<PAGE>
Filed pursuant to Rule 424(b)(3)
File No. 333-06437
[LOGO OF PARK BROADCASTING, INC.]
PROSPECTUS
OFFER TO EXCHANGE SERIES B 11 3/4% SENIOR NOTES DUE 2004 FOR ALL OUTSTANDING
11 3/4% SENIOR NOTES DUE 2004 OF PARK BROADCASTING, INC.
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The Exchange Offer will expire at 5:00 p.m., New York City time, on October
10, 1996, unless extended.
Park Broadcasting, Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its Series B 11 3/4% Senior Notes due 2004 (the "Series B Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for each $1,000 principal amount of its outstanding 11
3/4% Senior Notes due 2004 (the "Series A Notes"), of which $241,000,000 in
aggregate principal amount are outstanding on the date hereof. The form and
terms of the Series B Notes are the same as the form and terms of the Series A
Notes (which they replace) except that the Series B Notes will bear a "Series
B" designation and will have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer, and holders of
the Series B Notes will not be entitled to certain rights of holders of Series
A Notes under the Registration Rights Agreement (as defined), which rights
will terminate upon the consummation of the Exchange Offer. The Series B Notes
will evidence the same debt as the Series A Notes (which they replace) and
will be entitled to the benefits of an Indenture dated as of May 13, 1996
governing the Series A Notes and the Series B Notes (the "Indenture"). The
Series A Notes and the Series B Notes are sometimes referred to herein
collectively as the "Notes." See "Description of the Notes" and "The Exchange
Offer."
The Notes are redeemable at the option of the Company, in whole or in part,
on or after May 15, 2001, at the redemption prices set forth herein plus
accrued and unpaid interest, if any, to the date of redemption. Prior to May
15, 1999, the Company may, at its option, redeem up to 35% of the aggregate
principal amount of Notes originally issued with the net proceeds of one or
more Public Equity Offerings (as defined) or Strategic Equity Investments (as
defined) where the proceeds to the Company of any such offering or investment
are at least $40.0 million, at 111.75% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of redemption; provided,
however, that not less than $155.0 million aggregate principal amount of the
Notes is outstanding immediately after giving effect to such redemption. In
addition, prior to May 15, 2001, upon the occurrence of a Change of Control
(as defined), the Company may redeem the Notes, in whole but not in part, at a
redemption price equal to the principal amount thereof plus the Applicable
Premium (as defined) plus accrued and unpaid interest, if any, to the date of
redemption. See "Description of the Notes--Redemption--Optional Redemption"
and "--Change of Control."
Upon a Change of Control Triggering Event (as defined), each holder of the
Notes will have the right to require the Company to offer to purchase such
holder's Notes at a price equal to 101% of the principal amount plus accrued
and unpaid interest, if any, to the date of purchase. A Change of Control
Triggering Event occurs only when a Change of Control is accompanied by a
Rating Decline (as defined). There can be no assurance that the Company will
have sufficient cash or other assets to purchase any of the Notes in the event
that a Change of Control Triggering Event were to occur. In addition, the
Company will be obligated to offer to repurchase the Notes at 100% of their
principal amount plus accrued and unpaid interest, if any, to the date of
repurchase in the event of certain asset sales. See "Description of the
Notes--Change of Control" and "--Certain Covenants--Limitation on Asset
Sales."
The Notes will rank pari passu in right of payment with all existing and
future unsecured and unsubordinated indebtedness of the Company and senior in
right of payment to all existing and future subordinated indebtedness of the
Company. The Notes will be effectively subordinated to all secured
indebtedness of the Company to the extent of the assets securing such
indebtedness and to all existing and future indebtedness and other obligations
of the subsidiaries of the Company.
(Continued on following page)
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 16 OF THIS PROSPECTUS, FOR A
DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR
SERIES A NOTES IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS SEPTEMBER 6, 1996
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As of December 31, 1995, on a pro forma basis after giving effect to the sale
of Notes, the other Refinancing Transactions (as defined), the application of
the net proceeds therefrom and the repayment in full of the Communications
Senior Credit Facility (as defined), the Company would have had no secured
indebtedness outstanding and the subsidiaries of the Company would have had
$1.1 million of indebtedness outstanding. As of August 15, 1996, neither the
Company nor any of its subsidiaries had any secured indebtedness outstanding.
As of that date, the Notes were not effectively subordinated to, or senior to,
any other debt of the Company or its subsidiaries.
Each Series B Note will bear interest from its issuance date. Holders of
Series A Notes that are accepted for exchange will receive accrued interest
thereon to, but not including, the issuance date of the Series B Notes. Such
interest will be paid with the first interest payment on the Series B Notes.
Interest on the Series A Notes accepted for exchange will cease to accrue upon
issuance of the Series B Notes.
The Company will accept for exchange any and all validly tendered Series A
Notes not withdrawn prior to 5:00 p.m., New York City time, on October 10,
1996, unless extended by the Company in its sole discretion (the "Expiration
Date"). Tenders of Series A Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. The Exchange Offer is
subject to certain customary conditions. See "The Exchange Offer--Conditions."
Series A Notes may be tendered only in integral multiples of $1,000. In the
event the Company terminates the Exchange Offer and does not accept for
exchange any Series A Notes, the Company will promptly return all previously
tendered Series A Notes to the holders thereof.
The Series A Notes were sold by the Company on May 13, 1996 to the Initial
Purchasers (as defined) in a transaction not registered under the Securities
Act in reliance upon an exemption under the Securities Act. The Initial
Purchasers subsequently resold the Series A Notes to qualified institutional
buyers in reliance upon Rule 144A under the Securities Act and to
institutional accredited investors in a manner exempt from the registration
requirements of the Securities Act. Accordingly, the Series A Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Series B
Notes are being offered hereunder in order to satisfy the obligations of the
Company under the Registration Rights Agreement. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Series B Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Series B Notes are acquired in the ordinary course of such holder's business
and that such holder does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of such
Series B Notes. See "The Exchange Offer--Purpose and Effect of the Exchange
Offer" and "--Resale of the Series B Notes." Each holder of the Series A Notes
(other than certain specified holders) who wishes to exchange the Series A
Notes for Series B Notes in the Exchange Offer will be required to represent
in the Letter of Transmittal that (i) it is not an affiliate of the Company,
(ii) the Series B Notes to be received by it are being acquired in the
ordinary course of its business and (iii) at the time of commencement of the
Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Series B Notes.
Each broker-dealer (a "Participating Broker-Dealer") that receives Series B
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Series B
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of Series
B Notes received in exchange for Series A Notes where such Series A Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution."
Holders of Series A Notes not tendered and accepted in the Exchange Offer
will continue to hold such Series A Notes and will be entitled to all the
rights and benefits and will be subject to the limitations applicable thereto
under the Indenture and with respect to transfer under the Securities Act. The
Company will pay all the expenses incurred by it incident to the Exchange
Offer. See "The Exchange Offer."
There has been no previous public market for the Series A Notes or the
Series B Notes. The Company does not intend to list the Series B Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Series B Notes will develop. See "Risk Factors--Lack of Established Market for
the Securities." Moreover, to the extent that Series A Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Series A Notes could be adversely affected.
The Series B Notes will be available initially only in book-entry form. The
Company expects that the Series B Notes issued pursuant to this Exchange Offer
will be issued in the form of a "Global Certificate," which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depositary") and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Certificate representing the Series B Notes will be
shown on, and transfers thereof to qualified institutional buyers will be
effected through, records maintained by the Depositary and its participants.
After the initial issuance of the Global Certificate, Series B Notes in
certified form will be issued in exchange for the Global Certificate only on
the terms set forth in the Indenture.
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FOR PENNSYLVANIA RESIDENTS ONLY
SERIES B NOTES OFFERED IN THIS EXCHANGE OFFER TO PENNSYLVANIA RESIDENTS MAY
ONLY BE EXCHANGED FOR SERIES A NOTES HELD BY PENNSYLVANIA RESIDENTS WHO ARE:
(1) "QUALIFIED INSTITUTIONAL BUYERS" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") ("QIB'S")); (2)
INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT); AND (3) INSTITUTIONAL INVESTORS AS DEFINED
BY SECTION 102(k) OF THE PENNSYLVANIA SECURITIES ACT OF 1972 AND RULE 102.111
OF THE PENNSYLVANIA CODE, AS AMENDED.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. As used herein, the term "Company" refers to Park
Broadcasting, Inc. and its subsidiaries. As of May 6, 1996, the Company had
sold its WPAT-AM and FM radio stations and had entered into definitive
agreements providing for the divestiture of its remaining ten AM and ten FM
radio stations (such remaining stations, collectively, the "Radio Station
Assets"). Between May 6, 1996 and August 16, 1996, the Company had sold Radio
Station Assets relating to 18 of its radio stations. The operations of WPAT-AM
and FM, such 18 radio stations and the remaining Radio Station Assets are
classified in the Company's financial statements and treated in this Prospectus
as discontinued operations. See "Business--Discontinued Operations." In
February 1996, the Company entered into an agreement to acquire a network
television station in Montgomery, Alabama (the "Montgomery Acquisition"), which
is affiliated with the ABC Television Network ("ABC"). All references to the
Company herein, unless otherwise indicated, exclude the Company's radio station
operations and the Montgomery Acquisition. Since Park Communications, Inc.
("Park Communications") and its subsidiaries, including the Company, were
acquired by Park Acquisitions, Inc. ("PAI") on May 11, 1995 (the
"Acquisition"), the financial information contained herein, with respect to
periods prior to the Acquisition, does not reflect any changes in the operation
or management of the Company that have been made since the Acquisition or that
the Company intends to make in the future; thus, this financial information is
not necessarily indicative of the results of operations that would have been
achieved had the Company been owned and operated by PAI during all of the
periods with respect to which financial information is presented herein or
which may be achieved in the future. Unless otherwise indicated, all market
rank, rank in market, station audience rating and share, and television
household data in this Prospectus are from the Nielsen Station Index Viewers
and Profile dated November 1995 as prepared by A.C. Nielsen Company
("Nielsen"). See "Index," which begins on page 111 of this Prospectus, for a
listing of terms defined in this Prospectus.
THE COMPANY
The Company through its subsidiaries owns and operates nine network
affiliated television stations, primarily located in mid-sized southeastern
markets. The Company's television stations are located in markets ranging from
the 51st to the 177th largest DMA (as defined). Five of these stations are
affiliated with CBS, Inc. ("CBS"), two are affiliated with the NBC Television
Network ("NBC") and two are affiliated with ABC. For the year ended December
31, 1995, the Company had net revenue of $65.4 million.
The Company is a wholly-owned subsidiary of Park Communications, which was
founded in 1971 by Roy H. Park to consolidate media holdings which Mr. Park
began acquiring in 1962. Mr. Park's strategy was to complete at least one
acquisition per year and to improve operating cash flow by managing costs
rather than increasing revenue. PAI, which is effectively controlled by Dr.
Gary B. Knapp and Donald R. Tomlin, Jr., acquired Park Communications on May
11, 1995 because Messrs. Knapp and Tomlin believed the Acquisition presented a
unique opportunity to acquire a group of media assets, each with strong local
franchises in the markets in which they operate and potential revenue
enhancement opportunities. Due to the prior owner's operating strategy, the
Company's television properties generally have captured a smaller relative
share of advertising dollars in their respective markets than their share of
viewing audiences would indicate. Messrs. Knapp and Tomlin, along with the
Company's experienced management team, developed and initiated a strategy to
take advantage of this opportunity to increase revenue and cash flow from
operations, while maintaining strict control over costs. Collectively, Messrs.
Knapp and Tomlin have significant business, operating and investment experience
in media, real estate and turnaround situations and, in particular, in the
fields of television and radio broadcasting. The management team at Park
Communications and at the Company has substantial experience in the television
industry.
3
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The Company's nine network affiliated television stations cover approximately
2.8 million households, or approximately 3.0% of the total television
households in the United States, and are affiliated with three of the four
major networks. The Company believes that operating a geographically diverse
group of stations with a mix of network affiliations reduces the potential
impact on the Company from the performance of any one market or network.
The following table sets forth certain information for each of the Company's
television stations:
<TABLE>
<CAPTION>
NET REVENUE FOR THE YEAR ENDED
DECEMBER 31, 1995
-----------------------------------
YEAR NETWORK MARKET AMOUNT PERCENTAGE OF
STATION ACQUIRED AFFILIATION MARKET RANK (IN THOUSANDS) TOTAL
- ------- ---------- ----------- -------------------------- ------ ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
WBMG 1973 CBS Birmingham, Alabama 51 $ 6,389 9.8%
WTVR 1965 CBS Richmond, Virginia 54 12,222 18.7
WSLS 1969 NBC Roanoke, Virginia 67 9,070 13.9
WTVQ 1992 ABC Lexington, Kentucky 68 8,365 12.8
WDEF 1964 CBS Chattanooga, Tennessee 82 6,957 10.6
WJHL 1964 CBS Johnson City, Tennessee 93 6,641 10.1
WNCT 1962 CBS Greenville, North Carolina 104 5,632 8.6
WUTR 1970 ABC Utica, New York 166 2,179 3.3
KALB 1993 NBC Alexandria, Louisiana 177 7,953 12.2
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$65,408 100.0%
================ ==============
WHOA Pending(a) ABC Montgomery, Alabama 113 -- --
</TABLE>
- --------
(a) To be acquired pursuant to the Montgomery Acquisition. The 1995 net revenue
of WHOA was approximately $2.5 million.
BUSINESS AND OPERATING STRATEGY. The Company's objective is to build revenue
and increase cash flow from its television stations. Under previous ownership,
the stations were operated with a focus on managing costs, not on maximizing
revenue and growth in cash flow from operations. The prior owner's strategy
resulted in the stations typically capturing a smaller share of advertising
revenue in their respective markets compared to their audience share. This
ratio of advertising revenue share to audience share is indicated by a
station's "power ratio" (as calculated by BIA Publications, Inc.), with a ratio
of one (or greater than one) indicating that a station is achieving its share
(or more than its share) of advertising dollars relative to its share of
viewers. Management believes that the fact that seven of its nine stations have
power ratios less than one and that the weighted average power ratio for the
nine stations is 0.91 provides the Company with a significant opportunity to
increase advertising revenue at its stations without a need to increase
audience share. The Company has initiated a number of programs since the
Acquisition that are designed to take advantage of this opportunity. See
"Business-- Business and Operating Strategy."
The Company's business and operating strategy includes the following key
elements:
Strengthen Local Sales and Marketing Development. The Company believes that
each of its television stations has an opportunity to increase its share of
advertising revenue in its market through the implementation of a new and
aggressive local sales development program. The Company's emphasis is to
create a more highly trained and knowledgeable sales force. Through
extensive sales training programs on both basic and advanced marketing
techniques developed in conjunction with outside consultants, the Company's
sales professionals are beginning to work closely with targeted advertisers
to develop successful advertising campaigns. In addition, the Company has
recently introduced a variety of improved marketing
4
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techniques such as an increased use of live remote broadcasts from
advertisers' locations, advertising incentives such as trips and contests
for key targeted advertisers, and station-sponsored sales seminars open to
community businesses with nationally known motivational speakers. The
Company has also instituted a successful co-op advertising program. These
programs, in conjunction with an increase in promotion of the stations'
local news, programming and special events and increased use of
sophisticated qualitative market research, are designed to position the
Company's television stations to gain larger percentages of their
respective market advertising revenue.
Enhance Strong Local Franchises. Since the Acquisition, the Company has
been committed to building local franchises at each of its television
stations. Management believes that local news leadership is the foundation
to building significant audience share in local markets. Due to their high
viewership levels, the time periods before, during and after the local news
are attractive to advertisers and thus command higher advertising rates.
The demographic characteristics of the typical news audience are also
appealing to advertisers. The Company has invested in expanding and
improving many of its news operations, including purchasing additional
satellite uplink vehicles, upgrading news studios and technical facilities
and improving weather systems and on-air graphics. In addition to
committing to additional investment in and emphasis on its local news
operations, the Company has initiated programs to supplement its inventory
of unique and proprietary programming. Such projects include VideoKids 2000
(a proprietary Park Children's Television Production focused on children
aged 3-11) and coverage of local sporting events such as high school and
college athletics and local specialty events such as NASCAR racing and the
Kentucky Derby.
Provide High Quality Non-Network Programming. Each of the Company's
television stations is focused on improving its syndicated and locally
produced non-network programming to attract audiences with highly valued
demographic characteristics. Examples of such programming include Home
Improvement, Seinfeld, Frasier and Baywatch. The Company emphasizes cost
effective programming that has long-term appeal and will be promoted
locally by syndicators. As a result of its ownership of a group of nine
television stations, the Company is able to purchase syndicated programming
at a discount (on a per station basis) to the cost that any one of its
stations would incur as an individual purchaser of such programming and is
able to purchase a variety of programming that might otherwise not be
available to a single station.
Maintain Effective Cost Controls. The Company has continued to maintain
strict cost controls and disciplined credit and collection procedures at
each of its stations to fully exploit the high degree of operating leverage
associated with television properties. Through a strategic planning and
semi-annual budgeting process, the Company continually seeks to identify
areas to reduce expenses and improve efficiencies. The Company relies on
its in-house production capabilities to minimize use of outside firms and
consultants and capitalizes on its critical mass and ownership of a group
of nine stations to realize cost savings through group purchasing of
equipment and services.
5
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RECENT EVENTS
Agreement for Sale of PAI. On July 19, 1996, PAI entered into an Agreement
and Plan of Merger (the "Merger Agreement") with Media General, Inc. ("Media
General") and MG Acquisitions, Inc., a wholly owned subsidiary of Media General
("Merger Sub"). Pursuant to the Merger Agreement, Merger Sub will merge with
and into PAI, with PAI surviving such merger. As a result of such merger, PAI
will become a wholly owned subsidiary of Media General. The merger is expected
to be consummated within seven to ten business days after the date on which a
final order from the Federal Communications Commission (the "FCC") is issued
permitting the change of ownership of the television broadcast licenses owned
by PAI's subsidiaries. In addition, the consummation of the merger is subject
to certain other conditions, including the expiration or early termination of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976. There can be no assurance, however, that such conditions will be
satisfied and that the merger will be consummated.
The consummation of the merger would constitute a Change of Control under the
Indenture. If there were a Rating Decline with respect to such Change of
Control, there would be a Change of Control Triggering Event, which would
permit each holder of Notes, subject to the terms and conditions of the
Indenture, to require the Company to make an offer to purchase all or a portion
of such holder's Notes. See "Description of the Notes--Change of Control." The
Company does not believe that the execution and delivery of the Merger
Agreement or the consummation of the merger will impact any other provisions of
the Indenture.
Media General, based in Richmond, Virginia, is an independent, publicly owned
communications company situated primarily in the Southeast with interests in
metropolitan newspapers, broadcast television, cable television, recycled
newsprint production and diversified information services.
On July 30, 1996, applications were filed with the FCC for consent to
transfer control of PAI to Media General. Media General owns a daily newspaper
and a cable television system within the area served by the Company's WTVR-TV
television station, and such television/newspaper and television/cable
television interests are generally prohibited by FCC rules. Media General has
advised the FCC of Media General's intent to divest itself of WTVR-TV in order
to come into compliance with those rules unless the rules are modified in the
interim, and has requested a temporary waiver of the rules to allow a period of
one year from the consummation of the merger for such divestiture.
New Affiliation Agreements. Effective as of January 1, 1995, the Company
entered into new network affiliation agreements with CBS for each of the
Company's five CBS-affiliated stations and new network affiliation agreements
with NBC for each of its two NBC-affiliated stations. Under the new affiliation
agreements with CBS and NBC, approximately $37.4 million of the $52.2 million
in aggregate network compensation payable thereunder will be paid to the
Company during the first four years of the ten-year terms of such agreements.
In addition, effective as of January 1, 1996, the Company entered into new
network affiliation agreements with ABC for each of its two ABC-affiliated
stations. These new long-term contracts with ABC run for ten-year terms and
include an increase in network compensation, as well as certain news-gathering
equipment to be provided by ABC. See "Business--Network Affiliation
Agreements."
6
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THE REFINANCING TRANSACTIONS
The Company sold the Series A Notes on May 13, 1996 in one of a series of
transactions (the "Refinancing Transactions"), the purpose of which was to
refinance the indebtedness under a credit agreement among Park Communications,
PAI and the lenders thereunder (the "Prior Credit Agreement"), which was
guaranteed by the Company. The Refinancing Transactions consisted of (i) the
sale of the Series A Notes, (ii) the establishment of and drawings by Park
Communications under a Senior Credit Facility between Park Communications and
certain lenders (the "Communications Senior Credit Facility") in the amount of
$58.0 million, of which the Company and its subsidiaries were guarantors, (iii)
the sale, which was completed on May 13, 1996, of 80,000 Units (the
"Communications Units") consisting of $80.0 million in principal amount of 13
3/4% Senior Pay-in-Kind Notes due 2004 of Park Communications (the
"Communications Notes") and Warrants to purchase 800,000 shares of common stock
of Park Communications (the "Communications Warrants"), (iv) the sale, which
was completed on May 13, 1996, of $155.0 million in principal amount of 11 7/8%
Senior Notes due 2004 of Park Newspapers (the "Newspapers Notes") and (v) the
sale, which was completed on March 25, 1996, of the Company's WPAT-AM and FM
radio stations for aggregate gross proceeds of $103.0 million. The
Communications Senior Credit Facility, which was entered into to permit payment
in full of the Prior Credit Agreement simultaneously with the consummation of
the other Refinancing Transactions, was repaid in full on June 20, 1996.
The Company is in the process of selling its radio station operations. Park
Communications decided to divest such operations to focus on its core
television broadcasting and newspaper publication operations, to raise cash to
prepay a portion of its existing indebtedness and to take advantage of
attractive prices for which such operations could be sold.
As of May 6, 1996, the Company had entered into definitive agreements
providing for the sale of each of the Radio Station Assets. Between May 6, 1996
and August 16, 1996, the Company had sold its KEZX-AM, KWJZ-FM, WNCT-AM and FM,
WTVR-AM and FM, WNLS-AM, WTNT-FM, WHEN-AM and FM, WNAX-AM and FM, KWJJ-AM and
FM, KSGS-AM, KMJZ-FM, KWLO-AM and KFMW-FM radio stations. Although there can be
no assurance that the sale of the remaining Radio Station Assets will occur,
the Company currently anticipates that the sale of its last two individual
radio stations will be completed by September 15, 1996. The proceeds of sales
of radio station operations occurring after May 13, 1996 have been used to
repay in full the Communications Senior Credit Facility and to pay taxes
resulting from the sale of the radio station operations. For additional
information concerning the sale of the Radio Station Assets, see "Business--
Discontinued Operations."
7
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THE SERIES A NOTES OFFERING
Series A Notes................ The Series A Notes were sold by the Company on
May 13, 1996 to Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Goldman, Sachs & Co.
(the "Initial Purchasers") pursuant to a
Purchase Agreement dated May 6, 1996 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Series A Notes to
qualified institutional buyers in reliance upon
Rule 144A under the Securities Act and to
institutional accredited investors in a manner
exempt from the registration requirements of
the Securities Act.
Registration Rights Pursuant to the Purchase Agreement, the Company
Agreement..................... and the Initial Purchasers entered into a
Registration Rights Agreement dated May 13,
1996 (the "Registration Rights Agreement"),
which grants the holders of the Series A Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such
exchange rights, which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
Notes Offered................. $241,000,000 aggregate principal amount of
Series B 11 3/4% Senior Notes due 2004.
The Exchange Offer............ $1,000 principal amount of Series B Notes in
exchange for each $1,000 principal amount of
Series A Notes. As of the date hereof,
$241,000,000 aggregate principal amount of
Series A Notes are outstanding. The Company
will issue the Series B Notes to tendering
holders on or promptly after the Expiration
Date.
Based on no-action letters issued by the staff
of the Commission to third parties, the Company
believes the Series B Notes issued pursuant to
the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder that is an
"affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such Series B Notes are acquired
in the ordinary course of such holder's
business and that such holder does not intend
to participate, and has no arrangement or
understanding with any person to participate,
in the distribution of such Series B Notes.
Each Participating Broker-Dealer that receives
Series B Notes for its own account pursuant to
the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with
any resale of such Series B Notes. The Letter
of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that
it is an "underwriter" within the meeting of
the Securities Act. This Prospectus, as it may
be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in
connection
8
<PAGE>
with resale of Series B Notes received in
exchange for Series A Notes where such Series A
Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The
Company has agreed that, for a period of 180
days after the Expiration Date, it will make
this Prospectus available to any Participating
Broker- Dealer for use in connection with any
such resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the Series B Notes could not rely on the
position of the staff of the Commission
communicated in no-action letters and, in the
absence of an exception therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which
the holder is not indemnified by the Company.
Expiration Date...............
5:00 p.m., New York City time, on October 10,
1996, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
Accrued Interest on the
Series B Notes and the
Series A Notes................
Each Series B Note will bear interest from its
issuance date. Holders of Series A Notes that
are accepted for exchange will receive accrued
interest thereon to, but not including, the
issuance date of the Series B Notes. Such
interest will be paid with the first interest
payment on the Series B Notes. Interest on the
Series A Notes accepted for exchange will cease
to accrue upon issuance of the Series B Notes.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer......................... customary conditions, which may be waived by
the Company. See "The Exchange Offer--
Conditions."
Procedures for Tendering Each holder of Series A Notes wishing to accept
Series........................ the Exchange Offer must complete, sign and date
the accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Series A Notes and any other required
documentation to the Exchange Agent (as
defined) at the address set forth herein. By
executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, the Series B Notes acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of business of
the person receiving such Series B Notes,
whether or not such person is the holder, that
neither the
9
<PAGE>
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Series
B Notes and that neither the holder nor any
such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the
Company. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "--Procedures
for Tendering."
Untendered Series A Notes..... Following the consummation of the Exchange
Offer, holders of Series A Notes eligible to
participate in the Exchange Offer but who do
not tender their Series A Notes will not have
any further exchange rights and such Series A
Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Series A Notes
could be adversely affected.
Consequences of Failure to The Series A Notes that are not exchanged
Exchange...................... pursuant to the Exchange Offer will remain
restricted securities. Accordingly, such Series
A Notes may be resold only (i) to the Company,
(ii) pursuant to Rule 144A or Rule 144 under
the Securities Act or pursuant to another
exemption under the Securities Act,
(iii) outside the United States to a foreign
person pursuant to the requirements of Rule 904
under the Securities Act or (iv) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange Offer--
Consequences of Failure to Exchange."
Shelf Registration Statement.. If any holder of the Series A Notes (other than
any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under
the Securities Act) is not eligible under
applicable securities laws to participate in
the Exchange Offer, and such holder has
provided information regarding such holder and
the distribution of such holder's Series A
Notes to the Company for use therein, the
Company has agreed to register the Series A
Notes with a shelf registration statement (the
"Shelf Registration Statement") and use its
best efforts to cause it to be declared
effective by the Commission as promptly as
practical on or after the consummation of the
Exchange Offer. The Company has agreed to
maintain the effectiveness of the Shelf
Registration Statement for, under certain
circumstances, a maximum of three years, to
cover resales of the Series A Notes held by any
such holders.
Special Procedures for Any beneficial owner whose Series A Notes are
Beneficial Owners............. registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner
10
<PAGE>
wishes to tender on such owner's own behalf,
such owner must, prior to completing and
executing the Letter of Transmittal and
delivering its Series A Notes, either make
appropriate arrangements to register ownership
of the Series A Notes in such owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time. The
Company will keep the Exchange Offer open for
not less than 30 days in order to provide for
the transfer of registered ownership.
Guaranteed Delivery Holders of Series A Notes who wish to tender
Procedures.................... their Series A Notes and whose Series A Notes
are not immediately available or who cannot
deliver their Series A Notes, the Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
(or comply with the procedures for book-entry
transfer) prior to the Expiration Date must
tender their Series A Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer-- Guaranteed Delivery
Procedures."
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Series A Notes
and Delivery of Series B
Notes.........................
The Company will accept for exchange any and
all Series A Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
Series B Notes issued pursuant to the Exchange
Offer will be delivered on or promptly after
the Expiration Date. See "The Exchange Offer--
Terms of the Exchange Offer."
Use of Proceeds............... There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Exchange Agent................ IBJ Schroder Bank & Trust Company (the
"Exchange Agent").
THE SERIES B NOTES
General....................... The form and terms of the Series B Notes are
the same as the form and terms of the Series A
Notes except that (i) the Series B Notes will
bear a "Series B" designation, (ii) the Series
B Notes will have been registered under the
Securities Act and, therefore, will not bear
legends restricting their transfer and (iii)
the holders of Series B Notes will not be
entitled to certain rights of holders of Series
A Notes under the Registration Rights
Agreement, including the provisions providing
for an increase in the interest rate on the
Series A Notes in certain circumstances
relating to the timing of the Exchange Offer,
which rights will terminate when the Exchange
Offer is consummated. See "The Exchange Offer--
Purpose and Effect of the Exchange Offer." The
Series B Notes will evidence the same debt as
the Series A Notes (which they replace) and
will be entitled to the benefits of the
Indenture. See "Description of the Notes."
11
<PAGE>
Notes Offered................. $241,000,000 aggregate principal amount of
Series B 11 3/4% Senior Notes due 2004.
Maturity Date................. May 15, 2004.
Interest Payment Dates........ Interest on the Notes is payable semi-annually
in arrears on each May 15 and November 15,
commencing November 15, 1996.
Optional Redemption........... The Notes are redeemable at the option of the
Company, in whole or in part, on or after May
15, 2001, at the redemption prices set forth
herein plus accrued and unpaid interest, if
any, to the date of redemption. Prior to May
15, 1999, the Company may, at its option,
redeem up to 35% of the aggregate principal
amount of Notes originally issued with the net
proceeds of one or more Public Equity Offerings
or Strategic Equity Investments where the
proceeds to the Company of any such offering or
investment are at least $40.0 million, at
111.75% of the principal amount thereof plus
accrued and unpaid interest, if any, to the
date of redemption; provided, however, that not
less than $155.0 million aggregate principal
amount of the Notes is outstanding immediately
after giving effect to such redemption (other
than any Notes owned by the Company or any of
its affiliates) and such redemption is effected
within 60 days of such issuance or investment.
In addition, prior to May 15, 2001, upon the
occurrence of a Change of Control, the Company
may redeem the Notes, in whole but not in part,
at a redemption price equal to the principal
amount thereof plus the Applicable Premium plus
accrued and unpaid interest, if any, to the
date of redemption.
The Notes are not subject to any mandatory
sinking fund redemption prior to maturity.
Change of Control............. Upon the occurrence of a Change of Control
Triggering Event, each holder of the Notes will
have the right, subject to the terms and
conditions of the Indenture, to require the
Company to offer to purchase such holder's
Notes at a price equal to 101% of the principal
amount thereof plus accrued and unpaid
interest, if any, to the date of purchase.
There are no current legal impediments to such
Note purchases by the Company, such as
outstanding obligations of the Company which
pursuant to their terms would be required to be
repaid prior to any such Note purchases.
However, the Company is a holding company, and
as such its ability to pay its obligations will
be dependent primarily upon receiving dividends
and other payments or advances from its
subsidiaries or new equity. Accordingly, there
can be no assurance that the Company will have
sufficient cash or other assets to purchase any
of the Notes in the event that a Change in
Control Triggering Event were to occur, and
such ability will be
12
<PAGE>
dependent upon subsidiary operating results and
will be subject to applicable laws and
contractual restrictions. See "Description of
the Notes--Change of Control" and "Risk
Factors--Holding Company Structure; Dependence
on Cash Flow from Subsidiaries."
Asset Sales................... In the event of certain asset sales, the
Company will be required to offer to purchase
the Notes at 100% of their principal amount
plus accrued and unpaid interest, if any, to
the date of purchase with the net proceeds of
such asset sales.
Ranking....................... The Notes will rank pari passu in right of
payment with all existing and future unsecured
and unsubordinated indebtedness of the Company
and senior in right of payment to all existing
and future subordinated indebtedness of the
Company. The Notes will be effectively
subordinated to all secured indebtedness of the
Company to the extent of the assets securing
such indebtedness and to all existing and
future indebtedness and other obligations of
the subsidiaries of the Company. As of December
31, 1995, on a pro forma basis after giving
effect to the sale of Notes, the other
Refinancing Transactions, the application of
the net proceeds therefrom and the repayment in
full of the Communi- cations Senior Credit
Facility, the Company would have had no secured
indebtedness outstanding and the subsidiaries
of the Company would have had $1.1 million of
indebtedness outstanding.
Restrictive Covenants......... The Indenture imposes certain limitations on
the ability of the Company and certain of its
subsidiaries to, among other things, (i) incur
additional indebtedness, (ii) pay dividends or
make certain other restricted payments or make
certain investments, (iii) consummate certain
asset sales, (iv) enter into certain
transactions with affiliates, (v) incur certain
liens, (vi) impose restrictions on the ability
of certain subsidiaries to pay dividends or
make certain payments to the Company, (vii)
merge or consolidate with any other person or
(viii) sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all
of the assets of the Company. The restrictive
covenants are subject to certain exceptions and
qualifications. See "Description of the Notes--
Certain Covenants."
Notice to Investors........... For additional information regarding the Notes,
see "Description of the Notes."
RISK FACTORS
Investors should consider all of the information contained in this Prospectus
before tendering their Series A Notes in the Exchange Offer. In particular,
investors should carefully consider the factors set forth under "Risk Factors"
prior to tendering their Series A Notes in the Exchange Offer.
13
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data presented below have been
derived from audited financial statements of the Company as of and for the
years ended December 31, 1995, 1994 and 1993 (data for the years ended December
31, 1992 and 1991 have been derived from unaudited financial statements). The
selected consolidated financial data as of June 30, 1996 and for the six month
period ended June 30, 1996 presented below have been derived from unaudited
financial statements of the Company. The data presented below should be read in
conjunction with the Consolidated Financial Statements of Park Broadcasting,
Inc. and Subsidiaries, including the notes thereto, "Unaudited Pro Forma
Condensed Consolidated Financial Statements," "Selected Historical and Pro
Forma Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein. The
unaudited pro forma information does not purport to represent what the
Company's financial position or results of operations actually would have been
if the Acquisition, the Refinancing Transactions and the sale of the Radio
Station Assets (as applicable) had, in fact, occurred on the dates indicated or
to project the Company's financial position or results of operations at any
future date or for any future period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
HISTORICAL PRO FORMA YEAR ENDED DECEMBER 31,
SIX MONTHS ------------------------- -------------------------------------
ENDED TRANSACTIONS ACQUISITION
JUNE 30, 1996 1995 (B) 1995 (A) 1994 1993 1992 1991
------------- ------------ ----------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $ 32,483 $ 65,408 $ 65,408 $ 65,621 $ 52,593 $ 47,216 $38,972
-------- -------- -------- -------- -------- -------- -------
Operating expenses:
Cost of sales
(exclusive of
depreciation and
amortization)......... 11,053 19,783 19,783 18,016 16,297 15,580 13,451
Selling, general and
administrative (c).... 8,971 14,200 14,200 14,835 12,406 11,860 9,933
Depreciation and
amortization.......... 7,861 16,238 16,238 5,187 4,162 3,337 2,573
-------- -------- -------- -------- -------- -------- -------
Total operating expenses
....................... 27,885 50,221 50,221 38,038 32,865 30,777 25,957
-------- -------- -------- -------- -------- -------- -------
Operating income........ 4,598 15,187 15,187 27,583 19,728 16,439 13,015
Interest expense........ (18,418) (29,794) (40,856) (185) (37) (55) (3)
Interest income......... 73 327 327 -- -- 1 1
Other................... (17) (341) (341) (393) (225) (78) (131)
-------- -------- -------- -------- -------- -------- -------
Income/(loss) from
continuing operations
before income tax...... (13,764) (14,621) (25,683) 27,005 19,466 16,307 12,882
Provision/(benefit) for
income tax............. (4,946) (3,695) (8,335) 10,457 7,370 6,320 5,015
-------- -------- -------- -------- -------- -------- -------
Income/(loss) from
continuing operations.. $ (8,818) $(10,926) $(17,348) $ 16,548 $ 12,096 $ 9,987 $ 7,867
======== ======== ======== ======== ======== ======== =======
Ratio of earnings to
fixed charges (d)...... -- -- -- 85.7x 320.1x 162.5x 349.2x
Deficiency of earnings
to fixed charges (d)... $(13,764) $(14,621) $(25,683) -- -- -- --
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets............ $463,096 $416,390 $550,890 $131,662 $129,741 $106,669 $94,368
Total long-term debt,
excluding current
maturities............. 235,568 235,733(e) 413,299(e) 3,537 3,627 2,121 1,873
OTHER FINANCIAL DATA AND
RATIOS:
Capital expenditures
(f).................... 6,009 2,758 2,758 3,803 2,897 3,293 2,472
</TABLE>
(footnotes begin on next page)
14
<PAGE>
- --------
(a) Presented on a pro forma basis assuming that the Acquisition had occurred
on January 1, 1995. See Note (2) to the Consolidated Financial Statements.
(b) Presented on a pro forma basis assuming that the Acquisition, the
Refinancing Transactions and the sale of the Radio Station Assets on the
terms described herein occurred on December 31, 1995 for balance sheet data
and on January 1, 1995 for all other data.
(c) Includes an allocation of certain operating expenses of Park Communications
("Central Corporate Overhead") from Park Communications to the Company as
follows:
<TABLE>
<CAPTION>
SIX
MONTHS
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Allocated
Central
Corporate
Overhead. $926 $1,142 $1,287 $1,280 $1,296 $1,151
</TABLE>
Cash payments to Park Communications from the Company to satisfy future
allocations of Central Corporate Overhead will be subject to certain
limitations and restrictions under the Indenture. See "Description of the
Notes--Certain Covenants--Limitation on Restricted Payments."
(d) For purposes of this ratio, "fixed charges" are defined as interest,
amortization of debt expense and a portion of rental expense representing
the interest factor, and "earnings" are defined as net income (loss) from
continuing operations before income taxes and fixed charges.
(e) Does not include long-term film contract liability totaling $1,835 at June
30, 1996 and $2,481 at December 31, 1995 as such liability is not included
as Indebtedness as defined in the Indenture.
(f) Capital expenditures do not include the purchase of the assets of two
television stations, WTVQ in 1992 and KALB in 1993. Such amounts were
$6,135 in 1992 and $8,804 in 1993. In addition, capital expenditures in
1994 do not include the purchase for $3,575 of certain operating equipment
and facilities from RHP Incorporated, which the Company had been leasing.
Also not included are capital expenditures resulting from trade agreements
and capital expenditures of the discontinued radio station operations.
15
<PAGE>
RISK FACTORS
In addition to the other information set forth in this Prospectus, investors
should carefully review the following risk factors in evaluating whether to
tender their Series A Notes for Series B Notes in the Exchange Offer.
SUBSTANTIAL LEVERAGE
The Company has, and after giving effect to the sale of Notes, the other
Refinancing Transactions, the repayment in full of the Communications Senior
Credit Facility and the Exchange Offer will continue to have, consolidated
indebtedness that is substantial in relation to its total stockholder's
equity. The Acquisition was financed entirely by borrowings under the Prior
Credit Agreement and existing cash-on-hand at Park Communications and its
subsidiaries. At December 31, 1995, the Company had outstanding long-term
indebtedness of approximately $413.3 million, with a total stockholder's
deficit of approximately $19.4 million. On a pro forma basis assuming that the
Acquisition had occurred on January 1, 1995, earnings were insufficient to
cover fixed charges by $25.7 million during the year ended December 31, 1995.
On a pro forma basis after giving effect to the sale of Notes, the other
Refinancing Transactions, the sale of the Radio Station Assets on the terms
described herein, the application of the net proceeds therefrom and the
repayment in full of the Communications Senior Credit Facility, the total
consolidated long-term indebtedness of the Company outstanding at December 31,
1995 would have been approximately $235.7 million, as compared to a total
stockholder's equity of approximately $88.1 million, and earnings would have
been insufficient to cover fixed charges by approximately $14.6 million for
the year ended December 31, 1995. The Company will have significant cash
interest expense relating to its indebtedness, and a significant amount of the
Company's consolidated cash flow from operations will be required for debt
service.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes including, but not limited to, the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may be limited; (ii) a substantial portion of the
Company's consolidated cash flow from operations will be dedicated to the
payment of the principal of, and interest on, its consolidated debt; (iii) the
agreements governing the Company's long-term debt contain certain restrictive
financial and operating covenants which could limit the Company's ability to
compete, as well as its ability to expand; and (iv) the Company's substantial
leverage may make it more vulnerable to economic downturns, limit its ability
to withstand competitive pressures and reduce its flexibility in responding to
changing business and economic conditions. The ability of the Company to pay
interest and principal on the Notes and to satisfy its debt obligations will
be dependent on the future operating performance of the Company, which could
be affected by changes in economic conditions and other factors, including
factors beyond the control of the Company. A failure to comply with the
covenants and other provisions of its debt instruments could result in events
of default under such instruments, which could permit acceleration of the debt
under such instruments and in some cases acceleration of debt under other
instruments that contain cross-default or cross-acceleration provisions. See
"Description of Certain Indebtedness" and "Description of the Notes--Events of
Default."
If the Company is unable to generate sufficient cash flow to meet its debt
obligations, the Company may be required to renegotiate the terms of the
instruments relating to its long-term debt or to refinance all or a portion of
its long-term debt. However, there can be no assurance that the Company will
be able to successfully renegotiate such terms or refinance its indebtedness,
or, if the Company were able to do so, that the terms available would be
favorable to it. In the event that the Company were unable to refinance its
indebtedness or obtain new financing under these circumstances, the Company
likely would have to consider various other options such as the sale of
certain assets to meet its required debt service, negotiation with its lenders
to restructure applicable indebtedness or other options available to it under
law. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
16
<PAGE>
HOLDING COMPANY STRUCTURE; DEPENDENCE ON CASH FLOW FROM SUBSIDIARIES
The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries. As a holding company, the Company owns no
significant assets other than the capital stock of its subsidiaries.
Accordingly, the Company's ability to pay its obligations, including its
obligation to pay interest on and principal of the Notes, whether at maturity,
upon a Change of Control Triggering Event or otherwise, will be dependent
primarily upon receiving dividends and other payments or advances from its
subsidiaries or new equity. The subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts
due pursuant to the Notes or to make funds available therefor. The ability of
the subsidiaries to pay dividends or make other payments or advances to the
Company will depend upon their operating results and will be subject to
applicable laws and contractual restrictions.
EFFECTIVE SUBORDINATION; PAYMENT RESTRICTIONS
The Notes will be unsecured and effectively subordinated to all existing and
future secured indebtedness of the Company to the extent of the assets
securing such indebtedness and to all existing and future indebtedness and
other obligations of the subsidiaries of the Company. As of December 31, 1995,
on a pro forma basis after giving effect to the sale of Notes, the other
Refinancing Transactions, the application of the net proceeds therefrom and
the repayment in full of the Communications Senior Credit Facility, the
Company would have had no secured indebtedness outstanding, and the
subsidiaries of the Company would have had $1.1 million of indebtedness
outstanding. The claims of holders of the Notes upon any distribution of
assets of any subsidiary of the Company in the event of the liquidation or
reorganization of such subsidiary will be subordinated to the prior claims of
present and future creditors of such subsidiary. In such an event, there may
not be sufficient assets remaining to pay amounts due on any or all of the
Notes then outstanding. The Indenture permits subsidiaries of the Company to
incur indebtedness and permits the Company and its subsidiaries to secure
indebtedness other than subordinated indebtedness. See "Description of the
Notes--Certain Covenants--Limitation on Liens Securing Certain Debt."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture restricts, among other things, the ability of the Company and
certain of its subsidiaries to, among other things, (i) incur additional
indebtedness, (ii) pay dividends or make certain other restricted payments or
make certain investments, (iii) consummate certain asset sales, (iv) enter
into certain transactions with affiliates, (v) incur certain liens, (vi)
impose restrictions on the ability of a Restricted Subsidiary to pay dividends
or make certain payments to the Company, (vii) merge or consolidate with any
other person or (viii) sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. A breach of
any of these covenants could result in a default under the Indenture. See
"Description of the Notes--Certain Covenants."
FULL IMPLEMENTATION OF BUSINESS AND OPERATING STRATEGY
There can be no assurance that the Company will be able to fully implement
its business and operating strategy or that the anticipated results of its
strategy will be realized. In addition, after gaining experience with the
Company's operations under its new operating strategy, the Company and the
management team may decide to alter or discontinue certain aspects of the
operating strategy discussed herein and may adopt alternative or additional
strategies. Implementation of the strategy could also be affected by a number
of factors beyond its control, such as operating difficulties, increased
operating costs, regulatory developments, general economic conditions or
increased competition. Any such failure to implement the operating strategy or
improve the operating results of the Company could affect the ability of the
Company and its subsidiaries to service its indebtedness, including the Notes.
See "Business--Business and Operating Strategy."
NETWORK AFFILIATION; RELIANCE ON NETWORK PROGRAMMING
Five of the Company's nine television stations are affiliated with the CBS
television network, two each are affiliated with the NBC television network
and the ABC television network. The Company is in the process of
17
<PAGE>
acquiring, subject to FCC approval, a tenth television station, the ABC
affiliate in Montgomery, Alabama. The Company's television viewership levels
are materially dependent upon programming provided by these major networks.
There can be no assurance that such programming will achieve or maintain
satisfactory viewership levels in the future.
Each of the Company's stations is a party to an affiliation agreement with
one of the networks giving the station the right to rebroadcast programs
transmitted by the network. A network pays an affiliated station a fee for
each hour of network programming broadcast by the station in exchange for the
network's right to sell the majority of the commercial announcement time
during such programming.
Each of the Company's five affiliation agreements with CBS expires in
December 2004, each of its two affiliation agreements with NBC expires in
October 2005, and each of its two affiliation agreements with ABC expires in
January 2006. Each such agreement with CBS and NBC is automatically renewable
for successive five-year terms unless prior written notice is provided by
either party. Each such agreement with ABC does not contain renewal terms.
Under each affiliation agreement, the network possesses, under certain
circumstances, the right to terminate the agreement on prior written notice.
Although the Company expects that the Company will continue to be able to
renew its network affiliation agreements, no assurance can be given that such
renewals will be obtained. The non-renewal or termination of one or more of
the network affiliation agreements could have a material adverse effect on the
Company's operations and would be an event of default under the Communications
Senior Credit Facility and could lead to an acceleration of the indebtedness
thereunder. See "Business--Network Affiliation Agreements."
GOVERNMENT REGULATION
The Company's television operations are subject to significant regulation by
the FCC under the Communications Act of 1934, as amended (the "Communications
Act"). A television station may not operate without the authorization of the
FCC. Approval of the FCC is required for the issuance, renewal and transfer of
station operating licenses. In particular, the Company's business will be
dependent upon its continuing to hold television broadcasting licenses from
the FCC, which generally are issued for terms of five years, although 1996
legislation has extended the license period to eight years. The expiration
dates for each of the Company's FCC licenses are set forth under the caption
"Business--Federal Regulation of Television Broadcasting--License Grant and
Renewal." While in the vast majority of cases such licenses are renewed by the
FCC, there can be no assurance that the Company's licenses will be renewed at
their expiration dates or, if renewed, that the renewal terms will be for five
or more years. The non-renewal or revocation of one or more of the Company's
primary FCC licenses could have a material adverse effect on the Company's
operations.
Congress and the FCC currently have under consideration and may in the
future adopt new laws, regulations and policies regarding a wide variety of
matters which could, directly or indirectly, affect the operation and
ownership of the Company's broadcast properties. The Company is unable to
predict the impact which any such laws or regulations may have on its
operations. See "Business--Federal Regulation of Television Broadcasting."
TELEVISION INDUSTRY CHARACTERISTICS
The television broadcasting industry has become increasingly competitive in
recent years with the growth of cable television, the Fox television network,
satellite dishes, multichannel multipoint distribution systems, pay-per-view
programs and the proliferation of VCRs and VCR movie rentals. These changes
have fractionalized television viewing audiences, and this trend is likely to
continue in the future. In addition, technological developments such as
"direct broadcast satellite," "high definition" and "interactive" television
may impose additional costs and competitive pressures on the Company. Each of
Time Warner, Inc. and Paramount Communications, Inc. (now merged into Viacom,
Inc.) has recently launched a new television network. The Company is unable to
predict the effect, if any, that such existing and additional future networks
and other sources of programming, increased channel capacity, increased
channel offerings and access through the Internet will have on the future
results of its operations.
18
<PAGE>
In addition to competing with other media outlets for audience share, the
Company's stations also compete for advertising revenue, which comprise the
primary source of revenue for the Company's operating subsidiaries. The
Company's stations compete for such advertising revenue with other television
stations in their respective markets, as well as with other advertising media,
such as newspapers, radio stations, magazines, outdoor advertising, transit
advertising, yellow page directories, direct mail and local cable systems.
The Company's television stations are located in highly competitive markets.
Accordingly, the Company's results of operations will be dependent upon the
ability of each station to compete successfully in its market, and there can
be no assurance that any one of the Company's stations will be able to
maintain or increase its current audience share or revenue share. To the
extent that certain of its competitors have, or may in the future obtain,
greater resources than the Company, the Company's ability to compete
successfully in its broadcasting markets may be impeded. See "Business--
Competition."
EFFECT OF NATIONAL AND LOCAL ECONOMIC CONDITIONS
The Company's business is cyclical in nature. Because the Company relies
upon sales of advertising at its television stations for substantially all of
its revenue, the Company's operating results are particularly susceptible to
being affected by prevailing economic conditions. Although the geographic
diversity of the Company's operations reduces the likelihood that local
economic fluctuations could materially affect the Company, it has exposure to
changes in regional and national economic conditions in the United States,
particularly as they may affect advertising expenditures. Because of the
substantial portion of the Company's revenue derived from local advertisers,
the Company's operating results in individual markets could be adversely
affected by local or regional economic downturns.
CONTROL BY STOCKHOLDERS; INDEBTEDNESS AND INVESTMENT DECISIONS BY PARK
COMMUNICATIONS
Gary B. Knapp and Donald R. Tomlin, Jr. effectively control the Company.
Messrs. Knapp and Tomlin are the only directors of the Company, each with 50%
of the voting control, and, collectively, are able to control the vote on all
matters submitted to a vote of the Company's stockholder. There can be no
assurance that the interests of Messrs. Knapp and Tomlin will not conflict
with the interests of the holders of the Notes or that a potential "deadlock"
will not arise between Messrs. Knapp and Tomlin which could have a material
adverse effect on the Company and its operations. See "Securities Ownership of
Certain Beneficial Owners."
Park Communications sold the Communications Notes concurrently with the sale
of Notes and may incur additional indebtedness in the future. Park
Communications will be dependent upon its subsidiaries, including the Company,
for dividends and distributions to service such indebtedness. The Indenture
restricts the ability of the Company to pay dividends and distributions to
Park Communications, and other indebtedness of the Company may also restrict
such payments. Failure of Park Communications to pay its indebtedness when due
could result in defaults thereunder and entitle the lenders thereof to pursue
their remedies, including accelerating such indebtedness or foreclosing on the
collateral securing such indebtedness, which may include the capital stock of
the Company. Any insolvency resulting from Park Communications' inability to
pay its debts when due could result in an insolvency proceeding involving the
Company. In addition, the foreclosure upon the capital stock of the Company
securing any debt of Park Communications likely would result in a "Change of
Control" of the Company.
Park Communications is not required to make any investments in or capital
contributions to the Company, whether from the proceeds of any debt incurred
in the future or otherwise, and is not limited in making investments in or
capital contributions to one subsidiary, and not another, such as to Park
Newspapers but not the Company.
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer and conveyance laws, if the
Company, at the time it issued the Notes, (a) incurred such
19
<PAGE>
indebtedness with the actual intent to hinder, delay or defraud creditors or
(b)(i) received less than reasonably equivalent value or fair consideration
therefor and (ii)(A) was insolvent at the time of such incurrence, (B) was
rendered insolvent by reason of such incurrence (and the application of the
proceeds thereof), (C) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Company constituted
unreasonably small capital to carry on its business or (D) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they mature, then, in each such case, a court of competent jurisdiction could
avoid, in whole or in part, the Notes or, in the alternative, fashion other
equitable relief such as subordinating the Notes to existing and future
indebtedness of the Company. The measure of insolvency for purposes of the
foregoing would likely vary depending upon the law applied in such case.
Generally, however, the Company would be considered insolvent if the sum of
its debts, including contingent liabilities, was greater than all of its
assets at a fair valuation, or if the present fair-saleable value of its
assets was less than the amount that would be required to pay the probable
liabilities on its existing debts, including contingent liabilities, as such
debts become absolute and matured. The Company's management believes that, for
purposes of the United States Bankruptcy Code and state fraudulent transfer
and conveyance laws, the Notes were issued without the intent to hinder, delay
or defraud creditors and for proper purposes and in good faith; that the
Company received reasonably equivalent value or fair consideration therefor
and that, after the issuance of the Notes and the application of the net
proceeds thereof, the Company is solvent, has sufficient capital for carrying
on its business and is able to pay its debts as they mature. However, there
can be no assurance that a court passing on such issues would agree with the
determination of the Company's management.
LACK OF ESTABLISHED MARKET FOR THE NOTES
Prior to the Exchange Offer, there has not been any public market for the
Series A Notes. The Series A Notes have not been registered under the
Securities Act and will be subject to restrictions on transferability to the
extent that they are not exchanged for Series B Notes by holders who are
entitled to participate in the Exchange Offer. The holders of Series A Notes
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) who are not eligible to
participate in the Exchange Offer are entitled to certain registration rights,
and the Company is required to file a Shelf Registration Statement with
respect to such Series A Notes. The Series B Notes will constitute a new issue
of securities with no established trading market. The Company does not intend
to list the Series B Notes on any securities exchange or to seek their
admission to trading in any automated quotation system. The Initial Purchasers
have advised the
Company that they currently intend to make a market in the Series B Notes, but
they are not obligated to do so and may discontinue such market-making at any
time without notice. In addition, such market-making activity will be subject
to the limits imposed by the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and may be limited during the Exchange
Offer and the pendency of any Shelf Registration Statement. Accordingly, no
assurance can be given that an active public or other market will develop for
the Series B Notes or as to the liquidity of the trading market for the Series
B Notes. If a trading market does not develop or is not maintained, holders of
the Series B Notes may experience difficulty in reselling the Series B Notes
or may be unable to sell them at all. If a market for the Series B Notes
develops, any such market may be discontinued at any time.
If a public trading market develops for the Series B Notes, future trading
prices of the Series B Notes will depend on many factors, including, among
other things, prevailing interest rates, the Company's operating results and
the market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Series B Notes may trade at a discount from
their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES; CONSEQUENCES OF FAILURE TO
EXCHANGE
Issuance of the Series B Notes in exchange for the Series A Notes pursuant
to the Exchange Offer will be made only after a timely receipt by the Company
of such Series A Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the Series
A Notes desiring to
20
<PAGE>
tender such Series A Notes in exchange for Series B Notes should allow
sufficient time to ensure timely delivery. The Company is under no duty to
give notification of defects or irregularities with respect to the tenders of
Series A Notes for exchange. Series A Notes that are not tendered or are
tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof and, upon consummation of the Exchange Offer, certain registration
rights under the Registration Rights Agreement will terminate. In addition,
any holder of Series A Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Series B Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transactions. Each holder of the Series A Notes
(other than certain specified holders) who wishes to exchange the Series A
Notes for Series B Notes in the Exchange Offer will be required to represent
in the Letter of Transmittal that (i) it is not an affiliate of the Company,
(ii) the Series B Notes to be received by it are being acquired in the
ordinary course of its business and (iii) at the time of commencement of the
Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Series B Notes.
Each Participating Broker-Dealer that receives Series B Notes for its own
account in exchange for Series A Notes, where such Series A Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Series B Notes. See "Plan
of Distribution." To the extent that Series A Notes are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted Series A Notes could be adversely affected. See "The Exchange
Offer."
ORIGINAL ISSUE DISCOUNT
There will be no federal income tax consequences as a result of an exchange
pursuant to the Exchange Offer. Therefore, the same federal income tax
consequences apply to the Series B Notes as are applicable to the Series A
Notes.
The Series A Notes were issued at a discount from their principal amount at
maturity. Original issue discount (the difference between the stated
redemption price at maturity of the Notes and the issue price of the Notes)
will accrue from the issue date of the Series A Notes and generally will be
includable as interest income in the holder's gross income for United States
federal income tax purposes in advance of the cash payments to which the
income is attributable. For a more detailed discussion of the federal income
tax consequences to the holders of the Notes of the purchase, ownership and
disposition of the Notes, see "Certain Federal Income Tax Consequences."
If a bankruptcy case is commenced by or against the Company under the United
States Bankruptcy Code (the "Bankruptcy Code") after the issuance of the
Notes, the claim of a holder of any of the Notes with respect to the principal
amount thereof may be limited to an amount equal to the sum of (i) the initial
offering price allocable to the Notes and (ii) the portion of original issue
discount which is not deemed to constitute "unmatured interest" for purposes
of the Bankruptcy Code. Any original issue discount that was not amortized as
of any such bankruptcy filing would constitute "unmatured interest."
21
<PAGE>
THE COMPANY
The Company through its subsidiaries owns and operates nine network
affiliated television stations, primarily located in mid-sized southeastern
markets. The Company's television stations are located in markets ranging from
the 51st to the 177th largest DMA. Five of these stations are affiliated with
CBS, two are affiliated with NBC and two are affiliated with ABC. For the year
ended December 31, 1995, the Company had net revenue of $65.4 million.
The Company's stations cover approximately 2.8 million households, or
approximately 3.0% of the total television households in the United States,
and are affiliated with three of the four major networks. The Company believes
that operating a geographically diverse group of stations with a mix of
network affiliations reduces the potential impact on the Company from the
performance of any one market or network. The networks have recently sought
longer terms in their affiliation agreements with local stations and generally
have increased the compensation payable to the local stations in return for
such longer term agreements. Each of the stations has recently renegotiated
its affiliation agreement, all of which provide for ten-year terms at
compensation levels substantially above the levels under the prior agreements.
See "Business--Network Affiliation Agreements."
In February 1996, the Company entered into an agreement to acquire a network
affiliated television station in Montgomery, Alabama for $6.0 million, of
which $4.8 million has already been paid. The station to be acquired, WHOA, is
the ABC affiliate in the market. Consummation of the Montgomery Acquisition is
subject to certain customary conditions, including receipt of FCC approval of
the transfer of the broadcasting license and a related waiver of common
ownership of stations in overlapping markets. While the Company has no reason
to believe FCC approval and the related waiver will not be obtained, there can
be no assurance that approval will be given or that the transaction will be
consummated. An objection to the transfer of the WHOA broadcasting license to
the Company was filed with the FCC during the public comment period relating
to the application for such transfer. The Company does not believe that the
objection states any grounds upon which the FCC could refuse to approve the
transfer application, although such objection may cause such approval to be
delayed. Other than the Montgomery Acquisition, the Company does not presently
have any agreements to acquire or sell any television stations.
The Company is a wholly-owned subsidiary of Park Communications, which,
through Park Newspapers, also owns and operates 104 newspapers and related
publications. The Company is in the process of selling the remaining Radio
Station Assets. Park Communications decided to divest such operations to focus
on its core television broadcasting and newspaper publications operations, to
raise cash to prepay a portion of the its existing indebtedness and to take
advantage of attractive prices for which such operations could be sold.
The Company's principal offices are located at 1700 Vine Center Office
Tower, 333 West Vine Street, Lexington, Kentucky 40507, and its telephone
number is (606) 252-7275.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Series B Notes in the
Exchange Offer. The net proceeds to the Company from the issuance of the
Series A Notes were approximately $227.5 million. These net proceeds, together
with net proceeds from the issuance of the Communications Units and the
Newspapers Notes, borrowings under the Communications Senior Credit Facility
and net proceeds from the sale of the Company's WPAT-AM and FM radio stations,
were used to repay all outstanding indebtedness under the Prior Credit
Agreement (the "Prior Term Loan"). See "Summary--The Refinancing
Transactions."
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 and December 31, 1995 and as adjusted to give effect to the sale of
Notes and the other Refinancing Transactions and the application of the net
proceeds therefrom and for the sale of the Radio Station Assets on the terms
described herein and the application of the net proceeds therefrom. This table
should be read in conjunction with the Consolidated Financial Statements and
the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
----------------------- ---------------------------
PRO FORMA
PRO FORMA(F) HISTORICAL ADJUSTED(B) HISTORICAL(A)
------------ ---------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Short-term debt:
Current portion of long-
term debt................... $ 348 $ 348 $ 339 $ 339
-------- -------- -------- --------
Total short-term debt..... 348 348 339 339
-------- -------- -------- --------
Long-term debt, less current
maturities:
Prior Credit Agreement(c).. -- -- -- 412,566
Notes(d)................... 235,012 235,012 235,000 --
Promissory notes........... 556 556 733 733
-------- -------- -------- --------
Total long-term debt...... 235,568 235,568 235,733 413,299
-------- -------- -------- --------
Stockholder's equity:
Common stock............... 2,598 2,598 2,598 2,598
Additional paid in capital. 56,063 56,063 33,331(e) (2,598)
Intercompany receivable
from Park Communications.... -- -- -- (5,412)
Retained earnings
(deficit)................... 22,259 24,192 37,174 (13,941)
-------- -------- -------- --------
Total stockholder's equity
(deficit)................... 80,920 82,853 73,103 (19,353)
-------- -------- -------- --------
Total capitalization........ $316,836 $318,769 $308,836 $394,285
======== ======== ======== ========
</TABLE>
- --------
(a) Film contract liability has been excluded from long-term debt as they are
not included as Indebtedness as defined in the Indenture.
(b) Reflects the pro forma capitalization of the Company at December 31, 1995
after giving effect to the Refinancing Transactions, the sale of all of
the Radio Station Assets on the terms described herein and the application
of the net proceeds therefrom.
(c) As of December 31, 1995, due to "push down" accounting, $412,566 was
"pushed down" to the historical balance sheet of the Company as a result
of the Prior Credit Agreement.
(d) Net of original issue discount of approximately $6.0 million.
(e) Reflects a capital contribution from Park Communications of $35,929 funded
substantially with the proceeds of the sale of Communications Units.
(f) Reflects the pro forma capitalization of the Company at June 30, 1996
after giving effect to the sale of all Radio Station Assets on the terms
described herein.
23
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Statement of Continuing
Operations for the six months ended June 30, 1996 and for the year ended
December 31, 1995 presents the consolidated results of continuing operations
of Park Broadcasting, Inc. and Subsidiaries assuming that the Acquisition and
the application of the purchase method of accounting, the Refinancing
Transactions, the sale of the Radio Station Assets on the terms described
herein and the application of the net proceeds therefrom had been completed as
of January 1, 1996 and January 1, 1995, respectively. The Unaudited Pro Forma
Condensed Consolidated Balance Sheet as of June 30, 1996 and December 31, 1995
is presented assuming the Refinancing Transactions, the sale of the Radio
Station Assets on the terms described herein and the application of the net
proceeds therefrom had been completed on June 30, 1996 and December 31, 1995,
respectively. All material adjustments necessary to reflect the transactions
are presented in the pro forma adjustments columns, which are further
described in the notes to unaudited pro forma condensed consolidated financial
statements.
The unaudited pro forma information does not purport to represent what the
Company's financial position or results of operations actually would have been
if the Acquisition, the Refinancing Transactions, the sale of the Radio
Station Assets on the terms described herein and the application of the net
proceeds therefrom had, in fact, occurred on such date or to project the
Company's financial position or results of operations at any future date or
for any future period. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the Consolidated
Financial Statements and related notes thereto included elsewhere herein.
24
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------------------------------- ---------------------------------------
PRO FORMA PRO FORMA
TRANSACTION FOR TRANSACTION FOR
HISTORICAL ADJUSTMENTS TRANSACTIONS HISTORICAL ADJUSTMENTS TRANSACTIONS
---------- ----------- ------------ ---------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................... $ 33,416 $ 8,300 (e) $ 41,716 $ 1,305 $ 162,700 (a) $ 1,305
227,000 (b)
(431,041)(c)
41,341 (d)
Other current assets... 23,285 (17)(e) 23,268 22,751 (540)(a) 22,211
-------- ------- -------- -------- ---------- --------
Total current assets... 56,701 8,283 64,984 24,056 (540) 23,516
Property, plant and
equipment, net......... 40,967 (2,015)(e) 38,952 57,956 (21,171)(a) 36,785
Intangible assets, net.. 350,515 (10,067)(e) 340,448 465,672 (120,101)(a) 345,571
Film contracts.......... 1,984 1,984 2,787 2,787
Other assets............ 12,929 12,929 419 8,000 (b) 7,731
(688)(c)
-------- ------- -------- -------- ---------- --------
Total assets........... $463,096 $(3,799) $459,297 $550,890 $ (134,500) $416,390
======== ======= ======== ======== ========== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Total current
liabilities............ $ 45,340 $ 45,340 $ 25,235 $ (18,750)(c) $ 6,485
Long-term--film
contracts.............. 1,835 1,835 2,481 2,481
Long-term debt--term
loan................... -- -- 412,566 (412,566)(c) --
Long-term debt--other... 556 556 733 733
Long-term debt--new
debt................... 235,012 235,012 -- 235,000 (b) 235,000
Deferred income......... 6,822 6,822 4,549 4,549
Consulting/non-compete
contracts.............. 43 43 74 74
Deferred income taxes... 90,635 $(1,866)(e) 88,769 124,605 (30,640)(a) 93,965
-------- ------- -------- -------- ---------- --------
Total liabilities...... 380,243 (1,866) 378,377 570,243 (226,956) 343,287
-------- ------- -------- -------- ---------- --------
Stockholder's equity:
Common stock........... 2,598 2,598 2,598 2,598
Paid in capital........ 56,063 56,063 (2,598) 35,929 (d) 33,331
Intercompany receivable
from parent........... -- -- (5,412) 5,412 (d) --
Retained earnings
(deficit)............. 24,192 (1,933)(e) 22,259 (13,941) 51,528 (a) 37,174
(413)(c)
-------- ------- -------- -------- ---------- --------
Total stockholder's
equity (deficit)...... 82,853 (1,933) 80,920 (19,353) 92,456 73,103
-------- ------- -------- -------- ---------- --------
Total liabilities and
stockholder's equity.. $463,096 $(3,799) $459,297 $550,890 $ (134,500) $416,390
======== ======= ======== ======== ========== ========
</TABLE>
- --------
(a) Reflects the sale of the radio station operations for aggregate gross
proceeds of $233.2 million, the incurrence of related selling expenses of
$3.4 million, the recognition of a gain on the sale and the payment of the
resulting income taxes of approximately $67 million.
(b) Reflects the issuance of the Notes and the incurrence of related fees and
expenses of $8.0 million.
(c) Reflects the payoff of the Prior Term Loan, accrued interest and write-off
of related debt issue costs.
(d) Reflects the payment of the intercompany receivable and a capital
contribution from Park Communications funded substantially with the
proceeds of the sale of Communications Units.
(e) Reflects the sale of the Radio Station Assets for aggregate gross proceeds
of $11.2 million, the incurrence of related selling expenses of $0.2
million, the recognition of loss on the sale and the payment of resulting
income taxes of approximately $2.7 million.
25
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
------------------
NEW PARK OLD PARK
-------- -------- PRO FORMA PRO FORMA
5/11/95- 1/01/95- ACQUISITION FOR TRANSACTION FOR
12/31/95 5/10/95 ADJUSTMENTS ACQUISITION ADJUSTMENTS TRANSACTIONS
-------- -------- ----------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gross revenue........... $ 50,034 $26,735 $ 76,769 $ 76,769
Less: commissions....... 7,360 4,001 11,361 11,361
-------- ------- -------- --------
Net revenue............. 42,674 22,734 65,408 65,408
-------- ------- -------- --------
Operating expenses:
Cost of sales.......... 12,495 7,288 19,783 19,783
Selling, general and
administrative........ 9,454 4,746 14,200 14,200
Depreciation........... 3,552 1,655 $ 353 (a) 5,560 5,560
Amortization........... 3,238 245 1,585 (a) 5,068 5,068
Amortization of excess
cost.................. 3,584 68 1,958 (a) 5,610 5,610
-------- ------- -------- -------- --------
32,323 14,002 3,896 50,221 50,221
-------- ------- -------- -------- --------
Operating income........ 10,351 8,732 (3,896) 15,187 15,187
Interest expense........ (26,102) (34) (14,720)(b) (40,856) $ 40,790 (f) (29,794)
(29,728)(g)
Interest income......... 209 -- 118 (c) 327 327
Other expense........... (218) (1,117) 994 (d) (341) (341)
-------- ------- -------- -------- -------- --------
(Loss) income from
continuing operations
before income taxes.... (15,760) 7,581 (17,504) (25,683) 11,062 (14,621)
Provision (benefit) for
income taxes........... (5,661) 3,176 (5,850)(e) (8,335) 4,640 (h) (3,695)
-------- ------- -------- -------- -------- --------
(Loss) income from
continuing operations.. $(10,099) $ 4,405 $(11,654) $(17,348) $ 6,422 $(10,926)
======== ======= ======== ======== ======== ========
Loss per share.......... $(667.90) $(420.65)
======== ========
Average shares.......... 25,974 25,974
======== ========
</TABLE>
- --------
(a) To adjust depreciation and amortization expense to reflect the application
of the purchase method of accounting for the Acquisition as if it occurred
on January 1, 1995.
(b) To record the additional interest expense on the Prior Term Loan as if it
had been incurred on January 1, 1995.
(c) To reflect estimated annualized amounts to be earned on intercompany
advances.
(d) To eliminate one-time expenses incurred in selling Park Communications and
its subsidiaries.
(e) Pro forma income tax benefit has been computed at an overall effective rate
of 32.0%. This rate gives effect to non-deductible goodwill.
(f) To eliminate interest expense incurred on the Prior Term Loan.
(g) To record interest expense attributable to the Notes: principal $241.0
million, stated rate 11.75%, record one year of amortization of new debt
issuance costs of $8.0 million and record one year of amortization of bond
discount on the Notes (overall effective rate of approximately 13.1%).
(h) Pro forma income tax benefit has been computed at the marginal rate of
41.9% times the pro forma interest adjustment.
26
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
TRANSACTION FOR
HISTORICAL ADJUSTMENTS TRANSACTIONS
---------- ----------- ------------
<S> <C> <C> <C>
Gross revenue............................ $ 38,074 $ 38,074
Less: commissions........................ 5,591 5,591
-------- --------
Net revenue.............................. 32,483 32,483
-------- --------
Operating expenses:
Cost of sales........................... 11,053 11,053
Selling, general and administrative..... 8,971 8,971
Depreciation............................ 2,970 2,970
Amortization............................ 3,577 3,577
Amortization of excess cost............. 1,314 1,314
-------- --------
27,885 27,885
-------- --------
Operating income......................... 4,598 4,598
Interest expense......................... (18,418) $18,385 (a) (14,897)
(14,864)(b)
Interest income.......................... 73 73
Other expense............................ (17) (17)
-------- ------- --------
(Loss) income from continuing operations
before income taxes..................... (13,764) 3,521 (10,243)
Provision (benefit) for income taxes..... (4,946) 1,475 (c) (3,471)
-------- ------- --------
(Loss) income from continuing
operations.............................. $ (8,818) $ 2,046 $ (6,772)
======== ======= ========
Loss per share........................... $(339.49) $(260.72)
======== ========
Average shares........................... 25,974 25,974
======== ========
</TABLE>
- --------
(a) To eliminate interest expense incurred on the Prior Term Loan.
(b) To record interest expense attributable to the Notes: principal $241.0
million, stated rate 11.75%, record six months of amortization of new debt
issuance costs of $8.0 million and record six months of amortization of
bond discount on the Notes (overall effective rate of approximately
13.1%).
(c) Pro forma income tax benefit has been computed at the marginal rate of
41.9% times the pro forma interest adjustment.
27
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data presented below have
been derived from audited financial statements of the Company as of and for
the years ended December 31, 1995, 1994 and 1993 (data for the years ended
December 31, 1992 and 1991 have been derived from unaudited financial
statements). The selected consolidated financial data as of June 30, 1996 and
for the six month period ended June 30, 1996 presented below have been derived
from unaudited financial statements of the Company. The data presented below
should be read in conjunction with the Consolidated Financial Statements of
Park Broadcasting, Inc. and Subsidiaries, including the notes thereto,
"Unaudited Pro Forma Condensed Consolidated Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The unaudited pro forma information
does not purport to represent what the Company's financial position or results
of operations actually would have been if the Acquisition, the Refinancing
Transactions and the sale of the Radio Station Assets (as applicable) had, in
fact, occurred on the dates indicated or to project the Company's financial
position or results of operations at any future date or for any future period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
HISTORICAL PRO FORMA YEAR ENDED DECEMBER 31,
SIX MONTHS ------------------------- -------------------------------------
ENDED TRANSACTIONS ACQUISITION
JUNE 30, 1996 1995 (B) 1995 (A) 1994 1993 1992 1991
------------- ------------ ----------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $ 32,483 $ 65,408 $ 65,408 $ 65,621 $ 52,593 $ 47,216 $38,972
-------- -------- -------- -------- -------- -------- -------
Operating expenses:
Cost of sales
(exclusive of
depreciation and
amortization)......... 11,053 19,783 19,783 18,016 16,297 15,580 13,451
Selling, general and
administrative (c).... 8,971 14,200 14,200 14,835 12,406 11,860 9,933
Depreciation and
amortization.......... 7,861 16,238 16,238 5,187 4,162 3,337 2,573
-------- -------- -------- -------- -------- -------- -------
Total operating expenses
....................... 27,885 50,221 50,221 38,038 32,865 30,777 25,957
-------- -------- -------- -------- -------- -------- -------
Operating income........ 4,598 15,187 15,187 27,583 19,728 16,439 13,015
Interest expense........ (18,418) (29,794) (40,856) (185) (37) (55) (3)
Interest income......... 73 327 327 -- -- 1 1
Other................... (17) (341) (341) (393) (225) (78) (131)
-------- -------- -------- -------- -------- -------- -------
Income/(loss) from
continuing operations
before income tax...... (13,764) (14,621) (25,683) 27,005 19,466 16,307 12,882
Provision/(benefit) for
income tax............. (4,946) (3,695) (8,335) 10,457 7,370 6,320 5,015
-------- -------- -------- -------- -------- -------- -------
Income/(loss) from
continuing operations.. $ (8,818) $(10,926) $(17,348) $ 16,548 $ 12,096 $ 9,987 $ 7,867
======== ======== ======== ======== ======== ======== =======
Ratio of earnings to
fixed
charges (d)............ -- -- -- 85.7x 320.1x 162.5x 349.2x
Deficiency of earnings
to fixed charges (d)... $(13,764) $(14,621) $(25,683) -- -- -- --
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets............ $463,096 $416,390 $550,890 $131,662 $129,741 $106,669 $94,368
Total long-term debt,
excluding current
maturities............. 235,568 235,733(e) 413,299(e) 3,537 3,627 2,121 1,873
OTHER FINANCIAL DATA AND
RATIOS:
Capital expenditures
(f).................... 6,009 2,758 2,758 3,803 2,897 3,293 2,472
</TABLE>
(footnotes begin on next page)
28
<PAGE>
- --------
(a) Presented on a pro forma basis assuming that the Acquisition had occurred
on January 1, 1995. See Note (2) to the Consolidated Financial Statements.
(b) Presented on a pro forma basis assuming that the Acquisition, the
Refinancing Transactions and the sale of the Radio Station Assets on the
terms described herein occurred on December 31, 1995 for balance sheet
data and on January 1, 1995 for all other data.
(c) Includes an allocation of Central Corporate Overhead from Park
Communications to the Company as follows:
<TABLE>
<CAPTION>
SIX
MONTHS
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Allocated
Central
Corporate
Overhead. $926 $1,142 $1,287 $1,280 $1,296 $1,151
</TABLE>
Cash payments to Park Communications from the Company to satisfy future
allocations of Central Corporate Overhead will be subject to certain
limitations and restrictions under the Indenture. See "Description of the
Notes--Certain Covenants--Limitation on Restricted Payments."
(d) For purposes of this ratio, "fixed charges" are defined as interest,
amortization of debt expense and a portion of rental expense representing
the interest factor, and "earnings" are defined as net income (loss) from
continuing operations before income taxes and fixed charges.
(e) Does not include long-term film contract liability totaling $1,835 at June
30, 1996 and $2,481 at December 31, 1995 as such liability is not included
as Indebtedness as defined in the Indenture.
(f) Capital expenditures do not include the purchase of the assets of two
television stations, WTVQ in 1992 and KALB in 1993. Such amounts were
$6,135 in 1992 and $8,804 in 1993. In addition, capital expenditures in
1994 do not include the purchase for $3,575 of certain operating equipment
and facilities from RHP Incorporated, which the Company had been leasing.
Also not included are capital expenditures resulting from trade agreements
and capital expenditures of the discontinued radio station operations.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The Company's results of operations have been affected by: (i) the
acquisition of Park Communications and its subsidiaries, including the
Company, from the estate of Roy H. Park, its original owner, by PAI on May 11,
1995, (ii) the development and implementation of new operating strategies and
initiatives by PAI, (iii) the entry during 1995 into new long-term network
affiliation agreements with CBS and NBC covering seven of the nine television
stations, (iv) the decision to divest the radio station operations, and (v)
the acquisition of KALB-TV in November 1993 for $22.7 million. In addition,
the Company has agreed to acquire an additional television station for $6.0
million (of which $4.8 million has been paid). As a result, period-to-period
historical and future comparisons may be difficult without the following
overview.
The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1995 presents the consolidated results of
operations of the Company assuming the Acquisition and the application of the
purchase method of accounting had been completed as of January 1, 1995. All
material adjustments necessary to reflect the Acquisition as if it had
occurred on such date are included in the 1995 pro forma column. Such
adjustments are described further in the notes to unaudited pro forma
condensed consolidated financial statements. The unaudited pro forma
information does not purport to represent what the Company's financial
position or results of operations actually would have been if the Acquisition
had, in fact, occurred on such date or to project the Company's financial
position or results of operations at any future date or for any future period.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the Consolidated Financial Statements and related
notes thereto included elsewhere herein.
PAI acquired Park Communications and its subsidiaries from the estate of Roy
H. Park on May 11, 1995 for $711.4 million. PAI financed the Acquisition with
borrowings under the Prior Credit Agreement and existing cash-on-hand at Park
Communications and its subsidiaries. The Acquisition was accounted for under
purchase accounting and involved, among other things, the write-up of certain
assets. As a result of the Acquisition, interest expense and depreciation and
amortization expense increased substantially. See "Unaudited Pro Forma
Condensed Consolidated Financial Statements."
Mr. Park had operated the Company's business with a primary focus on
improving cash flow from operations by managing costs rather than on
increasing revenue. The Company's management believes its television stations,
under ownership by Mr. Park, had underperformed relative to industry
standards. Under new ownership, the Company has focused on revenue and cash
flow generation. In particular, the Company (i) is substantially upgrading its
sales force, (ii) invested in information systems to better equip its sales
force and (iii) enhanced its marketing and promotional efforts. Certain of
these strategies have been implemented gradually since the Acquisition. In
many cases, the costs of these strategies have been incurred without
sufficient time for the revenue benefits to be recognized. The Company has
designed these strategies in an effort to increase revenue and cash flow from
operations to levels more comparable to industry standards.
Effective as of January 1, 1995, the Company entered into long-term
affiliation agreements with each of CBS and NBC, which run for terms expiring
December 2004 (in the case of each CBS agreement) and October 2005 (in the
case of each NBC agreement). The affiliation agreements are automatically
renewable for successive five-year terms unless prior written notice of
termination is given by the Company or the network. Pursuant to the terms of
the long-term affiliation agreements, CBS and NBC agreed to an accelerated
payment schedule of the network compensation due the Company under such
agreements. Under the new affiliation agreements with CBS and NBC,
approximately $37.4 million of the $52.2 million in aggregate network
compensation payable thereunder will be paid to the Company during the first
four years of the ten-year terms of such agreements. In accordance with GAAP,
the Company is accounting for payments received from the networks on a
straight-line basis. As a result, in 1995, the cash received from the networks
pursuant to the affiliation agreements exceeded the revenue recognized in the
results of operations pursuant to generally accepted accounting principles
("GAAP") by approximately $4.5 million. Cash payments to be received from the
networks will also exceed
30
<PAGE>
the revenue recognized pursuant to GAAP by approximately $4.5 million in 1996,
approximately $4.5 million in 1997 and approximately $2.8 million in 1998.
Thereafter, revenue recognized under GAAP will exceed cash payments received
from the networks by approximately $2.7 million annually from 1999 through
2004.
The Company is in the process of divesting all of its remaining Radio
Station Assets. The radio station operations had net revenue of $33.1 million
for the fiscal year ended December 31, 1995. As of May 6, 1996, the Company
had entered into definitive agreements for the sale of all of its radio
station operations for aggregate gross proceeds of $233.2 million, of which
$103.0 million of gross proceeds had been received pursuant to the sale of its
WPAT-AM and FM radio stations. Between May 6, 1996 and August 16, 1996, the
Company had sold its KEZX-AM, KWJZ-FM, WNCT-AM and FM, WTVR-AM and FM, WNLS-
AM, WTNT-FM, WHEN-AM and FM, WNAX-AM and FM, KWJJ-AM and FM, KSGS-AM, KMJZ-FM,
KWLO-AM and KFMW-FM radio stations for aggregate gross proceeds of $122.5
million. Income taxes due as a result of the above mentioned sales are
estimated to be $62.8 million. Although there can be no assurance that the
sale of the remaining Radio Station Assets will occur, the Company currently
anticipates that the sale of its last two individual radio stations will be
completed by September 15, 1996. The financial information with respect to the
Company's radio broadcasting operations are presented herein as discontinued
operations. See "Business--Discontinued Operations." Proceeds from the sale of
the Radio Station Assets occurring after May 13, 1996 have been used to repay
in full the Communications Senior Credit Facility and to pay taxes resulting
from the sale of the radio station operations. The Communications Senior
Credit Facility was repaid in full on June 20, 1996. Park Communications
decided to divest the radio broadcasting operations to focus on its core
television broadcasting and newspaper publication operations, to raise cash to
prepay a portion of its existing indebtedness, and to take advantage of
attractive prices for which such operations could be sold.
In November 1993, the Company purchased KALB-TV, an NBC affiliate, in
Alexandria, Louisiana for $22.7 million. KALB contributed $1.3 million to net
revenue for the year ended December 31, 1993. As a result, comparisons between
periods prior to and after the acquisition of KALB may be difficult.
OVERVIEW OF OPERATIONS
The Company through its subsidiaries owns and operates nine network
affiliated television stations: five CBS affiliates, two NBC affiliates and
two ABC affiliates. The Company has entered into a definitive purchase
agreement to acquire an additional ABC affiliate in Montgomery, Alabama for
$6.0 million; $4.8 million of such amount has been paid.
The net revenue of the Company is derived primarily from local and national
advertising revenue, and to a much lesser extent, from compensation paid by
the networks to the stations for broadcasting network programs. The primary
operating expenses involved in owning and operating television stations are
employee compensation, programming, news gathering, production, promotion and
the solicitation of advertising. In addition, the Company has historically
made payments to Park Communications for the costs allocated to the Company
associated with Park Communications' providing management supervisory
functions, internal auditing, consolidated financial statement and tax
preparation, centralized cash management services, benefits administration and
other corporate services. The Company intends to continue to make such
payments to Park Communications for the provision of such services, subject to
certain limitations and restrictions, including those pursuant to the terms of
the Indenture.
In general, television stations receive revenue for advertising sold for
placement within and adjoining their locally originated programming and
adjoining national programming. Advertising is sold in time increments and is
priced primarily on the basis of a program's popularity among the specific
audience an advertiser desires to reach, as measured principally by quarterly
audience surveys. In addition, advertising rates are affected by the number of
advertisers competing for the available time, the size and demographic makeup
of the markets served and the availability of alternative advertising media in
the market area. Rates are highest during the most
31
<PAGE>
desirable viewing hours (generally during local news programming and prime
time) with corresponding reductions during other hours.
Most advertising contracts are short-term and generally run for only a few
weeks. In the year ended December 31, 1995, no one contract or advertiser
accounted for 5% or more of the Company's advertising revenue. Over 52% of the
Company's revenue is generated from local and regional advertising, which is
sold primarily by the Company sales personnel, who receive a commission. The
remainder of the advertising revenue represents national advertising, which is
sold by independent national advertising sales representatives who also
receive a commission. In addition, the Company generally pays commissions to
advertising agencies for local, regional and national advertising for placing
the advertising with its stations.
The Company's advertising revenue is generally the highest in the second and
fourth quarters of each year. The increase is due to increased advertising in
the spring and in the periods leading up to and including the Christmas
holiday season. In addition, political advertising increases the Company's
revenue during election years and is typically heaviest during the fourth
quarters of those years. However, management believes that fluctuations in its
political advertising revenue are tempered by the levels of political activity
in the areas in which it operates.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
items and percentage relationships:
<TABLE>
<CAPTION>
PERIOD ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------- -----------------------------------------------
1995 1995
1996 % PRO FORMA % PRO FORMA % 1994 % 1993 %
------- ----- --------- ----- --------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Local................................. $19,889 52.2% $20,007 52.6% $40,548 52.8% $41,165 52.9% $34,163 54.7%
National.............................. 13,599 35.7 14,085 37.0 27,180 35.4 27,353 35.2 23,807 38.1
Network compensation.................. 2,890 7.6 2,849 7.5 5,671 7.4 3,035 3.9 2,741 4.4
Political............................. 831 2.2 353 .9 1,812 2.4 4,685 6.0 787 1.3
Production and other.................. 865 2.3 751 2.0 1,558 2.0 1,511 2.0 962 1.5
------- ----- ------- ----- ------- ------- -------
Total................................ 38,074 100.0% 38,045 100.0% 76,769 100.0% 77,749 100.0% 62,460 100.0%
Agency and national representative
commissions......................... (5,591) 14.7% (5,708) 15.0% (11,361) 14.8% (12,128) 15.6% (9,867) 15.8%
------- ------- ------- ------- -------
Net revenue.......................... 32,483 32,337 65,408 65,621 52,593
------- ------- ------- ------- -------
Operating expenses:
Costs of sales........................ 11,053 29.0% 10,286 27.0% 19,783 25.8% 18,016 23.2% 16,297 26.1%
Selling, general and administrative... 8,971 23.6 6,701 17.6 14,200 18.5 14,835 19.1 12,406 19.9
Depreciation and amortization......... 7,861 20.6 7,804 20.5 16,238 21.1 5,187 6.7 4,162 6.7
------- ------- ------- ------- -------
Total................................ 27,885 24,791 50,221 38,038 32,865
------- ------- ------- ------- -------
Operating income...................... $ 4,598 12.1% $ 7,546 19.8% $15,187 19.8% $27,583 35.4% $19,728 31.5%
======= ======= ======= ======= =======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) COMPARED WITH SIX MONTHS ENDED JUNE
30, 1995 (PRO FORMA UNAUDITED)
Revenue. Gross revenue for the six months ended June 30, 1996 was $38.1
million compared to $38.0 million for the six months ended June 30, 1995, an
increase of $0.1 million, or 0.3%. Revenue for the first six months of 1996
was adversely affected in the first quarter by severe winter weather in many
of the markets the Company serves. Major snow and ice storms in January and
February caused many advertisers to close their businesses and cancel
scheduled advertising.
Operating Expenses. Operating expenses (excluding depreciation and
amortization) for the six months ended June 30, 1996 were $20.0 million
compared to $17.0 million for the six months ended June 30, 1995, an
32
<PAGE>
increase of $3.0 million, or 17.6%. This expense increase resulted from a
number of factors that were a result of the implementation of the Company's
business and operating strategy, including approximately $0.9 million from the
cost of upgrading the news staff and operations of WBMG-TV in Birmingham,
Alabama and approximately $1.0 million in increased television station
promotion and programming costs.
Depreciation and amortization for the six months ended June 30, 1996 was
$7.9 million compared to $7.8 million for the six months ended June 30, 1995,
an increase of $0.1 million, or 1.3%. As a percentage of gross broadcast
revenue, depreciation and amortization was 20.6% for the six months ended June
30, 1996 compared to 20.5% for the six months ended June 30, 1995.
Operating Income. Operating income for the six months ended June 30, 1996
was $4.6 million compared to $7.5 million for the six months ended June 30,
1995, a decrease of $2.9 million, or 38.7%. The decrease was a result of the
increase in expenses discussed above more than offsetting the increase in
revenues. Operating income includes $0.9 million and $0.6 million of allocated
Central Corporate Overhead for the six months ended June 30, 1996 and June 30,
1995, respectively. Operating income for the six months ended June 30, 1996
and June 30, 1995 does not include $2.3 million of cash network compensation
received pursuant to the Company's affiliation agreements, but not recognized
as revenue.
Interest Expense. Interest expense for the six months ended June 30, 1996
was $18.4 million compared to $21.8 million for the six months ended June 30,
1995. The decrease was due to the decrease in total debt and interest rates as
a result of the recently completed refinancing.
Income Taxes. Income taxes (benefit) for the six months ended June 30, 1996
were ($4.9) million compared to ($5.2) million for the six months ended June
30, 1995, a decrease in the benefit of $0.3 million or 5.8%. The decrease in
the benefit was due to the decrease in the taxable loss, the result of the
decrease in interest expense, partially offset by the decrease in operating
income. The effective tax benefit rate for each of the six-month periods ended
June 30, 1996 and June 30, 1995 was 36%.
Income (Loss) from Continuing Operations. Income (loss) from continuing
operations for the six months ended June 30, 1996 was ($8.8) million compared
to ($9.1) million for the six months ended June 30, 1995, a decrease in the
loss of $0.3 million.
Discontinued Operations. The discontinued operations consist of the
Company's radio station operations. Net (loss) income for the radio station
operations for the six months ended June 30, 1996 was ($6.7) million compared
to ($2.8) million for the six months ended June 30, 1995. On December 26,
1995, the Company announced its intention to divest all of its radio station
operations on an individual basis. The results of operations of the radio
station operations are included in the single line of the income statement
labeled "(loss) income from discontinued operations." During the first six
months of 1996, the Company sold 18 of its radio stations resulting in a gain,
net of taxes, of $53.7 million. This amount is included in the single line of
income statement labeled "gain from sale of discontinued operations."
YEAR ENDED DECEMBER 31, 1995 (PRO FORMA UNAUDITED) COMPARED WITH YEAR ENDED
DECEMBER 31, 1994
Revenue. Gross revenue for the year ended December 31, 1995 was $76.8
million compared to $77.7 million for the year ended December 31, 1994, a
decrease of $0.9 million, or 1.2%. The decrease was primarily due to a
reduction in political advertising revenue of $2.9 million in 1995, partially
offset by an increase in network revenue of $2.6 million. The increase in
network compensation revenue was due to long-term affiliation agreements
entered into between the Company and each of CBS and NBC.
Local advertising revenue for the year ended December 31, 1995 was $40.5
million compared to $41.2 million for the year ended December 31, 1994, a
decrease of $0.7 million, or 1.7%. The decrease was primarily due to a $1.4
million reduction in local advertising at WTVR in Richmond, Virginia, which
management believes was attributable to a management change in December 1994.
This reduction was offset by increases at other stations.
33
<PAGE>
National revenue for the year ended December 31, 1995 was $27.2 million
compared to $27.4 million for the year ended December 31, 1994, a decrease of
$0.2 million, or 0.7%.
Operating Expenses. Operating expenses (excluding depreciation and
amortization) for the year ended December 31, 1995 were $34.0 million compared
to $32.9 million for the year ended December 31, 1994, an increase of $1.1
million, or 3.3%. As a percentage of gross broadcast revenue, operating
expenses (excluding depreciation and amortization) were 44.3% in 1995 compared
to 42.3% in 1994. The dollar increase was primarily due to increased
compensation expense of $0.8 million and increased advertising/promotional
expenditures of $0.4 million. The compensation expense increase was a result
of the Company's strategy to upgrade its sales force. The
advertising/promotional expense increase was the result of enhanced marketing
techniques.
Depreciation and amortization for the year ended December 31, 1995 was $16.2
million compared to $5.2 million for the year ended December 31, 1994, an
increase of $11.0 million, or 211.5%. As a percentage of gross broadcast
revenue, depreciation and amortization was 21.1% in 1995 compared to 6.7% in
1994. The increase was primarily due to the write-up of assets as a result of
the Acquisition.
Operating Income. Operating income for the year ended December 31, 1995 was
$15.2 million compared to $27.6 million for the year ended December 31, 1994,
a decrease of $12.4 million, or 44.9%. As a percentage of gross broadcast
revenue, operating income was 19.8% in 1995 compared to 35.5% in 1994. The
decrease was a result of the decrease in revenue and increase in operating
expenses described above. Operating income includes $1.1 million and $1.3
million of allocated Central Corporate Overhead for 1995 and 1994,
respectively. Operating income for 1995 does not include $4.5 million of cash
network compensation received pursuant to the Company's affiliation
agreements, but not recognized as revenue.
Interest Expense. Interest expense for the year ended December 31, 1995 was
$40.9 million compared to $0.2 million for the year ended December 31, 1994,
an increase of $40.7 million. The increase was primarily due to the increase
in total debt as a result of the financing for the Acquisition.
Income Taxes. Income taxes for the year ended December 31, 1995 was ($8.3)
million compared to $10.5 million for the year ended December 31, 1994, a
decrease of $18.8 million. The decrease was due to the decrease in taxable
income as a result of the increase in depreciation and amortization and
interest expense resulting from the Acquisition. The effective tax rate for
1995 reflects a tax benefit rate of 32%, compared to an effective tax expense
rate of 39% for 1994. The change in the effective rate is due to the increase
in the amortization of nondeductible goodwill resulting from purchase
accounting adjustments.
Income (Loss) from Continuing Operations. Income (loss) from continuing
operations for the year ended December 31, 1995 was ($17.3) million compared
to $16.5 million for the year ended December 31, 1994, a decrease of $33.8
million. The decrease was primarily due to the increase in depreciation and
amortization and interest expense as a result of the Acquisition.
Discontinued Operations. The discontinued operations consist of the
Company's radio station operations. Net loss for the radio station operations
for the year ended December 31, 1995 was ($6.0) million compared to ($0.1)
million for the year ended December 31, 1994. On December 26, 1995, the
Company announced its intention to divest all of its radio station operations
on an individual basis. The segment has produced operating profits before
interest expense, depreciation and amortization, and the Company believes that
each of its radio station operations will generate operating profit before
interest expense, depreciation and amortization through its date of
disposition. The results of operations of the radio station operations are
included in the single line of the income statement labeled "(loss) income
from discontinued operations."
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Revenue. Gross revenue for the year ended December 31, 1994 was $77.7
million compared to $62.5 million for the year ended December 31, 1993, an
increase of $15.2 million, or 24.3%. The increase was
34
<PAGE>
primarily due to the acquisition in November of 1993 of KALB-TV in Alexandria,
Louisiana, which added $6.6 million in revenue, and an increase in political
advertising revenue of $3.9 million.
Local advertising revenue for the year ended December 31, 1994 was $41.1
million compared to $34.2 million for the year ended December 31, 1993, an
increase of $6.9 million, or 20.2%. The increase was primarily due to the
acquisition of KALB-TV which added $4.0 million in local advertising revenue.
National revenue for the year ended December 31, 1994 was $27.4 million
compared to $23.8 million for the year ended December 31, 1993, an increase of
$3.6 million, or 15.1%. The increase was primarily due to the acquisition of
KALB-TV which added $2.1 million in national advertising revenue.
Operating Expenses. Operating expenses (excluding depreciation and
amortization) for the year ended December 31, 1994 were $32.9 million compared
to $28.7 million for the year ended December 31, 1993, an increase of $4.2
million, or 14.6%. As a percentage of gross broadcast revenue, operating
expenses (excluding depreciation and amortization) were 42.3% in 1994 compared
to 46.0% in 1993. The dollar increase in operating expenses (excluding
depreciation and amortization) was primarily due to the purchase of KALB-TV in
November 1993 which contributed $3.0 million of the increase. The remainder of
the increase was due to an increase in compensation and local sales
commissions of $0.8 million.
Depreciation and amortization for the year ended December 31, 1994 was $5.2
million compared to $4.2 million for the year ended December 31, 1993, an
increase of $1.0 million, or 23.8%, as a result of the acquisition of KALB-TV.
As a percentage of gross broadcast revenue, depreciation and amortization was
6.7% in each of 1994 and 1993.
Operating Income. Operating income for the year ended December 31, 1994 was
$27.6 million compared to $19.7 million for the year ended December 31, 1993,
an increase of $7.9 million, or 40.1%. As a percentage of gross broadcast
revenue, operating income was 35.5% in 1994 compared to 31.5% in 1993. The
increase was a result of the increase in revenue partially offset by the
increase in operating expenses as described above. Operating income includes
$1.3 million of allocated Central Corporate Overhead for each of 1994 and
1993.
Interest Expense. Interest expense for the year ended December 31, 1994 was
$0.2 million. There was no interest expense for the year ended December 31,
1993.
Income Taxes. Income taxes for the year ended December 31, 1994 were $10.5
million compared to $7.4 million for the year ended December 31, 1993, an
increase of $3.1 million, or 41.9%.
Income from Continuing Operations. Income from continuing operations for the
year ended December 31, 1994 was $16.5 million compared to $12.1 million for
the year ended December 31, 1993, an increase of $4.4 million, or 36.4%.
Discontinued Operations. The discontinued operations consist of the
Company's radio station operations. Net loss for the radio station operations
for the year ended December 31, 1994 was ($0.1) million compared to ($1.8)
million for the year ended December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company derives substantially all of its cash flow from its
subsidiaries. The Company's primary sources of liquidity in the future will be
dividends from its subsidiaries and tax sharing payments pursuant to a tax
sharing agreement among the Company and its subsidiaries. The Company's
subsidiaries' principal source of liquidity is net cash provided by operating
activities. Net cash provided by operating activities decreased from $20.0
million for the year ended December 31, 1994 to $18.7 million for the year
ended December 31, 1995. For the period May 11, 1995 through December 31,
1995, the cash provided by the operating activities of the radio stations
approximated 13% of the Company's cash from operating activities. The Company
believes
35
<PAGE>
that it will have sufficient liquidity during the next 12 months to meet its
future capital expenditure and working capital requirements, debt service and
other obligations. The amount of cash required during the next 12 months to
service the debt resulting from the Refinancing Transactions for the Company
is approximately $28.3 million.
Capital expenditures decreased from $9.0 million for the year ended December
31, 1994 to $6.0 million for the year ended December 31, 1995. Capital
expenditures in 1994 included the purchase of property from RHP Incorporated,
a company owned and operated by the estate of Mr. Park, for $3.6 million.
Capital expenditures in 1996 are expected to be approximately $6.7 million, of
which approximately $2.5 million is expected to be principally for capital
replacement purposes and approximately $4.2 million is expected to be for
expansion of the WBMG facility. Historically, the Company has financed capital
expenditures through internally generated cash flow. The Company expects to
finance capital expenditures in the future through cash flow from operations.
The Company sold the Series A Notes on May 13, 1996 as part of the
Refinancing Transactions, the purpose of which was to refinance the
indebtedness under the Prior Credit Agreement, which was guaranteed by the
Company. The Refinancing Transactions consisted of (i) the sale of the Series
A Notes, (ii) the establishment of and drawings under the Senior Credit
Facility in the amount of $58.0 million, (iii) the sale, which was completed
on May 13, 1996, of 80,000 Units consisting of $80.0 million in principal
amount of 13 3/4% Senior Pay-in-Kind Notes due 2004 of Park Communications and
Warrants to purchase 800,000 shares of Common Stock of Park Communications,
(iv) the sale, which was completed on May 13, 1996, of $155.0 million in
principal amount of 11 7/8% Senior Notes due 2004 of Park Newspapers and (v)
the sale, which was completed on March 25, 1996, of the Company's WPAT-AM and
FM radio stations for aggregate gross proceeds of $103.0 million.
In February 1996, the Company entered into a definitive agreement to make
the Montgomery Acquisition. The total purchase price of the acquisition is
$6.0 million, of which $4.8 million has been paid. The Company expects to
complete the acquisition by the third quarter of 1996. The remaining financing
for the Montgomery Acquisition will be from net cash provided by operating
activities.
The Company sold two of its radio stations in March 1996. Proceeds of
approximately $66.0 million were utilized to reduce long-term debt. The net
gain on the sale of these stations was $29.9 million. The sale of the
Company's radio station operations will result in the consolidated group of
which the Company is a part (and which also includes PAI, Park Communications
and Park Newspapers and its subsidiaries) being obligated to pay income taxes
of approximately $65.4 million in connection therewith assuming the sales of
all Radio Station Assets are completed on the terms in effect on the date
hereof. The Communications Senior Credit Facility (which was repaid in full on
June 20, 1996) required that the loans outstanding thereunder be repaid from
the proceeds of the sale of each of the Radio Station Assets (other than the
KEZX-AM and KWJZ-FM radio stations in Seattle, Washington, the assets of which
were not subject to the lien of the Communications Senior Credit Facility)
regardless of the taxes owed with respect to such sale until such loan is
repaid in full.
For a further discussion relating to the Company's liquidity, see "Risk
Factors-- Substantial Leverage."
INCOME TAXES
PAI and its subsidiaries (including the Company) file a consolidated federal
income tax return and separate state or local tax returns as required. See
"Business--Tax Sharing Agreement." On June 17, 1996, the Company made its
required federal estimated tax payment.
36
<PAGE>
BUSINESS
The Company through its subsidiaries owns and operates nine network
affiliated television stations, primarily located in mid-sized southeastern
markets. The Company's television stations are located in markets ranging from
the 51st to the 177th largest DMA. Five of these stations are affiliated with
CBS, two are affiliated with NBC and two are affiliated with ABC. The
Company's television stations cover approximately 2.8 million households, or
approximately 3.0% of the total television households in the United States.
The television networks have recently sought longer term affiliation
agreements with local stations and generally have increased the compensation
payable to the local stations in return for such longer term agreements. Each
of the Company's stations has recently renegotiated its affiliation agreement,
all of which provide for ten-year terms at compensation levels substantially
above the levels under the prior agreements. See "Network Affiliation
Agreements" below. For the year ended December 31, 1995, the Company had net
revenue of $65.4 million.
The Company is a wholly-owned subsidiary of Park Communications, which was
founded in 1971 by Roy H. Park to consolidate media holdings which Mr. Park
began acquiring in 1962. Mr. Park's strategy was to complete at least one
acquisition per year and to improve operating cash flow by managing costs
rather than increasing revenue. PAI, which is effectively controlled by Gary
B. Knapp and Donald R. Tomlin, Jr., acquired Park Communications on May 11,
1995. Messrs. Knapp and Tomlin believed the Acquisition presented a unique
opportunity to acquire a group of media assets, each with strong local
franchises in the markets in which they operate and potential revenue
enhancement opportunities. Due to the prior owner's operating strategy, the
Company's television properties generally have captured a smaller relative
share of advertising dollars in their respective markets than their viewing
audiences would indicate. Messrs. Knapp and Tomlin, along with the Company's
experienced management team, developed and initiated a strategy to take
advantage of this opportunity to increase revenue and cash flow from
operations, while maintaining strict control over costs. Collectively, Messrs.
Knapp and Tomlin have significant business, operating and investment
experience in media, real estate and turnaround situations and, in particular,
in the field of television and radio broadcasting. The management team at Park
Communications and at the Company has substantial experience in the television
industry.
The following table sets forth certain information for each of the Company's
television stations.
<TABLE>
<CAPTION>
NET REVENUE FOR THE YEAR ENDED
DECEMBER 31, 1995
-----------------------------------
YEAR NETWORK MARKET AMOUNT PERCENTAGE OF
STATION ACQUIRED AFFILIATION MARKET RANK (IN THOUSANDS) TOTAL
- ------- ---------- ------------ -------------------------- ------ ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
WBMG-TV 1973 CBS Birmingham, Alabama 51 $ 6,389 9.8%
WTVR-TV 1965 CBS Richmond, Virginia 54 12,222 18.7
WSLS-TV 1969 NBC Roanoke, Virginia 67 9,070 13.9
WTVQ-TV 1992 ABC Lexington, Kentucky 68 8,365 12.8
WDEF-TV 1964 CBS Chattanooga, Tennessee 82 6,957 10.6
WJHL-TV 1964 CBS Johnson City, Tennessee 93 6,641 10.1
WNCT-TV 1962 CBS Greenville, North Carolina 104 5,632 8.6
WUTR-TV 1970 ABC Utica, New York 166 2,179 3.3
KALB-TV 1993 NBC Alexandria, Louisiana 177 7,953 12.2
---------------- --------------
$65,408 100.0%
================ ==============
WHOA-TV Pending(a) ABC Montgomery, Alabama 113 -- --
</TABLE>
- --------
(a) To be acquired pursuant to the Montgomery Acquisition. The 1995 net
revenue of WHOA-TV was approximately $2.5 million.
37
<PAGE>
BUSINESS AND OPERATING STRATEGY
The Company's objective is to build revenue and increase cash flow from its
television stations. Under previous management, the stations were operated
with a focus on managing costs, not on maximizing revenue and growth in cash
flow from operations. The prior owner's strategy resulted in the stations
typically capturing a smaller share of advertising revenue in their respective
markets compared to their audience share. This ratio of advertising revenue
share to audience share is indicated by a station's "power ratio," with a
ratio of one (or greater than one) indicating that a station is achieving its
share (or more than its share) of advertising dollars relative to its share of
viewers. The following table, derived from Investing in Television, 1996
Market Report, published by BIA Publications, Inc. ("BIA"), illustrates the
opportunity for almost all of the Company's stations to increase advertising
revenue without the need to achieve ratings growth.
<TABLE>
<CAPTION>
ADVERTISING LOCAL
REVENUE COMMERCIAL
STATION MARKET SHARE (A) SHARE (B) POWER RATIO (C)
------- -------------------------- ----------- ---------- ---------------
<C> <S> <C> <C> <C>
WBMG-TV Birmingham, Alabama 11% 13% 0.82
WTVR-TV Richmond, Virginia 26 32 0.80
WSLS-TV Roanoke, Virginia 24 24 1.01
WTVQ-TV Lexington, Kentucky 22 23 0.95
WDEF-TV Chattanooga, Tennessee 24 26 0.91
WJHL-TV Johnson City, Tennessee 30 34 0.90
WNCT-TV Greenville, North Carolina 29 35 0.84
WUTR-TV Utica, New York 29 30 0.96
KALB-TV Alexandria, Louisiana 75 70 1.07
</TABLE>
- --------
(a) Represents station gross advertising revenue (including total time sales,
network compensation, national/regional advertising, local advertising and
political advertising), as estimated by BIA, as a percentage of the gross
advertising revenue for the entire market, as estimated by BIA.
(b) Represents the average share for the four rating periods, November 1994
through July 1995, adjusted for lost viewing to out-of-market and non-
commercial stations.
(c) Advertising revenue share divided by local commercial share.
The Company's business and operating strategy of achieving both increased
revenue and cash flow from operations at each of its television stations
includes the following key elements:
Strengthen Local Sales and Marketing Development. The Company believes
that each of its television stations has an opportunity to increase its
share of advertising revenue in its market through the implementation of a
new and aggressive local sales development program. The Company's emphasis
is to create a more highly trained and knowledgeable sales force. Through
extensive sales training programs on both basic and advanced marketing
techniques developed in conjunction with outside consultants, the Company's
sales professionals are beginning to work closely with targeted advertisers
to develop successful advertising campaigns. The Company has also recently
equipped its sales force with laptop computers capable of linking with the
Company's sophisticated pricing, inventory, traffic and research programs
to respond to advertisers' needs with real-time information and thereby
maximize sales opportunities. These systems also assist sales professionals
in creating unique sales presentations that more effectively demonstrate
advertising opportunities at the Company's television stations. In
addition, the Company has recently introduced a variety of improved
marketing techniques such as an increased use of live remote broadcasts
from advertisers' locations, advertising incentives such as trips and
contests for key targeted advertisers, and station-sponsored sales seminars
open to community businesses with nationally known motivational speakers.
The Company has also instituted a successful co-op advertising program. One
of the primary reasons for local advertisers declining to participate in
co-op programs is the complicated administrative and collection procedures
generally associated with obtaining such co-op dollars. The Company has
established co-op directors at most of its stations to eliminate this
administrative burden for the local advertisers. These programs, in
conjunction with an increase in promotion of the stations' local news,
programming and special events and increased use of sophisticated
qualitative market research, are
38
<PAGE>
designed to position the Company's television stations to gain larger
percentages of their respective market advertising revenue.
Enhance Strong Local Franchises. Since the Acquisition, the Company has
been committed to building local franchises at each of its television
stations. Management believes that local news leadership is the foundation
to building significant audience share in local markets. Due to their high
viewership levels, the time periods before, during and after the local news
are attractive to advertisers and thus command higher advertising rates.
The demographic characteristics of the typical news audience are also
appealing to advertisers. The Company has invested in expanding and
improving many of its news operations, including purchasing additional
satellite uplink vehicles, upgrading news studios and technical facilities
and improving weather systems and on-air graphics. In one market (CBS
affiliated WNCT-TV, Greenville, North Carolina), the Company is utilizing
its news production capabilities to generate additional revenue by
providing local news programming to a Fox affiliated station which did not
previously air local news programming. The Company will seek additional
such opportunities to generate incremental revenue from the Company's core
strengths in the area of news production. In addition to committing to
additional investment in and emphasis on its local news operations, the
Company has initiated programs to supplement its inventory of unique and
proprietary programming. Such projects include VideoKids 2000 (a
proprietary Park Children's Television Production focused on children aged
3-11) and coverage of local sporting events such as high school and college
athletics and local specialty events such as NASCAR racing and the Kentucky
Derby.
Provide High Quality Non-Network Programming. Each of the Company's
television stations is focused on improving its syndicated and locally
produced non-network programming to attract audiences with highly valued
demographic characteristics during dayparts which are not programmed by a
station's network. An important element in determining advertising rates is
the station's share among a particular demographic group which an
advertiser may be targeting. The Company believes that through an
interactive approach to programming, the Company can generate incremental
revenue by adjusting programming to capture viewers of certain targeted
demographics that meet the needs of valued advertisers. The Company focuses
on purchasing cost-effective programming that will have long-term audience
appeal and will be supported by syndicators with local promotion of the
shows. Examples of such programming include Home Improvement, Seinfeld,
Frasier and Baywatch. As a result of its ownership of a group of nine
television stations, the Company is able to purchase syndicated programming
at a discount (on a per station basis) to the cost that any one of its
stations would incur as an individual purchaser of such programming and is
able to purchase a variety of programming that might otherwise not be
available to a single station.
Maintain Effective Cost Controls. The Company has continued to maintain
strict cost controls and disciplined credit and collection procedures at
each of its stations to fully exploit the high degree of operating leverage
associated with television properties. Through a strategic planning and
semi-annual budgeting process, the Company continually seeks to identify
areas to reduce expenses and improve efficiencies. The Company relies on
its in-house production capabilities to minimize use of outside firms and
consultants and capitalizes on its critical mass and ownership of a group
of nine stations to realize cost savings through group purchasing of
equipment and services.
TELEVISION INDUSTRY BACKGROUND
Commercial television broadcasting began in the United States on a regular
basis in the 1940s. Currently, there are a limited number of channels
available for broadcasting in any one geographic area, and the license to
operate a television station is granted by the FCC. Television stations which
broadcast over the very high frequency ("VHF") band (channels 2-13) of the
spectrum generally have a competitive advantage over television stations which
broadcast over the ultra-high frequency ("UHF") band (channels above 13) of
the spectrum because the former usually have better signal coverage and
operate at a lower transmission cost. However, specific market characteristics
such as population density, geographic features or other factors may
39
<PAGE>
reduce the VHF signal advantage, in addition to the improvement of UHF
transmitters and receivers, the complete elimination from the marketplace of
VHF-only receivers and the expansion of cable television systems.
All television stations in the country are grouped by Nielsen into
approximately 210 generally recognized television markets that are ranked in
size according to various formulas based upon actual or potential audience.
Nielsen periodically publishes data on estimated audiences for the television
stations in the various television markets throughout the country. The
estimates are expressed in terms of the percentage of the total potential
audience in the market viewing a station (the station's "rating") and of the
percentage of the audience actually watching television (the station's
"share"). Nielsen provides such data on the basis of total television
households and selected demographic groupings in the market. Nielsen uses two
methods of determining a station's ability to attract viewers. In larger
geographic markets, ratings are determined by a combination of meters
connected directly to selected television sets and weekly diaries of
television viewing, while in smaller markets only weekly diaries are
completed. None of the Company's markets is metered at this time.
As used herein, "designated market area" ("DMA") is defined as a geographic
market designated by Nielsen for the sale of national "spot" and local
advertising time sales. As used herein, (1) "Market revenue" data are based on
the unaudited total broadcast television revenue, net of agency commissions,
in a DMA, unless otherwise indicated, as compiled by independent accounting
firms in each market based upon data provided to such firms by each television
broadcast station in such market, or from BIA; (2) "Market rank (DMA)" is
based on the Nielsen Station Index for November of the years indicated; (3)
"Total commercial competitors in market" is the total number of commercial
broadcast television stations in the DMA with an audience rating of at least
1% in the 7:00 a.m. to 1:00 a.m., Sunday through Saturday time period; (4)
"Station rank in market" is the station's rank in the market based on its
share of total viewing of commercial broadcast television stations in the
market for the time periods referenced or, if no time period is indicated,
such rank is based on 7:00 a.m. to 1:00 a.m., Sunday through Saturday; and (5)
"station's audience share" is a station's share of total viewing of commercial
broadcast television stations in the market for the time periods referenced
or, if no time period is indicated, such share is based on 7:00 a.m. to 1:00
a.m., Sunday through Saturday.
Historically, three major broadcast networks--ABC, NBC and CBS--dominated
broadcast television. In recent years, Fox has effectively evolved into the
fourth major network, although fewer hours of network programming are produced
by Fox for its affiliates than are produced by the other three major networks.
In addition, each of Time Warner, Inc. ("Time Warner") and Paramount
Communications, Inc. (now merged into Viacom, Inc.) ("Paramount") has recently
launched a new television network, WB and UPN, respectively.
The affiliation of a station with one of the four major networks has a
significant impact on the composition of the station's revenue, expenses and
operations. A typical network affiliate receives approximately nine to ten
hours of each day's programming from the network. This programming, along with
cash payments ("network compensation"), is provided to the affiliate by the
network in exchange for a substantial majority of the advertising time during
network programs. The network then sells this advertising time and retains the
revenue. The affiliate retains the revenue from time sold during breaks in and
between network programs and programs the affiliate produces or purchases from
non-network sources. In addition, a television station may acquire programming
through barter arrangements. Under barter arrangements, which are becoming
increasingly popular with both network affiliates and independents, a national
program distributor may receive advertising time in exchange for the
programming it supplies with the station paying no fee or a reduced fee for
such programming. Each of the Company's stations participates in barter
arrangements on a dollar-for-dollar basis with maximum terms generally of one
year.
An affiliate of WB or UPN receives a smaller portion of each day's
programming from its network compared to an affiliate of ABC, CBS, NBC or Fox.
Currently, WB and UPN provide eight and six hours of programming per week,
respectively, to their affiliates. As a result of the smaller amount of
programming provided by their network, affiliates of WB or UPN must purchase
or produce a greater amount of their programming, resulting in generally
higher programming costs. These stations, however, retain a larger portion
40
<PAGE>
of the inventory of advertising time and the revenue obtained therefrom
compared to stations affiliated with the major networks, which may partially
offset their higher programming costs.
A fully independent station purchases or produces all of the programming
which it broadcasts, resulting in generally higher programming costs. The
independent station is, in theory, able to retain its entire inventory of
advertising and all of the revenue obtained therefrom. However, barter
arrangements are increasingly popular with independents, as well as network
affiliates.
The Company's television station revenue is primarily derived from local,
regional and national advertising and, to a lesser extent, from network
compensation and revenue from tower rental and commercial production
activities. Advertising rates are based upon a variety of factors, including a
program's popularity among the viewers an advertiser wishes to attract, the
number of advertisers competing for the available time, the size and
demographic makeup of the market served by the station, and the availability
of alternative advertising media in the market area. Rates are also determined
by a station's overall ratings and share in its market, as well as the
station's ratings and share among particular demographic groups which an
advertiser may be targeting. Because broadcast television stations rely on
advertising revenue, declines in advertising budgets, particularly in
recessionary periods, adversely affect the broadcast industry, and as a result
may contribute to a decrease in the revenue of broadcast television stations.
Advertising is sold in time increments. A time sale may involve all or part
of a program, or spot announcements within or between programs. Local news
programming accounts for a significant portion of each station's advertising
revenue.
Approximately 53% of the gross revenue of the Company's stations in 1995
came from local and regional advertisers. Local and regional advertising is
sold primarily by each station's professional sales staff. Typical local and
regional advertisers include automobile dealerships, retailers, local grocery
chains, soft drink bottlers, state lotteries and restaurants.
Approximately 35% of the gross revenue of the Company's stations in 1995
came from national advertisers. Typical national advertisers include
automobile manufacturers, communications companies, fast food franchisors and
direct marketers. National advertising time is sold through representative
agencies retained by the Company. The stations' national sales coordinators
actively assist their national sales representatives to induce national
advertisers to increase their national spot expenditures designated to the
Company's markets.
For a discussion of additional factors which affect the television
broadcasting industry, see "Competition" and "Federal Regulation of Television
Broadcasting" below.
41
<PAGE>
THE STATIONS
The following table sets forth general information for each of the Company's
television stations and their respective markets:
<TABLE>
<CAPTION>
TELEVISION COMMERCIAL STATION
NETWORK CHANNEL/ MARKET HOUSEHOLDS STATIONS RANK IN DMA
AFFILIATION FREQUENCY MARKET RANK(A) IN DMA(B) IN DMA(C) MARKET(D) SHARE(E)
STATION ----------- --------- ---------------- ------- ---------- ---------- --------- --------
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WBMG-TV................. CBS 42/UHF Birmingham, AL 51(f) 525,000 5 4 8%
WTVR-TV................. CBS 6/VHF Richmond, VA 54 509,000 5 2 20
WSLS-TV................. NBC 10/VHF Roanoke, VA 67 396,000 4 2 14
WTVQ-TV................. ABC 36/UHF Lexington, KY 68 387,000 5 2 13
WDEF-TV................. CBS 12/VHF Chattanooga, TN 82 328,000 4 3 14
WJHL-TV................. CBS 11/VHF Johnson City, TN 93 284,000 4 2 16
WNCT-TV................. CBS 9/VHF Greenville, NC 104 236,000 4 1 20
WUTR-TV................. ABC 20/UHF Utica, NY 166 98,000 3 2 12
KALB-TV................. NBC 5/VHF Alexandria, LA 177 85,000 3 1 36
WHOA-TV(g).............. ABC 32/UHF Montgomery, AL 113 216,000 4 3 9
</TABLE>
- --------
(a) Refers to the size of the television market or Designated Market Area
("DMA") as used by Nielsen.
(b) Refers to the approximate number of television households in the DMA as
estimated by Nielsen.
(c) Represents the number of television stations ("reportable stations")
designated by Nielsen as "local" to the DMA, excluding public television
stations and stations which do not meet minimum Nielsen reporting
standards (weekly cumulative audience of less than 2.5%) for reporting in
the Sunday through Saturday, 7:00 a.m. to 1:00 a.m. period ("sign-on to
sign-off"). Does not include national cable channels. The number of
reportable stations may change for each reporting period. "Weekly
cumulative audience" measures the total number of different households
tuned to a station at a particular time during the week. "Share"
references used elsewhere herein measure the total daily households tuned
to a station at a particular time during the week.
(d) Station's rank relative to other reportable stations, based upon the DMA
rating as reported by Nielsen sign-on to sign-off during November, 1995.
(e) Represents estimated television households in the DMA tuned to a specific
station or cable service as a percent of the DMA television households
with a set turned on during November 1995, as determined by Nielsen.
(f) The Company believes that Nielsen will redefine the Birmingham DMA to
include Tuscaloosa and Anniston. According to BIA, if such markets were
combined, the resulting market would rank as the nation's 39th largest on
the basis of television households.
(g) Refers to the station to be acquired by the Company pursuant to the
Montgomery Acquisition. See "The Company."
The following is a description of each of the Company's television stations
and the station to be acquired pursuant to the Montgomery Acquisition. Market
revenue and market revenue growth data are derived from BIA.
WBMG: BIRMINGHAM, ALABAMA
<TABLE>
<CAPTION>
MARKET/STATION DATA
--------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Market revenue ................... $80,000 $76,000 $64,300 $60,000 $60,100
Market revenue growth over prior
period............................ 6.0% 14.0% 7.2% (0.2)% --
Market rank (DMA)................. 51 51 51 50 49
Television homes (in thousands)... 525 530 522 515 511
</TABLE>
Market Overview. Birmingham, Alabama is the 51st largest DMA in the nation,
with approximately 525,000 television households covering four counties:
Blount, Jefferson, Shelby and St. Clair. Birmingham is Alabama's most populous
city, and according to a March 1994 The Wall Street Journal, Shelby County
ranks as the sixth fastest growing, wealthiest and most educated county in the
nation. Historically dependent on iron and steel production, the Birmingham
area economic base is now comprised of a diverse group of approximately 20,000
businesses. Additionally, the University of Alabama at Birmingham ("UAB"), a
world-renowned leader
in medical research, recently became the top employer in the four-county area
during the 1980s and is the largest single employer in the state. In 1994, the
average Birmingham metropolitan household EBI (defined by Sales & Marketing
Management as "combined after-tax or disposable personal income") was
approximately $39,000
42
<PAGE>
and is projected by Sales & Marketing Management to grow by a total of 25.0%
by 1999. From 1985 to 1994, according to Sales & Marketing Management,
Birmingham outperformed the national average for metropolitan retail sales
growth by 16.5%. Sales & Marketing Management also projects Birmingham EBI
growth to continue to outperform the national average by approximately 3.5%
through 1999.
It is anticipated that the Birmingham market will experience major change in
1996. The current market overall ratings and news leader has announced that it
will switch affiliation from ABC to Fox in September, and the current Fox
affiliate has announced that it will become independent. ABC service will be
provided to the market by stations (currently CBS affiliates) licensed to the
adjacent Tuscaloosa and Anniston markets. The addition of Tuscaloosa and
Anniston to the Birmingham market will provide an additional 75,000 cable
households and an additional 25,000 broadcast households that currently have
an allegiance to the local CBS stations. The 100,000 total additional
households will move Birmingham to a market size of approximately 625,000
television households which, based on the National Association of
Broadcasters' market-by-market review and 1993 reported television households,
would make the Birmingham-Tuscaloosa-Anniston market the 39th largest DMA in
the nation. The Company anticipates that Nielsen will redefine the Birmingham
DMA to include Tuscaloosa and Anniston.
Station Performance and Strategy. WBMG, acquired by the Company in 1973,
began operations in 1965 and is affiliated with CBS. There are currently five
stations in the Birmingham DMA, two of which are VHF and three of which,
including WBMG, are UHF. WBMG's current syndicated programming includes
Designing Women, Jenny Jones, Married with Children and Extra-Entertainment.
The Company believes that WBMG will benefit from the network affiliation
changes that the Birmingham market will experience in 1996. Specifically, the
Company believes WBMG will benefit from the fact that it will be the sole CBS
affiliate in an expanded market and from its planned increase to five million
watts of effective radiated power later this year, making WBMG the market's
most powerful station. The Company believes that WBMG will also benefit from
the move upward in market size from an increase in national advertising
dollars allocated to the market. In addition to the planned increase to five
million watts effective radiated power, the Company intends to take other
steps to prepare for the changes to the Birmingham market in 1996. The Company
has begun to hire additional news staff and to upgrade the information systems
at WBMG. In addition, the Company expects to expand WBMG's facility by
approximately 4,000 square feet and to make additional investments in
research, consulting, signal delivery and news expansion.
In January 1996, WBMG was selected by CBS for its national "Excellence In
Community Service" award in recognition of the station's series entitled Black
And White In Birmingham. In addition, WBMG has received the "Best Editorial"
award from the Alabama Associated Press in each of the past three years and
has also been named by the Alabama Kidney Foundation for "Best Reporting On
Health Issues."
WTVR: RICHMOND, VIRGINIA
<TABLE>
<CAPTION>
MARKET/STATION DATA
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Market revenue..................... $64,100 $62,100 $58,600 $53,000 $51,700
Market revenue growth over prior
period............................. 5.5% 6.5% 12.8% 2.5% --
Market rank (DMA).................. 54 55 54 60 63
Television homes (in thousands).... 509 502 492 484 480
</TABLE>
Market Overview. The Richmond, Virginia market, which includes Petersburg,
Virginia, is the 54th largest DMA in the nation, with approximately 509,000
television households. Richmond is the capital of Virginia and home to
numerous colleges and universities, including the University of Richmond.
Richmond has a significant cultural and arts community including a symphony,
major museums for science and the arts and two major garden venues. Richmond's
economy is based primarily on large manufacturing businesses. Major employers
include Philip Morris Incorporated, Ethyl Corporation, James River Corporation
of Virginia and Allied
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Signal Inc. In addition, a new Motorola chip plant is expected to employ over
5,000. As the state capital, Richmond receives special attention as the state
strives to develop a high tech corridor from Northern Virginia to the
Tidewater region, with Richmond at the center. Estimated 1995 average
household income is $49,445, with EBI expected to grow at an annual rate of 4%
through 1999. Richmond's expanding suburbs, especially in the surrounding
counties, have resulted in major retail expansion in the area, and annual
retail sales growth is projected to average 6% through 1999.
Station Performance and Strategy. WTVR, acquired by the Company in 1965,
began operations in 1948 and is affiliated with CBS. It is the oldest
television station south of Washington, D.C. There are five stations in the
DMA, three of which (including WTVR) are VHF stations. For the November 1995
ratings period, WTVR was tied with the NBC affiliate for first place, sign-on
to sign-off, with a 31% in-market share. WTVR's noon newscast and prime-time
programming perform especially well, capturing 35% and 22%, respectively, of
the viewing audience. The station's syndicated programming includes Home
Improvement, Entertainment Tonight, Jenny Jones, Rolonda and, the recent
addition, Frasier.
In 1995, the station won the Virginia Association of Broadcasters award for
"Best Event Promotion" with its "Chili Cookoff" spot. The WTVR news department
also was recognized by the Associated Press for "Best News Feature" and for
"Spot News Photography." The station's news department has recently expanded
staff and promotional efforts. In addition, WTVR has a wide range of community
affairs programs, including the WTVR-developed "For Kids Sake," which the
Company believes is the market's most recognized promotion and community
support function. The Company intends to capitalize on the return of college
football to CBS in 1996 and to continue investment in its news product in
order to maintain and improve upon its current position.
WSLS: ROANOKE, VIRGINIA
<TABLE>
<CAPTION>
MARKET/STATION DATA
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Market revenue..................... $44,000 $42,000 $37,000 $36,500 $35,100
Market revenue growth over prior
period............................. 5.0% 9.7% 1.4% 4.0% --
Market rank (DMA).................. 67 66 65 65 68
Television homes (in thousands).... 396 390 386 384 377
</TABLE>
Market Overview. The hyphenated central Virginia market comprised of
Roanoke, Lynchburg and Danville is the 67th largest DMA in the nation, with
approximately 396,000 television households. Roanoke is the commerce and
retail hub of western Virginia, at the center of a dynamic, prosperous 24-
county region. Roanoke is best known as a center for banking, transportation
and medical care and is rapidly becoming a major center for high tech research
in the fields of robotics, communication and transportation. Carillon Health
System, the area's largest employer, has over 5,300 employees in the market.
Roanoke also serves as home to various companies engaged in high tech research
and development. Nearby Virginia Polytechnic Institute and State University
(Virginia Tech) is recognized for its leadership in computer and
transportation technology. This DMA had an average household EBI of
approximately $35,000 in 1994 and experienced a 22.4% growth in the number of
households from 1985 to 1994. Retail sales for the metropolitan area grew by
approximately 115.1% from 1985 to 1994 according to Sales and Marketing
Management and are projected to grow by 28.7% from 1994 to 1999.
Station Performance and Strategy. WSLS, acquired by the Company in 1969,
began operations in 1952 and is affiliated with NBC. There are four stations
in the market, three of which are VHF, including WSLS. The station focuses on
the 18-54 year old audiences which the Company believes many advertisers
prefer and generates the highest revenue. In this demographic category, WSLS
is tied for the lead in the market. The station's syndicated programming
includes Live with Regis & Kathy Lee, Day & Date, Roseanne, Hard Copy, Real
TV, Entertainment Tonight and Dr. Quinn, Medicine Woman.
The importance and priority of local news at WSLS is evidenced by the
recognition given to the station. In 1994, WSLS was named "News Operation of
the Year" by the Virginia Association of Broadcasters along with
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an award for "Outstanding Sports Coverage" and the "Douglas Freeman Award" for
spot news coverage. In 1995, WSLS won "Best Feature Photography" and "Best
Spot News Photography" awards from the Associated Press and was named "Best TV
News" by readers of the Roanoker magazine. In community events and community
service, WSLS is the flagship station for coverage of the prestigious Tour
DuPont bicycle race which airs in more than 100 countries around the world.
WSLS is also the owner and originator of the live broadcast of the Miss
Virginia Pageant which is networked throughout all Virginia markets and
Washington, D.C. In addition, WSLS associates were honored in 1994 by the
American Red Cross for raising funds for flood relief, and in 1995, WSLS
received the "Chairman's Award" from the United Way of the Roanoke Valley.
WTVQ: LEXINGTON, KENTUCKY
<TABLE>
<CAPTION>
MARKET/STATION DATA
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Market revenue..................... $47,500 $43,500 $38,300 $34,900 $33,800
Market revenue growth over prior
period............................. 6.0% 10.1% 9.7% 3.3% --
Market rank (DMA).................. 68 69 71 74 73
Television homes (in thousands).... 387 384 379 360 355
</TABLE>
Market Overview. The Lexington, Kentucky market is the 68th largest DMA in
the nation, with approximately 387,000 television households. Lexington is
located in the Bluegrass region of Kentucky, 81 miles south of Cincinnati,
Ohio and 74 miles east of Louisville, Kentucky. Lexington is the state's
second largest city with a metropolitan area population of over 353,000, which
is expected to grow at a rate of 1.1% through the year 2000. This DMA had an
average household EBI of approximately $37,000 in 1994. Lexington is home to
the University of Kentucky which along with Toyota and Lexmark International
are major employers. The Kentucky state capital of Frankfort is part of the
overall Lexington market in which retail sales grew by approximately 7% from
1985 to 1994 and are projected by Sales & Marketing Management to grow by 6%
through 1999.
Station Performance and Strategy. WTVQ was acquired by the Company in 1992.
The station began operations in 1968 and is one of five stations (all UHF)
serving the Lexington market, which is the third largest all-UHF market in the
country. WTVQ is ranked either first or second in the DMA in all broad
dayparts (Monday-Friday, noon-11:30 p.m.). In afternoon daytime (Monday-
Friday, noon-4:00 p.m.), WTVQ ranks first in the DMA with a 31% in-market
household share and a 3-to-1 ratings advantage in the key demographics of
women ages 18-49 and women ages 25-54. In the revenue critical 4:00 p.m.-8:00
p.m. daypart, a primarily non-network time period from which the station
realizes a substantial portion of its revenue, WTVQ is ranked second in in-
market household viewing with a 25% audience share. In prime time, WTVQ is
tied for second place and trails the NBC affiliate by only 1 share point with
a 29% share of household in-market viewing. WTVQ is tied for the top ranking
in prime-time in the key demographics of persons 18-49 and 25-54 years old. In
Monday-Friday late news, WTVQ ranks second, averaging a 24% in-market share of
household viewing. The station's syndicated programming includes Live with
Regis & Kathy Lee, Maury Povich, Seinfeld, Baywatch, Entertainment Tonight and
Inside Edition.
A centerpiece of WTVQ's annual programming is market-exclusive coverage of
the Kentucky Derby. WTVQ broadcasts over 30 hours of Derby-related
programming, including all of the races live from Churchill Downs on the day
of the Derby. WTVQ is also the "home" station for Park Children's Television,
producer of VideoKids 2000, a monthly television magazine show "by kids and
for kids" which includes features from child reporters in all of the Company's
markets. WTVQ has won numerous local and national news awards, including the
"Gold Medal Award" for coverage of the 1995 Bluegrass Games. The station was
also named by AT&T Satellite Operations as the "Satellite Uplink Facility of
the Year" for 1995.
In 1992 and 1993, the Company made approximately $2.0 million in capital
improvements at WTVQ for the purpose of upgrading the quality of its news
programming and increasing its advertising revenue. Such improvements include
the purchase and installation of news gathering, news editing and weather
equipment as well as studio cameras and the purchase of a live news mobile van
and laptop computers for the sales staff.
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WDEF: CHATTANOOGA, TENNESSEE
<TABLE>
<CAPTION>
MARKET/STATION DATA
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Market revenue..................... $38,500 $37,600 $31,000 $29,800 $27,100
Market revenue growth over prior
period............................. 2.4% 17.8% 4.0% 10.0% --
Market rank (DMA).................. 82 82 82 81 81
Television homes (in thousands).... 328 318 311 310 304
</TABLE>
Market Overview. The Chattanooga, Tennessee market is the 82nd largest DMA
in the nation, with approximately 328,000 television households. Stations in
the Chattanooga television market provide service to residents in four states:
Tennessee, Georgia, Alabama and North Carolina. Major Chattanooga employers
include the Tennessee Valley Authority, Erlanger Medical Center and Provident
Life & Accident Insurance Company. Nearby Dalton, Georgia is considered the
"carpet capital of the world." A number of colleges and universities are
located in the area.
In recent years, tourism has been, and is expected to continue to be, a
major positive economic factor for the region. In the summer of 1996, the
Chattanooga area will host the white water rafting portion of the 1996 Summer
Olympics. The 1995 Chattanooga Area Chamber of Commerce Databook shows the
area with a stable and steady growing economy. The 1995 estimated household
income is $44,756.
Station Performance and Strategy. WDEF, the VHF CBS affiliate, was acquired
by the Company in 1964. The station began operations in 1954 and is one of
four stations (three VHF, one UHF) in this market. WDEF's noon newscast is
ranked first in the market with a 30% share. In prime time, WDEF is a very
strong third, with a 17% share. WDEF also performs well in the Monday-Friday,
9:00 a.m.-noon time period (ranked second with a 19% share) and in the Monday-
Friday, noon-3:00 p.m. time period (ranked second with a 22% share).
Syndicated programming includes Heat of The Night, Martin, Roseanne, Married
With Children, Grace Under Fire and Access Hollywood.
The Company believes that the return of college football to CBS presents
significant ratings, revenue and promotional opportunities for WDEF. In 1996,
WDEF intends to produce and air three University of Tennessee football pre-
game shows. The station also has scheduled in 1996 five NASCAR pre-race shows
and a preview show that will air immediately preceding the CBS network
coverage of the annual country music awards show from the Grande Ole Opry in
Nashville.
Recently the station's news department was recognized by the Tennessee
chapter of the Associated Press as "Best News Operation," "Best Spot News,"
"Best Continuing News," "Best Series," "Best Investigative Series," "Best
Public Affairs," "Best Sports Story," "Best Sportscast" and "Best Sports
Video." In addition, in 1994 and 1995 the news department won the prestigious
Scripps Howard national journalism award.
WJHL: JOHNSON CITY, TENNESSEE
<TABLE>
<CAPTION>
MARKET/STATION DATA
--------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Market revenue.................... $30,000 $29,000 $25,000 $21,000 $21,600
Market revenue growth over prior
period............................ 3.4% 16.0% 19.0% (3.0)% --
Market rank (DMA)................. 93 93 92 85 84
Television homes (in thousands)... 284 281 279 281 280
</TABLE>
Market Overview. Johnson City, Tennessee, along with Kingsport, Tennessee
and Bristol, Virginia/Tennessee, are part of the Tri-Cities, Tennessee-
Virginia market, which is the 93rd largest DMA in the nation, with
approximately 284,000 television households. The market spans eight counties
in southwest
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<PAGE>
Virginia, two counties in southeast Kentucky and seven counties in northeast
Tennessee. The Tri-Cities area was ranked 27th of 343 metropolitan areas in
the Places Rated Almanac 1993 in terms of quality of life criteria. Tennessee
Eastman in Kingsport is the area's largest employer with over 11,000
employees. East Tennessee State University with 12,000 students is the largest
of the 11 colleges and universities in the market. According to the September
1995 edition of American Demographics, the Tri-Cities area is one of the
fastest growing retail markets in the nation over the past five years. The
Tri-Cities region's total employment is projected to increase by 5.2% by July
1998 which should have a positive impact on the current $33,543 median
household income. Retail sales in the market grew by approximately 9% from
1985 to 1994 and are projected by Sales & Marketing Management to grow by an
average of 4% annually through 1999.
Station Performance and Strategy. WJHL, acquired by the Company in 1964,
began operations in 1953 and is affiliated with CBS. WJHL was the first
station in the market. WJHL is one of two VHF network affiliates in the market
which compete with two UHF stations. During the November 1995 ratings, WJHL
ranked second overall with a 30% share of viewing in the market. WJHL's award
winning newscasts are well received in the market and currently the station
programs three hours of news Monday through Friday and one hour of news daily
on Saturday and Sunday. WJHL has the fastest growing morning news in the
market and the station's most recent news expansion at 5:30 p.m. is also
gaining acceptance. Due to the strength of its morning programming, from 9:00
a.m.-noon, Monday-Friday, WJHL ranks first in the market with a 31% share. The
station's syndicated programming includes Live with Regis & Kathy Lee,
Baywatch, Crook and Chase, Andy Griffith, Married with Children, Roseanne and
Coach.
One of WJHL's principal strengths is the station's involvement with the
community. WJHL has taken a leadership role in helping to promote and develop
the Johnson City Senior Citizens Center, the local chapter of the Girl Scouts
of America, the Boys and Girls Club of Johnson City/Washington County,
Tennessee, the Better Hearing Institute and the Childrens Miracle Network, and
the station was a major sponsor of the Black History Scholarship Award given
by the St. Paul A.M.E. Zion Church of Johnson City. In addition, WJHL
dominated the 1995 Tennessee Associated Press awards with a total of 10
separate awards including "Best Feature" and "Best Spot Photo." The station
also was named "Best in the State" by the American Cancer Society and received
special recognition from the United States Air Force Recruiting, the United
States Marine Corps Reserve Toys for Tots, Paralyzed Veterans of America and
the March of Dimes.
WNCT: GREENVILLE, NORTH CAROLINA
<TABLE>
<CAPTION>
MARKET/STATION DATA
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Market revenue..................... $24,900 $23,900 $20,900 $20,200 $17,600
Market revenue growth over prior
period............................. 4.2% 14.4% 3.5% 15.0% --
Market rank (DMA).................. 104 106 105 104 95
Television homes (in thousands).... 236 246 229 231 228
</TABLE>
Market Overview. The Greenville-New Bern-Washington, North Carolina market
is the 104th largest DMA in the nation, with approximately 236,000 television
households. Eastern North Carolina is a vital part of North Carolina, the
nation's tenth most populous state. The area's economy is diversified into
manufacturing, retail, government, finance, agriculture, military, medical and
service areas. The area has the distinction of being the home of the world's
first Global Transpark, an integrated multi-model manufacturing and
transportation center. Major manufacturing employers include Glaxo-Wellcome
Pharmaceuticals and Proctor and Gamble. Greenville is the largest city within
this market and the home of East Carolina University and the University School
of Medicine. In April 1995, American Demographics Magazine ranked Greenville
the eighth fastest growing metropolitan area in the United States. In June
1995, World Trade Magazine rated Greenville second on its list of most livable
cities in the United States. In 1994, the average household EBI in the market
was approximately $37,000, and is projected by Sales & Marketing Management to
grow by an average of 4% annually by 1999.
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<PAGE>
Station Performance and Strategy. WNCT was the Company's first television
station. Acquired in 1962, the station began operations in 1953. WNCT is a VHF
CBS affiliate competing against three other VHF stations in the market. In the
November 1995 ratings, WNCT led the market with an overall 35% share of the
market. WNCT's newscasts also dominate the competition. The station's
syndicated programming includes Live with Regis & Kathy Lee, Baywatch,
Rolonda, Seinfeld and America's Funniest Home Videos.
WNCT is the home of one of the longest running talk shows in the United
States, Carolina Today, a live information and news program which airs from
5:30 to 7:00 a.m. weekdays. WNCT's commitment to news is demonstrated by its
partnership with the Fox station in Morehead City, North Carolina, for which
WNCT produces and retains rights to the first 10:00 p.m. newscast in the area.
To further enhance WNCT's position in the DMA, Nielsen research indicates
that Edgecombe County, with 20,260 households, will move to the Greenville-New
Bern-Washington market from the Raleigh-Durham market effective in 1996. The
addition of Edgecombe County to the DMA would move the market rankings into
the top 100 in the nation. In addition, WNCT is the designated CBS station in
the adjacent Wilmington, North Carolina DMA, which is the 143rd largest in the
nation. WNCT was honored in 1995, with awards from the Associated Press for
"Best Newscast," "Outstanding News Operation" and "Best Sportscast."
Additionally, the station was given the "Outstanding News Media Outlet for
Drunk and Drugged Driving Prevention Award" by the Governor's Safe Highway
Committee.
WUTR: UTICA, NEW YORK
<TABLE>
<CAPTION>
MARKET/STATION DATA
--------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Market revenue.......................... $9,700 $9,600 $9,000 $8,100 $7,300
Market revenue growth over prior period. 1.0% 6.7% 11.1% 11.0% --
Market rank (DMA)....................... 166 164 163 161 161
Television homes (in thousands)......... 98 98 97 97 99
</TABLE>
Market Overview. Utica, New York is part of the Utica-Rome market, which is
the 166th largest DMA in the nation, with approximately 98,000 television
households. Utica, the geographic center of New York, is located in the heart
of the Mohawk Valley and is home to 65,000 residents. Located 45 miles from
Syracuse, 90 minutes from the state capital at Albany and close to the
Adirondack Mountains and the Finger Lake region, Utica is home to several
colleges and universities including Hamilton and Utica Colleges. Among the
largest employers are Oneida Silversmiths and the Oneida Indian Nation Casino
which together employ more than 5,000 people. Other important employers with
corporate offices in the Utica-Rome area are the Utica National Insurance
Group, Revere Copper Products and Harden Furniture. Total population of the
Utica-Rome metropolitan area is 316,000 and is expected to grow at a rate of
5.8% through the year 2000. Estimated average household EBI for the area was
approximately $39,500 in 1994.
Station Performance and Strategy. The Company built WUTR and placed the
station into service in 1970. WUTR is affiliated with ABC and competes
directly against two VHF stations (an NBC and a CBS affiliate) and one UHF
station (a Fox affiliate) in the DMA. In the November 1995 ratings, WUTR was
second with an overall share of 28%. WUTR's newscasts have grown in popularity
over the past year, particularly among the demographics the Company believes
generate the highest level of advertising revenue. The station's syndicated
programming includes Live with Regis & Kathy Lee, Cops, Hard Copy, Home
Improvement and Married With Children.
WUTR is host to the Children's Miracle Network Telethon which has raised
more than $300,000 to date to benefit children in the Mohawk Valley. WUTR is
also an active partner with ABC in conjunction with the "Children First
Campaign" and has received recognition from the network for its efforts. WUTR
has the distinction of being the first station in the market to offer closed
captioning to its hearing impaired viewers, as well as the first to offer both
a morning and noon news broadcast. WUTR is the only station in the market to
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offer newsbriefs at the top of every hour throughout the day. WUTR is the
official "lottery" station in the market; an agreement with the State of New
York provides that WUTR receives daily numbers first for dissemination to its
viewers. WUTR was recognized in 1995 for its "Outstanding Local Series
Designed For Children" by the New York State Broadcasters Association and
received the Associated Press award for "Best Spot News."
KALB: ALEXANDRIA, LOUISIANA
<TABLE>
<CAPTION>
MARKET/STATION DATA
----------------------------------
1995 1994 1993 1992 1991
------- ------- ------ ---- ----
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Market revenue............................... $12,000 $10,300 $9,000 -- --
Market revenue growth over prior period...... 16.5% 14.4% -- -- --
Market rank (DMA)............................ 177 171 170 173 166
Television homes (in thousands).............. 85 87 83 83 86
</TABLE>
Market Overview. Alexandria, Louisiana is the 177th largest DMA in the
nation, with approximately 85,000 television households. The Alexandria DMA
consists of four parishes, Rapides, Avoyelles, Grant and Vernon, and is
located in the center of a 17-parish region of Louisiana, 180 miles northwest
of New Orleans, 120 miles southeast of Shreveport and 95 miles northeast of
Lake Charles. With an abundant supply of lakes, rivers and bayous, the
Alexandria area is referred to as the "Sportsman's Paradise." Agriculture is
the area's top economic contributor followed by federal and state government
as a result of Alexandria's central location within Louisiana. The largest
employer for the four-parish area is Rapides Regional Medical Center which
employs 1,750 people. In addition, with the expansion of the Regional Medical
Center and five major hospitals, Alexandria is quickly becoming Louisiana's
focal point for health care. The average household EBI in the DMA was
approximately $36,000 in 1994, and retail sales totaled $1,726,000 in 1994.
Retail sales are expected to grow at an average annual rate of 5% through
1999. These figures are expected to increase because of actions being taken
toward "re-use" of a former air force base, the development of the Port of
Alexandria and the completion of Interstate 49, the only north-south
interstate highway in Louisiana.
Station Performance and Strategy. KALB, affiliated with the NBC network, was
acquired by the Company in November 1993. Since its inception in 1954, KALB
has been the only VHF commercial television station serving the Alexandria
market. The station dominates the DMA, attaining a 68% share in its number one
time period (6:00-7:00 a.m., Monday-Friday). KALB averages a 35% share from
sign-on to sign-off. In the revenue critical area of news, KALB ranks first in
all demographic categories, with over 85% of the in-market homes relying on
KALB as their main source for local news. With KALB programming 16 hours of
news per week, newscasts are the station's top revenue producing category of
programming. ABC and Fox also serve the market, along with two VHF competitors
(CBS affiliates) from adjacent markets. Syndicated programming includes Heat
of the Night, Ricki Lake, The Oprah Winfrey Show, Jeopardy, Wheel of Fortune,
Roseanne and Real Stories of the Highway Patrol.
In 1994 and 1995, KALB was named "Central Louisiana's Best" television
station in a market-wide survey by the local newspaper ahead of five other
local stations and more than 30 cable channels. The station also received the
"Outstanding Television Media Award" from the Blood Center of Louisiana and
Southeast Texas for its coverage and support. Three employees of the station
were elected as officers of the Central Louisiana Press Club to serve in 1996.
WHOA: MONTGOMERY, ALABAMA
<TABLE>
<CAPTION>
MARKET/STATION DATA
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Market revenue..................... $25,100 $25,000 $21,500 $20,800 $19,800
Market revenue growth over prior
period............................. 0.4% 16.3% 3.4% 5.1% --
Market rank (DMA).................. 113 113 110 110 105
Television homes (in thousands).... 216 214 210 209 208
</TABLE>
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<PAGE>
Market Overview. Montgomery, Alabama is the nation's 113th largest DMA, with
approximately 216,000 television households. The Montgomery area had an
average household income of approximately $53,500 in 1994. Montgomery is the
capital of Alabama and benefits from the stability of government and related
employment associated with state government centers. The largest employer in
the market is the state government followed by Maxwell Air Force Base/Gunter
Annex, which is also home of the Air Force War College. Three of the ten
largest employers are medical facilities. Montgomery is also a major
distribution center for Winn-Dixie, Rheem Manufacturing and Augat Wiring
Systems. The market is home to several universities, including Alabama State
University and Auburn University at Montgomery. Retail sales for the
Montgomery metropolitan area grew by approximately 6% from 1985 to 1994 and
are projected by Sales and Marketing Management to grow by 5% through 1999.
Station Performance and Strategy. WHOA, which is a UHF station, began
operation in 1964, and competes against two VHF and one other UHF station. In
the November 1995 ratings, WHOA ranked third overall with a 9% share.
Syndicated programming includes Baywatch, Live with Regis & Kathie Lee, Home
Improvement, Jenny Jones and Roseanne.
WHOA participates in a broad spectrum of civic and charitable activities.
The station's promotional efforts include Alabama's Best Citizen, Sunshine
Children's Camp, South Alabama State Fair, Kids Stuff educational series,
CityFest, Phoenix Charity Ball (against drug abuse) and the American Red Cross
I.D. Kids Campaign. The station produces the Easter Seals Telethon and is also
negotiating to produce and air the National Arthritis Foundation Telethon.
COMPETITION
Competition in the television industry takes place on several levels:
competition for audience, competition for programming (including news) and
competition for advertisers. Additional factors that are material to a
television station's competitive position include signal coverage and assigned
frequency. The broadcasting industry is continually faced with technological
change and innovation, the possible rise in popularity of competing
entertainment and communications media, and governmental restrictions or
actions of federal regulatory bodies, including the FCC and the Federal Trade
Commission, any of which could have a material effect on the Company's
operations.
Audience. Stations compete for audience on the basis of program popularity,
which has a direct effect on advertising rates. A majority of the daily
programming on the Company's stations is supplied by the network with which
each station is affiliated. In those periods, the stations are totally
dependent upon the performance of the network programs in attracting viewers.
There can be no assurance that such programming will achieve or maintain
satisfactory viewership levels in the future. Non-network time periods are
programmed by the station with a combination of self-produced local news,
public affairs and other entertainment programming, including syndicated
programs purchased for cash, cash and barter, or barter only. Local news has
been most important to the Company's stations' success, and the Company places
a growing emphasis on other forms of local programming, as well as continuing
involvement in the local community.
Independent stations, whose number has increased significantly over the past
decade, have also emerged as viable competitors for television viewership
share. Each of Time Warner and Paramount has recently launched a new
television network. The Company is unable to predict the effect, if any, that
such networks and any future networks will have on the future results of the
Company's operations. Public broadcasting outlets in most communities also
compete with commercial broadcasters for viewers.
In addition, the development of methods of television transmission of video
programming other than over-the-air broadcasting, and in particular the growth
of cable television, has significantly altered competition for audience in the
television industry. These other transmission methods can increase competition
for a broadcasting station by bringing into its market distant broadcasting
signals not otherwise available to the station's audience and also by serving
as a distribution system for non-broadcast programming originated on the cable
system.
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Through the 1970s, television broadcasting enjoyed virtual dominance in
viewership and television advertising revenue because network-affiliated
stations competed only with each other in most local markets. Beginning in the
1980s, however, this level of dominance began to change as more local stations
were authorized by the FCC and marketplace choices expanded with the growth of
independent stations and cable television services. Although cable television
systems were initially used to retransmit broadcast television programming to
paid subscribers in areas with poor broadcast signal reception, significant
increases in cable television penetration occurred throughout the 1970s and
1980s in areas that did not have signal reception problems. As the technology
of satellite program delivery to cable systems advanced in the late 1970s,
development of programming for cable television accelerated dramatically,
resulting in the emergence of multiple, national-scale program alternatives
and the rapid expansion of cable television and higher subscriber growth
rates. In the aggregate, cable-originated programming has emerged as a
significant competitor for viewers of broadcast television programming,
although no single cable programming network regularly attains audience levels
amounting to more than a small fraction of any single major broadcast network.
Over-the-air broadcasting remains the dominant distribution system for mass
market television advertising. Basic cable penetration (the percentage of
television households which are connected to a cable system) in the Company's
television markets ranges from 58% to 76%.
Historically, cable operators have not sought to compete with broadcast
stations for a share of the local news audience. Recently, however, certain
cable operators have elected to compete for such audiences, and the increased
competition could have an adverse effect on the Company's audience for local
news, as well as the Company's advertising revenue.
Other sources of present and potential competition include pay cable, home
entertainment systems (including video cassette recorder and playback systems,
videodiscs and television game devices), Multichannel Multipoint Distribution
Service ("MMDS" or "Wireless Cable"), satellite master antenna television
systems, low power television ("LPTV"), television translator stations, Local
Multipoint Distribution Service ("LMDS"), direct broadcast satellite ("DBS")
video distribution services which transmit programming directly to homes
equipped with special receiving antennas, and the participation of telephone
companies in the provision of "video dialtone" transmission service for the
delivery of video programming by wire. Some of these competing services have
the potential of providing improved signal reception or increased home
entertainment selection, and they are continuing to develop and expand.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now under development
for use with current cable channels or DBSs, are expected to reduce the
bandwidth required for television signal transmission. These compression
techniques, as well as other technological developments, are applicable to all
video delivery systems, including over-the-air broadcasting, and have the
potential to provide vastly expanded programming to highly targeted audiences.
Reduction in the cost of creating additional channel capacity could lower
entry barriers for new channels and encourage the development of increasingly
specialized "niche" programming. This ability to reach very narrowly defined
audiences is expected to alter the competitive dynamics for attracting an
audience and for advertising expenditures. The Company is unable to predict
the effect that these or other technological changes will have on the
broadcast television industry or the future results of the Company's
operations.
Programming. Competition for programming involves negotiating with national
program distributors or syndicators which sell first-run and rerun packages of
programming. In acquiring programming to supplement network programming, the
Company's stations compete primarily with in-market broadcast stations for
exclusive access to off-network reruns (such as Roseanne and Home Improvement)
and first-run product (such as The Oprah Winfrey Show and Live with Regis &
Kathy Lee) in their respective markets. Cable systems generally do not compete
with local stations for programming, although various national cable networks
from time to time have acquired from producers programs that would have
otherwise been placed in local syndication. Competition for exclusive news
stories and features is also endemic in the television industry.
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Time Warner and Paramount, each of which has recently launched a new
television network, also own or control major production studios. Outside
production studios are the primary source of programming for the networks. It
is uncertain whether in the future such programming, which is generally
subject to short-term agreements between the studios and the networks, will be
moved to the new networks.
Advertising. Advertising rates are based upon the size of the market in
which the station operates, a program's popularity among the viewers that an
advertiser wishes to attract, the number of advertisers competing for the
available time, the demographic makeup of the market served by the station,
the availability of alternative advertising media in the market area,
aggressive and knowledgeable sales forces, and development of projects,
features and programs that tie advertiser messages to programming. In addition
to competing with other media outlets for audience share, The Company's
stations also compete with such media outlets for advertising revenue. the
Company's stations compete for such advertising revenue with other television
stations in their respective markets, as well as with other advertising media,
such as newspapers, radio stations, magazines, outdoor advertising, transit
advertising, yellow page directories, direct mail and local cable systems.
Competition for advertising dollars in the broadcasting industry occurs
primarily within individual markets. Generally, a television broadcasting
station in the market does not compete with stations in other market areas.
The Company's television stations are located in highly competitive markets.
As discussed under "Audience" above, further advances in technology may
increase competition for advertising.
NETWORK AFFILIATION AGREEMENTS
Each of the Company's stations is affiliated with a national television
network under standard affiliation agreements and each has been affiliated
with the same network continuously since its acquisition by the Company. Each
affiliation agreement with CBS and NBC currently runs for a ten-year term
expiring in December 2004 (in the case of each CBS agreement) and October 2005
(in the case of each NBC agreement), and is renewable for successive five-year
terms unless prior written notice of termination is given by the Company or
the network. Each affiliation agreement with ABC currently runs for a ten-year
term expiring in January 2006, and does not contain renewal terms. Under each
affiliation agreement, the network possesses, under certain circumstances, the
right to terminate the agreement on prior written notice. Such circumstances
include a transfer of the broadcasting license or ownership or control of the
station or a change in the station's transmitter location, power, frequency or
hours of operation. The Company believes the Company's relationships with the
networks to be good, and the networks have routinely renewed their affiliation
agreements with the Company's stations; however, there can be no assurance
that these affiliation agreements will be renewed in the future. See "Risk
Factors--Network Affiliation; Reliance on Network Programming."
Pursuant to the terms of the long-term affiliation agreements entered into
with CBS and NBC, such networks agreed to an accelerated payment schedule of
the network compensation due to the Company under such agreements. Under the
new affiliation agreements with CBS and NBC, approximately $37.4 million of
the $52.2 million in aggregate network compensation payable thereunder will be
paid to the Company during the first four years of the ten-year terms of such
agreements. In accordance with GAAP, the Company is accounting for payments
received from the networks on a straight-line basis. The new long-term
affiliation agreements entered into with ABC include an increase in network
compensation, as well as certain news-gathering equipment to be provided by
ABC. However, such agreements with ABC do not provide for accelerated payments
from ABC.
Generally, each affiliation agreement provides the station with the right to
rebroadcast all programs transmitted by the network. In exchange, the network
has the right to sell a substantial majority of the advertising time
associated with the network programs and to retain such revenue. For every
hour that the station elects to broadcast network programming, the network
pays the station compensation, as specified in each affiliation agreement,
which varies with the time of day. Typically, "prime time" programming (Monday
through Saturday from 8:00 p.m.-11:00 p.m. and Sunday from 7:00 p.m.-11:00
p.m.) generates the highest hourly rates. Rates are
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subject to increase or decrease by the network during the term of each
affiliation agreement, with provisions for advance notice and right of
termination on behalf of the station in the event of a reduction in rates of
network compensation. See "Risk Factors--Network Affiliation; Reliance on
Network Programming." Management believes that programming costs are generally
lower for network affiliates than for independent television stations and that
prime-time network programs generally achieve higher ratings than non-network
programs.
Under the affiliation agreements, the networks offer the Company a variety
of sponsored and unsponsored programs which the Company must refuse before
they can be offered to any other television station in the same market. Each
of the Company's stations broadcasts approximately 85 hours of network
programs per week between the hours of 7:00 a.m. and 1:30 a.m.
When not carrying network programs, the Company's stations broadcast
programs produced by the stations (most of which are news and public affair
programs) and programs such as movies or syndicated programs acquired from
independent sources. The costs of locally produced and purchased syndicated
programming are a significant portion of the Company's operating expenses.
Syndicated programming costs are determined based upon largely uncontrollable
market factors, including demand from the independent and network affiliated
stations within the market and in some cases from cable operations.
FEDERAL REGULATION OF TELEVISION BROADCASTING
The Company's television broadcasting operations are subject to the
jurisdiction of the Federal Communications Commission (the "FCC") under the
Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act prohibits the operation of television broadcasting stations
except under a license issued by the FCC and empowers the FCC, among other
things, to issue, revoke and modify broadcast licenses, determine the
locations of stations, regulate the equipment used by stations, adopt
regulations to carry out the provisions of the Communications Act and impose
penalties for violation of such regulations. The Communications Act prohibits
the assignment of a license or the transfer of control of a licensee without
prior approval of the FCC. The Telecommunications Act of 1996 ("Telecom Act"),
which amends major provisions of the Communications Act, was enacted on
February 8, 1996. The FCC has not yet implemented certain of the provisions of
the Telecom Act.
License Grant and Renewal. Television broadcasting licenses are generally
granted or renewed for a maximum period of five years, but may be renewed for
a shorter period upon a finding by the FCC that the "public interest,
convenience and necessity" would be served thereby. The Telecom Act extends
the license period for television stations to a maximum of eight years, and
the FCC has initiated a rulemaking proceeding looking toward amendment of its
rules to provide for such a maximum term. At the time an application is filed
for renewal of a television license, parties in interest, as well as members
of the public, may apprise the FCC of the service the station has provided
during the preceding license term and urge the grant or denial of the
application. Under the Telecom Act, a competing application for authority to
operate a station and replace the incumbent licensee may not be filed against
a renewal application and considered by the FCC in deciding whether to grant a
renewal application. The statute modified the license renewal process to
provide for the grant of a renewal application upon a finding by the FCC that
the licensee (i) has served the public interest, convenience and necessity;
(ii) has committed no serious violations of the Communications Act or the
FCC's rules; and (iii) has committed no other violations of the Communications
Act or the FCC's rules which would constitute a pattern of abuse. If the FCC
cannot make such a finding, it may deny a renewal application, and only then
may the FCC accept other applications to operate the station of the former
licensee. In a vast majority of cases, broadcast licenses are renewed by the
FCC even when petitions to deny or competing applications are filed against
broadcast license renewal applications. The main station licenses for the
Company's stations expire on the following dates: WBMG, April 1, 1997; WTVQ,
August 1, 1997; KALB, June 1, 1997; WUTR, June 1, 1999; WNCT, December 1,
1996; WDEF, August 1, 1997; WJHL, August 1, 1997; WTVR, October 1, 1996; and
WSLS, October 1, 1996. In an order released February 9, 1995, by the FCC Mass
Media Bureau, the application for renewal of the license of the Company's
television station in Birmingham, WBMG, was granted on the condition that the
station submit annual reports to the FCC describing the station's affirmative
action efforts. Although there can be no assurance that the Company's licenses
will be renewed, the Company is not
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aware of any facts or circumstances that would prevent the renewal of the
licenses for its stations at the end of their respective license terms. The
main station license for the station to be acquired pursuant to the Montgomery
Acquisition expires on April 1, 1997.
Multiple Ownership Restrictions. FCC regulations govern the multiple
ownership of radio and television broadcast stations and certain other media
on a national and local level. The Telecom Act directs the FCC to eliminate or
modify certain rules regarding the multiple ownership of broadcast stations
and other media. The statute eliminates the limit on the number of television
stations that an individual or entity may own or control, provided that the
audience reach of all television stations owned does not exceed 35% of all
U.S. households. The FCC revised its rules consistent with the foregoing
provision on March 8, 1996. The statute also directs the FCC to conduct a
rulemaking proceeding to determine whether to retain, eliminate or modify its
limitations on the number of television stations that an individual or entity
may own within the same geographic market. Though no rulemaking notices have
yet been issued by the FCC pursuant to that direction, a pending rulemaking
addresses substantially the same issues.
FCC rules currently allow an entity to have an attributable interest (as
defined below) in only one television station in a market. In addition, FCC
rules and/or the Communications Act generally prohibit an individual or entity
from having an attributable interest in a television station and a radio
station or daily newspaper that is located in the same local market area
served by the television station. The Telecom Act does not eliminate the FCC's
rules restricting the common ownership of a radio station and a television
station in the same geographic market ("one-to-a-market rule") and the common
ownership of a daily newspaper and a broadcast station located in the same
geographic market. The statute, however, does relax the FCC's one-to-a-market
rule by directing the FCC to extend its waiver policy to stations located in
the 50 largest television markets. The statute eliminates the FCC's
restriction on the common ownership of a cable system and a television
network. The Telecom Act also eliminates the statutory prohibition on the
common ownership of a cable television system and a television station located
in the same geographic market, though an FCC rule restricting such ownership
remains in effect. Furthermore, the Telecom Act authorizes the FCC to permit
the common ownership of multiple television networks under certain
circumstances, and the FCC on March 7, 1996, adopted rules implementing that
provision. The statute also directs the FCC to review all of its ownership
rules to determine whether they continue to serve the public interest.
Under current rules, none of the Company, Park Communications or Park
Newspapers may be permitted to acquire any daily newspapers or broadcast
properties (other than low power television (LPTV) or television translator
(repeater) stations) in a market in which any now own one or more FCC
regulated properties or daily newspapers. Except as discussed below, these
rules do not require any change in the Company's present ownership of
broadcast stations. At the time of PAI's acquisition of the Company, PAI, the
Company, Park Communications and Park Newspapers, through attribution rules,
owned three radio-television-station combinations (AM-FM-TV) that had been
"grandfathered"--i.e., allowed to continue notwithstanding the one-to-a-market
rule--because their acquisition by the Company predated the promulgation of
the rule. These stations are located in Greenville, North Carolina, Richmond,
Virginia, and Chattanooga, Tennessee. Grandfathering rights are not ordinarily
transferrable, absent a waiver. In approving PAI's acquisition of Park
Communications, the FCC granted a temporary waiver of the one-to-a-market rule
and ordered PAI to divest itself of the six affected radio stations. At the
time of PAI's acquisition of Park Communications, it was not PAI's intention
to sell the six affected radio stations, but rather to seek a permanent waiver
from the FCC requirement. Management believed it was probable that a permanent
waiver would be granted. In December 1995, the Company decided, due to
favorable market conditions at such time, to divest the entire radio station
operations. Due to the Company's decision to sell the entire radio station
operations, it did not further pursue the permanent waiver from the FCC. Sale
of the Greenville and Richmond stations has been completed. Approval of sale
of the two Chattanooga stations has been granted by the FCC.
Expansion of the Company's broadcast operations in particular areas and
nationwide will continue to be subject to the FCC's ownership rules and any
changes the agency or Congress may adopt. At the same time, relaxation of the
FCC's ownership rules may increase the level of competition in one or more of
the markets in
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which the Company's stations are located, particularly to the extent that the
Company's competitors may have greater resources and thereby be in a better
position to capitalize on any such changes.
Under the FCC's ownership rules, if a purchaser of the common stock of the
Company acquires an "attributable" interest in the Company and has an
attributable interest in other broadcast stations or a daily newspaper, a
violation of the Communications Act or FCC regulations could result depending
on the number and location of the other broadcasting stations or daily
newspapers attributable to such purchaser. In the case of corporations,
ownership of television licenses generally is "attributed" to all officers and
directors of a licensee, as well as to stockholders who own 5% or more of the
outstanding voting stock of a licensee, except that certain institutional
investors who exert no control or influence over a licensee may own up to 10%
of such outstanding voting stock before attribution results. Under current FCC
regulations, debt instruments, non-voting stock and certain limited
partnership interests (provided the licensee certifies that the limited
partners are not "materially involved" in the management or operation of the
subject media property) and voting stock held by minority stockholders where
there is a single majority stockholder generally will not result in
attribution. Though the beneficiary of a trust can avoid an attributable
interest under certain circumstances, where, as in the case of the trust that
is a stockholder of PAI, there is a familial relationship between the trustee
and the beneficiary, FCC policy is to deem the beneficiary's interest
attributable. In addition, the FCC's cross-interest policy, which precludes an
individual or entity from having an attributable interest in one media
property and a "meaningful" (but not attributable) interest in a broadcast or
newspaper property in the same area, may be invoked in certain circumstances
to reach interests not expressly covered by the multiple ownership rules.
Alien Ownership Restrictions. The Communications Act restricts the ability
of foreign entities to own or hold interests in broadcast licenses. Foreign
governments, representatives of foreign governments, non-citizens,
representatives of non-citizens, and corporations or partnerships organized
under the laws of a foreign nation are barred from holding broadcast licenses.
Non-citizens, collectively, may directly or indirectly own up to 20% of the
capital stock of a licensee and up to 25% of the capital stock of a United
States corporation that, in turn, owns a controlling interest in a licensee.
In addition, a broadcast license may not be granted to or held by any
corporation that is controlled, directly or indirectly, by any other
corporation of which more than one-fourth of the capital stock is owned or
voted by non-citizens or their representatives, by foreign governments or
their representatives, or by non-U.S. corporations, if the FCC finds that the
public interest will be served by the refusal or revocation of such license.
Under the Telecom Act, non-citizens may serve as officers and directors of a
broadcast licensee and any corporation controlling, directly or indirectly,
such licensee. The Company, which serves as a holding company for operating
broadcast subsidiaries, therefore may be restricted from having more than one-
fourth of its capital stock owned directly or indirectly by non-citizens,
foreign governments or foreign corporations.
Children's Programming. Pursuant to the Children's Television Act of 1990
(the "CTA") and regulations adopted by the FCC pursuant thereto, television
stations are subject to specific limitations on the amount of commercial
matter that may be presented within programming directed primarily to children
12 years of age and under. Television stations are also required through their
programming to serve the educational and informational needs of children 16
years of age and under. On August 8, 1996, pursuant to the CTA, the FCC
adopted rules including the following:
(a)A definition of programming ("core programming") that will meet a
station's obligations under the CTA. Core programming must be a
regularly scheduled, weekly program of at least 30 minutes, and aired
between 7 a.m. and 10 p.m.;
(b)Requiring that programs specifically intended to educate and inform
children be so identified at the beginning of the program, and that
information identifying such programming, as well as the age group for
which the programming is intended, be submitted to publishers of program
guides;
(c)A "processing guideline" whereby a television station will receive
routine license renewal if it airs three hours per week of core
programming or if, while providing somewhat less than three hours of
such programming, it airs a package of programming that demonstrates a
level of commitment to
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educating and informing children that is at least equivalent to airing
three hours per week of core programming. Television stations not
meeting this guideline will have their renewal applications referred to
the FCC en banc, where they will have the opportunity to demonstrate
compliance with the CTA. Stations found to not have complied would be
subject to sanctions; and
(d)Television stations must prepare, on a quarterly basis, a Children's
Television Programming Report reflecting efforts during the preceding
quarter, and efforts planned for the next quarter, to serve the
educational and informational needs of children. These Reports must
identify programs aired to meet the educational and informational needs
of children, and must explain how the programs identified meet the
definition of children's programming. These Reports must be available at
the station for public inspection and, for an "experimental period" of
three years, must be filed with the FCC on an annual basis.
Other Recent Developments, Proposed Legislation and Regulation. The FCC
recently decided to eliminate the prime time access rule ("PTAR"), effective
August 30, 1996. PTAR currently limits a station's ability to broadcast network
programming (including syndicated programming previously broadcast over a
network) during prime time hours. The elimination of PTAR could increase the
amount of network programming broadcast over a station affiliated with ABC, NBC
or CBS. Such elimination also could result in (i) an increase in the
compensation paid by the network to a station (due to the additional prime time
during which network programming could be aired by a network-affiliated
station) and (ii) increased competition for syndicated network programming that
previously was unavailable for broadcast by network affiliates during prime
time.
The FCC also recently rescinded its remaining financial interest and
syndication ("fin-syn") rules. The fin-syn rules restricted the ability of ABC,
CBS and NBC to obtain financial interests in, or participate in syndication of,
prime-time entertainment programming created by independent producers for
airing during the networks' evening schedules. (The FCC previously had lifted
the financial interest rules and restraints on foreign syndication.)
The FCC has under consideration and the Congress and the FCC in the future
may consider and adopt new or modify existing laws, regulations and policies
regarding a wide variety of matters that could affect, directly or indirectly,
the operation, ownership and profitability of the Company's stations, result in
the loss of audience share and advertising revenue for the Company's stations
and affect the ability of the Company to acquire additional stations or finance
such acquisitions. Such matters include: (i) spectrum use or other fees on FCC
licensees; (ii) the FCC's equal employment opportunity rules and other matters
relating to minority and female involvement in the broadcasting industry; (iii)
rules relating to political broadcasting; (iv) technical and frequency
allocation matters; (v) changes in the FCC's cross-interest, multiple ownership
and cross-ownership rules and policies; (vi) changes to broadcast technical
requirements; (vii) limitations on the tax deductibility of advertising
expenses by advertisers; and (viii) changes to the standards governing the
evaluation and regulation of television programming directed towards children,
and violent and indecent programming.
Specifically, and as an example of the above proposed changes, the FCC,
consistent with the Telecom Act, has initiated rulemaking proceedings to
solicit comments on its multiple ownership, attribution and minority ownership
rules, as well as other rules with respect to television broadcasting
generally. More particularly, on January 17, 1995, the FCC released a Further
Notice of Proposed Rulemaking which proposed, among other things, the following
changes regarding television broadcasting: (i) narrowing the geographic area
where common ownership restrictions would be triggered by limiting it to
overlapping "Grade A" contours rather than larger "Grade B" contours and by
permitting (or granting waivers in particular cases or markets) certain UHF/UHF
or UHF/VHF overlaps; (ii) relaxing the rules prohibiting cross-ownership of
radio and television stations in the same market to allow certain combinations
where there remain alternative outlets and suppliers to ensure diversity; and
(iii) treating television Local Marketing Agreements ("LMAs") the same as radio
LMAs, which would currently preclude certain television LMAs where the
programmer owns or has an attributable interest in another television station
in the same market. The Company cannot predict the outcome of the FCC's
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rulemaking proceedings or how FCC changes in its multiple and cross-ownership
rules, made in accordance with the Telecom Act, will affect its business.
On January 12, 1995, the FCC released two additional Notices of Proposed
Rulemaking. The first seeks comment on whether the FCC should relax
attribution and other rules to facilitate greater minority and female
ownership. The second seeks comment on whether the FCC should modify its
attribution rules by, among other things, (i) restricting the availability of
the single majority shareholder exemption and (ii) attributing certain non-
equity interests such as non-voting stock, debt and certain holdings by
limited liability corporations. In the context of this latter rulemaking, the
FCC is further examining its cross interest policy and seeking comment on the
appropriate treatment of nonequity financial interests and multiple business
interrelationships between licensees. The Company cannot predict the outcome
of those proceedings or how they will affect its business.
On February 16, 1996, the FCC issued an Order vacating its EEO Policy
Statement which imposed non-binding guidelines for assessing forfeitures based
upon violations of the FCC's equal employment opportunity ("EEO") broadcast
policies. The Policy Statement was developed to encourage the promotion of
programming which reflects the interests of women and minorities. The FCC
maintains its goal of increasing opportunities for minorities and women and is
seeking comments on the establishment of new forfeiture guidelines and the
specific activities broadcasters must engage in to effectuate that goal.
The FCC also has initiated a notice of inquiry proceeding seeking comment on
whether the public interest would be served by establishing limits on the
amount of commercial matter broadcast by television stations. No prediction
can be made at this time as to whether the FCC will impose any limits on
commercials at the conclusion of its deliberation. The imposition of limits on
the commercial matter broadcast by television stations may have an adverse
effect on the Company's revenue.
The FCC is currently examining or has recently completed review of a number
of rules that govern the relationship between broadcast television networks
and their affiliates and that are applicable to all broadcast television
networks. In particular, the FCC has eliminated the network station ownership
rule prohibiting network ownership of television stations in markets where the
existing television stations are so few or of such unequal desirability that
competition would be substantially restrained. On June 15, 1995, the FCC
initiated a review and update of certain long-standing rules governing the
programming practices of broadcast television networks and their affiliates.
Specifically, the FCC will consider whether to modify, repeal or retain the
following programming-related rules: (1) the right to reject rule which
ensures that a network affiliate retains the right to reject network
programming; (2) the time option rule that currently prohibits a network from
holding an option to use specified amounts of an affiliate's broadcast time;
(3) the exclusive affiliation rule that forbids a network from preventing an
affiliate from broadcasting the programming of another network; and (4) the
network territorial exclusivity rule that prohibits an agreement between a
network and an affiliate that would prevent another station in the same
community from broadcasting a network program not taken by the affiliate and
that prohibits an agreement that would prevent another station located in a
different community from broadcasting any of the network's programs. Moreover,
in a separate but related proceeding initiated on June 14, 1995, the FCC is
considering whether to modify or repeal rules that currently forbid a network
from influencing an affiliate's advertising rates during non-network broadcast
time, and whether to modify or repeal a rule forbidding a network from acting
as an advertising representative for the sale of non-network time.
On August 21, 1996, the FCC approved proposals by the Fox, PBS and ABC
networks that the FCC grant exemptions from its "equal time" rule in
connection with specific blocks of free air time to be provided by those
networks to the major Presidential candidates during the 1996 campaign. The
FCC said it would consider similar requests, on a case-by-case basis,
including requests in connection with specific state and local elections. The
grant of an exemption relieves a station or network from providing free "equal
time" to opponents of the candidate utilizing the time provided by the station
or network.
Other matters which could affect the Company's broadcast properties include
technological innovations and developments generally affecting competition in
the mass communications industry, such as the recent initiation
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and future expansion of direct broadcast satellite service, the continued
establishment of wireless cable systems and low power television stations.
Distribution of Video Services by Telephone Companies. Prior to the
enactment of the Telecom Act, local telephone companies were prohibited from
providing video programming directly to subscribers in their telephone service
areas. This prohibition was successfully challenged in several Federal courts
before the prohibition was eliminated by the Telecom Act. The Telecom Act
provides that telephone companies may now choose to provide video services as
a cable system, multichannel video programming distributor or through a newly
created "open video" system. An open video system will allow users access to
video programming and interactive services utilizing their existing telephone
service connections. The FCC recently adopted rules implementing the "open
video" system and establishing the qualifications necessary to become an "Open
Video System Operator." In addition, competition in the video services market
is growing. For example, Bell Atlantic's request for permission to transmit
video programming was recently approved by the Federal judge overseeing the
regional Bell companies' entry into new businesses. Bell Atlantic, Nynex and
Pacific Telesis, jointly, are planning to offer movies and television programs
to their telephone customers and hope to ultimately offer more interactive
services. The Company cannot predict how the provision of video services and
other interactive services by local and regional telephone companies could
affect its properties, and cannot predict the outcome of the regulatory
proceedings ongoing at the FCC.
Even prior to the court rulings described in the preceeding paragraph, the
FCC had authorized a broadened role for telephone companies in the video
marketplace in its "video dialtone" ("VDT") decision. VDT is defined by the
FCC as the provision of a basic video platform to multiple video programmers
on a non-discriminatory, common carrier basis. If a local telephone company
provides such a basic platform, it also may provide enhanced and unregulated
services related to the provision of video programming. The FCC has already
approved several applications to construct and operate VDT systems and has
begun processing tariffs filed to govern the rates and terms of VDT offerings
although, most recently, some telephone companies have indicated that they are
reassessing their timetable and possible approach in developing VDT. The
Telecom Act repealed the video dialtone rules; however, video dialtone systems
approved as of the effective date of the Telecom Act will not need to be
terminated.
The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"). Some of its provisions such as signal carriage, retransmission consent
and equal employment opportunity requirements, have a direct effect on
television broadcasting. Other provisions are focused exclusively on the
regulation of cable television but can still be expected to have an indirect
effect on the Company because of the competition between over-the-air
television stations and cable systems.
The signal carriage, or "must carry," provisions of the 1992 Cable Act and
FCC rules require cable operators to carry the signals of local commercial and
non-commercial television stations and certain low power television stations.
Systems with twelve or fewer useable activated channels and more than 300
subscribers must carry the signals of at least three local commercial
television stations. A cable system with more than 12 useable activated
channels, regardless of the number of subscribers, must carry the signals of
all local commercial television stations, up to one-third of the aggregate
number of useable activated channels of such system. The 1992 Cable Act also
includes a retransmission consent provision that prohibits cable operators and
other multi-channel video programming providers from carrying broadcast
stations without obtaining their consent in certain circumstances. The must
carry and retransmission consent provisions are related in that television
broadcasters, on a cable system-by-cable system basis, must make a choice once
every three years whether or not to proceed under the must carry rules or to
waive that right to mandatory but uncompensated carriage and negotiate a grant
of retransmission consent to permit the cable system to carry the stations'
signal, in most cases in exchange for some form of consideration from the
cable operator.
Under rules adopted to implement these must carry and retransmission
provisions, local television stations were required to make their initial
elections of must carry or retransmission consent by June 17, 1993. Stations
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that failed to elect were deemed to have their signals carried under the must
carry provisions. Other issues addressed in the FCC rules were market
designations, the scope of retransmission consent, and procedural standards
for implementing the signal carriage provisions. In 1993, the Company's
stations entered into retransmission consent agreements with the cable systems
under which the cable systems have agreed to purchase advertising time on the
stations. These agreements continue through the end of 1996. All television
stations are required to again make elections of must carry or retransmission
consent by October 1, 1996. The Company currently anticipates that its
stations will again enter into retransmission consent agreements, similar to
the current agreements, which would expire in 1999.
On April 8, 1993, a special three-judge panel of the U.S. District Court for
the District of Columbia upheld the constitutionality of the must carry
provisions of the 1992 Act. However, on June 27, 1994, the U.S. Supreme Court,
in a 5-4 decision, vacated the lower court's judgment and remanded the case to
the District Court for further proceedings. Although the Supreme Court found
the must carry rules to be content-neutral and supported by legitimate
governmental interests under appropriate constitutional tests, it also found
that genuine issues of material fact still remained that must be resolved on a
more detailed evidentiary record. On December 12, 1995, the same three-judge
panel of the District Court, in a 2-1 decision, again upheld the
constitutionality of the must carry rules. Another Supreme Court appeal is
underway. In the meantime, however, the FCC's new must carry regulations
implementing the 1992 Cable Act remain in effect. The Company cannot predict
the outcome of such challenges or the effect on the Company's business if the
must carry or retransmission consent provisions of the Cable Act are found to
be unconstitutional or otherwise unlawful.
The 1992 Cable Act also codified the FCC's basic EEO rule and the use of
certain EEO reporting forms currently filed by television broadcast stations.
In addition, pursuant to the 1992 Cable Act's requirements, the FCC has
adopted new rules providing for a review of the EEO performance of each
television station at the mid-point in its license term (in addition to
renewal time). Such a review gives the FCC an opportunity to evaluate whether
the licensee is in compliance with the FCC's processing criteria and to notify
the licensee of any deficiencies in its employment profile. Among the other
rulemaking proceedings conducted by the FCC to implement provisions of the
1992 Cable Act have been those concerning cable rate regulation, cable
technical standards, cable multiple ownership limits and competitive access to
programming.
Cross Ownership. Although the FCC's rules had limited the extent to which
cross ownership was permitted between cable television systems and television
broadcast networks, the Telecom Act eliminated the restrictions on cross
ownership. The FCC amended its rules on March 15, 1996 to permit a person or
entity to own or control a television network and a cable system. In such
cases, the FCC retains the authority to revise any of the cable regulations,
including such items as carriage, channel positioning and non-discriminatory
treatment of nonaffiliated broadcast stations, as necessary. In addition, the
FCC has amended its rules to conform to the Telecom Act by providing that
cable operators subject to effective competition, as determined by the Telecom
Act, will be allowed to hold licenses for multichannel multipoint distribution
service and may provide satellite master antenna television service, separate
and apart from its franchised cable service, in any portion of the franchise
area served by the operator's system.
Advanced Television Service. The Telecom Act authorizes the FCC to issue
additional licenses for advanced television ("ATV") services only to
individuals or entities that hold an authorization to operate or construct a
television station ("Existing Broadcasters"). ATV is a technology that will
improve the technical quality of television signals receivable by viewers and
will enable broadcasters the flexibility to provide new services, including
high-definition television, simultaneous multiple programs of standard
definition television and data broadcasting. The Telecom Act directs the FCC
to adopt rules to permit Existing Broadcasters to use their ATV channels for
various purposes, including foreign language, niche or other specialized
programming. The statute also authorizes the FCC to collect fees from Existing
Broadcasters who use their ATV channels to provide services for which payment
is received. Prior to the enactment of the Telecom Act, members of Congress
sought assurance from the FCC that it would not implement any plan to award
spectrum for ATV service until additional legislation is enacted to resolve
spectrum issues such as whether broadcasters should be required to pay for ATV
licenses. In response to this request, the FCC stated that it would not award
licenses or construction
59
<PAGE>
permits for ATV service until such additional legislation is enacted to
address ATV spectrum issues. Such legislation, if adopted, may require
Existing Broadcasters to pay for ATV licenses. Consistent with the Telecom
Act, the FCC has begun a rulemaking asking for public comment on proposals to
allow licensees to provide ancillary digital services within the video portion
of their broadcast signals. The Company cannot predict whether these proposals
will be enacted and if enacted the effect these proposal would have on its
business.
The FCC has already adopted certain rules and has proposed others to
implement ATV. The FCC has "set aside" channels within the existing television
system for ATV and has limited initial ATV. Existing Broadcasters will have
the exclusive right for three years to apply for ATV channels. The FCC
proposed to allow Existing Broadcasters six months in which to decide whether
to apply for an ATV channel and an additional 2 years to supply the FCC with
the information necessary for the FCC to issue an authorization for the ATV
channel. Existing Broadcasters who file timely applications for ATV channels
will have three years from the expiration of the three-year application filing
period to construct their ATV facilities. The FCC has determined that ATV will
be a digital system incompatible with current television transmitters and
receivers. The rules for phasing in ATV service permit each television station
to provide conventional television service on its regular channel until ATV
service has become the prevalent medium. The FCC is seeking comments on a
timetable for requiring broadcasters to convert to ATV. Broadcasters will have
to convert to ATV by the conversion deadline and surrender one channel back to
the FCC. The FCC also proposed phased in simulcasting requirements during the
transition period under which a broadcaster must simulcast on its ATV channel
the programming that is broadcast on its existing conventional channel. The
FCC also adopted a timetable for periodic review of the simulcasting and
conversion deadlines. The FCC also proposed licensing the ATV and conventional
broadcast channels under a single license. In addition, the FCC is seeking
comments on whether broadcasters should provide a minimum amount of free over-
the-air television broadcasting on the ATV channel and to what extent to allow
the use of ATV spectrum for services other than free over-the-air
broadcasting. The FCC also is seeking comments on whether to allow an
extension of the six-year application and construction period under certain
circumstances, including circumstances involving financial hardship and
stations serving small or economically disadvantaged areas. The FCC has
further proposed several broad objectives to govern the ATV channel allotment
process and has proposed a number of procedures and specific technical
criteria to be used in allotting ATV channels. In addition, the FCC has
proposed the adoption of a digital broadcast standard recommended by
committees formed for the purpose of developing, building and testing a single
ATV technology. The proposed standard will purportedly accommodate a broad
range of potential ways to deliver digital data through packetized transport
means. If the FCC adopts a standard for ATV service that is inferior to the
signal quality alternative video technologies provide, such action could have
a negative impact on the audience and revenue for television stations.
Implementation of ATV service will impose substantial additional costs on
television stations to provide the new service, due to increased equipment
costs. It is also possible that advances in technology may permit Existing
Broadcasters to enhance the picture quality of existing systems without the
need to implement ATV service.
On August 14, 1996, the FCC put out for comment a group of proposals
relating to development of ATV and procedures for assigning ATV frequencies to
broadcasters. The FCC's proposals have not yet been released in official form;
however, based on news reports, they include the following:
(a) A system of channel allotments that accommodates all eligible
broadcasters, i.e., provide a second channel for ATV service to all
existing television operators;
(b) Replicating, as nearly as possible, the service areas of existing
television broadcasters;
(c) Minimizing unavoidable interference without preference to either
conventional or ATV television service; and
(d) A plan whereby television service would eventually be located at
existing channels 7-51, which are the channels deemed technically best
suited to ATV service, or alternatively, a plan advanced by industry
groups that would distribute ATV allotments over the entire existing
television broadcast spectrum.
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<PAGE>
The FCC also imposed certain limitations on the filing of applications for
new television licenses and for modification of existing licenses.
According to some evaluations of the channel allotments proposed by the FCC,
certain television stations would experience a reduction in their service
areas, or would receive interference from other stations, or both. The Company
has not yet evaluated the allotments proposed for its stations by the FCC.
There is currently substantial debate regarding whether the spectrum
necessary to provide ATV services should be awarded through an auction
process. Some Congressional lawmakers view the availability of the spectrum
necessary to provide ATV services as an opportunity to raise revenue for the
Federal treasury. The television industry, the Clinton Administration, and
many Congressional leaders have opposed that approach, arguing that the ATV
spectrum should be given to existing television operators without charge to
facilitate "free" ATV service to the public.
In the event that an auction process is adopted, there can be no assurance
that the Company will have sufficient resources to be the successful bidder in
any or all of its television markets. Although the Company believes the FCC
will authorize ATV service, the Company cannot predict when or at what cost
such authorization might be given, or the effect such authorization might have
on its business or capital expenditures requirements.
Direct Broadcast Satellite Systems. The FCC has authorized the provision of
video programming directly to home subscribers through direct broadcast
satellites ("DBS"). Local broadcast stations are not carried on DBS systems.
In June 1994, Hughes Communications Galaxy ("Hughes"), an affiliate of the
General Motors Company, and United States Satellite Broadcasting Company
("USSB") initiated DBS service. In December 1994, two DBS permittees, EchoStar
Satellite Corporation and Directsat Corporation, merged their DBS
authorizations. Service from these permittees is expected to commence in 1996.
MCI and News Corp., the parent of Fox Video and the 20th Century Fox film
studio, have also formed an alliance to provide information and entertainment
services to businesses and consumers through MCI's newly acquired direct-
broadcast satellite spectrum. Other proposals recently advanced in Congress
include a prohibition on restrictions that inhibit a viewer's ability to
receive video programming through DBS services. Proposed legislation may also
affect state and local taxation of direct-to-home satellite services. The
Company is unable to predict the impact of this new service upon its
operations.
DISCONTINUED OPERATIONS
The Company is in the process of selling the Radio Station Assets. Park
Communications decided to divest such operations to focus on its core
television broadcasting and newspaper publication operations, to raise cash to
prepay a portion of its existing indebtedness and to take advantage of
attractive prices for which such operations could be sold.
The Company currently owns and operates one set of AM/FM combination radio
stations in one state, which stations employ various programming formats
adapted to the characteristics of each market. The Company creates its own
formats and purchases formats and programming from various outside sources. In
March 1996, the Company sold its WPAT-AM and FM radio stations serving the
greater New York City area for aggregate gross proceeds of $103.0 million. In
May 1996, the Company sold its KEZX-AM and KWJZ-FM radio stations serving the
Seattle, Washington market for aggregate gross proceeds of $26.0 million, its
WTVR-AM and FM radio stations serving the Richmond, Virginia market for
aggregate gross proceeds of $18.0 million and its WNLS-AM and WTNT-FM radio
stations serving the Tallahassee, Florida market for aggregate gross proceeds
of $3.5 million. In June 1996, the Company sold its WHEN-AM and FM radio
stations serving the Syracuse, New York market for aggregate gross proceeds of
$4.5 million, its WNCT-AM and FM radio stations serving the Greenville, North
Carolina market for aggregate gross proceeds of $3.0 million, its WNAX-AM and
FM radio stations serving the Yankton, South Dakota market for aggregate gross
proceeds of $7.0 million, its KWJJ-
61
<PAGE>
AM and FM radio stations serving the Portland, Oregon market for aggregate
gross proceeds of $35.0 million and its KSGS-AM and KMJZ-FM radio stations
serving the St. Louis Park, Minnesota market for aggregate gross proceeds of
$22.0 million. In August 1996, the Company sold its KWLO-AM and KFMW-FM radio
station serving the Waterloo, Iowa market for aggregate gross proceeds of $3.5
million. Income taxes due as a result of the above mentioned sales are
estimated to be $62.8 million. The Communications Senior Credit Facility,
which required mandatory prepayments with the proceeds of the sale of Radio
Station Assets (other than the Radio Station Assets relating to stations KEZX-
AM and KWJZ-FM in Seattle, Washington), was repaid in full on June 20, 1996.
As of May 6, 1996, the Company had entered into definitive agreements with
prospective purchasers for the sale of all of its remaining radio stations.
The Company is selling its remaining radio stations, WDEF-AM/FM radio stations
serving the Chattanooga, Tennessee market, in a single transaction for
aggregate gross sale proceeds of $7.7 million (before deducting related
expenses estimated to be $0.1 million and income taxes resulting from such
sale estimated to be $2.4 million). Jackson Telecasters, Inc., the prospective
purchaser of such radio stations, has assigned its rights and delegated its
obligations under the purchase agreement to its subsidiary. The Company
anticipates that the closing of such sale will occur on or prior to September
15, 1996. However, as consummation of such sale is subject to the satisfaction
of certain conditions, including the receipt of FCC approval of the transfer
of the broadcasting licenses (which approval has been received), there can be
no assurance that such sale will be concluded by such date.
The subsidiaries of the Company which own and operate the Radio Station
Assets are the sellers under the definitive agreements, and neither the
Company nor any other party is a party to any such agreement, making any
guarantees of the sellers' obligations or providing any indemnification in
connection with such sales. Each of the definitive agreements relating to the
sale of the Radio Station Assets contains representations and warranties,
covenants (including indemnification obligations), conditions and other
material terms. Certain of such definitive agreements provide that a portion
(ranging from $50,000 to $250,000 per transaction) of the purchase price will
be held in escrow for a period of time (ranging from six to 24 months per
transaction) after the closing for use in satisfying the seller's
indemnification obligation. With certain exceptions, the indemnification
obligations of the selling subsidiary under such definitive agreements survive
the closings thereunder for periods of time ranging from 12 to 24 months. In
addition, in certain of the definitive agreements, the seller's
indemnification obligations are capped at amounts ranging from $100,000 to
$4.5 million.
ENVIRONMENTAL REGULATION
The Company, like other companies engaged in similar operations, is subject
to a wide variety of federal, state and local laws and regulations, including
those governing the use, storage, handling, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes,
the remediation of contaminated soil and groundwater, and the health and
safety of employees. As such, the nature of the Company's operations exposes
it to the risk of claims with respect to environmental matters, and there can
be no assurance that material costs or liabilities will not be incurred in
connection with such claims. Based upon its experience to date, the Company
believes that the future cost of compliance with existing environmental laws
and regulations, and liability for known environmental claims, will not have a
material adverse effect on the Company's business or financial position.
However, future events, such as changes in existing laws and regulations or
their interpretation, and more vigorous enforcement policies of regulatory
agencies, may give rise to additional expenditures that could be material.
SEASONALITY
The Company's advertising revenue is generally the highest in the second and
fourth quarters of each year. The increase is due to increased advertising in
the spring and in the period leading up to and including the Christmas holiday
season. In addition, political advertising increases the Company's revenue
during election years and is typically heaviest during the fourth quarters of
those years. However, management believes that fluctuations in its political
advertising revenues are tempered by the levels of political activity in the
areas in which it operates.
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EMPLOYEES
As of March 1, 1996, the Company had approximately 1,022 employees, 608 of
whom were full-time employees in the Company's television operations and 265
of whom were full-time employees in the Company's radio operations. Six of the
Company's employees at WBMG-TV in Birmingham, Alabama are represented by Radio
Broadcast Technicians and Engineers Local No. 253 of the International
Brotherhood of Electrical Workers, and six of the Company's employees at KWJJ-
AM/FM in Portland, Oregon are represented by Local Union No. 48 of the
International Brotherhood of Electrical Workers, Radio Broadcast Division. No
other employees of the Company are represented by unions. The Company has
never experienced a strike or work stoppage and believes its relationship with
its employees to be good.
TAX SHARING AGREEMENT
PAI, through its ownership of 100% of Park Communications, currently
beneficially owns 100% of the stock of the Company, Park Newspapers and their
respective subsidiaries. Each such corporation is, for federal income tax
purposes, part of the affiliated group of which PAI is the common parent, and
the results of operations of that affiliated group are reported in PAI's
consolidated federal income tax return. Each member of the affiliated group
that joined in the consolidated return is severally liable for the
consolidated tax of the affiliated group. PAI and each member of its
affiliated group are parties to a tax sharing agreement pursuant to which,
respectively, the Company and its subsidiaries and Park Newspapers and its
subsidiaries are obligated to make tax sharing payments to Park Communications
in amounts equal to the federal income taxes which the Company and Park
Newspapers would have paid for such taxable year if each of the Company and
Park Newspapers were the highest-tier common parent of a group of includible
corporations and filed separate consolidated tax returns for itself and its
subsidiaries. (Each group of companies composed of (i) the Company and its
subsidiaries or (ii) Park Newspapers and its subsidiaries is hereinafter
called a "Subgroup," and each of the Company and Park Newspapers is called a
"Subparent.") The tax sharing agreement also provides that if any consolidated
or combined state income tax return is filed by PAI or Park Communications
which includes income of the Park Broadcasting Subgroup or Park Newspapers
Subgroup, then the Company and Park Newspapers each will be obligated to make
tax sharing payments to Park Communications in an amount equal to the state
income taxes which its respective Subgroup would have paid if it as Subparent
filed a consolidated or combined state income tax return for the Subgroup with
the respective state. Park Communications is permitted and obligated to pay to
PAI, or directly to the relevant taxing authority, the consolidated or
combined income tax liabilities of PAI's affiliated group for the taxable
year. Subject to certain exceptions, Park Communications may waive the
requirement that payments be made to it under the tax sharing agreement.
Tax sharing payments, to the extent owed and not waived, are required to be
made not later than the tenth day of April, June, September and December, as
well as not later than the fifth day prior to: PAI's filing of any
consolidated or combined income tax return (including an amended return) or
PAI's payment of additional income tax pursuant to (i) an administrative
adjustment agreed with the Internal Revenue Service or applicable state taxing
authority or (ii) an unappealable final determination of a court of competent
jurisdiction.
The Indenture restricts the ability of the Company to amend the tax sharing
agreement. The tax sharing agreement is not binding on the Internal Revenue
Service.
PROPERTIES
The types of properties required to support each of the Company's television
stations include offices, studios and tower and transmitter sites. The
stations transmit from antennas located on towers ranging from 801 feet to
2,320 feet above average terrain. In general, all of the buildings and tower
and transmitter sites are owned by the Company.
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The following table contains certain information describing the general
character of the properties used in the Company's television operations,
including properties to be acquired pursuant to the Montgomery Acquisition:
<TABLE>
<CAPTION>
STATION LOCATION AND USE OWNED OR LEASED APPROXIMATE SIZE(A)
- -------- ----------------- --------------- -------------------
<S> <C> <C> <C>
WBMG-TV Office and Studio Owned 22,258 sq. ft.
Transmission Site Owned 22,258 sq. ft.(b)
Tower Owned 1,381 ft.
WTVR-TV Office and Studio Owned 31,000 sq. ft.
Transmission Site Owned 1,900 sq. ft.
Tower Owned 840 ft.
WSLS-TV Office and Studio Owned 30,000 sq. ft.
Transmission Site Owned 1,800 sq. ft.
Tower Owned 2,001 ft.
WTVQ-TV Office and Studio Owned(c) 20,000 sq. ft.
Transmission Site Owned(c) 20,000 sq. ft.(b)
Tower Owned 1,001 ft.
WDEF-TV Office and Studio Owned 26,812 sq. ft.
Transmission Site Owned 2,646 sq. ft.
Tower Owned 1,260 ft.
WJHL-TV Office and Studio Owned 20,000 sq. ft.
Transmission Site Owned(c) 1,400 sq. ft.
Tower Owned 2,320 ft.
WNCT-TV Office and Studio Owned 14,000 sq. ft.
Transmission Site Owned(c) 2,860 sq. ft.
Tower Owned(d) 1,880 ft.
WUTR-TV Office and Studio Owned 4,000 sq. ft.
Transmission Site Owned 4,000 sq. ft.(b)
Tower Owned 801 ft.
KALB-TV Office and Studio Owned 15,984 sq. ft.
Transmission Site Owned(c) 2,700 sq. ft.
Tower Owned(c) 1,591 ft.
WHOA-TV Office and Studio Leased 17,500 sq. ft.
Transmission Site Leased 1,960 sq. ft.
Tower Owned 1,788 ft.
</TABLE>
- --------
(a) Size of office and studio and transmission site refers to square footage
of property. Size of tower refers to its height in feet above average
terrain.
(b) Transmission site is located on same property as office and studio.
(c) Land at property is leased.
(d) Tower is owned jointly by the Company and another entity in equal
proportions.
The Company's principal executive offices are located in premises leased by
Park Communications in Lexington, Kentucky. The Company owns certain other
properties which are not used in its business operations. These properties are
generally leased to unaffiliated third parties. The Company believes that its
properties are generally adequate for its operations, although opportunities
to upgrade facilities are continuously reviewed.
LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. There are no pending legal
proceedings to which the Company or any of its subsidiaries is a party, or to
which any of their respective properties is subject, which, in the opinion of
Company management, are likely to have a material adverse effect on the
Company's business or financial condition.
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MANAGEMENT
The following table sets forth, as of March 28, 1996, the names of the
directors and executive officers of the Company, their ages and their
positions with the Company and Park Communications:
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME AGE THE COMPANY PARK COMMUNICATIONS
------------ --- ------------------------- ----------------------------
<S> <C> <C> <C>
W. Randall 53 Chief Operating Officer-- Vice President--
Odil Television Operations Television Operations
Rick A. 43 Chief Operating Officer-- Vice President--Radio
Prusator (a) Radio Operations Operations
Randel N. 45 Treasurer Vice President, Chief
Stair Financial Officer, Treasurer
Wright M. 60 President President and Chief
Thomas Operating Officer
Dr. Gary B.
Knapp 52 Director Director
Donald R. 48
Tomlin, Jr. Director Director
</TABLE>
- --------
(a) Park Communications has entered into a compensation arrangement with Mr.
Prusator in connection with the sale of the Radio Station Assets. See
"Employment and Severance Arrangements" below.
Each director of Park Communications and the Company holds office until the
next annual meeting of stockholders and until his successor has been elected
and qualified. Officers are elected by the Board of Directors and serve at its
discretion.
W. Randall Odil has been Vice President--Television Operations of Park
Communications and has served as chief operating officer--television
operations of the Company since October 1986. From February 1982 to October
1986, he was Vice President and General Manager of the Company's WSLS-TV
station in Roanoke, Virginia. Prior to February 1982, he was employed by WBKO-
TV in Bowling Green, Kentucky for 20 years in various positions, including
Vice President--Sales/Station Manager from 1978 to February 1982.
Rick A. Prusator has been Vice President--Radio Operations of Park
Communications and has served as chief operating officer--radio operations of
the Company since August 1991. From August 1989 to August 1991, he was Vice
President of the Company--Western Radio Division. He was Vice President and
General Manager of the Company's WNAX-AM radio station in Yankton, South
Dakota, from February 1985 to August 1991. He was General Manager of KYNT/KKYA
in Yankton, South Dakota, from 1984 to February 1985. Prior to February 1984,
he was employed by Leighton Enterprises, Inc. from 1978 to December 1983, and
was its Vice President of Iowa operations from 1981 to December 1983.
Randel N. Stair has been Chief Financial Officer and Treasurer of Park
Communications since May 1994, Vice President since 1980. Mr. Stair served as
Controller of Park Communications from 1980 to 1995. Mr. Stair has served as
Treasurer of the Company since 1983. Prior to joining Park Communications in
1979, Mr. Stair was employed by Multimedia, Inc. as Assistant Corporate
Controller.
Wright M. Thomas has been President and Chief Operating Officer of Park
Communications since July 1987. Mr. Thomas has served as President of the
Company since 1987. Mr. Thomas served as a director of Park Communications
from 1983 to 1995, Assistant Secretary from 1974 to 1995, Treasurer from 1983
to 1994, Executive Vice President from 1986 to 1987, Senior Vice President--
Finance from 1979 to 1986, and Vice President--Finance from 1974 to 1979.
Prior to joining Park Communications, he was employed by INA Corporation and
Coopers & Lybrand.
Dr. Gary B. Knapp became a director of each of Park Communications and the
Company in May 1995. Dr. Knapp has been a principal of Knapp Securities, Inc.,
a firm offering investment advisory and consulting services, since 1982.
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<PAGE>
Donald R. Tomlin, Jr. became a director of each of Park Communications and
the Company in May 1995. Mr. Tomlin has been president of Tomlin and Company,
Inc., a financial services and asset management firm, since December 1986.
Messrs. Knapp and Tomlin receive no compensation for serving as directors of
either Park Communications or the Company. However, they are reimbursed for
expenses incurred in acting in such capacities.
SIGNIFICANT EMPLOYEES
The following table sets forth, as of March 28, 1996, the name and age of
the General Manager for each of the Company's television stations:
<TABLE>
<CAPTION>
YEARS OF EMPLOYMENT POSITION WITH
NAME AGE WITH THE COMPANY THE COMPANY
-------------------- --- ------------------- --------------------------
<S> <C> <C> <C>
Hoyle S. Broome, Jr. 50 26 Vice President--General
Manager of WBMG-TV,
Birmingham, Alabama
D. Christopher 38 7 Vice President--General
Aldridge Manager of WTVQ-TV,
Lexington, Kentucky
Lesley E. Golmon 53 3 Vice President--General
Manager of KALB-TV,
Alexandria, Louisiana
Paul R. Kennedy 42 12 Vice President--General
Manager of WUTR-TV,
Utica, New York
Edward J. Adams 55 11 Vice President--General
Manager of WNCT-TV,
Greenville, North Carolina
Gary M. Andrich 43 8 Vice President--General
Manager of WDEF-TV,
Chattanooga, Tennessee
Jack D. Dempsey 45 11 Vice President--General
Manager of WJHL-TV,
Johnson City, Tennessee
Marcus G. Keown 55 9 Vice President--General
Manager of WTVR-TV,
Richmond, Virginia
Randall J. Smith 42 4 Vice President--General
Manager of WSLS-TV,
Roanoke, Virginia
</TABLE>
Hoyle S. Broome, Jr. has been Vice President--General Manager of the
Company's WBMG-TV station in Birmingham, Alabama since 1981 and was an Account
Executive from 1976 until 1981. He was employed by the Company's WUTR-TV
station from 1970 to 1976 in various positions, including Vice President--
Operations and Business Manager.
D. Christopher Aldridge has been Vice President--General Manager of the
Company's WTVQ-TV station in Lexington, Kentucky since January 1992 when the
Company purchased the station. From December 1989 to January 1992, he was
General Sales Manager at the Company's WDEF-TV station in Chattanooga,
Tennessee. Prior to joining the Company, he was General Sales Manager at WTXL-
TV in Tallahassee, Florida from April
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1984 to December 1989. Prior to 1989, he was Local Sales Manager at WGGT-TV in
Greensboro, North Carolina.
Lesley E. Golmon has been Vice President--General Manager of the Company's
KALB-TV station in Alexandria, Louisiana since 1988. He has been employed at
the station since 1961 in various positions, including Account Executive and
Controller.
Paul R. Kennedy has been Vice President--General Manager of the Company's
WUTR-TV station in Utica, New York since 1988 and was its General Sales
Manager from 1986 to 1988. He also was an Account Executive at WUTR-TV from
1984 to 1986.
Edward J. Adams has been Vice President--General Manager of the Company's
WNCT-TV station in Greenville, North Carolina since January, 1988. Mr. Adams
was Vice President--General Manager of the Company's WUTR-TV station in Utica,
New York from 1985 through 1987. Prior to September 1985, he was employed by
WFMJ-TV in Youngstown, Ohio for 16 years in various positions including
General Manager from 1981 to 1985.
Gary M. Andrich has been Vice President--General Manager of the Company's
WDEF-TV station in Chattanooga, Tennessee since November 1994. From March 1988
until November 1994, he was General Sales Manager of the Company's WBMG-TV
station in Birmingham, Alabama. Prior to joining the Company, he was
associated with other television stations, in various positions.
Jack D. Dempsey has been Vice President--General Manager of the Company's
WJHL-TV station in Johnson City, Tennessee, since May 1989 and was its General
Sales Manager from August 1985 to May 1989. Prior to 1985, he was General
Sales Manager at WOWK-TV in Huntington, West Virginia.
Marcus G. Keown has been Vice President--General Manager of the Company's
WTVR-TV station in Richmond, Virginia since December 1994. From April 1987 to
November 1994, he was Vice President--General Manager of the Company's WDEF-TV
station in Chattanooga, Tennessee. From 1984 to 1987, he was General Manager
of WTXL-TV in Tallahassee, Florida, and from 1980 to 1984 he was the Local
Sales Manager and National Sales Manager at WSOC-TV in Charlotte, North
Carolina.
Randall J. Smith has been Vice President--General Manager of the Company's
WSLS-TV station in Roanoke, Virginia since October 1994. He also served as
General Sales Manager of WSLS-TV from December 1992 to October 1994. From 1991
to 1992, he was Local Sales Manager at WEAR-TV in Pensacola, Florida. Prior to
such time, he held various positions in the broadcasting industry since 1980.
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<PAGE>
EXECUTIVE COMPENSATION
Set forth below is information concerning the annual and long-term
compensation for services in all capacities rendered to Park Communications
and the Company for the fiscal years ended December 31, 1995, 1994 and 1993 of
(i) Wright M. Thomas, President and Chief Operating Officer of Park
Communications and President of the Company, and (ii) the other three most
highly compensated executive officers of Park Communications and the Company
at December 31, 1995 whose aggregate 1995 salary and bonus exceeded $100,000.
All such compensation was paid by Park Communications, and in the case of
Messrs. Thomas and Stair, related to services performed in connection with all
of Park Communication's businesses; no specific allocation is made of such
compensation to the Company's business.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY(A) BONUS
------------------------------------- ---- ----------- ---------
<S> <C> <C> <C>
Wright M. Thomas 1995 $ 252,226(b) $ 140,125
President and Chief Operating 1994 241,384(b) --
Officer of Park Communications and 1993 184,440(b) --
President of the Company
W. Randall Odil 1995 $ 177,492 $ 306,250(c)
Vice President--Television Operations 1994 165,972 58,911
of Park Communications and 1993 162,150 25,799
Chief Operating Officer--Television
of the Company
Rick A. Prusator 1995 $ 134,898 $ 157,254(c)
Vice President--Radio Operations 1994 126,074 21,071
of Park Communications and Chief 1993 110,212 3,609
Operating Officer--Radio Operations
of the Company
Randel N. Stair 1995 $ 131,306 $ 157,450(c)
Vice President and Chief Financial 1994 126,621 10,000
Officer of Park Communications and 1993 122,258 --
Treasurer of the Company
</TABLE>
- --------
(a) The amounts shown are after voluntary salary reductions associated with
the election to treat health insurance premiums on a pre-tax basis.
(b) Pursuant to a deferred compensation arrangement with Park Communications,
Mr. Thomas may elect to defer a portion of his annual salary, not to
exceed the greater of $30,000 or 25% of his salary. Such deferred
compensation is payable with interest in installments upon retirement or
termination of employment. Such deferred compensation is included in the
amount shown.
(c) The amount shown includes $175,000, $135,000 and $134,000 paid to Messrs.
Odil, Prusator and Stair, respectively, under the Company's Retention
Incentive Plan following the acquisition of Park Communications by PAI in
May 1995. See "Employment and Severance Arrangements" below.
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<PAGE>
PENSION PLAN
W. Randall Odil was a participant in a pension plan during 1993, 1994 and
1995 of one of the Company's subsidiaries, Roy H. Park Broadcasting of
Roanoke, Inc., where he was formerly employed. The Pension Plan Table below
shows his estimated annual benefits payable under the plan at retirement,
based on estimated levels of the average final salary and years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE -------------------------------------------------------------------------
FINAL SALARY 10 YRS 15 YRS 20 YRS 25 YRS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 20,000 $ 4,000 $ 6,000 $ 8,000 $10,000
40,000 8,000 12,000 16,000 20,000
60,000 12,000 18,000 24,000 30,000
80,000 16,000 24,000 32,000 40,000
100,000 20,000 30,000 40,000 50,000
120,000 24,000 36,000 48,000 60,000
</TABLE>
The annual pension benefits to be awarded to Mr. Odil under the plan will be
based on Mr. Odil's average annual salary during his employment with Park
Communications. For purposes of determining Mr. Odil's benefits under the
plan, the average annual salary computation assumes that Mr. Odil would be
compensated as if he were still an employee of Roy H. Park Broadcasting of
Roanoke, Inc., and is not based upon his compensation as set forth in the
Summary Compensation Table. Based upon the foregoing assumption, his salary
would be $115,209 as of December 31, 1995, and he has 13 years of credited
service. The benefits in the Pension Plan Table are computed based on
straight-life annuity amounts and are not subject to any deductions for Social
Security or any other offset amounts.
Park Communications is obligated to pay a supplemental retirement benefit to
Mr. Odil in the event of premature termination of his employment before
earning a full retirement benefit. The benefit would be paid in one of three
ways, as elected by Mr. Odil. The cost of the benefit under each method of
payment would be the same and would be approximately $190,000 if Mr. Odil's
employment terminated in 1996.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
Effective July 1, 1994, Park Communications entered into an employment
agreement with Wright M. Thomas which provides for (i) an annual salary of
$250,000 for three years and (ii) a non-competition/consulting period
commencing on the earlier of July 1, 1997 or termination of Mr. Thomas'
employment for specified reasons, and ending on June 30, 2000, with a fee of
$100,000 per year payable in monthly increments commencing on the earlier of
July 1, 1997 or, following termination of Mr. Thomas' employment for specified
reasons, on the date Mr. Thomas obtains other employment. In the event of
termination of Mr. Thomas' employment for specified reasons, Mr. Thomas will
be paid an amount equal to his salary under the agreement for the period
ending on the earlier June 30, 1997 or the date Mr. Thomas obtains other
employment. The specified reasons for termination of employment include
termination by Park Communications other than for cause and resignation
following a change in circumstances that significantly diminish Mr. Thomas'
position with Park Communications.
Pursuant to a contingent retirement agreement, Wright M. Thomas is entitled
to receive certain payments in the event of retirement at age 65 if he is then
employed by, or providing consulting services under his employment contract
to, Park Communications. The annual amount of such payments will be 50% of his
average net salary during the five-year period immediately preceding
retirement (not including any consulting period), less the annual amount of
retirement income payable to him under the federal Social Security Act or any
other similar plan which is a substitute for that Act that may be established
under federal law. Net salary, for this purpose, means Mr. Thomas' annual
gross salary less amounts withheld from such salary for the payment of
69
<PAGE>
Social Security and other federal or state taxes (other than income taxes).
Although his future salary cannot be predicted with certainty, if the payments
under this plan would have been based on his salary during the previous five
years, such payments would be approximately $84,000 per year during his
lifetime.
Pursuant to Park Communication's Retention Incentive Plan, Messrs. Odil,
Prusator and Stair received a bonus of $175,000, $135,000 and $134,000,
respectively, as a result of their being employed by Park Communications on
the date PAI acquired Park Communications. Under this plan, Messrs. Odil and
Stair are also entitled to severance benefits if, prior to May 11, 1997, (i)
the officer's employment is involuntarily terminated other than for cause or
(ii) the officer refuses a position that is not comparable to the officer's
current position. The severance benefit would be the greater of the officer's
annual salary or one-twelfth of his annual salary for each year of service.
In December 1995, in connection with the sale of the Radio Station Assets,
Park Communications entered into a compensation arrangement with Rick A.
Prusator, Vice President--Radio Operations of Park Communications, which
provides that, through December 1997, Park Communications will continue to (i)
pay Mr. Prusator his base salary of $139,000 per year regardless of whether
Mr. Prusator remains employed by Park Communications or secures other
employment and (ii) provide health insurance coverage until Mr. Prusator
secures other employment. Park Communications has also agreed to purchase Mr.
Prusator's home in Kentucky should Mr. Prusator so elect. Additionally,
pursuant to such compensation arrangement, Park Communications has paid a
$250,000 bonus to Mr. Prusator in July 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the following former directors served as members of the
Compensation Committee of the Board of Directors of Park Communications: John
F. McNair III, former President of Wachovia Bank and Trust Company of North
Carolina, N.A., and the Honorable Senator Harry F. Byrd, Jr. of Virginia. In
addition, Dorothy D. Park, a former director, served as an ex-officio member
of the Park Communications Compensation Committee. The Board of Directors
currently has no Compensation Committee and compensation matters are decided
by the two current directors. There were no interlocking relationships between
members of the Compensation Committee and directors or officers of Park
Communications or the Company.
During the fiscal years ended December 31, 1994 and 1993, the Company leased
certain operating facilities and equipment from RHP Incorporated ("RHP"),
which was wholly owned by the estate of Roy H. Park, by Mr. Park's widow,
Dorothy D. Park, and by a marital trust for the benefit of Mrs. Park. Until
his death in October 1993, Mr. Park was Chairman of the Board, Chief Executive
Officer and the majority stockholder of Park Communications. In November 1993,
Mrs. Park became Chairman of the Board of Park Communications and, in her
capacity as personal representative of the Estate of Roy H. Park, controlled
the shares of common stock of Park Communications formerly owned by Mr. Park
until May 1995. Each of Mrs. Park, Roy H. Park, Jr. and Wright M. Thomas was a
director and officer of RHP. Such lease payments to RHP were $519,000 and
$558,000 in 1994 and 1993, respectively. On November 30, 1994, the Company
purchased five previously leased properties and one tower from RHP for
$3,815,000. The price paid for these properties was based on independent
appraisals.
In addition, in 1994 and 1993, the Company placed promotional advertising
through Agricultural Advertising and Research, Inc. ("AAR"), which is a
division of RHP. For such placements AAR received the standard advertising
discount given by the media on advertising placed, and refunded up to two-
thirds of the discount to the Company. Such net advertising discounts retained
by RHP were $46,515 and $42,933 in 1994 and 1993, respectively. During 1994,
the Company's radio stations in Syracuse, New York paid $85,298 for
advertising to Park Outdoor Advertising of New York, Inc., a company
controlled by Roy H. Park, Jr.
CERTAIN TRANSACTIONS
In connection with the relocation of Park Communications and the Company's
headquarters in 1995 from New York to Kentucky, Park Communications purchased
the homes of Messrs. Thomas, Odil, Prusator and Stair
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<PAGE>
in New York for $176,950, $325,425, $126,667 and $175,667, respectively, and
reimbursed such individuals for certain moving expenses incurred. The purchase
price for each of the homes was based on the average of three independent
appraisals of each house. Each of Messrs. Thomas, Odil, Prusator and Stair
also received $5,000 from Park Communications to assist in locating and
purchasing a new home in Kentucky. Such payments and the reimbursement of
relocation expenses were made available to all Park Communications employees
who relocated to Kentucky and who purchased a home.
PAI and each of its direct subsidiaries (including the Company) are parties
to a management services agreement pursuant to which Park Communications will
pay to PAI for management advisory services $250,000 (of which $125,000 will
be contributed by each of the Company and Park Newspapers and their respective
subsidiaries) on the business day after each semiannual interest payment date
on the Notes; provided that such payments will not be due or made unless all
accrued interest on the Notes, the Communications Notes and the Newspapers
Notes due on such semiannual interest payment date has been paid in cash and
no default or event of default has occurred and is continuing on any such
Notes at the time of such payment.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Park Communications owns 25,974.37 shares, or 100%, of the outstanding
common stock of the Company, and PAI owns all of the outstanding common stock
of Park Communications. None of the Company, Park Communications or PAI has a
class of equity or voting securities other than common stock. PAI has an
authorized class of non-voting common stock. The address of Park
Communications and PAI is 1700 Vine Center Office Tower, 333 West Vine Street,
Lexington, Kentucky 40507. Except as set forth below, no director or executive
officer of the Company beneficially owns or is deemed to beneficially own any
shares of common stock (voting or non-voting) of any of the Company, any
subsidiary of the Company, Park Communications or PAI.
The following table sets forth information as of September 4, 1996
concerning the beneficial ownership of the outstanding shares of common stock
of PAI:
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
---------------------------- ------------------- ----------------
<S> <C> <C>
Gary B. Knapp(a) 100 50%
333 West Vine Street, #300
Lexington, KY 40507
Tomlin Family Trust II(b) 100 50%
1401 Main Street, Suite 825
Columbia, SC 29201
</TABLE>
- --------
(a) Mr. Knapp is a director of Park Communications and the Company and a
director and officer of PAI.
(b) Donald R. Tomlin, Jr., 1401 Main Street, Suite 825, Columbia, SC 29201, a
director of Park Communications and the Company and a director and officer
of PAI, is a trustee of the Tomlin Family Trust II.
All of the outstanding shares of common stock of each of the Company and
Park Newspapers are pledged to secure indebtedness under the Communications
Notes.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR PAY-IN-KIND NOTES OF PARK COMMUNICATIONS
Simultaneously with the sale of Notes, Park Communications offered and sold
the Communications Notes as part of the Communications Units. The
Communications Notes were issued pursuant to an Indenture dated as of May 13,
1996 between Park Communications and IBJ Schroder Bank & Trust Company, as
Trustee (the "Communications Indenture"). Interest on the Communications Notes
is payable semi-annually at a rate of 13.75% per annum. Through May 15, 1999,
interest on the Communications Notes is payable, at the option of Park
Communications, by the issuance of additional Communications Notes in lieu of
cash interest. After May 15, 1999, interest on the Communications Notes is
payable solely in cash.
Pursuant to the Communications Indenture, Park Communications has granted to
the holders of the Communications Notes a first priority lien on and security
interest in all of the capital stock of the Company and Park Newspapers owned
by Park Communications. The Communications Notes mature on May 15, 2004.
The Communications Notes are redeemable on or after May 15, 1999 at the
redemption prices set forth in the Communications Indenture plus, in each
case, accrued and unpaid interest, if any, to the date of redemption. Prior to
December 31, 1997, Park Communications has the right to redeem all or any
portion of the Communications Notes with the net proceeds of certain public
equity offerings or strategic equity investments, at 112.0% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
redemption. In addition, on or after December 31, 1997 and prior to May 15,
1999, Park Communications has the right to redeem up to 50% of the aggregate
principal amount of Communications Notes then outstanding with the net
proceeds of certain public equity offerings or strategic equity investments,
at 113.0% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of redemption. In addition, at any time prior to May 15,
1999, Park Communications has the right, subject to certain limitations
described in the Communications Indenture, to redeem the Communications Notes,
in whole or in part, at a redemption price equal to the principal amount
thereof plus the Applicable Premium (as defined in the Communications
Indenture) plus accrued and unpaid interest, if any, to the date of
redemption.
Park Communications is obligated to make an offer to repurchase all or a
portion of the Communications Notes then outstanding at a price equal to
112.0% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase with the net proceeds of any
public equity offering or strategic equity investment consummated on or prior
to December 31, 1997 to the extent that the proceeds therefrom have not been
(or will not be pursuant to a notice of redemption given) utilized to effect a
redemption of the Communications Notes and the amount not so utilized exceeds
$2.0 million. The Communications Indenture contains change of control
provisions similar to those applicable to the Notes requiring Park
Communications to offer to repurchase the Communications Notes upon a change
of control triggering event, which includes both a change of control and a
ratings decline.
Park Communications also is required to offer to repurchase Communications
Notes at 100% of their principal amount plus accrued and unpaid interest to
the date of redemption in the event that the net proceeds of certain asset
sales of Park Communications or its restricted subsidiaries (including the
Company and its subsidiaries) are not used within 360 days after the
occurrence of such sales to permanently reduce senior debt of Park
Communications or the Company and/or to make an investment in, or acquire
assets directly related to, the same lines of business being conducted by Park
Communications or such restricted subsidiaries.
The Communications Indenture imposes certain limitations on the ability of
Park Communications and its restricted subsidiaries to, among other things,
(i) incur additional indebtedness, (ii) pay dividends or make certain other
restricted payments, (iii) restrict the ability of a restricted subsidiary to
pay dividends or make certain payments to Park Communications, (iv) consummate
certain asset sales, (v) enter into certain transactions with affiliates, (vi)
incur liens, (vii) merge or consolidate with any other person or (viii) sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of the assets of Park Communications.
72
<PAGE>
Events of default under the Communications Indenture include, among other
things, payment defaults, covenant defaults, cross-defaults to certain other
indebtedness, judgment defaults and certain events of bankruptcy and
insolvency.
The Communications Notes were issued as part of units consisting of the
Communications Notes and the Communications Warrants, which warrants will have
a nominal exercise price. The Communications Warrants will be initially
exercisable for 7.0% of the common stock of Park Communications on a fully-
diluted basis. The Communications Warrants and the common stock issued upon
exercise thereof will have the benefit of certain registration rights.
In connection with the offering of the Communications Units, Park
Communications has agreed that, unless on or prior to December 31, 1997 it
receives proceeds of at least $40.0 million from a public equity offering or
strategic equity investment (or series of substantially concurrent strategic
equity investments), it will be obligated to issue additional warrants
initially exercisable for 3.0% of the common stock of Park Communications on a
fully-diluted basis as of the date of such issuance.
SENIOR NOTES OF PARK NEWSPAPERS
Simultaneously with the sale of Notes, Park Newspapers offered and sold the
Newspapers Notes. The Newspapers Notes were issued pursuant to an Indenture
dated as of May 13, 1996 between Park Newspapers and IBJ Schroder Bank & Trust
Company, as Trustee (the "Newspapers Indenture"). Interest on the Newspapers
Notes is payable semi-annually at a rate of 11.875% per annum, and the
Newspapers Notes mature on May 15, 2004.
The Newspapers Notes are redeemable on or after May 15, 2001 at a redemption
premium of 5.938% in excess of par, declining ratably to par at maturity,
plus, in each case accrued and unpaid interest to the date of redemption. In
addition, at any time prior to May 15, 1999, Park Newspapers has the right to
redeem up to $50.0 million of the original principal amount of the Newspapers
Notes with the net proceeds of certain public equity offerings or strategic
equity investments at 111.875% of the aggregate principal amount plus accrued
but unpaid interest to the date of redemption; provided that not less than
$100.0 million in principal amount of Newspapers Notes is outstanding
immediately after giving effect to such redemption (other than Newspapers
Notes held by Park Newspapers or any of its affiliates).
The Newspapers Indenture contains change of control provisions similar to
those applicable to the Notes requiring Park Newspapers to offer to repurchase
the Newspapers Notes upon a change of control triggering event, which includes
both a change of control and a ratings decline.
Park Newspapers also is required to offer to repurchase Newspapers Notes at
100% of their principal amount plus accrued and unpaid interest to the date of
redemption in the event that the net proceeds of certain asset sales of Park
Newspapers or its restricted subsidiaries are not used within 360 days after
the occurrence of such sales to permanently reduce senior debt of Park
Newspapers and/or to make an investment in or acquire assets directly related
to, the same lines of business being conducted by Park Newspapers or such
restricted subsidiary.
The Newspapers Indenture imposes certain limitations on the ability of Park
Newspapers and its restricted subsidiaries to, among other things, (i) incur
additional indebtedness, (ii) pay dividends or make certain other restricted
payments, (iii) restrict the ability of a restricted subsidiary to pay
dividends or make certain payments to Park Newspapers, (iv) consummate certain
asset sales, (v) enter into certain transactions with affiliates, (vi) incur
liens securing certain indebtedness, (vii) merge or consolidate with any other
person or (viii) sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of the assets of Park Newspapers.
Events of default under the Newspapers Indenture include, among other
things, payment defaults, covenant defaults, cross-defaults to certain other
indebtedness, judgment defaults and certain events of bankruptcy and
insolvency.
73
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Series A Notes were, and the Series B Notes will be, issued under an
Indenture (the "Indenture"), dated as of May 13, 1996, by and between the
Company and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee").
Upon the issuance of the Series B Notes, the Indenture will be subject to and
governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). As used in this "Description of the Notes" section, references to the
"Company" means Park Broadcasting, Inc., but not any of its subsidiaries
(unless the context otherwise requires).
The following is a summary of the material provisions of the Notes and the
Indenture. This summary does not purport to be complete and is subject to the
detailed provisions of, and is qualified in its entirety by reference to, the
Trust Indenture Act, the Notes and the Indenture, including the definitions of
certain terms contained therein and including those terms made part of the
Indenture by reference to the Trust Indenture Act. A copy of the Indenture may
be obtained from the Company. The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions." Reference
is made to the Indenture for the full definition of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
The Indenture contains various provisions which relate to the Communications
Senior Credit Facility and Radio Station Notes and which are included in the
following summary of the terms of the Indenture. These provisions are no
longer applicable since the Communications Senior Credit Facility has been
repaid in full and no Radio Station Notes were issued.
MATURITY AND INTEREST
The Notes are general unsecured unsubordinated obligations of the Company
limited in aggregate principal amount to $241,000,000 and mature on May 15,
2004. Interest on the Notes accrues at the rate of 11.75% per annum and is
payable semi-annually in arrears on May 15 and November 15 in each year,
commencing on November 15, 1996, to holders of record on the immediately
preceding May 1 and November 1, respectively. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of the original issuance of the Notes
(the "Issue Date"). Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes is payable at the
office or agency of the Company maintained for such purpose within The City of
New York or, at the option of the Company, payment of interest may be made by
check mailed to the holders of the Notes at their respective addresses as set
forth in the register of holders of Notes. Until otherwise designated by the
Company, the Company's office or agency in The City of New York will be the
office of the Trustee maintained for such purpose. The Series A Notes were,
and the Series B Notes will be, issued in fully registered form, without
coupons, and in denominations of $1,000 and integral multiples thereof.
RANKING
The Notes rank pari passu in right of payment with all existing and future
unsecured and unsubordinated indebtedness of the Company and senior in right
of payment to all existing and future subordinated indebtedness of the
Company. The Notes are effectively subordinated to all secured indebtedness of
the Company to the extent of the assets securing such indebtedness and to all
existing and future indebtedness and other obligations of the subsidiaries of
the Company. As of December 31, 1995, on a pro forma basis after giving effect
to the sale of Notes, the other Refinancing Transactions, the application of
the net proceeds therefrom and the repayment in full of the Communications
Senior Credit Facility, the Company would have had no secured indebtedness
outstanding, and the subsidiaries of the Company would have had $1.1 million
of indebtedness outstanding.
74
<PAGE>
REDEMPTION
Mandatory Redemption. The Notes are not subject to any mandatory sinking
fund redemption prior to maturity.
Optional Redemption. The Notes are redeemable at the option of the Company,
in whole or in part, at the redemption prices (expressed as percentages of the
principal amount of the Notes) set forth below plus accrued and unpaid
interest, if any, to the date of redemption, if redeemed during the twelve-
month period beginning on May 15 of the years indicated below.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001......................................................... 106%
2002......................................................... 104
2003......................................................... 102
2004......................................................... 100
</TABLE>
In addition, at any time prior to May 15, 1999, the Company may, at its
option, redeem up to 35% of the aggregate principal amount of Notes originally
issued with the net proceeds of one or more Public Equity Offerings or
Strategic Equity Investments where the proceeds to the Company of any such
Public Equity Offering or Strategic Equity Investment are at least $40.0
million, at 111.75% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of redemption; provided, however, that not less
than $155.0 million principal amount of the Notes is outstanding immediately
after giving effect to such redemption (other than any Notes owned by the
Company or any of its Affiliates) and such redemption is effected within 60
days of such issuance or investment.
In addition, at any time prior to May 15, 2001, upon the occurrence of a
Change of Control, the Company may redeem the Notes, in whole but not in part,
at a redemption price equal to the principal amount thereof plus the
Applicable Premium plus accrued and unpaid interest, if any, to the date of
redemption. Notice of redemption of the Notes pursuant to this paragraph shall
be mailed to holders of the Notes not more than 30 days following the
occurrence of a Change of Control. The Company may not redeem Notes pursuant
to this paragraph if it has made an offer to repurchase Notes with respect to
such Change of Control.
Selection and Notice. If less than all of the Notes are to be redeemed at
any time, selection of the Notes to be redeemed will be made by the Company in
compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not
listed on a securities exchange, on a pro rata basis or by lot; provided,
however, that Notes redeemed in part shall only be redeemed in integral
multiples of $1,000. Notices of any optional or mandatory redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of Notes to be redeemed at such holder's
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed, and the Trustee shall authenticate and mail to
the holder of the original Note a new Note in principal amount equal to the
unredeemed portion of the original Note promptly after the original Note has
been canceled. On and after the redemption date, interest will cease to accrue
on Notes or portions thereof called for redemption.
CHANGE OF CONTROL
In the event of a Change of Control Triggering Event, each holder of Notes
will have the right, unless the Company has given a notice of redemption,
subject to the terms and conditions of the Indenture, to require the Company
to offer to purchase all or any portion (equal to $1,000 or an integral
multiple thereof) of such holder's Notes at a purchase price in cash equal to
101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase, in accordance with the terms set
forth below (a "Change of Control Offer").
If a Change of Control Triggering Event were to occur, there can be no
assurance that the Company will have sufficient cash or other assets to
purchase any of the Notes. Any credit agreements or other agreements
75
<PAGE>
relating to unsubordinated indebtedness to which the Company becomes a party
may contain similar restrictions and provisions.
If the Company is unable to obtain the requisite consents and/or repay all
indebtedness which prohibits the repurchase of the Notes upon the occurrence
of a Change of Control Triggering Event, the Company would remain prohibited
by such indebtedness from purchasing any Notes and, as a result, the Company
could not commence a Change of Control Offer to purchase the Notes within 30
days of the occurrence of the Change of Control Triggering Event, which would
constitute an Event of Default under the Indenture. If a Change of Control
Triggering Event were to occur, there can be no assurance that the Company
would have sufficient assets to first satisfy its obligations under agreements
relating to indebtedness, if accelerated, and then to purchase all of the
Notes that might be delivered by holders seeking to accept a Change of Control
Offer. Except as described above, there are no current legal impediments to
Note purchases by the Company in the event of a Change of Control Triggering
Event. See "Risk Factors--Holding Structure; Dependence on Cash Flow from
Subsidiaries."
On or before the 30th day following the occurrence of any Change of Control
Triggering Event, the Company shall mail to each holder of Notes at such
holder's registered address a notice stating: (i) that a Change of Control
Triggering Event has occurred and that such holder has the right to require
the Company to purchase all or a portion (equal to $1,000 or an integral
multiple thereof) of such holder's Notes at a purchase price in cash equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), which shall be a business day, specified in such notice, that is not
earlier than 30 days or later than 60 days from the date such notice is
mailed, (ii) the amount of accrued and unpaid interest, if any, as of the
Change of Control Purchase Date, (iii) that any Note not tendered will
continue to accrue interest, (iv) that, unless the Company defaults in the
payment of the purchase price for the Notes payable pursuant to the Change of
Control Offer, any Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Purchase Date, (v) the procedures, consistent with the Indenture, to be
followed by a holder of Notes in order to accept a Change of Control Offer or
to withdraw such acceptance, and (vi) such other information as may be
required by the Indenture and applicable laws and regulations.
On the Change of Control Purchase Date, the Company will (i) accept for
payment all Notes or portions thereof validly tendered pursuant to the Change
of Control Offer, (ii) deposit with the Paying Agent an amount in cash equal
to the aggregate purchase price of all Notes or portions thereof accepted for
payment and any accrued interest on such Notes as of the Change of Control
Purchase Date, and (iii) deliver or cause to be delivered to the Trustee all
Notes tendered pursuant to the Change of Control Offer. The Paying Agent shall
promptly mail to each holder of Notes or portions thereof accepted for payment
an amount in cash equal to the purchase price for such Notes plus accrued and
unpaid interest, if any, thereon, and the Trustee shall promptly authenticate
and mail to each holder of Notes accepted for payment in part a new Note equal
in principal amount to any unpurchased portion of the Notes, and any Note not
accepted for payment in whole or in part shall be promptly returned to the
holder of such Note. On and after a Change of Control Purchase Date, interest
will cease to accrue on the Notes or portions thereof accepted for payment,
unless the Company defaults in the payment of the purchase price therefor. The
Company will announce the results of the Change of Control Offer to holders of
the Notes on or as soon as practicable after the Change of Control Purchase
Date.
The Company will comply with the applicable tender offer rules, including
the requirements of Rule 14e-1 under the Exchange Act, and all other
applicable securities laws and regulations in connection with any Change of
Control Offer and will be deemed not to be in violation of any of the
covenants under the Indenture to the extent such compliance is in conflict
with such covenants.
CERTAIN COVENANTS
Limitation on Incurrence of Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or directly or indirectly guarantee or in any other
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manner become directly or indirectly liable for ("incur") any Indebtedness
(including Acquired Debt), except that the Company may incur Indebtedness if,
at the time of, and immediately after giving pro forma effect to, such
incurrence of Indebtedness, the Debt to Operating Cash Flow Ratio is not more
than (i) 6.75:1 for any incurrence on or prior to December 31, 1997 and (ii)
6.0:1 for any incurrence after December 31, 1997.
The foregoing limitations will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be
given independent effect:
(i)Indebtedness of the Company or any Restricted Subsidiary consisting of
a guarantee of Park Communications' Indebtedness under the Communications
Senior Credit Facility, such amount not to exceed $58.0 million in
aggregate principal amount outstanding at any time, less any mandatory or
optional prepayments actually made in respect of the Communications Senior
Credit Facility;
(ii)Indebtedness of the Company represented by the Notes;
(iii)Indebtedness of the Company and the Restricted Subsidiaries under
the Revolving Credit Facility, not to exceed $15.0 million in aggregate
principal amount outstanding at any time;
(iv)Indebtedness owed by any Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary, or owed by the
Company to any Wholly Owned Restricted Subsidiary; provided, however, that
any such Indebtedness shall be at all times held by a Person which is
either the Company or a Wholly Owned Restricted Subsidiary of the Company;
provided, further, however, that upon either (a) the transfer or other
disposition of any such Indebtedness to a Person other than the Company or
another Wholly Owned Restricted Subsidiary or (b) the sale, lease, transfer
or other disposition of shares of Capital Stock (including by consolidation
or merger) of any such Wholly Owned Restricted Subsidiary to a Person other
than the Company or another Wholly Owned Restricted Subsidiary, the
incurrence of such Indebtedness shall be deemed to be an incurrence that is
not permitted by this clause (iv);
(v)Indebtedness arising with respect to Interest Rate Agreement
Obligations incurred for the purpose of fixing or hedging interest rate
risk with respect to any floating rate Indebtedness that is permitted by
the terms of the Indenture to be outstanding;
(vi) any Indebtedness incurred in connection with or given in exchange
for the renewal, extension, substitution, refunding, defeasance,
refinancing or replacement (a "refinancing") of any Indebtedness described
in clause (ii) above or incurred under the first paragraph of this covenant
("Refinancing Indebtedness"); provided, however, that (a) the principal
amount of such Refinancing Indebtedness shall not exceed the principal
amount (or accrued amount, if less) of the Indebtedness so refinanced (plus
the premiums paid in connection therewith (which shall not exceed the
stated amount of any premium or other payment required to be paid in
connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced) and the reasonable expenses incurred in
connection therewith); (b) such Refinancing Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Indebtedness being refinanced; (c) such
Refinancing Indebtedness shall be at least as subordinated in right of
payment to the Notes as the Indebtedness being renewed, extended,
substituted, refunded, defeased, refinanced or replaced; and (d) the
obligor on such Refinancing Indebtedness shall be the obligor on the
Indebtedness being refinanced or the Company; and
(vii) in addition to the items referred to in clauses (i) through (vi)
above, Indebtedness of the Company and payment and performance bonds not to
exceed $15.0 million in aggregate principal amount at any time outstanding.
Indebtedness of any Person which is outstanding at the time such Person
becomes a Restricted Subsidiary or is merged with or into or consolidated with
the Company or a Restricted Subsidiary shall be deemed to have been incurred
at the time such Person becomes a Restricted Subsidiary or is merged with or
into or consolidated with the Company or a Restricted Subsidiary, and
Indebtedness which is assumed at the time of the acquisition of any asset
shall be deemed to have been incurred at the time of such acquisition.
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Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, make any Restricted Payment, unless at the time of and immediately
after giving effect to the proposed Restricted Payment (with the value of any
such Restricted Payment, if other than cash, to be determined reasonably and
in good faith by the Board of Directors of the Company, whose determination
shall be conclusive, and evidenced by (A) a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee and
(B) if the value of any such Restricted Payment is greater than $5.0 million,
an opinion issued by an investment banking or appraisal firm of national
standing), (i) no Default or Event of Default (and no event that, after notice
or lapse of time, or both, would become an "event of default" under the terms
of any Indebtedness of the Company or the Restricted Subsidiaries) shall have
occurred and be continuing or would occur as a consequence thereof, (ii) the
Company (x) prior to December 31, 1997, has a Debt to Operating Cash Flow
Ratio as of the date of such Restricted Payment of not greater than 6.25:1
(for calculations of such ratio if made in respect of a date of determination
(I) on or prior to March 31, 1997, the Operating Cash Flow component of such
ratio shall be determined by multiplying the Operating Cash Flow of the
Company for the period from March 31, 1996 to the end of the fiscal quarter
ended immediately prior to such determination date by a fraction, the
numerator of which is four and the denominator of which is the number of full
fiscal quarters from March 31, 1996 to such determination date and (II) after
March 31, 1997, the Operating Cash Flow component of such ratio shall be
determined as provided in the definition of "Debt to Operating Cash Flow
Ratio") and (y) on or after December 31, 1997 could incur at least $1.00 of
additional Indebtedness pursuant to the first paragraph under "--Limitation on
Incurrence of Indebtedness" and (iii) the aggregate amount of all Restricted
Payments made after the Issue Date shall not exceed the sum of (a) an amount
equal to the Company's Cumulative Operating Cash Flow less 1.4 times the
Company's Cumulative Consolidated Interest Expense, plus (b) the aggregate
amount of all net cash proceeds received since the Issue Date by the Company
from the issuance and sale (other than to a Restricted Subsidiary) of Capital
Stock (other than Disqualified Stock) to the extent that such proceeds are not
used to redeem, repurchase, retire or otherwise acquire Capital Stock or any
Indebtedness of the Company or any Restricted Subsidiary pursuant to clause
(ii) of the next paragraph (it being understood that no capital contributions
attributable to the Offering and the consummation of the Refinancing
Transactions (including the repayment of the Prior Term Loan) shall be deemed
for any purpose to be net cash proceeds received by the Company within the
contemplation of this clause (b)). For the purposes of clause (iii) of this
paragraph only, any payments made pursuant to clauses (v) and (viii) under "--
Limitation on Transactions with Affiliates" shall be included as if it were a
Restricted Payment in the calculation of the aggregate amount of all
Restricted Payments made since the Issue Date.
The foregoing provisions will not prohibit, so long as (other than with
respect to clause (i) below) there is no Default or Event of Default
continuing, the following actions (collectively, "Permitted Payments"):
(i)the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such payment would have
been permitted under the Indenture;
(ii)the redemption, repurchase, retirement or other acquisition of any
Capital Stock or any Indebtedness of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a
Restricted Subsidiary) of Capital Stock of the Company (other than any
Disqualified Stock);
(iii)the payment of dividends to Park Communications in an amount and at
such time as is sufficient to pay interest on the Communications Senior
Credit Facility at the rates determined in accordance with the provisions
of the Communications Senior Credit Facility as in effect on the Issue
Date;
(iv)the payment of dividends to Park Communications on the Issue Date in
an amount equal to the gross proceeds of the Offering of the Notes less
expenses thereof actually paid by the Company; and
(v)the payment of dividends to Park Communications to the extent the
amount of any such payment shall be used by Park Communications to make
mandatory payments of Indebtedness outstanding under the Communications
Senior Credit Facility.
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For purposes of clause (iii) of the first paragraph of this covenant, (A)
Permitted Payments made pursuant to clauses (i), (iii) and (v) of the
immediately preceding paragraph (other than dividends to the extent made from
the operations of, or from the proceeds of the sales or dispositions of, Radio
Station Assets (unless received in repayment of any Radio Station Note)) shall
be included (with respect to clause (i), as of the date of declaration) as
Restricted Payments made since the Issue Date, and Permitted Payments made
pursuant to clauses (ii) and (iv) of the immediately preceding paragraph shall
not be included as Restricted Payments and (B) the amount of Restricted
Payments made since the Issue Date shall be reduced by the amount of cash
proceeds received by the Company from the repayment of any Radio Station Note,
not to exceed the amount of Restricted Payments deemed made pursuant to clause
(v) of the immediately preceding paragraph.
Limitation on Asset Sales. The Indenture will provide that the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset Sale
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
fair market value (as evidenced by (A) a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee and (B) if the
fair market value is greater than $5.0 million, an opinion issued by an
investment banking or appraisal firm of national standing) of the assets or
other property sold or disposed of in the Asset Sale, and (ii) at least 85% of
such consideration consists of either (a) cash or Cash Equivalents; provided,
however, that for purposes of this covenant "cash" shall include the amount of
any Indebtedness (other than any Indebtedness that is by its terms
subordinated to the Notes) of the Company or such Restricted Subsidiary that
are assumed by the transferee of any such assets or other property in such
Asset Sale (and excluding any liabilities that are incurred in connection with
or in anticipation of such Asset Sale), but only to the extent that such
assumption is effected on a basis under which there is no further recourse to
the Company or any of the Restricted Subsidiaries with respect to such
liabilities or (b) properties and capital assets (including franchises and
licenses required to own or operate such properties) to be used in the same
lines of business being conducted by the Company or such Restricted Subsidiary
on the Issue Date.
Within 360 days after any Asset Sale, the Company may elect to apply the Net
Proceeds from such Asset Sale to (a) permanently repay any Indebtedness of the
Company or its Restricted Subsidiaries, other than any Indebtedness of the
Company or any Restricted Subsidiary which expressly ranks subordinate to any
other Indebtedness, and/or (b) make an investment in, or acquire capital
assets or property directly related to, the television broadcasting business.
Pending the final application of any such Net Proceeds, the Company may
temporarily invest such Net Proceeds in any Investments described under
clauses (i) through (iv) of the definition of Permitted Investments. Any Net
Proceeds from an Asset Sale not applied or invested as provided in the first
sentence of this paragraph within 360 days of such Asset Sale will be deemed
to constitute "Excess Proceeds." If the Net Proceeds of any Asset Sale are
applied to repay the indebtedness outstanding under the Communications Senior
Credit Facility, the Company shall cause all of its Unrestricted Subsidiaries
which at such time own the Radio Station Assets (other than KEZX-AM and KWJZ-
FM) to execute and deliver a senior unsecured note evidencing their joint and
several obligation to the Company in the amount of such Net Proceeds applied
to the Communications Senior Credit Facility (the "Radio Station Note") and
bearing interest (not payable until the Communications Senior Credit Facility
has been repaid in full) at the rate then borne by the Notes. Each Radio
Station Note shall provide by its terms that it shall become immediately due
and payable after the Communications Senior Credit Facility has been repaid in
full in an amount equal to such Radio Station Note's pro rata portion
(relative to all Radio Station Notes) of the net proceeds (after taxes and
reasonable expenses) of each sale of Radio Station Assets (other than KEZX-AM
and KWJZ-FM) occurring after the repayment in full of the Communications
Senior Credit Facility. Prior to such time as the Communications Senior Credit
Facility has been repaid in full, the Company will not, and will not permit
any of its Subsidiaries to, sell, transfer or otherwise dispose of the Radio
Station Assets (other than KEZX-AM or KWJZ-FM) unless at least the net
proceeds (after taxes and reasonable expenses) thereof are applied to the
repayment of the Communications Senior Credit Facility. The Company will not
permit any Unrestricted Subsidiary which owns Radio Station Assets to enter
into any agreement other than the Communications Senior Credit Facility which
would restrict in any manner the payment when due of any Radio Station Note.
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Each date on which the aggregate amount of Excess Proceeds in respect of
which an Asset Sale Offer has not been made exceeds $5.0 million shall be
deemed an "Asset Sale Offer Trigger Date." Within 30 days of each Asset Sale
Offer Trigger Date, the Company shall commence an offer (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes and other
Indebtedness of the Company that ranks pari passu in right of payment with the
Notes (to the extent required by the instrument governing such other
Indebtedness) that may be purchased out of the Excess Proceeds. Any Notes to
be purchased pursuant to an Asset Sale Offer shall be purchased pro rata based
on the aggregate principal amount of Notes and all such other Indebtedness
outstanding, and all Notes shall be purchased at an offer price in cash in an
amount equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase. To the extent that any Excess
Proceeds remain after completion of an Asset Sale Offer, the Company may use
the remaining amount for general corporate purposes otherwise permitted by the
Indenture. Upon the consummation of any Asset Sale Offer, the amount of Excess
Proceeds from the Asset Sale in question to be the subject of future Asset
Sale Offers shall be deemed to be zero.
Notice of an Asset Sale Offer shall be mailed by the Company not later than
the 30th day after the related Asset Sale Offer Trigger Date to each holder of
Notes at such holder's registered address, stating: (i) that an Asset Sale
Offer Trigger Date has occurred and that the Company is offering to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds to the extent to be applied to an offer to purchase Notes (as
provided in the immediately preceding paragraph), at an offer price in cash in
an amount equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of the purchase (the "Asset Sale Offer
Purchase Date"), which shall be a business day, specified in such notice, that
is not earlier than 30 days or later than 60 days from the date such notice is
mailed, (ii) the amount of accrued and unpaid interest, if any, as of the
Asset Sale Offer Purchase Date, (iii) that any Note not tendered will continue
to accrue interest, (iv) that, unless the Company defaults in the payment of
the purchase price for the Notes payable pursuant to the Asset Sale Offer, any
Notes accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest after the Asset Sale Offer Purchase Date, (v) the procedures,
consistent with the Indenture, to be followed by a holder of Notes in order to
accept an Asset Sale Offer or to withdraw such acceptance, and (vi) such other
information as may be required by the Indenture and applicable laws and
regulations.
On the Asset Sale Offer Purchase Date, the Company will (i) accept for
payment the maximum principal amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds
from such Asset Sale that are to be applied to an Asset Sale Offer (to the
extent provided in the second preceding paragraph), (ii) deposit with the
Paying Agent an amount in cash equal to the aggregate purchase price of all
Notes or portions thereof accepted for payment and any accrued and unpaid
interest, if any, on such Notes as of the Asset Sale Offer Purchase Date, and
(iii) deliver or cause to be delivered to the Trustee all Notes tendered
pursuant to the Asset Sale Offer. If less than all Notes tendered pursuant to
the Asset Sale Offer are accepted for payment by the Company for any reason
consistent with the Indenture, selection of the Notes to be purchased by the
Company shall be in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes
are not so listed, on a pro rata basis or by lot; provided, however, that
Notes accepted for payment in part shall only be purchased in integral
multiples of $1,000. The Paying Agent shall promptly mail to each holder of
Notes or portions thereof accepted for payment an amount in cash equal to the
purchase price for such Notes plus accrued and unpaid interest, if any,
thereon, and the Trustee shall promptly authenticate and mail to such holder
of Notes accepted for payment in part a new Note equal in principal amount to
any unpurchased portion of the Notes, and any Note not accepted for payment in
whole or in part shall be promptly returned to the holder of such Note. On and
after an Asset Sale Offer Purchase Date, interest will cease to accrue on the
Notes or portions thereof accepted for payment, unless the Company defaults in
the payment of the purchase price therefor. The Company will announce the
results of the Asset Sale Offer to holders of the Notes on or as soon as
practicable after the Asset Sale Offer Purchase Date.
The Company will comply with the applicable tender offer rules, including
the requirements of Rule 14e-1 under the Exchange Act, and all other
applicable securities laws and regulations in connection with any Asset
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Sale Offer and will be deemed not to be in violation of any of the covenants
under the Indenture to the extent such compliance is in conflict with such
covenants.
Limitation on Liens Securing Certain Debt. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) on any properties or assets of the Company or any Restricted
Subsidiary (other than the Capital Stock of Unrestricted Subsidiaries) now
owned or hereafter acquired, or any income or profits therefrom, or assign or
convey any right to receive income therefrom to secure any Indebtedness,
unless the Notes are equally and ratably secured thereby.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i) pay dividends
or make any other distributions to the Company or any other Restricted
Subsidiary on its Capital Stock or with respect to any other interest or
participation in, or measured by, its profits, or pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (ii) make loans or advances to
the Company or any other Restricted Subsidiary or (iii) transfer any of its
properties or assets to the Company or any other Restricted Subsidiary, except
for such encumbrances or restrictions existing under or by reason of (a) the
Communications Senior Credit Facility as in effect on the Issue Date, and any
amendments, restatements, renewals, replacements or refinancings thereof;
provided, however, that such amendments, restatements, renewals, replacements
or refinancings are no more restrictive with respect to such dividend and
other payment restrictions than those contained in the Communications Senior
Credit Facility (or, if more restrictive, than those contained in the
Indenture) immediately prior to any such amendment, restatement, renewal,
replacement or refinancing, (b) applicable law, (c) any instrument governing
Indebtedness or Capital Stock of an Acquired Person acquired by the Company or
any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition); provided, however, that (1)
such restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Acquired Person, and (2) the consolidated net
income of such Acquired Person for any period prior to such acquisition shall
not be taken into account in determining whether such acquisition was
permitted by the terms of the Indenture, (d) by reason of customary non-
assignment provisions in leases entered into the ordinary course of business,
(e) Purchase Money Indebtedness for property acquired in the ordinary course
of business that only impose restrictions on the property so acquired, (f) an
agreement for the sale or disposition of the Capital Stock or assets of such
Restricted Subsidiary; provided, however, that such restriction is only
applicable to such Restricted Subsidiary or assets, as applicable, and such
sale or disposition otherwise is permitted under "--Limitation on Assets
Sales" above; provided, further, however, that such restriction or encumbrance
shall be effective only for a period from the execution and delivery of such
agreement through a termination date not later than 270 days after such
execution and delivery, (g) Refinancing Indebtedness permitted under the
Indenture; provided, however, that the restrictions contained in the
agreements governing such Refinancing Indebtedness are no more restrictive in
the aggregate than those contained in the agreements governing the
Indebtedness being refinanced immediately prior to such refinancing, (h) the
Indenture or (i) the Revolving Credit Facility, and any amendments,
restatements, renewals, replacements or refinancings thereof.
Limitation on Transactions with Affiliates. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into or suffer to exist any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate of the
Company (other than the Company or a Wholly Owned Restricted Subsidiary)
unless (1) such transaction or series of transactions is on terms that are no
less favorable to the Company or such Restricted Subsidiary, as the case may
be, than would be available in a comparable transaction in arm's-length
dealings with an unrelated third party, and (2)(a) with respect to any
transaction or series of transactions involving aggregate payments in excess
of $1.0 million, the Company delivers an Officers' Certificate to the Trustee
certifying that such transaction or series of related transactions complies
with clause (1) above and such transaction or series of related transactions
has been approved by a majority of the members of the Board of
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Directors of the Company (and approved by a majority of the Independent
Directors or, in the event there is only one Independent Director, by such
Independent Director), and (b) with respect to any transaction or series of
transactions involving aggregate payments in excess of $5.0 million or any
transaction or series of related transactions referred to in clause (2)(a)
above where there are no Independent Directors, an opinion as to the fairness
to the Company or such Restricted Subsidiary from a financial point of view
issued by an investment banking or appraisal firm of national standing.
Notwithstanding the foregoing, this covenant will not apply to (i) employment
agreements or compensation or employee benefit arrangements with any officer,
director or employee of the Company entered into in the ordinary course of
business (including customary benefits thereunder (it being understood that
benefits of the nature in place as of the Issue Date shall be deemed
permissible hereunder)), (ii) any transaction entered into by or among the
Company or one of its Wholly Owned Restricted Subsidiaries with one or more
Wholly Owned Restricted Subsidiaries of the Company, (iii) any Restricted
Payment made in compliance with "--Limitation on Restricted Payments" and any
dividend to Park Communications from the operations of, or from the sale or
disposition of, any Radio Station Asset to the extent not a Restricted Payment
by virtue of the definition of "Restricted Payments," (iv) any Permitted
Investments other than Investments permitted by clause (vii) of the definition
of Permitted Investments, (v) payments to Park Communications on the business
day after each semi-annual interest payment date for the Notes for the payment
of management advisory fees in any amount not to exceed $125,000 on each such
date; provided, however, that no such payment shall be made unless (A) the
Company has paid all accrued interest on the Notes due on such semi-annual
interest payment date and (B) no Default or Event of Default shall have
occurred and be continuing at the time of such payment, (vi) payments to Park
Communications or PAI pursuant to the Tax Sharing Agreement, (vii) the pledge
of Capital Stock of Unrestricted Subsidiaries by the Company or any Restricted
Subsidiary to support such Unrestricted Subsidiaries' Indebtedness, (viii)
payments to Park Communications in respect of the Company's allocable portion
of the consolidated legal, tax, accounting and other administrative expenses
of Park Communications, not to exceed $875,000 during any consecutive six-
month period; provided, however, that no such payment shall be made unless no
Default or Event of Default shall have occurred and be continuing at the time
of such payment and (ix) transactions involving the Company or any of the
Restricted Subsidiaries on the one hand and any Unrestricted Subsidiary owning
Radio Station Assets on the other relating to general administrative,
corporate, legal and accounting services and similar intercompany
relationships to the extent entered into in the ordinary course of business
and consistent with such transactions and relationships existing on the Issue
Date.
Limitation on Subsidiary Capital Stock. The Indenture provides that the
Company will not permit any Restricted Subsidiary to issue any Capital Stock,
except for (i) Capital Stock issued to and held by the Company or a Wholly
Owned Restricted Subsidiary and (ii) Capital Stock issued by a Person prior to
the time (a) such Person becomes a Restricted Subsidiary, (b) such Person
merges with or into a Restricted Subsidiary or (c) a Restricted Subsidiary
merges with or into such Person; provided, however, that such Capital Stock
was not issued by such Person in anticipation of the type of transaction
contemplated by clauses (a), (b) or (c).
Limitation on Lines of Business. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, engage in any
business other than television broadcasting and businesses directly related
thereto; provided, however, that the Company and the Restricted Subsidiaries
may engage in the radio broadcasting business solely by continuing to operate
the Radio Station Assets until the disposition of all Radio Station Assets.
Limitation on Amendments to the Tax Sharing Agreement. The Indenture
provides that the Company will not, and will not permit any Restricted
Subsidiary to, (i) amend, supplement or modify the Tax Sharing Agreement,
unless any such amendment, supplement or modification is no less favorable to
the Holders than the terms thereof on the Issue Date or (ii) assign the Tax
Sharing Agreement or the benefits and obligations thereunder to any other
Person.
Provision of Financial Statements. The Indenture provides that, whether or
not the Company is then subject to Section 13(a) or 15(d) of the Exchange Act,
the Company will file with the Commission, so long as the Notes are
outstanding, the annual reports, quarterly reports and other periodic reports
which the Company
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would have been required to file with the Commission pursuant to such Section
13(a) or 15(d) if the Company were so subject, commencing with the quarter
ended September 30, 1996, and such documents shall be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates")
by which the Company would have been required so to file such documents if the
Company were so subject. The Company will also in any event (i) within 15 days
of each Required Filing Date, (a) transmit by mail to all holders of Notes, as
their names and addresses appear in the Note register, without cost to such
holders and (b) file with the Trustee copies of the annual reports, quarterly
reports and other periodic reports which the Company would have been required
to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange
Act if the Company were subject to such Sections and (ii) if filing such
documents by the Company with the Commission is prohibited under the Exchange
Act, promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
holder at the Company's cost.
Additional Covenants. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) maintenance
of corporate existence; (iv) payment of taxes and other claims; (v)
maintenance of properties; and (vi) maintenance of insurance.
Certain Exceptions for Capital Contributions. Any other provision of the
Indenture to the contrary notwithstanding, any capital contribution made on
the Issue Date in any Subsidiary of the Company to effect the repayment of the
Prior Credit Agreement from the proceeds of the offering of the Notes and the
consummation of the other financing transactions taking place on the Issue
Date in connection therewith shall not be deemed to be a violation of any
covenant of the Indenture (and the aggregate amount of any such capital
contribution shall not be counted as a Restricted Investment).
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture provides that the Company shall not, in any single transaction
or series of related transactions, consolidate or merge with or into (whether
or not the Company is the Surviving Person), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets to, another Person, and the Company will not permit any Restricted
Subsidiary to enter into any such transaction or series of related
transactions if such transaction or series of related transactions, in the
aggregate, would result in a sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of the properties and assets of
the Company and the Restricted Subsidiaries, taken as a whole, to another
Person, unless (i) the Surviving Person is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the Surviving Person (if other than the Company) assumes all
the obligations of the Company under the Notes, the Indenture and, if then in
effect, the Registration Rights Agreement pursuant to a supplemental indenture
or other written agreement, as the case may be, in a form reasonably
satisfactory to the Trustee; (iii) at the time of and immediately after such
Disposition, no Default or Event of Default shall have occurred and be
continuing; and (iv) the Surviving Person will (A) have Consolidated Net Worth
(immediately after giving effect to the Disposition on a pro forma basis)
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction, and (B) at the time of such Disposition and after
giving pro forma effect thereto, the Surviving Person would be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the first
paragraph of the covenant described under "--Certain Covenants--Limitation on
Incurrence of Indebtedness."
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs
in which the Company is not the Surviving Person and the Surviving Person is
to assume all the obligations of the Company under the Notes, the Indenture
and, if then in effect, the Registration Rights Agreement pursuant to a
supplemental indenture or other written agreement, as the case may be, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company and the Company would be discharged from
its obligations under the Indenture, the Notes and the Registration Rights
Agreement.
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EVENTS OF DEFAULT
The Indenture provides that each of the following constitutes an Event of
Default:
(i) a default for 30 days in the payment when due of interest (including
any "additional interest" (as described below under "The Exchange Offer--
Purpose and Effect of the Exchange Offer")) on any Note;
(ii) a default in the payment when due of principal on any Note, whether
upon maturity, acceleration, redemption, required repurchase or otherwise;
(iii) failure to perform or comply with any covenant, agreement or
warranty in the Indenture (other than the defaults specified in clauses (i)
and (ii) above) which failure continues (A) in the case of any such
covenant, agreement or warranty described herein under "--Certain
Covenants--Limitation on Incurrence of Indebtedness," "--Certain
Covenants--Limitation on Restricted Payments," "--Certain Covenants--
Limitation on Asset Sales," and "--Merger, Consolidation and Sale of
Assets," for 30 days after written notice thereof has been given to the
Company by the Trustee or to the Company and the Trustee by the holders of
at least 25% in aggregate principal amount of the then outstanding Notes
and (B) in the case of any other such covenant, agreement or warranty
contained in the Indenture, for 60 days after written notice thereof has
been given to the Company by the Trustee or to the Company and the Trustee
by the holders of at least 25% in aggregate principal amount of the then
outstanding Notes;
(iv) the occurrence of one or more defaults under any agreements,
indentures or instruments under which the Company or any Restricted
Subsidiary then has outstanding Indebtedness in excess of $5.0 million
individually or in the aggregate and, if not already matured at its final
maturity in accordance with its terms, such Indebtedness shall have been
accelerated and such Indebtedness shall not have been repaid or such
acceleration rescinded within 20 days;
(v) one or more judgments, orders or decrees for the payment of money in
excess of $5.0 million, either individually or in the aggregate (net of
amounts covered by a reputable and creditworthy insurance company, or by
bond, surety or similar instrument) shall be entered against the Company or
any Restricted Subsidiary or any of their respective properties and which
judgments, orders or decrees are not paid, discharged, bonded or stayed or
stayed pending appeal for a period of 60 days after their entry;
(vi) there shall have been entered by a court of competent jurisdiction
(a) a decree or order for relief in respect of the Company or any
Restricted Subsidiary in an involuntary case or proceeding under any
applicable Bankruptcy Law or (b) a decree or order adjudging the Company or
any Restricted Subsidiary bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or
any Restricted Subsidiary under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Restricted
Subsidiary or of any substantial part of their respective properties, or
ordering the winding up or liquidation of their affairs, and any such
decree or order for relief shall continue to be in effect, or any such
other decree or order shall be unstayed and in effect, for a period of 60
days; or
(vii) (a) the Company or any Restricted Subsidiary commences a voluntary
case or proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent, (b) the Company or any
Restricted Subsidiary consents to the entry of a decree or order for relief
in respect of the Company or such Restricted Subsidiary in an involuntary
case or proceeding under any applicable Bankruptcy Law or to the
commencement of any bankruptcy or insolvency case or proceeding against it,
(c) the Company or any Restricted Subsidiary files a petition or answer or
consent seeking reorganization or relief under any applicable federal or
state law, (d) the Company or any Restricted Subsidiary (x) consents to the
filing of such petition or the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or such Restricted Subsidiary or of any
substantial part of their respective property, (y) makes an assignment for
the benefit of creditors or (z) admits in writing its inability to pay its
debts generally as they become due or (e) the Company or any Restricted
Subsidiary takes any corporate action in furtherance of any such actions in
this paragraph (vii).
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Within 30 days after the occurrence of any Default, the Trustee must give
notice of the Default to the holders of the Notes; provided, however, that in
the event of a Default in the payment of the principal of, premium, if any, or
interest on any Note, the Trustee is protected in withholding notice if and so
long as a trust committee of Responsible Officers in good faith determines
that the withholding of notice is in the best interest of the holders of the
Notes. If any Event of Default (other than as specified in clauses (vi) or
(vii) of the preceding paragraph with respect to the Company) occurs and is
continuing, the Trustee or the holders of at least 25% in aggregate principal
amount of the then outstanding Notes may, and the Trustee at the request of
such holders shall, declare all the Notes to be due and payable immediately by
notice in writing to the Company, and to the Company and the Trustee if by the
holders, specifying the respective Event of Default and that such notice is a
"notice of acceleration," and the Notes shall become immediately due and
payable. Notwithstanding the foregoing, in the case of an Event of Default
arising from the events specified in clauses (vi) or (vii) of the preceding
paragraph with respect to the Company, the principal of, premium, if any, and
any accrued interest on all outstanding Notes shall ipso facto become
immediately due and payable without further action or notice. Holders of the
Notes may not enforce the Indenture or the Notes except as provided in the
Indenture.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except (i) a continuing Default or Event of Default in the
payment of the principal of, or premium, if any, or interest on, the Notes
(which may only be waived with the consent of each holder of Notes affected),
or (ii) in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each Note
outstanding. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Notes notice of any continuing Default or Event of Default (except a Default
or Event of Default relating to the payment of principal, premium or interest)
if it determines that withholding notice is in their interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture provides that no director, officer, employee or stockholder of
the Company shall have any liability for any obligation of the Company under
the Indenture or the Notes. Each holder by accepting a Note waives and
releases such Persons from all such liability and such waiver and release is
part of the consideration for the issuance of the Notes. However, the holders
of the Notes are not in any way waiving, releasing or otherwise altering their
rights against any Person under federal securities laws.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the outstanding
Notes and to have satisfied all other obligations under the Notes and the
Indenture except for (i) the rights of holders of the outstanding Notes to
receive, solely from the trust fund described below, payments in respect of
the principal of, premium, if any, and interest on such Notes when such
payments are due, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes, and the maintenance of an office or agency
for payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee under the Indenture, and
(iv) the defeasance provisions of the Indenture. In addition, the Company may,
at its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("covenant defeasance") and any omission to comply with such obligations shall
not constitute a Default or an Event of Default with respect to the Notes. In
the event that a covenant defeasance occurs, certain events (not including
non-payment,
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bankruptcy and insolvency events) described under "--Events of Default" will
no longer constitute Events of Default with respect to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company shall irrevocably deposit with the Trustee, as trust funds in trust,
for the benefit of the holders of the Notes, cash in United States dollars,
U.S. Government Obligations (as defined in the Indenture), or a combination
thereof, in such amounts as will be sufficient, in the report of a nationally
recognized firm of independent public accountants or a nationally recognized
investment banking firm, to pay and discharge the principal of, premium, if
any, and interest on the outstanding Notes to redemption or maturity; (ii) the
Company shall have delivered to the Trustee an opinion of counsel in the
United States to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such defeasance or covenant defeasance, as the case may be, and will be
subject to Federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance or covenant
defeasance, as the case may be, had not occurred (in the case of defeasance,
such opinion must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable Federal income tax laws); (iii) no Default
or Event of Default shall have occurred and be continuing on the date of such
deposit or insofar as clauses (vi) and (vii) under the first paragraph under
"--Events of Default" is concerned, at any time during the period ending on
the 91st day after the date of deposit; (iv) such defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a
Default under, the Indenture or any other agreement or instrument to which the
Company is a party or by which it is bound; (v) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Indebtedness
(other than holders of the Notes) and (B) after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; and (vi) the Company shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent under the Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with and that no violations
under agreements governing any other outstanding Indebtedness would result
therefrom.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when (i) either (a)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid) have been delivered to the
Trustee for cancellation or (b) all Notes not theretofore delivered to the
Trustee for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee an amount in
United States dollars sufficient to pay and discharge the entire indebtedness
on the Notes not theretofore delivered to the Trustee for cancellation, for
the principal of, premium, if any, and interest to the date of deposit; (ii)
the Company has paid or caused to be paid all other sums payable under the
Indenture by the Company; and (iii) the Company has delivered to the Trustee
an Officers' Certificate and an opinion of counsel each stating that all
conditions precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
TRANSFER AND EXCHANGE
The registered holder of a Note will be treated as the owner of it for all
purposes. A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. Neither the Company nor the Registrar shall be
required to issue, register the transfer of or exchange any Note (i) during a
period beginning at the opening of business on the day that the Trustee
receives notice of any redemption from the Company and ending at the close of
business on the day the notice of redemption is sent to holders, (ii) selected
for redemption, in whole or in part, except the unredeemed portion of any Note
being redeemed in part may be transferred or exchanged, and (iii) during a
Change of Control Offer or an Asset Sale Offer if such Note is tendered
pursuant to such Change of Control Offer or Asset Sale Offer and not
withdrawn.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two paragraphs, the Indenture or the Notes
may be amended or supplemented with the written consent of the holders of at
least a majority in aggregate principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange
offer for the Notes), and any existing Default or Event of Default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver shall
not: (i) reduce the principal amount of the Notes whose holders must consent
to an amendment, supplement or waiver, (ii) reduce the principal of or change
the fixed maturity of any Note, or alter the provisions with respect to the
redemption or repurchase of the Notes in a manner adverse to the holders of
the Notes, (iii) reduce the rate of or change the time for payment of interest
on any Notes, (iv) waive a Default or Event of Default in the payment of
principal of, premium, if any, or interest on the Notes (except that holders
of at least a majority in aggregate principal amount of the then outstanding
Notes may (a) rescind an acceleration of the Notes that resulted from a non-
payment default, and (b) waive the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in
the Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults (other than to add sections of the Indenture subject
thereto) or the rights of holders of Notes to receive payments of principal
of, or premium, if any, or interest on, the Notes, (vii) waive a redemption
payment with respect to any Note, (viii) make any change in the obligation of
the Company to make and consummate (a) a Change of Control Offer in the event
of a Change of Control Triggering Event or (b) an Asset Sale Offer as and when
required by "--Certain Covenants--Limitation on Asset Sales" or (ix) make any
change in the foregoing amendment and waiver provisions (except to increase
the percentage of outstanding Notes required for such actions or to provide
that certain other provisions of the Indenture cannot be modified or waived
without the consent of the holder of each Note affected thereby).
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
(i) to cure any ambiguity, defect or inconsistency; provided, however, that
such amendment or supplement does not adversely affect the rights of any
holder, (ii) to comply with "--Merger, Consolidation and Sale of Assets,"
(iii) to provide for uncertificated Notes in addition to or in place of
certificated Notes, (iv) to comply with requirements of the Commission in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act, (v) to make any change that would provide any additional rights
or benefits to the holders of the Notes or that does not adversely affect the
rights of any such holder, (vi) to add to the covenants of the Company for the
benefit of the holders, or to surrender any right or power herein conferred
upon the Company, or (vii) to secure the Notes as provided in "--Certain
Covenants--Limitation on Liens Securing Certain Debt."
THE TRUSTEE
In the event that the Trustee becomes a creditor of the Company, the
Indenture contains certain limitations on the rights of the Trustee to obtain
payment of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue as Trustee, or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
has occurred and has not been cured, the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. The Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for the definition of all other terms used in the
Indenture.
"Acquired Debt" means, with respect to any specified Person, Indebtedness of
any other Person (the "Acquired Person") existing at the time the Acquired
Person merges with or into, or becomes a Restricted Subsidiary of, such
specified Person, including Indebtedness incurred in connection with, or in
contemplation of, the Acquired Person merging with or into, or becoming a
Restricted Subsidiary of, such specified Person.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with") of any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by agreement or otherwise.
"Applicable Premium" means, with respect to a Note, the greater of (i) 1.0%
of the then outstanding principal amount of such Note and (ii)(a) the present
value of all remaining required interest and principal payments due on such
Note and all premium payments relating thereto assuming a redemption date of
May 15, 2001, computed using a discount rate equal to the Treasury Rate plus
75 basis points minus (b) the then outstanding principal amount of such Note
minus (c) accrued interest paid on the date of redemption.
"Asset Sale" means (i) any sale, lease, conveyance or other disposition by
the Company or any Restricted Subsidiary of any assets (including by way of a
sale-and-leaseback) other than in the ordinary course of business or (ii) the
issuance or sale of Capital Stock of any Restricted Subsidiary (but not the
Capital Stock of any Unrestricted Subsidiary), in the case of each of (i) and
(ii), whether in a single transaction or a series of related transactions, to
any Person (other than to the Company or a Wholly Owned Restricted
Subsidiary); provided, however, that for purposes of the covenant described
under "--Certain Covenants--Limitation on Asset Sales" above, Asset Sales
shall not include: (a) a transaction or series of related transactions for
which the Company or the applicable Restricted Subsidiary receives aggregate
consideration of less than $500,000 in any fiscal year; (b) transactions
complying with the covenant described under "--Merger, Consolidation and Sale
of Assets" above; (c) any Lien securing Indebtedness to the extent that such
Lien is granted in compliance with the covenant described under "--Certain
Covenants--Limitation on Liens Securing Certain Debt" above; (d) any
Restricted Payment (or Permitted Investment) permitted by the covenant
described under "--Certain Covenants--Limitation on Restricted Payments"
above; and (e) any disposition of assets or property to the extent such
property or assets are obsolete, worn out or no longer useful in the Company's
or any Restricted Subsidiary's business; provided, however, that the fair
market value (determined reasonably and in good faith by the Board of
Directors of the Company) of any assets or property so disposed shall not
exceed $500,000 in the aggregate in any given year. Notwithstanding anything
herein or in the Indenture to the contrary, (A) no sale, lease, conveyance or
other disposition of all or any portion of the Radio Station Assets or
dividend from the operations of, or from any sale or disposition of, any Radio
Station Assets (unless received in repayment of a Radio Station Note) and (B)
no sale, lease, conveyance or other disposition of all or any portion of the
property or assets used in or related to television station WUTR (including by
way of sale of the Capital Stock of the Subsidiary owning such property or
assets) shall be deemed an Asset Sale, provided that any transaction (or
series of transactions) described in this clause (B) is in the aggregate for
fair market value.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization
or relief of debtors, or any amendment to, succession to or change in any such
law.
"Capital Lease Obligation" of any Person means, at the time any
determination thereof is to be made, the amount of the liability in respect of
a capital lease for property leased by such Person that would at such time be
required to be capitalized on the balance sheet of such Person in accordance
with GAAP.
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"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited,
of such Person, including any Preferred Stock.
"Cash Equivalents" means (a) securities with maturities of one year or less
from the date of acquisition issued, fully guaranteed or insured by the United
States Government or any agency thereof, (b) certificates of deposit, time
deposits, overnight bank deposits, bankers' acceptances and repurchase
agreements issued by a Qualified Issuer having maturities of 270 days or less
from the date of acquisition, (c) commercial paper of an issuer rated at least
A-2 by Standard & Poor's Corporation or at least P-2 by Moody's Investors
Service, Inc., or carrying an equivalent rating by a nationally recognized
rating agency if both of the two named rating agencies cease publishing
ratings of investments, and having maturities of 270 days or less from the
date of acquisition, and (d) money market accounts or funds with or issued by
Qualified Issuers.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have beneficial ownership of all shares that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of 50%
or more of the voting power of the total outstanding Voting Stock of the
Company, Park Communications or PAI, as the case may be; (ii) during any
period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Company, Park Communications
or PAI, as the case may be (together with any new directors whose election to
such Board of Directors, or whose nomination for election by the stockholders
of the Company, Park Communications or PAI, as the case may be, was approved
by a vote of the Permitted Holders who at the time of the vote are
stockholders of the Company, Park Communications or PAI, as the case may be,
or either (A) 66 2/3% or (B) all remaining members of the Board of Directors
of the Company, Park Communications or PAI, as the case may be, then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved), cease for any
reason to constitute a majority of such Board of Directors of the Company,
Park Communications or PAI, as the case may be, then in office; (iii) the sale
of all or substantially all of the Capital Stock or assets of the Company,
Park Communications or PAI, as the case may be, to any Person or Group (as
defined in Rule 13d-5 of the Exchange Act), other than to the Permitted
Holders, as an entirety or substantially as an entirety in a single
transaction or a series of related transactions or (iv) the Company, Park
Communications or PAI, as the case may be, consolidates with or merges with or
into another Person other than in any such event where immediately after such
transaction the stockholders immediately prior to such transaction or the
Permitted Holders hold at least a majority of the voting power of the
outstanding Voting Stock of the Surviving Person immediately after the
consummation of such transaction. For purposes of the foregoing definition of
Change of Control, the transfer (by lease, assignment, sale or otherwise, in a
single transaction or series of related transactions) of all or substantially
all of the properties or assets of one or more Subsidiaries of the Company,
the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company. The
foregoing definition of Change of Control includes a phrase relating to the
sale or other disposition of all or substantially all of the Capital Stock or
assets of the Company, Park Communications or PAI, and a phrase relating to
all or substantially all of the properties or assets of one or more of the
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company. Although there
is a developing body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of the Notes to require the Company to
repurchase the Notes as a result of a sale or other disposition of less than
all of such Capital Stock, assets or properties to another Person or group may
be uncertain.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
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"Communications Notes" means the $80.0 million aggregate principal amount of
13 3/4% Senior Pay-in-Kind Notes due 2004 of Park Communications issued under
an indenture dated May 13, 1996 between Park Communications and IBJ Schroder
Bank & Trust Company, as trustee, including the Series B 13 3/4% Senior Pay-
in-Kind Notes due 2004 of Park Communications issued in exchange therefor.
"Communications Senior Credit Facility" means the Credit Agreement dated as
of May 10, 1996 among Park Communications, the Subsidiaries of Park
Communications named therein and the lenders named therein, as the same may be
amended, modified, renewed, refunded, replaced or refinanced (collectively,
"refinanced") from time to time, including (i) any related notes, letters of
credit, guarantees, collateral documents, instruments and agreements executed
in connection therewith, and in each case as amended, modified or refinanced
from time to time and (ii) any notes, guarantees, collateral documents,
instruments and agreements executed in connection with any such amendment,
modification or refinancing; provided, however, that (A) no amendment,
modification or refinancing shall be permitted unless the terms thereof
require substantially the same application of the proceeds of the sale or
other disposition of the Radio Station Assets (including amount and timing) to
the repayment of indebtedness under the Communications Senior Credit Facility
(and do not require prepayment from the sale or other disposition of, or any
different restriction (as compared to terms in effect on the Issue Date) in
respect of, KEZX-AM and KWJZ-FM) and (B) after such time as the $58.0 million
aggregate principal amount outstanding under the Communications Senior Credit
Facility on the Issue Date is first repaid other than through a refinancing,
the Communications Senior Credit Facility shall be deemed not to exist for
purposes of any exception to the covenants in the Indenture.
"Company" means Park Broadcasting, Inc., a Delaware corporation, unless and
until a successor replaces it in accordance with the Indenture and thereafter
means such successor.
"Consolidated Interest Expense" means, with respect to any period, the sum
of (i) the interest expense of the Company and the Restricted Subsidiaries for
such period (other than any interest expense for such period attributable to
(i) the Communications Senior Credit Facility and (ii) the amortization of
issuance costs related to the Notes), determined on a consolidated basis in
accordance with GAAP consistently applied, including, without limitation, (a)
amortization of debt discount, (b) the net payments, if any, under Interest
Rate Agreement Obligations (including amortization of discounts), (c) the
interest portion of any deferred payment obligation and (d) accrued interest,
plus (ii) the interest component of all Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by the Company and the
Restricted Subsidiaries during such period, and all capitalized interest of
the Company and the Restricted Subsidiaries, in each case as determined on a
consolidated basis in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any period, the net income
(or loss) of the Company and the Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP consistently
applied and adjusted, (i) by adding the amount of interest expense for such
period calculated in accordance with GAAP attributable to (x) the
Communications Senior Credit Facility and (y) debt issuance costs related to
the Notes (in each case to the extent deducted in calculating such net income
(or loss)), (ii) by adding the amount of corporate overhead for such period of
Park Communications allocated to the Company and its Subsidiaries in
accordance with GAAP consistently applied and deducted in calculating such net
income (or loss), (iii) by adding the amount of management advisory fees paid
by the Company to Park Communications for such period and deducted in
calculating such net income (or loss) and (iv) to the extent included in
calculating such net income (or loss), by excluding, without duplication, (a)
all extraordinary gains but not losses (less all fees and expenses relating
thereto) together with any related provisions for taxes, (b) the portion of
net income (or loss) of the Company and the Restricted Subsidiaries allocable
to interests in unconsolidated Persons or Unrestricted Subsidiaries, except
(other than with respect to Unrestricted Subsidiaries that own the Radio
Station Assets) to the extent of the amount of dividends or distributions
actually paid in cash to the Company or the Restricted Subsidiaries by such
other Person or Unrestricted Subsidiaries during such period (subject in the
case of any such dividend or distribution to any Restricted Subsidiary to the
limitations set forth in clause (e) below), (c) net income (or loss) of any
Person combined with the Company or any Restricted Subsidiary on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(d) net gains but not losses (less
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all fees and expenses relating thereto) in respect of dispositions of assets
(including, without limitation, pursuant to sale-and-leaseback transactions)
other than in the ordinary course of business, together with any related
provisions for taxes, (e) the net income of any Restricted Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income to the Company is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders (regardless of any waiver in respect thereof), and (f) any amount
attributable to the operations of the Radio Station Assets or received by the
Company or any Restricted Subsidiary as a dividend (including, without
limitation, any dividend made from the proceeds of any sale or disposition of
Radio Station Assets) from any Unrestricted Subsidiary owning the Radio
Station Assets or as a dividend or other distribution from any Restricted
Subsidiary to the extent relating to the operations of or resulting from the
sale or disposition of any Radio Station Assets.
"Consolidated Net Worth" means, with respect to any Person on any date, the
equity of the common and preferred stockholders of such Person and its
Restricted Subsidiaries as of such date, determined on a consolidated basis in
accordance with GAAP consistently applied.
"Cumulative Consolidated Interest Expense" means, as of any date of
determination, Consolidated Interest Expense from the Issue Date to the end of
the Company's most recently ended full fiscal quarter prior to such date,
taken as a single accounting period.
"Cumulative Operating Cash Flow" means, as of any date of determination,
Operating Cash Flow from the Issue Date to the end of the Company's most
recently ended full fiscal quarter prior to such date, taken as a single
accounting period.
"Debt to Operating Cash Flow Ratio" means, with respect to any date of
determination, the ratio of (i) the aggregate principal amount of all
outstanding Indebtedness of the Company and the Restricted Subsidiaries as of
such date on a consolidated basis, plus the aggregate liquidation preference
or redemption amount of all Disqualified Stock of the Company and the
Restricted Subsidiaries (other than any Disqualified Stock owned by the
Company or any Wholly-Owned Restricted Subsidiary) determined in accordance
with GAAP, to (ii) Operating Cash Flow of the Company and the Restricted
Subsidiaries on a consolidated basis for the four most recent full fiscal
quarters ending on or immediately prior to such date, determined on a pro
forma basis (without giving effect to clause (iv) (c) of the definition of
Consolidated Net Income) after giving pro forma effect to (A) the incurrence
of any Indebtedness being incurred on such date of determination and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness; (B) in the case of Acquired Debt, the related
acquisition as if such acquisition had occurred at the beginning of such four-
quarter period; and (C) any acquisition or disposition by the Company and the
Restricted Subsidiaries of any company or any business or any assets out of
the ordinary course of business, or any related repayment of Indebtedness, in
each case since the first day of such four-quarter period, assuming such
acquisition or disposition had been consummated, with respect to any
acquisition, on the first day of, and with respect to any disposition,
immediately prior to the first day of, such four-quarter period.
"Default" means any event that is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such
Person is the Surviving Person) or the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of such Person's
assets.
"Disqualified Stock" means (i) any Preferred Stock of any Restricted
Subsidiary and (ii) any Capital Stock of the Company that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part on or
prior to the stated maturity of the Notes; provided, however, that any Capital
Stock that would not constitute
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Disqualified Stock but for provisions thereof giving holders thereof the right
to require the Company to purchase or redeem such Capital Stock upon the
occurrence of a change of control occurring prior to the final maturity date
of the Notes shall not constitute Disqualified Stock if the change of control
provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the provisions described under "--Change of
Control" and such Capital Stock specifically provides that the Company will
not purchase or redeem any such Capital Stock pursuant to such provisions
prior to the Company's purchase of the Notes as are required to be purchased
pursuant to the provisions described under "--Change of Control."
"Dollars" and "$" means lawful money of the United States of America.
"Equity Market Capitalization" of any Person means the aggregate market
value of the outstanding Capital Stock (other than Preferred Stock and
excluding any Capital Stock held in treasury by such Person) of such Person of
a class that is listed or admitted to unlisted trading privileges on a United
States national securities exchange or included for trading on the Nasdaq
National Market System. For purposes of this definition the "market value" of
any such Capital Stock shall be the average of the high and low sale prices,
or if no sales are reported, the average of the high and low bid prices, as
reported on the principal national securities exchange on which such Capital
Stock is listed or admitted to trading or, if such Capital Stock is not listed
or admitted to trading on a national securities exchange, as reported by
Nasdaq, for each trading day in a 20 consecutive trading day period ending not
more than 45 days prior to the date such Person commits to make an investment
in the Capital Stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means, as of any date, generally accepted accounting principles in
the United States and not including any interpretations or regulations that
have been proposed but that have not become effective.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, and
whether or not contingent, (i) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services or which is
evidenced by a note, bond, debenture or similar instrument, (ii) all Capital
Lease Obligations of such Person, (iii) all obligations of such Person in
respect of letters of credit or bankers' acceptances issued or created for the
account of such Person, (iv) all Interest Rate Agreement Obligations of such
Person, (v) all liabilities secured by any Lien (other than any Permitted
Lien) on any property owned by such Person even if such Person has not assumed
or otherwise become liable for the payment thereof to the extent of the lesser
of the amount of the debt secured thereby or the value of the property subject
to such Lien (it being understood that if such debt exceeds the value of such
property, the full amount thereof shall be included in this definition), (vi)
all obligations to purchase, redeem, retire, or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to
acquire such Capital Stock, now or hereafter outstanding, (vii) to the extent
not included in (vi), all Disqualified Stock issued by such Person, valued at
the greater of its voluntary or involuntary maximum fixed repurchase price
plus accrued dividends thereon, and (viii) to the extent not otherwise
included, any guarantee by such Person of any other Person's indebtedness or
other obligations described in clauses (i) through (vii) above. "Indebtedness"
of the Company and the Restricted Subsidiaries (i) shall be determined in
accordance with GAAP and (ii) shall not include current trade payables
incurred in the ordinary course of business and payable in accordance with
customary practices, film contracts and non-interest bearing installment
obligations and accrued liabilities incurred in the ordinary course of
business which are not more than 90 days past due. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Stock which does not have
a fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were purchased on any
date on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by the fair market
value of, such Disqualified Stock, such fair market value is to be determined
reasonably and in good faith by the board of directors of the issuer of such
Disqualified Stock.
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"Indenture Grade" means BBB- or higher by S&P or Baa3 or higher by Moody's
or the equivalent of such ratings by S&P or Moody's or in the event S&P or
Moody's shall cease rating the Notes and the Company shall select any other
Rating Agency, the equivalent of such ratings by such other Rating Agency.
"Independent Director" means a director of the Company other than a director
(i) who (apart from being a director of the Company or any Subsidiary) is an
employee, associate or Affiliate of the Company or a Subsidiary or has held
any such position during the previous five years, or (ii) who is a director,
employee, associate or Affiliate of another party (other than the Company or
any of its Subsidiaries) to the transaction in question.
"Interest Rate Agreement Obligations" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates of such Person) in the form of
loans, Guarantees, advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Capital Stock or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Issue Date" means May 13, 1996, the date on which the Notes were first
issued under the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate cash proceeds received by such Person and/or its Affiliates in
respect of such Asset Sale, which amount is equal to the excess, if any, of
(i) the cash received by such Person and/or its Affiliates (including any cash
payments received by way of deferred payment pursuant to, or monetization of,
a note or installment receivable or otherwise, but only as and when received)
in connection with such Asset Sale, over (ii) the sum of (a) the amount of any
Indebtedness that is secured by such asset and which is required to be repaid
by such Person in connection with such Asset Sale, plus (b) all fees,
commissions and other expenses incurred by such Person in connection with such
Asset Sale, plus (c) provision for taxes, including income taxes, attributable
to the Asset Sale or attributable to required prepayments or repayments of
Indebtedness with the proceeds of such Asset Sale, plus (d) a reasonable
reserve for the after-tax cost of any indemnification payments (fixed or
contingent) attributable to seller's indemnities to purchaser in respect of
such Asset Sale undertaken by the Company or any of the Restricted
Subsidiaries in connection with such Asset Sale, plus (e) if such Person is a
Restricted Subsidiary, any dividends or distributions payable to holders of
minority interests in such Restricted Subsidiary from the proceeds of such
Asset Sale.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Operating Cash Flow" means, with respect to any period, the Consolidated
Net Income of the Company and the Restricted Subsidiaries for such period,
plus, without duplication, (i) extraordinary net losses and net losses
realized on any sale or other disposition of assets during such period, to the
extent such losses were deducted in computing Consolidated Net Income, plus
(ii) provision for taxes based on income or profits, to the extent such
provision for taxes was included in computing such Consolidated Net Income,
and any provision for taxes utilized in computing the net losses under clause
(i) hereof, plus (iii) Consolidated Interest Expense of the Company and the
Restricted Subsidiaries for such period, plus (iv) depreciation, amortization
and all other non-cash charges (excluding non-cash charges associated with
changes in working capital and other balance sheet changes in the ordinary
course of business), to the extent such depreciation, amortization and other
non-cash
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charges were deducted in computing such Consolidated Net Income (including
amortization of goodwill and other intangibles), plus (v) the difference of
(A) the amount of cash payments actually received by the Company under its
network affiliation agreements less (B) the actual amount of revenue
recognized thereunder in accordance with GAAP.
"PAI" means Park Acquisitions, Inc., a Delaware corporation, and its
successors and assigns.
"Park Communications" means Park Communications, Inc., a Delaware
corporation, and its successors and assigns.
"Permitted Holders" means (i) each of (A) Gary B. Knapp, (B) Donald R.
Tomlin, Jr. and (C) PAI and Park Communications so long as PAI and Park
Communications are controlled by Persons who would otherwise be Permitted
Holders hereunder; (ii) the spouse, ancestors, siblings, descendants
(including children or grandchildren by adoption) of (A) any of the Persons
described in clause (i) or (B) any spouse, ancestor, sibling or descendent
(including children or grandchildren by adoption) of any of the Persons
described in clause (i); (iii) in the event of the incompetence or death of
any of the Persons described in clauses (i) and (ii), such Person's estate,
executor, administrator, committee or other personal representative, in each
case who at any particular date shall beneficially own or have the right to
acquire, directly or indirectly, Capital Stock of the Company; (iv) any trusts
created for the benefit of the Persons described in clause (i), (ii) or (iii)
or any trust for the benefit of any such trust; or (v) any Person controlled
by any of the Persons described in clause (i), (ii), (iii) or (iv). For
purposes of this definition, "control," as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to elect or
appoint not less than a majority of the members of the Board of Directors of
such Person.
"Permitted Investments" means (i) any Investment in the Company or any
Wholly Owned Restricted Subsidiary; (ii) any Investment in Cash Equivalents;
(iii) any Investment in a Person (an "Acquired Person") if, as a result of
such Investment, (a) the Acquired Person becomes a Wholly Owned Restricted
Subsidiary, or (b) the Acquired Person either (1) is merged or consolidated
with or into the Company or any Wholly Owned Restricted Subsidiary and the
Company or such Wholly Owned Restricted Subsidiary is the Surviving Person, or
(2) transfers or conveys all or substantially all of its assets to, or is
liquidated into, the Company or any Wholly Owned Restricted Subsidiary; (iv)
Investments in accounts and notes receivable acquired in the ordinary course
of business; (v) any securities received in connection with an Asset Sale that
complies with the covenant described under "--Certain Covenants--Limitation on
Asset Sales" above; provided, however, the fair market value of such
securities does not exceed 15% of the aggregate consideration received at the
time of such Asset Sale; (vi) Interest Rate Agreement Obligations permitted
pursuant to the second paragraph of the covenant described under "--Certain
Covenants--Limitation on Incurrence of Indebtedness" above; (vii) any other
Investments that do not exceed $10.0 million in amount in the aggregate at any
one time outstanding; (viii) Investments for which the sole consideration
provided is Capital Stock (other than Disqualified Stock) of the Company; (ix)
Investments existing on the Issue Date; and (x) guarantees by Restricted
Subsidiaries of the Communications Senior Credit Facility.
"Permitted Liens" means (i) Liens securing Indebtedness of a Person existing
at the time that such Person is merged into or consolidated with the Company
or a Restricted Subsidiary, provided, however, that such Liens were in
existence prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of such Person; (ii) Liens on
property acquired by the Company or a Restricted Subsidiary, provided,
however, that such Liens were in existence prior to the contemplation of such
acquisition and do not extend to any other property; (iii) Liens in favor of
the Company or any Restricted Subsidiary; (iv) Liens incurred, or pledges and
deposits in connection with, workers' compensation, unemployment insurance and
other social security benefits, and leases, appeal bonds and other obligations
of like nature incurred by the Company or any Restricted Subsidiary in the
ordinary course of business; (v) Liens imposed by law, including, without
limitation, mechanics', carriers', warehousemen's, materialmen's, suppliers'
and vendors' Liens, incurred by the Company or any Restricted Subsidiary in
the ordinary course of business; (vi) Liens for ad valorem, income or property
taxes or assessments and similar charges which either are not delinquent or
are being contested in good faith by appropriate proceedings for which the
Company has set aside on its books reserves to the extent required
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by GAAP; (vii) Liens arising from Capital Lease Obligations permitted under
the Indenture; (viii) Liens securing any Indebtedness (including Purchase
Money Indebtedness) of the Company or the Restricted Subsidiaries (other than
any Indebtedness which is expressly subordinated to any other Indebtedness)
permitted under the Indenture; provided, however, that such Liens are granted
not later than 360 days after the incurrence of such Indebtedness; (ix) Liens
in respect of Interest Rate Agreement Obligations permitted under the
Indenture; (x) easements, reservations, licenses, rights-of-way, zoning
restrictions and other similar charges or encumbrances in respect of real
property not interfering in any material respect with the ordinary conduct of
the business of the Company or any of its Restricted Subsidiaries; (xi) Liens
securing reimbursement obligations with respect to commercial letters of
credit which encumber documents and other property relating to such letters of
credit and products and proceeds thereof; (xii) Liens existing on the Issue
Date; and (xiii) any Lien to secure the refinancing of any Indebtedness
described in the foregoing clauses; provided, however, that to the extent any
such clause limits the amounts secured or the assets subject to such Liens, no
refinancing shall increase the assets subject to such Liens or the amounts
secured thereby beyond the assets or amounts set forth in such clause.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over Capital Stock of any other class of such Person.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Stock) of the Company, Park Communications or
PAI, pursuant to an effective registration statement filed under the
Securities Act; provided, however, that with respect to any such public equity
offering by Park Communications or PAI, cash proceeds from such public equity
offering equal to not less than 111.75% of the aggregate principal amount of
Notes to be redeemed is received by the Company as a capital contribution
immediately prior to such redemption.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in connection with the purchase of property
or assets for the business of the Company and its Restricted Subsidiaries.
"Qualified Issuer" means (A) any lender that is a party to the
Communications Senior Credit Facility; and (B) any commercial bank (i) which
has capital and surplus in excess of $80,000,000, and (ii) the outstanding
short-term debt securities of which are rated at least A-2 by Standard &
Poor's Corporation or at least P-2 by Moody's Investors Service, Inc., or
carry an equivalent rating by a nationally recognized rating agency if both
the two named rating agencies cease publishing ratings of investments.
"Radio Station Assets" means all property and assets used in the radio
broadcasting operations of the Company as of the Issue Date as more
particularly set forth in the Indenture.
"Rating Agency" means any of (i) S&P, (ii) Moody's or (iii) if S&P or
Moody's or both shall not make a rating of the Notes publicly available, a
security rating agency or agencies, as the case may be, nationally recognized
in the United States, selected by the Company which shall be substituted for
S&P or Moody's or both, as the case may be.
"Rating Category" means (i) with respect to S&P, any of the following
categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's, any of the following categories:
Aaa, Aa, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories);
and (iii) the equivalent of any such category of S&P or Moody's used by
another Rating Agency. In determining whether the rating of the Notes has
decreased by one or more gradation, gradations within Rating Categories (+ and
- - for
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S&P; 1, 2 and 3 for Moody's; or the equivalent gradations for another Rating
Agency) shall be taken into account (e.g., with respect to S&P, a decline in
rating from BB+ to BB, as well as from BB- to B+, will constitute a decrease
of one gradation).
"Rating Decline" means the occurrence on, or within 60 days after, the date
of public notice of the occurrence of a Change of Control or of the intention
of the Company or Persons controlling the Company to effect a Change of
Control (which period shall be extended so long as the rating of the Notes is
under publicly announced consideration for possible downgrade by any of the
Rating Agencies) of the following: (i) if the Notes are rated by either Rating
Agency as Indenture Grade immediately prior to the beginning of such period,
the rating of the Notes by both Rating Agencies shall be below Indenture
Grade; or (ii) if the Notes are rated below Indenture Grade by both Rating
Agencies immediately prior to the beginning of such period, the rating of the
Notes by either (or both) Rating Agency shall be decreased by one or more
gradations (including gradations within Rating Categories as well as between
Rating Categories).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means (i) any dividend or other distribution declared
or paid on any Capital Stock of the Company or any of its Restricted
Subsidiaries (other than dividends or distributions payable solely in Capital
Stock (other than Disqualified Stock) of the Company or such Restricted
Subsidiary or dividends or distributions payable to the Company or any Wholly
Owned Restricted Subsidiary); (ii) any payment to purchase, redeem, defease or
otherwise acquire or retire for value any Capital Stock of the Company or any
Restricted Subsidiary or other Affiliate of the Company (other than any
Capital Stock owned by the Company or any Wholly Owned Restricted Subsidiary);
(iii) any payment to purchase, redeem, defease or otherwise acquire or retire
for value any Indebtedness that is subordinated in right of payment to the
Notes other than a purchase, redemption, defeasance or other acquisition or
retirement for value that is paid for with the proceeds of Refinancing
Indebtedness that is permitted under the covenant described under "--Certain
Covenants--Limitation on Incurrence of Indebtedness"; (iv) any Restricted
Investment; and (v) any payment of principal, interest or any other obligation
under the Communications Senior Credit Facility by the Company or any
Restricted Subsidiary. Notwithstanding anything herein or in the Indenture to
the contrary, no dividend or other payment to Park Communications of any
amount (whether in cash or property) from the operations of, or from the
proceeds of the sale, lease, conveyance or other disposition of all or any
portion of the Radio Station Assets (other than any dividend of the proceeds
of any Radio Station Assets to the extent received in repayment of any Radio
Station Note) shall be considered a Restricted Payment.
"Restricted Subsidiary" means each direct or indirect Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Revolving Credit Facility" means any credit facility, entered into by the
Company, the Subsidiaries of the Company named therein and the lenders named
therein, as the same may be amended, modified, renewed, refunded, replaced or
refinanced (collectively, "refinanced") from time to time, including (i) any
related notes, letters of credit, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case
as amended, modified or refinanced from time to time, and (ii) any notes,
guarantees, collateral documents, instruments and agreements executed in
connection with any such amendment, modification or refinancing.
"Strategic Equity Investment" means the issuance and sale of Capital Stock
(other than Disqualified Stock) of the Company, Park Communications or PAI to
a Person substantially engaged in the television broadcasting business or any
other business reasonably related to the Company's business that has an Equity
Market Capitalization of at least $350.0 million; provided, however, that with
respect to any such issuance by Park Communications or PAI, cash proceeds from
such issuance equal to not less than 111.75% of the aggregate principal amount
of Notes to be redeemed is received by the Company as a capital contribution
immediately prior to any such redemption.
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"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding voting power of the Voting Stock of which is owned or controlled,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries thereof, or
(ii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner, or (iii) any other Person (other than a
corporation or limited partnership) in which such Person, or one or more other
Subsidiaries of such Person, or such Person and one or more other Subsidiaries
thereof, directly or indirectly, has more than 50% of the outstanding
partnership or similar interests or has the power, by contract or otherwise,
to direct or cause the direction of the policies, management and affairs
thereof.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or
the Person to which such Disposition is made.
"Television Stations" means all property and assets used in the television
operations of the Company as more fully set forth in the Indenture.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two business days prior to the
date fixed for redemption (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining term to May 15, 2001; provided, however, that if
the then remaining term to May 15, 2001 is not equal to the constant maturity
of a United States Treasury security for which a weekly average yield is
given, the Treasury Rate shall be obtained by linear interpolation (calculated
to the nearest one-twelfth of a year) from the weekly average yields of United
States Treasury securities for which such yields are given, except that if the
then remaining term to May 15, 2001 is less than one year, the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Unrestricted Subsidiary" means (a) each Subsidiary listed on an officers'
certificate delivered to the Trustee on the Closing Date and (b) any
Subsidiary of the Company designated as an Unrestricted Subsidiary by the
Board of Directors of the Company; provided, however, that, for purposes of
this clause (b), (i) the Subsidiary to be so designated (x) (I) has total
assets with a fair market value at the time of such designation of $1,000 or
less or (II) is being so designated prior to the acquisition by the Company of
such Subsidiary by merger or consolidation with an Unrestricted Subsidiary,
and (y) does not own any Capital Stock of the Company or any Restricted
Subsidiary, (ii) if such Subsidiary is acquired by the Company, such
Subsidiary is designated as an Unrestricted Subsidiary prior to the
consummation of such acquisition, (iii) no Default or Event of Default shall
have occurred and be continuing, (iv) no portion of any Indebtedness or any
other Obligation (contingent or otherwise) of such Subsidiary (a) is
guaranteed by, or is otherwise the subject of credit support provided by the
Company or any of its Restricted Subsidiaries, (b) is recourse to or obligates
the Company or any of its Restricted Subsidiaries in any way, or (c) subjects
any property or asset of the Company or any of its Restricted Subsidiaries
directly or indirectly, contingently or otherwise, to the satisfaction of such
Indebtedness or other obligation, (v) neither the Company nor any of its
Restricted Subsidiaries has any contract, agreement, arrangement or
understanding with such Subsidiary other than on terms as favorable to the
Company or such Restricted Subsidiary as those that might be obtained at the
time from Persons that are not Affiliates of the Company, and (vi) neither the
Company nor any of its Restricted Subsidiaries has any obligations (a) to
subscribe for additional shares of Capital Stock of such Subsidiary, or (b) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such
designation by the Company's Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certificate stating that such designation
complies with the foregoing conditions. The Company's Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation, no Default
or Event of Default shall have occurred and be continuing, including, without
limitation, under the covenants described above under the captions "--
Limitation on Incurrence of Indebtedness" and "--Limitation on Liens Securing
Certain Debt," assuming the incurrence by the Company and its Restricted
Subsidiaries at the time of such designation of all existing Indebtedness and
Liens of the Unrestricted Subsidiary to be so designated as a Restricted
Subsidiary. Notwithstanding the foregoing or any
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other provision of the Indenture to the contrary, no assets of the Television
Stations may be held at any time by an Unrestricted Subsidiary, other than
assets transferred to Unrestricted Subsidiaries that in the aggregate are not
material to such broadcasting operations. In the event of any Disposition
involving the Company in which the Company is not the Surviving Person, the
Board of Directors of the Surviving Person may (x) prior to such Disposition,
designate any of its Subsidiaries, and any of the Company's Subsidiaries being
acquired pursuant to such Disposition that are not Restricted Subsidiaries, as
Unrestricted Subsidiaries, and (y) after such Disposition, designate any of
its direct or indirect Subsidiaries as an Unrestricted Subsidiary under the
same conditions and in the same manner as the Company under the terms of the
Indenture.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with
(b) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment, by (ii) the then
outstanding aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary with
respect to which all of the outstanding voting securities (other than
directors' qualifying shares) of which are owned, directly or indirectly, by
the Company or a Surviving Person of any Disposition involving the Company, as
the case may be.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Series A Notes were originally sold by the Company on May 13, 1996 to
the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Series A Notes to qualified institutional
buyers in reliance on Rule 144A under the Securities Act and to institutional
accredited investors in a manner exempt from the registration requirements of
the Securities Act. As a condition to the Purchase Agreement, the Company and
the Initial Purchasers entered into the Registration Rights Agreement pursuant
to which the Company agreed, for the benefit of the holders, that it would, at
its own cost, (i) use its best efforts to file, within 45 days after May 13,
1996, the original issue date of the Series A Notes (the "Issue Date"), a
registration statement (the "Exchange Offer Registration Statement") with the
Commission with respect to the Exchange Offer for the Series B Notes and (ii)
use its best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act within 120 days after the Issue
Date. Upon the Exchange Offer Registration Statement being declared effective,
the Company will offer the Series B Notes in exchange for surrender of the
Series A Notes. The Company will keep the Exchange Offer open for not less
than 30 days (or longer if required by applicable law) after the date notice
of the Exchange Offer is mailed to the holders of the Series A Notes. For each
of the Series A Notes surrendered pursuant to the Exchange Offer, the holder
who surrendered such Series A Note will receive a Series B Note having a
principal amount equal to that of the surrendered Series A Note. Based on no-
action letters issued by the staff of the Commission to third parties, the
Company believes the Series B Notes will be freely transferable by holders
thereof and any person who receives the Series B Notes after the Exchange
Offer without further registration under the Securities Act only if (i) the
Series B Notes were acquired in the ordinary course of business of such holder
or such other person, (ii) neither such holder nor such other person is
engaging in or intends to engage in a distribution of the Series B Notes and
(iii) neither such holder nor such other person has an arrangement or
understanding with any person to participate in the distribution of the Series
B Notes. However, any purchaser of Series A Notes who is an "affiliate" of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing
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the Series B Notes (i) will not be able to rely on the position of the staff
of the Commission, (ii) will not be able to tender its Series A Notes in the
Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Series A Notes, unless such sale or transfer is made pursuant
to an exemption from such requirements.
Each holder of the Series A Notes who wishes to exchange the Series A Notes
for Series B Notes in the Exchange Offer will be required to represent in the
Letter of Transmittal that (i) the Series B Notes are to be acquired by the
holder or the person receiving such Series B Notes, whether or not such person
is the holder, in the ordinary course of business, (ii) the holder or any such
other person (other than a broker-dealer referred to in the next sentence) is
not engaging, and does not intend to engage, in the distribution of the Series
B Notes, (iii) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the Series
B Notes, (iv) neither the holder nor any such other person is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act and (v)
the holder or any such other person acknowledges that if such holder or other
person participates in the Exchange Offer for the purpose of distributing the
Series B Notes it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the Series
B Notes and cannot rely on those no-action letters. As indicated above, in
connection with any resales of Series B Notes, any Participating Broker-Dealer
who acquired the Series A Notes for its own account as a result of market-
making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Series B Notes (other than a resale of an
unsold allotment from the original sale of the Series A Notes) with this
Prospectus. Under the Registration Rights Agreement, the Company is required
to allow Participating Broker-Dealers and other persons, if any, subject to
similar prospectus delivery requirements to use this Prospectus in connection
with the resale of such Series B Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or, under certain
other circumstances, including if for any other reason the Exchange Offer is
not consummated within 150 days after the Issue Date, the Company will, at its
cost, (a) use its best efforts to file, as promptly as practicable and, in any
event, within 45 days after such Shelf Registration Event Date (as defined in
the Registration Rights Agreement), a shelf registration statement covering
resales of the Series A Notes (the "Shelf Registration Statement"), (b) use
its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) use its best efforts to keep
effective the Shelf Registration Statement until the earlier of three years
after the Issue Date and such time as all of the applicable Series A Notes
have been sold thereunder. The Company will, in the event of the filing of the
Shelf Registration Statement, provide to each holder of the Series A Notes
copies of the prospectus which is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit
unrestricted resales of the Series A Notes. A holder that sells its Series A
Notes pursuant to the Shelf Registration Statement generally will be required
to be named as a selling securityholder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales
and will be bound by the provisions of the Registration Rights Agreement which
are applicable to such a holder (including certain indemnification
obligations).
If, on or prior to 45 days following the Issue Date, an Exchange Offer
Registration Statement has not been filed with the Commission, additional
interest will accrue on the Series A Notes from and including the 46th day
following the Issue Date until, but excluding, the date such registration
statement is filed. In addition, if, on or prior to 120 days following the
Issue Date, such Exchange Offer Registration Statement is not declared
effective, additional interest will accrue on the Series A Notes from and
including the 121st day following the Issue Date until, but excluding, the
date such registration statement is declared effective. Further, if, on or
prior to 150 days following the Issue Date, the Exchange Offer is not
consummated, additional interest will accrue on the Series A Notes from and
including the 151st day following the Issue Date until, but excluding, the
date of consummation of the Exchange Offer. If a Shelf Registration Event (as
defined in the Registration Rights Agreement) shall have
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occurred, and if, by 150 days after the Issue Date, a Shelf Registration
Statement is not declared effective, additional interest will accrue on the
Series A Notes not exchanged as a result of such law or interpretation from
and including the 151st day after the Issue Date, until the effective date of
the Shelf Registration Statement. In each case, additional interest will be
payable semi-annually in arrears, with the first semiannual payment due on the
first interest payment date in respect of the Series A Notes following the
date from which additional interest
begins to accrue, and will accrue at a rate per annum equal to an additional
one-quarter of one percent (0.25%) of the principal amount of the Series A
Notes upon the occurrence of each such circumstance, which rate will increase
by one-quarter of one percent (0.25%) for each 90-day period that such
additional interest continues to accrue under any such circumstance, with an
aggregate maximum increase in the interest rate per annum equal to one percent
(1.00%).
If applicable, in the event that the Shelf Registration Statement ceases to
be effective prior to the third anniversary of the Issue Date for a period in
excess of 45 days, whether or not consecutive, in any given year, then the
interest rate borne by the Series A Notes shall increase by an additional one-
quarter of one percent (0.25%) per annum on the 46th day in the applicable
year such Shelf Registration Statement ceases to be effective. Such interest
rate will increase by an additional one-quarter of one percent (0.25%) per
annum for each additional 90 days that such Shelf Registration Statement is
not effective, subject to the same aggregate maximum increase in the interest
rate per annum of one percent (1.00%) referred to above. Upon the filing of
the Exchange Offer Registration Statement, the effectiveness of the Exchange
Offer Registration Statement, or the consummation of the Exchange Offer, as
the case may be, the interest rate borne by the Notes will be reduced by the
full amount of any such increase to the extent that such increase related to
the failure of any such event to have occurred. Upon the effectiveness of a
Shelf Registration Statement, the interest rate borne by the Series A Notes
shall be reduced to the original interest rate of the Series A Notes unless
and until increased as described above.
Any amounts of additional interest due as described above will be payable in
cash on the same interest payment dates as the Series A Notes.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which filed as an exhibit to the Exchange Offer Registration Statement
of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of Series A Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Series A Notes will not have any further registration rights, and such
Series A Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Series A Notes
could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Series A
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Series B Notes in exchange for each $1,000 principal amount of outstanding
Series A Notes accepted in the Exchange Offer. Holders may tender some or all
of their Series A Notes pursuant to the Exchange Offer. However, Series A
Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Series B Notes are the same as the form and terms
of the Series A Notes except that (i) the Series B Notes bear a "Series B"
designation and a different CUSIP Number from the Series A Notes, (ii) the
Series B Notes have been registered under the Securities Act and hence will
not bear legends restricting the transfer thereof and (iii) the holders of the
Series B Notes will not be entitled to certain rights under the Registration
Rights Agreement, which rights will terminate when the Exchange Offer is
terminated.
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The Series B Notes will evidence the same debt as the Series A Notes and will
be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $241,000,000 aggregate principal amount
of Series A Notes were outstanding. The Company has fixed the close of
business on September 6, 1996 as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus and the Letter of
Transmittal will be mailed initially.
Holders of Series A Notes do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware or the Indenture in connection
with the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Series A Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Series B Notes from the Company.
If any tendered Series A Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Series A Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Series A Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Series A
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
October 10, 1996, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Series A Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE SERIES B NOTES
The Series B Notes will bear interest from their date of issuance. Holders
of Series A Notes that are accepted for exchange will receive accrued interest
thereon to, but not including, the date of issuance of the Series B Notes.
Such interest will be paid in cash with the first interest payment on the
Series B Notes on November 15, 1996. Interest on the Series A Notes accepted
for exchange will cease to accrue upon issuance of the Series B Notes.
Interest on the Series B Notes is payable semi-annually on each May 15 and
November 15, commencing on November 15, 1996.
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PROCEDURES FOR TENDERING
Only a holder of Series A Notes may tender such Series A Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the
signatures thereon guaranteed if required by the Letter of Transmittal and
mail or otherwise deliver such Letter of Transmittal, or such facsimile,
together with the Series A Notes and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
To be tendered effectively, the Series A Notes, Letter of Transmittal and
other required documents much be completed and received by the Exchange Agent
at the address set forth below under "--Exchange Agent" prior to 5:00 p.m.,
New York City time, on the Expiration Date. Delivery of the Series A Notes may
be made by book-entry transfer in accordance with the procedures described
below. Confirmation of such book-entry transfer must be received by the
Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the Company
the representations set forth above in the second paragraph under the heading
"--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute the agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT TO
THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Series A Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Series A Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be by a member firm of the Medallion System (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Series A Notes listed therein, such Series A Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Series A
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Series A Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
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The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Series A Notes at the book-entry transfer facility, The Depository Trust
Company (the "Book-Entry Transfer Facility"), for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Series A Notes by causing such Book-Entry
Transfer Facility to transfer such Series A Notes into the Exchange Agent's
account with respect to the Series A Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the
Series A Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Series A Notes and withdrawal of tendered
Series A Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Series A Notes not properly tendered or any Series
A Notes the Company's acceptance of which would, in the opinion of counsel for
the Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Series A Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Series A Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Series A Notes, neither the Company, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification.
Tenders of Series A Notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any Series A Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the Exchange Agent to the tendering holders, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration
Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Notes and (i) whose Series A Notes
are not immediately available, (ii) who cannot deliver their Series A Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent or (iii) who cannot complete the procedures for book-entry transfer,
prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Series A Notes and the principal amount of Series A Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
five New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Series A Notes (or a confirmation of book-
entry transfer of such Series A Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility), and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Series A Notes in proper form for transfer (or a confirmation of book-
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entry transfer of such Series A Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Series A Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Series A Notes in the Exchange Offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received
by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Series A Notes to be
withdrawn (the "Depositor"), (ii) identify the Series A Notes to be withdrawn
(including the certificate number(s) and principal amount of such Series A
Notes, or, in the case of Series A Notes transferred by book-entry transfer,
the name and number of the account at the
Book-Entry Transfer Facility to be credited), (iii) be signed by the holder in
the same manner as the original signature on the Letter of Transmittal by
which such Series A Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Series A Notes register the transfer of such
Series A Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any such Series A Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, whose determination shall be final and binding on all parties.
Any Series A Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer, and no Series B Notes will be
issued with respect thereto unless the Series A Notes so withdrawn are validly
retendered. Any Series A Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Series A Notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Series B Notes for, any Series
A Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Series A Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company; or
(b) any law, rule, regulation or interpretation by the staff of the
Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer and as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Series
A Notes and return all tendered Series A Notes to the tendering
104
<PAGE>
holders, (ii) extend the Exchange Offer and retain all Series A Notes tendered
prior to the expiration of the Exchange Offer, subject, however, to the rights
of holders to withdraw such Series A Notes (see "--Withdrawal of Tenders") or
(iii) waive such unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered Series A Notes which have not been withdrawn. All
of these conditions, other than the receipt of certain governmental approvals,
must be satisfied or waived prior to the termination of the Exchange Offer.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
For Information by Telephone: (212) 858-2103
<TABLE>
<S> <C>
By Registered or Certified Mail:
IBJ Schroder Bank & Trust Company By Hand or Overnight Delivery Service:
P.O. Box 84 IBJ Schroder Bank & Trust Company
Bowling Green Station One State Street
New York, New York 10274-0084 New York, New York 10004
Attention: Reorganization Operations Attention: Securities Processing Window,
Department Subcellar One (SC-1)
</TABLE>
By Facsimile Transmission:
(212) 858-2611
(Facsimile Confirmation)
(212) 858-2103
Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.
Delivery to an address or transmission of instructions via facsimile other
than as set forth above will not constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses includes fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Series B Notes will be recorded at the same carrying value as the Series
A Notes as reflected in the Company's accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be
amortized over the term of the Series B Notes.
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<PAGE>
CONSEQUENCES OF FAILURE TO EXCHANGE
The Series A Notes that are not exchanged for Series B Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Series A
Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) so long as the Series A Notes are eligible for resale
pursuant to Rule 144A under the Securities Act, to a person inside the United
States whom the seller reasonably believes is a qualified institutional buyer
within the meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A, (iii) in accordance with Rule 144 under the Securities Act, or
pursuant to another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel reasonably acceptable to
the Company), (iv) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 904 under the Securities Act or
(v) pursuant to an effective registration 221895.1 statement under the
Securities Act, in each case in accordance with any applicable securities laws
of any state of the United States.
RESALE OF THE SERIES B NOTES
With respect to resales of Series B Notes, based on no-action letters issued
by the staff of the Commission to third parties, the Company believes that a
holder or other person who receives Series B Notes, whether or not such person
is the holder (other than a person that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act), who receives Series
B Notes in exchange for Series A Notes in the ordinary course of business and
who is not participating, does not intend to participate, and has no
arrangement or understanding with any person to participate, in the
distribution of the Series B Notes, will be allowed to resell the Series B
Notes to the public without further registration under the Securities Act and
without delivering to the purchasers
of the Series B Notes a prospectus that satisfies the requirements of Section
10 of the Securities Act. However, if any holder acquires Series B Notes in
the Exchange Offer for the purpose of distributing or participating in a
distribution of the Series B Notes, such holder cannot rely on the position of
the staff of the Commission enunciated in such no-action letters, and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Series B Notes for its own account in exchange for Series
A Notes, where such Series A Notes were acquired by such Participating Broker-
Dealer as a result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any
resale of such Series B Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the Series B Notes are to
be acquired by the holder or the person receiving such Series B Notes, whether
or not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging, and does not intend to engage, in the
distribution of the Series B Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Series B Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act and (v) the holder or any such other person acknowledges
that if such holder or other person participates in the Exchange Offer for the
purpose of distributing the Series B Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Series B Notes and cannot rely on those no-
action letters. As indicated above, each Participating Broker-Dealer that
receives a Series B Note for its own account in exchange for Series A Notes
must acknowledge that it will deliver a prospectus in connection with any
resale of such Series B Notes. For a description of the procedures for such
resales by Participating Broker-Dealers, see "Plan of Distribution."
106
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is intended only as a
summary and does not purport to be a complete analysis or listing of all
potential tax considerations that may be relevant and is generally limited to
those persons who are original purchasers of the Notes and who hold the Notes
as capital assets ("Holders"). The discussion does not include special rules
that may apply to certain Holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign persons and
persons in special situations such as those who hold the Notes as part of a
straddle, hedge or conversion transaction), and does not address the tax
consequences of the laws of any state, locality or foreign jurisdiction. The
discussion (including the opinion of counsel described below) is based upon
currently existing provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury regulations promulgated
thereunder and current administration rulings and court decisions. All of the
foregoing are subject to change and any such change could affect the
continuing validity of this discussion. The discussion is based upon the legal
opinion of Eckert Seamans Cherin & Mellott.
THE FOLLOWING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF NOTES IN LIGHT OF SUCH
HOLDER'S PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF
NOTES SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES TO SUCH HOLDER OF THE OWNERSHIP AND DISPOSITION OF THE NOTES
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS.
THE EXCHANGE OFFER
The exchange of the Series A Notes for Series B Notes pursuant to the
Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the Series B Notes will not be considered to differ
materially in kind or extent from the Series A Notes. Rather, the Series B
Notes received by a holder will be treated as a continuation of the Series A
Notes in the hands of such holder. As a result, there will be no federal
income tax consequences to holders exchanging Series A Notes for Series B
Notes pursuant to the Exchange Offer. Therefore, the same tax consequences
apply to the Series B Notes as are applicable to the Series A Notes.
TAX TREATMENT OF THE NOTES
ORIGINAL ISSUE DISCOUNT
The Series A Notes were issued with original issue discount for federal
income tax purposes. The amount of original issue discount ("OID") on a Note
is the excess of its face amount over its "issue price." The "issue price" of
each Note is the initial offering price at which a substantial amount of the
Notes were sold (not including sales to bond houses, brokers or similar
persons acting in the capacity of underwriters or wholesalers. Each Holder
(whether a cash or accrual method taxpayer) will be required to include in
income such OID as it accrues, in advance of the receipt of the related cash
payment.
The amount of OID includable in income by a Holder is the sum of the "daily
portions" of OID with respect to the Note for each day during the taxable year
or portion of the taxable year on which such Holder held such Note ("accrued
OID"). The daily portion is determined by allocating to each day in any
"accrual period" a pro rata portion of the OID allocable to that accrual
period. The accrual periods for a Note will be periods that are selected by
the Holder that are no longer than one year, provided that each scheduled
payment occurs either on the final day or on the first day of an accrual
period. The amount of OID allocable to any accrual period other than the
initial short accrual period (if any) and the final accrual period is an
amount equal to the product of the
107
<PAGE>
Note's "adjusted issue price" at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period),
reduced by the amount of stated interest on the Note allocable to the accrual
period. The amount of OID allocable to the final accrual period is the
difference between the face amount of the Note and the adjusted issue price of
the Note at the beginning of the final accrual period. The amount of OID
allocable to any initial short accrual period may be computed under any
reasonable method. In general, the adjusted issue price of the Note at the
start of any accrual period is equal to its issue price increased by the
accrued OID for each prior accrual period and reduced by any prior payments,
or payments on the first day of the current accrual period (in either case,
other than any payments of stated interest or "additional interest" described
below) with respect to such Note. The Company is required to report the amount
of OID accrued on Notes held of record by persons other than corporations and
other exempt Holders, which may be based on accrual periods other than those
chosen by the Holder.
TAX BASIS
A Holder's initial tax basis in a Note purchased by such Holder will be
equal to its purchase price. In general, the tax basis of a Note in the hands
of the Holder will be increased by the amount of OID on the Note that is
included in the Holder's income and will be decreased by the amount of any
payments (other than payments of stated interest or "additional interest"
described below) made with respect to the Note.
ADDITIONAL INTEREST PURSUANT TO REGISTRATION RIGHTS AGREEMENT
The Company is obligated to pay additional interest to the Holder under
certain circumstances described under "The Exchange Offer--Purpose and Effect
of the Exchange Offer" above. Any such payments should be treated for tax
purposes as interest, taxable to Holders, in the case of an accrual method
taxpayer as such payments become fixed and determinable and in the case of a
cash method taxpayer, as such amounts are paid or made available to the
taxpayer.
MARKET DISCOUNT
If a Note is acquired at a "market discount," some or all of any gain
realized upon a disposition (including a sale or a taxable exchange) or
payment at maturity of such Note may be treated as ordinary income. In
general, "market discount" with respect to a Note is, subject to a de minimis
exception, the excess of (1) the adjusted issue price of the Note disregarding
any adjustments for "acquisition premium," discussed below (the "revised issue
price") over (2) such Holder's tax basis in the Note immediately after its
acquisition. The amount of market discount treated as having accrued will be
determined either on a straight-line basis, or, if the Holder so elects, on a
constant interest method. Upon any subsequent disposition (including a gift or
payment at maturity) of such Note (other than in connection with certain
nonrecognition transactions), the lesser of any gain on such disposition (or
appreciation, in the case of a gift) or the portion of the market discount
that accrued while the Note was held by such Holder will be treated as
ordinary interest income at the time of the disposition. In lieu of including
accrued market discount in income at the time of disposition, a Holder may
elect to include market discount in income currently. Unless a Holder so
elects, such Holder may be required to defer a portion of any interest expense
that may otherwise be deductible on any indebtedness incurred or maintained to
purchase or carry such Note until the Holder disposes of the Note.
ACQUISITION PREMIUM
If a Holder's purchase price for the Note exceeds the "revised issue price"
at the time of acquisition, the excess (referred to as "acquisition premium")
is offset ratably against the amount of OID otherwise includible in such
Holder's taxable income.
DISPOSITION OF NOTES
A Holder generally will recognize gain or loss upon the sale, redemption,
retirement or other disposition of a Note equal to the difference between the
amount realized on the disposition and the Holder's adjusted tax basis
108
<PAGE>
in the Note. Subject to the market discount rules discussed above, gain or
loss recognized will be long-term capital gain or loss, provided the Note had
been held (or treated as held) for longer than one year.
INTEREST ELECTION
A Holder, subject to certain limitations, may elect to include all interest
that accrues on a Note in gross income under the constant yield-to-maturity
method. For this purpose, interest includes stated and unstated interest,
acquisition discount, de minimis OID and OID, de minimis market discount and
market discount, as adjusted by any acquisition premium. Such election, if
made in respect of a market discount obligation, will constitute an election
to include market discount in income currently on all market discount
obligations acquired by such Holder on or after the first taxable year to
which the election applies. See "Market Discount" above.
BACKUP WITHHOLDING
A Holder may be subject to backup withholding at the rate of 31% with
respect to interest paid (and OID accrued) on a Note unless such Holder (a) is
a corporation or other exempt recipient and, when required, demonstrates this
fact or (b) provides, when required, a correct taxpayer identification number,
certifies that backup withholding is not in effect and otherwise complies with
applicable requirements of the backup withholding rules. Furthermore, a Holder
that does not provide the Company with the Holder's correct taxpayer
identification number may be subject to penalties imposed by the IRS. Amounts
withheld as backup withholding generally will be creditable against the
Holder's federal income tax liability.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Series B Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Series B
Notes received in exchange for Series A Notes where such Series A Notes were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after the date of this
Prospectus, it will make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any
such resale. In addition, for a period of 90 days after the date of this
Prospectus, all dealers effecting transactions in the Series B Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sales of Series B Notes
by Participating Broker- Dealers. Series B Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Series B Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Series B Notes. Any Participating
Broker-Dealer that resells the Series B Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Series B Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of Series B Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
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<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Series B Notes offered hereby,
including certain federal income tax consequences, will be passed upon for the
Company by Eckert Seamans Cherin & Mellott, Pittsburgh, Pennsylvania. Stephen
I. Burr, a partner in such firm, is the Secretary of each of PAI, Park
Communications, the Company and each of its subsidiaries and Park Newspapers
and each of its subsidiaries.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and the consolidated
statements of income and retained earnings and cash flows for the period from
May 11, 1995 to December 31, 1995 and for the period from January 1, 1995 to
May 10, 1995 of Park Broadcasting, Inc. and Subsidiaries and Park
Communications, Inc. and Subsidiaries, included in this Prospectus, have been
included herein in reliance on the reports, which include a paragraph
explaining certain financial reporting implications related to the
Acquisition, of Coopers & Lybrand L.L.P., independent accountants, given on
the authority of that firm as experts in accounting and auditing.
The consolidated financial statements and schedules of Park Broadcasting,
Inc. and Subsidiaries and Park Communications, Inc. and Subsidiaries as of
December 31, 1994 and for the two years then ended, appearing in this
Prospectus and the Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the Series
B Notes offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and to which
reference is hereby made. Statements contained in this Prospectus as to the
contents of any contract, agreement or any other document referred to are not
necessarily complete. With respect to each such contact, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to such exhibit to the Registration Statement for a more complete description
of the matter involved, and each such statement shall be deemed qualified in
its entirety by such reference.
The Registration Statement can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20459, and at the Commission's regional offices at Seven
World Trade Center, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the
Registration Statement can be obtained from the Public Reference Section of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20459,
at prescribed rates. The Company is filing this Registration Statement with
the Commission electronically. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of that Web site is http://www.sec.gov.
The Company intends, and is required by the terms of the Indenture, to
furnish the holders of the Series B Notes with annual reports containing
consolidated financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
110
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INDEX
Set forth below is a list of terms defined in this Prospectus and the page
numbers on which such terms are defined:
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
AAR............................................................ 70
ABC............................................................ 3
Accrued OID.................................................... 107
Acquired Debt.................................................. 88
Acquired Person................................................ 88, 94
Acquisition.................................................... 3
Acquisition Premium............................................ 108
Affiliate...................................................... 88
Applicable Premium............................................. 88
Asset Sale..................................................... 88
Asset Sale Offer............................................... 80
Asset Sale Offer Purchase Date................................. 80
Asset Sale Offer Trigger Date.................................. 80
ATV............................................................ 59
Bankruptcy Code................................................ 21
Bankruptcy Law................................................. 88
BIA............................................................ 38
Book-Entry Transfer Facility................................... 103
Capital Lease Obligation....................................... 88
Capital Stock.................................................. 89
Cash Equivalents............................................... 89
CBS............................................................ 3
Central Corporate Overhead..................................... 15
Change of Control.............................................. 89
Change of Control Offer........................................ 75
Change of Control Triggering Event............................. 89
Change of Control Purchase Date................................ 76
Code........................................................... 107
Commission..................................................... Cover
Communications Act............................................. 18, 53
Communications Indenture....................................... 72
Communications Notes........................................... 90
Communications Senior Credit Facility.......................... 7, 90
Communications Notes........................................... 7
Communications Units........................................... 7
Communications Warrants........................................ 7
Company........................................................ Cover, 3, 74, 90
Consolidated Interest Expense.................................. 90
Consolidated Net Income........................................ 90
Consolidated Net Worth......................................... 91
Covenant defeasance............................................ 85
CTA............................................................ 55
Cumulative Consolidated Interest Expense....................... 91
Cumulative Operating Cash Flow................................. 91
DBS............................................................ 51, 61
Debt to Operating Cash Flow Ratio.............................. 91
Default........................................................ 91
</TABLE>
111
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Defeasance............................................................ 85
Depositary............................................................ Cover
Depositor............................................................. 104
Disposition........................................................... 91
Disqualified Stock.................................................... 91
DMA................................................................... 40, 42
Dollars............................................................... 92
EBI................................................................... 42
EEO................................................................... 57
Eligible Institution.................................................. 102
Equity Market Capitalization.......................................... 92
Exchange Act.......................................................... 20, 92
Exchange Agent........................................................ 11
Exchange Offer........................................................ Cover
Exchange Offer Registration Statement................................. 98
Existing Broadcasters................................................. 59
Expiration Date....................................................... 101
FCC................................................................... 6
Fin-syn............................................................... 56
GAAP.................................................................. 30, 92
Guarantee............................................................. 92
Holders............................................................... 107
Hughes................................................................ 61
Incur................................................................. 77
Indebtedness.......................................................... 92
Indenture............................................................. Cover, 74
Indenture Grade....................................................... 93
Independent Director.................................................. 93
Initial Purchasers.................................................... 8
Interest Rate Agreement Obligations................................... 93
Investments........................................................... 93
Issue Date............................................................ 74, 93
Letter of Transmittal................................................. Cover
Lien.................................................................. 93
LMAs.................................................................. 56
LMDS.................................................................. 51
LPTV.................................................................. 51
Media General......................................................... 6
Merger Agreement...................................................... 6
Merger Sub............................................................ 6
MMDS.................................................................. 51
Montgomery Acquisition................................................ 3
NBC................................................................... 3
Net Proceeds.......................................................... 93
Network compensation.................................................. 40
Newspaper Notes....................................................... 7
Newspapers Indenture.................................................. 73
Nielsen............................................................... 3
Notes................................................................. Cover
Obligations........................................................... 93
OID................................................................... 107
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
One-to-a-market rule..................................................... 54
Operating Cash Flow...................................................... 93
PAI...................................................................... 3, 94
Paramount................................................................ 40
Park Communications...................................................... 3, 94
Participating Broker-Dealer.............................................. Cover
Permitted Holders........................................................ 94
Permitted Indebtedness................................................... 77
Permitted Investments.................................................... 94
Permitted Liens.......................................................... 94
Permitted Payments....................................................... 78
Person................................................................... 95
Power ratio.............................................................. 4, 38
Preferred Stock.......................................................... 95
Prior Credit Agreement................................................... 7
Prior Term Loan.......................................................... 22
Prospectus............................................................... Cover
PTAR..................................................................... 56
Public Equity Offering................................................... 95
Purchase Agreement....................................................... 8
Purchase Money Indebtedness.............................................. 95
Qualified Issuer......................................................... 95
Radio Station Assets..................................................... 3, 95
Radio Station Note....................................................... 79
Rating................................................................... 40
Rating Agency............................................................ 95
Rating Category.......................................................... 95
Rating Decline........................................................... 96
Refinanced............................................................... 96
Refinancing.............................................................. 77
Refinancing Indebtedness................................................. 77
Refinancing Transaction.................................................. 7
Registration Rights Agreement............................................ 8
Registration Statement................................................... 110
Reportable stations...................................................... 42
Required Filing Dates.................................................... 83
Restricted Investment.................................................... 96
Restricted Payment....................................................... 96
Restricted Subsidiary.................................................... 96
Revised issue price...................................................... 108
Revolving Credit Facility................................................ 96
RHP...................................................................... 70
Securities Act........................................................... Cover
Series A Notes........................................................... Cover
Series B Notes........................................................... Cover
Share.................................................................... 40, 42
Shelf Registration Statement............................................. 99
Sign-on to sign-off...................................................... 42
Strategic Equity Investment.............................................. 96
Subgroup................................................................. 63
Subparent................................................................ 63
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Subsidiary................................................................. 97
Surviving Person........................................................... 97
Telecom Act................................................................ 53
Television Stations........................................................ 97
Time Warner................................................................ 40
Treasury Rate.............................................................. 97
Trustee.................................................................... 74
Trust Indenture Act........................................................ 74
UAB........................................................................ 42
UHF........................................................................ 39
Unrestricted Subsidiary.................................................... 97
USSB....................................................................... 61
VDT........................................................................ 58
VHF........................................................................ 39
Voting Stock............................................................... 98
Weekly cumulative audience................................................. 42
Weighted Average Life to Maturity.......................................... 98
Wireless Cable............................................................. 51
Wholly Owned Restricted Subsidiary......................................... 98
1992 Cable Act............................................................. 58
$.......................................................................... 92
</TABLE>
114
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PARK BROADCASTING, INC. AND SUBSIDIARIES
Reports of Independent Accountants................................... F-2, 3
Consolidated Balance Sheets as of December 31, 1995 and 1994......... F-4
Consolidated Statements of Income and Retained Earnings for the
period from May 11, 1995 to December 31, 1995, the period from
January 1, 1995 to May 10, 1995 and the years ended December 31,
1994 and 1993....................................................... F-5
Consolidated Statements of Cash Flows for the period from May 11,
1995 to December 31, 1995, the period from January 1, 1995 to May
10, 1995 and the years ended December 31, 1994 and 1993............. F-6
Notes to Consolidated Financial Statements........................... F-7
Unaudited Interim Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995.................................................. F-16
Condensed Consolidated Statements of Income and Retained Earnings
for the six months ended June 30, 1996, the period from January 1,
1995 to May 10, 1995 and the period from May 11, 1995 to
June 30, 1996...................................................... F-17
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1996, the period from January 1, 1995 to May 10,
1995 and the period from May 11, 1995 to June 30, 1996............. F-18
Notes to Condensed Consolidated Unaudited Financial Statements...... F-19
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
Reports of Independent Accountants................................... F-21, 22
Consolidated Balance Sheets as of December 31, 1995 and 1994......... F-23
Consolidated Statements of Income and Retained Earnings for the
period from May 11, 1995 to December 31, 1995, the period from
January 1, 1995 to May 10, 1995 and the years ended December 31,
1994 and 1993....................................................... F-24
Consolidated Statements of Cash Flows for the period from May 11,
1995 to December 31, 1995, the period from January 1, 1995 to May
10, 1995 and the years ended December 31, 1994 and 1993............. F-25
Notes to Consolidated Financial Statements........................... F-26
Unaudited Interim Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995.................................................. F-38
Condensed Consolidated Statements of Income and Retained Earnings
for the six months ended June 30, 1996, the period from January 1,
1995 to May 10, 1995 and the period from May 11, 1995 to June 30,
1996............................................................... F-39
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1996, the period from January 1, 1995 to May 10,
1995 and the period from May 11, 1995 to June 30, 1996............. F-40
Notes to Condensed Consolidated Unaudited Financial Statements...... F-41
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Park Broadcasting, Inc.
We have audited the accompanying consolidated balance sheet of Park
Broadcasting, Inc. and Subsidiaries (a wholly-owned subsidiary of Park
Communications, Inc.) as of December 31, 1995 and the related consolidated
statements of income and retained earnings and cash flows for the period from
May 11, 1995 to December 31, 1995 and for the period from January 1, 1995 to
May 10, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As discussed in Note 2 to the consolidated financial statements, the Company
was acquired by Park Acquisitions, Inc. on May 11, 1995 in a transaction
accounted for as a purchase. The purchase price and an allocable portion of
debt have been "pushed down" to the financial statements of the Company and as
a result, the post-acquisition consolidated financial statements are not
comparable to the pre-acquisition consolidated financial statements.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Park
Broadcasting, Inc. and Subsidiaries as of December 31, 1995 and the
consolidated results of their operations and their cash flows for the period
from May 11, 1995 to December 31, 1995 and for the period from January 1, 1995
to May 10, 1995 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Lexington, Kentucky
February 2, 1996
F-2
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
Board of Directors
Park Broadcasting, Inc.
We have audited the accompanying consolidated balance sheet of Park
Broadcasting, Inc. and subsidiaries (a wholly-owned subsidiary of Park
Communications, Inc.) as of December 31, 1994 and the related consolidated
statements of income and retained earnings, and cash flows for each of the two
years in the period ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Park
Broadcasting, Inc. and subsidiaries at December 31, 1994 and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the Company
changed its method of accounting for income taxes, as required by FASB
Statement No. 109, "Accounting for Income Taxes."
Ernst & Young LLP
Syracuse, New York
January 27, 1995
F-3
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
----------- -----------
NEW PARK OLD PARK
----------- -----------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS (NOTE 6)
Current Assets:
Cash.................................................................................................. $ 1,305 $ 2,373
Accounts receivable, less allowance for doubtful accounts of $544 in 1995
and $1,284 in 1994................................................................................... 18,844 15,544
Film contracts........................................................................................ 2,717 2,446
Consulting/non-compete contracts...................................................................... -- 62
Other................................................................................................. 1,190 1,239
-------- --------
Total current assets................................................................................. 24,056 21,664
-------- --------
Property, plant & equipment:
Land and improvements................................................................................. 9,994 11,162
Buildings and leasehold improvements.................................................................. 9,171 15,791
Broadcast equipment................................................................................... 37,071 61,691
Furniture and fixtures................................................................................ 4,421 7,134
Autos and trucks...................................................................................... 1,657 3,038
-------- --------
Total property, plant and equipment.................................................................. 62,314 98,816
Less accumulated depreciation and amortization........................................................ (4,358) (44,434)
-------- --------
Net property, plant and equipment..................................................................... 57,956 54,382
Intangible assets, net................................................................................. 465,672 52,325
Film contracts......................................................................................... 2,787 2,777
Consulting/non-compete contracts....................................................................... -- 124
Other assets........................................................................................... 419 390
-------- --------
Total assets......................................................................................... $550,890 $131,662
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt.................................................................. $ 339 $ 322
Current maturities of film contracts.................................................................. 2,619 2,521
Accounts payable...................................................................................... 1,129 1,087
Consulting/non-compete contracts...................................................................... 62 62
Interest.............................................................................................. 18,750 12
Income taxes.......................................................................................... 377 2,029
Accrued liabilities................................................................................... 1,959 2,316
-------- --------
Total current liabilities............................................................................ 25,235 8,349
Long-term debt......................................................................................... 415,780 3,537
Deferred income........................................................................................ 4,549 --
Consulting/non-compete contracts....................................................................... 74 136
Deferred income taxes.................................................................................. 124,605 8,521
-------- --------
Total liabilities.................................................................................... 570,243 20,543
-------- --------
Commitments
Stockholder's Equity:
Common stock--no par value:
Authorized 25,974 shares
Issued and outstanding 25,974 shares in 1995 and 1994................................................ 2,598 2,598
Paid in capital....................................................................................... (2,598) --
Intercompany receivables from parent.................................................................. (5,412) (32,109)
Retained earnings..................................................................................... (13,941) 140,630
-------- --------
Total stockholder's equity............................................................................. (19,353) 111,119
-------- --------
Total liabilities and stockholders' equity........................................................... $550,890 $131,662
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DEC.
PERIOD 31
-------------------- ------------------
PRO FORMA NEW PARK OLD PARK OLD PARK
----------- --------- --------- ------------------
05/11/95- 01/01/95-
1995 12/31/95 05/10/95 1994 1993
----------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Broadcasting revenue..................................................... $ 76,769 $ 50,034 $ 26,735 $ 77,749 $ 62,460
Less: agency and national representative commissions.................... 11,361 7,360 4,001 12,128 9,867
-------- -------- -------- -------- --------
Net revenue.............................................................. 65,408 42,674 22,734 65,621 52,593
-------- -------- -------- -------- --------
Operating expenses:
Cost of sales (exclusive of depreciation and amortization)............... 19,783 12,495 7,288 18,016 16,297
Selling, general and administrative...................................... 14,200 9,454 4,746 14,835 12,406
Depreciation............................................................. 5,560 3,552 1,655 4,232 3,660
Amortization............................................................. 5,068 3,238 245 765 329
Amortization of excess of cost over net
assets acquired......................................................... 5,610 3,584 68 190 173
-------- -------- -------- -------- --------
50,221 32,323 14,002 38,038 32,865
-------- -------- -------- -------- --------
Operating income........................................................ 15,187 10,351 8,732 27,583 19,728
Interest expense.......................................................... (40,856) (26,102) (34) (185) (37)
Interest income........................................................... 327 209 -- -- --
Other expense............................................................. (341) (218) (1,117) (393) (225)
-------- -------- -------- -------- --------
(Loss) income before income taxes....................................... (25,683) (15,760) 7,581 27,005 19,466
Provision (benefit) for income taxes...................................... (8,335) (5,661) 3,176 10,457 7,370
-------- -------- -------- -------- --------
(Loss) income from continuing operations................................ $(17,348) (10,099) 4,405 16,548 12,096
========
(Loss) income from discontinued operations, net of income taxes (bene-
fit) of $(2,114), $243, $400 and $(597), respectively.................. (3,842) 125 (69) (1,836)
-------- -------- -------- --------
Net (loss) income......................................................... (13,941) 4,530 16,479 10,260
Retained earnings, beginning of period.................................... -- 140,630 124,151 113,891
-------- -------- -------- --------
Retained earnings, end of period.......................................... $(13,941) $145,160 $140,630 $124,151
======== ======== ======== ========
Loss per share:
Continuing operations..................................................... $(667.90) $(388.81)
========
Discontinued operations................................................... (147.92)
--------
Net loss.................................................................. $(536.73)
========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DEC.
PERIOD 31
-------------------- -----------------
NEW PARK OLD PARK OLD PARK
--------- --------- -----------------
05/11/95- 01/01/95-
12/31/95 05/10/95 1994 1993
--------- --------- ------- --------
<S> <C> <C> <C> <C>
Operating Activities:
Net (loss) income...................... $(13,941) $ 4,530 $16,479 $ 10,260
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization......... 13,695 3,454 8,594 7,861
Amortization of film contract rights
and consulting/non-compete contracts
included in operating expenses....... 1,799 2,062 3,053 2,680
Payments on film contract liabilities. (1,889) (2,117) (2,955) (2,757)
Payments on consulting/non-compete
contracts............................ (31) (31) (62) (50)
Provision for losses on accounts
receivable........................... (311) (153) 605 573
Provision for deferred income taxes... (7,725) (339) 1,788 608
(Gain) loss on sale of property, plant
and equipment........................ (2) 648 (68) 257
Changes in operating assets and
liabilities net of effects from the
purchase and disposal of companies:
Accounts receivable................... (1,386) (1,450) (2,615) (1,209)
Inventory and other assets............ 65 429 (106) (292)
Accounts payable and accrued
liabilities.......................... 15,252 1,589 (4,683) 590
Deferred income....................... 4,549 -- -- --
-------- ------- ------- --------
Net cash provided by operating
activities.......................... 10,075 8,622 20,030 18,521
-------- ------- ------- --------
Investing Activities:
Purchases of property, plant and
equipment............................. (4,483) (1,566) (9,026) (4,082)
Purchases of acquired companies........ -- -- -- (19,184)
Proceeds from sale of property, plant,
and equipment......................... 8 -- 246 72
-------- ------- ------- --------
Net cash used in investing
activities.......................... (4,475) (1,566) (8,780) (23,194)
-------- ------- ------- --------
Financing Activities:
Additional loan proceeds............... 3,378 -- -- --
Principal payments on long-term debt... (2,261) (146) (2,315) (990)
Net intercompany transfers to parent... (5,412) (9,283) (9,674) 6,850
-------- ------- ------- --------
Net cash (used in) provided by
financing activities................ (4,295) (9,429) (11,989) 5,860
-------- ------- ------- --------
Increase (decrease) in cash............ 1,305 (2,373) (739) 1,187
Cash beginning of period................ -- 2,373 3,112 1,925
-------- ------- ------- --------
Cash end of period...................... $ 1,305 $ -- $ 2,373 $ 3,112
======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Park Broadcasting, Inc. (the Company or PBI), through wholly-owned
subsidiary companies, operates television and radio stations. Substantially
all of the Company's broadcast revenues are derived from advertising.
Advertising rates and rate structures vary among the stations and are
based, among other things, on the market and the time slot the
advertisement is to run.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. The Company, which is
a wholly-owned subsidiary of Park Communications, Inc. (Parent or PCI),
became an indirect wholly owned subsidiary of Park Acquisitions, Inc. (PAI)
(see Note 2) as of May 11, 1995. All significant intercompany accounts and
transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions (such as estimated lives of assets and allowance for doubtful
accounts) that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period.
Property, Plant, Equipment and Depreciation
Property, plant and equipment are stated at cost. Depreciation for
financial reporting purposes is provided on the straight-line method over
the estimated useful lives of the assets except for leasehold improvements,
which are amortized on the straight-line method over the lease period or
the lives of the improvements, whichever is shorter. Accelerated methods
are used for income tax reporting purposes whenever available. Deferred
income taxes are provided for this temporary difference between financial
and income tax reporting methods.
Film Contract Rights
Film contract rights and the related liabilities are recorded at full
contract prices when purchased. The costs are charged to operations based
on a straight-line basis over the life of the contracts.
Consulting/Non-Compete Contracts
Certain subsidiary companies have consulting/non-compete contracts expiring
through 2010. Prior to May 11, 1995, costs were amortized on a straight-
line basis over the terms of the related agreements. In connection with the
Acquisition, separate value was not assigned to those contracts. New Park
would not have entered into such contracts at the date of Acquisition (see
Note 2).
Intangible Assets
Intangible assets are stated at cost and consist primarily of advertising
contracts, subscription lists and excess of cost over net assets acquired.
Intangible assets other than excess of cost over net assets acquired, are
being amortized by the straight-line method over estimated lives ranging
primarily from 7 to 40 years.
In the financial statements of Old Park, network contracts ($8,238,000)
acquired prior to October 31, 1970 were assigned a cost upon acquisition
and were not amortized since, in the opinion of management, there had been
no diminution of value of these acquired contracts. Also, excess of cost
($1,214,000) of businesses acquired prior to October 31, 1970 was not
amortized since, in the opinion of management, there had been
F-7
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
no diminution of value of these acquired businesses. Excess of cost
incurred since October 31, 1970 was amortized by the straight-line method
over a period of 40 years.
Carrying Value of Long Lived Assets
The Company has adopted the provisions of FASB Statement No. 121,
"Accounting For the Impairment of Long-Lived Assets and For Long-Lived
Assets to Be Disposed Of." The carrying value of long lived assets
(tangible and intangible) is reviewed if the facts and circumstances
suggest that they may be impaired. For purposes of this review, assets are
grouped at the operating company level which is the lowest level for which
there are identifiable cash flows. If this review indicates that such
assets carrying value will not be recoverable, as determined based on
future expected, undiscounted cash flows, the carrying value is reduced to
fair market value.
Income Taxes
Effective January 1, 1993 the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes." The cumulative
effect of the accounting change was not material to net income for 1993.
Deferred Income
Deferred income consists of revenue which is prepaid to certain television
stations by CBS and NBC. Such income is recognized on a straight-line
basis, over the 10-year life of the contracts.
Intercompany Accounts
The amount receivable from the Parent included in the balance sheet
represents a net balance as the result of various transactions between the
Company and its Parent. Since May 11, 1995 interest charges have been
associated with the account balance. The Company has recognized interest
income from the Parent in the amount of $177,000 in the accompanying
statement of income for the period May 11, 1995 to December 31, 1995 on
this account balance. The balance is primarily the result of the Company's
participation in the Parent's central cash management program, wherein some
of the Company's cash receipts are remitted to the Parent and some of the
cash disbursements are funded by the Parent. Other transactions include the
transfer to the Parent for payment of the Company's prior year federal
income tax liability, and miscellaneous other administrative expenses
incurred by the Parent on behalf of the Company.
Intercompany Expense Allocation
The Company's Parent provides various administrative services to the
Company including legal assistance, acquisitions analysis, and marketing
and advertising services. It is the Parent's policy to charge these
expenses and all other operating expense, on both a direct and indirect
cost basis. These expenses incurred by the Parent and allocated to the
Company (which are included in operating expenses) were $830,000 for the
period May 11 to December 31, 1995 and $312,000 from January 1 to May 10,
1995, $1,287,000 in 1994 and $1,280,000 in 1993. Allocation of indirect
costs to the Company is based on the proportion of Company employees to
total employees which, in the opinion of the Company's management, is a
reasonable method of allocation since it approximates the expense that
would have been incurred on a stand alone basis.
2.ACQUISITION AND BASIS OF PRESENTATION
On May 11, 1995, the Company's parent, PCI, was sold to PAI (the
Acquisition), a private investment concern (organized August 4, 1994) owned
by Gary B. Knapp and the Tomlin Family Trust II, of which Donald R. Tomlin,
Jr. is a trustee. A significant portion of the purchase price was paid from
the proceeds of
F-8
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
a $573,427,000 loan. The remainder of the purchase price ($138,000,000) was
derived from existing cash-on-hand at PCI at closing of the Acquisition.
As a consequence of the change in ownership of PCI, under generally
accepted accounting principles, the Company is deemed for financial
reporting purposes, to have become a new reporting entity effective with
the change in ownership. The portion of the debt allocable to the Company
has been "pushed down" to the financial statements of the Company, and the
assets and liabilities have been adjusted to reflect their fair market
value as of May 11, 1995.
The accompanying financial statements reflect the operations of PBI prior
to the acquisition on May 11, 1995 (Old Park). Subsequent to that date the
financial statements reflect the operations of the Company utilizing the
new basis accounting (New Park).
The pro forma income statement for 1995 reflects the operations of the
Company under the new basis of accounting and assumes the transaction
closed on January 1, 1995. Depreciation, amortization and interest expense
reflect those costs that would be charged to operations for equipment,
intangible assets and the long-term debt "push down" to PBI. Pro forma
income tax benefit has been computed at an effective rate of 32%.
Following is a summary of adjustments made to historical costs of the
assets and liabilities of the Company as of May 10, 1995, as a result of
applying "push down" acquisition accounting at that date to arrive at the
new basis for the Company.
<TABLE>
<CAPTION>
MAY 10, 1995
--------------------------------------
PARK BROADCASTING, INC.
--------------------------------------
WITHOUT MERGER WITH MERGER
ADJUSTMENTS ADJUSTMENTS
-------------- MERGER -----------
OLD PARK ADJUSTMENTS NEW PARK
-------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets
Accounts receivable, net............ $ 17,147 -- $ 17,147
Film contracts...................... 2,557 -- 2,557
Consulting/non-compete contracts.... 62 $ (62) --
Other............................... 782 -- 782
-------- -------- --------
Total current assets.............. 20,548 (62) 20,486
-------- -------- --------
Property, plant & equipment.......... 92,986 (34,974) 58,012
Less accumulated depreciation and
amortization...................... 39,947 (39,947) --
-------- -------- --------
Net property, plant & equipment..... 53,039 4,973 58,012
Intangible assets, net............... 51,133 424,167 475,300
Film contracts....................... 2,453 -- 2,453
Consulting/non-compete contracts..... 101 (101) --
Other assets......................... 418 -- 418
-------- -------- --------
Total assets...................... $127,692 $428,977 $556,669
======== ======== ========
</TABLE>
F-9
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MAY 10, 1995
-----------------------------------------------------------
PARK BROADCASTING, INC. PARK BROADCASTING, INC.
WITHOUT MERGER WITH MERGER
ADJUSTMENTS MERGER ADJUSTMENTS
OLD PARK ADJUSTMENTS NEW PARK
----------------------- ----------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
LIABILITIES AND STOCK-
HOLDER'S EQUITY
Current liabilities:
Current maturities of
long-term debt........ $ 1,247 -- $ 1,247
Current maturities of
film contracts........ 2,229 -- 2,229
Accounts payable....... 1,829 -- 1,829
Consulting/non-compete
contracts............. 62 -- 62
Interest............... 2 -- 2
Income taxes........... 3,053 -- 3,053
Accrued liabilities.... 2,079 -- 2,079
-------- --------- --------
Total current liabil-
ities............... 10,501 -- 10,501
Long-term debt.......... 2,468 $ 411,274 413,742
Consulting/non-compete
contracts.............. 105 -- 105
Deferred income taxes... 8,182 124,139 132,321
-------- --------- --------
Total liabilities.... 21,256 535,413 556,669
-------- --------- --------
Stockholder's Equity:
Common stock........... $ 2,598 $ (2,598) --
Paid in capital........ -- -- --
Intercompany receiv-
ables from parent..... (41,322) 41,322 --
Retained earnings...... 145,160 (145,160) --
-------- --------- --------
Total stockholder's eq-
uity................... 106,436 (106,436) --
-------- --------- --------
Total liabilities and
stockholder's equi-
ty.................. $127,692 $ 428,977 $556,669
======== ========= ========
</TABLE>
3.LOSS PER SHARE
Loss per share of common stock is computed on the weighted average number
of common shares outstanding during each year (dollars and shares in
thousands except per share amounts):
<TABLE>
<CAPTION>
NEW PARK
---------
PRO FORMA PERIOD
----------- ---------
NEW PARK
----------- 05/11/95-
1995 12/31/95
----------- ---------
(UNAUDITED)
<S> <C> <C>
Primary:
Average shares....................................... 26 26
======== ========
Loss from continuing operations...................... $(17,348) $(10,099)
Loss from discontinued operations.................... (6,014) (3,842)
-------- --------
Net loss............................................. $(23,362) $(13,941)
======== ========
Loss per share:
Continuing operations................................ $(667.90) $(388.81)
Discontinued operations.............................. (231.54) (147.92)
-------- --------
Net loss............................................. $(899.44) $(536.73)
======== ========
</TABLE>
Earnings per share has not been shown prior to May 11, 1995 because such
information is not meaningful.
F-10
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4.INTANGIBLE ASSETS
Intangible assets are comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
------------------------ -----------
NEW PARK OLD PARK
------------------------ -----------
ESTIMATED LIVES 1995 1994
--------------- -------- -----------
<S> <C> <C> <C>
Advertiser relationships.............. 14-31 years $179,955 $ 7,004
Network contracts..................... 40 14,183 10,688
FCC license........................... 40 138,174 11,441
Excess of cost over net assets
acquired............................. 40 142,988 46,142
-------- --------
Total intangibles.................... 475,300 75,275
Less accumulated amortization......... (9,628) (22,950)
-------- --------
$465,672 $ 52,325
======== ========
</TABLE>
The lives used to amortize the cost of intangible assets related to
advertiser and subscriber relationships represent the expected average
lives of such relationships based on actuarial analyses using a
representative sample of the companies' actual experience for periods prior
to the acquisition through December 31, 1994. These analyses took into
consideration economic life characteristics of the companies' current
advertiser relationships including retention and termination experience.
Other intangibles are being amortized over 40 years which is consistent
with industry practice and management's opinion that such intangible assets
have useful lives in excess of 40 years.
5.DISCONTINUED OPERATIONS
On December 26, 1995, the Company announced its intention to sell all of
its radio station operations on an individual basis. The segment has
produced operating profits before interest expense, depreciation and
amortization, and the Company estimates that the stations will each
generate operating profit before interest expense, depreciation and
amortization through the date of disposition. The Company currently has
signed agreements and/or letters of intent to sell each of its radio
station operations. The Company will realize gain on the dispositions
assuming the contemplated transactions receive FCC approval and are
consummated at the price and terms as set forth in the definitive
agreements which total approximately $230.0 million net of selling expenses
but before taxes. The Company estimates that all stations will be sold by
October 31, 1996. The results of the radio station operations are included
in the single line of the income statement labeled "(loss) income from
discontinued operations." The corporate operating expenses allocated to
radio are $325,676 for the period of 5/11/95--12/31/95, $184,078 for the
period of 1/1/95--5/10/95, $475,338 for 1994 and $403,021 for 1993. The
following is a summary of identifiable assets, liabilities and equity and
the related revenues and operating income of the radio station operations
(dollars in thousands):
Radio Station Operations:
<TABLE>
<CAPTION>
PERIOD
-------------------
NEW PARK OLD PARK OLD PARK
--------- --------- ---------------
05/11/95- 01/01/95-
12/31/95 05/10/95 1994 1993
--------- --------- ------- -------
<S> <C> <C> <C> <C>
Revenues................................. $21,932 $11,137 $30,305 $24,861
======= ======= ======= =======
Operating income......................... $ 2,184 $ 903 $ 3,698 $ 1,102
======= ======= ======= =======
</TABLE>
F-11
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NEW PARK
--------
12/31/95
--------
<S> <C>
Assets:
Current assets................................................... $ 13,446
Property, plant, and equipment................................... 21,171
Intangibles, net................................................. 120,103
Other assets..................................................... 9
--------
Total assets...................................................... 154,729
--------
Liabilities:
Current liabilities.............................................. 16,100
Long-term debt................................................... 109,978
Deferred income taxes............................................ 33,410
--------
Total liabilities................................................. 159,488
--------
Net liabilities................................................... $ 4,759
========
</TABLE>
6.LONG-TERM DEBT
The Company's long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
----------- -----------
NEW PARK OLD PARK
----------- -----------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Existing Credit Agreement........................... $412,566 --
Promissory notes.................................... 1,072 $ 1,393
Film contracts...................................... 5,100 4,987
-------- -------
Total debt.......................................... 418,738 6,380
Less: Current maturities of long-term debt.......... 339 322
Current maturities of film contracts................ 2,619 2,521
-------- -------
Long-term debt...................................... $415,780 $ 3,537
======== =======
</TABLE>
On May 11, 1995, PAI entered into an agreement (Existing Credit Agreement)
to borrow up to $593.8 million, the proceeds of which were utilized to
finance the Acquisition and pay related expenses. The loan required that
the debt be directly assumed by PCI and its subsidiary companies and that
they be jointly and severally liable for the loan agreement. PAI, PCI and
PCI's subsidiaries' assets are pledged as collateral for the loan made
pursuant to the Existing Credit Agreement and PCI and its subsidiaries'
cash flow is utilized for debt service. Interest accrues at a base interest
rate (Base Rate) of 9.5% per annum, an additional interest rate
("Additional Rate") of 1.0% per annum, plus a yield maintenance interest
rate (YMI) of 3.0% per annum. The Base Rate and Additional Rate interest
are payable on October 1 and April 1. Principal payments are required only
to the extent that PAI's cash balance, as defined in the Existing Credit
Agreement, exceeds $8.0 million (declining to $6.0 million at October 1,
1997) at each interest payment date through October 1, 1997. Following is a
table that outlines these requirements:
F-12
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
INTEREST PAYMENT DATE CASH RESERVE AMOUNT
--------------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
October 1, 1995.................................... $8,000
April 1, 1996...................................... 8,000
October 1, 1996.................................... 7,000
April 1, 1997...................................... 7,000
October 1, 1997 and thereafter..................... 6,000
</TABLE>
Prepayment, in part or wholly, can be made at any time without penalty.
Ninety percent (90%) of the after tax proceeds as defined in the Existing
Credit Agreement of any asset sales of the Company are required to be
applied to the principal.
The YMI, which the Company is accruing, is payable upon achievement by PAI,
on or prior to May 11, 1998, of a Loan to Value Ratio (LTV) of 70% or less
(as defined in the Existing Credit Agreement). If the Company elects not to
pay the YMI when payable, then PAI would be required to issue to the lender
an exercisable warrant having the right to acquire non-voting common stock
in PAI in a sufficient amount to equal an 80% shareholder's equity
interest. On the earliest date that the Debt Service Coverage Ratio (DSC)
as defined in the Existing Credit Agreement is met, and either the LTV
ratio is met or by reason of non-payment of the YMI, the warrant is
required to be issued, the loan will become fully amortizable in equal
annual amounts over the remaining term ending on a maturity date of April
15, 2015 with interest at 10.5% per annum.
Substantially all of the Company's and its subsidiaries' tangible and
intangible assets are collateralized under the Existing Credit Agreement.
The Existing Credit Agreement contains covenants which, among other things,
limit or restrict payment of cash dividends, additional debt, repurchase of
common stock, capital expenditures, sales of the Company's common stock,
mergers, consolidations and sales of the Company's assets.
The promissory notes are payable in various installments through 1998 with
interest at 8%.
Cash payments of interest were $15,458,000 for the period of May 11 -
December 31, 1995, $35,000 for the period of January 1 - May 10, 1995,
$3,690,000 in 1994 and $3,602,000 in 1993.
The aggregate annual maturities on long-term debt, assuming the Company
meets the LTV on May 11, 1998, payable over the next five years are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1996............................................................. $ 2,958
1997............................................................. 1,954
1998............................................................. 128,851
1999............................................................. 7,127
2000............................................................. 7,803
</TABLE>
The fair value of the Company's long-term debt approximates $448,132,478.
The fair value is estimated based on current rates offered to the Company
for debt of the same remaining maturities.
F-13
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7.INCOME TAXES
The Company determines its income tax expense on the separate return
method. Federal and state income tax expense (benefit) is summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD DEC. 31
------------------- --------------
NEW PARK OLD PARK OLD PARK
--------- --------- --------------
05/11/95- 01/01/95-
12/31/95 05/10/95 1994 1993
--------- --------- ------- ------
<S> <C> <C> <C> <C>
Federal:
Current taxes transferred to the Parent. -- $2,836 $ 8,098 $6,080
Deferred................................ $(4,412) (245) 915 524
------- ------ ------- ------
(4,412) 2,591 9,013 6,604
------- ------ ------- ------
State:
Current................................. -- 589 1,243 692
Deferred................................ (1,249) (4) 201 74
------- ------ ------- ------
(1,249) 585 1,444 766
------- ------ ------- ------
Total income tax expense............. $(5,661) $3,176 $10,457 $7,370
======= ====== ======= ======
</TABLE>
The items comprising the differences in taxes on income computed at the
U.S. statutory rate and the amount provided by the Company are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD DEC. 31
------------------- --------------
NEW PARK OLD PARK OLD PARK
--------- --------- --------------
05/11/95- 01/01/95-
12/31/95 05/10/95 1994 1993
--------- --------- ------- ------
<S> <C> <C> <C> <C>
Computed tax expense at U.S. statutory
rate.................................... $(5,516) $2,777 $ 9,451 $6,811
Increase in tax expense resulting from:
State income taxes, net of federal in-
come tax............................... (812) 380 939 498
Amortization not tax deductible......... 667 19 67 61
------- ------ ------- ------
Total income tax expense............. $(5,661) $3,176 $10,457 $7,370
======= ====== ======= ======
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
NEW PARK OLD PARK
-------- --------
1995 1994
-------- --------
<S> <C> <C>
Components of deferred taxes:
Property, plant & equipment, intangible assets.......... $129,205 $ 8,521
Net operating loss carry forwards....................... (4,600) --
Allowance for doubtful accounts and other............... (105) (96)
-------- -------
Net deferred tax liabilities........................... $124,500 $ 8,425
======== =======
Classification of deferred taxes:
Non-current liabilities................................. $124,605 $ 8,521
Current assets.......................................... (105) (96)
-------- -------
$124,500 $ 8,425
======== =======
</TABLE>
F-14
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total cash payments of state income taxes were $443,000 for the period May
11 to December 31, 1995, $282,000 for the period January 1 to May 10, 1995,
$1,528,000 in 1994 and $1,221,000 in 1993. Federal tax payments are made by
the Parent (see Note 1).
8.LEASES
Certain operating facilities and equipment (see Note 9) are leased under
noncancellable operating agreements. Certain of the leases require the
Company or its subsidiaries to pay property taxes, insurance and
maintenance costs.
Lease expense related to the above and charged to operations was
approximately $476,000 for the period May 11 through December 31, 1995,
$269,000 for the period January 1 through May 10, 1995, $463,000 in 1994
and $749,000 in 1993.
The aggregate minimum rentals through dates of expiration amount to
approximately $3,958,000 and the amounts payable over the next five years
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1996............................................................... $ 495
1997............................................................... 440
1998............................................................... 427
1999............................................................... 356
2000............................................................... 191
Thereafter......................................................... 2,049
</TABLE>
9.RELATED PARTY TRANSACTIONS
In 1993 and 1994, the Company, in the ordinary course of business, leased
and rented certain operating facilities and equipment (included in Note 8)
from RHP Incorporated and its subsidiaries. RHP Incorporated is wholly
owned by the estate of Roy H. Park, formerly the Chairman of the Board of
PCI, who died on October 25, 1993. Such lease and rent payments were
$519,000 in 1994 and $558,000 in 1993. In connection with these operating
facilities, in 1994 the Company purchased five buildings and one tower from
RHP Incorporated and its subsidiaries at the appraised fair market value of
$3,815,000 and such lease and rent payments ceased as of the date of
purchase.
Additionally, certain officers of the Company were compensated by RHP
Incorporated for the performance of part-time management services.
During 1994, the Company placed $85,298 of promotional advertising with
Park Outdoor Advertising of New York, Inc. which is controlled by Roy H.
Park, Jr., a Director of the Company prior to May 11, 1995.
F-15
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NEW PARK
---------------------
JUNE 30 DECEMBER 31
-------- -----------
1996 1995
-------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................... $ 35,416 $1,305
Accounts receivable, less allowance for doubtful
accounts of $371 in 1996 and
$544 in 1995.......................................... 17,299 18,844
Film contracts......................................... 2,356 2,717
Other.................................................. 1,630 1,190
-------- --------
Total current assets.................................. 56,701 24,056
-------- --------
Property, plant & equipment:
Property, plant and equipment.......................... 47,620 62,314
Less accumulated depreciation and amortization......... (6,653) (4,358)
-------- --------
40,967 57,956
Intangible assets, net................................. 350,515 465,672
Film contracts......................................... 1,984 2,787
Other assets........................................... 12,929 419
-------- --------
$463,096 $550,890
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt................... $ 348 $ 339
Current maturities of film contracts................... 2,091 2,619
Accounts payable....................................... 2,830 1,129
Consulting/non-compete contracts....................... 62 62
Interest............................................... 3,773 18,750
Income taxes........................................... 33,634 377
Accrued liabilities.................................... 2,602 1,959
-------- --------
Total current liabilities............................. 45,340 25,235
Long-term debt........................................... 235,568 413,299
Long-term film contracts................................. 1,835 2,481
Deferred income.......................................... 6,822 4,549
Consulting/non-compete contracts......................... 43 74
Deferred income taxes.................................... 90,635 124,605
-------- --------
Total liabilities..................................... 380,243 570,243
-------- --------
Commitments
Stockholder's Equity:
Common Stock-no par value:
Authorized 25,974 shares; Issued and outstanding 25,974
shares in 1996 and 1995............................... 2,598 2,598
Paid in capital........................................ 56,063 (2,598)
Intercompany receivables from Parent................... -- (5,412)
Retained earnings (deficit)............................ 24,192 (13,941)
-------- --------
Total stockholder's equity............................... 82,853 (19,353)
-------- --------
$463,096 $550,890
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
F-16
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
NEW PARK
--------------------
SIX MONTHS ENDED PERIOD
-------------------- ------------------
PRO FORMA NEW PARK OLD PARK
--------- -------- --------
JUNE 30 JUNE 30 5/11/95- 1/01/95-
1996 1995 6/30/95 5/10/95
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Broadcasting revenue................. $ 38,074 $ 38,045 $11,310 $ 26,735
Less: agency and national
representative commissions.......... 5,591 5,708 1,707 4,001
--------- -------- ------- --------
Net revenue........................ 32,483 32,337 9,603 22,734
--------- -------- ------- --------
Operating expenses:
Cost of sales (exclusive of
depreciation and amortization)...... 11,053 10,286 2,998 7,288
Selling, general and administrative.. 8,971 6,701 1,955 4,746
Depreciation......................... 2,970 2,804 779 1,655
Amortization......................... 3,577 3,834 1,065 245
Amortization of excess of cost over
net assets acquired................. 1,314 1,166 324 68
--------- -------- ------- --------
27,885 24,791 7,121 14,002
--------- -------- ------- --------
Operating income................... 4,598 7,546 2,482 8,732
Interest expense....................... (18,418) (21,816) (6,060) (34)
Interest income........................ 73 163 (3) --
Other income (expense)................. (17) (170) (107) (1,117)
--------- -------- ------- --------
(Loss) income from continuing
operations before income taxes.... (13,764) (14,277) (3,688) 7,581
Provision (benefit) for income taxes... (4,946) (5,185) (1,371) 3,176
--------- -------- ------- --------
(Loss) income from continuing
operations........................ (8,818) $ (9,092) (2,317) 4,405
========
(Loss) income from continuing
operations, net of income taxes
(benefit) of $(3,547) in 1996 and
$(1,911) in 1995...................... (6,722) (782) 125
Gain from sale of discontinued
operations, net of income taxes of
$45,739 in 1996....................... 53,673 -- --
--------- ------- --------
Net income (loss)...................... 38,133 (3,099) 4,530
Retained earnings (deficit), beginning
of period.............................. (13,941) -- 140,630
--------- ------- --------
Retained earnings (deficit), end of
period................................. $ 24,192 $(3,099) $145,160
========= ======= ========
Earnings (loss) per share:
Continuing operations................ $(339.49) $(350.04)
Discontinued operations.............. 1,807.61 --
--------- --------
Net loss............................. $1,468.12 $(350.04)
========= ========
Average shares......................... 26.0 26.0
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
F-17
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN
THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD
---------------- ------------------
NEW PARK NEW PARK OLD PARK
---------------- -------- --------
JUNE 30 5/11/95- 1/01/95-
1996 6/30/95 5/10/95
---------------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net income................................................................................ $ 38,133 $(3,099) $4,530
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating
activities:
Gain on sale of discontinued operations, exclusive of income tax....................... (99,595) -- --
Corporate allocation of overhead....................................................... 178 -- --
Depreciation and amortization.......................................................... 10,195 2,980 3,454
Amortization of film contract rights and consulting/non-compete contracts included in
operating expenses.................................................................... 1,552 514 2,062
Payments on film contract liabilities.................................................. (1,562) (530) (2,117)
Payments on consulting/non-compete contracts........................................... (31) -- (31)
Provision for losses on accounts receivable............................................ 194 281 (153)
Provision for deferred income taxes.................................................... (30,939) (20) (339)
(Gain) loss on sale of property, plant, & equipment.................................... (12) -- 648
Amortization of debt issue costs and debt discount..................................... 2,300 -- --
Changes in operating assets and liabilities net of effects from the purchase and
disposal of companies:
Accounts receivable.................................................................. 685 1,086 (1,450)
Other current assets................................................................. (1,043) 249 429
Accounts payable and accrued liabilities............................................. 31,430 4,884 1,589
Deferred income...................................................................... 2,274 -- --
--------- ------- ------
Net cash (used in) provided by operating activities................................ (46,241) 6,345 8,622
--------- ------- ------
Investing Activities:
Purchases of property, plant and equipment................................................ (6,009) (396) (1,566)
Proceeds from sale of property, plant and equipment....................................... 19 -- --
Proceeds from sale of discontinued operations, net of selling expenses.................... 218,456 -- --
Increase in other long-term assets........................................................ (5,018) -- --
--------- ------- ------
Net cash (used in) provided by investing activities.................................... 207,448 (396) (1,566)
--------- ------- ------
Financing Activities:
Proceeds from new debt.................................................................... 290,889 -- --
Debt issue costs.......................................................................... (9,731) -- --
Principal payments on long-term debt...................................................... (470,743) (13) (146)
Net intercompany transfers from Parent.................................................... 60,489 (4,089) (9,283)
--------- ------- ------
Net cash used in financing activities.................................................. (129,096) (4,102) (9,429)
--------- ------- ------
Increase (decrease) in cash............................................................... 32,111 1,847 (2,373)
Cash beginning of period................................................................... 1,305 -- 2,373
--------- ------- ------
Cash end of period......................................................................... $ 33,416 $ 1,847 $ --
========= ======= ======
Non-Cash Financing Activities:
Capitalization of intercompany receivable from Parent..................................... $ (52,046)
=========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
F-18
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed interim financial statements are unaudited;
however, in the opinion of the Company's management, all adjustments (which
comprise only normal and recurring accruals) necessary for a fair
presentation of the interim financial results have been included. The
results for the interim periods are not necessarily indicative of results
to be expected for the entire year. These financial statements and notes
should be read in conjunction with the Company's audited annual
consolidated financial statements for the year ended December 31, 1995.
As discussed in the December 31, 1995 consolidated financial statements,
the Company was acquired by Park Acquisitions, Inc. on May 11, 1995 in a
transaction accounted for as a purchase. The purchase price and an
allocable portion of debt have been "pushed down" to the financial
statements of the Company and, as a result, the post-acquisition (New Park)
consolidated financial statements are not comparable to the pre-acquisition
(Old Park) consolidated financial statements.
2. DISCONTINUED OPERATIONS
As of June 30, 1996, the Company has sold 18 of its 22 radio stations. It
expects to sell the remaining four stations by August 1996. The results of
the radio division are included in the single line on the income statement
labeled "(loss) income from discontinued operations." The gain on the sale
is included in the single line on the income statement labeled "Gain from
sale of discontinued operations, net of tax." The corporate operating
expenses allocated to radio are $428,000 for the six-month period ended
June 30, 1996 and $183,000 for the period of 1/1/95 - 5/10/95, and $72,000
for the period of 5/11/95--6/30/95. The following is a summary of revenue
and operating income (loss) of the radio broadcasting properties for the
six months ended June 30 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Revenue.................................................... $13,310 $12,404
======= =======
Operating income (loss).................................... $ (602) $ 1,128
======= =======
</TABLE>
3. REFINANCING
On May 13, 1996, Park Communications, Inc. ("PCI") refinanced its existing
debt through the issuance of three separate debt offerings and a short term
Senior Credit Facility. PCI issued $80.0 million in principal amount of 13
3/4% Senior Pay-in-Kind Notes due 2004 (the "Offering"). Interest on such
notes (the "PCI Notes") will be payable semi-annually in arrears on May 15
and November 15 of each year, commencing November 15, 1996. Through May 15,
1999, interest is payable at the option of PCI by the issuance of
additional notes in lieu of cash. After May 15, 1999, interest is payable
in cash. The PCI Notes were issued with warrants entitling the holder to
purchase one share of Common Stock, par value $0.0001 per share, of PCI at
an exercise price of $0.01 per share. Upon exercise, the holders would be
entitled in the aggregate to purchase 7% of the Common Stock of PCI on a
fully diluted basis. In addition, in the event PCI does not consummate a
Public Equity Offering or one or any series of substantially concurrent
Strategic Equity Investments on or prior to December 31, 1997, resulting in
net proceeds to PCI of at least $40.0 million, PCI will be obligated to
issue warrants (contingent warrants) to the holders of the PCI Notes
exercisable for 3% of the Common Stock of PCI on a fully diluted basis as
of the date of such issuance. The proceeds of the Offering were allocated
to the PCI Notes and warrants based on their relative fair values in the
amounts of $77.2 and $2.8 million, respectively. The $2.8 million allocated
to the warrants was recorded as additional paid in capital on PCI's
financial statements. Concurrently with the Offering, Park Newspapers, Inc.
issued $155.0 million in principal amount of 11 7/8% Senior Notes due 2004
("Newspapers Notes") at
F-19
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)
an offering price of 100%, and the Company issued $241.0 million in
principal amount of 11 3/4% Senior Notes due 2004 ("Broadcasting Notes") at
an offering price of 97.49% or $235.0 million. Such discount on the
Broadcasting Notes will be amortized over the life of the Broadcasting
Notes using the effective yield method. Interest on the Broadcasting Notes
and the Newspapers Notes will be payable in cash semi-annually on May 15
and November 15 of each year commencing November 15, 1996.
Upon a Change of Control Triggering Event, each holder of the Broadcasting
Notes will have the right to require the Company to offer to purchase such
holder's Broadcasting Notes at a price equal to 101% of the principal
amount plus accrued and unpaid interest, if any, to the date of purchase.
In addition, the Company will be obligated to offer to purchase the
Broadcasting Notes at 100% of their principal amount plus accrued and
unpaid interest, if any, to the date of repurchase in the event of certain
asset sales.
The Broadcasting Notes were issued under an indenture containing covenants
which, among other things, limit or restrict the Company's ability to incur
additional indebtedness, pay cash dividends or make other payments
affecting restricted subsidiaries, sell assets, incur liens, make capital
contributions, change lines of business and enter into transactions with
affiliates.
In addition to the above offerings, PCI entered into a short term $58.0
million Senior Credit Facility with a consortium of lenders. Interest was
payable at a variable rate and the debt was due on November 13, 1996. Such
amount borrowed under the Senior Credit Facility was repaid entirely in May
and June of 1996 with the proceeds of the sale of certain Radio Station
Assets. Interest expense under the Senior Credit Facility of $2,594,000 has
been included in discontinued operations.
4. CORPORATE OVERHEAD ALLOCATED
Corporate overhead was allocated to the Company as follows: $926,000 for
the period 1/1/96-6/30/96, $312,000 for the period 1/1/95--5/10/95, and
$276,000 for the period of 5/11/95-6/30/95.
5. SUBSEQUENT EVENTS
On July 19, 1996, the stockholders of Park Acquisitions, Inc., the sole
stockholder of PCI which is the sole stockholder of the Company, agreed to
sell 100% of their stock in a cash merger to Media General, Inc. for total
consideration of approximately $710.0 million.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Park Communications, Inc.
We have audited the accompanying consolidated balance sheet of Park
Communications, Inc. and Subsidiaries (a wholly-owned subsidiary of Park
Acquisitions, Inc.) as of December 31, 1995 and the related consolidated
statements of income and retained earnings and cash flows for the period from
May 11, 1995 to December 31, 1995 and for the period from January 1, 1995 to
May 10, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As discussed in Note 2 to the consolidated financial statements, the Company
was acquired by Park Acquisitions, Inc. on May 11, 1995 in a transaction
accounted for as a purchase. The purchase price and an allocable portion of
debt have been "pushed down" to the financial statements of the Company and as
a result, the post-acquisition consolidated financial statements are not
comparable to the pre-acquisition consolidated financial statements.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Park
Communications, Inc. and Subsidiaries as of December 31, 1995 and the
consolidated results of their operations and their cash flows for the period
from May 11, 1995 to December 31, 1995 and for the period from January 1, 1995
to May 10, 1995 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Lexington, Kentucky
February 2, 1996, except
for Note 13, as to which
the date is May 6, 1996
F-21
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
Board of Directors
Park Communications, Inc.
We have audited the accompanying consolidated balance sheet of Park
Communications, Inc. and subsidiaries as of December 31, 1994 and the related
consolidated statements of income and retained earnings, and cash flows for
each of the two years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Park
Communications, Inc. and subsidiaries at December 31, 1994 and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the Company
changed its method of accounting for income taxes, as required by FASB
Statement No. 109, "Accounting for Income Taxes."
Ernst & Young LLP
Syracuse, New York
January 27, 1995
F-22
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
----------- -----------
NEW PARK OLD PARK
----------- -----------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS (NOTE 6)
Current Assets:
Cash.................................................................................................. $ 19,026 $ 84,069
Short-term investments................................................................................ -- 59,431
Accounts receivable, less allowance for doubtful accounts of $807 in 1995
and $1,598 in 1994................................................................................... 26,544 22,235
Inventory............................................................................................. 1,265 1,170
Film contracts........................................................................................ 2,717 2,446
Consulting/non-compete contracts...................................................................... -- 825
Other................................................................................................. 2,844 3,597
-------- --------
Total current assets................................................................................. 52,396 173,773
-------- --------
Property, Plant & Equipment:
Land and improvements................................................................................. 13,475 13,431
Buildings and leasehold improvements.................................................................. 19,110 31,522
Newspaper equipment................................................................................... 12,037 23,752
Broadcast equipment................................................................................... 37,080 61,455
Furniture and fixtures................................................................................ 6,655 10,535
Autos and trucks...................................................................................... 2,106 3,956
-------- --------
90,463 144,651
Less accumulated depreciation and amortization........................................................ (6,068) (68,909)
-------- --------
84,395 75,742
Intangible assets, net................................................................................. 635,447 109,797
Film contracts......................................................................................... 2,787 2,777
Consulting/non-compete contracts....................................................................... -- 3,390
Other assets........................................................................................... 7,757 1,307
-------- --------
Total assets......................................................................................... $782,782 $366,786
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt.................................................................. $ 465 $ 713
Current maturities of film contracts.................................................................. 2,619 2,521
Accounts payable...................................................................................... 3,313 2,539
Consulting/non-compete contracts...................................................................... 849 877
Interest.............................................................................................. 26,391 944
Income taxes.......................................................................................... 2,124 2,959
Accrued liabilities................................................................................... 4,075 4,027
Deferred income....................................................................................... 3,156 2,909
-------- --------
Total current liabilities............................................................................ 42,992 17,489
Long-term debt......................................................................................... 584,085 49,248
Deferred income........................................................................................ 4,549 --
Consulting/non-compete contracts....................................................................... 2,851 3,718
Deferred income taxes.................................................................................. 165,733 10,601
-------- --------
Total liabilities.................................................................................... 800,210 81,056
-------- --------
Commitments
Stockholder's Equity:
Common stock--$0.0001 par value in 1995 and no par value in 1994:
Authorized 15,000,000 shares in 1995 and 32,000,000 shares in 1994
Issued and outstanding 10,628,571 shares in 1995 and 20,961,205 in 1994.............................. -- 3,494
Paid in capital....................................................................................... -- 18,701
Retained earnings..................................................................................... (17,428) 263,535
-------- --------
Total stockholder's equity............................................................................ (17,428) 285,730
-------- --------
Total liabilities and stockholder's equity........................................................... $782,782 $366,786
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-23
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PERIOD YEAR ENDED DECEMBER 31
----------- -------------------- ------------------------
NEW PARK OLD PARK OLD PARK
--------- --------- ------------------------
05/11/95- 01/01/95-
1995 12/31/95 05/10/95 1994 1993
----------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Broadcasting revenue............................................... $ 76,769 $ 50,033 $ 26,736 $ 77,749 $ 62,460
Newspaper revenue.................................................. 78,904 51,723 27,181 76,810 84,751
-------- -------- -------- ----------- -----------
Gross revenue...................................................... 155,673 101,756 53,917 154,559 147,211
Less agency and national representative commissions................ 11,361 7,360 4,001 12,128 9,867
-------- -------- -------- ----------- -----------
Net revenue......................................................... 144,312 94,396 49,916 142,431 137,344
-------- -------- -------- ----------- -----------
Operating expenses:
Cost of sales (exclusive of depreciation and amortization)......... 53,593 33,278 20,315 50,380 55,518
Selling, general and administrative................................ 36,069 24,561 11,508 37,051 39,561
Depreciation....................................................... 8,083 5,164 2,499 6,524 6,268
Amortization....................................................... 8,756 5,594 786 2,541 2,725
Amortization of excess of cost over net assets acquired............ 7,197 4,598 715 1,972 2,095
-------- -------- -------- ----------- -----------
113,698 73,195 35,823 98,468 106,167
-------- -------- -------- ----------- -----------
Operating income.................................................. 30,614 21,201 14,093 43,963 31,177
Interest expense.................................................... (65,689) (41,968) (67) (279) (233)
Interest income..................................................... 1,355 866 3,181 5,561 4,952
Other expense....................................................... (280) (179) (10,693) (2,352) (431)
-------- -------- -------- ----------- -----------
(Loss) income before income taxes................................. (34,000) (20,080) 6,514 46,893 35,465
Provision (benefit) for income taxes................................ (10,880) (6,494) 5,954 19,519 14,849
-------- -------- -------- ----------- -----------
(Loss) income from continuing operations.......................... $(23,120) (13,586) 560 27,374 20,616
========
(Loss) income from discontinued operations, net of income taxes
(benefit) of $(2,114), $243, $400 and ($597) respectively........ (3,842) 125 (69) (1,836)
-------- -------- ----------- -----------
Net (loss) income................................................. (17,428) 685 27,305 18,780
Retained earnings, beginning of period.............................. -- 263,535 236,230 217,450
-------- -------- ----------- -----------
Retained earnings, end of period.................................... $(17,428) $264,220 $ 263,535 $ 236,230
======== ======== =========== ===========
Loss per share:
Continuing operations.............................................. $ (2.18) $ (1.28)
========
Discontinued operations............................................ (0.36)
--------
Net loss........................................................... $ (1.64)
========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-24
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD YEAR ENDED DECEMBER 31
-------------------- ------------------------
NEW PARK OLD PARK OLD PARK
--------- --------- ------------------------
05/11/95- 01/01/95-
12/31/95 05/10/95 1994 1993
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Activities:
Net (loss) income................................................................ $(17,428) $ 685 $ 27,305 $ 18,780
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization................................................... 18,678 5,485 14,443 14,787
Amortization of film contract rights and consulting/
non-compete contracts included in operating expenses........................... 1,799 2,352 4,194 3,842
Payments on film contract liabilities........................................... (1,889) (2,117) (2,955) (2,757)
Payments on consulting/non-compete contracts.................................... (544) (351) (932) (1,225)
Provision for losses on accounts receivable..................................... (183) (69) 897 919
Provision for deferred income taxes............................................. (8,591) (369) 982 272
Loss (gain) on sale of property, plant and equipment............................ (30) 856 48 291
Changes in operating assets and liabilities net of effects from the purchase and
disposal of companies:
Accounts receivable............................................................ (1,706) (2,351) (2,126) (1,738)
Inventory and other assets..................................................... (821) 605 181 277
Accounts payable and accrued liabilities....................................... 25,729 (295) (1,055) (1,139)
Deferred income................................................................ 4,464 332 128 169
-------- -------- ----------- ----------
Net cash provided by operating activities...................................... 19,478 4,763 41,110 32,478
-------- -------- ----------- ----------
Investing Activities:
Purchase of short term-investments............................................... (38,400) -- (241,954) (62,586)
Proceeds from short term-investments............................................. 38,400 59,431 277,843 66,929
Purchases of property, plant and equipment....................................... (6,174) (2,000) (12,517) (5,621)
Purchase of acquired companies, net of cash acquired............................. -- (19,184)
Proceeds from sale of property, plant, and equipment............................. 39 -- 448 86
Proceeds from sales of companies................................................. -- 6,336
(Increase) decrease in other assets.............................................. (6,120) 671 455 (464)
-------- -------- ----------- ----------
Net cash provided by (used in) investing activities............................ (12,255) 58,102 24,275 (14,504)
-------- -------- ----------- ----------
Financing Activities:
Additional loan proceeds......................................................... 6,758 -- -- --
Principal payments on long-term debt............................................. (3,622) (267) (2,757) (2,570)
Distribution to parent company................................................... (138,000) -- -- --
Proceeds from issuance of common stock........................................... -- -- 209 144
-------- -------- ----------- ----------
Net cash used in financing activities.......................................... (134,864) (267) (2,548) (2,426)
-------- -------- ----------- ----------
Increase (decrease) in cash.................................................... (127,641) 62,598 62,837 15,548
Cash and cash equivalents, beginning of period.................................... 146,667 84,069 21,232 5,684
-------- -------- ----------- ----------
Cash and cash equivalents, end of period.......................................... $ 19,026 $146,667 $ 84,069 $ 21,232
======== ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-25
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of Park Communications, Inc. (the
"Company" or "PCI") include the accounts of the Company and its
subsidiaries, all of which are wholly owned. The Company is a wholly owned
subsidiary of Park Acquisitions, Inc. ("Parent" or "PAI") (see Note 2) as
of May 11, 1995. All significant intercompany accounts and transactions
have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions (such as estimated lives of assets and allowance for doubtful
accounts) that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period.
Cash and Cash Equivalents
For purposes of reporting consolidated cash flows, the Company considers
cash, balances with banks, and interest-bearing cash deposits in other
depository institutions with maturities of three months or less to be cash
equivalents.
Inventory Valuation
Inventories, consisting primarily of newsprint, are stated at the lower of
cost (primarily last-in; first-out method) or market. The effect of using
the last-in; first-out method (compared with the first-in; first-out
inventory method) is not considered significant.
Property, Plant, Equipment and Depreciation
Property, plant and equipment are stated at cost. Depreciation for
financial reporting purposes is provided on the straight-line method over
the estimated useful lives of the asset except for leasehold improvements,
which are amortized on the straight-line method over the lease period or
the lives of the improvements, whichever is shorter. Accelerated methods
are used for income tax reporting purposes whenever available. Deferred
income taxes are provided for this temporary difference between financial
and income tax reporting methods.
Investments
Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standard Board Statements No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). SFAS No. 115
requires that all investments in debt securities that management has the
positive intent and ability to hold until maturity be classified as held to
maturity. All other debt securities are classified as available for sale.
Securities classified as available for sale are carried at market value.
Unrealized holding gains and losses for available for sale securities are
reported as a net amount in a separate component of stockholders' equity
until realized. Investments classified as held to maturity are carried at
amortized cost. The Company has analyzed its debt securities portfolio at
December 31, 1994 and based on this analysis has determined to classify all
debt securities as held to maturity due to management's intent and ability
to hold all debt securities so classified until maturity.
Film Contract Rights
Film contract rights and the related liabilities are recorded at full
contract prices when purchased. The costs are charged to operations based
on a straight line basis over the life of the contracts.
F-26
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Consulting/Non-Compete Contracts
Certain subsidiary companies have consulting/non-compete contracts expiring
through 2010. Prior to May 11, 1995, costs were amortized on a straight-
line basis over the terms of the related agreements. In connection with the
Acquisition, separate value was not assigned to those contracts. New Park
would not have entered into such contracts at the date of Acquisition (see
Note 2).
Intangible Assets
Intangible assets are stated at cost and consist primarily of advertising
contracts, subscription lists and excess of cost over net assets acquired.
Intangible assets are being amortized by the straight-line method over
estimated lives ranging primarily from 7 to 40 years.
In the financial statements of Old Park, network contracts ($8,238,000)
acquired prior to October 31, 1970 were assigned a cost upon acquisition
and were not amortized since, in the opinion of management, there had been
no diminution of value of these acquired contracts. Also, excess of cost
($1,214,000) of businesses acquired prior to October 31, 1970 was not
amortized since, in the opinion of management, there had been no diminution
of value of these acquired businesses. Excess of cost incurred since
October 31, 1970 was amortized by the straight-line method over a period of
40 years.
Carrying Value of Long Lived Asset
The Company has adopted the provisions of FASB Statement No. 121,
"Accounting For the Impairment of Long-Lived Assets and For Long-Lived
Assets to Be Disposed Of." The carrying value of long lived assets
(tangible and intangible) is reviewed if the facts and circumstances
suggest that they may be impaired. For purposes of this review, assets are
grouped at the operating company level which is the lowest level for which
there are identifiable cash flows. If this review indicates that such
assets carrying value will not be recoverable, as determined based on
future expected, undiscounted cash flows, the carrying value is reduced to
fair market value.
Income Taxes
Effective January 1, 1993 the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes." The cumulative
effect of the accounting change was not material to net income for 1993.
Deferred Income
Deferred income is recorded on subscriptions prepaid by customers. Such
income is recognized when earned.
2.ACQUISITION AND BASIS OF PRESENTATION
On May 11, 1995, PCI was sold to PAI (the Acquisition), a private
investment concern (organized August 4, 1994) owned by Gary B. Knapp and
the Tomlin Family Trust II, of which Donald R. Tomlin, Jr. is a trustee. A
significant portion of the purchase price was paid from the proceeds of a
$573,427,000 loan. The remainder of the purchase price ($138,000,000) was
derived from existing cash-on-hand at PCI at closing of the Acquisition. On
May 11, 1995, additional loan proceeds of $2,629,000 were utilized to pay
Acquisition related expenses and $2,758,000 was placed in escrow to be
utilized for retirement of other long-term debt.
As a consequence of the change in ownership of PCI, under generally
accepted accounting principles, the Company is deemed, for financial
reporting purposes, to have become a new reporting entity effective with
F-27
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the change in ownership. The portion of the debt allocable to the Company
has been "pushed down" to the financial statements of the Company, and the
assets and liabilities have been adjusted to reflect their fair market
value as of May 11, 1995.
The accompanying financial statements reflect the operations of PCI prior
to the acquisition on May 11, 1995 (Old Park). Subsequent to that date the
financial statements reflect the operations of the Company utilizing the
new basis accounting (New Park).
The pro forma income statement for 1995 reflects the operations of the
Company under the new basis of accounting and assumes the transaction
closed on January 1, 1995. Depreciation, amortization and interest
expense reflect those costs that would be charged to operations for a full
year based on the revised balance sheet amounts at May 11, 1995 for
property, plant and equipment, intangible assets and the long-term debt
"push down" to PCI. Historical interest income in the pro forma
presentation has been reduced to give effect to the $138,000,000 paid to
PCI stockholders as a portion of the consideration for the Acquisition.
Historical other expenses have been adjusted to eliminate incremental
expenses for selling the Company incurred by Old Park. Pro forma income tax
benefit has been computed at an effective rate of 32%. Following is a
summary of adjustments made to historical costs of the assets and
liabilities of the Company as of May 10, 1995, as a result of applying
"push down" acquisition accounting at that date to arrive at the new basis
for the Company:
<TABLE>
<CAPTION>
MAY 10, 1995
--------------------------------------
PARK COMMUNICATIONS, INC.
--------------------------------------
WITHOUT MERGER MERGER WITH MERGER
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
-------------- ----------- -----------
OLD PARK NEW PARK
-------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets
Cash................................ $146,667 $(135,242) $ 11,425
Accounts receivable, net............ 24,655 -- 24,655
Inventory........................... 1,137 -- 1,137
Film contracts...................... 2,557 -- 2,557
Consulting/non-compete contracts.... 792 (792) --
Other............................... 2,553 -- 2,553
-------- --------- --------
Total current assets............... 178,361 (136,034) 42,327
-------- --------- --------
Property, plant & equipment.......... 135,346 (51,168) 84,178
Less accumulated depreciation and
amortization...................... 61,551 (61,551) --
-------- --------- --------
Net property, plant & equipment..... 73,795 10,383 84,178
Intangible assets, net............... 107,403 540,431 647,834
Film contracts....................... 2,453 -- 2,453
Consulting/non-compete contracts..... 3,110 (3,110) --
Other assets......................... 637 1,000 1,637
-------- --------- --------
Total assets....................... $365,759 $412,670 $778,429
======== ========= ========
</TABLE>
F-28
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MAY 10, 1995
--------------------------------------
PARK COMMUNICATIONS, INC.
--------------------------------------
WITHOUT MERGER MERGER WITH MERGER
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
-------------- ----------- -----------
OLD PARK NEW PARK
-------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term
debt............................... $ 1,877 -- $ 1,877
Current maturities of film con-
tracts............................. 2,229 -- 2,229
Accounts payable.................... 3,467 -- 3,467
Consulting/non-compete contracts.... 898 -- 898
Interest............................ 29 -- 29
Income taxes........................ 2,820 $ 1,012 3,832
Accrued liabilities................. 3,276 582 3,858
Deferred income..................... 3,241 -- 3,241
-------- -------- --------
Total current liabilities.......... 17,837 1,594 19,431
Long-term debt....................... 2,467 578,814 581,281
Consulting/non-compete contracts..... 3,346 -- 3,346
Deferred income taxes................ 10,232 164,139 174,371
-------- -------- --------
Total liabilities.................. 33,882 744,547 778,429
-------- -------- --------
Stockholder's Equity:
Common stock........................ $ 3,889 $ (3,889) --
Paid in capital..................... 63,768 (63,768) --
Retained earnings................... 264,220 (264,220) --
-------- -------- --------
Total stockholder's equity........... 331,877 (331,877) --
-------- -------- --------
Total liabilities and stockholder's
equity............................ $365,759 $412,670 $778,429
======== ======== ========
</TABLE>
3.LOSS PER SHARE
Loss per share of common stock is computed on the weighted average number
of common shares outstanding during each year (dollars and shares in
thousands except per share amounts):
<TABLE>
<CAPTION>
PRO FORMA NEW PARK
----------- ---------
NEW PARK PERIOD
----------- ---------
1995
----------- 05/11/95-
(UNAUDITED) 12/31/95
----------- ---------
<S> <C> <C>
Primary:
Average shares....................................... 10,629 10,629
======== ========
Continuing operations................................ $(23,120) $(13,586)
Discontinued operations.............................. (6,014) (3,842)
-------- --------
Net loss............................................. $(29,134) $(17,428)
======== ========
Loss per share:
Continuing operations................................ $ (2.18) $ (1.28)
Discontinued operations.............................. (0.56) (0.36)
-------- --------
Net loss............................................. $ (2.74) $ (1.64)
======== ========
</TABLE>
Earnings per share has not been shown prior to May 11, 1995 because such
information is not meaningful.
F-29
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4.INTANGIBLE ASSETS
Intangible assets are comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
------------------------ -----------
NEW PARK OLD PARK
------------------------ -----------
ESTIMATED LIVES 1995 1994
--------------- -------- -----------
<S> <C> <C> <C>
Advertiser and subscriber
relationships........................ 14-40 years $289,258 $ 42,240
Network contracts..................... 40 14,183 10,688
FCC licenses and other intangibles.... 40 138,174 30,956
Excess of cost over net assets
acquired............................. 40 206,219 102,813
-------- --------
Total intangibles.................... 647,834 186,697
Less accumulated amortization......... 12,387 76,900
-------- --------
$635,447 $109,797
======== ========
</TABLE>
The lives used to amortize the cost of intangible assets related to
advertiser and subscriber relationships represent the expected average
lives of such relationships based on actuarial analyses using a
representative sample of the companies' actual experience for periods prior
to the acquisition through December 31, 1994. These analyses took into
consideration economic life characteristics of the companies' current
advertiser relationships including retention and termination experience.
Other intangibles are being amortized over 40 years which is consistent
with industry practice and management's opinion that such intangible assets
have useful lives in excess of 40 years.
5.DISPOSITIONS AND DISCONTINUED OPERATIONS
On December 26, 1995, the Company announced its intention to sell all of
its radio station operations on an individual basis. The segment has
produced operating profits before interest expense, depreciation and
amortization, and the Company estimates that the stations will each
generate operating profit before interest expense, depreciation and
amortization through the date of disposition. The Company currently has
signed agreements to sell each of its radio station operations. The Company
will realize gain on the dispositions assuming the contemplated
transactions receive FCC approval and are consummated at the price and
terms as set forth in the definitive agreements/letters of intent which
total approximately $230.0 million net of selling expenses but before
taxes. The Company estimates that all stations will be sold by October 31,
1996. The results of operations of the radio station operations are
included in the single line of the income statement labeled "(loss) income
from discontinued operations." The corporate operating expenses allocated
to radio are $325,676 for the period of 5/11/95--12/31/95, $184,078 for the
period of 1/1/95--5/10/95, $475,338 for 1994 and $403,021 for 1993. The
following is a summary of identifiable assets, liabilities and equity and
the related revenues and operating income of the radio station operations
(dollars in thousands):
Radio Station Operations:
<TABLE>
<CAPTION>
PERIOD
-------------------
NEW PARK OLD PARK OLD PARK OLD PARK
--------- --------- -------- --------
05/11/95- 01/01/95-
12/31/95 05/10/95 1994 1993
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................... $21,932 $11,137 $30,305 $24,861
======= ======= ======= =======
Operating income....................... $ 2,184 $ 903 $ 3,698 $ 1,102
======= ======= ======= =======
</TABLE>
F-30
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NEW PARK
--------
12/31/95
--------
<S> <C>
Assets:
Current assets..................................................... $ 13,446
Property, plant, and equipment..................................... 21,171
Intangibles, net................................................... 120,103
Other assets....................................................... 9
--------
Total assets........................................................ 154,729
--------
Liabilities:
Current liabilities................................................ 16,100
Long-term debt..................................................... 109,978
Deferred income taxes.............................................. 33,410
--------
Total liabilities................................................... 159,488
--------
Net liabilities..................................................... $ 4,759
========
</TABLE>
On December 31, 1993, the Company sold newspaper publications in 13 of its
smaller markets. Of these, 11 were daily newspapers, all with paid
circulation under 6,000. The impact of the sale of these publications was
not material to net income in 1993. In 1995, the Company discontinued its
Research Triangle Park, Raleigh, North Carolina publication. The operating
losses (before depreciation and amortization) for these newspaper
publications were $145,000 in 1995 (pro forma), $235,000 in 1994 and
$273,000 in 1993.
6.LONG-TERM DEBT
The Company's long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
----------- -----------
NEW PARK OLD PARK
----------- -----------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Existing Credit Agreement........................... $580,632 --
Subordinated notes of certain newspaper subsidiaries
due to former owners................................ 360 $ 744
Promissory notes.................................... 1,077 1,400
6 7/8% Convertible subordinated debentures.......... -- 45,351
Film contracts...................................... 5,100 4,987
-------- --------
Total debt.................................... 587,169 52,482
Less:Current maturities of long-term debt........... 465 713
Current maturities of film contracts.............. 2,619 2,521
-------- --------
Long-term debt...................................... $584,085 $ 49,248
======== ========
</TABLE>
On May 11, 1995, PAI entered into an agreement (Existing Credit Agreement)
to borrow up to $593.8 million the proceeds of which were utilized to
finance the Acquisition and pay related expenses. The loan required that
the debt be directly assumed by PCI and its subsidiary companies and that
they be jointly and severally liable for the loan agreement. PAI, PCI and
PCI's subsidiaries' assets are pledged as collateral for the loan made
pursuant to the Existing Credit Agreement and PCI and its subsidiaries'
cash flow is utilized for debt service. Interest accrues at a base interest
rate (Base Rate) of 9.5% per annum, an additional interest rate (Additional
Rate) of 1.0% per annum, plus a yield maintenance interest rate (YMI) of
3.0% per annum.
F-31
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Base Rate and Additional Rate interest are payable on October 1 and
April 1. Principal payments are required only to the extent that PAI's cash
balances, as defined in the Existing Credit Agreement, exceeds $8.0 million
(declining to $6.0 million at October 1, 1997) at each interest payment
date through October 1, 1997. Following is a table that outlines these
requirements:
<TABLE>
<CAPTION>
INTEREST
PAYMENT CASH
DATE RESERVE AMOUNT
-------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
October 1, 1995....... $8,000
April 1, 1996......... 8,000
October 1, 1996....... 7,000
April 1, 1997......... 7,000
October 1, 1997 and
thereafter........... 6,000
</TABLE>
Prepayment, in part or wholly, can be made at any time without penalty.
Ninety percent (90%) of the after tax proceeds as defined in the Existing
Credit Agreement of any asset sales of the Company are required to be
applied to the principal.
The YMI, which the Company is accruing, is payable upon achievement by PAI,
on or prior to May 11, 1998, of a Loan to Value Ratio (LTV) of 70% or less
(as defined in the Existing Credit Agreement). If the Company elects not to
pay the YMI when payable, then PAI would be required to issue to the lender
an exercisable warrant having the right to acquire non-voting common stock
in PAI in a sufficient amount to equal an 80% stockholder's equity
interest. On the earliest date that the Debt Service Coverage Ratio (DSC)
as defined in the Existing Credit Agreement is met, and either the LTV
ratio is met or by reason of non-payment of the YMI, the warrant is
required to be issued, the loan will become fully amortizable in equal
annual amounts over the remaining term ending on a maturity date of April
15, 2015 with interest at 10.5% per annum.
Substantially all of the Company's and its subsidiaries' tangible and
intangible assets are collateralized under the Existing Credit Agreement.
The Existing Credit Agreement contains covenants which, among other things,
limit or restrict payment of cash dividends, additional debt, repurchase of
common stock, capital expenditures, sales of the Company's common stock,
mergers, consolidations and sales of the Company's assets.
The subordinated notes are payable in various installments through 1998
with interest primarily from 6% to 9%. The promissory notes are payable in
various installments through 1998 with interest at 8%.
On March 11, 1986, the Company issued $50,000,000 principal amount of 6
7/8% convertible subordinated debentures due March 15, 2011 (the
debentures). The debentures were convertible at anytime prior to maturity,
unless previously redeemed, into shares of common stock of the Company at a
conversion ratio of 52.1739 shares of common stock for each $1,000
principal amount of debentures. The debentures were called for redemption
by the Company on January 9, 1995, and subsequently redeemed.
Cash payments of interest were $24,049,000 for the period of May 11 to
December 31, 1995, $44,000 for the period of January 1 to May 10, 1995,
$3,788,000 in 1994 and $3,787,000 in 1993.
F-32
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate annual maturities on long-term debt, assuming the Company
meets the LTV on May 11, 1998, payable over the next five years are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1996................................................................ $ 3,084
1997................................................................ 2,074
1998................................................................ 181,006
1999................................................................ 9,985
2000................................................................ 10,969
</TABLE>
The fair value of the Company's long-term debt approximates $628,537,000.
The fair value is estimated based on current rates offered to the Company
for debt of the same remaining maturities.
7.INCOME TAXES
The Company determines its income tax expense on the separate return
method. Federal and state income tax expense (benefit) is summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DEC
PERIOD 31
------------------- ---------------
NEW PARK OLD PARK OLD PARK
--------- --------- ---------------
05/11/95- 01/01/95-
12/31/95 05/10/95 1994 1993
--------- --------- ------- -------
<S> <C> <C> <C> <C>
Federal:
Current................................ -- $5,176 $15,357 $11,989
Deferred............................... $(5,743) (347) 847 240
------- ------ ------- -------
(5,743) 4,829 16,204 12,229
------- ------ ------- -------
State:
Current................................ -- 1,146 3,119 2,588
Deferred............................... (751) (21) 196 32
------- ------ ------- -------
(751) 1,125 3,315 2,620
------- ------ ------- -------
Total income tax expense................ $(6,494) $5,954 $19,519 $14,849
======= ====== ======= =======
</TABLE>
The items comprising the differences in taxes on income computed at the
U.S. statutory rate and the amount provided by the Company are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
NEW PARK OLD PARK OLD PARK
-------- -------- ---------------
05/11/95- 01/01/95-
12/31/95 05/10/95 1994 1993
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Computed tax expense at U.S. statutory
rate.................................... $(7,028) $2,280 $16,485 $12,413
Increase in tax expense resulting from:
State income taxes, net of federal in-
come tax............................. (488) 731 2,155 1,703
Amortization not tax deductible....... 1,022 250 879 733
Non-deductible merger related expense. -- 2,693 -- --
------- ------ ------- -------
Total income tax expense (benefit)... $(6,494) $5,954 $19,519 $14,849
======= ====== ======= =======
</TABLE>
F-33
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
----------- -----------
NEW PARK OLD PARK
----------- -----------
1995 1994
----------- -----------
<S> <C> <C>
Components of deferred taxes:
Network revenue..................................... $ (1,820) --
Property, plant & equipment, intangible assets...... 172,933 $ 10,728
Net operating loss carry forwards................... (5,380) --
Allowance for doubtful accounts and other........... (196) (699)
-------- --------
Net deferred tax liabilities....................... $165,537 $ 10,029
======== ========
Classification of deferred taxes:
Non-current liabilities............................. $165,733 $ 10,601
Current assets...................................... (196) (572)
-------- --------
$165,537 $ 10,029
======== ========
</TABLE>
The Company has federal tax loss carryforwards of approximately $16.0
million that expire in 2010. Total cash payments of Federal and state
income taxes were $2,604,000 for the period May 11 to December 31, 1995,
$4,434,000 for the period January 1 to May 10, 1995, $20,011,000 in 1994
and $14,030,000 in 1993.
8.LEASES
Certain operating facilities and equipment (see Note 9) are leased under
noncancellable operating agreements. Certain of the leases require the
Company or its subsidiaries to pay property taxes, insurance and
maintenance costs.
Lease expense related to the above and charged to operations was
approximately $739,000 for the period May 11 through December 31, 1995,
$417,000 for the period January 1 through May 10, 1995, $1,743,000 in 1994
and $2,019,000 in 1993.
The aggregate minimum rentals through dates of expiration amount to
approximately $6,179,574 and the amounts payable over the next five years
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1996............................................................... $ 796
1997............................................................... 708
1998............................................................... 660
1999............................................................... 562
2000............................................................... 397
Thereafter......................................................... 3,057
------
$6,180
======
</TABLE>
9.RELATED PARTY TRANSACTIONS
In 1993 and 1994, the Company, in the ordinary course of business, leased
and rented certain operating facilities and equipment from RHP Incorporated
and its subsidiaries. RHP Incorporated is wholly owned by
F-34
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the estate of Roy H. Park, formerly the Chairman of the Board of PCI, who
died on October 25, 1993. Such lease and rent payments were $977,000 in
1994 and $1,265,000 in 1993. In connection with these operating facilities,
in 1994 the Company purchased ten buildings and one tower from RHP
Incorporated and its subsidiaries at the appraised fair market value of
$4,415,000 and such lease and rent payments ceased as of the date of
purchase.
Additionally, certain officers of the Company were compensated by RHP
Incorporated for the performance of part-time management services.
During 1994, the Company placed $85,298 of promotional advertising with
Park Outdoor Advertising of New York, Inc. which is controlled by Roy H.
Park, Jr., a Director of the Company prior to May 11, 1995.
10.ACQUISITIONS
In December 1995, the Company entered into an agreement in principle to
purchase WHOA-TV, the ABC affiliate in Montgomery, Alabama. The purchase
price, which will not be material, will be accounted for under the purchase
method, and accordingly, its results of operations will be included in the
Consolidated Financial Statements from the date of acquisition (which is
anticipated in 1996).
11.BUSINESS SEGMENTS
The Company operates in two business segments: television broadcasting and
newspaper publishing. The Company operates a third segment, radio station
operations, which the Company has determined to divest and has presented as
a discontinued operation (see Note 5). Television broadcasting operations
involve the sale of time to advertisers, network revenue and other revenue
arising primarily from programming and production. Newspaper operations
involve the publication and distribution of both paid daily and paid non-
daily newspapers and advertising publications (shoppers) from which revenue
is derived primarily from the sale of advertising lineage and circulation
revenue.
The following is a summary of information by segment:
<TABLE>
<CAPTION>
PERIOD
-------------------
PRO FORMA NEW PARK OLD PARK OLD PARK OLD PARK
----------- --------- --------- -------- --------
(UNAUDITED) 05/11/95- 01/01/95-
1995 12/31/95 05/10/95 1994 1993
----------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross Revenue:
Television broadcasting. $ 76,769 $ 50,033 $26,736 $ 77,749 $ 62,460
Newspaper publishing.... 78,904 51,723 27,181 76,810 84,751
-------- -------- ------- -------- --------
$155,673 $101,756 $53,917 $154,559 $147,211
======== ======== ======= ======== ========
Depreciation and
amortization:
Television broadcasting. $ 15,869 $ 10,138 $ 1,979 $ 5,221 $ 4,193
Newspaper publishing.... 8,167 5,218 2,021 5,816 6,895
-------- -------- ------- -------- --------
$ 24,036 $ 15,356 $ 4,000 $ 11,037 $ 11,088
======== ======== ======= ======== ========
Operating income:
Television broadcasting. $ 15,556 $ 10,586 $ 8,722 $ 27,549 $ 19,697
Newspaper publishing.... 15,058 10,615 5,371 16,414 11,480
-------- -------- ------- -------- --------
$ 30,614 $ 21,201 $14,093 $ 43,963 $ 31,177
======== ======== ======= ======== ========
</TABLE>
F-35
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PERIOD
--------------------
PRO FORMA NEW PARK OLD PARK OLD PARK OLD PARK
----------- --------- --------- -------- --------
(UNAUDITED) 05/11/95- 01/01/95-
1995 12/31/95 05/10/95 1994 1993
----------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Additions to property,
plant and equipment:
Television broadcast-
ing................... $3,160 $ 2,145 $ 1,015 $ 7,794 $ 11,956
Newspaper publishing... 2,122 1,691 431 3,458 1,512
------ -------- -------- -------- --------
$5,282 $ 3,836 $ 1,446 $ 11,252 $ 13,468
====== ======== ======== ======== ========
Identifiable assets:
Television
broadcasting.......... $412,233 $ 95,146 $ 84,114 $ 81,733
Newspaper publishing... 223,772 167,960 92,653 97,583
Discontinued
operations............ 154,727 46,668 47,446 47,742
Corporate.............. (7,950) 55,985 142,573 115,563
-------- -------- -------- --------
$782,782 $365,759 $366,786 $342,621
======== ======== ======== ========
</TABLE>
Operating income is gross revenue less agency and national representative
commissions and operating expenses. Interest expense, interest income,
income taxes and other income (expense) have been excluded in computing
operating income.
Identifiable assets by industry segment represent those assets used in the
Company's operation of that segment. Corporate assets under Old Park
consisted principally of cash, cash equivalents and short-term investments.
12.STOCKHOLDER'S EQUITY
Following is a reconciliation of stockholder's equity:
<TABLE>
<CAPTION>
COMMON STOCK
------------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ------ ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993.. 20,700,167 $3,451 $13,781 $217,450 $234,682
Issue common stock........ 8,810 1 143 -- 144
Net income................ -- -- -- 18,780 18,780
----------- ------ ------- -------- --------
Balance, December 31,
1993..................... 20,708,977 3,452 13,924 236,230 253,606
Issue common stock........ 9,950 2 208 -- 210
Conversion of debentures.. 242,278 40 4,569 -- 4,609
Net income................ -- -- -- 27,305 27,305
----------- ------ ------- -------- --------
Balance, December 31,
1994..................... 20,961,205 3,494 18,701 263,535 285,730
Conversion of debentures.. 2,366,168 395 45,067 -- 45,462
Net income................ -- -- -- 685 685
----------- ------ ------- -------- --------
Balance, May 10, 1995..... 23,327,373 3,889 63,768 264,220 331,877
Merger adjustments (New
Park).................... (23,327,373) (3,889) (63,768) (264,220) (331,877)
Issue common stock........ 10,628,571 -- -- -- --
Net loss.................. -- -- -- (17,428) (17,428)
----------- ------ ------- -------- --------
Balance, December 31,
1995..................... 10,628,571 $ -- $ -- $(17,428) $(17,428)
=========== ====== ======= ======== ========
</TABLE>
F-36
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13.SUBSEQUENT EVENT
On May 6, 1996, the Company's Board of Directors and sole stockholder
approved an amendment to the Company's certificate of incorporation to
authorize 15,000,000 shares of its Common Stock, and declare a stock split
of 106,285.7143 to 1. Such amendment will become effective on May 7, 1996.
All references in the consolidated financial statements to number of
shares, average number of shares outstanding and per share amounts have
been restated to reflect this amendment.
F-37
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NEW PARK
---------------------
JUNE 30 DECEMBER 31
1996 1995
-------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 47,120 $ 19,026
Accounts receivable, less allowance for doubtful
accounts of $664 in 1996 and $807 in 1995.............. 24,202 26,544
Inventory............................................... 951 1,265
Film contracts.......................................... 2,356 2,717
Notes receivable related party.......................... 600 --
Other................................................... 2,889 2,844
-------- --------
Total current assets................................... 78,118 52,396
-------- --------
Property, Plant & Equipment:
Property Plant & Equipment.............................. 76,561 90,463
Less accumulated depreciation and amortization.......... (9,945) (6,068)
-------- --------
66,616 84,395
Intangible assets, net................................... 517,873 635,447
Film contracts........................................... 1,984 2,787
Other assets............................................. 24,907 7,757
-------- --------
$689,498 $782,782
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt.................... $ 474 $ 465
Current maturities of film contracts.................... 2,091 2,619
Accounts payable........................................ 6,197 3,313
Consulting/non-compete contracts........................ 837 849
Interest................................................ 7,688 26,391
Income taxes............................................ 34,514 2,124
Accrued liabilities..................................... 4,261 4,075
Deferred income......................................... 3,163 3,156
-------- --------
Total current liabilities.............................. 59,225 42,992
Long-term debt........................................... 467,914 581,604
Long-term film contracts................................. 1,835 2,481
Deferred income.......................................... 6,822 4,549
Consulting/non-compete contracts......................... 2,446 2,851
Deferred income taxes.................................... 133,257 165,733
Other liabilities........................................ 731 --
-------- --------
Total liabilities...................................... 672,230 800,210
-------- --------
Commitments
Stockholder's Equity:
Common Stock--$.0001 par value:
Authorized 15,000,000 shares; Issued and outstanding
10,628,571 shares...................................... 1 --
Paid in capital......................................... 2,532 --
Retained earnings (deficit)............................. 14,735 (17,428)
-------- --------
Total stockholder's equity............................... 17,268 (17,428)
-------- --------
$689,498 $782,782
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
F-38
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
NEW PARK
-------------------
SIX MONTHS ENDED PERIOD
------------------- ------------------
PRO FORMA NEW PARK OLD PARK
--------- -------- --------
JUNE 30 JUNE 30 5/11/95- 1/01/95-
1996 1995 6/30/95 5/10/95
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Broadcasting revenue................ $ 38,074 $ 38,045 $11,310 $ 26,735
Newspaper revenue................... 38,804 38,490 11,309 27,181
-------- -------- ------- --------
Gross revenue....................... 76,878 76,535 22,619 53,916
Less agency and national
representative commissions......... 5,591 5,708 1,707 4,001
-------- -------- ------- --------
Net revenue........................ 71,287 70,827 20,912 49,915
Operating expenses:
Cost of sales (exclusive of
amortization and depreciation)..... 30,258 29,634 9,319 20,315
Selling, general and administrative. 20,416 14,929 3,420 11,509
Depreciation........................ 4,579 4,068 1,130 2,499
Amortization........................ 5,384 5,663 1,573 786
Amortization of excess of cost over
net assets acquired................ 2,171 1,976 549 715
-------- -------- ------- --------
62,808 56,270 15,991 35,824
-------- -------- ------- --------
Operating income................... 8,479 14,557 4,921 14,091
Interest expense..................... (31,778) (33,322) (9,256) (67)
Interest income...................... 547 677 300 3,181
Other income (expense)............... (216) (140) 263 (10,693)
-------- -------- ------- --------
(Loss) income from continuing
operations and before
income taxes...................... (22,968) (18,228) (3,772) 6,512
Provision (benefit) for income taxes. (8,180) (6,451) (1,536) 5,954
-------- -------- ------- --------
(Loss) income from continuing
operations........................ (14,788) $(11,777) (2,236) 558
========
(Loss) income from discontinued
operations, net of income taxes
(benefit) of $(3,547) in 1996 and
$(1,911) in 1995.................... (6,722) (782) 125
Gain on sale of discontinued
operations, net of income taxes of
$45,739 in 1996..................... 53,673 -- --
-------- ------- --------
Net income (loss).................... 32,163 (3,018) 683
Retained earnings (deficit),
beginning of period.................. (17,428) -- 263,535
-------- ------- --------
Retained earnings (deficit), end of
period............................... $ 14,735 $(3,018) $264,218
======== ======= ========
Earnings (loss) per share:
Continuing operations............... $ (1.39) $ (1.11)
Discontinued operations............. 4.42 --
-------- --------
Net earnings........................ $ 3.03 $ (1.11)
======== ========
Average shares....................... 10,629 10,629
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
F-39
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD
---------------- ------------------
NEW PARK NEW PARK OLD PARK
---------------- -------- --------
JUNE 30 5/11/95- 1/01/95-
1996 6/30/95 5/10/95
---------------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net income (loss)......................................................................... $ 32,163 $(3,018) $ 683
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Gain on sale of discontinued operations, exclusive of income tax......................... (99,412)
Depreciation and amortization............................................................ 14,468 4,064 5,485
Amortization of film contract rights and consulting/non-compete contracts included in
operating expenses...................................................................... 1,552 514 2,352
Amortization of debt issue costs, debt discounts and warrants............................ 2,418
Payments on film contract liabilities.................................................... (1,562) (530) (2,117)
Payments on consulting/non-compete contracts............................................. (418) (103) (351)
Provision for losses on accounts receivable.............................................. 342 324 (69)
Provision for deferred income taxes...................................................... (32,476) 25 (369)
Loss (gain) on sale of property, plant and equipment..................................... (173) 856
Changes in operating assets and liabilities net of effects from the purchase and disposal
of companies:
Accounts receivable..................................................................... 1,334 2,268 (2,351)
Inventory and other assets.............................................................. (334) 987 607
Accounts payable and accrued liabilities................................................ 27,010 4,610 (295)
Deferred income......................................................................... 2,280 (139) 332
--------- ------- --------
Net cash provided by (used in) operating activities.................................... (52,808) 9,002 4,763
--------- ------- --------
Investing Activities:
Proceeds from (purchase of) short term investments........................................ -- (8,900) 59,431
Purchases of property, plant and equipment................................................ (6,853) (714) (2,000)
Proceeds from sale of property, plant, and equipment...................................... 189 --
Advance to related party.................................................................. (600)
Proceeds from sales of discontinued operations, net of selling expenses................... 218,456 --
Increase in other assets.................................................................. (270) 671
--------- ------- --------
Net cash provided by (used in) investing activities.................................... 210,922 (9,614) 58,102
--------- ------- --------
Financing Activities:
Proceeds from issuance of warrants........................................................ 2,800
Proceeds from new debt.................................................................... 525,151
Debt issue costs.......................................................................... (19,643)
Principal payments on long-term debt...................................................... (638,328) (1,013) (267)
--------- ------- --------
Net cash used in financing activities.................................................. (130,020) (1,013) (267)
--------- ------- --------
(Decrease) increase in cash.............................................................. 28,094 (1,625) 62,598
Cash and cash equivalents beginning of period.............................................. 19,026 11,425 84,069
--------- ------- --------
Cash and cash equivalents end of period.................................................... $ 47,120 $ 9,800 $146,667
========= ======= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
F-40
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed interim financial statements are unaudited;
however, in the opinion of the Company's management, all adjustments (which
comprise only normal and recurring accruals) necessary for a fair
presentation of the interim financial results have been included. The
results for the interim periods are not necessarily indicative of results
to be expected for the entire year. These financial statements and notes
should be read in conjunction with the Company's audited annual
consolidated financial statements for the year ended December 31, 1995.
As discussed in the December 31, 1995 consolidated financial statements,
the Company was acquired by Park Acquisitions, Inc. on May 11, 1995 in a
transaction accounted for as a purchase. The purchase price and an
allocable portion of debt have been "pushed down" to the financial
statements of the Company's wholly owned subsidiaries, Park Broadcasting,
Inc. and Park Newspapers, Inc., and, as a result, the post-acquisition (New
Park) consolidated financial statements are not comparable to the pre-
acquisition (Old Park) consolidated financial statements.
2. DISCONTINUED OPERATIONS
As of June 30, 1996, the Company has sold 18 of its 22 radio stations. It
expects to sell the remaining four stations by August 1996. The results of
the radio division are included in the single line on the income statement
labeled "(loss) income from discontinued operations." The gain on the sale
is included in the single line on the income statement labeled "Gain from
sale of discontinued operations, net of tax." The corporate operating
expenses allocated to radio are $428,000 for the six-month period ended
June 30, 1996 and $183,000 for the period of 1/1/95--5/10/95, and $72,000
for the period of 5/11/95--6/30/95. The following is a summary of revenue
and operating income (loss) of the radio broadcasting properties for the
six months ended June 30 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Revenue..................................................... $13,310 $12,404
======= =======
Operating income (loss)..................................... $ (602) $ 1,128
======= =======
</TABLE>
3. REFINANCING
On May 13, 1996, the Company refinanced its existing debt through the
issuance of three separate debt offerings and a short term Senior Credit
Facility. The Company issued $80.0 million in principal amount of 13 3/4%
Senior Pay-in-Kind Notes due 2004 (the "Offering"). Interest on such notes
(the "Notes") will be payable semi-annually in arrears on May 15 and
November 15 of each year, commencing November 15, 1996. Through May 15,
1999, interest is payable at the option of the Company by the issuance of
additional notes in lieu of cash. After May 15, 1999, interest is payable
in cash. The Notes were issued with warrants entitling the holder to
purchase one share of Common Stock, par value $0.0001 per share, of the
Company at an exercise price of $0.01 per share. Upon exercise, the holders
would be entitled in the aggregate to purchase 7% of the Common Stock of
the Company on a fully diluted basis. In addition, in the event the Company
does not consummate a Public Equity Offering or one or any series of
substantially concurrent Strategic Equity Investments on or prior to
December 31, 1997, resulting in net proceeds to the Company of at least
$40.0 million, the Company will be obligated to issue warrants (contingent
warrants) to the holders of the Notes exercisable for 3% of the Common
Stock of the Company on a fully diluted basis as of the date of such
issuance. The proceeds of the Offering were allocated to the Notes and
warrants based on their relative fair values in the amounts of $77.2 and
$2.8 million, respectively. The $2.8 million allocated to the warrants was
recorded as additional paid in capital on the Company's financial
statements.
F-41
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)
Concurrently with the Offering, Park Newspapers, Inc. issued $155.0 million
in principal amount of 11 7/8% Senior Notes due 2004 ("Newspapers Notes")
at an offering price of 100%, and Park Broadcasting, Inc. issued $241.0
million in principal amount of 11 3/4% Senior Notes due 2004 ("Broadcasting
Notes") at an offering price of 97.49% or $235.0 million. Such discount on
the Broadcasting Notes will be amortized over the life of the Broadcasting
Notes using the effective yield method. Interest on the Broadcasting Notes
and the Newspapers Notes will be payable in cash semi-annually on May 15
and November 15 of each year commencing November 15, 1996.
The Company will be obligated to make an offer to repurchase all or a
portion of the Notes then outstanding at a price equal to 112% of the
aggregate principal amount thereof plus accrued and unpaid interest, if
any, to the date of repurchase with the net proceeds of any Public Equity
Offering or Strategic Equity Investment consummated on or prior to December
31, 1997, to the extent that the proceeds therefrom have not been (or will
not be pursuant to a notice of redemption given) utilized to effect a
redemption of the Notes and the amount not so utilized exceeds $2.0
million. Upon a Change of Control Triggering Event, each holder of the
Notes will have the right to require the Company to offer to purchase such
holder's Notes at a price equal to 101% of the principal amount plus
accrued and unpaid interest, if any, to the date of purchase. In addition,
the Company will be obligated to offer to repurchase the Notes at 100% of
their principal amount plus accrued and unpaid interest, if any, to the
date of repurchase in the event of certain asset sales.
The Notes were issued under an indenture containing covenants which, among
other things, limit or restrict the Company's ability to incur additional
indebtedness, pay cash dividends or make other payments affecting
restricted subsidiaries, sell assets, incur liens, make capital
contributions, change lines of business and enter into transactions with
affiliates.
In addition to the above offerings, the Company entered into a short term
$58.0 million Senior Credit Facility with a consortium of lenders. Interest
was payable at a variable rate and the debt was due on November 13, 1996.
Such amount borrowed under the Senior Credit Facility was repaid entirely
in May and June of 1996 with the proceeds of the sale of certain Radio
Station Assets. Interest expense under the Senior Credit Facility of
$2,594,000 has been included in discontinued operations.
4. SUBSEQUENT EVENTS
On July 19, 1996, the stockholders of Park Acquisitions, Inc., the sole
stockholder of the Company, agreed to sell 100% of their stock in a cash
merger to Media General, Inc. for total consideration of approximately
$710.0 million.
F-42
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 16
The Company............................................................... 22
Use of Proceeds........................................................... 22
Capitalization............................................................ 23
Unaudited Pro Forma Condensed Consolidated Financial Statements........... 24
Selected Historical and Pro Forma Consolidated Financial Data............. 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 30
Business.................................................................. 37
Management................................................................ 65
Securities Ownership of Certain Beneficial Owners......................... 71
Description of Certain Indebtedness....................................... 72
Description of the Notes.................................................. 74
The Exchange Offer........................................................ 98
Certain Federal Income Tax Consequences................................... 107
Plan of Distribution...................................................... 109
Legal Matters............................................................. 110
Experts................................................................... 110
Available Information..................................................... 110
Index..................................................................... 111
Index to Financial Statements............................................. F-1
</TABLE>
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$241,000,000
[LOGO OF PARK BROADCASTING, INC.]
OFFER TO EXCHANGE SERIES B 11 3/4% SENIOR NOTES DUE 2004 FOR ALL OUTSTANDING
11 3/4% SENIOR NOTES DUE 2004
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PROSPECTUS
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SEPTEMBER 6, 1996
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