on January 15 and July 15 of each year. The Convertible Notes are convertible, under certain circumstances, into cash, shares of Ascent Capital's Series A Common Stock, par value $0.01 per share (the "Series A Common Stock"), or any combination thereof at Ascent Capital’s election.
 
Holders of the Convertible Notes (“Noteholders”) have the right, at their option, to convert all or any portion of such Convertible Notes, subject to the satisfaction of certain conditions, at an initial conversion rate of 9.7272 shares of Series A Common Stock per $1,000 principal amount of Convertible Notes (subject to adjustment in certain situations), which represents an initial conversion price per share of Series A Common Stock of approximately $102.804 (the “Conversion Price”).  Ascent Capital is entitled to settle any such conversion by delivery of cash, shares of Series A Common Stock or any combination thereof at Ascent Capital's election. In addition, Noteholders have the right to submit Convertible Notes for conversion, subject to the satisfaction of certain conditions, in the event of certain corporate transactions.
 
In the event of a fundamental change (as such term is defined in the indenture governing the Convertible Notes) at any time prior to the maturity date, each Noteholder shall have the right, at such Noteholder’s option, to require Ascent Capital to repurchase for cash any or all of such Noteholder’s Convertible Notes on the repurchase date specified by Ascent Capital at a repurchase price equal to 100% of the principal amount thereof, together with accrued and unpaid interest, including unpaid additional interest, if any, unless the repurchase date occurs after an interest record date and on or prior to the related interest payment date, as specified in the indenture.
 
The Convertible Notes are within the scope of FASB ASC Subtopic 470-20, Debt with Conversion and Other Options , and as such are required to be separated into a liability and equity component. The carrying amount of the liability component is calculated by measuring the fair value of a similar liability (including any embedded features other than the conversion option) that does not have an associated conversion option. The carrying amount of the equity component is determined by deducting the fair value of the liability component from the initial proceeds ascribed to the Convertible Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, treated as a debt discount, is amortized to interest cost over the expected life of a similar liability that does not have an associated conversion option using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification as prescribed in FASB ASC Subtopic 815-40, Contracts in an Entity’s Own Equity . 

The Convertible Notes are presented on the consolidated balance sheet as follows (amounts in thousands):
 
As of
March 31,
2015
 
As of
December 31,
2014
Principal
$
103,500

 
$
103,500

Unamortized discount
(25,080
)
 
(25,969
)
Carrying value
$
78,420

 
$
77,531

 

8

The Company is using an effective interest rate of 10.0% 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 $1,035,000 on the Convertible Notes for both the three months ended March 31, 2015 and 2014.  The Company amortized $889,000 and $ 805,000 of the Convertible Notes debt discount into interest expense for the three months ended March 31, 2015 and 2014, respectively.
 
Hedging Transactions Relating to the Offering of the Convertible Notes
 
In connection with the issuance of the Convertible Notes, Ascent Capital entered into separate privately negotiated purchased call options (the “Bond Hedge Transactions”).  The Bond Hedge Transactions require the counterparties to offset Series A Common Stock deliverable or cash payments made by Ascent Capital upon conversion of the Convertible Notes in the event that the volume-weighted average price of the Series A Common Stock on each trading day of the relevant valuation period is greater than the strike price of $102.804 , which corresponds to the Conversion Price of the Convertible Notes.  The Bond Hedge Transactions cover, subject to anti-dilution adjustments, approximately 1,007,000 shares of Series A Common Stock, which is equivalent to the number of shares initially issuable upon conversion of the Convertible Notes, and are expected to reduce the potential dilution with respect to the Series A Common Stock, and/or offset potential cash payments Ascent Capital is required to make in excess of the principal amount of the Convertible Notes upon conversion.
 
Concurrently with the Bond Hedge Transactions, Ascent Capital also entered into separate privately negotiated warrant transactions with each of the call option counterparties (the “Warrant Transactions”).  The warrants are European options, and are exercisable in tranches on consecutive trading days starting after the maturity of the Convertible Notes.  The warrants cover the same initial number of shares of Series A Common Stock, subject to anti-dilution adjustments, as the Bond Hedge Transactions.  The Warrant Transactions require Ascent Capital to deliver Series A Common Stock or make cash payments to the counterparties on each expiration date with a value equal to the number of warrants exercisable on that date times the excess of the volume-weighted average price of the Series A Common Stock over the strike price of $118.62 , which effectively reflects a 50% conversion premium on the Convertible Notes.  As such, the Warrant Transactions may have a dilutive effect with respect to the Common Stock to the extent the Warrant Transactions are settled with shares of Series A Common Stock. Ascent Capital may elect to settle its delivery obligation under the Warrant Transactions in cash.
 
The Bond Hedge Transactions and Warrant Transactions are separate transactions entered into by Ascent Capital, are not part of the terms of the Convertible Notes and will not affect the Noteholders’ rights under the Convertible Notes.  The Noteholders will not have any rights with respect to the Bond Hedge Transactions or the Warrant Transactions.
 
Senior Notes
  
The senior notes total $585,000,000 in principal, mature on April 1, 2020 and bear interest at 9.125% per annum (the "Senior Notes").  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.

Credit Facility
 
On February 17, 2015, Monitronics entered into an amendment (“Amendment No. 4”) with the lenders of its existing senior secured credit agreement dated March 23, 2012, and as amended and restated on August 16, 2013, March 25, 2013 and November 7, 2012 (the “Existing Credit Agreement”).  Amendment No. 4 provided for, among other things, an increase in the commitments under the revolving credit facility in a principal amount of $90,000,000 (the Existing Credit Agreement together with Amendment No. 4, the "Credit Facility").
 
The Credit Facility term loans bear interest at LIBOR plus 3.25% , subject to a LIBOR floor of 1.00% , and mature on March 23, 2018.  Principal payments of approximately $2,292,000 and interest on the term loans are due quarterly.  The Credit Facility revolver bears interest at LIBOR plus 3.75% , subject to a LIBOR floor of 1.00% , and matures on December 22, 2017.  There is an annual commitment fee of 0.50% on unused portions of the Credit Facility revolver.  As of March 31, 2015 , $184,700,000 is available for borrowing under the revolving credit facility.
 
At any time after the occurrence of an event of default under the Credit Facility, the lenders may, among other options, declare any amounts outstanding under the Credit Facility immediately due and payable and terminate any commitment to make further loans under the Credit Facility.  In addition, failure to comply with restrictions contained in the Senior Notes could lead to an event of default under the Credit Facility.
 

9

On March 30, 2015, Monitronics borrowed $33,000,000 on the Credit Facility revolver to fund its April 1, 2015 interest payment due under the Senior Notes of approximately $26,691,000 and other business activities.

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.
 
As of March 31, 2015 , the Company has deferred financing costs, net of accumulated amortization, of $21,989,000 related to the Convertible Notes, the Senior Notes and the Credit Facility. These costs are included in Other assets, net on the accompanying consolidated balance sheet and will be amortized over the remaining term of the respective debt instruments using the effective-interest method.
 
In order to reduce the financial risk related to changes in interest rates associated with the floating rate term loans under the Credit Facility, Monitronics has entered into interest rate swap agreements with terms similar to the Credit Facility term loans (all outstanding interest rate swap agreements are collectively referred to as the “Swaps”). The Swaps have a maturity date of March 23, 2018 to match the term of the Credit Facility term loans.  The Swaps have been designated as effective hedges of the Company’s variable rate debt and qualify for hedge accounting.  See note 8, Derivatives, for further disclosures related to these derivative instruments.  As a result of the Swaps, the interest rate on the borrowings under the Credit Facility term loans have been effectively converted from a variable rate to a weighted average fixed rate of 5.06% .
 
The terms of the Convertible Notes, the Senior Notes and the Credit Facility provide for certain financial and nonfinancial covenants.  As of March 31, 2015 , the Company was in compliance with all required covenants.

As of March 31, 2015 , principal payments scheduled to be made on the Company’s debt obligations are as follows (amounts in thousands):
Remainder of 2015
$
6,875

2016
9,166

2017
139,466

2018
870,800

2019
—

2020
688,500

Thereafter
—

Total principal payments
$
1,714,807

Less:
 

Unamortized discounts and premium, net
28,646

Total debt on condensed consolidated balance sheet
$
1,686,161

 
(8)    Derivatives
 
The Company utilizes interest rate swap agreements to reduce the interest rate risk inherent in Monitronics’ variable rate Credit Facility term loans.  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 9, Fair Value Measurements, for additional information about the credit valuation adjustments.
 

10

The Swaps’ outstanding notional balance as of March 31, 2015 and terms are noted below:
Notional
 
Effective Date
 
Fixed
Rate Paid
 
Variable Rate Received
$
533,500,000

 
March 28, 2013
 
1.884%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
141,375,000

 
March 28, 2013
 
1.384%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
110,521,357

 
September 30, 2013
 
1.959%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
110,521,357

 
September 30, 2013
 
1.850%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
 
(a)  
On March 25, 2013, Monitronics negotiated amendments to the terms of these interest rate swap agreements, which were entered into in March 2012 (the "Existing Swap Agreements," as amended, the “Amended Swaps”).  The Amended Swaps are held with the same counterparties as the Existing Swap Agreements.  Upon entering into the Amended Swaps, Monitronics simultaneously dedesignated the Existing Swap Agreements and redesignated the Amended Swaps as cash flow hedges for the underlying change in the swap terms.  The amounts previously recognized in Accumulated other comprehensive income (loss) relating to the dedesignation are recognized in Interest expense over the remaining life of the Amended Swaps.
 
All of the Swaps are designated and qualify as cash flow hedging instruments, with the effective portion of the Swaps' change in fair value recorded in Accumulated other comprehensive income (loss).  Any ineffective portions of the Swaps' change in fair value are recognized in current earnings in Interest expense.  Changes in the fair value of the Swaps recognized in Accumulated other comprehensive income (loss) are reclassified to Interest expense when the hedged interest payments on the underlying debt are recognized.  Amounts in Accumulated other comprehensive income (loss) expected to be recognized in Interest expense in the coming 12 months total approximately $7,309,000 .

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,
 
2015
 
2014
Effective portion of loss recognized in Accumulated other comprehensive loss
$
(6,268
)
 
(3,371
)
Effective portion of loss reclassified from Accumulated other comprehensive loss into Net loss (a)
$
(1,805
)
 
(1,700
)
Ineffective portion of amount of loss recognized into Net loss on interest rate swaps (a)
$
(84
)
 
(1
)
 
(a)          Amounts are included in Interest expense in the unaudited condensed consolidated statements of operations and comprehensive income (loss).
 
(9)    Fair Value Measurements
 
According to the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board Accounting Standards Codification, 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.
 

11

The following summarizes the fair value level of assets and liabilities that are measured on a recurring basis at March 31, 2015 and December 31, 2014 (amounts in thousands): 
 
Level 1
 
Level 2
 
Level 3
 
Total
March 31, 2015
 

 
 

 
 

 
 

Money market funds (a)
$
3,842

 
—

 
—

 
$
3,842

Investments in marketable securities (b)
90,904

 
3,950

 
—

 
94,854

Derivative financial instruments - assets (c)
—

 
257

 
—

 
257

Derivative financial instruments - liabilities
—

 
(9,447
)
 
—

 
(9,447
)
Total
$
94,746

 
$
(5,240
)
 
$
—

 
$
89,506

December 31, 2014
 

 
 

 
 

 
 

Money market funds (a)
$
8,492

 
—

 
—

 
$
8,492

Investments in marketable securities (b)
117,765

 
4,828

 
—

 
122,593

Derivative financial instruments - assets (c)
—

 
1,123

 
—

 
1,123

Derivative financial instruments - liabilities
—

 
(5,780
)
 
—

 
(5,780
)
Total
$
126,257

 
$
171

 
$
—

 
$
126,428

 
(a)  
Included in cash and cash equivalents on the condensed consolidated balance sheets.
(b)
Level 1 investments primarily consist of diversified corporate bond funds.  The Level 2 security represents one investment in a corporate bond.  All investments are classified as available-for-sale securities.
(c)
  Included in Other assets, net on the condensed consolidated balance sheets.
 
The Company has determined that the majority of the inputs used to value the Swaps fall within Level 2 of the fair value hierarchy.  The credit valuation adjustments associated with the derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by their counterparties.  As the counterparties have publicly available credit information, the credit spreads over LIBOR used in the calculations represent implied credit default swap spreads obtained from a third-party credit data provider.  As of March 31, 2015 , the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Swaps.  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, 2015
 
December 31, 2014
Long term debt, including current portion:
 

 
 

Carrying value
$
1,686,161

 
$
1,627,490

Fair value (a)
1,677,474

 
1,590,809

 
(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.
 
(10)    Restructuring Charges
 
In connection with the Security Networks Acquisition, management approved a restructuring plan to transition Security Networks’ operations in West Palm Beach and Kissimmee, Florida to Dallas, Texas (the “2013 Restructuring Plan”).  The 2013 Restructuring Plan provided certain Security Networks' employees with a severance package that entitled them to receive benefits upon completion of the transition in 2014.  Severance costs related to the 2013 Restructuring Plan were recognized ratably over the future service period.  No restructuring charges were recognized during the three months ended March 31, 2015 . During the three months ended March 31, 2014 , the Company recognized $547,000 of restructuring charges related to employee termination benefits under the 2013 Restructuring Plan. The transition of Security Networks' operations to Dallas was completed in the second quarter of 2014.

12

 
The following tables provide the activity and balances of the 2013 Restructuring Plan (amounts in thousands):
 
December 31, 2014
 
Additions
 
Payments
 
March 31, 2015
2013 Restructuring Plan
 

 
 

 
 

 
 

Severance and retention
$
134

 
—

 
(134
)
 
$
—


 
December 31, 2013
 
Additions
 
Payments
 
March 31, 2014
2013 Restructuring Plan
 
 
 
 
 
 
 
Severance and retention
$
1,570

 
547

 
(504
)
 
$
1,613


(11)      Stockholders’ Equity
 
Common Stock
 
The following table presents the activity in Ascent Capital’s Series A Common Stock and Series B common stock, par value $0.01 per share (the "Series B Common Stock"), for the three months ended March 31, 2015 :
 
Series A
Common Stock
 
Series B
Common Stock
Balance at December 31, 2014
13,162,095

 
384,086

Issuance of restricted stock awards
6,285

 
—

Restricted stock forfeitures and tax withholding
(13,302
)
 
—

Repurchases and retirements of Series A shares
(229,168
)
 
—

Balance at March 31, 2015
12,925,910

 
384,086

 
Accumulated Other Comprehensive Income (Loss)
 
The following table provides a summary of the changes in Accumulated other comprehensive income (loss) for the period presented (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)
As of December 31, 2014
$
(215
)
 
(1,788
)
 
(4,805
)
 
$
(6,808
)
Loss through Accumulated other comprehensive loss
(277
)
 
(719
)
 
(6,268
)
 
(7,264
)
Reclassifications of loss (gain) into Net loss
—

 
(350
)
 
1,805

 
1,455

As of March 31, 2015
$
(492
)
 
(2,857
)
 
(9,268
)
 
$
(12,617
)
 
(a)  
Amounts reclassified into net loss are included in Other income, net on the condensed consolidated statement of operations.  See note 4, Investments in Marketable Securities, for further information.
(b)
Amounts reclassified into net loss are included in Interest expense on the condensed consolidated statement of operations.  See note 8, Derivatives, for further information.
 

13

(12)    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 earnings (loss) by the weighted average number of shares of Ascent Capital Series A and Series B Common Stock outstanding for the period.  Diluted EPS is computed by dividing net earnings (loss) by the sum of the weighted average number of shares of Ascent Capital Series A and Series B Common Stock outstanding and the effect of dilutive securities such as outstanding stock options and unvested restricted stock.
 
Three Months Ended 
 March 31,
 
2015
 
2014
Weighted average Series A and Series B shares — basic and diluted
13,266,941

 
13,808,344

 
For the three months ended March 31, 2015 and 2014, diluted shares outstanding excluded the effect of 739,242 and 1,498,945 , respectively, stock options and unvested restricted stock awards because their inclusion would have been anti-dilutive. 

(13)       Commitments, Contingencies and Other Liabilities
 
The Company is involved in litigation and similar claims incidental to the conduct of its business. 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 is likely to have a material adverse impact on the Company’s financial position or results of operations.

(14)    Subsequent Events

On April 9, 2015, Monitronics entered into Amendment No. 5 (the “Amendment No. 5”) to its Credit Facility. Pursuant to Amendment No. 5, Monitronics completed the issuance of an incremental $550,000,000 senior secured Term Loan B offering (the “New Term Loans”). The New Term Loans bear interest at LIBOR plus 3.50% , subject to a LIBOR floor of 1.00% , and mature on April 9, 2022. Monitronics used the net proceeds to retire $492,000,000 of its existing Term Loans, due March 2018, and repaid approximately $50,000,000 of its Credit Facility revolver. Amendment No. 5 also incorporates certain covenant changes, including the removal of the third quarter 2015 Senior Secured and Total Leverage covenant step-downs.


14

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, integration of acquired assets and businesses, new service offerings, 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;
•
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 market acceptance of new products and services;
•
the competitive environment in which we operate, in particular increasing competition in the alarm monitoring industry from larger existing competitors and new market entrants, including 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;
•
integration of acquired assets and businesses;
•
the regulatory environment in which we operate, including the multiplicity of jurisdictions and licensing requirements to which Monitronics is subject and the risk of new regulations, such as the increasing adoption of “false alarm” ordinances;
•
technological changes which could result in the obsolescence of currently utilized technology and the need for significant upgrade expenditures, including the phase-out of 2G networks by cellular carriers;
•
the trend away from the use of public switched telephone network lines and 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;
•
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;
•
the availability and terms of capital, including the ability of Monitronics to obtain additional funds to grow its business;
•
Monitronics’ high degree of leverage and the restrictive covenants governing its indebtedness; and
•
availability of qualified personnel.
 
For additional risk factors, please see Part I, Item 1A, Risk Factors, in the 2014 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.
 
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 2014 Form 10-K.


15
Table of Contents

Overview
 
Ascent Capital Group, Inc. is a holding company and its assets primarily consist of its wholly-owned subsidiary, Monitronics International, Inc.
 
The Monitronics business provides security alarm monitoring and related services to residential and business subscribers throughout the United States and parts of Canada.  On February 23, 2015 (the "Closing Date"), Monitronics acquired LiveWatch Security, LLC ("LiveWatch"), a Do-It-Yourself home security firm, offering professionally monitored security services through a direct-to-consumer sales channel (the "LiveWatch Acquisition"). On August 16, 2013, Monitronics acquired all of the equity interest of Security Networks LLC ("Security Networks") and certain affiliated entities (the "Security Networks Acquisition"). Monitronics monitors signals arising from burglaries, fires, medical alerts and other events through security systems at subscribers’ premises, as well as provides customer service and technical support.  Nearly all of its revenues are derived from monthly recurring revenues under security alarm monitoring contracts purchased from independent dealers in its exclusive nationwide network.
 
Ascent Capital’s attrition analysis and results of operations for the three months ended March 31, 2015 include the operations of the LiveWatch business from the Closing Date.
 
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 terminate their contract for a variety of reasons, including relocation, cost and switching to a competitor’s service.  The largest category 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 5-10% of subscriber accounts in the guarantee period.  In some cases, the amount of the holdback liability may be less than actual attrition experience.
 

16
Table of Contents

The table below presents subscriber data for the twelve months ended March 31, 2015 and 2014 :
 
 
 
Twelve Months Ended
March 31,
 
 
 
2015
 
2014
 
Beginning balance of accounts
 
1,046,785

 
818,335

 
Accounts acquired
 
190,542

 
357,855

 
Accounts canceled
 
(139,824
)
 
(118,688
)
 
Canceled accounts guaranteed by dealer and acquisition adjustments (a)
 
(6,691
)
(b)
(10,717
)
(c)
Ending balance of accounts
 
1,090,812

 
1,046,785

 
Monthly weighted average accounts
 
1,060,524

 
962,527

 
Attrition rate - Unit
 
(13.2
)%
 
(12.3
)%
 
Attrition rate - RMR (d)
 
(13.0
)%
 
(12.0
)%
 
 
(a)
Includes canceled accounts that are contractually guaranteed to be refunded from holdback.
(b)
Includes an increase of 1,503 subscriber accounts associated with multi-site subscribers that were considered single accounts prior to the completion of the Security Networks integration in April 2014.
(c)
Includes 2,046 subscriber accounts that were proactively canceled during the third quarter of 2013 because they were active with both Monitronics and Security Networks.
(d)
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.
 
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, in recent years Monitronics has averaged less than 1% attrition 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.  The peak following the end of the initial contract term is primarily a result of the buildup of subscribers that moved or no longer had need for the service but did not cancel their service until the end of their initial contract term.  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, 2015 and 2014, Monitronics acquired 66,091 and 31,774 subscriber accounts, respectively. Accounts acquired for the three months ended March 31, 2015 includes 31,936 accounts from the LiveWatch Acquisition in February 2015.

RMR acquired during the three months ended March 31, 2015 and 2014 was approximately $2,490,000 and $1,451,000, respectively. RMR acquired for the three months ended March 31, 2015 includes approximately $908,000 of RMR from the LiveWatch Acquisition in February 2015.

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 nonrecurring 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 their debt obligations.  Adjusted

17
Table of Contents

EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles (“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.

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,
 
 
2015
 
2014
Net revenue
 
$
138,416

 
132,864

Cost of services
 
25,690

 
22,090

Selling, general, and administrative
 
27,596

 
26,537

Amortization of subscriber accounts, dealer network and other intangible assets
 
63,141

 
61,780

Restructuring charges
 
—

 
547

Interest expense
 
(29,781
)
 
(28,773
)
Income tax expense from continuing operations
 
(1,977
)
 
(1,621
)
Net loss from continuing operations
 
(9,675
)
 
(9,378
)
Net loss
 
(9,835
)
 
(9,732
)
 
 
 
 
 
Adjusted EBITDA   (a)
 
 

 
 

Monitronics business Adjusted EBITDA
 
$
91,667

 
89,275

Corporate Adjusted EBITDA
 
(947
)
 
(1,331
)
Total Adjusted EBITDA
 
$
90,720

 
87,944

Adjusted EBITDA as a percentage of Net revenue
 
 

 
 

Monitronics business
 
66.2
 %

67.2
 %
Corporate
 
(0.7
)%
 
(1.0
)%
 
(a)  
See reconciliation to net loss from continuing operations below.

Net revenue.   Net revenue increased $5,552,000 , or 4.2% , for the three months ended March 31, 2015 , as compared to the corresponding prior year period.  The increase in net revenue is attributable to the growth in the number of subscriber accounts and the increase in average RMR per subscriber.  The growth in subscriber accounts reflects the acquisition of over 148,000 accounts through Monitronics’ authorized dealer program subsequent to March 31, 2014 , as well as 31,936 accounts acquired in the LiveWatch Acquisition in February 2015.  Average monthly revenue per subscriber increased from $41.15 as of March 31, 2014 to $41.43 as of March 31, 2015 . Excluding accounts acquired through the LiveWatch Acquisition, which had an average monthly revenue per subscriber of $28.45, Monitronics' average monthly revenue per subscriber was $41.83 as of March 31, 2015.

Cost of services .  Cost of services increased $3,600,000 , or 16.3% , for the three months ended March 31, 2015 , as compared to the corresponding prior year period.  The increase is attributable to subscriber growth, the LiveWatch Acquisition and increases in cellular and service costs as more accounts are being monitored across the cellular network, which require additional service costs to upgrade existing subscribers' equipment.  Cost of services for the three months ended March 31, 2015 also includes $523,000 incurred in relation to the Radio Conversion Program, which was implemented in 2014 to upgrade subscribers' alarm monitoring systems that communicate across certain 2G networks that are expected to be discontinued in the near future. Cost of services as a percent of net revenue increased from 16.6% for the three months ended March 31, 2014 to 18.6% for the three months ended March 31, 2015 .
 

18

Selling, general and administrative.  Selling, general and administrative costs (“SG&A”) increased $1,059,000 , or 4.0% , for the three months ended March 31, 2015 , as compared to the corresponding prior year period.  The increase is attributable to SG&A incurred at LiveWatch, as well as acquisition costs incurred by Monitronics of $946,000 , which were related to professional services rendered in connection with the LiveWatch Acquisition. LiveWatch SG&A includes $519,000 in LiveWatch Acquisition Contingent Bonuses payable to LiveWatch's key members of management in accordance with the employment agreements entered into in connection with the LiveWatch Acquisition. These increases were partially offset by decreases in Monitronics' staffing and operating costs incurred at its Dallas, Texas headquarters as a result of the Security Networks' integration being completed in April 2014. SG&A for the three months ended March 31, 2014 includes approximately $1,059,000 of professional fees rendered in relation to the Security Networks' integration. SG&A as a percent of net revenue decreased from 20.0% for the three months ended March 31, 2014 to 19.9% for the three months ended March 31, 2015 .
 
Amortization of subscriber accounts, dealer network and other intangible assets .  Amortization of subscriber accounts, dealer network and other intangible assets increased $1,361,000 for the three months ended March 31, 2015 , as compared to the corresponding prior year period.  The increase is attributable to amortization of subscriber accounts acquired subsequent to March 31, 2014 .
 
Restructuring charges.  In connection with the Security Networks Acquisition, management approved a restructuring plan to transition Security Networks’ operations in West Palm Beach and Kissimmee, Florida to Dallas, Texas (the “2013 Restructuring Plan”).  The 2013 Restructuring Plan provided certain Security Networks employees with a severance package that entitled them to receive benefits upon completion of the transition in 2014.  Severance costs related to the 2013 Restructuring Plan were recognized ratably over the future service period.  No restructuring charges were recognized during the three months ended March 31, 2015 . During the three months ended March 31, 2014 , the Company recorded $547,000 of restructuring charges related to employee termination benefits under the 2013 Restructuring Plan. The transition of Security Networks' operations to Dallas was completed in the second quarter of 2014.
 
The following tables provide the activity and balances of the 2013 Restructuring Plan (amounts in thousands):
 
December 31, 2014
 
Additions
 
Payments
 
March 31, 2015
2013 Restructuring Plan
 

 
 

 
 

 
 

Severance and retention
$
134

 
—

 
(134
)
 
$
—


 
December 31, 2013
 
Additions
 
Payments
 
March 31, 2014
2013 Restructuring Plan
 
 
 
 
 
 
 
Severance and retention
$
1,570

 
547

 
(504
)
 
$
1,613

 
Interest expense.   Interest expense increased $1,008,000 for the three months ended March 31, 2015 , as compared to the corresponding prior year period. The increase in interest expense is primarily attributable to increases in the Company’s consolidated debt balance related to the revolver borrowings incurred to fund the LiveWatch Acquisition. 
 
Income tax expense from continuing operations.   The Company had pre-tax loss from continuing operations of $7,698,000 for the three months ended March 31, 2015 and income tax expense of $1,977,000 for the three months ended March 31, 2015 .  The Company had pre-tax loss from continuing operations of $7,757,000 for the three months ended March 31, 2014 and income tax expense of $1,621,000 for the three months ended March 31, 2014 .  Income tax expense for the three months ended March 31, 2015 and 2014 is attributable to Monitronics’ state tax expense and the deferred tax impact from amortization of deductible goodwill related to Monitronics' recent acquisitions. 


19

Adjusted EBITDA. The following table provides a reconciliation of total Adjusted EBITDA to net loss from continuing operations for the periods indicated (amounts in thousands):
 
 
Three Months Ended 
 March 31,
 
 
2015
 
2014
Total Adjusted EBITDA
 
$
90,720

 
87,944

Amortization of subscriber accounts, dealer network and other intangible assets
 
(63,141
)
 
(61,780
)
Depreciation
 
(2,398
)
 
(2,758
)
Stock-based compensation
 
(1,626
)
 
(1,662
)
Restructuring charges
 
—

 
(547
)
Radio conversion costs
 
(523
)
 
—

LiveWatch acquisition related costs
 
(946
)
 
—

LiveWatch acquisition contingent bonus charges
 
(519
)
 
—

Security Networks integration related costs
 
—

 
(1,059
)
Interest income
 
516

 
878

Interest expense
 
(29,781
)
 
(28,773
)
Income tax expense from continuing operations
 
(1,977
)
 
(1,621
)
Net loss from continuing operations
 
$
(9,675
)
 
(9,378
)
 
Adjusted EBITDA increased $2,776,000 , or 3.2% , for the three months ended March 31, 2015 as compared to the corresponding prior year period.  The increase in Adjusted EBITDA was primarily due to revenue growth.  Monitronics' Adjusted EBITDA was $91,667,000 for the three months ended March 31, 2015 as compared to $89,275,000 for the three months ended March 31, 2014 .

Liquidity and Capital Resources
 
At March 31, 2015 , we had $51,079,000 of cash and cash equivalents, $123,000 of current restricted cash, and $94,854,000 of marketable securities on a consolidated basis.  We may use a portion of these assets to 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, 2015 and 2014 , our cash flow from operating activities was $65,379,000 and $69,084,000 , respectively.  The primary driver of our cash flow from operating activities is Adjusted EBITDA.  Fluctuations in our Adjusted EBITDA and the components of that measure are 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, 2015 and 2014 , the Company used cash of $61,053,000 and $53,789,000 , respectively, to fund subscriber account acquisitions, net of holdback and guarantee obligations.  In addition, during the three months ended March 31, 2015 and 2014 , the Company used cash of $2,728,000 and $1,938,000 , respectively, to fund its capital expenditures. 

In February 2015, Monitronics paid cash of $56,343,000 for the acquisition of LiveWatch, net of the transfer of $3,988,000 to LiveWatch upon the Closing Date to fund LiveWatch employees' transaction bonuses and LiveWatch cash on hand of $784,000 . The LiveWatch Acquisition was funded by borrowings from Monitronics expanded Credit Facility revolver as well as cash contributions from Ascent Capital.

On March 30, 2015, Monitronics borrowed $33,000,000 on the Credit Facility revolver to fund its April 1, 2015 interest payment due under the Senior Notes of approximately $26,691,000 and other business activities.
  
On June 16, 2011, the Company announced that it received authorization to implement a share repurchase program, pursuant to which it may purchase up to $25,000,000 of its shares of Series A Common Stock from time to time. On November 14, 2013, the Company’s Board of Directors authorized the repurchase of an additional $25,000,000 of its shares of Series A Common Stock.  On November 10, 2014, the Company announced the Board of Directors' authorization of a further increase of $25,000,000 to the Company's share repurchase program (the "Share Repurchase Authorizations").


20

During the three months ended March 31, 2015 , the Company repurchased 229,168 shares of Series A Common Stock pursuant to the Share Repurchase Authorizations for approximately $9,473,000 .  These repurchased shares were all canceled and returned to the status of authorized and unissued. As of March 31, 2015 , the remaining availability under the Company's Share Repurchase Authorizations will enable the Company purchase up to an aggregate of approximately $5,422,000 of Series A Common Stock. The Company may also purchase shares of its Series B Common Stock under the remaining availability of the Share Repurchase Authorizations.
 
The existing long-term debt of the Company at March 31, 2015 includes the principal balance of $1,714,807,000 under its Convertible Notes, Senior Notes, Credit Facility, and Credit Facility revolver.  The Convertible Notes have an outstanding principal balance of $103,500,000 as of March 31, 2015 and mature July 15, 2020.  The Senior Notes have an outstanding principal balance of $585,000,000 as of March 31, 2015 and mature on April 1, 2020.  The Credit Facility term loans have an outstanding principal balance of $896,008,000 as of March 31, 2015 and require principal payments of approximately $2,292,000 per quarter with the remaining outstanding balance becoming due on March 23, 2018.  The Credit Facility revolver has an outstanding balance of $130,300,000 as of March 31, 2015 and becomes due on December 22, 2017.
 
On April 9, 2015, Monitronics entered into Amendment No. 5 (the “Amendment No. 5”) to its Credit Facility. Pursuant to Amendment No. 5, Monitronics completed the issuance of an incremental $550,000,000 senior secured Term Loan B offering (the “New Term Loans”). The New Term Loans bear interest at LIBOR plus 3.50%, subject to a LIBOR floor of 1.00%, and mature on April 9, 2022. Monitronics used the net proceeds to retire $492,000,000 of its existing Term Loans, due March 2018, and repaid approximately $50,000,000 of its Credit Facility revolver. Amendment No. 5 also incorporates certain covenant changes, including the removal of the third quarter 2015 Senior Secured and Total Leverage covenant step-downs.

In considering our liquidity requirements for 2015 , we evaluated our known future commitments and obligations.  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. In 2014, Monitronics implemented a Radio Conversion Program in response to one of the nation's largest carriers announcing that it does not intend to support its 2G cellular network services beyond 2016. In connection with the Radio Conversion Program, Monitronics could incur incremental costs of $13,000,000 to $16,000,000 per year through 2016. We considered the expected cash flow from Monitronics, as this business is the driver of our operating cash flows.  In addition, we considered the borrowing capacity of Monitronics’ Credit Facility revolver, under which Monitronics could borrow an additional $184,700,000 as of March 31, 2015 .  Based on this analysis, we expect that cash on hand, cash flow generated from operations and borrowings under the Monitronics’ Credit Facility will provide sufficient liquidity, given our anticipated current and future requirements.

We may seek external equity or debt financing in the event of any new investment opportunities, additional capital expenditures or our operations requiring 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 customers and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.


21

Item 3.   Quantitative and Qualitative Disclosure about Market Risk
 
Interest Rate Risk
 
Due to the terms of our debt obligations, we have exposure to changes in interest rates related to these 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 fair value and by maturity date as of March 31, 2015 .  Debt amounts represent principal payments by maturity date as of March 31, 2015 .
 
Year of Maturity
 
Fixed Rate
Derivative
Instruments (a)
 
Variable Rate
Debt
 
Fixed Rate
Debt
 
Total
 
 
 
 
 
 
 
 
 
 
 
(Amounts in thousands)
Remainder of 2015
 
$
—

 
$
6,875

 
$
—

 
$
6,875

2016
 
—

 
9,166

 
—

 
9,166

2017
 
—

 
139,466

 
—

 
139,466

2018
 
9,190

 
870,800

 
—

 
879,990

2019
 
—

 
—

 
—

 
—

2020
 
—

 
—

 
688,500

 
688,500

Thereafter
 
—

 
—

 
—

 
—

Total
 
$
9,190

 
$
1,026,307

 
$
688,500

 
$
1,723,997

 
(a)  
The derivative financial instruments reflected in this column include four interest rate swaps, all with a maturity date of March 23, 2018.  As a result of these interest rate swaps, the interest rate on the borrowings under the Credit Facility term loans have been effectively converted from a variable rate to a weighted average fixed rate of 5.06% .  See notes 7, 8 and 9 to our 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, 2015 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 SEC’s rules and forms.
 
There has been no change in the Company’s internal controls over financial reporting that occurred during the three months ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, its internal controls over financial reporting.


22
Table of Contents

ASCENT CAPITAL GROUP, INC. AND SUBSIDIARIES
 
PART II - OTHER INFORMATION

Item 2 .  Unregistered Sales of Equity Securities and Use of Proceeds.
 
(c) Purchases of Equity Securities by the Issuer
 
The following table sets forth information concerning our company’s purchase of its own equity securities (all of which were comprised of shares of our Series A Common Stock) during the three months ended March 31, 2015 :
 
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
 
 
1/1/2015 - 1/31/2015
 
696

 
(2)
 
$
52.11

 
—

 
 
 
 
2/1/2014 - 2/28/2015
 
—

 
 
 
—

 
—

 
 
 
 
3/1/2015 - 3/31/2015
 
235,570

 
(2)
 
41.33

 
—

 
 
 
(1)
Total
 
236,266

 
 
 
$
41.37

 
—

 
 
 
 
 
(1)
   On June 16, 2011, the Company announced that it received authorization to implement a share repurchase program, pursuant to which it may purchase up to $25,000,000 of its shares of Series A Common Stock, par value $0.01, from time to time.  On November 14, 2013, the Company’s Board of Directors authorized the repurchase of an additional $25,000,000 of its Series A Common Stock. On November 10, 2014, the Company announced the Board of Directors' authorization of a further increase of $25,000,000 to the Company's share repurchase program. As of March 31, 2015 , 1,290,864 shares of Series A Common Stock had been purchased, at an average price paid of $53.90 per share, pursuant to these authorizations.  As of March 31, 2015 , the remaining availability under the Company's existing share repurchase program will enable the Company to purchase up to an aggregate of approximately $5,422,000 of Series A Common Stock. The Company may also purchase shares of its Series B Common Stock, par value $0.01 per share, under the remaining availability of the program.
 
(2)
Includes 696 and 6,402 shares withheld in payment of withholding taxes by certain of our employees upon vesting of their restricted share awards.
 

23
Table of Contents

Item 6 .  Exhibits
 
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
 
Form of Amendment No. 4 to the Credit Agreement, dated February 17, 2015, by and among Monitronics International, Inc., Bank of America, N.A., individually and as administrative agent, and the certain lenders party thereto. *
4.2
 
Form of Amendment No. 5 to the Credit Agreement, dated April 9, 2015, by and among Monitronics International, Inc., Bank of America, N.A., individually and as administrative agent, and the certain lenders party thereto (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. 001-34176) filed with the Securities and Exchange Commission on April 15, 2015).
10.1
 
Ascent Capital Group, Inc. 2015 Omnibus Incentive Plan (the "Omnibus Incentive Plan") (incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 (File No. 333-203043) filed with the Securities and Exchange Commission on March 26, 2015).
10.2
 
Form of Performance-Based Restricted Stock Unit Award Agreement under the Omnibus Incentive Plan.*
31.1
 
Rule 13a-14(a)/15d-14(a) Certification. *
31.2
 
Rule 13a-14(a)/15d-14(a) Certification. *
32
 
Section 1350 Certification. **
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.





24
Table of Contents

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 8, 2015
 
By:
/s/ William R. Fitzgerald
 
 
 
 
William R. Fitzgerald
 
 
 
 
Chairman of the Board, Director and Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
Date:
May 8, 2015
 
By:
/s/ Michael R. Meyers
 
 
 
 
Michael R. Meyers
 
 
 
 
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


25
Table of Contents

EXHIBIT INDEX
 
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
 
Form of Amendment No. 4 to the Credit Agreement, dated February 17, 2015, by and among Monitronics International, Inc., Bank of America, N.A., individually and as administrative agent, and the certain lenders party thereto. *
4.2
 
Form of Amendment No. 5 to the Credit Agreement, dated April 9, 2015, by and among Monitronics International, Inc., Bank of America, N.A., individually and as administrative agent, and the certain lenders party thereto (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. 001-34176) filed with the Securities and Exchange Commission on April 15, 2015).
10.1
 
Ascent Capital Group, Inc. 2015 Omnibus Incentive Plan (the "Omnibus Incentive Plan") (incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 (File No. 333-203043) filed with the Securities and Exchange Commission on March 26, 2015).
10.2
 
Form of Performance-Based Restricted Stock Unit Award Agreement under the Omnibus Incentive Plan.*
31.1
 
Rule 13a-14(a)/15d-14(a) Certification. *
31.2
 
Rule 13a-14(a)/15d-14(a) Certification. *
32
 
Section 1350 Certification. **
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.



26


Exhibit 4.1



Form of
AMENDMENT NO. 4 TO CREDIT AGREEMENT
This Amendment No. 4 to Credit Agreement (this “ Amendment ”) is entered into as of February 17, 2015 by and among Monitronics International, Inc., a Texas corporation (“ Borrower ”), Bank of America, N.A., individually and as administrative agent (in its capacity as administrative agent, the “ Administrative Agent ”), and the certain lenders party hereto (the “ Increasing Lenders ”).
RECITALS
A.      Borrower, the Administrative Agent and the Lenders (as defined in the hereinafter defined Credit Agreement) are party to that certain Credit Agreement dated as of March 23, 2012, as amended by Amendment No. 1 to Credit Agreement and Consent dated as of November 7, 2012, Amendment No. 2 to Credit Agreement dated as of March 25, 2013, and Amendment No. 3 to the Credit Agreement and Amendment No. 1 to Guaranty Agreement dated as of August 16, 2013 (the “ Credit Agreement ”).
B.      Pursuant to Section 2.15 of the Credit Agreement, the Borrower has requested an increase in the Revolving Credit Facility from $225,000,000 to $315,000,000 (such increase, the “ Incremental Revolving Credit Commitment ”) and each of the Increasing Lenders are willing to provide a portion of the Incremental Revolving Credit Commitment as provided herein below.
Now, therefore, in consideration of the mutual execution hereof and other good and valuable consideration, the parties hereto agree as follows:
1. Defined Terms . Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to such terms in the Credit Agreement.

2. Interpretation . The rules of interpretation set forth in Section 1.02 of the Credit Agreement shall be applicable to this Amendment and are incorporated herein by this reference.

3. Increase in Revolving Credit Facility .
(a) Each Increasing Lender hereby agrees that on the Revolving Credit Increase Effective Date, the Revolving Credit Commitment of such Increasing Lender shall be increased by an amount equal to the amount set forth opposite such Increasing Lender’s name under the column “Incremental Revolving Credit Commitment” in Schedule A to this Amendment.

(b) On the Revolving Credit Increase Effective Date, the section in Schedule 2.01 of the Credit Agreement under the caption “Revolving Credit Commitments” shall be deleted and replaced in its entirety with Schedule A to this Amendment.

(c) The Revolving Credit Increase Effective Date for the Incremental Revolving Credit Commitment shall be the date on which the conditions precedent set forth in Section 5 hereto have been satisfied, as noticed by the Administrative Agent to the Increasing Lenders and the Borrower.

(d) Section 1.01 of the Credit Agreement is amended by adding the following definitions in the appropriate alphabetical order:

“ Amendment No. 4 ” means Amendment No. 4 to this Agreement, dated as of February 17, 2015.





“ Incremental Revolving Credit Commitment ” has the meaning given to such term in the recitals to Amendment No. 4.

4. Representations and Warranties of Borrower . Borrower represents and warrants as of the Revolving Credit Increase Effective Date for the Incremental Revolving Credit Commitment that:

(a) The execution, delivery and performance by Borrower of this Amendment have been duly authorized by all necessary corporate action and this Amendment and the Credit Agreement (as amended hereby) constitute the legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity regardless of whether considered in a proceeding in equity or at law;

(b) The representations and warranties of Borrower contained in Article V of the Credit Agreement or any other Loan Document are true and correct in all material respects (or with respect to representations and warranties qualified by materiality, in all respects) on and as of the Revolving Credit Increase Effective Date for the Incremental Revolving Credit Commitment, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date in all material respects (or with respect to representations and warranties qualified by materiality, in all respects), except that the representations and warranties contained in Sections 5.05(a) and (b) of the Credit Agreement shall be deemed to refer to the most recent statements furnished pursuant to Sections 6.01(a) and (b) of the Credit Agreement, respectively; and

(c) No Default exists.

5. Conditions to Effectiveness of Increase in Revolving Credit Facility . The effectiveness of each Increasing Lender’s Incremental Revolving Credit Commitment shall be subject to the satisfaction of each of the conditions precedent set forth below:

(a) The Administrative Agent (or its counsel) shall have received a counterpart of this Amendment signed by each of the Administrative Agent, the Borrower, each Guarantor and each Increasing Lender;

(b) The Administrative Agent shall have received such certificates of resolutions or other action, incumbency certificates and/or other certificates of each Loan Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Amendment;

(c) The Administrative Agent shall have received such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is validly existing and in good standing in its jurisdiction of organization;

(d) The Administrative Agent shall have received a certificate of the Borrower signed by a Responsible Officer of the Borrower in accordance with Section 2.15(d)(ii) of the Credit Agreement;

(e) The Administrative Agent shall have received a favorable opinion of Baker Botts LLP, counsel to the Loan Parties and the Parent, addressed to the Administrative Agent and each Lender party hereto, in form and substance acceptable to the Administrative Agent;

(f) The Administrative Agent shall have received all documentation and other information about the Loan Parties and the Parent required under applicable “know your customer” and anti-money laundering rules and regulations, including the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) that has been requested in writing at least 5 Business Days prior to the Amendment No. 4 Effective Date;





(g) The Administrative Agent shall have received, in form and substance satisfactory to it, customary lien searches; and

(h) The Administrative Agent and the lead arranger shall have received all fees and expenses due to be paid to them pursuant to written agreement and the Borrower shall pay to the Administrative Agent for the account of each Increasing Lender, and the Administrative Agent shall have received, a fee of 0.25% of its Incremental Revolving Credit Commitment.

6. Reference to and Effect Upon the Credit Agreement .

(a) Except as specifically amended above, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

(b) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Administrative Agent or any Lender under the Credit Agreement or any Loan Document, nor constitute a waiver of any provision of the Credit Agreement or any Loan Document, except as specifically set forth herein. On the Revolving Credit Increase Effective Date for the Incremental Revolving Commitment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby.

7. Costs and Expenses .      Borrower hereby affirms its obligation under Section 10.04 of the Credit Agreement to reimburse the Administrative Agent for all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates in connection with the preparation, negotiation, execution and delivery of this Amendment, including but not limited to the reasonable fees, charges and disbursements of counsel for the Administrative Agent with respect thereto.

8. Governing Law; etc. This Amendment shall be governed by, and construed in accordance with, the law of the State of New York. This Amendment is subject to the provisions of Sections 10.14 and 10.15 of the Credit Agreement relating to submission to jurisdiction, venue, service of process and waiver of right to trial by jury, the provisions which are by this reference incorporated herein in full.

9. Headings . Section headings herein are included for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.

10. Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by telecopy or other electronic imaging means (including “.pdf”) shall be effective as delivery of a manually executed counterpart of this Amendment.

11. Severability . If any provision of this Amendment or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Amendment and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

[signature pages follow]





IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and year first above written.
MONITRONICS INTERNATIONAL, INC.
By:         
Name:
Title:
GUARANTORS:
MIBU SERVICER INC.
By:         
Name:         
Title:         
MI SERVICER LP, LLC
By:         
Name:         
Title:         
MONITRONICS CANADA, INC.
By:         
Name:         
Title:         
MONITRONICS FUNDING LP
By:         
Name:         
Title:         
MONITRONICS SECURITY LP
By:         
Name:         
Title:         
PLATINUM SECURITY SOLUTIONS, INC.
By:         
Name:         
Title:         
SECURITY NETWORKS LLC
By:         
Name:         
Title:         
SECURITY NETWORKS ACCEPTANCE LLC
By:         
Name:         
Title:         






BANK OF AMERICA, N.A.,
as Administrative Agent
By:         
Name:
Title:
Bank of America, N.A.,
as an Increasing Lender
By:        
Name:
Title:

Capital One, N.A.,
as an Increasing Lender
By:        
Name:
Title:

Citibank, N.A.,
as an Increasing Lender
By:        
Name:
Title:

Credit Suisse AG, Cayman Islands Branch,
as an Increasing Lender
By:        
Name:
Title:

U.S. Bank National Association,
as an Increasing Lender
By:        
Name:
Title:

Citizens Bank National Association,
as an Increasing Lender
By:        
Name:
Title:

The Private Bank and Trust Company,
as an Increasing Lender
By:        
Name:
Title:





Pacific Western Bank,
as an Increasing Lender
By:        
Name:
Title:




Omitted Schedule
The following schedule to the Form of Amendment No. 4 to Credit Agreement, by and among Monitronics International, Inc., the guarantors party thereto, Bank of America, N.A., individually and as administrative agent, and the certain lenders party thereto, have not been provided herein:
Schedule A: Revolving Credit Commitments

The undersigned registrant hereby undertakes to furnish supplementally a copy of the omitted schedule to the Securities and Exchange Commission upon request.





Exhibit 10.2


Form of

ASCENT CAPITAL GROUP, INC.
2015 OMNIBUS INCENTIVE PLAN
PERFORMANCE-BASED RESTRICTED STOCK UNITS AWARD AGREEMENT
THIS PERFORMANCE-BASED RESTRICTED STOCK UNITS AWARD AGREEMENT (this “Agreement”) is made as of [____] (the “Grant Date”), by and between ASCENT CAPITAL GROUP, INC., a Delaware corporation (the “Company”), and the person signing as “Grantee” on the signature page hereof (the “Grantee”).
The Company has adopted the Ascent Capital Group, Inc. 2015 Omnibus Incentive Plan (as has been or may hereafter be amended, the “Plan”), a copy of which is attached hereto as Exhibit A and by this reference made a part hereof, for the benefit of eligible employees of the Company and its Subsidiaries. Capitalized terms used and not otherwise defined in this Agreement will have the meanings ascribed to them in the Plan.
The Compensation Committee appointed by the Board of Directors of the Company (the “Committee”), which is appointed by the Board of Directors of the Company pursuant to Section 3.1 of the Plan to administer the Plan, has determined that it would be in the interest of the Company and its stockholders to award restricted stock units to the Grantee, subject to the conditions and restrictions set forth herein and in the Plan, in order to provide the Grantee with additional remuneration for services rendered, to encourage the Grantee to remain in the employ of the Company or its Subsidiaries and to increase the Grantee’s personal interest in the continued success and progress of the Company.
The Company and the Grantee therefore agree as follows:
1. Definitions . The following terms, when used in this Agreement, have the following meanings:

“Cause” has the meaning specified in the Employment Agreement.
“Close of Business” means, on any day, 5:00 p.m., Denver, Colorado time.
“Common Stock” means the Company’s Series A Common Stock, par value $0.01 per share.
“Disability” has the meaning specified in the Employment Agreement.
“Key Performance Indicators” means the performance metrics as established by the Committee within the first ninety (90) days of each Vesting Cycle.
“Vesting Cycle” means each twelve (12) month period beginning on [__] and ending on [__] of the following year.
“Vesting Date” means each date on which any Restricted Stock Units cease to be subject to a risk of forfeiture, as determined in accordance with this Agreement.
“Vesting Tranche” means the Restricted Stock Units that will vest, subject to this Agreement, at the end of each Vesting Cycle.



“Termination for Good Reason” has the meaning specified in the Employment Agreement.
2. Award. Pursuant to the terms of the Plan and in consideration of the covenants and promises of the Grantee herein contained, the Company hereby awards to the Grantee as of the Grant Date, that number of performance-based Restricted Stock Units set forth on Schedule 1, each representing the right to receive one share of the Company’s Common Stock, as authorized by the Committee, subject to the conditions and restrictions set forth below and in the Plan (the “Restricted Stock Units”).
 
3. Vesting and Forfeiture of Restricted Stock Units.
(a) Subject to Section 10.1(b) of the Plan and to earlier vesting in accordance with Section 6, Restricted Stock Units will vest, in whole or in part, only in accordance with the conditions stated in this Section 3.

(b) Schedule 1 sets forth the maximum number of Restricted Stock Units in each Vesting Tranche (subject to any additional number of Restricted Stock Units transferred to such Vesting Tranche pursuant to Section 3(c) below) that may vest at the conclusion of each Vesting Cycle based on the achievement and satisfaction of Key Performance Indicators, as determined and certified by the Committee.

(c) No later than sixty (60) days following the end of each Vesting Cycle (each, a “Committee Certification Date”), the Committee will measure the Grantee’s performance against the Key Performance Indicators applicable to such Vesting Cycle. The Committee will then promptly notify the Grantee regarding the number of Restricted Stock Units, if any, that have vested from the relevant Vesting Tranche pursuant to this Section 3 as of the Vesting Date relating to such Vesting Tranche. Any Restricted Stock Units from a Vesting Tranche that remain unvested as of any Vesting Date, other than the final Vesting Date, will be transferred to the Vesting Tranche eligible for vesting during the next Vesting Cycle and will remain unvested and eligible for vesting on the Vesting Date relating to such Vesting Tranche. Any Restricted Stock Units that remain outstanding and unvested as of the final Vesting Date will automatically be forfeited as of the Close of Business on the final Committee Certification Date. Upon forfeiture of any unvested Restricted Stock Units pursuant to Section 2, this Section 3 or Section 6, such Restricted Stock Units and any related Unpaid Dividend Equivalents will be immediately cancelled, and the Grantee will cease to have any rights with respect thereto.

(d) Any Dividend Equivalents with respect to Restricted Stock Units that have not theretofore become Vested Dividend Equivalents (“Unpaid Dividend Equivalents”) will become vested only to the extent that the Restricted Stock Units related thereto shall have become vested in accordance with this Agreement.

(e) Notwithstanding the foregoing, the Grantee will not vest, pursuant to this Section 3, in Restricted Stock Units or related Unpaid Dividend Equivalents in which the Grantee would otherwise vest with respect to a given Vesting Cycle if the Grantee has not been continuously employed by the Company from the Grant Date through the last day of such Vesting Cycle (the vesting or forfeiture of such Restricted Stock Units and related Unpaid Dividend Equivalents to be governed instead by Section 6). Notwithstanding the foregoing, if any date on which vesting would otherwise occur is a Saturday, Sunday or a holiday, such vesting will instead occur on the business day next following such date.

4. Settlement of Restricted Stock Units. Settlement of Restricted Stock Units that vest in accordance with Section 3 or Section 6 shall be made as soon as administratively practicable after the

2


applicable Vesting Date, but in no event later than ninety (90) days after such Vesting Date. Settlement of vested Restricted Stock Units shall be made in payment of shares of Common Stock, together with any related Dividend Equivalents, in accordance with Section 7.

5. Mandatory Withholding for Taxes. To the extent that the Company is subject to withholding tax requirements under any national, state, local or other governmental law with respect to the award of the Restricted Stock Units to the Grantee or the vesting or settlement thereof, or the designation of any Dividend Equivalents as payable or distributable or the payment or distribution thereof, the Grantee must make arrangement satisfactory to the Company to make payment to the Company or its designee of the amount required to be withheld under such tax laws, as determined by the Company (collectively, the “Required Withholding Amount”). To the extent such withholding is required, the Company shall withhold (a) from the shares of Common Stock represented by such vested Restricted Stock Units and otherwise deliverable to the Grantee a number of shares of Common Stock and/or (b) from any related Dividend Equivalents otherwise deliverable to the Grantee an amount of such Dividend Equivalents, which collectively have a value (or, in the case of securities withheld, a Fair Market Value) as of the date the obligation to withhold arises equal to the Required Withholding Amount, unless the Grantee remits the Required Withholding Amount to the Company or its designee in cash or shares of Common Stock and by such time as the Company may require or other provisions for withholding such amount satisfactory to the Company have been made. Notwithstanding any other provisions of this Agreement, the delivery of any shares of Common Stock represented by vested Restricted Stock Units and any related Dividend Equivalents may be postponed until any required withholding taxes have been paid to the Company.

6. Early Termination or Vesting of Restricted Stock Units. Subject to Section 23 hereof, unless otherwise determined by the Committee in its sole discretion, if the Grantee’s employment with the Company terminates prior to the last day of any applicable Vesting Cycle:

(a) If the Grantee’s employment with the Company terminates for any reason other than death, Disability or Cause, then a number of Restricted Stock Units granted by this Agreement will become vested on the date of the Grantee’s termination equal to (A) the product of (x) the number of Restricted Stock Units granted by this Agreement (without regard to any prior Vesting Dates) and (y) the number of calendar quarters which have elapsed between the Grant Date and the date of the Grantee’s termination (and will include, for the avoidance of doubt, the current calendar quarter in which the Award was made and the entire calendar quarter of the Grantee’s termination) divided by [__] (with such quotient not to exceed one (1)), less (B) any Restricted Stock Units that have previously vested;

(b) If the Grantee dies while employed by the Company, then the Restricted Stock Units will immediately become fully vested;

(c) If the Grantee’s employment with the Company terminates by reason of Disability, then the Restricted Stock Units will immediately become fully vested; and

(d) If the Grantee’s employment with the Company is terminated for Cause, then the Restricted Stock Units will be forfeited as of the Close of Business on the date of such termination of employment.
Unless the Committee otherwise determines, a change of the Grantee’s employment from the Company to a Subsidiary or from a Subsidiary to the Company or another Subsidiary will not be considered a termination of the Grantee’s employment for purposes of this Agreement.
7. Delivery by the Company. As soon as practicable after the vesting of Restricted Stock Units, and any related Unpaid Dividend Equivalents, pursuant to Section 3 or Section 6 (but in no event later than

3


ninety (90) days after such Vesting Date) and subject to the withholding referred to in Section 5, the Company will (a) register in a book entry account in the name of the Grantee, or cause to be issued and delivered to the Grantee (in electronic form), that number of shares of Common Stock represented by such vested Restricted Stock Units and any securities representing any related Vested Dividend Equivalents, and (b) cause to be delivered to the Grantee any cash payment representing Vested Dividend Equivalents. Any delivery of securities will be deemed effected for all purposes when a statement of holdings reflecting such securities and, in the case of any Vested Dividend Equivalents, any other documents necessary to reflect ownership thereof by the Grantee, have been delivered personally to the Grantee or, if delivery is by mail, when the Company or its stock transfer agent has deposited the statement of holdings and/or such other documents in the United States mail, addressed to the Grantee. Any cash payment will be deemed effected when a check from the Company, payable to the Grantee and in the amount equal to the amount of the cash owed, has been delivered personally to the Grantee or deposited in the United States mail, addressed to the Grantee.

8. Nontransferability of Restricted Stock Units. Restricted Stock Units, and any related Unpaid Dividend Equivalents that have not vested, are not transferable (either voluntarily or involuntarily) before or after the Grantee’s death, except as follows: (a) during the Grantee’s lifetime, pursuant to a domestic relations order issued by a court of competent jurisdiction that is not contrary to the terms and conditions of the Plan or this Agreement, and in a form acceptable to the Committee; or (b) after the Grantee’s death, by will or pursuant to the applicable laws of descent and distribution, as may be the case. Any person to whom Restricted Stock Units are transferred in accordance with the provisions of the preceding sentence shall take such Restricted Stock Units subject to all of the terms and conditions of the Plan and this Agreement, including that the vesting and termination provisions of this Agreement will continue to be applied with respect to the Grantee. Statements of holdings reflecting Restricted Stock Units that have vested may be delivered only to the Grantee (or during the Grantee’s lifetime, to the Grantee’s court appointed legal representative) or to a person to whom the Restricted Stock Units have been transferred in accordance with this Section.

9. No Stockholder Rights; Dividend Equivalents. The Grantee will not be deemed for any purpose to be, or to have any of the rights of, a stockholder of the Company with respect to any shares of Common Stock represented by any Restricted Stock Units unless and until such time as shares of Common Stock represented by vested Restricted Stock Units have been delivered to the Grantee in accordance with Section 7, nor will the existence of this Agreement affect in any way the right or power of the Company or any stockholder of the Company to accomplish any corporate act, including, without limitation, any reclassification, reorganization or other change of or to its capital or business structure, merger, consolidation, liquidation or sale or other disposition of all or any part of its business or assets. The Grantee will have no right to receive, or otherwise with respect to, any Dividend Equivalents until such time, if ever, as (a) the Restricted Stock Units with respect to which such Dividend Equivalents relate shall have become vested, or (b) such Dividend Equivalents shall have become Vested Dividend Equivalents as described herein, and, if vesting does not occur, the related Dividend Equivalents will be forfeited. Dividend Equivalents shall not bear interest or be segregated in a separate account. Notwithstanding the foregoing, the Committee may, in its sole discretion, accelerate the vesting of any portion of the Dividend Equivalents (any Dividend Equivalent that vests pursuant to Sections 3, 6 or this 9, “Vested Dividend Equivalents”). The settlement of any Vested Dividend Equivalents shall be made as soon as administratively practicable after the accelerated vesting date, but in no event later than ninety (90) days following the date on which such accelerated vesting date occurs. With respect to any Restricted Stock Units and Dividend Equivalents, the Grantee is a general unsecured creditor of the Company.


4


10. Adjustments; Early Vesting in Certain Events.

(a) The Restricted Stock Units will be subject to adjustment (including, without limitation, as to the number of Restricted Stock Units) in such manner as the Committee, in its sole discretion, deems equitable and appropriate in connection with the occurrence of any of the events described in Section 4.2 of the Plan following the Grant Date.

(b) Subject to Section 23, in the event of any Approved Transaction, Board Change or Control Purchase following the Grant Date, the Restricted Stock Units may vest in accordance with Section 10.1(b) of the Plan.

11. Restrictions Imposed by Law. Without limiting the generality of Section 10.10 of the Plan, the Company will not be obligated to deliver any shares of Common Stock represented by vested Restricted Stock Units or Unpaid Dividend Equivalents if counsel to the Company determines that the issuance or delivery thereof would violate any applicable law or any rule or regulation of any governmental authority or any rule or regulation of, or agreement of the Company with, any securities exchange or association upon which shares of Common Stock or other applicable securities are listed or quoted. The Company will in no event be obligated to take any affirmative action in order to cause the delivery of shares of Common Stock represented by vested Restricted Stock Units or securities constituting or cash payment related to any Unpaid Dividend Equivalents to comply with any such law, rule, regulation, or agreement.

12. Notice. Unless the Company notifies the Grantee in writing of a different procedure or address, any notice or other communication to the Company with respect to this Agreement will be in writing and will be delivered personally or sent by United States first class mail, postage prepaid and addressed as follows:

Ascent Capital Group, Inc.
5251 DTC Parkway, Suite 1000
Greenwood Village, Colorado 80111
Attn: General Counsel

Any notice or other communication to the Grantee with respect to this Agreement will be in writing and will be delivered personally, or will be sent by United States first class mail, postage prepaid, to the Grantee’s address as listed in the records of the Company on the date of this Agreement, unless the Company has received written notification from the Grantee of a change of address.
13. Amendment. Notwithstanding any other provision hereof, this Agreement may be supplemented or amended from time to time as approved by the Committee as contemplated by Section 10.9(b) of the Plan. Without limiting the generality of the foregoing, without the consent of the Grantee,

(a) this Agreement may be amended or supplemented from time to time as approved by the Committee (i) to cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, (ii) to add to the covenants and agreements of the Company for the benefit of the Grantee or surrender any right or power reserved to or conferred upon the Company in this Agreement, subject to any required approval of the Company’s stockholders, and provided, in each case, that such changes or corrections will not adversely affect the rights of the Grantee with respect to the Award evidenced hereby, or (iii) to make such other changes as the Company, upon advice of counsel, determines are necessary or advisable because of the adoption or promulgation of, or change in the interpretation of, any law or governmental rule or regulation, including any applicable federal or state securities laws; and

5



(b) subject to any required action by the Board or the stockholders of the Company, the Restricted Stock Units granted under this Agreement may be canceled by the Committee and a new Award made in substitution therefor, provided, that the Award so substituted will satisfy all of the requirements of the Plan as of the date such new Award is made and no such action will adversely affect the Restricted Stock Units to the extent then vested.

14. Grantee Employment. Nothing contained in this Agreement, and no action of the Company or the Committee with respect hereto, will confer or be construed to confer on the Grantee any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate the Grantee’s employment at any time, with or without Cause, subject to the provisions of any employment agreement between the Grantee and the Company or any Subsidiary.

15. Nonalienation of Benefits. Except as provided in Section 8 and prior to vesting of the Restricted Stock Units, (a) no right or benefit under this Agreement will be subject to anticipation, alienation, sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the same will be void, and (b) no right or benefit hereunder will in any manner be liable for or subject to the debts, contracts, liabilities or torts of the Grantee or other person entitled to such benefits.

16. Governing Law. This Agreement will be governed by, and construed in accordance with, the internal laws of the State of Delaware. Each party irrevocably submits to the general jurisdiction of the state and federal courts located in the State of Delaware in any action to interpret or enforce this Agreement and irrevocably waives any objection to jurisdiction that such party may have based on inconvenience of forum.

17. Construction. References in this Agreement to “this Agreement” and the words “herein,” “hereof,” “hereunder” and similar terms include all Exhibits and Schedules appended hereto, including the Plan. This Agreement is entered into, and the Award evidenced hereby is granted, pursuant to the Plan and will be governed by and construed in accordance with the Plan and the administrative interpretations adopted by the Committee thereunder. All decisions of the Committee upon questions regarding the Plan or this Agreement will be conclusive. Unless otherwise expressly stated herein, in the event of any inconsistency between the terms of the Plan and this Agreement, the terms of the Plan will control. The headings of the sections of this Agreement have been included for convenience of reference only, are not to be considered a part hereof and will in no way modify or restrict any of the terms or provisions hereof.

18. Duplicate Originals. The Company and the Grantee may sign any number of copies of this Agreement. Each signed copy will be deemed to be an original, but all of them together represent the same agreement.

19. Rules by Committee. The rights of the Grantee and the obligations of the Company hereunder will be subject to such reasonable rules and regulations as the Committee may adopt from time to time hereafter.

20. Entire Agreement. This Agreement is in satisfaction of and in lieu of all prior discussions and agreements, oral or written, between the Company and the Grantee, with respect to the subject matter hereof. The Grantee and the Company hereby declare and represent that no promise or agreement not expressed herein has been made and that this Agreement contains the entire agreement between the parties hereto with respect to the Award and replaces and makes null and void any prior agreements between the

6


Grantee and the Company regarding the Award. Subject to the restrictions set forth in Sections 8 and 15, this Agreement will be binding upon and inure to the benefit of the parties and their respective heirs, successors and assigns.

21. Grantee Acceptance. The Grantee shall signify acceptance of the terms and conditions of this Agreement by signing in the space provided at the end hereof and returning a signed copy to the Company.

22. Code Section 409A Compliance. If any provision of this Agreement would result in the imposition of an excise tax under Section 409A of the Code and related regulations and Treasury pronouncements (“Section 409A”), that provision will be reformed to avoid imposition of the excise tax and no action taken to comply with Section 409A (or to provide that the Restricted Stock Units are exempt from Section 409A) shall be deemed to impair a benefit under this Agreement.

23. Change in Control.

(a) If the Grantee’s employment with the Company terminates and such termination constitutes a Termination With Good Reason (as such term is defined in the Employment Agreement) or a Termination Without Cause (as such term is defined in the Employment Agreement), and such termination occurs within twelve (12) months following a Change in Control, all Restricted Stock Units and all related Unvested Dividend Equivalents held by the Grantee on the date of termination, to the extent not theretofore vested, will vest fully on the date of such termination.

(b) For purposes of this Section 23, “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:

(1)
the acquisition by any person or group (excluding John C. Malone, and/or any family member(s) of the foregoing and/or any company, partnership, trust or other entity or investment vehicle controlled by such persons or the holdings of which are for the primary benefit or any of such persons (collectively, the “Permitted Holders”)) 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;

(2)
the acquisition by any person or group (other than the Permitted Holders), in a single transaction or in multiple transactions all occurring during the twelve (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

(3)
the acquisition by any person or group (other than the Permitted Holders), in a single transaction or in multiple transactions all occurring during the twelve (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

7


a majority of the Company’s Board of Directors during any twelve (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.

24. Forfeiture for Misconduct and Repayment of Certain Amounts. If the Grantee holds the office of Vice President or above as of the Grant Date, and if (i) a material restatement of any financial statement of the Company (including any consolidated financial statement of the Company and its consolidated Subsidiaries) is required and (ii) in the reasonable judgment of the Committee, (A) such restatement is due to material noncompliance with any financial reporting requirement under applicable securities laws and (B) such noncompliance is a result of misconduct on the part of the Grantee, the Grantee will repay to the Company Forfeitable Benefits received by the Grantee during the Misstatement Period in such amount as the Committee may reasonably determine, taking into account, in addition to any other factors deemed relevant by the Committee, the extent to which the market value of Common Stock during the Misstatement Period was affected by the error(s) giving rise to the need for such restatement. “Forfeitable Benefits” means (i) any and all cash and/or shares of Common Stock received by the Grantee upon the vesting during the Misstatement Period of any Restricted Stock Units and Unvested Dividend Equivalents held by the Grantee and (ii) any proceeds received by the Grantee from the sale, exchange, transfer or other disposition during the Misstatement Period of any Restricted Stock Units and Unvested Dividend Equivalents received by the Grantee upon the vesting during the Misstatement Period of any Award held by the Grantee. By way of clarification, “Forfeitable Benefits” will not include any shares of Common Stock received upon vesting of any Restricted Stock Units and Unvested Dividend Equivalents during the Misstatement Period that are not sold, exchanged, transferred or otherwise disposed of during the Misstatement Period. “Misstatement Period” means the twelve (12)-month period beginning on the date of the first public issuance or the filing with the Securities and Exchange Commission, whichever occurs earlier, of the financial statement requiring restatement.


[Signature Page Follows]
    




8


IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the Grant Date.


ASCENT CAPITAL GROUP, INC.



By:     
Name:
Title:


ACCEPTED:



                            
[______], Grantee

Address:     

SSN:     





Exhibit A to Performance-Based Restricted Stock Unit Agreement
dated as of [____] between
Ascent Capital Group, Inc. and Grantee



Designation of Beneficiary

I, _____________ _______________ (the “Grantee”), hereby declare

that upon my death                              (the “Beneficiary”) of
Name

,
Street Address              City          State              Zip Code

who is my                                  , will be entitled to the
Relationship to the Grantee

Restricted Stock Units and all other rights accorded the Grantee by the above‑referenced grant agreement (the “Agreement”).

It is understood that this Designation of Beneficiary is made pursuant to the Agreement and is subject to the conditions stated herein, including the Beneficiary’s survival of the Grantee’s death. If any such condition is not satisfied, such rights will devolve according to the Grantee’s will or the laws of descent and distribution.
It is further understood that all prior designations of beneficiary under the Agreement are hereby revoked and that this Designation of Beneficiary may only be revoked in writing, signed by the Grantee, and filed with the Committee prior to the Grantee’s death.

                                                
Date                              Grantee



A-1


Schedule 1
to
Ascent Performance-Based Restricted Stock Units Award Agreement
Vesting of Restricted Stock Units Based on Key Performance Indicators
Total Number of Potential Maximum Restricted Stock Units : [__]
Potential Maximum Restricted Stock Units in Vesting Tranche Vesting as of [___]: [__]
Potential Maximum Restricted Stock Units in Vesting Tranche Vesting as of [___]: [__]
Potential Maximum Restricted Stock Units in Vesting Tranche Vesting as of [___]: [__]


1-1


Exhibit 31.1
 
CERTIFICATION
 
I, William R. Fitzgerald, certify that:
 
1.                                       I have reviewed this quarterly report on Form 10-Q of Ascent Capital Group, Inc.;
 
2.                                       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3.                                       Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4.                                       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
 
a)              designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
b)              designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)               evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
 
d)              disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.                                       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a)              all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)              any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:
May 8, 2015
 
 
 
 
 
 
 
/s/ William R. Fitzgerald
 
William R. Fitzgerald
 
Chairman, President and Chief Executive Officer
 





Exhibit 31.2
 
CERTIFICATION
 
I, Michael R. Meyers, certify that:
 
1.                                       I have reviewed this quarterly report on Form 10-Q of Ascent Capital Group, Inc.;
 
2.                                       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3.                                       Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
4.                                       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
 
a)              designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
b)              designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)               evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
 
d)              disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.                                       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a)              all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)              any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:
May 8, 2015
 
 
 
 
 
 
 
/s/ Michael R. Meyers
 
Michael R. Meyers
 
Senior Vice President and Chief Financial Officer
 





Exhibit 32
 
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
 
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Ascent Capital Group, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
 
The Quarterly Report on Form 10-Q for the period ended March 31, 2015 (the “Form 10-Q”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014 .
 
 
Dated:
May 8, 2015
 
/s/ William R. Fitzgerald
 
 
 
William R. Fitzgerald
 
 
 
Chairman, President and Chief Executive Officer
 
 
 
 
 
 
 
 
Dated:
May 8, 2015
 
/s/ Michael R. Meyers
 
 
 
Michael R. Meyers
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
(Principal Financial and Accounting Officer)
 
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.