<PAGE>
Filed pursuant to Rule 424(b)(3)
File No. 333-06427
PROSPECTUS
OFFER TO EXCHANGE SERIES B 13 3/4% SENIOR PAY-IN-KIND NOTES DUE 2004 FOR ALL
OUTSTANDING 13 3/4% SENIOR PAY-IN-KIND NOTES DUE 2004 OF PARK COMMUNICATIONS,
INC.
[LOGO OF PARK COMMUNICATIONS, INC.]
---------------
The Exchange Offer will expire at 5:00 p.m., New York City time, on October
10, 1996, unless extended.
Park Communications, 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 13 3/4% Senior Pay-in-Kind 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
13 3/4% Senior Pay-in-Kind Notes due 2004 (the "Series A Notes"), of which
$80,000,000 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, 1999, at the redemption prices set forth herein plus
accrued and unpaid interest, if any, to the date of redemption. Prior to
December 31, 1997, the Company may, at its option, redeem all or any portion
of the outstanding Notes with the net proceeds of one or more Public Equity
Offerings (as defined) or Strategic Equity Investments (as defined); provided,
that the proceeds to the Company of the first such offering or investment or
series of substantially concurrent investments are at least $40.0 million, at
112.0% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of redemption (the "First Equity Offering Optional Redemption
Price"). In addition, on or after December 31, 1997 and prior to May 15, 1999,
the Company may, at its option, redeem with the net proceeds of one or more
Public Equity Offerings or Strategic Equity Investments up to 50% of the
aggregate principal amount of the Notes then outstanding; provided, that the
proceeds to the Company of the first such offering or investment or series of
substantially concurrent investments (including any such offering, investment
or series of investments the proceeds of which were used to redeem Notes) are
at least $40.0 million, at 113.0% of the principal amount thereof plus accrued
and unpaid interest, if any, to the date of redemption (the "Second Equity
Offering Optional Redemption Price"). In addition, prior to May 15, 1999, the
Company may redeem the Notes, in whole or 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 (the "Optional
Redemption Price"); provided, however, that (i) if such redemption is to be
effected for less than all of the Notes then outstanding, not less than $40.0
million aggregate principal amount of the Notes is outstanding immediately
after giving effect to such redemption and (ii) no redemption (or, on or after
December 31, 1997, partial redemption) of the Notes then outstanding may be
made with the proceeds of any Public Equity Offering or Strategic Equity
Investment pursuant to this sentence if, as of the date of the proposed
redemption, either the First Equity Offering Optional Redemption Price or the
Second Equity Offering Optional Redemption Price (whichever then applicable)
would be greater than the Optional Redemption Price as of such date. See
"Description of the Notes--Redemption--Optional Redemption."
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. Through May 15, 1999, interest is payable at
the option of the Company by the issuance of additional Notes (valued at 100%
of the face amount thereof) in lieu of cash interest. After May 15, 1999,
interest on the Notes is payable solely in cash.
(Continued on following page)
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 26 OF THIS PROSPECTUS, FOR A
DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR
SERIES A NOTES IN THE EXCHANGE OFFER.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 6, 1996
<PAGE>
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 112.0% 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 Notes
and the amount not so utilized exceeds $2.0 million. 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."
Upon repayment in full of indebtedness under the Senior Credit Facility (as
defined) on June 20, 1996, the Company granted to the holders of the Notes, in
accordance with the terms of the Indenture, a first priority security interest
in all of the capital stock of Park Broadcasting, Inc. ("Park Broadcasting")
and Park Newspapers, Inc. ("Park Newspapers"). The Notes will rank pari passu
in right of payment with all existing and future unsecured and unsubordinated
indebtedness of the Company; senior to any other indebtedness to the extent of
any assets securing the Notes; 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
Units (as defined), the other Refinancing Transactions (as defined), the
application of the net proceeds therefrom and the repayment in full of the
Senior Credit Facility, the Company would have had $80.0 million of face
amount of secured indebtedness outstanding and the subsidiaries of the Company
would have had $391.4 million of indebtedness outstanding. As of August 15,
1996, the Company had no secured indebtedness outstanding other than the Notes
and no other indebtedness for borrowed money. As of that date, the Notes were
effectively subordinated to $155.0 million of indebtedness of Park
Broadcasting under the Broadcasting Notes (as defined) and $241.0 million of
face amount of indebtedness of Park Newspapers under the Newspapers Notes (as
defined), and were not senior to any outstanding Company indebtedness for
borrowed money.
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, as part of units consisting of
the Series A Notes and warrants to purchase shares of common stock of the
Company (the "Units"), 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. Neither the Units, nor the Series A Notes or warrants that were the
components of the Units, are being offered through this Prospectus. 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
(Continued on following page)
<PAGE>
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 "Park Communications"
refers to Park Communications, Inc. and the term "Company" refers to Park
Communications and its wholly-owned subsidiaries Park Broadcasting, Inc. ("Park
Broadcasting") and Park Newspapers, Inc. ("Park Newspapers") and each of their
respective 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 the Company was 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 165 of this
Prospectus, for a listing of terms defined in this Prospectus.
THE COMPANY
The Company is a holding company which through its subsidiaries owns and
operates nine network affiliated television stations and 104 newspapers and
related publications in geographically diverse markets throughout the United
States. 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. The Company's 104 newspaper
publications include 28 daily newspapers, 26 non-daily newspapers, and 50
"total market coverage" publications. The Company's newspaper publications
serve readers in 43 counties in 12 states. The Company's daily newspaper
publications range in circulation from approximately 4,000 to 17,000, with a
combined average paid daily circulation of approximately 242,000. For the year
ended December 31, 1995, the Company had net revenue of $144.3 million.
The Company 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 cash flow from operations by
managing costs rather than increasing revenue. PAI, which is effectively
controlled by Dr. Gary B. Knapp and Donald R. Tomlin, Jr., acquired the Company
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 media properties, both television and newspaper, generally have
captured a smaller relative share of advertising dollars in their respective
markets than their share of viewing audiences or relative positions 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.
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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 the Company and at each of the two operating subsidiaries have
substantial experience in the television and newspaper industries. Each of the
Company's executive officers brings between 18 and 34 years of experience in
their respective industries.
PARK BROADCASTING
Park Broadcasting owns and operates nine network affiliated television
stations primarily located in mid-sized southeastern markets. The 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. For the year ended December 31, 1995, Park Broadcasting had net
revenue of $65.4 million.
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
---------------- --------------
$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. Park Broadcasting'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 Park Broadcasting with a significant opportunity
to increase advertising revenue at its stations without a need to increase
audience share. Park Broadcasting has initiated a number of programs since the
Acquisition that are designed to take advantage of this opportunity. See
"Business--Park Broadcasting--Business and Operating Strategy."
Park Broadcasting'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
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implementation of a new and aggressive local sales development program.
Park Broadcasting'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, Park Broadcasting'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 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. Park Broadcasting 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 Park Broadcasting'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. Park Broadcasting 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, Park Broadcasting 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 Park Broadcasting'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. Park Broadcasting 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, Park Broadcasting 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. Park Broadcasting 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, Park Broadcasting
continually seeks to identify areas to reduce expenses and improve
efficiencies. Park Broadcasting 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.
PARK NEWSPAPERS
Park Newspapers owns and operates 104 geographically diverse newspapers and
related publications which include 28 daily newspapers (of which 16 publish
Sunday editions), 26 non-daily newspapers and 50 "total market coverage"
publications across the United States. Park Newspapers' daily and non-daily
newspapers generally combine news, sports and features with a special emphasis
on local information. These newspaper
5
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publications have a total paid daily circulation of approximately 242,000. The
markets which the publications serve had a combined household count of
approximately 545,000 and aggregate retail sales of approximately $15.2 billion
in 1995. The Company believes that operating a geographically diverse group of
newspapers reduces the impact of the performance of any one newspaper. For the
year ended December 31, 1995, Park Newspapers had revenue of $78.9 million.
A major component of Park Newspapers' long-term strategy has been to operate
newspapers having a dominant position in stable, growing communities. Park
Newspapers' dailies have been in existence for an average of 111 years (with
none in existence for less than 46 years), are well established and have a
strong local brand appeal. In most cases, the dailies typically serve a small
or medium population community and are the dominant or only local newspaper in
the market. The Company believes that an added benefit of operating in these
types of communities is the workforce stability which it has experienced.
Park Newspapers' newspaper publications serve readers in 43 counties in 12
states. Demographics USA, 1994 has forecasted that 30 of the counties which
Park Newspapers serves (or approximately 70% of the total number of counties it
serves) will experience retail sales growth during the period from 1994 through
1999 equal to or in excess of the forecast national average of 30.6% over this
period; another 11 of these counties (or approximately 26% of the total number
of counties it serves) are projected to have retail sales growth during this
period of at least 80% of the national average, with most growing at 90% or
more of the national average; and only two of these counties (Columbia and
Niagara Counties in New York) are projected to be "slow-growth" counties.
BUSINESS AND OPERATING STRATEGY. Park Newspapers' operating strategy is to
increase revenue and cash flow from operations by capitalizing on the strong
local brand recognition of its newspapers. Management believes that its strong
brand recognition combined with the Company's emphasis on producing a high
quality product and improving its sales and marketing efforts will enhance the
value of Park Newspapers' publications to its readers and advertisers and
result in increased circulation, revenue and cash flow from operations.
Prior to the Acquisition, Park Newspapers focused on improving cash flow from
operations through cost management rather than generation of incremental
revenue. Industry standards suggest that revenue performance of a community
newspaper equal to 0.70% to 1.25% of total retail sales in a defined market is
a reasonable target for share of market revenue. Park Newspapers ended 1995
with advertising revenue equal to 0.52% of total retail sales in the aggregate
in the markets served by its publications. The Company believes that through
new sales and marketing programs, continued quality editorial and news
leadership and increased circulation penetration, along with continued strict
cost controls, it can capitalize on the growing markets in which it operates
and improve its share of retail advertising dollars.
Park Newspapers' business and operating strategy includes the following key
elements:
Strengthen Sales and Marketing Development. Since the Acquisition, the
Company has instituted a sales force upgrade and implemented a motivation
program which includes performance-based compensation plans, daily sales
reports to monitor each account executive's development, and on-site
training programs. Park Newspapers has purchased a new
demographic/advertising research program to provide qualitative data to its
sales force to better identify sales opportunities. The Company has also
introduced advertising programs to generate revenue from sources new to
Park Newspapers.
Enhance Quality of Editorial Content, Presentation and Local News. Park
Newspapers' publications are committed to editorial excellence and
providing the best mix of local and national news to effectively serve
their markets. The Company's newspapers generally have the largest local
news gathering resources in their local markets and, through emphasizing
local news, generally have a high degree of reader loyalty among their core
circulation base group. The Company has recently completed a review of its
daily newspapers'
6
<PAGE>
layouts and has instituted a layout redesign program for all of its daily
newspapers to ensure that each newspaper offers attractive layout, design
and color enhancement.
Increase Circulation. Prior to the Acquisition, Park Newspapers pursued a
circulation strategy aimed at driving circulation revenue through price
increases. This strategy ultimately adversely impacted circulation
penetration levels. As of December 31, 1995, Park Newspapers had only a 47%
penetration of the occupied households in its defined market areas, a level
which the Company believes offers significant potential for improvement.
Park Newspapers has launched an aggressive direct marketing effort with the
goal of improving market penetration (in the aggregate) to 70% of the
occupied households in its defined markets.
Realize Benefits From Clustering. Park Newspapers has clustered its
publication operations regionally. With the change in strategy from cost
management to revenue maximization and cost containment, the Company has
identified and is implementing programs to enhance revenue available as a
result of its clustering of operations, such as regional sales promotion
programs and other cross-selling techniques. In addition to these revenue
opportunities, consolidating the operations of groups of newspapers affords
both operating and economic efficiencies. These efficiencies include, but
are not limited to, the sharing of management, accounting and production
functions. Management will continue to review its newspaper businesses for
opportunities to merge operations to both enhance revenue and reduce costs.
Maintain Effective Cost Controls. Expenses at each of the Company's
publications are closely monitored to control costs without sacrificing
revenue opportunities. The Company seeks to reduce labor costs through
investment in modern production equipment and through the consolidation of
operations and administrative activities associated with clustering. Park
Newspapers' newsprint costs are approximately 10.4% of its revenue, and it
generally enters into long-term supply contracts to reduce newsprint costs
during periods of short supply. Management believes that Park Newspapers'
newsprint costs as a percentage of revenue are generally lower than many of
the other community newspaper groups. The Company's cost control
initiatives also include group purchasing of materials and aggressive
control of newsprint waste.
Develop Additional Non-Traditional Revenue Sources. Park Newspapers has
recently introduced new informational products and services and advertising
programs to generate revenue from sources other than traditional newspaper
publishing activities. These products, services and programs include voice
personals, audio-text and incentive marketing.
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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 Park
Broadcasting 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--Park Broadcasting--
Network Affiliation Agreements."
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THE REFINANCING TRANSACTIONS
On May 13, 1996, the Company sold the Series A Notes as part of units (the
"Units") consisting of the Series A Notes and Warrants to purchase an aggregate
of 800,000 shares of Common Stock of the Company. The sale of Units was one of
a series of transactions (the "Refinancing Transactions"), the purpose of which
was to refinance the Company's indebtedness under a credit agreement among the
Company, PAI and the lenders thereunder (the "Prior Credit Agreement"). The
Refinancing Transactions consisted of (i) the sale of the Units, (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 $241.0
million in principal amount of 11 3/4% Senior Notes due 2004 of Park
Broadcasting (the "Broadcasting Notes"), (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 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 which
have been conducted through Park Broadcasting. The Company 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, Park Broadcasting 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,
Park Broadcasting 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 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."
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<PAGE>
THE SERIES A NOTES OFFERING
Series A Notes................ The Series A Notes were sold by the Company, as
part of Units consisting of the Series A Notes
and 800,000 Warrants to purchase an aggregate
of 800,000 shares of Common Stock of the
Company (the "Initial Warrants"), 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................. $80,000,000 aggregate principal amount of
Series B 13 3/4% Senior Pay-in-Kind 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,
$80,000,000 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
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<PAGE>
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
timeto time, may be used by a Participating
Broker-Dealer in connection 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.
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<PAGE>
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 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.
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<PAGE>
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 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
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<PAGE>
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."
Notes Offered................. $80,000,000 aggregate principal amount of
Series B 13 3/4% Senior Pay-in-Kind Notes due
2004.
Separability.................. The Notes and the Initial Warrants will be
separately transferable on the date on which
the Registration Statement of which this
Prospectus is a part is declared effective
under the Securities Act. At such time, the
Units will cease to exist.
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. Through May 15,
1999, interest is payable at the option of the
Company, in whole but not in part, by the
issuance of additional Notes (valued at 100% of
the face amount thereof) in lieu of cash
interest. Notwithstanding the foregoing,
interest due and payable upon any redemption or
repurchase or in connection with any
acceleration will be payable solely in cash.
After May 15, 1999, interest on the Notes is
payable solely in cash.
Optional Redemption........... The Notes are redeemable at the option of the
Company, in whole or in part, on or after May
15, 1999, at the redemption prices set forth
herein plus accrued and unpaid interest, if
any, to the date of redemption. Prior to
December 31, 1997, the Company may, at its
option, redeem all or any portion of the
outstanding Notes with the net proceeds of one
or more Public Equity Offerings or Strategic
Equity Investments; provided, however, that the
proceeds to the Company of the first such
offering or investment or series of
substantially concurrent investments are at
least $40.0 million, at 112.0% of the principal
amount thereof plus accrued and unpaid
interest, if any, to the date of redemption
(the "First Equity Offering Optional Redemption
Price"); provided, further, however, that
notice of such redemption is given within 30
days of such offering or investment. In
addition, on and after December 31, 1997 and
prior to May 15, 1999, the Company may, at its
option, redeem with the net proceeds of one or
more Public Equity Offerings or Strategic
Equity Investments up to 50% of the aggregate
principal amount of the Notes then outstanding;
provided, however, that the proceeds to the
Company of the first such offering or
investment or series of substantially
concurrent investments (including any such
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<PAGE>
offering, investment or series of investments
the proceeds of which were used to redeem the
Notes) are at least $40.0 million, at 113.0% of
the principal amount thereof plus accrued and
unpaid interest, if any, to the date of
redemption (the "Second Equity Offering
Optional Redemption Price"); provided, further,
however, that notice of such redemption is
given within 30 days of such offering or
investment.
In addition, prior to May 15, 1999, the Company
may redeem the Notes, in whole or 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 (the "Optional
Redemption Price"); provided, however, that (i)
if such redemption is to be effected for less
than all of the Notes then outstanding, not
less than $40.0 million aggregate principal
amount of Notes is outstanding immediately
after giving effect to such redemption (other
than any Notes owned by the Company or any of
its affiliates) and (ii) no redemption (or, on
or after December 31, 1997, partial redemption)
of the Notes then outstanding may be made with
the proceeds of any Public Equity Offering or
Strategic Equity Investment pursuant to this
sentence if, as of the date of the proposed
redemption, either the First Equity Offering
Optional Redemption Price or the Second Equity
Offering Optional Redemption Price (whichever
then applicable) would be greater than the
Optional Redemption Price as of such date.
The Notes are not subject to any mandatory
sinking fund redemption prior to maturity.
Repurchase on Public Equity
Offering or Strategic Equity
Investment................... 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 112.0% 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 Notes
and the amount not so utilized exceeds $2.0
million.
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
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<PAGE>
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
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; Effective
Subordination of Notes."
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.
Security...................... Upon repayment in full of indebtedness under
the Senior Credit Facility on June 20, 1996,
the Company granted to the holders of the
Notes, in accordance with the terms of the
Indenture, a first priority security interest
in and lien on the capital stock of Park
Broadcasting and Park Newspapers owned by the
Company whether outstanding at such time or
thereafter issued; provided, however, that
under the Indenture Park Broadcasting and Park
Newspapers may issue shares of their common
stock in public offerings without being subject
to such a lien so long as, after giving effect
to any such issuance, the Company retains
ownership of at least a majority of the
economic interest in and has the power to vote
at least a majority of the voting power of the
outstanding Voting Stock (as defined) of each
such entity.
Ranking....................... The Notes will rank pari passu in right of
payment with all existing and future unsecured
and unsubordinated indebtedness of the Company;
senior to any other indebtedness to the extent
of any assets securing the Notes; 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
Units, the other Refinancing Transactions, the
application of the net proceeds therefrom and
the repayment in full of the Senior Credit
Facility, the Company would have had $80.0
million of face amount of secured indebtedness
outstanding and the subsidiaries of the Company
would have had $391.4 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,
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<PAGE>
(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 (as defined) 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."
Contingent Warrants........... In the event that the Company does not effect 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
required to issue warrants to the holders of
the Notes exercisable for 3.0% of the Common
Stock of the Company on a fully-diluted basis
as of the date of such issuance after giving
effect to the issuance of such warrants (the
"Contingent Warrants").
THE WARRANTS
Warrants...................... The Initial Warrants entitle the holders
thereof to acquire initially an aggregate of
800,000 shares of Common Stock of the Company
(the "Initial Warrant Shares") which would
collectively represent 7.0% of the outstanding
Common Stock of the Company on a fully-diluted
basis after giving effect to the issuance of
such Initial Warrant Shares. The Contingent
Warrants will, if issued, entitle the holders
thereof to acquire initially such number of
shares of Common Stock of the Company (the
"Contingent Warrant Shares") which would
collectively represent 3.0% of the outstanding
Common Stock of the Company on a fully-diluted
basis as of the date of such issuance after
giving effect to the issuance of such
Contingent Warrant Shares. The Initial Warrant
Shares and the Contingent Warrant Shares are
collectively referred to herein as the "Warrant
Shares." If a Public Equity Offering resulting
in net proceeds to the Company of at least
$40.0 million shall not have occurred on or
prior to May 15, 2001, then, within 60 days
after May 15, 2001, the Company shall deliver
to the holders of the Warrants a valuation of
the Warrants prepared by an independent
investment banking or appraisal firm of
national standing. Such valuation shall be
accompanied by a notice to the holders that
they may, by majority vote of the holders so
responding, elect to require the Company to
either (i) effect the registration of the
offering and resale of the Warrants and/or the
Warrant Shares by the holders of the Warrants
under the Securities Act (including pursuant to
an underwritten offering) within the time frame
provided in the Warrant Registration Rights
Agreement (as defined) (such election, the
"Registration Election" and the date of such
notice
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<PAGE>
the "Registration Election Date") or (ii) offer
to purchase all outstanding Warrants at a price
(the "Warrant Purchase Price") equal to the
fair market value thereof as determined
pursuant to the procedures set forth in the
Warrant Agreement (as defined) pursuant to an
offer that must remain open for 20 business
days (or such longer period as required by
law); provided, however that (i) the Company
shall only be obligated to offer to purchase
Warrants (at the Warrant Purchase Price) to the
extent that it is able to do so in accordance
with covenants in the agreements evidencing its
indebtedness, in which event Warrants shall be
purchased from tendering holders pro rata in
accordance with the number of Warrants tendered
by each holder and (ii) to the extent that
tendering holders are not paid the Warrant
Purchase Price for all Warrants tendered
because of such restrictions, the Company shall
repurchase the tendered Warrants by issuing,
pursuant to a registration statement declared
effective under the Securities Act, Notes
(valued at 100% of the face amount thereof), up
to a maximum aggregate principal amount of
Notes so issued equal to 50% of the aggregate
Warrant Purchase Price of all Warrants
tendered. If on or prior to each of May 15,
2002 and May 15, 2003 a Public Equity Offering
resulting in net proceeds of at least $40.0
million shall not have occurred and the Company
shall not have repurchased for cash all
Warrants tendered pursuant to the immediately
preceding offer to purchase, then the Company
shall be obligated to effect offers to purchase
the outstanding Warrants subject to the same
limitations as set forth above, with the
Warrant Purchase Price to be based on a new
determination of fair market value pursuant to
the procedures set forth in the Warrant
Agreement.
Exercise...................... Each Warrant will entitle the holder thereof to
purchase initially one share of Common Stock of
the Company at an exercise price of $0.01 per
share. After the Separability Date, the
Warrants will be exercisable at any time on or
after the date of the occurrence of the
earliest of: (i) immediately prior to the
occurrence of a Change of Control, (ii) the
180th day (or such fewer number of days as
determined by the Company in its sole
discretion) after the consummation of a Public
Equity Offering, (iii) the 90th day after the
Registration Election Date, (iv) the approval
by the holders of the capital stock of the
Company of any Plan of Liquidation (as defined)
of the Company and (v) the 180th day prior to
May 15, 2004. The number of shares of Common
Stock of the Company for which, and the price
per share at which, a Warrant is exercisable
are subject to adjustment upon the occurrence
of certain events as provided in the Warrant
Agreement.
Expiration of Warrants........ The Warrants will expire on May 15, 2004 (the
"Warrant Expiration Date").
18
<PAGE>
Registration Rights........... The Company will covenant to effect, to the
extent legally possible, immediately prior to
exercisability as a result of a Public Equity
Offering or the Registration Election Date, the
registration under the Securities Act of the
issuance and sale of all Warrant Shares upon
exercise of the Warrants. In addition, the
holders of the Warrants and the Warrant Shares
will be entitled (i) on or after the 180th day
after a Public Equity Offering or (ii) on or
after the 90th day after the Registration
Election Date to give notice requiring the
Company to effect the registration of the offer
and sale of the Warrants and the Warrant Shares
on behalf of the holders of the Warrants
(including pursuant to an underwritten
offering) within the time frames set forth in
the Warrant Registration Rights Agreement (as
defined); provided, however, that in the case
of any such registration due to the occurrence
of a Public Equity Offering, the Company may
comply therewith at any time within 12 months
after notice of such requested registration. In
addition, the holders of the Warrants will be
entitled to certain piggy-back registration
rights in respect of the Warrants and the
Warrant Shares. See "Description of the
Warrants--Registration Rights of Warrant
Holders."
Notice to Investors........... For additional information regarding the Notes
and Warrants, see "Description of the Notes"
and "Description of the Warrants."
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.
19
<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 Park Communications, Park
Broadcasting and Park Newspapers as of and for the years ended December 31,
1995, 1994, 1993, 1992 and 1991 (except in the case of the data for the years
ended December 31, 1992 and 1991 for Park Broadcasting and Park Newspapers,
which have been derived from unaudited financial statements of those entities).
The selected consolidated financial data as of June 30, 1996 and for the six
months ended June 30, 1996 presented below have been derived from unaudited
financial statements of Park Communications, Park Broadcasting and Park
Newspapers. The data presented below should be read in conjunction with the
Consolidated Financial Statements of Park Communications, Inc. and
Subsidiaries, Park Broadcasting, Inc. and Subsidiaries and Park Newspapers,
Inc. and Subsidiaries, including the respective 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
PARK COMMUNICATIONS, INC. ------------- ------------ ----------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue (c).......... $ 71,287 $144,312 $144,312 $142,431 $137,344 $129,800 $121,172
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Cost of sales (exclusive
of depreciation and
amortization).......... 30,258 53,593 53,593 50,380 55,518 53,208 52,895
Selling, general and
administrative (d)..... 20,416 36,069 36,069 37,051 39,561 37,752 35,717
Depreciation and
amortization........... 12,134 24,036 24,036 11,037 11,088 10,607 10,214
-------- -------- -------- -------- -------- -------- --------
Total operating expenses
(c)..................... 62,808 113,698 113,698 98,468 106,167 101,567 98,826
-------- -------- -------- -------- -------- -------- --------
Operating income......... 8,479 30,614 30,614 43,963 31,177 28,233 22,346
Interest expense......... (31,778) (60,962) (65,689) (279) (233) (337) (542)
Interest income.......... 547 1,355 1,355 5,561 4,952 5,515 6,270
Other.................... (216) (280) (280) (2,352) (431) (455) (464)
-------- -------- -------- -------- -------- -------- --------
Income/(loss) from
continuing operations
before income tax....... (22,968) (29,273) (34,000) 46,893 35,465 32,956 27,610
Provision/(benefit) for
income tax.............. (8,180) (8,174) (10,880) 19,519 14,849 13,593 14,218
-------- -------- -------- -------- -------- -------- --------
Income/(loss) from
continuing operations... $(14,788) $(21,099) $(23,120) $ 27,374 $ 20,616 $ 19,363 $ 13,392
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to
fixed charges (e)....... -- -- -- 121.2x 98.4x 72.5x 42.6x
Deficiency of earnings to
fixed charges (e)....... $(22,968) $(29,273) $(34,000) -- -- -- --
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets............. $689,498 $667,766 $782,782 $366,786 $342,621 $324,837 $305,891
Total long-term debt,
excluding current
maturities.............. 467,914 468,173(f) 581,605(f) 49,248 54,367 54,028 54,660
Stockholder's equity
(deficit)............... 17,268 36,319 (17,428) 285,730 253,606 234,682 217,458
OTHER FINANCIAL DATA AND
RATIOS:
Capital
expenditures (g)........ 6,853 4,880 4,880 6,661 4,409 5,545 3,556
</TABLE>
(footnotes begin on next page)
20
<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
of Park Communications, Inc. and Subsidiaries.
(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. The Warrants have been valued at
approximately $2.8 million. Such amounts ascribed to the Warrants serve to
reduce long-term debt and increase additional paid in capital. The amounts
of debt discount resulting from such ascribed amounts will be amortized to
interest expense over the life of the debt using the effective yield
method.
(c) On December 31, 1993, the Company sold 33 newspaper publications located in
13 of its smaller markets. The impact of the sale of these publications was
not material to net income in 1993. The results of operations of the 33
newspaper publications are included in the 1993, 1992 and 1991 operating
results as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Net revenue....................................... $10,385 $10,812 $11,132
Operating expenses................................ 10,551 10,707 11,304
Operating income (loss) before depreciation and
amortization..................................... (166) 105 (172)
</TABLE>
(d) Includes certain operating expenses at Park Communications, Inc. ("Central
Corporate Overhead") allocated as follows:
<TABLE>
<CAPTION>
SIX
MONTHS
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Park Broadcasting................. $ 926 $1,142 $1,287 $1,280 $1,296 $1,151
Park Newspapers................... 1,322 2,217 1,988 2,102 2,280 2,191
------ ------ ------ ------ ------ ------
Total Central Corporate Overhead.. $2,248 $3,359 $3,275 $3,382 $3,576 $3,342
====== ====== ====== ====== ====== ======
</TABLE>
(e) 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.
(f) 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.
(g) Capital expenditures do not include the purchase of the assets of two
television stations, WTVQ in 1992 and KALB in 1993. The amounts for such
asset purchases were $6,135 in 1992 and $8,804 in 1993. In addition,
capital expenditures in 1994 do not include certain operating equipment and
facilities purchased from RHP Incorporated for $4,175, which it had been
leasing. Also not included are capital expenditures resulting from trade
agreements and capital expenditures of the discontinued radio station
operations.
21
<PAGE>
<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
PARK BROADCASTING, INC. ------------- ------------ ----------- -------- -------- -------- -------
(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)
22
<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
of Park Broadcasting, Inc. and Subsidiaries.
(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 Park Broadcasting 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 Park Broadcasting to satisfy
future allocations of Central Corporate Overhead will be subject to certain
limitations and restrictions under the indenture governing the Broadcasting
Notes.
(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.
23
<PAGE>
<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
PARK NEWSPAPERS, INC. ------------- ------------ ----------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue (c)............. $ 38,804 $ 78,904 $ 78,904 $76,810 $84,751 $ 82,584 $ 82,200
-------- -------- -------- ------- ------- -------- --------
Operating expenses:
Cost of sales
(exclusive of
depreciation and
amortization)......... 19,205 33,810 33,810 32,364 39,221 37,628 39,444
Selling, general and
administrative (d).... 10,714 21,869 21,869 22,216 27,155 25,892 25,784
Depreciation and
amortization.......... 4,380 8,167 8,167 5,816 6,895 7,247 7,614
-------- -------- -------- ------- ------- -------- --------
Total operating expenses
(c).................... 34,299 63,846 63,846 60,396 73,271 70,767 72,842
-------- -------- -------- ------- ------- -------- --------
Operating income........ 4,505 15,058 15,058 16,414 11,480 11,817 9,358
Interest expense........ (10,850) (19,144) (24,810) (76) (177) (279) (512)
Interest income......... 127 291 291 11 45 42 29
Other................... (24) (511) (511) (832) (204) (380) (304)
-------- -------- -------- ------- ------- -------- --------
Income/(loss) before
income tax............. (6,242) (4,306) (9,972) 15,517 11,144 11,200 8,571
Provision/(benefit) for
income tax............. (2,231) (946) (2,792) 7,007 5,335 5,370 4,499
-------- -------- -------- ------- ------- -------- --------
Net income/(loss) (c)... $ (4,011) $ (3,360) $ (7,180) $ 8,510 $ 5,809 $ 5,830 $ 4,072
======== ======== ======== ======= ======= ======== ========
Ratio of earnings to
fixed charges (e)...... -- -- -- 164.3x 56.2x 37.8x 16.9x
Deficiency of earnings
to fixed charges (e)... $ (6,242) $ (4,306) $ (9,972) -- -- -- --
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets............ $223,983 $225,058 $219,738 $93,060 $98,075 $115,225 $110,705
Total long-term debt,
excluding current
maturities............. 155,120 155,240 168,305 360 746 1,912 2,792
OTHER FINANCIAL DATA
AND RATIOS:
Capital
expenditures (f)....... 780 2,122 2,122 2,858 1,512 2,252 1,084
</TABLE>
(footnotes begin on next page)
24
<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
of Park Newspapers, Inc. and Subsidiaries.
(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) On December 31, 1993, the Company sold 33 newspaper publications located
in 13 of its smaller markets. The impact of the sale of these publications
was not material to net income in 1993. The results of operations of the
33 newspaper publications are included in the 1993, 1992 and 1991
operating results as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Revenue......................................... $10,385 $10,812 $11,132
Operating expenses.............................. 10,551 10,707 11,304
Operating income (loss) before depreciation and
amortization................................... (166) 105 (172)
</TABLE>
(d) Includes an allocation of Central Corporate Overhead from Park
Communications to Park Newspapers as follows:
<TABLE>
<CAPTION>
SIX
MONTHS
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Allocated Central Corporate Over-
head............................ $1,322 $2,217 $1,988 $2,102 $2,280 $2,191
</TABLE>
Cash payments to Park Communications from Park Newspapers to satisfy future
allocations of Central Corporate Overhead will be subject to certain
limitations and restrictions under the indenture governing the Newspapers
Notes.
(e) 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)
before income taxes and fixed charges.
(f) Capital expenditures do not include the purchase in 1994 for $600 of
certain operating equipment and facilities from RHP Incorporated, which
the Company had been leasing.
25
<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 Units, the other
Refinancing Transactions, the repayment in full of the 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 the Company. At December 31, 1995, the Company had
outstanding long-term indebtedness of approximately $581.6 million, with a
total stockholder's deficit of approximately $17.4 million. On a pro forma
basis assuming that the Acquisition had occurred on January 1, 1995, earnings
were insufficient to cover fixed charges by $34.0 million during the year
ended December 31, 1995. On a pro forma basis after giving effect to the sale
of Units, 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 Senior Credit Facility, the total
consolidated long-term indebtedness of the Company outstanding at December 31,
1995 would have been approximately $468.2 million, as compared to a total
stockholder's equity of approximately $36.3 million, and earnings would have
been insufficient to cover fixed charges by approximately $29.3 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."
26
<PAGE>
HOLDING COMPANY STRUCTURE; DEPENDENCE ON CASH FLOW FROM SUBSIDIARIES;
EFFECTIVE SUBORDINATION OF NOTES
The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries, including Park Broadcasting and Park Newspapers. 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.
The indentures pursuant to which the Broadcasting Notes and the Newspapers
Notes were issued impose, and agreements relating to other indebtedness of
Park Broadcasting and Park Newspapers may impose, significant restrictions on
the payment of dividends and the making of loans by Park Broadcasting or Park
Newspapers to the Company. See "Description of Certain Indebtedness."
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 subsidiaries of the
Company, including the Broadcasting Notes and the Newspapers Notes. 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. As of December 31, 1995, on a pro forma basis after giving effect
to the sale of Units, the other Refinancing Transactions, the application of
the net proceeds therefrom and the repayment in full of the Senior Credit
Facility, the Company would have had $80.0 million of face amount of secured
indebtedness outstanding and the subsidiaries of the Company would have had
$391.4 million of indebtedness outstanding.
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. The
indentures governing the Broadcasting Notes and the Newspapers Notes contain
similar covenants applicable to Park Broadcasting and its subsidiaries and
Park Newspapers and its subsidiaries, respectively. The Company's ability to
meet those covenants can be affected by events beyond its control, and there
can be no assurance that the Company will meet those tests. 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--Park Broadcasting--Business and Operating Strategy" and "--Park
Newspapers-- Business and Operating Strategy."
27
<PAGE>
NETWORK AFFILIATION; RELIANCE ON NETWORK PROGRAMMING
Five of Park Broadcasting'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. Park Broadcasting is in the process of
acquiring, subject to FCC approval, a tenth television station, the ABC
affiliate in Montgomery, Alabama. Park Broadcasting'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 Park Broadcasting'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 Park Broadcasting'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 Park Broadcasting 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
Park Broadcasting's and the Company's operations and would be an event of
default under the Senior Credit Facility and could lead to an acceleration of
the indebtedness thereunder. See "Business--Park Broadcasting--Network
Affiliation Agreements."
GOVERNMENT REGULATION
Park Broadcasting'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, Park
Broadcasting'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 Park Broadcasting's FCC
licenses are set forth under the caption "Business--Park Broadcasting--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 Park Broadcasting'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 Park
Broadcasting's primary FCC licenses could have a material adverse effect on
Park Broadcasting's and the Company's operations. The Communications Act
prohibits the assignment of a license or the transfer of control of a licensee
without the prior approval of the FCC. The exercise of the Warrants could
require such approval and there can be no assurance as to the Company's
ability to obtain such approval.
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 Park Broadcasting's broadcast properties. The Company is unable
to predict the impact which any such laws or regulations may have on Park
Broadcasting's operations. See "Business--Park Broadcasting--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-
28
<PAGE>
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 Park
Broadcasting. 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 Park Broadcasting's operations.
In addition to competing with other media outlets for audience share, Park
Broadcasting's stations also compete for advertising revenue, which comprise
the primary source of revenue for Park Broadcasting's operating subsidiaries.
Park Broadcasting'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.
Park Broadcasting'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 Park Broadcasting'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 Park Broadcasting, Park Broadcasting's ability to
compete successfully in its broadcasting markets may be impeded. See
"Business--Park Broadcasting--Competition-Television Broadcasting."
NEWSPAPER INDUSTRY CHARACTERISTICS
Park Newspapers' publishing business is concentrated in newspapers located
in cities or towns of small or medium populations in the United States.
Revenue in the newspaper industry is dependent primarily upon advertising
revenue and paid circulation. Competition for advertising and circulation
revenue comes from local and regional newspapers, radio, broadcast and cable
television, direct mail, and other communications and advertising media. The
extent and nature of such competition is, in large part, determined by the
location and demographics of the markets and the number of media alternatives
in those markets. In Park Newspapers' case, its paid daily newspapers are the
only paid daily newspapers of general circulation published in their
respective cities or towns. There are no broadcast television stations
licensed to any city or town in which Park Newspapers publishes a daily
newspaper, although regional television service is provided by broadcast
television stations licensed to larger nearby communities and by cable
television systems. Other daily newspapers published in nearby locations are
generally circulated in some of Park Newspapers' markets. Some of such
competitors are larger and have greater financial resources than Park
Newspapers. Competition for advertising revenue also arises from radio
stations broadcasting in such markets. See "Business--Park Newspapers--
Competition-Publishing."
In recent years on-line services and other new technologies have also begun
to compete with newspapers. Although it is impossible to predict the extent of
such competition, the Company believes that such technologies are less likely
to represent significant competition in smaller markets where advertisers are
more likely to focus limited budgets on outlets such as local newspapers
having more limited coverage areas. The Company also believes that its news
collection system in the communities served by Park Newspapers' publications
positions Park Newspapers to provide news in future electronic delivery
systems.
NEWSPRINT COSTS
Newsprint represents the single largest raw material expense of Park
Newspapers' business and, together with employee costs, is one of the most
significant operating costs in the newspaper industry. Newsprint costs
increased approximately 40% per metric ton in 1995 on an industry-wide basis
and may continue to increase in 1996, although any such increases in 1996 are
not anticipated to be as significant as the 1995 increases.
29
<PAGE>
Newsprint expenses represented 12%, 12% and 15% of Park Newspapers' total
operating costs and expenses for the years ended December 31, 1993, 1994 and
1995, respectively. Although Park Newspapers has implemented measures in an
attempt to offset the rise in newsprint prices, such as affording individual
newspapers the ability to purchase newsprint under master supply contracts to
avoid reliance on spot purchases, and total operating expenses, including
newsprint costs, in 1995 increased by only 2.0% over 1994, newsprint price
increases have had and may continue to have an adverse effect on the Company's
and Park Newspapers' results of operations.
EFFECT OF NATIONAL AND LOCAL ECONOMIC CONDITIONS
Each of the Company's businesses is cyclical in nature. Because the Company
relies upon sales of advertising at Park Broadcasting's television stations
and Park Newspapers' newspapers 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 and, with respect to newspapers,
circulation levels. 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
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."
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 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.
30
<PAGE>
LACK OF ESTABLISHED MARKET FOR THE SECURITIES
Prior to the Exchange Offer, there has not been any public market for the
Units, Series A Notes or Initial Warrants. 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 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."
31
<PAGE>
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."
NO DIVIDENDS
The Company does not expect to pay any dividends on the Common Stock in the
foreseeable future.
32
<PAGE>
THE COMPANY
The Company is a holding company which through its subsidiaries owns and
operates nine network affiliated television stations and 104 newspapers and
related publications in geographically diverse markets throughout the United
States. 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 104 newspaper publications include 28 daily newspapers, 26 non-daily
newspapers, and 50 "total market coverage" publications. The Company's
newspaper publications serve readers in 43 counties in 12 states. The
Company's daily newspaper publications range in circulation from approximately
4,000 to 17,000, with a combined average paid daily circulation of
approximately 242,000. For the year ended December 31, 1995, the Company had
net revenue of $144.3 million.
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.
Park Broadcasting. Park Broadcasting owns and operates nine network
affiliated television stations primarily located in mid-sized southeastern
markets. The 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--Park Broadcasting--Network Affiliation Agreements." For the
year ended December 31, 1995, Park Broadcasting had net revenue of $65.4
million.
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.
Park Newspapers. Park Newspapers owns and operates 104 geographically
diverse newspapers and related publications which include 28 daily newspapers
(of which 16 publish Sunday editions), 26 non-daily newspapers and 50 "total
market coverage" publications across the United States. Park Newspapers' daily
and non-daily newspapers generally combine news, sports and features with a
special emphasis on local information. These newspaper publications serve
readers in 43 counties in 12 states. Park Newspapers' daily newspaper
publications have a total paid daily circulation of approximately 242,000. The
markets which the publications serve, which the Company identifies using
postal ZIP codes, had a combined household count of approximately 545,000 and
aggregate retail sales of approximately $15.2 billion in 1995. The Company
believes that operating a geographically diverse group of newspapers reduces
the impact of the performance of any one newspaper. For the year ended
December 31, 1995, Park Newspapers had revenue of $78.9 million.
33
<PAGE>
Sale of Radio Station Assets. The Company is in the process of selling the
remaining Radio Station Assets, the operations of which have been conducted
through Park Broadcasting. The Company 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.
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 Units
were approximately $75.6 million. These net proceeds, together with net
proceeds from the issuance of the Broadcasting Notes and the Newspapers Notes,
borrowings under the 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."
34
<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
Units 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 PRO FORMA
FORMA(E) HISTORICAL ADJUSTED(B) HISTORICAL(A)
-------- ---------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Short-term debt:
Current portion of long-term
debt............................ $ 474 $ 474 $ 465 $ 465
-------- -------- -------- --------
Total short-term debt......... 474 474 465 465
-------- -------- -------- --------
Long-term debt, less current
maturities:
Park Communications
Prior Credit Agreement (c)..... -- -- -- 580,632
Notes.......................... 77,226 77,226 77,200 --
-------- -------- -------- --------
77,226 77,226 77,200 580,632
-------- -------- -------- --------
Park Broadcasting
Broadcasting Notes (d)......... 235,012 235,012 235,000 --
Promissory notes............... 556 556 733 733
-------- -------- -------- --------
235,568 235,568 235,733 733
-------- -------- -------- --------
Park Newspapers
Newspapers Notes............... 155,000 155,000 155,000 --
Subordinated notes............. 120 120 240 240
-------- -------- -------- --------
155,120 155,120 155,240 240
-------- -------- -------- --------
Total long-term debt.......... 467,914 467,914 468,173 581,605
-------- -------- -------- --------
Stockholder's equity:
Common stock................... 1 1 -- --
Additional paid in capital..... 2,532 2,532 2,800 --
Retained earnings (deficit).... 12,802 14,735 33,519 (17,428)
-------- -------- -------- --------
Total stockholder's equity
(deficit)....................... 15,335 17,268 36,319 (17,428)
-------- -------- -------- --------
Total capitalization............ $483,723 $485,656 $504,957 $564,642
======== ======== ======== ========
</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, and the payment in full of the Senior
Credit Facility. The Warrants have been valued at approximately $2.8
million. Such amounts ascribed to the Warrants serve to reduce long-term
debt and increase additional paid in capital.
(c) As of December 31, 1995, due to "push down" accounting, $412,566 and
$168,065 were "pushed down" to the historical balance sheets of Park
Broadcasting and Park Newspapers, respectively, as a result of the Prior
Credit Agreement.
(d) Net of original issue discount of approximately $6.0 million.
(e) 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.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Statements of Continuing
Operations for the six months ended June 30, 1996 and for the year ended
December 31, 1995 present the consolidated results of continuing operations of
Park Communications, Inc. and Subsidiaries, Park Broadcasting, Inc. and
Subsidiaries and Park Newspapers, 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 Sheets as of June 30, 1996
and December 31, 1995 are 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.
36
<PAGE>
PARK COMMUNICATIONS, 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................... $ 47,120 $ 8,300 (d) $ 55,420 $ 19,026 $ 164,400 (a) $ 28,790
452,000 (b)
(606,636)(c)
Other current assets... 30,998 (17) 30,981 33,370 (540)(a) 32,830
-------- -------- -------- -------- ---------- --------
Total current assets... 78,118 8,283 86,401 52,396 9,224 61,620
Property, plant and
equipment, net.......... 66,616 (2,015)(d) 64,601 84,395 (21,171)(a) 63,224
Intangible assets, net.. 517,873 (10,067)(d) 507,806 635,447 (120,101)(a) 515,346
Film contracts.......... 1,984 1,984 2,787 2,787
Other assets............ 24,907 24,907 7,757 18,000 (b) 24,789
(968)(c)
-------- -------- -------- -------- ---------- --------
Total assets........... $689,498 $ (3,799) $685,699 $782,782 $ (115,016) $667,766
======== ======== ======== ======== ========== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Total current
liabilities............. $ 59,225 $ 59,225 $ 42,992 $ (26,391)(c) $ 16,601
Long-term film
contracts............... 1,835 1,835 2,480 2,480
Long-term debt--term
loan.................... -- -- 580,632 (580,632)(c) --
Long-term debt--other... 676 676 973 973
Long-term debt--new
debt.................... 467,238 467,238 -- 467,200 (b) 467,200
Deferred income......... 6,822 6,822 4,549 4,549
Consulting/non-compete
contracts............... 2,446 2,446 2,851 2,851
Deferred income taxes... 133,257 $ (1,866)(d) 131,391 165,733 (28,940)(a) 136,793
Other liabilities....... 731 731 -- --
-------- -------- -------- -------- ---------- --------
Total liabilities...... 672,230 (1,866) 670,364 800,210 (168,763) 631,447
-------- -------- -------- -------- ---------- --------
Stockholder's equity:
Common stock........... 1 1 -- --
Paid in capital........ 2,532 2,532 -- 2,800 (b) 2,800
Retained earnings
(deficit)............. 14,735 (1,933)(d) 12,802 (17,428) 51,528 (a) 33,519
(581)(c)
-------- -------- -------- -------- ---------- --------
Total stockholder's
equity (deficit)...... 17,268 (1,933) 15,335 (17,428) 53,747 36,319
-------- -------- -------- -------- ---------- --------
Total liabilities and
stockholder's equity.. $689,498 $ (3,799) $685,699 $782,782 $ (115,016) $667,766
======== ======== ======== ======== ========== ========
</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 $65.4 million.
(b) Reflects the issuance of the Notes, the Broadcasting Notes and the
Newspapers Notes and the incurrence of related fees and expenses of $18.0
million. Does not reflect the incurrence of fees and expenses of $2.1
million relating to the Senior Credit Facility. The Warrants have been
valued at approximately $2.8 million. Such amounts ascribed to the
Warrants serve to reduce long-term debt and increase additional paid in
capital.
(c) Reflects the payoff of the Prior Term Loan, accrued interest and write-off
of related debt issue costs.
(d) 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.
37
<PAGE>
PARK COMMUNICATIONS, 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........... $101,756 $ 53,917 $ 155,673 $ 155,673
Less: commissions....... 7,360 4,001 11,361 11,361
--------- -------- ---------- ----------
Net revenue............. 94,396 49,916 144,312 144,312
--------- -------- ---------- ----------
Operating expenses:
Cost of sales.......... 33,278 20,315 53,593 53,593
Selling, general and
administrative........ 24,561 11,508 36,069 36,069
Depreciation........... 5,164 2,499 $ 420 (a) 8,083 8,083
Amortization........... 5,594 786 2,376 (a) 8,756 8,756
Amortization of excess
cost................... 4,598 715 1,884 (a) 7,197 7,197
--------- -------- -------- ---------- ----------
73,195 35,823 4,680 113,698 113,698
--------- -------- -------- ---------- ----------
Operating income........ 21,201 14,093 (4,680) 30,614 30,614
Interest expense........ (41,968) (67) (23,654)(b) (65,689) $ 65,536 (f) (60,962)
(60,809)(g)
Interest income......... 866 3,181 (2,692)(c) 1,355 1,355
Other expense........... (179) (10,693) 10,592 (d) (280) (280)
--------- -------- -------- ---------- -------- ----------
(Loss) income from
continuing operations
before income taxes.... (20,080) 6,514 (20,434) (34,000) 4,727 (29,273)
Provision (benefit) for
income taxes........... (6,494) 5,954 (10,340) (10,880)(e) 2,706 (h) (8,174)
--------- -------- -------- ---------- -------- ----------
(Loss) income from
continuing operations.. $ (13,586) $ 560 $(10,094) $ (23,120) $ 2,021 $ (21,099)
========= ======== ======== ========== ======== ==========
Loss per share.......... $ (2.18) $ (1.99)
========== ==========
Average shares.......... 10,628,571 10,628,571
========== ==========
</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) Interest income has been reduced to give effect to the $138.0 million paid
from the Company's existing cash-on-hand to the Company's former
stockholders on the date of the Acquisition as a portion of the
consideration.
(d) To eliminate one-time expenses incurred in selling the Company.
(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 $80.0
million, stated rate 13.75%), the Broadcasting Notes (principal $241.0
million, stated rate 11.75%) and the Newspapers Notes (principal $155.0
million, stated rate 11.875%), record one year of amortization of the
aggregate new debt issuance costs of $18.0 million and record one year of
amortization of bond discount on the Notes and the Broadcasting Notes
(overall effective rate of approximately 13.6%). Does not reflect the
incurrence of fees and expenses of $2.1 million relating to the Senior
Credit Facility.
(h) Pro forma income tax benefit has been computed at the marginal rate of
57.2% times the pro forma interest adjustment, as further adjusted for
disallowed interest. See "Certain Federal Income Tax Consequences--Tax
Treatment of the Notes--Original Issue Discount--Applicable High Yield
Discount Obligations."
38
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING
OPERATIONSFOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
TRANSACTION FOR
HISTORICAL ADJUSTMENTS TRANSACTIONS
---------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Gross revenue........... $ 76,878 $ 76,878
Less: commissions....... 5,591 5,591
---------- ----------
Net revenue............. 71,287 71,287
---------- ----------
Operating expenses:
Cost of sales.......... 30,258 30,258
Selling, general and
administrative........ 20,416 20,416
Depreciation........... 4,579 4,579
Amortization........... 5,384 5,384
Amortization of excess
cost................... 2,171 2,171
---------- ----------
62,808 62,808
---------- ----------
Operating income........ 8,479 8,479
Interest expense........ (31,778) $31,701 (a) (30,482)
(30,405)(b)
Interest income......... 547 547
Other expense........... (216) (216)
---------- ------- ----------
(Loss) income from
continuing operations
before income taxes.... (22,968) 1,296 (21,672)
Provision (benefit) for
income taxes........... (8,180) 741 (c) (7,439)
---------- ------- ----------
(Loss) income from
continuing operations.. $ (14,788) $ 555 $ (14,233)
========== ======= ==========
Loss per share.......... $ (1.39) $ (1.34)
========== ==========
Average shares.......... 10,628,571 10,628,571
========== ==========
</TABLE>
- --------
(a) To eliminate interest expense incurred on the Prior Term Loan.
(b) To record interest expense attributable to the Notes (principal $80.0
million, stated rate 13.75%), the Broadcasting Notes (principal $241.0
million, stated rate 11.75%) and the Newspapers Notes (principal $155.0
million, stated rate 11.875%), record six months of amortization of the
aggregate new debt issuance costs of $18.0 million and record six months
of amortization of bond discount on the Notes and the Broadcasting Notes
(overall effective rate of approximately 13.6%). Does not reflect the
incurrence of fees and expenses of $2.1 million relating to the Senior
Credit Facility.
(c) Pro forma income tax benefit has been computed at the marginal rate of
57.2% times the pro forma interest adjustment, as further adjusted for
disallowed interest. See "Certain Federal Income Tax Consequences--Tax
Treatment of the Notes--Original Issue Discount--Applicable High Yield
Discount Obligations."
39
<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 Broadcasting 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 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.
40
<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 the Company.
(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 Broadcasting 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 Broadcasting 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.
41
<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 Broadcasting 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 Broadcasting 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.
42
<PAGE>
PARK NEWSPAPERS, 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................... $ 4,210 $ 4,210 $ 710 $ 149,400 (a) $ 710
(175,595)(b)
26,195 (c)
Other current assets... 8,237 8,237 9,564 9,564
-------- -------- -------- --------- --------
Total current assets... 12,447 12,447 10,274 10,274
Property, plant and
equipment, net.......... 25,395 25,395 26,231 26,231
Intangible assets, net.. 180,442 180,442 183,029 183,029
Other assets............ 5,699 5,699 204 5,600 (a) 5,524
(280)(b)
-------- -------- -------- --------- --------
Total assets........... $223,983 $223,983 $219,738 $ 5,320 $225,058
======== ======== ======== ========= ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Total current
liabilities............. $ 8,976 $ 8,976 $ 13,684 $ (7,642)(b) $ 6,042
Long-term debt-term
loan.................... -- -- 168,065 (168,065)(b) --
Long-term debt-other.... 120 120 240 240
Long-term debt-new
debt.................... 155,000 155,000 -- 155,000 (a) 155,000
Consulting/non-compete
contracts............... 2,403 2,403 2,778 2,778
Deferred income taxes... 39,807 39,807 41,972 41,972
-------- -------- -------- --------- --------
Total liabilities...... 206,306 206,306 226,739 (20,707) 206,032
-------- -------- -------- --------- --------
Stockholder's equity:
Common stock........... 4,150 4,150 4,150 4,150
Paid in capital........ 21,184 21,184 (4,150) 22,840 (c) 18,690
Intercompany
receivables from
parent................ -- -- (3,355) 3,355 (c) --
Retained earnings
(deficit)............. (7,657) (7,657) (3,646) (168)(b) (3,814)
-------- -------- -------- --------- --------
Total stockholder's
equity (deficit)...... 17,677 17,677 (7,001) 26,027 19,026
-------- -------- -------- --------- --------
Total liabilities and
stockholder's equity.. $223,983 $223,983 $219,738 $ 5,320 $225,058
======== ======== ======== ========= ========
</TABLE>
- --------
(a) Reflects the issuance of the Newspapers Notes and the incurrence of
related fees and expenses of $5.6 million.
(b) Reflects the payoff of the Prior Term Loan, accrued interest and write-off
of related debt issue costs.
(c) Reflects the payment of the intercompany receivable and a capital
contribution from Park Communications funded substantially with the
proceeds of the sale of Units.
43
<PAGE>
PARK NEWSPAPERS, 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>
Newspaper revenue....... $ 51,723 $27,181 $ 78,904 $ 78,904
-------- ------- -------- --------
Operating expenses:
Cost of sales.......... 20,783 13,027 33,810 33,810
Selling, general and
administrative........ 15,107 6,762 21,869 21,869
Depreciation........... 1,621 833 $ 83 (a) 2,537 2,537
Amortization........... 2,356 524 808 (a) 3,688 3,688
Amortization of excess
cost................... 1,241 664 37 (a) 1,942 1,942
-------- ------- ------- -------- --------
41,108 21,810 928 63,846 63,846
-------- ------- ------- -------- --------
Operating income........ 10,615 5,371 (928) 15,058 15,058
Interest expense........ (15,851) (23) (8,936)(b) (24,810) $ 24,723 (e) (19,144)
(19,057)(f)
Interest income......... 186 3 102 (c) 291 291
Other expense........... (26) (485) (511) (511)
-------- ------- ------- -------- -------- --------
(Loss) income from
continuing operations
before income taxes.... (5,076) 4,866 (9,762) (9,972) 5,666 (4,306)
Provision (benefit) for
income taxes........... (1,430) 2,222 (3,584)(d) (2,792) 1,846 (g) (946)
-------- ------- ------- -------- -------- --------
(Loss) income from
continuing operations.. $ (3,646) $ 2,644 $(6,178) $ (7,180) $ 3,820 $ (3,360)
-------- ------- ------- -------- -------- --------
Loss per share.......... $(162.63) $ (76.10)
======== ========
Average shares.......... 44,150 44,150
======== ========
</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) Pro forma income tax benefit has been computed at an overall effective rate
of 28.0%. This rate gives effect to non-deductible goodwill.
(e) To eliminate interest expense incurred on the Prior Term Loan.
(f) To record interest expense attributable to the Newspapers Notes: principal
$155.0 million, stated rate 11.875%, and record one year of amortization of
new debt issuance costs of $5.6 million (overall effective rate of
approximately 12.8%).
(g) Pro forma income tax benefit has been computed at the marginal rate of
32.6% times the pro forma interest adjustment.
44
<PAGE>
PARK NEWSPAPERS, 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>
Newspaper revenue........................ $38,804 $38,804
------- -------
Operating expenses:
Cost of sales........................... 19,205 19,205
Selling, general and administrative..... 10,714 10,714
Depreciation............................ 1,584 1,584
Amortization............................ 1,807 1,807
Amortization of excess cost............. 989 989
------- -------
34,299 34,299
------- -------
Operating income......................... 4,505 4,505
Interest expense......................... (10,850) $10,806 (a) (9,573)
(9,529)(b)
Interest income.......................... 127 127
Other expense............................ (24) (24)
------- ------- -------
(Loss) income from continuing operations
before income taxes..................... (6,242) 1,277 (4,965)
Provision (benefit) for income taxes..... (2,231) 416 (c) (1,815)
------- ------- -------
(Loss) income from continuing
operations.............................. $(4,011) $ 861 $(3,150)
======= ======= =======
Loss per share........................... $(90.85) $(71.35)
======= =======
Average shares........................... 44,150 44,150
======= =======
</TABLE>
- --------
(a) To eliminate interest expense incurred on the Prior Term Loan.
(b) To record interest expense attributable to the Newspapers Notes: principal
$155.0 million, stated rate 11.875%, and record six months of amortization
of new debt issuance costs of $5.6 million (overall effective rate of
approximately 12.8%).
(c) Pro forma income tax benefit has been computed at the marginal rate of
31.4% times the pro forma interest adjustment.
45
<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 Park Communications, Park
Broadcasting and Park Newspapers as of and for the years ended December 31,
1995, 1994, 1993, 1992 and 1991 (except in the case of the data for the years
ended December 31, 1992 and 1991 for Park Broadcasting and Park Newspapers,
which have been derived from unaudited financial statements for those
entities). The selected consolidated financial data as of June 30, 1996 and
for the six months ended June 30, 1996 presented below have been derived from
unaudited financial statements of Park Communications, Park Broadcasting and
Park Newspapers. The data presented below should be read in conjunction with
the Consolidated Financial Statements of Park Communications, Inc. and
Subsidiaries, Park Broadcasting, Inc. and Subsidiaries and Park Newspapers,
Inc. and Subsidiaries, including the respective 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
PARK COMMUNICATIONS, INC. ------------- ------------ ----------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue (c).......... $ 71,287 $144,312 $144,312 $142,431 $137,344 $129,800 $121,172
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Cost of sales (exclusive
of depreciation and
amortization).......... 30,258 53,593 53,593 50,380 55,518 53,208 52,895
Selling, general and
administrative (d)..... 20,416 36,069 36,069 37,051 39,561 37,752 35,717
Depreciation and
amortization........... 12,134 24,036 24,036 11,037 11,088 10,607 10,214
-------- -------- -------- -------- -------- -------- --------
Total operating expenses
(c)..................... 62,808 113,698 113,698 98,468 106,167 101,567 98,826
-------- -------- -------- -------- -------- -------- --------
Operating income......... 8,479 30,614 30,614 43,963 31,177 28,233 22,346
Interest expense......... (31,778) (60,962) (65,689) (279) (233) (337) (542)
Interest income.......... 547 1,355 1,355 5,561 4,952 5,515 6,270
Other.................... (216) (280) (280) (2,352) (431) (455) (464)
-------- -------- -------- -------- -------- -------- --------
Income/(loss) from
continuing operations
before income tax....... (22,968) (29,273) (34,000) 46,893 35,465 32,956 27,610
Provision/(benefit) for
income tax.............. (8,180) (8,174) (10,880) 19,519 14,849 13,593 14,218
-------- -------- -------- -------- -------- -------- --------
Income/(loss) from
continuing operations... $(14,788) $(21,099) $(23,120) $ 27,374 $ 20,616 $ 19,363 $ 13,392
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to
fixed charges (e)....... -- -- -- 121.2x 98.4x 72.5x 42.6x
Deficiency of earnings to
fixed charges (e)....... $(22,968) $(29,273) $(34,000) -- -- -- --
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets............. $689,498 $667,766 $782,782 $366,786 $342,621 $324,837 $305,891
Total long-term debt,
excluding current
maturities.............. 467,914 468,173(f) 581,605(f) 49,248 54,367 54,028 54,660
Stockholder's equity
(deficit)............... 17,268 36,319 (17,428) 285,730 253,606 234,682 217,458
OTHER FINANCIAL DATA AND
RATIOS:
Capital
expenditures (g)........ 6,853 4,880 4,880 6,661 4,409 5,545 3,556
</TABLE>
(footnotes begin on next page)
46
<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
of Park Communications, Inc. and Subsidiaries.
(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. The Warrants have been
valued at approximately $2.8 million. Such amounts ascribed to the
Warrants serve to reduce long-term debt and increase additional paid in
capital. The amounts of debt discount resulting from such ascribed amounts
will be amortized to interest expense over the life of the debt using the
effective yield method.
(c) On December 31, 1993, the Company sold 33 newspaper publications located
in 13 of its smaller markets. The impact of the sale of these publications
was not material to net income in 1993. The results of operations of the
33 newspaper publications are included in the 1993, 1992 and 1991
operating results as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Net revenue....................................... $10,385 $10,812 $11,132
Operating expenses................................ 10,551 10,707 11,304
Operating income (loss) before depreciation and
amortization..................................... (166) 105 (172)
</TABLE>
(d) Includes Central Corporate Overhead allocated as follows:
<TABLE>
<CAPTION>
SIX
MONTHS
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Park Broadcasting................ $ 926 $1,142 $1,287 $1,280 $ 1,296 $1,151
Park Newspapers.................. 1,322 2,217 1,988 2,102 2,280 2,191
------ ------ ------ ------ ------- ------
Total Central Corporate Overhead. $2,248 $3,359 $3,275 $3,382 $ 3,576 $3,342
====== ====== ====== ====== ======= ======
</TABLE>
(e) 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.
(f) 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.
(g) Capital expenditures do not include the purchase of the assets of two
television stations, WTVQ in 1992 and KALB in 1993. The amounts for such
asset purchases were $6,135 in 1992 and $8,804 in 1993. In addition,
capital expenditures in 1994 do not include certain operating equipment
and facilities purchased from RHP Incorporated for $4,175, which it had
been leasing. Also not included are capital expenditures resulting from
trade agreements and capital expenditures of the discontinued radio
station operations.
47
<PAGE>
<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
PARK BROADCASTING, INC. ------------- ------------ ----------- -------- -------- -------- -------
(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)
48
<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
of Park Broadcasting, Inc. and Subsidiaries.
(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 Park Broadcasting 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 Park Broadcasting to satisfy
future allocations of Central Corporate Overhead will be subject to certain
limitations and restrictions under the indenture governing the Broadcasting
Notes.
(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.
49
<PAGE>
<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
PARK NEWSPAPERS, INC. ------------- ------------ ----------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue (c)............. $ 38,804 $ 78,904 $ 78,904 $76,810 $84,751 $ 82,584 $ 82,200
-------- -------- -------- ------- ------- -------- --------
Operating expenses:
Cost of sales
(exclusive of
depreciation and
amortization)......... 19,205 33,810 33,810 32,364 39,221 37,628 39,444
Selling, general and
administrative (d).... 10,714 21,869 21,869 22,216 27,155 25,892 25,784
Depreciation and
amortization.......... 4,380 8,167 8,167 5,816 6,895 7,247 7,614
-------- -------- -------- ------- ------- -------- --------
Total operating expenses
(c).................... 34,299 63,846 63,846 60,396 73,271 70,767 72,842
-------- -------- -------- ------- ------- -------- --------
Operating income........ 4,505 15,058 15,058 16,414 11,480 11,817 9,358
Interest expense........ (10,850) (19,144) (24,810) (76) (177) (279) (512)
Interest income......... 127 291 291 11 45 42 29
Other................... (24) (511) (511) (832) (204) (380) (304)
-------- -------- -------- ------- ------- -------- --------
Income/(loss) before
income tax............. (6,242) (4,306) (9,972) 15,517 11,144 11,200 8,571
Provision/(benefit) for
income tax............. (2,231) (946) (2,792) 7,007 5,335 5,370 4,499
-------- -------- -------- ------- ------- -------- --------
Net income/(loss) (c)... $ (4,011) $ (3,360) $ (7,180) $ 8,510 $ 5,809 $ 5,830 $ 4,072
======== ======== ======== ======= ======= ======== ========
Ratio of earnings to
fixed charges (e)...... -- -- -- 164.3x 56.2x 37.8x 16.9x
Deficiency of earnings
to fixed charges (e)... $ (6,242) $ (4,306) $ (9,972) -- -- -- --
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets............ $223,983 $225,058 $219,738 $93,060 $98,075 $115,225 $110,705
Total long-term debt,
excluding current
maturities............. 155,120 155,240 168,305 360 746 1,912 2,792
OTHER FINANCIAL DATA
AND RATIOS:
Capital
expenditures (f)....... 780 2,122 2,122 2,858 1,512 2,252 1,084
</TABLE>
(footnotes begin on next page)
50
<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
of Park Newspapers, Inc. and Subsidiaries.
(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) On December 31, 1993, the Company sold 33 newspaper publications located
in 13 of its smaller markets. The impact of the sale of these publications
was not material to net income in 1993. The results of operations of the
33 newspaper publications are included in the 1993, 1992 and 1991
operating results as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Revenue......................................... $10,385 $10,812 $11,132
Operating expenses.............................. 10,551 10,707 11,304
Operating income (loss) before depreciation and
amortization................................... (166) 105 (172)
</TABLE>
(d) Includes an allocation of Central Corporate Overhead from Park
Communications to Park Newspapers as follows:
<TABLE>
<CAPTION>
SIX
MONTHS
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Allocated Central Corporate
Overhead....................... $1,322 $2,217 $1,988 $2,102 $2,280 $ 2,191
</TABLE>
Cash payments to Park Communications from Park Newspapers to satisfy future
allocations of Central Corporate Overhead will be subject to certain
limitations and restrictions under the indenture governing the Newspapers
Notes.
(e) 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)
before income taxes and fixed charges.
(f) Capital expenditures do not include the purchase in 1994 for $600 of
certain operating equipment and facilities from RHP Incorporated, which
the Company had been leasing.
51
<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 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, (v) the sale of 33 publications in December 1993 for $6.3 million
and (vi) 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 the Company 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 the Company. 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 income
was reduced and interest expense and depreciation and amortization expense
increased substantially. See "Unaudited Pro Forma Condensed Consolidated
Financial Statements."
Mr. Park had operated the businesses with a primary focus on improving cash
flow from operations by managing costs rather than on increasing revenue. The
Company's management believes the television stations and newspaper
publications, 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) hired new senior
management for Park Newspapers, (ii) is substantially upgrading its sales
force at both Park Broadcasting and Park Newspapers, (iii) invested in
information systems to better equip its sales force and (iv) 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 Park Broadcasting 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 Park Broadcasting
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 Park Broadcasting during the
first four years of the ten-year terms of such agreements. In accordance with
generally accepted accounting principles ("GAAP"), the Company is accounting
for payments received from the networks on a straight-line basis. As a result,
in 1995,
52
<PAGE>
the cash received from the networks pursuant to the affiliation agreements
exceeded the revenue recognized in the results of operations pursuant to GAAP
by approximately $4.5 million. Cash payments to be received from the networks
will also exceed 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, Park Broadcasting
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 Senior Credit Facility and to pay taxes
resulting from the sale of the radio station operations. The Senior Credit
Facility was repaid in full on June 20, 1996. The Company 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 December 1993, the Company sold 33 publications for gross proceeds of
$6.3 million. The 33 publications contributed $10.4 million to revenue for the
year ended December 31, 1993. 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 divestiture and the
acquisition may be difficult.
OVERVIEW OF OPERATIONS
The Company is a holding company that owns 100% of the common stock of its
two subsidiaries, Park Broadcasting and Park Newspapers. Park Broadcasting
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. Park Newspapers owns and operates 104 community newspapers and related
publications.
Park Communications. Park Communications incurs certain expenses associated
with providing management supervisory functions, internal auditing,
consolidated financial statement and tax preparation, centralized cash
management services, benefits administration and other corporate services to
Park Broadcasting and Park Newspapers. Historically, Park Broadcasting and
Park Newspapers have made payments to Park Communications for their respective
allocation of the costs associated with providing such services. Park
Broadcasting and Park Newspapers intend 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
indentures governing the Broadcasting Notes and the Newspapers Notes.
Park Broadcasting. The net revenue of Park Broadcasting 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
53
<PAGE>
stations are employee compensation, programming, news gathering, production,
promotion and the solicitation of advertising.
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 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 Park Broadcasting's advertising revenue. Over 52%
of Park Broadcasting's revenue is generated from local and regional
advertising, which is sold primarily by Park Broadcasting 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, Park Broadcasting
generally pays commissions to advertising agencies for local, regional and
national advertising for placing the advertising with its stations.
Park Newspapers. The revenue of Park Newspapers is derived primarily from
advertising revenue and, to a lesser extent, from paid circulation and
commercial print jobs. The primary operating expenses involved in owning and
operating newspaper publications are employee compensation, newsprint,
circulation delivery costs, news gathering and the solicitation of
advertising.
Newspaper advertising rates and rate structures are generally based on
circulation and type of advertising, such as classified or display and
national or retail. Substantially all of Park Newspapers' total publication
advertising revenue is derived from local retailers and classified
advertisers. Advertisements in community newspapers such as Park Newspapers'
publications are generally less expensive to advertisers than larger, non-
local publications or electronic media. Local and regional advertising is sold
by regional sales representatives who receive a commission.
Circulation revenue is primarily derived from home delivery sales of paid
daily and non-daily newspapers to subscribers and through single-copy sales
made through retailers and vending racks. Over 80% of Park Newspapers'
circulation revenue is derived from subscription sales.
The Company's newsprint costs are approximately 10.4% of revenue, which the
Company believes compares favorably to other community newspaper groups. The
Company believes that its group purchasing of newsprint and attention to
efficiency and waste control are responsible for this favorable comparison.
Seasonality/Cyclicality of the Business. 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.
54
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
items and percentage relationships:
<TABLE>
<CAPTION>
SIX MONTHS 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>
PARK COMMUNICATIONS
Revenue:
Broadcasting......................... $38,074 49.5% $38,045 49.7% $ 76,769 49.3% $ 77,749 50.3% $ 62,460 42.4%
Newspapers........................... 38,804 50.5 38,490 50.3 78,904 50.7 76,810 49.7 84,751 57.6
Less: Agency and national
representative commissions.......... (5,591) (5,708) (11,361) (12,128) (9,867)
------- ------- -------- -------- --------
Net revenue.......................... $71,287 100.0% $70,827 100.0% $144,312 100.0% $142,431 100.0% $137,344 100.0%
======= ======= ======== ======== ========
Operating income:
Broadcasting......................... $ 4,598 54.2% $ 7,546 51.8% $ 15,187 49.6% $ 27,583 62.7% $ 19,728 63.3%
Newspapers........................... 4,505 53.1 6,832 46.9 15,058 49.2 16,414 37.3 11,480 36.7
Other................................ (624) (7.4) 179 1.2 369 1.2 (34) -- (31) --
------- ------- -------- -------- --------
Total................................ $ 8,479 100.0% $14,557 100.0% $ 30,614 100.0% $ 43,963 100.0% $ 31,177 100.0%
======= ======= ======== ======== ========
PARK BROADCASTING
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 0.9 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%
======= ======= ======== ======== ========
PARK NEWSPAPERS
Revenue:
Local................................ $12,200 31.4% $12,162 31.6% $ 25,394 32.2% $ 24,890 32.4% $ 26,846 31.7%
Circulation.......................... 9,336 24.1 9,207 23.9 18,726 23.7 17,281 22.5 19,373 22.9
Classified........................... 6,335 16.3 6,229 16.2 12,455 15.8 11,978 15.6 11,832 14.0
Preprint............................. 2,619 6.7 2,772 7.2 5,838 7.4 5,743 7.5 5,817 6.9
National............................. 253 0.7 235 0.6 523 0.7 575 0.7 799 0.9
Political............................ 154 0.4 60 0.2 215 0.3 577 0.8 222 0.3
Other (includes nondailies and
shoppers)........................... 7,907 20.4 7,825 20.3 15,753 19.9 15,766 20.5 19,862 23.3
------- ------- -------- -------- --------
Total................................ 38,804 100.0% 38,490 100.0% 78,904 100.0% 76,810 100.0% 84,751 100.0%
------- ------- -------- -------- --------
Operating expenses:
Costs of sales....................... 19,205 49.5% 19,348 50.3% 33,810 42.8% 32,364 42.1% 39,221 46.3%
Selling, general and administrative.. 10,714 27.6 8,228 21.4 21,869 27.7 22,216 28.9 27,155 32.0
Depreciation and amortization........ 4,380 11.3 4,082 10.6 8,167 10.4 5,816 7.6 6,895 8.1
------- ------- -------- -------- --------
Total................................ 34,299 31,658 63,846 60,396 73,271
------- ------- -------- -------- --------
Operating income..................... $ 4,505 11.6% $ 6,832 17.8% $ 15,058 19.1% $ 16,414 21.4% $ 11,480 13.6%
======= ======= ======== ======== ========
</TABLE>
55
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) COMPARED WITH SIX MONTHS ENDED JUNE
30, 1995 (PRO FORMA UNAUDITED)
REVENUE
Broadcasting. 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.
Newspapers. Gross revenue for the six months ended June 30, 1996 was $38.8
million compared to $38.5 million for the six months ended June 30, 1995, an
increase of $0.3 million, or 0.8%. Revenue for the first six months of 1996
increased primarily due to increased advertising revenue. However, 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
Broadcasting. 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 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.
Newspapers. Operating expenses (excluding depreciation and amortization) for
the six months ended June 30, 1996 were $29.9 million compared to $27.6
million for the six months ended June 30, 1995, an increase of $2.3 million,
or 8.3%. The dollar increase was primarily due to increased newsprint costs
and increased costs related to upgrading the sales staff compensation plans.
Newsprint expenses for the six months ended June 30, 1996 were $4.8 million
compared to $3.7 million for the six months ended June 30, 1995, an increase
of $1.1 million or 29.7%. The increase was primarily a result of industry-wide
higher newsprint prices. Newsprint prices have decreased significantly in July
1996.
Depreciation and amortization for the six months ended June 30, 1996 was
$4.4 million compared to $4.1 million for the six months ended June 30, 1995,
an increase of $0.3 million, or 7.3%. As a percentage of newspaper revenue,
depreciation and amortization was 11.3% for the six months ended June 30, 1996
compared to 10.6% for the six months ended June 30, 1995.
OPERATING INCOME
Broadcasting. 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.
56
<PAGE>
Newspapers. Operating income for the six months ended June 30, 1996 was $4.5
million compared to $6.8 million for the six months ended June 30, 1995, a
decrease of $2.3 million, or 33.8%. The decrease was a result of expenses
increasing more than operating revenue as described above. Operating income
includes $1.3 million and $1.0 million of allocated Central Corporate Overhead
for the six months ended June 30, 1996 and June 30, 1995, respectively.
INTEREST EXPENSE
Broadcasting. 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.
Newspapers. Interest expense for the six months ended June 30, 1996 was
$10.9 million compared to $11.5 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
Broadcasting. 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%.
Newspapers. Income taxes (benefit) for the six months ended June 30, 1996
were ($2.2) million compared to ($1.5) million for the six months ended June
30, 1995, an increase in the benefit of $0.7 million. The increase in the
benefit was due to the increase in the taxable loss primarily the result of
the decrease in operating income. The effective tax benefit rate for the six
months ended June 30, 1996 was 35%, compared to an effective tax benefit rate
of 31% for the six months ended June 30, 1995. The change in the effective
rate is due to amortization of nondeductible goodwill being a larger component
of the loss before income taxes in the six month period ended June 30, 1995
than in the same period in 1996.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Broadcasting. 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.
Newspapers. Income (loss) from continuing operations for the six months
ended June 30, 1996 was ($4.0) million compared to ($3.3) million for the six
months ended June 30, 1995, an increase in the loss of $0.7 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."
57
<PAGE>
YEAR ENDED DECEMBER 31, 1995 (PRO FORMA UNAUDITED) COMPARED WITH YEAR ENDED
DECEMBER 31, 1994
REVENUE
Broadcasting. 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 Park Broadcasting 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.
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%.
Newspapers. Gross revenue for the year ended December 31, 1995 was $78.9
million compared to $76.8 million for the year ended December 31, 1994, an
increase of $2.1 million, or 2.7%. The increase was primarily due to an
increase in circulation revenue of $1.4 million resulting from price
increases, partially offset by a reduction in political advertising revenue of
$0.4 million.
Local advertising revenue for the year ended December 31, 1995 was $25.4
million compared to $24.9 million for the year ended December 31, 1994, an
increase of $0.5 million, or 2.0%.
Classified revenue for the year ended December 31, 1995 was $12.5 million
compared to $12.0 million for the year ended December 31, 1994, an increase of
$0.5 million, or 4.1%. The increase was the result of several initiatives by
the Company to increase classified revenue.
OPERATING EXPENSES
Broadcasting. 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.
Newspapers. Operating expenses (excluding depreciation and amortization) for
the year ended December 31, 1995 were $55.7 million compared to $54.6 million
for the year ended December 31, 1994, an increase of $1.1 million, or 2.0%. As
a percentage of newspaper revenue, operating expenses (excluding depreciation
and amortization) were 70.5% in 1995 compared to 71.0% in 1994. The dollar
increase was primarily due to increased newsprint costs, partially offset by
reductions in other operating expenses of $0.8 million which were primarily
due to a decrease in consulting/non-compete expense, since no value was
assigned to these contracts after the Acquisition, and the effect of the
consolidation of five production facilities.
58
<PAGE>
Newsprint expenses for the year ended December 31, 1995 were $8.2 million
compared to $6.3 million for the year ended December 31, 1994, an increase of
$1.9 million or 29.4%. As a percentage of newspaper revenue, newsprint
expenses were 10.4% in 1995 compared to 8.3% in 1994. The increase was
primarily a result of industry-wide higher newsprint prices.
Depreciation and amortization for the year ended December 31, 1995 was $8.2
million compared to $5.8 million for the year ended December 31, 1994, an
increase of $2.4 million, or 41.4%. As a percentage of newspaper revenue,
depreciation and amortization was 10.4% in 1995 compared to 7.6% in 1994. The
increase was primarily due to the write-up of assets as a result of the
Acquisition.
OPERATING INCOME
Broadcasting. 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 Park Broadcasting's affiliation
agreements, but not recognized as revenue.
Newspapers. Operating income for the year ended December 31, 1995 was $15.1
million compared to $16.4 million for the year ended December 31, 1994, a
decrease of $1.3 million, or 7.9%. As a percentage of newspaper revenue,
operating income was 19.1% in 1995 compared to 21.4% in 1994. The decrease was
a result of operating expenses increasing more than revenue as described
above. Operating income includes $2.2 million and $2.0 million of allocated
Central Corporate Overhead for 1995 and 1994, respectively.
INTEREST EXPENSE
Broadcasting. 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.
Newspapers. Interest expense for the year ended December 31, 1995 was $24.8
million compared to $0.1 million for the year ended December 31, 1994, an
increase of $24.7 million. The increase was primarily due to the increase in
total debt as a result of the financing for the Acquisition.
INCOME TAXES
Broadcasting. 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.
Newspapers. Income taxes for the year ended December 31, 1995 was ($2.8)
million compared to $7.0 million for the year ended December 31, 1994, a
decrease of $9.8 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 28%, compared to an effective tax expense
rate of 45% in 1994. The change in the effective rate is due to the increase
in the amortization of nondeductible goodwill resulting from purchase
accounting adjustments.
59
<PAGE>
INCOME (LOSS) FROM CONTINUING OPERATIONS
Broadcasting. 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.
Newspapers. Income (loss) from continuing operations for the year ended
December 31, 1995 was ($7.2) million compared to $8.5 million for the year
ended December 31, 1994, a decrease of $15.7 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
Broadcasting. 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 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.
Newspapers. Gross revenue for the year ended December 31, 1994 was $76.8
million compared to $84.8 million for the year ended December 31, 1993, a
decrease of $8.0 million, or 9.4%. The decrease was primarily due to the sale
of 33 publications in December 1993 which was responsible for $10.4 million in
decreased revenue, partially offset by an increase in political advertising
revenue of $0.4 million.
Local advertising revenue for the year ended December 31, 1994 was $24.9
million compared to $26.8 million for the year ended December 31, 1993, a
decrease of $1.9 million, or 7.1%, primarily because of the sale of 33
publications in December 1993.
Classified revenue for the year ended December 31, 1994 was $12.0 million
compared to $11.8 million for the year ended December 31, 1993, an increase of
$0.2 million, or 1.7%.
60
<PAGE>
OPERATING EXPENSES
Broadcasting. 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.
Newspapers. Operating expenses (excluding depreciation and amortization) for
the year ended December 31, 1994 were $54.6 million compared to $66.4 million
for the year ended December 31, 1993, a decrease of $11.8 million, or 17.8%.
As a percentage of newspaper revenue, operating expenses (excluding
depreciation and amortization) were 71.0% in 1994 compared to 78.3% in 1993.
Of the decrease, $10.6 million resulted from the sale of 33 publications. The
remainder was principally a result of the effectiveness of the Company's cost
control programs and decreases in newsprint expense of $0.3 million and in
insurance expense of $0.3 million.
Newsprint expenses for the year ended December 31, 1994 were $6.3 million
compared to $7.6 million for the year ended December 31, 1993, a decrease of
$1.3 million, or 17.1%. As a percentage of newspaper revenue, newsprint
expenses were 8.3% in 1994 compared to 9.0% in 1993. The decrease was
primarily due to the sale of 33 publications in December 1993.
Depreciation and amortization for the year ended December 31, 1994 was $5.8
million compared to $6.9 million for the year ended December 31, 1993, a
decrease of $1.1 million, or 15.9%. As a percentage of newspaper revenue,
depreciation and amortization was 7.6% in 1994 compared to 8.1% in 1993, a
decrease caused, in part, by the sale of 33 publications in December 1993.
OPERATING INCOME
Broadcasting. 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.
Newspapers. Operating income for the year ended December 31, 1994 was $16.4
million compared to $11.5 million for the year ended December 31, 1993, an
increase of $4.9 million, or 42.6%. As a percentage of newspaper revenue,
operating income was 21.4% in 1994 compared to 13.6% in 1993. The increase was
a result of operating expenses decreasing more than revenue as described
above. Operating income includes $2.0 million and $2.1 million of allocated
Central Corporate Overhead for 1994 and 1993, respectively.
INTEREST EXPENSE
Broadcasting. 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.
Newspapers. Interest expense for the year ended December 31, 1994 was $0.1
million compared to $0.2 million for the year ended December 31, 1993.
61
<PAGE>
INCOME TAXES
Broadcasting. 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%.
Newspapers. Income taxes for the year ended December 31, 1994 were $7.0
million compared to $5.3 million for the year ended December 31, 1993, an
increase of $1.7 million, or 32.1%.
INCOME FROM CONTINUING OPERATIONS
Broadcasting. 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%.
Newspapers. Income from continuing operations for the year ended December
31, 1994 was $8.5 million compared to $5.8 million for the year ended December
31, 1993, an increase of $2.7 million, or 46.6%.
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 is a holding company and therefore 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 of Park Broadcasting 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 Park
Broadcasting's cash from operating activities. Net cash provided by operating
activities of Park Newspapers decreased from $9.8 million for the year ended
December 31, 1994 to $9.3 million for the year ended December 31, 1995. The
Company believes 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 is approximately $57.7 million.
Capital expenditures of Park Broadcasting 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 for Park Broadcasting 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. Capital
expenditures of Park Newspapers decreased from $3.5 million for the year ended
December 31, 1994 to $2.1 million for the year ended December 31, 1995.
Capital expenditures in 1994 included the purchase of color printing equipment
totaling $1.7 million and the purchase of property from RHP Incorporated for
$0.6 million. Capital expenditures for Park Newspapers in 1996 are expected to
be approximately $1.5 million, including $1.0 million principally for capital
replacement purposes and $0.5 million for consolidation of the Concord and
Kannapolis, North Carolina facilities. 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.
62
<PAGE>
On May 13, 1996, the Company sold the Series A Notes as part of the Units
consisting of the Series A Notes and the Warrants. The sale of Units was one
of the Refinancing Transactions, the purpose of which was to refinance the
Company's indebtedness under the Prior Credit Agreement. The Refinancing
Transactions consisted of (i) the sale of the Units, (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 $241.0 million in
principal amount of 11 3/4% Senior Notes due 2004 of Park Broadcasting, (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. The terms of the
Broadcasting Notes and the Newspapers Notes impose upon Park Broadcasting and
Park Newspapers certain covenants that restrict the amount of cash that can be
dividended to the Company and limit, among other things, the respective
subsidiaries' ability to incur additional indebtedness and redeploy the
proceeds from the sale of assets. See "Description of Certain Indebtedness"
and "Risk Factors--Substantial Leverage."
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 Company and its
consolidated 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 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 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.
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<PAGE>
BUSINESS
The Company is a holding company which through its subsidiaries owns and
operates nine network affiliated television stations and 104 newspapers and
related publications in geographically diverse markets throughout the United
States. 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 104 newspaper publications include 28 daily newspapers, 26 non-daily
newspapers and 50 "total market coverage" publications. The Company's
newspaper publications serve readers in 43 counties in 12 states and range in
circulation from approximately 4,000 to 17,000, with a combined average paid
daily circulation of approximately 242,000. For the year ended December 31,
1995, the Company had net revenue of $144.3 million.
The Company 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 cash flow from operations by
managing costs rather than increasing revenue. PAI, which is effectively
controlled by Gary B. Knapp and Donald R. Tomlin, Jr., acquired the Company 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 media properties, both television and newspaper, generally have
captured a smaller relative share of advertising dollars in their respective
markets than their share of viewing audiences or relative positions 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 the Company and at
each of the two operating subsidiaries have substantial experience in the
television and newspaper industries. Each of the Company's executive officers
brings between 18 and 34 years of experience in their respective industries.
PARK BROADCASTING
Park Broadcasting owns and operates nine network affiliated television
stations primarily located in mid-sized southeastern markets. The 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 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
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, Park Broadcasting had revenue of $65.4
million.
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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.
BUSINESS AND OPERATING STRATEGY
Park Broadcasting'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 Park Broadcasting'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:
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<PAGE>
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. Park Broadcasting'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,
Park Broadcasting's sales professionals are beginning to work closely with
targeted advertisers to develop successful advertising campaigns. Park
Broadcasting has also recently equipped its sales force with laptop
computers capable of linking with Park Broadcasting'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 Park Broadcasting'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. Park
Broadcasting 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. Park
Broadcasting 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 designed to position Park
Broadcasting'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. Park Broadcasting 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), Park Broadcasting 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. Park Broadcasting 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, Park Broadcasting 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 Park Broadcasting'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. Park Broadcasting
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, Park Broadcasting is able to purchase syndicated
programming at a discount (on a per
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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. Park Broadcasting 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, Park Broadcasting
continually seeks to identify areas to reduce expenses and improve
efficiencies. Park Broadcasting 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 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 Park Broadcasting'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.
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<PAGE>
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 Park Broadcasting'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 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.
Park Broadcasting'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 Park Broadcasting'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 Park Broadcasting'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 Park Broadcasting. The stations' national sales
coordinators actively assist their national sales representatives to induce
national advertisers to increase their national spot expenditures designated
to Park Broadcasting's markets.
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<PAGE>
For a discussion of additional factors which affect the television
broadcasting industry, see "Competition--Television Broadcasting" and "Federal
Regulation of Television Broadcasting" below.
THE STATIONS
The following table sets forth general information for each of Park
Broadcasting'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 Park Broadcasting pursuant to the
Montgomery Acquisition. See "The Company--Park Broadcasting."
The following is a description of each of Park Broadcasting'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
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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 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 Park Broadcasting 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. Park
Broadcasting has begun to hire additional news staff and to upgrade the
information systems at WBMG. In addition, Park Broadcasting 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
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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 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 Park Broadcasting 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 Park Broadcasting 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
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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 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 Park Broadcasting 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 Park
Broadcasting'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.
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In 1992 and 1993, Park Broadcasting 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.
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 Park Broadcasting 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>
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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 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 Park Broadcasting 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
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approximately $37,000, and is projected by Sales & Marketing Management to
grow by an average of 4% annually by 1999.
Station Performance and Strategy. WNCT was Park Broadcasting'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. Park Broadcasting 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
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"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 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 Park Broadcasting 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.
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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>
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--TELEVISION BROADCASTING
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 Park Broadcasting'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 Park Broadcasting'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 Park Broadcasting's stations' success, and Park
Broadcasting 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
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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
Park Broadcasting'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.
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 Park
Broadcasting'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 Park Broadcasting's audience for
local news, as well as Park Broadcasting'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 Park Broadcasting's
operations.
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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, Park
Broadcasting'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.
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, Park Broadcasting's
stations also compete with such media outlets for advertising revenue. Park
Broadcasting'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. Park Broadcasting'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 Park Broadcasting'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 Park Broadcasting 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 Park Broadcasting's relationships with the networks to be
good, and the networks have routinely renewed their affiliation agreements
with Park Broadcasting'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 Park Broadcasting 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 Park Broadcasting 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.
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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 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 Park Broadcasting a
variety of sponsored and unsponsored programs which Park Broadcasting must
refuse before they can be offered to any other television station in the same
market. Each of Park Broadcasting'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, Park Broadcasting'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 Park Broadcasting'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
Park Broadcasting'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 exercise of the Warrants offered hereby could
require such approval, and there can be no assurance as to the Company's
ability to obtain such approval. 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
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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 Park Broadcasting'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 Park Broadcasting'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 Park Broadcasting's licenses
will be renewed, the Company is not aware of any facts or circumstances that
would prevent the renewal of the licenses for Park Broadcasting's 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 Broadcasting 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 Park Broadcasting's or Park Newspapers'
present ownership of broadcast stations and newspapers. At the time of PAI's
acquisition of the Company, PAI, the Company, Park Broadcasting 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 or Park Broadcasting 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 the Company,
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 the Company, it was not PAI's intention to sell the six
affected radio stations, but rather to seek a permanent waiver
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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 Park Broadcasting'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 which Park Broadcasting's stations are located, particularly
to the extent that Park Broadcasting'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.;
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(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 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 Park Broadcasting's stations,
result in the loss of audience share and advertising revenue for Park
Broadcasting's stations and affect the ability of the Company or Park
Broadcasting 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
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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 rulemaking proceedings or how
FCC changes in its multiple and cross-ownership rules, made in accordance with
the Telecom Act, will affect Park Broadcasting's 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 Park Broadcasting's 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 and Park Broadcasting'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
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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 Park Broadcasting's broadcast properties
include technological innovations and developments generally affecting
competition in the mass communications industry, such as the recent initiation
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 Park Broadcasting's 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 Park Broadcasting 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
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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
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, Park Broadcasting'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 Park
Broadcasting's 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
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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 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 Park Broadcasting.
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
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
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(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.
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 Park Broadcasting's 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 Park
Broadcasting's operations.
PARK NEWSPAPERS
Park Newspapers owns and operates 104 publications which include paid
circulation newspapers, both daily and non-daily, as well as controlled
distribution and other "total market coverage" publications ("shoppers"). Park
Newspapers' daily and non-daily newspapers generally combine news, sports and
features with a special emphasis on local information. The markets which the
publications serve, which Park Newspapers identifies using postal ZIP codes,
had a combined household count of approximately 545,000 and aggregate retail
sales of approximately $15.2 billion in 1995. Park Newspapers has enjoyed a
history of journalistic excellence and effective community relations. For the
year ended December 31, 1995, Park Newspapers had revenue of $78.9 million.
Park Newspapers' newspaper publications serve readers in 43 counties in 12
states. Demographics USA, 1994 has forecasted that 30 of the counties which
Park Newspapers serves (or approximately 70% of the total number of counties
it serves) will experience retail sales growth during the period from 1994
through 1999 equal to or in excess of the forecast national average of 30.6%
over this period; another 11 of these counties (or approximately 26% of the
total number of counties it serves) are projected to have retail sales growth
during this period of at least 80% of the national average, with most growing
at 90% or more of the national average; and
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only two of these counties (Columbia and Niagara Counties in New York) are
projected to be "slow-growth" counties.
Park Newspapers publishes 28 daily newspapers in 12 states which range in
circulation from approximately 4,000 to 17,000, with a combined average paid
daily circulation of approximately 242,000 as of March 1, 1996. Of Park
Newspapers' daily newspapers, 16 publish Sunday newspapers. Park Newspapers'
dailies have been in existence for an average of 111 years (with none in
existence for less than 46 years) and are the only paid dailies of general
circulation published in each of their respective cities or towns, which are
generally areas of small or medium populations. The Company believes that an
added benefit of operating in these types of communities is the workforce
stability which it has experienced.
Park Newspapers publishes 26 paid non-daily newspapers one or more times per
week in 12 states. The markets where Park Newspapers publishes non-dailies are
too small to support a daily newspaper. In most cases, such markets are close
to cities or towns where Park Newspapers publishes daily newspapers, and the
non-dailies are printed at Park Newspapers' daily newspaper facilities. In
five locations, several non-dailies share production facilities. Park
Newspapers' paid non-daily newspapers range in circulation from 1,300 to
18,000 and have a total weekly circulation of approximately 77,000.
The newspapers generally provide community news, commentary, sports and
local features and information, such as information about town meetings and
school and social activities. Park Newspapers' daily newspapers also use
Associated Press wire service materials which provide regional, national and
international news and information. Park Newspapers' long-term policy has been
to emphasize local news and to develop strong local news staffs. High levels
of local news content have been emphasized throughout Park Newspapers'
history. Park Newspapers' daily newspapers average 17 pages and are produced
by full-time staffs, including news reporting and editorial staffs, averaging
35 people. Park Newspapers' non-daily newspapers average 23 pages, have small
news reporting and editorial staffs and generally share production and
business staffs with one or more of Park Newspapers' other newspapers. Park
Newspapers believes that its newspapers benefit from good community relations
and strong reader and advertiser loyalty.
In addition to reaching the local population through paid daily and non-
daily community newspapers, Park Newspapers also prints 50 shoppers in 12
states which range in distribution from approximately 13,000 to 45,000.
Shoppers contain certain local and classified advertising with little
originally produced news or editorial comment. Park Newspapers currently
publishes shoppers only in the markets where it also publishes paid
circulation newspapers, and the shoppers are printed at Park Newspapers'
newspaper facilities. Shoppers typically are distributed to both subscribers
and non-subscribers of a Park Newspapers' paid circulation newspaper, allowing
Park Newspapers to cover a significant portion of a market with advertising
contained in its publications. Advertisements in shoppers are generally sold
in combination with parallel advertising in the paid circulation community
paper to afford advertisers the ability to reach the general market area.
Park Newspapers' strategy has been to acquire and operate newspapers having
a dominant position in stable, growing communities, each of which is the only
such publication in the community. In December 1993, Park Newspapers sold 33
of its smaller publications in 13 communities in nine states. The sale of
these publications was designed to allow Park Newspapers to focus its
resources on its larger publications. Park Newspapers may, from time to time,
make strategic targeted newspaper acquisitions, dispositions or tax-free
exchanges. Acquisitions may be made in circumstances in which management
believes that such acquisitions would contribute to Park Newspapers' overall
growth strategy, whether through revenue growth and/or cost-reduction
opportunities. Management's criteria for acquisitions include the ability to
cluster with existing publications, markets with good transportation systems,
specifically, interstate highway access, local institutions of higher
education, state and federal operations and a diverse economic base with no
one industry dominating the market.
BUSINESS AND OPERATING STRATEGY
Park Newspapers' operating strategy is to increase revenue and cash flow
from operations by capitalizing on the strong local brand recognition of its
newspapers. Management believes that its strong brand recognition
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combined with the Company's emphasis on producing a high quality product and
improving its sales and marketing efforts will enhance the value of Park
Newspapers' publications to its readers and advertisers and result in
increased circulation and cash flow from operations.
Prior to the Acquisition, Park Newspapers focused on improving cash flow
from operations through cost management rather than generation of incremental
revenue. Industry standards suggest that revenue performance of a community
newspaper equal to 0.70% to 1.25% of total retail sales in a defined market is
a reasonable target for share of market revenue. Park Newspapers ended 1995
with advertising revenue equal to a 0.52% of total retail sales in the
aggregate in the markets served by its publications. Attainment of 0.70% of
retail sales in its markets would have resulted in a significant increase in
Park Newspapers' 1995 revenue. The Company believes that through new sales and
marketing programs, continued quality editorial and news leadership, increased
circulation penetration, along with continued strict cost controls, it can
capitalize on the growing markets in which it operates and improve its share
of retail advertising dollars.
Park Newspapers' business and operating strategy includes the following key
elements:
Strengthen Sales and Marketing Development. Since the Acquisition, the
Company has instituted a sales force upgrade and implemented a motivation
program which includes performance-based compensation plans, daily sales
reports to monitor each account executive's development, and on-site
training programs. Park Newspapers has purchased a new
demographic/advertising research program to provide qualitative data to its
sales force to better identify sales opportunities. The Company has also
introduced advertising programs to generate revenue from sources new to
Park Newspapers, including category selling, targeted marketing, single
sheet and other free standing insert advertising, along with a top of mind
awareness (TOMA) program. TOMA is a program whereby an advertiser can
develop a cost effective long-term frequency-based advertising program
designed to get the advertiser's name and product or service out in the
market and create top of mind awareness of the advertiser's product or
service.
Enhance Quality of Editorial Content, Presentation and Local News. Park
Newspapers' publications are committed to editorial excellence and
providing the best mix of local and national news to effectively serve
their markets. The Company's newspapers generally have the largest local
news gathering resources in their local markets and, through emphasizing
local news, generally have a high degree of reader loyalty among their core
circulation base group. Park Newspapers' publications are produced on
offset presses, all of which have color capability. The Company has
recently completed a review of its daily newspapers' layouts and has
instituted a layout redesign program for all of its daily newspapers to
ensure that each newspaper offers attractive layout, design and color
enhancement.
Increase Circulation. Prior to the Acquisition, Park Newspapers pursued a
circulation strategy aimed at driving circulation revenue through price
increases. This strategy ultimately adversely impacted circulation
penetration levels. As of December 31, 1995, Park Newspapers had only a 47%
penetration of the occupied households in its defined market areas, a level
which the Company believes offers significant potential for improvement.
Park Newspapers has launched an aggressive direct marketing effort, through
door-to-door marketing, telemarketing, sampling and direct response
marketing programs, with the goal of improving market penetration (in the
aggregate) to 70% of the occupied households in its defined markets.
Realize Benefits From Clustering. Park Newspapers has clustered its
publication operations regionally. With the change in strategy from cost
management to revenue maximization and cost containment, the Company has
identified and is implementing programs to enhance revenue available as a
result of its clustering of operations, such as regional sales promotion
programs and other cross-selling techniques. In addition to the revenue
opportunities, consolidating the operations of groups of newspapers affords
both operating and economic efficiencies. These efficiencies include, but
are not limited to, the sharing of management, accounting and production
functions. In addition to regional clustering, the Company will also seek
to merge operations where possible, as in progress at Concord/Kannapolis,
North Carolina. Management will continue to review its newspaper businesses
for opportunities to merge operations to both enhance revenue and reduce
costs.
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Maintain Effective Cost Controls. Expenses at each of the Company's
publications are closely monitored to control costs without sacrificing
revenue opportunities. The Company seeks to reduce labor costs through
investment in modern production equipment and through the consolidation of
operations and administrative activities associated with clustering. Park
Newspapers' newsprint costs are approximately 10.4% of its revenue, and it
generally enters into long-term supply contracts to reduce newsprint costs
during short supply. Management believes that Park Newspapers' newsprint
costs as a percentage of revenue are generally lower than many of the other
community newspaper groups. The Company's cost control initiatives also
include group purchasing of materials and aggressive control of newsprint
waste.
Develop Additional Non-Traditional Revenue Sources. Park Newspapers has
recently introduced new informational products and services and advertising
programs to generate revenue from sources other than traditional newspaper
publishing activities. These products, services and programs include voice
personals, audio-text and incentive marketing.
As a result of the implementation of these operating strategies, management
believes Park Newspapers is well positioned to achieve internal growth. By
being the leading, and in certain instances the sole, provider of local news
in most of its markets, management believes that Park Newspapers' established
franchises should enable it to respond to and benefit from any changes in the
manner in which information is delivered.
NEWSPAPER INDUSTRY BACKGROUND
Newspaper publishing is the oldest and largest segment of the media
industry, with total advertising expenditures on daily and weekly newspapers
reported at $36.0 billion in 1995 according to Newspaper Association of
America (the "NAA"). Due to a focus on local news, newspapers remain the
dominant medium for local advertising and account for more than 48.1% of all
local media advertising expenditures according to the NAA. Additionally,
newspapers continue to be the preferred medium for retail advertising which
emphasizes the price of goods, in contrast to television which is generally
used for image advertising.
The number of adult readers of daily and Sunday newspapers is reported to
have increased from 115.3 million and 125.9 million, respectively, in 1992 to
115.4 million and 132.2 million, respectively, in 1994. Readers of newspapers
tend to be more highly educated and have higher incomes than non-newspaper
readers. For instance, in 1994, 74% of college graduates and 71% of households
with income of $40,000 or more are reported to read a daily newspaper,
compared to 61% for non-college graduates and 54% of households with income
less than $40,000. Management believes that newspapers continue to be the most
cost-effective means for advertisers to reach this highly targeted demographic
group.
Total morning daily national circulation has increased from 42.4 million in
1992 to 43.1 million in 1995, representing a compounded annual growth rate of
0.6%. Total Sunday national circulation, however, declined from 62.2 million
in 1992 to 61.8 million in 1995. Total reported daily national circulation,
including evening editions, declined from 60.2 million in 1992 to 58.2 million
in 1995, or 0.5% annually. This decrease can be directly attributable to the
declining national circulation of evening newspapers, which is reported to
have decreased from 17.8 million in 1992 to 15.1 million in 1995, or 5.3%
annually, as a result of an inability to compete with existing morning
newspapers and from increased competition by evening broadcast news
programming and specialized cable programming such as CNN and Headline News.
Advertising and, to a lesser extent, circulation revenues are cyclical and
dependent upon general economic conditions. Historically, increases in
advertising revenues have corresponded with economic recoveries while
decreases, as well as changes in the mix of advertising, have corresponded
with general economic downturns and regional and local economic recessions.
PUBLICATIONS
Park Newspapers has organized its operations into 31 newspaper centers.
Generally each daily newspaper constitutes a separate newspaper center, but in
some cases one or more non-daily newspapers in the same
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geographic area are consolidated with a daily newspaper in a single newspaper
center. The rest of Park Newspapers' newspaper centers consist of a group of
non-daily newspapers distributed in the same geographic area. The table below
shows the organization of the publications into newspaper centers.
Park Newspapers has a significant presence in North Carolina which is
forecasted as a high growth area by Demographics USA, 1994, and the revenue
and associated cash flows originate in ten different newspaper centers
dispersed across the state. The ten of Park Newspapers' 31 newspaper centers
which are located in North Carolina generated 38.3% of Park Newspapers'
revenue in 1995. The Concord/Kannapolis, North Carolina newspaper center was
the greatest revenue producer of the newspaper centers, but only provided
10.2% of Park Newspapers' total revenue, while the average newspaper center
accounted for 3.1% of total revenue from all newspaper centers.
The following table identifies the states and communities in which Park
Newspapers publishes its paid newspapers and shoppers, the names of Park
Newspapers' publications and the circulation (paid or free) as of March 1,
1996. Each community shown in boldface type in this table is the location of a
newspaper center. Communities in standard type and indented under a community
shown in boldface type are part of that newspaper center.
<TABLE>
<CAPTION>
STATE AND COMMUNITY PUBLICATION FREQUENCY CIRCULATION
- ------------------- ----------------------------- -------------------- -----------
<S> <C> <C> <C>
GEORGIA
WARNER ROBINS The Daily Sun Daily (M-F) 7,791 paid
Sunday Sun Sunday 8,525 paid
Daily Sun Extra 1x week 6,967 free
Robins Rev-up 1x week 25,013 free
IDAHO
BURLEY South Idaho Press Daily (M-F & Sunday) 4,797 paid
The News Review 1x week 11,055 free
The Sunrise Shopper 1x week 4,632 free
Hailey The Wood River Journal 1x week 1,697 paid
9,400 free
Sun Valley Dining Guide 1x year 40,000 free
Minidoka Minidoka County News 1x week 1,146 paid
ILLINOIS
EFFINGHAM Effingham Daily News Daily (M-Sat.) 12,771 paid
The Weekly Advertiser 1x week 9,832 free
MACOMB Macomb Daily Journal Daily (M-F & Sunday) 6,658 paid
Business News 1x week 8,106 free
INDIANA
JEFFERSONVILLE The Evening News Daily (M-Sat.) 10,828 paid
Clark County Journal 1x week 11,341 free
Golden Opportunities 1x week 20,000 free
PLYMOUTH The Pilot-News Daily (M-Sat.) 6,449 paid
Bremen Bremen Enquirer 1x week 1,554 paid
Bourbon Bourbon News-Mirror 1x week 1,245 paid
Nappanee Nappanee Advance News 1x week 1,939 paid
Farm and Home News 1x week 18,500 free
KENTUCKY
RUSSELLVILLE News-Democrat & Leader 2x week 6,486 paid
The Logan Advertiser 1x week 7,177 free
The Peddler 1x week 26,000 free
Leitchfield Grayson County News-Gazette 2x week 5,157 paid
The Grayson County Advertiser 1x week 3,069 free
</TABLE>
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<TABLE>
<CAPTION>
STATE AND COMMUNITY PUBLICATION FREQUENCY CIRCULATION
- ------------------- ---------------------------- -------------------- -----------
<S> <C> <C> <C>
LONDON Sentinel Echo 3x week 5,288 paid
The Laurel Neighbor 1x week 8,097 free
MOREHEAD The Morehead News 2x week 5,048 paid
Carlisle The Carlisle Mercury 1x week 1,503 paid
Mercury Plus 1x week 1,380 free
Frenchburg Menifee County News 3x week 734 paid
Grayson The Grayson Journal-Enquirer 1x week 4,849 paid
Greenup The Greenup County News 1x week 2,748 paid
Olive Hill Shopping News 1x week 19,027 free
SOMERSET Commonwealth Journal Daily (M-F & Sunday) 8,651 paid
McCreary County Record 1x week 4,895 paid
Lake Cumberland Shopper 1x week 31,603 free
MICHIGAN
COLDWATER Coldwater Daily Reporter Daily (M-Sat.) 6,166 paid
The Reporter Extra 1x week 11,500 free
MINNESOTA
BEMIDJI The Pioneer Daily (M-F) 8,296 paid
The Pioneer Sunday 8,797 paid
The Advertiser 1x week 13,073 free
The Mid-Week Advertiser 1x week 8,608 free
Blackduck The American 1x week 1,122 paid
NEW YORK
HUDSON Register-Star Daily (M-F & Sunday) 6,767 paid
Northeast 1x month 13,000 free
Columbia Views 1x week 1,409 free
The Courier 1x week 800 free
Chatham The Chatham Courier 1x week 2,837 paid
LOCKPORT Union-Sun & Journal Daily (M-Sat.) 17,009 paid
Tri-County News 1x week 8,000 free
MEDINA The Journal Register Daily (M-F) 4,554 paid
Eastern Niagra Edition 1x week 6,968 free
Pennysaver 1x week 3,000 free
TV Signals 1x week 9,400 free
Albion Albion Advertiser 1x week 1,792 paid
Ogdensburg The Journal Daily (M-F) 4,744 paid
Rural News 1x week 5,785 free
The Advance News Sunday 10,606 paid
Canton St. Lawrence Plaindealer 1x week 2,195 paid
Massena The Courier-Observer Daily (T-Sat.) 5,225 paid
NORTH CAROLINA
AHOSKIE Advantage 1x week 12,293 free
Scotland Enfield News Review 1x week 1,492 paid
Gates County News Review 1x week 2,052 paid
Jackson News Review 1x week 2,196 paid
News-Herald 3x week 6,494 paid
CLINTON The Sampson Independent Daily (M-F & Sunday) 7,861 paid
Sampson County Shopping
Guide and TV Schedule 1x week 12,826 free
</TABLE>
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<TABLE>
<CAPTION>
STATE AND COMMUNITY PUBLICATION FREQUENCY CIRCULATION
- ------------------- -------------------------- -------------------- -----------
<S> <C> <C> <C>
CONCORD/KANNAPOLIS The Concord Tribune Daily (M-F & Sunday) 13,527 paid
The Daily Independent Daily (M-F & Sunday) 8,943 paid
The Cabarrus Observer
Nugget 1x week 3,361 free
The Edge 1x week 19,014 free
Aberdeen Sandhills Living 2x week 15,000 free
The Golf Outlook 1x month 15,000 free
EDEN Daily News Daily (M-F) 5,976 paid
The Virginia Carolina
Beacon 1x week 3,570 free
LUMBERTON The Robesonian Daily 14,125 paid
The Robesonian Sunday Sunday 16,160 paid
The Robesonian Mid-Weekly 1x week 23,595 free
Elizabethtown Bladen Daily Journal 3x week 3,889 paid
The Southeastern Times 1x week 3,850 free
MARION The McDowell News Daily (M-F) 4,206 paid
McDowell Express 1x week 8,250 free
The Old Fort Post 1x week 2,450 free
MOORESVILLE Mooresville Tribune 1x week 6,130 paid
Shoppers Guide 1x week 11,500 free
Davidson Mecklenburg Gazette 1x week 2,195 paid
MORGANTON The News Herald Daily (M-F & Sunday) 11,757 paid
The Burke County Observer 1x week 8,423 free
Valdese News 1x week 15,528 free
ROCKINGHAM The Richmond County Daily
Journal Daily (M-F & Sunday) 8,460 paid
The Journal Advantage 1x week 7,200 free
STATESVILLE Statesville Record &
Landmark Daily (M-F & Sunday) 16,907 paid
Landmark Extra 1x week 9,500 free
NORTH DAKOTA
DEVILS LAKE Devil's Lake Daily Journal Daily (M-F) 4,450 paid
The Country Peddler 1x week 22,500 free
OKLAHOMA
MCALESTER News Capital & Democrat Daily (M-F & Sunday) 12,282 paid
Southeast Oklahoma
Shopping News 1x week 6,045 free
Hartshorne Hartshorne Sun 1x week 1,178 paid
SAPULPA Sapulpa Daily Herald Daily (M-F & Sunday) 6,411 paid
Herald Extra 1x week 13,754 free
VIRGINIA
MANASSAS The Journal Messenger Daily (M-Sat.) 7,348 paid
The Journal Reach 1x week 45,000 free
WAYNESBORO The News-Virginian Daily (M-Sat.) 9,391 paid
Shenandoah Shopper 1x week 10,179 free
TOTAL PAID DAILY 242,350
TOTAL PAID NON-DAILY 77,861
TOTAL SHOPPERS 549,087
</TABLE>
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The Company believes that the geographic diversity of Park Newspapers'
publications mitigates the effect of regional economic cycles on its business.
No one publication accounted for more than 6.0% of Park Newspapers' revenue in
1995. The following table shows the relative proportion by state of Park
Newspapers' 1995 revenue.
<TABLE>
<CAPTION>
PERCENTAGE OF
STATE 1995 REVENUE
----- -------------
<S> <C>
Georgia.......................................................... 3.2%
Idaho............................................................ 3.5
Illinois......................................................... 6.5
Indiana.......................................................... 5.7
Kentucky......................................................... 9.7
Michigan......................................................... 1.8
Minnesota........................................................ 3.4
New York......................................................... 13.9
North Carolina................................................... 38.3
North Dakota..................................................... 2.1
Oklahoma......................................................... 5.4
Virginia......................................................... 6.5
-----
100.0%
=====
</TABLE>
SOURCES OF REVENUE
Substantially all of Park Newspapers' publishing revenue is derived from
advertising and circulation, with lesser amounts derived from commercial print
jobs and other sources. The following table sets forth the sources and amounts
of Park Newspapers' revenue for the years ended December 31, 1995, 1994 and
1993:
REVENUE BY SOURCE--YEAR ENDED DECEMBER 31 (IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993(A)
------------ ------------ ------------
SOURCE OF REVENUE % AMOUNT % AMOUNT % AMOUNT
- -------------------- ---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Advertising:
Daily Newspapers....................... 56.3 $44,424 57.0 $43,763 55.0 $40,907
Non-daily Newspapers................... 9.1 7,226 9.2 7,094 9.2 6,826
Shoppers............................... 6.9 5,411 7.2 5,509 7.2 5,387
------- ------- -------
Total Advertising.................... 72.3 57,061 73.4 56,366 71.4 53,120
------- ------- -------
Circulation:
Daily Newspapers....................... 21.5 16,967 20.3 15,624 21.0 15,541
Non-daily Newspapers................... 2.2 1,759 2.2 1,657 2.2 1,665
------- ------- -------
Total Circulation.................... 23.7 18,726 22.5 17,281 23.2 17,206
------- ------- -------
Other.................................... 4.0 3,117 4.1 3,163 5.4 4,040
------- ------- -------
Total.................................... $78,904 $76,810 $74,366
======= ======= =======
</TABLE>
- --------
(a) Excludes revenue from 33 publications sold in November 1993.
Advertising. Advertising rates and rate structures vary among Park
Newspapers' publications and are based, among other things, on circulation and
type of advertising (classified or display, and national or local).
Historically, substantially all of Park Newspapers' total publication
advertising revenue has been derived from local retail and classified
advertising, which management believes are less subject to fluctuation than
national
95
<PAGE>
advertising. Many local retailers in the small communities served by Park
Newspapers' publications are unable to advertise in larger non-local
publications or electronic media because of their generally higher advertising
rates. During the year ended December 31, 1995, local and regional advertising
accounted for 67% of advertising revenue, classified advertising accounted for
22% and pre-printed inserts and national advertising accounted for 10% and 1%,
respectively.
Park Newspapers has recently increased its focus on national advertising
programs in an effort to generate increased volume and revenue from pre-
printed inserts and shoppers, although the revenue from such programs is
relatively small, amounting to approximately $523,000, or 0.7% of Park
Newspapers' total revenue, in 1995. Park Newspapers has also recently begun to
offer new regional advertising programs to chain stores. Management believes
that the regional clustering of Park Newspapers' publications parallels an
emerging trend of larger retailers to advertise on a regional basis and
positions Park Newspapers to benefit from this trend.
Park Newspapers has also introduced category selling, single sheet and other
free standing advertising and a top of mind awareness program (TOMA) whereby
an advertiser can develop a cost effective long-term frequency advertising
program designed to get the advertiser's name and product or service out in
the market and create top of mind awareness of the product or service.
Management intends to continue to develop additional advertising revenue
sources such as co-op advertising, national classified advertising and other
targeted advertising.
Shoppers are generally growing faster and have higher margins than daily
newspapers. Management believes there are opportunities to increase Park
Newspapers' revenue through shoppers and has focused on training its sales
force to sell a combination of newspaper and shopper advertising space.
Circulation. Circulation revenue is derived from home delivery sales of Park
Newspapers' paid dailies and non-dailies to subscribers and single copy sales
made through retailers and vending racks. Of circulation revenue for 1995,
over 80% was derived from subscription sales and the balance was derived from
single copy sales. Single copy rates for paid daily and non-daily publications
currently range from 25c to 50c per copy and from 50c to $1.00 for Sunday
newspapers. Subscriptions are generally offered at a discount from single copy
rates. Park Newspapers periodically reviews the subscription and single copy
rates for potential increases.
Park Newspapers' newspapers ended 1995 with an aggregate 47% penetration of
the occupied households in its defined market areas. Park Newspapers has begun
to pursue a strategy targeted at increasing circulation revenue by increasing
aggregate market penetration to 70% of the occupied households in its
newspapers' defined markets, rather than relying on increases in subscription
and single copy rates. Park Newspapers has launched an aggressive marketing
effort to improve market penetration which includes door-to-door marketing,
telemarketing, sampling and direct response marketing programs. The mechanical
mailroom and distribution aspects of circulation have now been separated from
sales and marketing activities to enhance and afford focus to the circulation
sales effort. Mailroom activity will become a function of production, and
management believes that distribution has the capacity to evolve into a
separate source of revenue. See "Production and Distribution" below.
Other Revenue Sources. Commercial printing job revenue is derived from
utilizing available press capacity for printing customers' order for
newspapers, fliers, retail store advertisements and similar products.
Park Newspapers has introduced new informational products and services,
including an audiotext service whereby a customer can call an audiotext line
to access various kinds of information, generally from newspaper databases
(such as weather), but also from other sources (such as the ability to hear a
message from a child's teacher about the day's homework assignments); voice
personals, which generate revenue from a portion of the cost of telephone
calls made in response to free personal ads placed in newspapers; and
incentive marketing such as the printing and distribution of fishing maps. The
Company believes that voice personals will contribute new revenue beginning in
1996, while audiotext and incentive marketing will fully develop as sources of
revenue in 1997 and beyond.
96
<PAGE>
PRODUCTION AND DISTRIBUTION
All of Park Newspapers' publications are produced using photocomposition
technology and printed using an offset method. Automated text editing and
classified advertising systems are in operation at all of the newspapers. As
part of a program to improve operating efficiency and to enhance product
quality, Park Newspapers engages in a continuing process of updating its
printing facilities. Four such upgrades are scheduled to be completed in 1996.
Additionally, the geographic proximity of groups of Park Newspapers'
publications has enabled Park Newspapers to consolidate certain operations in
centralized production plants thereby facilitating quality improvements that
would otherwise be prohibitively expensive for a single publication. For
example, in 1994, Park Newspapers implemented greater process color
capabilities at 17 of its 33 plants where a total of 22 of Park Newspapers'
daily newspapers are printed. These improvements enable Park Newspapers to
offer color ads and editorial materials to advertisers and subscribers.
Additionally, Park Newspapers has recently completed a review of its daily
newspapers' layouts and has instituted a layout redesign program for all of
its daily newspapers to ensure that each newspaper offers attractive layout,
design and color enhancement, while remaining easily readable. The Company
believes that Park Newspapers will be able to continue to improve the quality
of its publications as technological improvements continue to become
economically viable for small publications.
Park Newspapers' daily and non-daily newspapers are published primarily for
home delivery and are generally sold by independent carriers and circulation
dealers. Adults comprise approximately 70% of Park Newspapers' home delivery
network, which management believes enables Park Newspapers to engage in other
home distribution activities on behalf of unaffiliated parties and generate
additional revenue for Park Newspapers. Shoppers are generally distributed
free, on a weekly basis, by various delivery methods, including third-class
mail.
RAW MATERIALS
The basic raw material of newspaper publishing operations is newsprint. The
Company believes that effective management of newsprint costs is an important
factor in the success of Park Newspapers' business. Newsprint costs increased
approximately 40% per metric ton in 1995 on an industry-wide basis and may
continue to increase in 1996, although any such increases in 1996 are not
anticipated to be as significant as the 1995 increases. Newsprint expenses
represented 12%, 12% and 15% of Park Newspapers' total operating costs and
expenses for the years ended December 31, 1993, 1994 and 1995, respectively.
The Company believes that this compares favorably with cost of newsprint to
other publishers throughout the country.
Park Newspapers currently purchases newsprint from various suppliers in the
United States and Canada. As of May 6, 1996, Park Newspapers was a party to
long-term supply contracts with several such suppliers, the largest of which
will provide approximately 50% of the tonnage used by Park Newspapers in 1996.
In accordance with industry practice, Park Newspapers' newsprint supply
contracts provide for tonnage at prices determined from time to time by the
suppliers. The Company believes that sources of newsprint supply are adequate
for the anticipated needs of Park Newspapers and that there are adequate
alternative sources of supply. See "Regulation of Newspaper Operations" below
for a discussion of state laws which regulate the recycled content of
newsprint.
COMPETITION--PUBLISHING
While Park Newspapers' daily newspapers are the only daily newspapers of
general circulation published in their respective cities or towns, each of
these publications and each of Park Newspapers' non-daily newspapers and
shoppers competes in varying degrees with other newspapers having a regional
or national circulation, as well as with magazines, radio, television, direct
marketing and other advertising media. In addition, certain of Park
Newspapers' daily newspapers compete within their own markets with other daily
newspapers of general circulation published in adjacent or nearby cities and
towns. There are no local television stations in any of Park Newspapers' 28
daily newspaper markets, although each community receives television service
through cable or regional broadcast signals. The Company believes that Park
Newspapers' significant presence in the towns served by its community
publications has enabled it to compete effectively.
97
<PAGE>
Although published in a different location, a competitor has recently begun
publication of a daily newspaper serving the Warner Robins, Georgia market.
The Company is unable to predict the effect that this publication will have on
Park Newspapers' Warner Robins daily newspaper. However, management does not
believe that this competing daily will have a material effect on Park
Newspapers' operations.
Although there can be no assurance that a competitor will not enter one or
more of Park Newspapers' markets and become successful, the Company believes
that entry by a direct competitor in most of Park Newspapers' daily newspaper
markets is likely to be cost prohibitive. Additionally, the prevailing trend
in newspaper publishing has been for consolidation down to one dominant daily
newspaper in a particular community or city. The Company believes that
distribution of Park Newspapers' shoppers in conjunction with community daily
newspapers enhances Park Newspapers' competitive position in such market
areas.
REGULATION OF NEWSPAPER OPERATIONS
Certain rules of the FCC and/or the Communications Act affect Park
Newspapers' publication operations as well as Park Broadcasting's operations
by placing certain limitations on common ownership, operation and other
interests in, among other things, broadcast stations and newspapers serving
the same area. This may affect the number, type and location of newspapers
that Park Newspapers may acquire in the future. See "Federal Regulation of
Television Broadcasting" above. These rules do not currently require any
change in Park Newspapers' present ownership of newspapers.
Additionally, Park Newspapers is required to obtain a permit from, and to
file an annual statement of ownership and circulation with, the U.S. Postal
Service for paid circulation newspapers that are delivered by second class
mail. Certain of Park Newspapers' paid publications are currently delivered by
second class mail. Free circulation publications such as shoppers are
delivered to subscribers and nonsubscribers by mail or in other ways.
Certain states in which Park Newspapers publishes its newspapers have
enacted legislation concerning the percentage of recycled content of
newsprint. Certain of these states mandate that newsprint contain a minimum
amount of recycled material, while others have developed voluntary recycled
content guidelines for newsprint. Newsprint suppliers are not currently able
to deliver the requisite recycled-content newsprint, and there can be no
assurance that the suppliers will be able to supply such newsprint upon
implementation of the various state laws. Park Newspapers, like other
newspaper publishers, is exploring alternative compliance methods permitted
under certain of these laws, including recycling and other programs intended
to divert newspapers from being disposed of in landfills. The Company is
unable to predict the impact that these laws will have on Park Newspapers'
business.
DISCONTINUED OPERATIONS
The Company is in the process of selling the Radio Station Assets, the
operations of which have been conducted through Park Broadcasting. The Company
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.
Park Broadcasting 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. Park Broadcasting creates its
own formats and purchases formats and programming from various outside
sources. In March 1996, Park Broadcasting 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, Park Broadcasting 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
98
<PAGE>
aggregate gross proceeds of $3.5 million. In June 1996, Park Broadcasting 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-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, Park Broadcasting sold its KWLO-AM and KFMW-FM radio
stations 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 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, Park Broadcasting 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 Park Broadcasting which own and operate the Radio
Station Assets are the sellers under the definitive agreements, and neither
the Company, Park Broadcasting or 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.
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<PAGE>
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.
EMPLOYEES
As of March 1, 1996, the Company had approximately 2,670 employees, 2,048 of
whom were full-time employees. Of such full-time employees, 608 were in Park
Broadcasting's television operations, 1,175 were in Park Newspapers' newspaper
operations and 265 were in Park Broadcasting'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 the Company, currently beneficially
owns 100% of the stock of Park Broadcasting, 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, Park Broadcasting and its subsidiaries and Park Newspapers and
its subsidiaries are obligated to make tax sharing payments to the Company in
amounts equal to the federal income taxes which Park Broadcasting and Park
Newspapers would have paid for such taxable year if each of Park Broadcasting
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) Park
Broadcasting and its subsidiaries or (ii) Park Newspapers and its subsidiaries
is hereinafter called a "Subgroup," and each of Park Broadcasting 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 the Company which includes income of the Park Broadcasting Subgroup or Park
Newspapers Subgroup, then Park Broadcasting and Park Newspapers each will be
obligated to make tax sharing payments to the Company 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. The Company 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, the Company 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.
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<PAGE>
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.
While the tax sharing agreement will not increase the taxes payable by the
Company, to the extent that the Company receives tax sharing payments from
Park Broadcasting or Park Newspapers in excess of the amount it will be
required to pay to PAI, the Company may be better able to meet its non-tax
obligations, including those in respect of the Notes.
PROPERTIES
The Company's principal executive offices are located in leased premises 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.
PARK BROADCASTING OPERATING PROPERTIES
The types of properties required to support each of Park Broadcasting'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 Park Broadcasting.
The following table contains certain information describing the general
character of the properties used in Park Broadcasting'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.
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
STATION LOCATION AND USE OWNED OR LEASED APPROXIMATE SIZE(A)
- ------- ----------------- --------------- -------------------
<S> <C> <C> <C>
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 Park Broadcasting and another entity in equal
proportions.
PARK NEWSPAPERS OPERATING PROPERTIES
Park Newspapers' daily newspaper operations, both production and
administration, are typically housed in one-story buildings in which the
Company uses from 8,200 to 35,860 square feet. Of the 28 daily newspaper
buildings, 27 are owned and one is leased under a lease expiring in 1998. All
of Park Newspapers' daily newspapers are printed on printing presses owned by
Park Newspapers. Park Newspapers owns and leases various other properties in
connection with its non-daily newspaper and shopper operations.
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.
102
<PAGE>
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:
<TABLE>
<CAPTION>
POSITION WITH
NAME AGE THE COMPANY
--------------------- --- ----------------------------
<S> <C> <C>
Ralph J. Martin 42 Vice President--
Newspaper Operations
W. Randall Odil 53 Vice President--
Television Operations
Rick A. Prusator (a) 43 Vice President--Radio
Operations
Randel N. Stair 45 Vice President, Chief
Financial Officer, Treasurer
Wright M. Thomas 60 President and Chief
Operating Officer
Dr. Gary B. Knapp 52 Director
Donald R. Tomlin, Jr. 48 Director
</TABLE>
- --------
(a) The Company 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 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.
Ralph J. Martin joined the Company in September 1995 as Vice President--
Newspaper Operations. Prior to joining the Company, Mr. Martin was employed
for 19 years by Thomson Newspapers, Inc., where he held various senior
management positions, including, most recently, President of Thomson
Newspapers/Eastern Group from 1993 to 1995 and Vice President of the Metro
Division from 1990 to 1993.
W. Randall Odil has been Vice President--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 the Company
since August 1991. From August 1989 to August 1991, he was Vice President of
Park Broadcasting--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 the
Company since May 1994, Vice President since 1980. Mr. Stair served as
Controller of the Company from 1980 to 1995. Mr. Stair also serves as
Treasurer of Park Broadcasting and Park Newspapers. Prior to joining Park
Newspapers in 1979, Mr. Stair was employed by Multimedia, Inc. as Assistant
Corporate Controller.
Wright M. Thomas has been President and Chief Operating Officer of the
Company since July 1987. Mr. Thomas also serves as President of Park
Broadcasting and Park Newspapers. Mr. Thomas served as a director of the
Company 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 the Company, he was employed by INA Corporation and
Coopers & Lybrand.
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<PAGE>
Dr. Gary B. Knapp became a director of each of the Company, Park
Broadcasting and Park Newspapers in May 1995. Dr. Knapp has been a principal
of Knapp Securities, Inc., a firm offering investment advisory and consulting
services, since 1982.
Donald R. Tomlin, Jr. became a director of each of the Company, Park
Broadcasting and Park Newspapers 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
the Company. However, they are reimbursed for expenses incurred in acting in
such capacities. In addition, the Company recently loaned $300,000 to each of
Dr. Knapp and the Tomlin Family Trust II, of which Mr. Tomlin is the trustee.
See "Certain Transactions" below.
SIGNIFICANT EMPLOYEES
The following table sets forth, as of March 28, 1996, the name and age of
the General Manager for each of Park Broadcasting's television stations:
<TABLE>
<CAPTION>
YEARS OF EMPLOYMENT POSITION WITH
NAME AGE WITH COMPANY PARK BROADCASTING
-------------------- --- ------------------- --------------------------
<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 Park
Broadcasting's WBMG-TV station in Birmingham, Alabama since 1981 and was an
Account Executive from 1976 until 1981. He was employed by Park Broadcasting's
WUTR-TV station from 1970 to 1976 in various positions, including Vice
President--Operations and Business Manager.
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<PAGE>
D. Christopher Aldridge has been Vice President--General Manager of Park
Broadcasting'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 Park Broadcasting's WDEF-TV station in Chattanooga,
Tennessee. Prior to joining Park Broadcasting, he was General Sales Manager at
WTXL-TV in Tallahassee, Florida from April 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 Park
Broadcasting'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 Park
Broadcasting'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 Park
Broadcasting's WNCT-TV station in Greenville, North Carolina since January,
1988. Mr. Adams was Vice President--General Manager of Park Broadcasting'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 Park
Broadcasting's WDEF-TV station in Chattanooga, Tennessee since November 1994.
From March 1988 until November 1994, he was General Sales Manager of Park
Broadcasting's WBMG-TV station in Birmingham, Alabama. Prior to joining Park
Broadcasting, he was associated with other television stations, in various
positions.
Jack D. Dempsey has been Vice President--General Manager of Park
Broadcasting'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 Park
Broadcasting's WTVR-TV station in Richmond, Virginia since December 1994. From
April 1987 to November 1994, he was Vice President--General Manager of Park
Broadcasting'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 Park
Broadcasting'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.
The following table sets forth, as of March 28, 1996, the names and ages of
the Regional Managers of Park Newspapers' operations:
<TABLE>
<CAPTION>
YEARS OF EMPLOYMENT POSITION WITH
NAME AGE WITH COMPANY PARK NEWSPAPERS
------------------- --- ------------------- --------------------------
<C> <C> <C> <S>
Tim Dearman 43 33 Mid-Atlantic West Region
Manager
John Kennedy 59 40 Mid-Atlantic East Region
Manager
David E. Thornberry 30 1 Ohio Valley Region Manager
Paul E. Semple 38 17 Mid-Western Region Manager
Thomas N. Ceravolo 64 40 Eastern Region Manager
Charles S. Lake 61 40 Western Region Manager
</TABLE>
105
<PAGE>
Tim Dearman has been General Manager of the Statesville Record & Landmark
since 1985. He started with the newspaper as a paperboy at age 10, and has
since worked in every department. He has been the Mid-Atlantic Western
Regional Manager of Park Newspapers since 1986.
John Kennedy has been General Manager of The Concord Tribune since 1987 and
The Daily Independent of Kannapolis since January 1996. He joined The Concord
Tribune in 1956 and has served in various positions. He has been Mid-Atlantic
Eastern Regional Manager of Park Newspapers since 1986.
David E. Thornberry has been General Manager of The Morehead News and
Regional Manager of the Ohio Valley Group since January 1996. Prior to joining
Park Newspapers, he was Division Publisher of Wyoming Newspapers, Inc. from
1989 to 1995, and also served various management roles for the its parent
company, News Media Corporation from 1985 to 1995.
Paul E. Semple has been General Manager of the Effingham Daily News since
1993 and Mid-Western Regional Manager of Park Newspapers since 1995. He has
been with the paper since 1979, serving as Business Manager from 1979 to 1985
and Controller from 1986 to 1992.
Thomas N. Ceravolo has been with the Lockport Union-Sun & Journal since
1956. He served as General Manager of WUSJ Radio until 1970, and became
Assistant to the Publisher of the paper in 1970. He became General Manager of
Park Newspapers' Lockport paper and Eastern Regional Manager in 1986.
Charles S. Lake has been General Manager of the Sapulpa Daily Herald since
1979. He has been Western Division Manager of Park Newspapers since 1995. Mr.
Lake has been associated with the Sapulpa Daily Herald for 40 years in various
positions.
EXECUTIVE COMPENSATION
Set forth below is information concerning the annual and long-term
compensation for services in all capacities rendered to the Company for the
fiscal years ended December 31, 1995, 1994 and 1993 of (i) Wright M. Thomas,
President and Chief Operating Officer of the Company, (ii) the other three
most highly compensated executive officers of the Company at December 31, 1995
whose aggregate 1995 salary and bonus exceeded $100,000 and (iii) Robert J.
Rossi, who served as Vice President--Newspaper Operations of the Company until
July 31, 1995.
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 1994 241,384(b) --
Operating Officer 1993 184,440(b) --
W. Randall Odil 1995 $ 177,492 $ 306,250(c)
Vice President-- 1994 165,972 58,911
Television Operations 1993 162,150 25,799
Rick A. Prusator 1995 $ 134,898 $ 157,254(c)
Vice President-- 1994 126,074 21,071
Radio Operations 1993 110,212 3,609
Randel N. Stair 1995 $ 131,306 $ 157,450(c)
Vice President and 1994 126,621 10,000
Chief Financial Officer 1993 122,258 --
Robert J. Rossi 1995 $ 110,296 $ 170,000(c)
Former Vice President-- 1994 162,589 36,999
Newspaper Operations 1993 162,630 --
</TABLE>
106
<PAGE>
- --------
(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 the Company, 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, $134,000 and $170,000 paid
to Messrs. Odil, Prusator, Stair and Rossi, respectively, under the
Company's Retention Incentive Plan following the acquisition of the
Company by PAI in May 1995. See "Employment and Severance Arrangements"
below.
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 the
Company. 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.
The Company 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, the Company 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 the Company other than
for cause and resignation following a change in circumstances that
significantly diminish Mr. Thomas' position with the Company.
107
<PAGE>
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, the Company. 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 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 PCI's Retention Incentive Plan, Messrs. Odil, Prusator, Stair
and Rossi received a bonus of $175,000, $135,000, $134,000 and $170,000,
respectively, as a result of their being employed by the Company on the date
PAI acquired the Company. 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 June 1995, the Company and Robert J. Rossi, a former executive officer of
the Company, entered into a consulting and non-competition agreement, under
which Mr. Rossi has agreed to provide up to 50 days of consulting services to
the Company during the 12-month period ending in June 1996, for which the
Company has agreed to pay to Mr. Rossi an aggregate of $50,000, with payments
commencing in January 1996. Under the agreement, the Company has also agreed
to compensate Mr. Rossi at the rate of $1,000 per day for each day worked in
excess of 50 days during the 12-month period.
In December 1995, in connection with the sale of the Radio Station Assets,
the Company entered into a compensation arrangement with Rick A. Prusator,
Vice President--Radio Operations, which provides that, through December 1997,
the Company will continue to (i) pay Mr. Prusator his base salary of $139,000
per year regardless of whether Mr. Prusator remains employed by the Company or
secures other employment and (ii) provide health insurance coverage until Mr.
Prusator secures other employment. The Company has also agreed to purchase Mr.
Prusator's home in Kentucky should Mr. Prusator so elect. Additionally,
pursuant to such compensation arrangement, the Company 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 the Company: 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 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 the Company.
During the fiscal years ended December 31, 1995, 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 the Company. In November
1993, Mrs. Park became Chairman of the Board of the Company and, in her
capacity as personal representative of the Estate of Roy H. Park, controlled
the shares of common stock of the Company 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 $207,000, $977,000 and
$1,265,000 in 1995, 1994 and 1993, respectively. On November 30, 1994, the
Company purchased ten previously leased properties
108
<PAGE>
and one tower from RHP for $4,415,000. 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
On June 11, 1996, the Company loaned $300,000 to each of Gary B. Knapp and
the Tomlin Family Trust II, the Company's stockholders. Dr. Knapp and Donald
R. Tomlin, Jr., a trustee of the Tomlin Family Trust II, are directors of the
Company. Such loans are payable in full on demand by the Company and bear
interest at 7.75% per annum.
In connection with the relocation of the Company's headquarters in 1995 from
New York to Kentucky, the Company purchased the homes of Messrs. Thomas, Odil,
Prusator and Stair 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 the Company to assist in locating
and purchasing a new home in Kentucky. Such payments and the reimbursement of
relocation expenses were made available to all Company 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 the Company will pay to
PAI for management advisory services $250,000 (of which $125,000 will be
contributed by each of Park Broadcasting 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 Broadcasting 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.
109
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
PAI owns all of the outstanding Common Stock of the Company. Neither the
Company nor 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
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 (including Park Broadcasting and Park Newspapers) 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 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 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 Park Newspapers and
Park Broadcasting are pledged to secure indebtedness under the Notes.
110
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR NOTES OF PARK BROADCASTING
Simultaneously with the sale of Units, Park Broadcasting offered and sold
the Broadcasting Notes. The Broadcasting Notes were issued pursuant to an
Indenture dated as of May 13, 1996 between Park Broadcasting and IBJ Schroder
Bank & Trust Company, as Trustee (the "Broadcasting Indenture"). Interest on
the Broadcasting Notes is payable semi-annually at a rate of 11.75% per annum,
and the Broadcasting Notes mature on May 15, 2004. The Broadcasting Notes were
issued at a discount to result in an effective yield to maturity of 12.25%.
The Broadcasting Notes are redeemable on or after May 15, 2001 at a
redemption premium of 6.0% 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 Broadcasting
has the right to redeem up to 35% of the original principal amount of the
Broadcasting Notes with the net proceeds of certain public equity offerings or
strategic equity investments at 111.75% of the aggregate principal amount
thereof plus accrued and unpaid interest to the date of redemption; provided
that not less than $155.0 million in principal amount of Broadcasting Notes is
outstanding immediately after giving effect to such redemption (other than
Broadcasting Notes held by Park Broadcasting or any of its affiliates).
The Broadcasting Indenture contains change of control provisions similar to
those applicable to the Notes requiring Park Broadcasting to offer to
repurchase the Broadcasting Notes upon a change of control triggering event,
which includes both a change of control and a rating decline.
Park Broadcasting also is required to offer to repurchase Broadcasting 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 Broadcasting or its restricted subsidiaries are not used within 360 days
after the occurrence of such sales to permanently reduce senior debt of Park
Broadcasting and/or to make an investment in or acquire assets directly
related to, the same lines of business being conducted by Park Broadcasting or
such restricted subsidiary.
The Broadcasting Indenture imposes certain limitations on the ability of
Park Broadcasting 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 Broadcasting, (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 Broadcasting. In
particular, with respect to restricted payments, the Broadcasting Indenture
provides that, subject to certain exceptions, unless certain conditions are
satisfied, Park Broadcasting and its restricted subsidiaries are not permitted
to pay any dividend or other distribution on any capital stock (other than
dividends or distributions payable solely in capital stock which is not
disqualified stock); make any payment to acquire or retire for value any
capital stock of Park Broadcasting or any of its affiliates (other than
capital stock owned by Park Broadcasting or any wholly-owned restricted
subsidiary); make any payment to acquire or retire for value any indebtedness
which is subordinated in right of payment to the Broadcasting Notes (other
than certain permitted refinancings); or make certain investments. Such
restricted payments (which would include dividends and distributions to the
Company) are permitted, subject to certain exceptions, only if (i) no default
or event of default has occurred and is continuing under the Broadcasting
Indenture, (ii) Park Broadcasting (x) prior to December 31, 1997 has a debt to
operating cash flow ratio of not more than 6.25:1 and (y) thereafter could
incur at least $1.00 of additional indebtedness in accordance with the
leverage ratio debt incurrence covenant of the Broadcasting Indenture and
(iii) the aggregate amount of all restricted payments made since the date of
original issuance of the Broadcasting Notes does not exceed the sum of (a)
Park Broadcasting's Cumulative Operating Cash Flow less 1.4 times its
Cumulative Consolidated Interest Expense (each as defined in the Broadcasting
111
<PAGE>
Indenture) plus (b) the aggregate net proceeds received by Park Broadcasting
after such date of original issuance from certain issuances of capital stock.
See "Risk Factors--Holding Company Structure; Dependence on Cash Flow from
Subsidiaries; Effective Subordination of Notes."
Events of default under the Broadcasting Indenture include, among other
things, payment defaults, covenant defaults, cross-defaults to certain other
indebtedness, judgment defaults and certain events of bankruptcy and
insolvency.
SENIOR NOTES OF PARK NEWSPAPERS
Simultaneously with the sale of Units, 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 aggregate 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. In particular, with
respect to restricted payments, the Newspapers Indenture provides that,
subject to certain exceptions, unless certain conditions are satisfied, Park
Newspapers and its restricted subsidiaries are not permitted to pay any
dividend or other distribution on any capital stock (other than dividends or
distributions payable solely in capital stock which is not disqualified
stock); make any payment to acquire or retire for value any capital stock of
Park Newspapers or any of its affiliates (other than capital stock owned by
Park Newspapers or any wholly-owned restricted subsidiary); make any payment
to acquire or retire for value any indebtedness which is subordinated in right
of payment to the Newspapers Notes (other than certain permitted
refinancings); or make certain investments. Such restricted payments (which
would include dividends and distributions to the Company) are permitted,
subject to certain exceptions, only if (i) no default or event of default has
occurred and is continuing under the Newspapers Indenture, (ii) Park
Newspapers could incur at least $1.00 of additional indebtedness in accordance
with the leverage ratio debt incurrence covenant of the Newspapers Indenture
and
112
<PAGE>
(iii) the aggregate amount of all restricted payments made since the date of
original issuance of the Newspapers Notes does not exceed the sum of (a) 50%
of Park Newspapers' aggregate cumulative Consolidated Net Income (as defined
in the Newspapers Indenture) plus (b) the aggregate net proceeds received by
Park Newspapers after such date of original issuance from certain issuances of
capital stock. See "Risk Factors--Holding Company Structure; Dependence on
Cash Flow from Subsidiaries; Effective Subordination of Notes."
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.
113
<PAGE>
DESCRIPTION OF THE UNITS
The Units were issued under a Unit Agreement dated as of May 13, 1996 (the
"Unit Agreement") by and between the Company and IBJ Schroder Bank & Trust
Company, as Unit Agent (the "Unit Agent"). Each Unit consists of $1,000
principal amount of Notes and ten Initial Warrants, each Initial Warrant
entitling the holder thereof to purchase initially one share of Common Stock
of the Company. The Notes and Initial Warrants will not be separately
transferable until the Separability Date, which shall be the earliest of (i)
November 15, 1996, (ii) the date on which the Registration Statement of which
this Prospectus is a part is declared effective under the Securities Act,
(iii) the occurrence of an Exercise Event, (iv) the occurrence of an Event of
Default under the Indenture, or (v) such earlier date as determined by Merrill
Lynch, Pierce, Fenner & Smith Incorporated in its discretion. At such time,
the Units will cease to exist.
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 Communications, 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 Senior Credit
Facility and Radio Station Notes and which are involved in the following
summary of the terms of the Indenture. These provisions are no longer
applicable since the Senior Credit Facility has been repaid in full and no
Radio Station Notes were issued.
MATURITY AND INTEREST
The Notes are general unsubordinated obligations of the Company limited in
aggregate principal amount to $80,000,000 (other than (i) Notes issued in lieu
of cash interest on the Notes in accordance with the Indenture and (ii) Notes
issued on repurchase of the Warrants as provided in the Indenture and the
Warrant Agreement) and mature on May 15, 2004. Interest on the Notes accrues
at the rate of 13.75% 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. Through May 15, 1999,
interest is payable at the option of the Company, in whole but not in part, by
the issuance of additional Notes (valued at 100% of the face amount thereof)
in lieu of cash interest; provided, however, that in connection with any
redemption or repurchase of the Notes as permitted or required by the
Indenture and upon the acceleration of the Notes, all accrued interest shall
be payable solely in cash. After May 15, 1999, interest is payable solely in
cash.
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
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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
(other than (i) Notes issued in lieu of cash interest on the Notes in
accordance with the Indenture, (ii) Notes issued on repurchase of the Warrants
as provided in the Indenture and the Warrant Agreement and (iii) Notes issued
on transfer or exchange of other Notes to the extent in excess of an integral
multiple of $1,000).
RANKING
The payment of principal of, premium, if any, and interest on the Notes rank
pari passu with all other unsecured and unsubordinated indebtedness of the
Company; senior to any other indebtedness to the extent of any assets securing
the Notes; and senior in right of payment with respect to all subordinated
indebtedness of the Company. In addition, the Notes are effectively
subordinated to all secured indebtedness of the Company to the extent of the
assets securing such indebtedness and to all indebtedness and preferred stock
of subsidiaries of the Company, including the Newspapers Notes and the
Broadcasting Notes. As of December 31, 1995, on a pro forma basis after giving
effect to the sale of Units, the other Refinancing Transactions, the
application of the proceeds therefrom and the repayment in full of the Senior
Credit Facility, the Company would have had $80.0 million of face amount of
secured indebtedness outstanding and subsidiaries of the Company would have
had $391.4 million of indebtedness outstanding.
SECURITY
Upon repayment in full of indebtedness under the Senior Credit Facility, the
Company was obligated to grant to the holders of the Notes a first priority
lien on and security interest in all of the Capital Stock of Park Broadcasting
and Park Newspapers owned by the Company whether outstanding on the Issue Date
or thereafter issued; provided, however, that Park Broadcasting and Park
Newspapers may issue Common Stock in public offerings free and clear of such
lien so long as the Company retains, in each case, ownership of at least a
majority of the economic interest in and has the power to vote at least a
majority of the voting power of the outstanding Voting Stock of each such
entity. Such lien was granted on June 20, 1996, the date on which the Senior
Credit Facility was repaid in full.
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 interest 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>
1999......................................................... 107.00%
2000......................................................... 105.25
2001......................................................... 103.50
2002......................................................... 101.75
2003 and thereafter.......................................... 100.00
</TABLE>
In addition, at any time prior to December 31, 1997, the Company may, at its
option, redeem all or any portion of the outstanding Notes with the net
proceeds of one or more Public Equity Offerings or Strategic Equity
Investments; provided, however, that the proceeds to the Company of the first
such Public Equity Offering or
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Strategic Equity Investment or any series of substantially concurrent
Strategic Equity Investments are at least $40.0 million, at 112.0% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of redemption (the "First Equity Offering Optional Redemption Price");
provided, further, however, that notice of such redemption is given within 30
days of such offering or investment. In addition, on and after December 31,
1997 and prior to May 15, 1999, the Company may, at its option, redeem with
the net proceeds of one or more Public Equity Offerings or Strategic Equity
Investments up to 50% of the aggregate principal amount of the Notes then
outstanding; provided, however, that the proceeds to the Company of the first
such Public Equity Offering or Strategic Equity Investment or series of
substantially concurrent Strategic Equity Investments (including any such
offering, investment or series of investments the proceeds of which were used
to redeem Notes) are at least $40.0 million, at 113.0% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of redemption
(the "Second Equity Offering Optional Redemption Price"); provided, further,
however, that notice of such redemption is given within 30 days of such
offering or investment.
In addition, the Company may at any time prior to May 15, 1999 redeem the
Notes, in whole or 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 "Optional Redemption Price"); provided,
however, that (i) if such redemption is to be effected for less than all of
the Notes then outstanding, not less than $40.0 million of Notes is
outstanding immediately after giving effect to such redemption (other than any
Notes owned by the Company or any of its Affiliates) and (ii) no redemption
(or, on or after December 31, 1997, partial redemption) of the Notes then
outstanding may be made with the proceeds of any Public Equity Offering or
Strategic Equity Investment pursuant to this sentence if, as of the date of
the proposed redemption, either the First Equity Offering Optional Redemption
Price or the Second Equity Offering Optional Redemption Price (whichever then
applicable) would be greater than the Optional Redemption Price as of such
date.
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.
OFFER TO PURCHASE ON PUBLIC EQUITY OFFERING
In the event that the Company or PAI shall consummate on or prior to
December 31, 1997 any Public Equity Offering or Strategic Equity Investment,
then the Company shall promptly make an offer to purchase from all Holders (an
"Equity Proceeds Offer") on a date (the "Equity Offer Purchase Date") not
later than the 90th day after the date of consummation (such consummation
date, the "Equity Offer Trigger Date") of such Public Equity Offering or
Strategic Equity Investment (such consummation date to be determined without
regard to the date of the consummation of any over-allotment option granted by
the Company or PAI, as the case may be, to the underwriters, if any) at a
purchase price equal to 112.0% of the aggregate principal amount of Notes to
be repurchased, plus accrued and unpaid interest, if any, to the Equity Offer
Purchase Date, an aggregate principal amount of outstanding Notes equal to the
aggregate net proceeds (after deducting any underwriting discounts and
commissions and any expenses directly related to such Public Equity Offering
or Strategic Equity Investment, but including any aggregate net proceeds (with
the foregoing deductions) received or receivable by the Company or PAI, as the
case may be, from any actual exercise of any over-allotment option granted to
the underwriters, if any) received or receivable by the Company or PAI, as the
case may be, from each such Public Equity Offering or Strategic Equity
Investment to the extent such proceeds shall not have been applied to the
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redemption of the Notes pursuant to any redemption pursuant to the second
paragraph under "--Redemption-- Optional Redemption" and the amount not so
applied exceeds $2.0 million. For purposes of this covenant, proceeds of any
Public Equity Offering or Strategic Equity Investment shall be deemed to have
been applied to the extent that a notice of redemption for the Notes has been
given with respect to such proceeds pursuant to the second paragraph under "--
Redemption--Optional Redemption" (unless and to the extent that on the date
fixed for redemption such proceeds are not applied to redeem the Notes).
Notice of an Equity Proceeds Offer shall be mailed by the Company not later
than the 30th day after the related Equity Offer Trigger Date to each holder
of Notes at such holder's registered address, stating: (i) that an Equity
Offer Trigger Date has occurred and that the Company is offering to purchase
an aggregate principal amount of Notes equal to the aggregate net proceeds of
the applicable Public Equity Offering or Strategic Equity Investment, as the
case may be, to be applied to an Equity Proceeds Offer 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 equal to 112.0% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
Equity 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 Equity 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 Equity
Proceeds Offer, any Notes accepted for payment pursuant to the Equity Proceeds
Offer shall cease to accrue interest after the Equity Offer Purchase Date, (v)
the procedures, consistent with the Indenture, to be followed by a holder of
Notes in order to accept an Equity Proceeds 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 Equity Offer Purchase Date, the Company will (i) accept for payment
the maximum principal amount of Notes or portions thereof tendered pursuant to
the Equity Proceeds Offer that can be purchased out of net proceeds from such
Public Equity Offering or Strategic Equity Investment, as the case may be,
that are to be applied to an Equity Proceeds 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 Equity Offer Purchase Date, and (iii) deliver or cause to be
delivered to the Trustee all Notes tendered pursuant to the Equity Proceeds
Offer. If less than all Notes tendered pursuant to the Equity Proceeds 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 any 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
Equity 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 publicly announce the
results of the Equity Proceeds Offer to holders of the Notes on or as soon as
practicable after the Equity 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 Equity
Proceeds Offer and will be deemed not to be in violation of any of its
covenants under the Indenture to the extent such compliance is in conflict
with such covenants.
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CHANGE OF CONTROL
In the event of a Change of Control Triggering Event, each holder of Notes
will have the right, 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").
The indentures governing the Broadcasting Notes and the Newspapers Notes
each contain change of control provisions similar to those applicable to the
Notes each requiring Park Broadcasting and Park Newspapers to offer to
repurchase the Broadcasting Notes and the Newspapers Notes, respectively, upon
the occurrence of a change of control triggering event. Such indentures also
contain limitations on the ability of Park Broadcasting and Park Newspapers to
pay dividends to the Company. Such required offers to purchase and dividend
restrictions may limit the amount of funds available to the Company to make 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 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; Effective Subordination of Notes."
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
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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 its
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 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 7.0:1.
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 incurred by the Company under the Senior Credit Facility,
not to exceed $58.0 million in aggregate principal amount outstanding at
any time, less any mandatory or optional prepayments thereof actually made
in respect of the Senior Credit Facility, and Indebtedness of Park
Broadcasting or any of its Subsidiaries (other than the Subsidiary which
owns radio stations KEZX-AM and KWJZ-FM) consisting of a guarantee of the
Company's Indebtedness under the Senior Credit Facility, less any mandatory
or optional prepayments thereof actually made in respect of the Senior
Credit Facility;
(ii)Indebtedness of the Company represented by the Notes (including any
Notes issued in accordance with the Indenture in lieu of cash interest on
the Notes);
(iii)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 (iii);
(iv)Indebtedness permitted to be incurred by (i) Park Broadcasting and
its Subsidiaries under the indenture governing the Broadcasting Notes and
(ii) Park Newspapers and its Subsidiaries under the indenture governing the
Newspapers Notes, in each case as such indentures are in effect on the
Issue Date;
(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 clauses (ii)
and (iv) above and (vii) below or incurred under the first paragraph of
this covenant
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("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 not require
any scheduled payment of principal or mandatory redemption prior to the
earlier of the final maturity of the Notes or the final maturity of the
Indebtedness being refinanced; (c) such Refinancing Indebtedness shall rank
no more senior, and shall be at least as subordinated, in right of payment
to the Notes as the Indebtedness being refinanced; and (d) the obligor on
such Refinancing Indebtedness shall be the obligor on the Indebtedness
being refinanced or the Company; and
(vii) Indebtedness of the Company represented by Notes issued for the
repurchase of the Warrants pursuant to the Warrant Agreement to the extent
complying with the terms thereof as in effect on the Issue Date.
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.
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 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 since the Issue Date shall not
exceed the sum of (a) 50% of the Restricted Payment Basket (or if such
Restricted Payment Basket shall be negative, minus 100% of such negative
amount), plus (b) the aggregate amount of all net cash proceeds received after
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.
Notwithstanding the foregoing, no Restricted Payments shall be made unless the
Company has paid all accrued interest due on the Notes on the immediately
preceding interest payment date in cash and prior to making any Restricted
Payment (other than any Permitted Payment set forth in clause (ii), (iii) or
(iv) of the following paragraph), the Company shall first make an offer to
purchase an aggregate principal amount of Notes equal to the amount of such
proposed Restricted Payment at a purchase price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase in accordance with the procedures set forth in the Indenture.
After the consummation of such offer to purchase, the Company may make a
Restricted Payment in an amount equal to the excess of the aggregate amount of
Notes offered to be purchased over the aggregate amount tendered for purchase
pursuant to such offer; provided, however, that all other conditions set forth
in this covenant for making such Restricted Payment are complied with at such
time. For the purposes of clause (iii) of this paragraph only, any payment
made pursuant to clause (v) 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.
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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 repurchase of the Warrants pursuant to the terms of the Warrant
Agreement (as in effect on the Issue Date) through the issuance of Notes;
and
(iv) the payment of cash in lieu of the issuance of fractional shares of
Common Stock upon exercise of the Warrants pursuant to the terms of the
Warrant Agreement as in effect on the Issue Date.
For purposes of clause (iii) of the first paragraph of this covenant,
Permitted Payments made pursuant to clauses (i), (iii) and (iv) of the
immediately preceding paragraph shall be included (as of the date of
declaration in the case of such clause (i)) as Restricted Payments made since
the Issue Date, and Permitted Payments made pursuant to clause (ii) of the
immediately preceding paragraph shall not be included as Restricted Payments.
Limitation on Asset Sales. The Indenture provides 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;
provided, further, however, that Park Broadcasting, Park Newspapers and their
respective Subsidiaries may receive such consideration in assets and
properties as and to the extent permitted pursuant to the indenture governing
the Broadcasting Notes and the Newspapers Notes, respectively, as in effect 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
Park Broadcasting, Park Newspapers or their respective Restricted Subsidiaries
and/or (b) make an investment in, or acquire capital assets or property
directly related to, the television broadcasting or newspaper publishing
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 from any Asset Sale of
Park Broadcasting, Park Newspapers or any of their respective Restricted
Subsidiaries would otherwise constitute Excess Proceeds and cannot at such
time be paid as a dividend to the Company by virtue of the indentures
governing the Broadcasting Notes or the Newspapers Notes, as the case may be,
such Net Proceeds shall not be deemed to constitute Excess Proceeds until such
time as and to the extent that such Net Proceeds are permitted to be paid as a
dividend thereunder. If the Net Proceeds of any Asset Sale are applied to
repay the indebtedness outstanding under the Senior Credit Facility, the
Company shall cause all of its Unrestricted Subsidiaries which at such time
own the Radio Station
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Assets (other than KEZX-AM or KWJZ-FM) to execute and deliver a senior
unsecured note evidencing their joint and several obligation to Park
Broadcasting in the amount of such Net Proceeds applied to the Senior Credit
Facility (the "Radio Station Note") and bearing interest (not payable until
the Senior Credit Facility has been repaid in full) at the rate then borne by
the Broadcasting Notes. Each Radio Station Note shall provide by its terms
that it shall become immediately due and payable after the 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 Senior Credit Facility. Prior to such time as the 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) are applied to the repayment of
the Senior Credit Facility. The Company will not permit any Unrestricted
Subsidiary which owns Radio Station Assets to enter into any agreement other
than the Senior Credit Facility which would restrict in any manner the payment
when due of any Radio Station Note.
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
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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 any 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 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. 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 (i) any Lien on the Capital Stock of Park
Broadcasting or Park Newspapers (whether outstanding on the date of the
Indenture or thereafter) required to be owned by the Company under the
Indenture other than Liens securing the Senior Credit Facility and (ii) any
Lien (other than Permitted Liens) on any other property 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 with respect to this clause (ii) 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 guarantee any Indebtedness
of 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
Senior Credit Facility and the indentures governing the Broadcasting Notes and
the Newspapers Notes, in each case 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 Senior Credit Facility
or such indentures, as the case may be (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
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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) any credit facility of the Restricted
Subsidiaries, 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 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," (iv) any Permitted
Investments other than Investments permitted by clause (vii) of the definition
of Permitted Investments, (v) payments to PAI on the business day after each
semi-annual interest payment date for the Notes for the payment of management
advisory fees in an amount not to exceed $250,000 on each such date; provided,
however, that no such payment shall be made unless (A) the Company has paid in
cash 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 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 and (viii) 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.
Issuance of Contingent Warrants. The Indenture provides that the Company
will be obligated to issue to holders of the Notes the Contingent Warrants,
exercisable for 3.0% of the Common Stock of the Company on a fully-diluted
basis as of the date of such issuance after giving effect to the issuance of
such warrants in the event that the Company does not effect a Public Equity
Offering or a Strategic Equity Investment (or a 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. Such
warrants will be issued pursuant to the Warrant Agreement and holders will
have the benefits of the Warrant Registration Rights Agreement.
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Any Contingent Warrants issued shall be issued to the Holders of the
outstanding Notes as of December 31, 1997 (including any Notes issued in lieu
of cash interest pursuant to the Indenture) pro rata, based upon the aggregate
principal amount of the Notes held by such Holder as of December 31, 1997. For
purposes of the foregoing, Notes held by the Company or any of its Affiliates
as of December 31, 1997 shall not be deemed to be outstanding.
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, (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) and (iii) Common Stock issued by Park
Broadcasting or Park Newspapers in public offerings, in each case, so long as
after giving effect thereto the Company or a Wholly Owned Restricted
Subsidiary owns not less than a majority of the economic interest in and has
the power to vote a majority of the voting power of the outstanding Voting
Stock of such Subsidiary.
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 or newspaper publishing 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.
Pledge of Capital Stock of Park Broadcasting and Park Newspapers. The
Indenture provides that immediately upon repayment in full of all amounts
outstanding under the Senior Credit Facility and the termination of all
commitments thereunder, the Company will execute and deliver a security pledge
agreement substantially in the form attached as an exhibit to the Indenture
(the "Pledge Agreement"). The Company executed and delivered the Pledge
Agreement as of June 20, 1996 and took all further actions reasonably
requested by the Trustee to effect a valid perfected first priority security
interest in and lien on all of the Capital Stock of Park Broadcasting and Park
Newspapers owned by the Company, whether outstanding on the Issue Date or
thereafter issued, including the filing of all appropriate instruments and the
delivery of an opinion of counsel to the Trustee. Upon the execution and
delivery of the Pledge Agreement, the Company was deemed to represent and
warrant that the Trustee acquired a valid perfected first priority security
interest in and lien on such Capital Stock.
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 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
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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 and the Pledge 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." The Surviving Person need not
comply with clause (iv) (B) of the immediately preceding sentence in
connection with any merger or consolidation of the Company with or into PAI if
(i) since its formation PAI shall not have incurred any Indebtedness or
granted any Liens in respect of its property or assets (or entered into any
agreement to do any of the foregoing) or conducted any business or operations
other than owning the Capital Stock of the Company and performing its
obligations under the Tax Sharing Agreement and any management agreement with
respect to the Company and its Subsidiaries, except for Indebtedness incurred
under the Prior Credit Agreement and Liens granted in connection therewith and
Liens on the Capital Stock of the Company granted under the Senior Credit
Facility, and (ii) all Indebtedness of PAI under the Prior Credit Agreement
shall have been repaid in full and all Liens granted in connection therewith
shall have been released.
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 or the Pledge Agreement (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;
(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
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Company or any Restricted Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (vii); or
(viii) after the date of execution and delivery thereof, the Pledge
Agreement ceases to be in full force and effect (other than in accordance
with its terms), or ceases to give the Trustee the Liens, rights, powers
and privileges purported to be created thereby (other than in accordance
with its terms), or is declared null and void, or the Company denies any of
its obligations or any collateral purported to be pledged thereunder
becomes subject to any Lien other than the Liens created or permitted by
the Pledge Agreement.
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
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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, 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 (including without limitation the
Warrant Agreement); (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; (iii) the satisfaction and discharge of the
Indenture shall not result in a breach or violation of, or constitute a
Default or Event of Default under, the Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound (including
without limitation the Warrant Agreement); and (iv) the Company has delivered
to the Trustee an Officers' Certificate and an opinion of counsel
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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.
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, (b) an Equity Proceeds Offer as and
when required by "--Offer to Purchase on Public Equity Offering," (c) an Asset
Sale Offer as and when required by "--Certain Covenants--Limitation on Asset
Sales" or (d) an offer to purchase Notes as and when required by "--Certain
Covenants--Limitation on Restricted Payments" or amend or modify any of the
definitions relating to any thereof, 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 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, (v) to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust
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Indenture Act, (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."
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.
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) (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, 1999, 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
and (ii) the redemption price applicable to the twelve-month period beginning
May 15, 1999.
"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
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described under "--Certain Covenants--Limitation on Liens" 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.
"Broadcasting Notes" means the $241.0 million aggregate principal amount of
11 3/4% Senior Notes due 2004 of Park Broadcasting issued under an indenture
dated May 13, 1996 between Park Broadcasting and IBJ Schroder Bank & Trust
Company, as trustee, including the Series B 11 3/4% Senior Notes due 2004 of
Park Broadcasting issued in exchange therefor.
"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.
"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 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 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 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 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 or PAI,
as the case may be, then still in office who were either directors at the
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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 or PAI, as the case may be, then in office;
(iii) the sale or other disposition of all or substantially all of the Capital
Stock or assets of the Company 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 or PAI, as
the case may be, consolidates with or merges with or into another Person, or
any Person consolidates with or merges with or into the Company or PAI, other
than in any such transaction where immediately after such transaction the
"beneficial owners" of the Voting Stock of the Company or PAI, as the case may
be, immediately prior to such transaction or the Permitted Holders own 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 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.
"Company" means Park Communications, 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, 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 management advisory fees
paid by the Company to PAI for such period and deducted in calculating such
net income (or loss) and (ii) 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 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 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 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
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provisions for taxes and (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).
"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 Interest Expense" means, as of any date of determination, the
amount 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 of
the sum of (i) the interest expense of the Company for such period, determined
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 during
such period, and all capitalized interest of the Company, in each case
determined in accordance with GAAP consistently applied.
"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 (ii)(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 Disqualified Stock but for provisions thereof
giving holders thereof the right to require the Company to purchase
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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.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"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.
"Newspapers Notes" means the $155.0 million aggregate principal amount of 11
7/8% Senior Notes due 2004 of Park Newspapers issued under an indenture dated
May 13, 1996 between Park Newspapers and IBJ Schroder Bank & Trust Company, as
trustee, including the Series B 11 7/8% Senior Notes due 2004 of Park
Newspapers issued in exchange therefor.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
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"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 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.
"Permitted Holders" means (i) each of (A) Gary B. Knapp, (B) Donald R.
Tomlin, Jr. and (C) PAI so long as PAI is 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 exceeds 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 $5.0 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; and
(ix) Investments existing on the Issue Date.
"Permitted Liens" means (i) Liens permitted by the indentures governing the
Broadcasting Notes and the Newspapers Notes as in effect on the Issue Date;
(ii) 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; (iii) 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; (iv) Liens arising from Capital Lease Obligations
permitted under the Indenture; (v) Liens arising from Purchase Money
Indebtedness permitted under the Indenture; (vi) Liens in respect of Interest
Rate Agreement Obligations permitted under the Indenture; (vii) Liens in favor
of
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the Company or any Restricted Subsidiary; (viii) 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; (ix) 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; (x) 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 by GAAP; (xi) 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;
(xii) 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; 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.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person
in accordance with and at the contract rate (including, without limitation,
any rate applicable upon default) specified in the agreement or instrument
creating, evidencing or governing such Indebtedness, whether or not, pursuant
to applicable law or otherwise, the claim for such interest is allowed as a
claim in such Insolvency or Liquidation Proceeding.
"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 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 PAI, cash
proceeds from such public equity offering equal to not less than (i) with
respect to any redemption prior to December 31, 1997, 112.0% and (ii) with
respect to any redemption on or after December 31, 1997, 113.0% of the
aggregate principal amount of the Notes to be redeemed is received by the
Company as a capital contribution immediately prior to such redemption and,
with respect to any Public Equity Offering by the Company or PAI, to the
extent that the proceeds therefrom are not used to effect a redemption of the
Broadcasting Notes or the Newspapers Notes.
"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 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
nationally recognized rating agency if both the two named rating agencies
cease publishing ratings of investments.
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"Radio Station Assets" means all property and assets used in the radio
broadcasting operations of Park Broadcasting as of the Issue Date as more
particularly set forth in the indenture governing the Broadcasting Notes.
"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 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"; or (iv) any Restricted
Investment. Notwithstanding anything in the Indenture to the contrary, any
transaction consummated by Park Broadcasting or Park Newspapers which would
otherwise be a Restricted Investment under the Indenture shall not be
prohibited by the Indenture (but shall still count as a Restricted Investment)
if made in accordance with the provisions of the indenture governing the
Broadcasting Notes (with respect to Park Broadcasting) or the indenture
governing Newspapers Notes (with respect to Park Newspapers) as in effect on
the Issue Date.
"Restricted Payment Basket" means as of any date an amount equal to (a) the
cumulative amount of cash dividends received by the Company from its
Subsidiaries since the Issue Date (other than dividends of the proceeds of the
Broadcasting Notes and the Newspapers Notes) minus (b) the sum of (i) the
Cumulative Interest Expense of the Company and (ii) the cumulative amount of
provision for taxes based on income of the Company since the Issue Date.
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"Restricted Subsidiary" means each direct or indirect Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Senior Credit Facility" means the Credit Agreement dated as of May 10, 1996
between 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; 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 Senior Credit Facility (and do not require prepayment
from the sale or other disposition of, or any different restriction (as
compared to the terms in effect in 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 Senior Credit Facility on May 13, 1996 is first
repaid other than through a refinancing, the Senior Credit Facility shall be
deemed not to exist for purposes of any exception to the covenants in the
Indenture.
"Strategic Equity Investment" means the issuance and sale of Capital Stock
(other than Disqualified Stock) of the Company or PAI to a Person
substantially engaged in the television broadcasting or newspaper publishing
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 PAI, cash proceeds from
such issuance equal to not less than (i) with respect to any redemption prior
to December 31, 1997, 112.0% and (ii) with respect to any redemption on or
after December 31, 1997, 113.0% 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 and, with respect to any issuance by the Company
or PAI, to the extent that the proceeds therefrom are not used to effect a
redemption of the Broadcasting Notes or the Newspapers Notes.
"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.
"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, 1999; provided, however, that if
the then remaining term to May 15, 1999 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, 1999 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
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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,"
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. 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).
"Warrant Agreement" means the Warrant Agreement dated as of May 13, 1996
between the Company and IBJ Schroder Bank & Trust Company, as Warrant Agent.
"Warrant Registration Rights Agreement" means the Registration Rights
Agreement dated as of May 13, 1996 between the Company and the Initial
Purchasers.
"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.
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DESCRIPTION OF THE WARRANTS
GENERAL
The Initial Warrants were, and the Contingent Warrants will be, issued under
a Warrant Agreement dated as May 13, 1996 (the "Warrant Agreement") between
the Company and IBJ Schroder Bank & Trust Company, as Warrant Agent (the
"Warrant Agent"). The following summaries of certain provisions of the Warrant
Agreement do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all the provisions of the Warrants and the
Warrant Agreement, including the definitions therein of certain terms.
Wherever particular sections or defined terms of the Warrant Agreement are
referred to, such sections or defined terms are incorporated by reference.
Each Warrant will entitle the registered holder thereof, subject to and upon
compliance with the provisions thereof and of the Warrant Agreement, at such
holder's option, after the Exercisability Date and prior to 5:00 p.m., New
York City time, on May 15, 2004 (the "Warrant Expiration Date"), to purchase
at a price of $0.01 per Warrant Share (the "Exercise Price") from the Company
one (or such other number as may result from adjustments as provided in the
Warrant Agreement) share of Common Stock. Each Warrant may be exercised on any
business day on or after the Exercisability Date and on or prior to the
Warrant Expiration Date. Any Warrant not exercised before the close of
business on the Warrant Expiration Date shall become void, and all rights of
the holder under the Warrant Certificate evidencing such Warrant and under the
Warrant Agreement shall cease.
EXERCISE
Warrants may be exercised on or after the Exercisability Date by
surrendering the Warrant Certificate evidencing such Warrants with the form of
election to purchase Common Stock set forth on the reverse side thereof duly
completed and executed by the holder thereof and paying in full the Exercise
Price for such Warrants at the office or agency designated for such purpose,
which will initially be the corporate trust office of the Warrant Agent in New
York, New York. Each Warrant may only be exercised in whole and the Exercise
Price may be paid (i) in cash or by certified or official bank check or (ii)
by the surrender (which surrender shall be evidenced by cancellation of the
number of Warrants represented by any Warrant Certificate presented in
connection with a Cashless Exercise (as defined below)) of a Warrant or
Warrants (represented by one or more relevant Warrant Certificates), and
without the payment of the Exercise Price in cash, for such number of shares
of Common Stock equal to the product of (1) the number of shares of Common
Stock for which such Warrant is exercisable with payment in cash of the
Exercise Price as of the date of exercise and (2) the Cashless Exercise Ratio.
For purposes of the Warrant Agreement, the "Cashless Exercise Ratio" shall
equal a fraction, the numerator of which is the excess of the Current Market
Value (as defined below) per share of Common Stock on the date of exercise
over the Exercise Price Per Share (as defined below) as of the date of
exercise and the denominator of which is the Current Market Value per share of
the Common Stock on the date of exercise (calculated as set forth in the
Warrant Agreement). An exercise of a Warrant in accordance with the
immediately preceding sentences is herein called a "Cashless Exercise." Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the holder's option to elect a Cashless Exercise, the number
of shares of Common Stock deliverable upon a Cashless Exercise shall be equal
to the number of Warrants that the holder specifies is to be exercised
pursuant to a Cashless Exercise multiplied by the Cashless Exercise Ratio. All
provisions of the Warrant Agreement shall be applicable with respect to an
exercise of a Warrant Certificate pursuant to a Cashless Exercise for less
than the full number of Warrants represented thereby. If, pursuant to the
Securities Act, the Company is not able to effect the registration under the
Securities Act of the sale of the Warrant Shares by the Company to the holders
of the Warrants upon the exercise thereof as required by the Warrant
Agreement, the holders of the Warrants will be required, if the Company is not
then able to rely on an exemption from the registration requirements of the
Securities Act in connection with the sale of the Warrant Shares or exercise
of the Warrants, to effect the exercise of the Warrants solely pursuant to the
Cashless Exercise option to the extent that such Cashless Exercise is not
adverse to the interests of the holders of the Warrants.
The Company shall as soon as practicable after the occurrence of an Exercise
Event send to each holder of Warrants and to each beneficial owner of the
Warrants to the extent that the Warrants are held of record by a
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depository or other agent, by first-class mail, at the addresses appearing on
the Warrant Register, a notice of the Exercise Event which has occurred, which
notice shall describe the type of Exercise Event and the date of the
occurrence thereof and the date of expiration of the right to exercise the
Warrants prominently set forth on the face of such notice.
Subject to the terms of the Warrant Agreement, the Warrant Certificates
evidencing the Warrants comprising part of the Units may be surrendered for
exercise or exchange, and the transfer of Warrant Certificates will be
registrable, at the office or agency of the Company maintained for such
purpose, which initially will be the corporate trust office of the Warrant
Agent in New York, New York. The Warrant Certificates will be issued either in
global form or in registered form as definitive Warrant Certificates. No
service charge will be made for any exercise, exchange or registration of
transfer of Warrant Certificates, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
REPURCHASE ELECTION OF HOLDERS
In the event that a Public Equity Offering shall not have occurred on or
prior to May 15, 2001 resulting in net proceeds to the Company of at least
$40.0 million, the Company shall give notice (the "Notice of Election Right")
to the holders of Warrants within 60 days after May 15, 2001 of the holders'
right to the election described herein, with a certificate of election (the
"Certificate of Election") attached thereto describing with reasonable detail
the holders' right to election and the First Valuation Report described below.
Within 60 days after receipt of such Notice of Election Right, the election
(as evidenced by the choice elected in the Notice of Election Right) of the
holders of not less than a majority of Warrants who complete and return their
Certificates of Election to the Warrant Agent (the "Electing Majority
Holders") shall be deemed to be notice (which notice shall be irrevocable)
(such notice, the "Election Notice" and the date the Election Notice is given,
the "Notice Date") to the Company of the holders' election to require the
Company to either (i) offer to purchase all outstanding Warrants at a price
per Warrant (the "Warrant Purchase Price") equal to the fair market value
thereof, as determined in accordance with the procedures described below, on
the Warrant Purchase Date (as defined below) or (ii) effect the registration
(the "Registration Election") of the offering and sale of the Warrants and/or
the Warrant Shares on behalf of the holders of the Warrants pursuant to the
Warrant Agreement and the Warrant Registration Rights Agreement. If such
notice shall be given for the Registration Election, the date of such notice
shall be deemed the "Registration Election Date." If no holder responds by
such 60th day after receipt of such Notice of Election Right or the responding
holders are deadlocked, the Company shall have the option, in its sole
discretion, to deem the election of the holders to have been for the
Registration Election or the repurchase of the Warrants on the terms set forth
herein. The decision of the Electing Majority Holders (or of the Company
pursuant to the immediately preceding sentence) shall bind all holders of
Warrants.
The Company shall, in connection with sending the Notice of Election Right,
select an independent investment banking or appraisal firm of national
standing (an "Independent Financial Expert") and cause such Independent
Financial Expert to deliver to the Company a written report (the "First
Valuation Report") stating the methods of valuation considered or used and the
fair market value of each of the Warrants as of March 31, 2001 (the "Valuation
Date") and containing a statement as to the nature and scope of the
examination or investigation upon which the determination of fair market value
was made and the factors and bases underlying such determination.
If the Election Notice is for the repurchase of the Warrants, in the
Election Notice, the Electing Majority Holders holding not less than 66 2/3%
of the Warrants held by the Electing Majority Holders may elect to appoint a
second Independent Financial Expert to make a determination of the fair market
value of the Warrants as of the Valuation Date. If they so elect, the Electing
Majority Holders who hold a majority of the Warrants held by the Electing
Majority Holders shall cause such Independent Financial Expert, within 45 days
of such election, to deliver to the Company (with a copy to the Warrant Agent)
a written report (the "Second Valuation Report") of the fair market value of
each of the Warrants as of the Valuation Date substantially similar in content
as to methods, nature and scope of examination and factors and bases
underlying valuation to the First Valuation Report.
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The Company shall have ten business days after receipt of the Second
Valuation Report to object to the fair market value of the Warrants as set
forth in the Second Valuation Report. If the Company does not object, such
fair market value shall be the Warrant Purchase Price. If the Company does
object, the majority of the Electing Majority Holders and the Company shall,
within 20 business days after the Company so objects, select a third
Independent Financial Expert mutually acceptable to both parties to prepare a
written report (the "Third Valuation Report") of its determination of the fair
market value of the Warrants as of the Valuation Date, which report shall be
delivered to the Company and the holders (with a copy to the Warrant Agent)
within 30 days after the selection of such Independent Financial Expert. Such
valuation shall contain a statement as to the nature and scope of the
examination or investigation upon which the determination of fair market value
was made and the factors and bases underlying such determination. If the
holders and the Company cannot agree to the selection of an Independent
Financial Expert, the New York office of the following firms (or their
successor firms) shall serve as the Independent Financial Expert in the
following order of priority; provided, however, that such firm has not, for
the prior three years, rendered professional services to the Company or its
Affiliates:
(1) Arthur Andersen & Co.
(2) Price Waterhouse & Co.
(3) Deloitte & Touche
(4) KPMG Peat Marwick
(5) Ernst & Young LLP
(6) Coopers & Lybrand L.L.P.
The fair market value determined in the Third Valuation Report shall
constitute the Warrant Purchase Price; provided, however, that if the Warrant
Purchase Price contained in the Third Valuation Report is more than the higher
of the first two valuations, the higher of the first two valuations shall
constitute the Warrant Purchase Price; provided, further, however, that if the
Warrant Purchase Price contained in the Third Valuation Report is less than
the lower of the first two valuations, the lower of the first two valuations
shall constitute the Warrant Purchase Price. If any Independent Financial
Expert becomes aware of any material changes since the Valuation Date, after
reasonable inquiry with respect thereto, in the business or financial
condition or prospects of the Company and its Subsidiaries, such Independent
Financial Expert shall specify such material changes in its written report and
shall revise its valuation as it deems appropriate. The fees and other costs
of each of the first two Independent Financial Experts shall be borne by the
party appointing such Independent Financial Expert, and the fees and other
costs of the third Independent Financial Expert shall be shared equally by the
Company and the holders of Warrants; provided, however, that all indemnities
in respect of any Independent Financial Expert shall be for the account of the
Company.
Within 20 business days after the Warrant Purchase Price has been determined
in accordance with the above, the Company shall provide notice of its offer to
purchase (the "Purchase Offer") to the holders of Warrants by mailing by first
class mail a notice of such offer (the "Purchase Notice") to their addresses
as set forth on the Warrant Register. The date of the mailing of the Purchase
Notice is hereafter called the "Purchase Notice Date." The Purchase Offer must
remain open for 20 business days after the Purchase Notice Date (or such
longer period as may be required by law) and the date set for the purchase of
the Warrants shall be the "Warrant Purchase Date."
The Company shall only be obligated to offer to purchase for cash Warrants
(at the Warrant Purchase Price) to the extent that it is able to do so in
accordance with covenants in the agreements evidencing its indebtedness, in
which event Warrants shall be purchased from tendering holders pro rata in
accordance with the number of Warrants tendered by each holder and to the
extent that tendering holders are not paid the Warrant Purchase Price for all
Warrants tendered because of such restrictions, the Company shall repurchase
the tendered Warrants by issuing, pursuant to a registration statement
declared effective under the Securities Act (which shall be filed not later
than the Purchase Notice Date), Notes (valued at 100% of the face amount
thereof), up to a maximum aggregate principal amount of Notes so issued equal
to 50% of the aggregate Warrant Purchase Price of all Warrants tendered. If on
or prior to each of May 15, 2002 and May 15, 2003 a Public Equity Offering
resulting in net proceeds of at least $40.0 million shall not have occurred
and the Company shall not have purchased for
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cash all Warrants tendered pursuant to the immediately preceding Purchase
Offer, then the Company shall be obligated to effect offers to purchase the
outstanding Warrants on the same terms and subject to the same limitations as
set forth above (such limitation independently applicable to each such date),
with the Warrant Purchase Price to be based on a new determination of fair
market value as of March 31, 2002 or March 31, 2003, as the case may be,
pursuant to the procedures set forth in the Warrant Agreement.
The Company shall not and shall not cause any Subsidiary to directly or
indirectly enter into any agreement or instrument which would prohibit the
Company from issuing Notes to repurchase Warrants, other than the Indenture
and the Senior Credit Facility, each as in effect on the Issue Date.
REGISTRATION OF ISSUANCE OF WARRANT SHARES
Immediately prior to the occurrence of an Exercise Event arising as a result
of a Public Equity Offering or the Registration Election Date, the Company
will, if permitted by applicable law, take all such action as is necessary to
cause the offer and sale by the Company of the shares of Common Stock issuable
upon exercise of the Warrants to be registered or otherwise qualified under
the provisions of the Securities Act and pursuant to all applicable state
securities laws and to provide for the issuance of all shares of Common Stock
delivered upon exercise of the Warrants pursuant to an effective registration
statement under the Securities Act. So long as any unexpired Warrants which
have become exercisable due to the occurrence of such an Exercise Event remain
outstanding, the Company will file such amendments and/or supplements to any
registration statement under the Securities Act or under any state securities
laws covering the issuance of such shares and supplement and keep current any
prospectus forming a part of such registration statement as may be necessary
to permit the Company to deliver to each person exercising a Warrant a
prospectus meeting the requirements of Section 10(a)(3) of the Securities Act
(a "Prospectus") and the regulations of the Commission and otherwise complying
with the Securities Act and regulations thereunder, and as may be necessary to
comply with any applicable state securities laws.
The Company will file the reports required to be filed by it under the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations adopted by the Commission
thereunder in a timely manner in accordance with the requirements of the
Securities Act and the Exchange Act, and if at any time the Company is not
required to file such reports, it will, upon the request of any holder or
beneficial owner of Warrants, make available such information as necessary to
permit sales pursuant to Rule 144A under the Securities Act.
DISTRIBUTION RIGHTS; ADJUSTMENT TO EXERCISE RATE; MERGER OR CONSOLIDATION
In general, holders of Warrants will not be entitled, by virtue of being
such holders, to receive notice of any meetings of shareholders or otherwise
have any right of shareholders of the Company. However, if at any time the
Company grants, issues or sells options, convertible securities, or rights to
purchase stock, warrants or other securities pro rata to the record holders of
the Common Stock of the Company ("Distribution Rights") or,
without duplication, makes any dividend or otherwise makes any distribution
("Distribution") on shares of the Common Stock of the Company, then the
Company shall grant, issue, sell or make to each registered holder of Warrants
the aggregate Distribution Rights or Distribution, as the case may be, which
such holder would have acquired if such holder had held the maximum number of
shares of Common Stock acquirable upon complete exercise of each holder's
Warrants (regardless of whether the Warrants are then exercisable and without
giving effect to the Cashless Exercise option) immediately before the record
date for the grant, issuance or sale of such Distribution Rights or
Distribution, as the case may be, or, if there is no such record date, the
date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Distribution Rights or Distribution, as the
case may be.
The number of shares of Common Stock issuable upon exercise of a Warrant
(the "Exercise Rate") is subject to adjustment from time to time upon the
occurrence of certain events, including (a) certain dividends or distributions
on Common Stock of the Company payable in Common Stock of the Company or
certain other
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capital stock of the Company; (b) subdivisions, combinations or certain
reclassifications of the Common Stock of the Company; (c) certain tender
offers or exchange offers for the Common Stock of the Company; and (d) sales
by the Company of Common Stock of the Company or of securities convertible
into or exchangeable or exercisable for Common Stock of the Company at less
than the then Current Market Value (other than (1) pursuant to the exercise of
the Warrants, (2) any security convertible into, or exchangeable or
exercisable for, the Common Stock as to which the issuance thereof has
previously been the subject of any required adjustment pursuant to the Warrant
Agreement, and (3) the issuance of Common Stock upon the conversion, exchange
or exercise of convertible, exchangeable or exercisable securities of the
Company outstanding on the date of issuance of the Warrants (to the extent in
accordance with the terms of such securities as in effect on such date)).
If the Company, in a single transaction or through a series of related
transactions, consolidates with or merges with or into any other person or
sells, assigns, transfers, leases, conveys or otherwise disposes of all or
substantially all of its properties and assets to another person or group of
affiliated persons or is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock, as a condition to
consummating any such transaction the person formed by or surviving any such
consolidation or merger if other than the Company or the person to whom such
transfer has been made (the "Surviving Person") shall enter into a
supplemental warrant agreement. The supplemental warrant agreement shall
provide that the holder of a Warrant then outstanding may exercise it for the
kind and amount of securities, cash or other assets which such holder would
have received immediately after the consolidation, merger, binding share
exchange or transfer if such holder had exercised the Warrant immediately
before the effective date of the transaction (whether or not the Warrants were
then exercisable and without giving effect to the Cashless Exercise option),
assuming (to the extent applicable) that such holder (i) was not a constituent
person or an affiliate of a constituent person to such transaction; (ii) made
no election with respect thereto; and (iii) was treated alike with the
plurality of non-electing holders. The Surviving Person shall mail to holders
of Warrants at the addresses appearing on the Warrant Register a notice
briefly describing the supplemental warrant agreement. If the issuer of
securities deliverable upon exercise of Warrants is an affiliate of the
Surviving Person, that issuer shall join in the supplemental warrant
agreement.
If, pursuant to the Indenture, any person is required to enter into a
supplemental indenture assuming all of the Company's obligations under the
Notes, then as a condition to entering into such transaction, the Company
shall require such person to enter into a supplemental warrant agreement. Such
supplemental warrant agreement shall provide that such person shall succeed to
and be substituted for every right and obligation of the Company in respect of
the Contingent Warrants.
In the event of a taxable distribution to holders of Common Stock of the
Company which results in an adjustment to the number of shares of Common Stock
or other consideration for which such a Warrant may be exercised, the holders
of the Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend. See
"Certain Federal Income Tax Consequences."
Fractional shares of Common Stock are not required to be issued upon
exercise of Warrants, but in lieu thereof the Company will pay a cash
adjustment.
The Warrant Agreement permits, with certain exceptions, the amendment
thereof and the modification of the rights and obligations of the Company and
the rights of the holders of Warrant Certificates under the Warrant Agreement
at any time by the Company and the Warrant Agent with the consent of the
holders of Warrant Certificates representing a majority in number of then
outstanding Warrants.
CERTAIN DEFINITIONS
"Current Market Value" per share of Common Stock of the Company or any other
security at any date means (i) if the security is not registered under the
Exchange Act, (a) the value of the security, determined in good faith by the
Board of Directors of the Company and certified in a board resolution, based
on the most recently completed arm's-length transaction between the Company
and a person other than an Affiliate of the
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Company and the closing of which occurs on such date or shall have occurred
within the six-month period preceding such date, or (b) if no such transaction
shall have occurred on such date or within such six-month period, the value of
the security as determined by an independent financial expert or (ii) if the
security is registered under the Exchange Act, the average of the daily
closing bid prices for each business day during the period commencing 15
business days before such date and ending on the date one day prior to such
date, or if the security has been registered under the Exchange Act for less
than 15 consecutive business days before such date, then the average of the
daily closing bid prices for all of the business days before such date for
which daily closing bid prices are available. If the closing bid price is not
determinable for at least ten business days in such period, the Current Market
Value of the security shall be determined as if the security were not
registered under the Exchange Act.
"Exercisability Date" is defined in the Warrant Agreement as the date on or
after the Separability Date on which there shall have occurred an Exercise
Event.
"Exercise Event" means the date of the occurrence of the earliest of: (1)
immediately prior to the occurrence of a Change of Control (as defined in the
Warrant Agreement, which definition is substantially similar to the definition
of "Change of Control" as set forth in "Description of the Notes--Certain
Definitions"), (2) the 180th day (or such fewer number of days as determined
by the Company in its sole discretion) after the consummation of a Public
Equity Offering, (3) the 90th day after the Registration Election Date, (4)
the approval by the holders of Capital Stock of the Company of any Plan of
Liquidation of the Company and (5) the 180th day prior to May 15, 2004.
"Exercise Price Per Share" means the Exercise Price divided by the number of
shares of Common Stock for which a Warrant is then exercisable (without giving
effect to the Cashless Exercise option). No payment or adjustment shall be
made on account of any dividends on the shares of Common Stock issued upon
exercise of a Warrant.
"Plan of Liquidation" means, with respect to the Company, a plan (including
by operation of law) that provides for, contemplates or the effectuation of
which is preceded or accompanied by (whether or not substantially
contemporaneously) (i) the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company otherwise than as an
entirety or substantially as an entirety and (ii) the distribution of all or
substantially all of the proceeds of such sale, lease, conveyance or other
disposition and all or substantially all of the remaining assets of the
Company to holders of Capital Stock of the Company.
"Public Equity Offering" means a primary public offering (whether or not
underwritten, but excluding any offering pursuant to Form S-8 under the
Securities Act or any other publicly registered offering pursuant to the
Securities Act pertaining to an issuance of shares of Common Stock or
securities exercisable therefor under any benefit plan, employee compensation
plan, or employee or director stock purchase plan) of capital stock of the
Company pursuant to an effective registration statement under the Securities
Act.
REGISTRATION RIGHTS OF WARRANT HOLDERS
The Company and the Initial Purchasers are parties to an agreement for the
registration of the Warrants and/or the Warrant Shares (the "Warrant
Registration Rights Agreement") pursuant to which the Company has agreed to
provide the holders of the Warrants and/or the Warrant Shares (the "Warrant
Holders") certain registration rights for the Warrants and/or the Warrant
Shares. Under the Warrant Registration Rights Agreement, (i) on or after the
180th day after the consummation of a Public Equity Offering, or (ii) on or
after the 90th day after the Registration Election Date, the holders of at
least 50% of the Warrants and/or Warrant Shares (the "Registrable Securities")
are entitled to request the Company to effect one registration (including
pursuant to an underwritten offering) subject to certain conditions and
limitations; provided, however, that if such holders have requested such
registration and it has been effected prior to issuance of the Contingent
Warrants, then the holders of at least 50% of the Registrable Securities will
be entitled to request the Company to effect one additional registration after
the issuance of the Contingent Warrants. The Company shall have (i) 12 months
after
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any such request for registration arising as a result of a Public Equity
Offering or (ii) 90 days after any such request for registration arising as a
result of a Registration Election, to effect such registration. In addition,
the Company shall not be required to effect a requested registration for the
period set forth in the Warrant Registration Rights Agreement immediately
following the effective date of a registered offering of securities for its
own account. In the event that the underwriter of any such offering deems it
necessary to reduce the total number of Registrable Securities and other
securities proposed to be included in any such registration (an "underwriter's
cut back"), such other securities shall be reduced to zero before the
Registrable Securities are reduced. In addition, the holders of Registrable
Securities may require the Company on one occasion to register the Registrable
Securities on Form S-3 when such form becomes available to the Company (which
shall not count as a requested registration), provided the aggregate proceeds
of each such registration is reasonably expected to exceed $1,000,000 and
subject to certain other conditions and limitations. Other holders of
securities of the Company may participate in such registration.
If the Company proposes to register any of its equity securities for its own
account or for the account of any of its securityholders (other than a
registration statement on Form S-4 or S-8 (or any other publicly registered
offering pursuant to the Securities Act pertaining to the issuance of shares
of Common Stock or securities exercisable therefor under any benefit plan,
employee compensation plan, or employee or director stock purchase plan) or a
registration statement filed in connection with an offer of securities solely
to existing securityholders), the holders of Registrable Securities will be
entitled to notice of such proposed registration and the opportunity to
include Registrable Securities in such proposed registration (a "Piggy-Back
Registration"); provided, however, in the event an underwriter's cut back is
necessary the number of Registrable Securities requested to be included
therein is subject to reduction, with securities offered for the account of
the Company and securities of any other securityholder initiating such
registration entitled to priority and the Warrant Holders and all of the
holders of securities of the Company being subject to reduction on a pro rata
basis. Under the Warrant Registration Rights Agreement, the Company has agreed
not to cause or permit the public sale of its Common Stock during the 30-day
period prior to and during the 90-day period beginning on the commencement of
any underwritten offering pursuant to a request by the Warrant Holders, or a
Piggy-Back Registration which has been scheduled, prior to the Company
publicly announcing its intention to effect a public offering. Registration
rights will terminate as to any Warrants and/or Warrant Shares when such
Registrable Securities may be sold without limitation under Rule 144.
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
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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 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
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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 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 or, at the Company's option, by the issuance of additional Notes to the
extent permitted under the Indenture, 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.
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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. 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, $80,000,000 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
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Series B Notes. Such interest will be paid (in cash or, at the option of the
Company, by the issuance of additional Notes) 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.
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 much 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.
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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.
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
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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-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
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(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 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
By Registered or Certified Mail: IBJ By Hand or Overnight Delivery
Schroder Bank & Trust Company P.O. Service: IBJ Schroder Bank &
Box 84 Bowling Green Station New Trust Company One State Street
York, New York 10274-0084 Attention: New York, New York 10004
Reorganization Operations Department Attention: Securities
Processing Window
Subcellar One (SC-1)
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.
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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.
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 220543.1 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."
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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 Units, Notes and Initial
Warrants and who hold the Units, Notes and Initial Warrants 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 Units, Notes and Initial
Warrants 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 UNITS, NOTES OR
WARRANTS IN LIGHT OF SUCH HOLDER'S PARTICULAR CIRCUMSTANCES AND INCOME TAX
SITUATION. EACH HOLDER OF UNITS, NOTES OR WARRANTS SHOULD CONSULT SUCH
HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE
OWNERSHIP AND DISPOSITION OF THE UNITS, NOTES OR WARRANTS, 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 "stated redemption price at maturity" (the sum of all
payments to be made on the Note, other than "additional interest" and
Contingent Warrants discussed below, whether denominated as interest or
principal) over its "issue price." 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 some or all of the related cash payments. The
"issue price" of each Note has been determined by allocating the issue price
of the Unit between the Note and the Initial Warrants comprising such Unit
based on their relative fair market values. For this purpose, the issue price
of a Unit is the initial offering price at which a substantial amount of the
Units were sold (not including sales to bond houses, brokers or similar
persons or organizations acting in the capacity of underwriters or
wholesalers). The Company has allocated $965.00 to the Note and $35.00 to the
Initial Warrants comprising each Unit. The Company's allocation reflects its
best judgment as to the relative values of each of those instruments at the
time of issuance, but will not be binding on the Internal Revenue Service. The
Company's allocation will be binding on each Holder of a Unit that does not
explicitly disclose that its allocation of the issue price of the Unit is
different than the Company's allocation. Such disclosure must be made on a
statement attached to such Holder's timely filed federal income tax return for
its taxable year that includes the acquisition date of the Unit.
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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 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). The amount of OID allocable to the
final accrual period is the difference between the amount payable at maturity
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, except as
described below under "Treatment of Additional Notes," reduced by any prior
payments, or payments on the first day of the current accrual period (in
either case, other than any payments of "additional interest" or Contingent
Warrants 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.
Treatment of Additional Notes. The issuance of additional notes ("Additional
Notes") in lieu of cash interest is not treated as a payment of interest.
Instead, the underlying Note and any Additional Notes that may be issued
thereon are treated as a single debt instrument under the OID rules. Moreover,
because the terms of the Additional Notes and underlying Note are identical so
that the two are fungible in all respects, the issuance of an Additional Note
should be treated simply as a division of the underlying Note, so that the
Holder's tax basis and adjusted issue price in the underlying Note should be
allocated between the underlying Note and the Additional Notes in proportion
to their relative principal amounts.
For purposes of determining the stated redemption price at maturity and the
rate at which OID accrues on a Note, applicable regulations require that it be
assumed that the Company will pay interest in the form of Additional Notes to
the maximum extent permitted under the terms of the Notes because doing so
would reduce the yield to maturity on the Notes. If the Company elects to pay
in cash an interest payment payable in cash or Additional Notes, the cash
payment will be treated as a pro rata prepayment on the Notes. As a result,
the Holder generally will recognize gain in an amount equal to the excess of
the cash payment over the portion of the Holder's tax basis that would have
been allocated to such Additional Notes. The Holder's tax basis in the Notes
held would be reduced by such allocated portion of the Holder's tax basis but
would not be reduced by the cash payment in lieu of Additional Notes, and the
issue price of the Notes would be similarly reduced.
Applicable High Yield Discount Obligations. Each Note is to be treated as an
"applicable high yield discount obligation" ("AHYDO") under the rules of
Sections 163(e) and 163(i) of the Code, because the Notes have a maturity date
more than five years from the date of issue, have a yield to maturity more
than five percentage points higher than the applicable Federal rate and bear
"significant OID." The Notes bear significant OID because, assuming (as is
required for this purpose), that the Company issues Additional Notes to the
maximum extent permitted, instead of making cash payments of interest on the
Notes and Additional Notes, as of the close of an accrual period ending more
than five years after issuance the cumulative amount of income includible by a
Holder with respect to a Note (including the Additional Notes derived from the
Note) will exceed the cumulative amount of interest paid to the Holder (in
cash or property other than an obligation or stock of the Company or a related
party) by an amount that is greater than the product of the issue price of the
Note multiplied by its yield to maturity.
A portion of OID accruing on the Note (the "disqualified portion") will be
treated in respect of corporate Holders as a dividend eligible for the
dividends received deduction (provided the Company has adequate current or
accumulated earnings and profits); and the Company will be denied a deduction
for the disqualified portion.
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In addition, the remainder of the OID accruing will not be deductible by the
Company until paid in cash. The disqualified portion of the OID is
proportionate to the portion of the yield to maturity of the Note in excess of
six percentage points over the applicable Federal rate. A Holder of a Note
must include in income all of the OID accruing on the Note, including any
amount paid in Additional Notes rather than in cash.
TAX BASIS
The initial tax basis for a Note is determined by allocating the purchase
price paid for the Unit between the Note and the Initial Warrants comprising
such Unit based on their relative fair market values. In general, the tax
basis of a Note in the hands of the Holder will be increased by the amount of
OID, if any, on the Note that is included in the Holder's income and, except
as described above under "Treatment of Additional Notes," will be decreased by
the amount of any payments (other than payments of "additional interest" or
Contingent Warrants 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, as well
as a cash payment of interest in lieu of the issuance of Additional Notes) 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
(including a deemed redemption on any payment in cash of an interest payment
payable in cash or Additional Notes, as described above), 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 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 was a capital asset in the
hands of the Holder, and had been held (or treated as held) for longer than
one year.
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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 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.
TAX TREATMENT OF THE WARRANTS
TREATMENT OF CONTINGENT WARRANTS
Although in the absence of applicable final Treasury regulations the
treatment is not free from doubt, the right of Holders of Notes and Additional
Notes to receive Contingent Warrants in certain circumstances should be
treated for tax purposes as a right to receive a contingent payment of
interest, the amount and likelihood of payment of which cannot be estimated
with any reasonable accuracy at the time the Notes are issued. Such contingent
interest should not be included in the stated redemption price at maturity of
the Notes (or Additional Notes) for purposes of determining the amount of OID
on the Notes and the rate at which OID accrues, but upon any issuance of the
Contingent Warrants, such warrants should be treated as interest income to the
Holder in the amount of the fair market value of the Contingent Warrants at
that time. The tax basis of the Contingent Warrants received by a Holder would
equal the fair market value of the Contingent Warrants at the time they are
issued.
EXERCISE OF WARRANTS
Generally, a Holder of a Warrant will not recognize any gain or loss upon
exercise of the Warrant. The tax basis of the Warrant Shares received
generally will be equal to the tax basis, as adjusted, in the Warrant so
exercised, plus the exercise price. Except as discussed below, the holding
period of the Warrant Shares received upon exercise of a Warrant will not
include the period during which the Warrant was held.
Because, among other things, the exercise price of each Warrant is a nominal
amount, a Warrant may be considered to be constructively exercised for federal
income tax purposes on the day on which the Warrant first becomes exercisable,
or possibly on the day of its issuance. In that event, (i) no gain or loss
will be recognized to a Holder upon either such deemed exercise or actual
exercise of the Warrant; (ii) the adjusted tax basis of a Warrant Share deemed
received will be equal to the adjusted tax basis of the Warrant until the
Warrant is actually exercised, at which time the adjusted tax basis of such
Warrant Share would be increased by the exercise price paid; (iii) the holding
period of a Warrant Share deemed received will begin on the day of such
constructive exercise; and (iv) the federal income tax consequences of the
ownership and disposition of a Warrant will be the same as if the Warrant
actually was a Warrant Share.
SALE OR EXCHANGE OF WARRANTS
As described under "Tax Treatment of the Notes--Original Issue Discount"
above, the basis for federal income tax purposes of an Initial Warrant is
determined by reference to the proportion which the fair market
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value of such Warrant bears to the fair market value of the Unit. As described
under "--Treatment of Contingent Warrants" above, the basis of a Contingent
Warrant will equal its fair market value at the time the Contingent Warrant is
issued. Upon a sale or exchange of a Warrant (including a purchase by the
Company with Notes), a Holder thereof will recognize long-term or short-term
gain or loss, depending\ upon whether the holding period is one year or more.
Such gain or loss generally will be a capital gain or loss, provided that the
Warrant Shares issuable upon exercise of the Warrant would have been capital
assets if acquired by the Holder. The amount of gain or loss will be the
difference between the amount realized and the tax basis, as adjusted, of the
Warrant sold. Any loss realized by a Holder of a Warrant due to the failure to
exercise prior to the expiration date will be treated as a capital loss
provided that the Warrant Shares issuable upon exercise of the Warrant would
have been capital assets if acquired by the Holder. Such capital loss will be
long-term if the Warrant was held for more than one year.
Notwithstanding the above, it is possible that a redemption of a Warrant by
the Company would not be treated as a sale or exchange of a capital asset. For
example, in the event the Warrants are treated as constructively exercised for
federal income tax purposes (as described above under "--Exercise of
Warrants"), the redemption of Warrants by the Company would be governed by the
stock redemption provisions of Section 302 of the Code, and the Holder of a
Warrant might recognize ordinary income or loss on such redemption. See "--
Warrant Shares" below.
WARRANT SHARES
In general, any gain or loss realized on the sale or exchange of Warrant
Shares acquired upon exercise of Warrants will be capital gain or loss
(provided that the Warrant Shares are capital assets in the hands of the
Holder at the time of such sale or exchange), and will be long-term if the
Warrant Shares were held for more than one year. Distributions on Warrant
Shares generally will be taxable to a Holder as ordinary income to the extent
of the Company's current and accumulated earnings and profits. Corporate
Holders may be entitled to a dividends received deduction with respect to such
distributions and are urged to consult their tax advisors in this regard.
A redemption of Warrant Shares by the Company will be treated, under Section
302 of the Code, as a dividend to the Holder taxed as ordinary income to the
extent of the Company's current and accumulated earnings and profits, unless,
taking into account certain constructive ownership rules, the redemption
terminates the Holder's entire equity interest in the Company or the
redemption is "substantially disproportionate" or "not essentially equivalent
to a dividend." In a published ruling, the Internal Revenue Service has
indicated that a holder whose actual and constructive stock ownership in an
issuer was minimal and who exercised no control over corporate affairs was
entitled to capital gain or loss treatment upon the redemption of the holder's
stock so long as the holder's percentage stock ownership was thereby reduced.
WARRANT PURCHASE NOTES
The following summary of the anticipated tax consequences resulting from the
issuance of Notes to purchase Warrants (the "Purchase Notes") will be amended
or supplemented as necessary in the registration statement pursuant to which
the Purchase Notes will be issued. Under applicable authorities, Purchase
Notes should be indebtedness of the Company for federal income tax purposes,
although such determination may be affected by facts in existence at the time
of the purchase. Accordingly, the remainder of the discussion assumes that the
Purchase Notes will constitute indebtedness for federal income tax purposes.
Holders will generally be required to take into account stated interest on
the Purchase Notes in accordance with their usual method of accounting. In
addition, if the principal amount of a Purchase Note exceeds its issue price
by more than a de minimis amount, a portion of such excess will generally be
includable in a holder's gross income as OID, in a manner similar to the
inclusion of OID with respect to the Notes discussed above.
If the Purchase Notes are considered traded on an established securities
market within the 60-day period ending 30 days after the exchange date, the
issue price of the Purchase Notes will be their fair market value as
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of their issue date. If the Purchase Notes are not considered traded on an
established securities market, but the Warrants are considered to be traded on
such a market during that 60-day period, then the issue price of the Purchase
Notes will be the fair market value of the Warrants purchased therewith as of
the issue date. If neither the Purchase Notes nor the Warrants are considered
to be publicly traded, the issue price of the Purchase Notes would generally
equal their stated principal amount unless either (i) the Purchase Notes do
not provide "adequate stated interest" within the meaning of section 1274 of
the Code, which is unlikely, or (ii) it is determined that the Purchase Notes
are issued in a so-called "potentially abusive situation" as defined in the
Treasury Regulations under section 1274 of the Code (including a situation
involving a recent sales transaction), in which case the issue price of such
Purchase Notes will be the fair market value of the Warrants that are
purchased therewith.
The rules applicable to Notes discussed above under "Tax Treatment of the
Notes" in "--Original Issue Discount," "--Tax Basis," "--Market Discount," "--
Acquisition Premium," "--Disposition of Notes," "--Interest Election" and "--
Backup Withholding" are also generally applicable to the Purchase Notes,
except that (i) interest on the Purchase Notes cannot be paid with Additional
Notes, (ii) interest on a Purchase Note will not be included in its stated
redemption price at maturity for purposes of determining the amount of OID,
(iii) in determining the amount of OID accruing during an accrual period, the
product of the adjusted issue price and the yield to maturity will be reduced
by the amount of stated interest on the Purchase Note allocable to the accrual
period, (iv) a holder's tax basis and adjusted issue price in a Purchase Note
will not be reduced by the amounts of the stated interest payments and (v)
whether a Purchase Note is an AHYDO will depend on facts in existence at the
time of its issuance including whether the Purchase Note bears significant
OID. Further, if a holder's tax basis in a Purchase Note exceeds the principal
amount of such Purchase Note, such excess generally will constitute
amortizable bond premium that the holder may elect to amortize under the
constant interest rate method over the period from the acquisition date to the
maturity date of the Purchase Note.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, par value $0.0001 per share, of which 10,628,571.43 shares are
issued and outstanding.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders, including
election of directors, and, except as otherwise required by law or provided in
any resolution adopted by the Board with respect to any other series or class
of capital stock, the holders of such Common Stock will exclusively possess
all voting power. The Company's Certificate of Incorporation does not provide
for cumulative voting for the election of directors. The Common Stock is
neither redeemable nor convertible, and there are no sinking fund provisions.
The holders of Common Stock are entitled to dividends when and as declared
from time to time by the Board of Directors from funds legally available
therefor. Upon liquidation of the Company, holders of Common Stock are
entitled to receive pro rata all assets of the Company legally available for
distribution to all holders of Common Stock. The Company does not expect to
pay any dividends on the Common Stock in the foreseeable future.
WARRANTS
On May 13, 1996, the Company sold, as part of the Units, 800,000 Initial
Warrants to purchase an aggregate of 800,000 shares of Common Stock at an
exercise price of $0.01 per share. In addition, the Company is obligated,
under certain circumstances, to issue Contingent Warrants to the holders of
the Notes exercisable for 3.0% of the Common Stock on a fully-diluted basis as
of the date of such issuance after giving effect to the issuance of the
Contingent Warrants. The number of shares subject to the Warrants is subject
to certain anti-
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dilution adjustments. The Warrants will be exercisable at any time on or after
the occurrence of an Exercise Event, provided, however, that the Warrants will
expire on May 15, 2004. See "Description of the Warrants."
REGISTRATION RIGHTS
The holders of Warrants are entitled to certain rights with respect to the
registration of their Warrants and/or Warrant Shares under the Securities Act.
If the Company proposes to register any of its equity securities under
the Securities Act, either for its own account or for the account of other
security holders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include such Warrants and/or
Warrant Shares in such registration statement, subject to certain conditions
and limitations. In addition, the holders benefiting from these rights may
request that the Company on various occasions file a registration statement
under the Securities Act with respect to such Warrants and/or Warrant Shares,
and the Company is required to use its best efforts to effect such
registration subject to certain conditions and limitations. See "Description
of the Warrants--Registration Rights of Warrant Holders."
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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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, Park Broadcasting 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 Communications, Inc. and Subsidiaries, Park Broadcasting,
Inc. and Subsidiaries and Park Newspapers, 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 Communications,
Inc. and Subsidiaries, Park Broadcasting, Inc. and Subsidiaries and Park
Newspapers, 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.
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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............................................................... 109
ABC............................................................... 3
Accrued OID....................................................... 158
Acquired Debt..................................................... 131
Acquired Person................................................... 131, 137
Acquisition....................................................... 3
Acquisition Premium............................................... 159
Additional Notes.................................................. 158
Affiliate......................................................... 131
AHYDO............................................................. 158
Applicable Premium................................................ 131
Asset Sale........................................................ 131
Asset Sale Offer.................................................. 122
Asset Sale Offer Purchase Date.................................... 122
Asset Sale Offer Trigger Date..................................... 122
ATV............................................................... 86
Bankruptcy Code................................................... 32
Bankruptcy Law.................................................... 132
BIA............................................................... 65
Book-Entry Transfer Facility...................................... 153
Broadcasting Indenture............................................ 111
Broadcasting Notes................................................ 9, 132
Capital Lease Obligation.......................................... 132
Capital Stock..................................................... 132
Cash Equivalents.................................................. 132
CBS............................................................... 3
Cashless Exercise................................................. 142
Cashless Exercise Ratio........................................... 142
Central Corporate Overhead........................................ 21
Certificate of Election........................................... 143
Change of Control................................................. 132
Change of Control Offer........................................... 118
Change of Control Purchase Date................................... 118
Change of Control Triggering Event................................ 133
Code.............................................................. 157
Commission........................................................ Cover
Communications Act................................................ 28, 80
Company........................................................... Cover, 3, 133
Consolidated Interest Expense..................................... 133
Consolidated Net Income........................................... 133
Consolidated Net Worth............................................ 134
Contingent Warrants............................................... 17
Contingent Warrant Shares......................................... 17
Covenant defeasance............................................... 129
CTA............................................................... 82
Cumulative Interest Expense....................................... 134
Cumulative Operating Cash Flow.................................... 134
</TABLE>
165
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Current Market Value............................................. 146
DBS.............................................................. 78, 88
Debt to Operating Cash Flow Ratio................................ 134
Default.......................................................... 134
Defeasance....................................................... 128
Depositary....................................................... Cover
Depositor........................................................ 154
Disposition...................................................... 134
Disqualified portion............................................. 158
Disqualified Stock............................................... 134
Distribution..................................................... 145
Distribution Rights.............................................. 145
DMA.............................................................. 67
Dollars.......................................................... 135
EBI.............................................................. 70
EEO.............................................................. 84
Electing Majority Holders........................................ 143
Electing Notice.................................................. 143
Eligible Institution............................................. 152
Equity Market Capitalization..................................... 135
Equity Offer Purchase Date....................................... 116
Equity Offer Trigger Date........................................ 116
Equity Proceeds Offer............................................ 116
Exchange Act..................................................... 31, 135, 145
Exchange Agent................................................... 13
Exchange Offer................................................... Cover
Exchange Offer Registration Statement............................ 148
Exercisability Date.............................................. 147
Exercise Event................................................... 147
Exercise Price................................................... 142
Exercise Price Per Share......................................... 147
Exercise Rate.................................................... 145
Existing Broadcasters............................................ 86
Expiration Date.................................................. Cover, 151
FCC.............................................................. 8, 80
Fin-syn.......................................................... 83
First Equity Offering Optional Redemption Price.................. Cover, 14, 116
First Valuation Report........................................... 143
GAAP............................................................. 52, 135
Guarantee........................................................ 135
Holders.......................................................... 157
Hughes........................................................... 88
Incur............................................................ 119
Independent Financial Expert..................................... 143
Indebtedness..................................................... 135
Indenture........................................................ Cover, 114
Indenture Grade.................................................. 136
Independent Director............................................. 136
Initial Purchasers............................................... 10
Initial Warrants................................................. 10
Initial Warrant Shares........................................... 17
</TABLE>
166
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Insolvency or Liquidation Proceeding............................. 136
Interest Rate Agreement Obligations.............................. 136
Investments...................................................... 136
Issue Date....................................................... 114, 136, 148
Letter of Transmittal............................................ Cover
Lien............................................................. 136
LMAs............................................................. 84
LMDS............................................................. 78
LPTV............................................................. 78
Media General.................................................... 8
Merger Agreement................................................. 8
Merger Sub....................................................... 8
MMDS............................................................. 78
Montgomery Acquisition........................................... 3
NAA.............................................................. 91
NBC.............................................................. 3
Net Proceeds..................................................... 136
Network compensation............................................. 68
Newspaper Notes.................................................. 9, 136
Newspapers Indenture............................................. 112
Nielsen.......................................................... 3
Notes............................................................ Cover
Notice Date...................................................... 143
Notice of Election Right......................................... 143
Obligations...................................................... 136
OID.............................................................. 157
One-to-a-market rule............................................. 81
Operating Cash Flow.............................................. 137
Optional Redemption Price........................................ Cover, 15, 116
PAI.............................................................. 3
Paramount........................................................ 67
Participating Broker Dealer...................................... Cover
Prospectus....................................................... Cover
Park Broadcasting................................................ Cover, 3
Park Communications.............................................. 3
Park Newspaper................................................... Cover, 3
Permitted Holders................................................ 137
Permitted Indebtedness........................................... 119
Permitted Investments............................................ 137
Permitted Liens.................................................. 137
Permitted Payments............................................... 121
Person........................................................... 138
Piggy-Back Registration.......................................... 148
Plan of Liquidation.............................................. 147
Pledge Agreement................................................. 125
Post-Petition Interest........................................... 138
Preferred Stock.................................................. 138
Prior Credit Agreement........................................... 9
Prior Term Loan.................................................. 34
Prospectus....................................................... 145
PTAR............................................................. 83
</TABLE>
167
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Public Equity Offering................................................ 138, 147
Purchase Agreement.................................................... 10
Purchase Money Indebtedness........................................... 138
Purchase Notice....................................................... 144
Purchase Notice Date.................................................. 144
Purchase Notes........................................................ 161
Purchase Offer........................................................ 144
Qualified Issuer...................................................... 138
Radio Station Assets.................................................. 3, 139
Radio Station Note.................................................... 122
Rating................................................................ 67
Rating Agency......................................................... 139
Rating Category....................................................... 139
Rating Decline........................................................ 139
Refinanced............................................................ 140
Refinancing........................................................... 119
Refinancing Indebtedness.............................................. 120
Refinancing Transactions.............................................. 9
Registrable Securities................................................ 147
Registration Election................................................. 17, 143
Registration Election Date............................................ 18, 143
Registration Rights Agreement......................................... 10
Registration Statement................................................ 164
Reportable stations................................................... 69
Revised issue price................................................... 159
RHP................................................................... 108
Required Filing Dates................................................. 125
Restricted Investment................................................. 139
Restricted Payment.................................................... 139
Restricted Payment Basket............................................. 139
Restricted Subsidiary................................................. 140
Senior Credit Facility................................................ 140
Share................................................................. 67, 69
Second Equity Offering Optional Redemption Price...................... Cover, 15
Second Valuation Report............................................... 143
Securities Act........................................................ Cover
Series A Notes........................................................ Cover
Series B Notes........................................................ Cover
Shelf Registration Statement.......................................... 12, 149
Shoppers.............................................................. 88
Sign-on to sign-off................................................... 69
Subgroup.............................................................. 100
Subparent............................................................. 100
Strategic Equity Investment........................................... 140
Subsidiary............................................................ 140
Surviving Person...................................................... 140, 146
Telecom Act........................................................... 80
Third Valuation Report................................................ 144
Time Warner........................................................... 67
Treasury Rate......................................................... 140
Trustee............................................................... 114
</TABLE>
168
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Trust Indenture Act.................................................... 114
UAB.................................................................... 70
UHF.................................................................... 67
Underwriter's cut back................................................. 148
Unit Agent............................................................. 114
Unit Agreement......................................................... 114
Units.................................................................. Cover, 9
Unrestricted Subsidiary................................................ 140
USSB................................................................... 88
Valuation Date......................................................... 143
VDT.................................................................... 85
VHF.................................................................... 67
Voting Stock........................................................... 141
Warrant Agent.......................................................... 142
Warrant Agreement...................................................... 141, 142
Warrant Expiration Date................................................ 18, 142
Warrant Holders........................................................ 147
Warrant Purchase Date.................................................. 144
Warrant Purchase Price................................................. 18, 143
Warrant Registration Rights Agreement.................................. 141, 147
Warrant Shares......................................................... 17
Weekly cumulative audience............................................. 69
Wholly Owned Restricted Subsidiary..................................... 141
Wireless Cable......................................................... 78
1992 Cable Act......................................................... 85
$...................................................................... 135
</TABLE>
169
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PARK COMMUNICATIONS, 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-18
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,
1995............................................................... F-19
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, 1995............. F-20
Notes to Condensed Consolidated Unaudited Financial Statements...... F-21
PARK BROADCASTING, INC. AND SUBSIDIARIES
Reports of Independent Accountants................................... F-23, 24
Consolidated Balance Sheets as of December 31, 1995 and 1994......... F-25
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-26
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-27
Notes to Consolidated Financial Statements........................... F-28
Unaudited Interim Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995.................................................. F-37
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,
1995............................................................... F-38
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, 1995............. F-39
Notes to Condensed Consolidated Unaudited Financial Statements...... F-40
PARK NEWSPAPERS, INC. AND SUBSIDIARIES
Reports of Independent Accountants................................... F-42, 43
Consolidated Balance Sheets as of December 31, 1995 and 1994......... F-44
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-45
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-46
Notes to Consolidated Financial Statements........................... F-47
Unaudited Interim Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995.................................................. F-55
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,
1995............................................................... F-56
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, 1995............. F-57
Notes to Condensed Consolidated Unaudited Financial Statements...... F-58
</TABLE>
F-1
<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-2
<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-3
<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-4
<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-5
<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-6
<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-7
<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
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.
F-8
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
======== ========= ========
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
</TABLE>
F-9
<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>
Long-term debt.................. $ 2,467 $578,814 $581,281
Consulting/non-compete con-
tracts......................... 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 stock-
holder'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.
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>
F-10
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The lives used to amortize the cost of intangible assets related to adver-
tiser and subscriber relationships represent the expected average lives of
such relationships based on actuarial analyses using a representative sam-
ple of the companies' actual experience for periods prior to the acquisi-
tion through December 31, 1994. These analyses took into consideration eco-
nomic life characteristics of the companies' current advertiser
relationships including retention and termination experience. Other intan-
gibles 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 pro-
duced operating profits before interest expense, depreciation and amortiza-
tion, and the Company estimates that the stations will each generate oper-
ating 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 ap-
proval and are consummated at the price and terms as set forth in the de-
finitive agreements/letters of intent which total approximately $230.0 mil-
lion 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 corpo-
rate 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 as-
sets, 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>
<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>
F-11
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. 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
F-12
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-13
<PAGE>
PARK COMMUNICATIONS, 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 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>
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>
F-14
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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).
F-15
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 broadcast-
ing................... $ 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
======== ======== ======== ======== ========
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.
F-16
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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-17
<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-18
<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-19
<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-20
<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
F-21
<PAGE>
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)
allocated to the warrants was recorded as additional paid in capital on the
Company'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 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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<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>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term
debt............................... $ 1,247 -- $ 1,247
Current maturities of film con-
tracts............................. 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 liabilities......... 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 receivables from par-
ent................................ (41,322) 41,322 --
Retained earnings................... 145,160 (145,160) --
-------- --------- --------
Total stockholder's equity........... 106,436 (106,436) --
-------- --------- --------
Total liabilities and stockhold-
er's equity...................... $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-31
<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-32
<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-33
<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-34
<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>
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).
F-35
<PAGE>
PARK BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Park Newspapers, Inc.
We have audited the accompanying consolidated balance sheet of Park
Newspapers, 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
Newspapers, 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-42
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
Board of Directors
Park Newspapers, Inc.
We have audited the accompanying consolidated balance sheet of Park
Newspapers, 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
Newspapers, 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-43
<PAGE>
PARK NEWSPAPERS, 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.................................................. $ 710 $ 1,937
Accounts receivable, less allowance for doubtful ac-
counts of $289 in 1995 and $314 in 1994.............. 7,563 6,691
Inventory............................................. 1,089 1,000
Consulting/non-compete contracts...................... -- 763
Other................................................. 912 508
-------- --------
Total current assets................................. 10,274 10,899
-------- --------
Property, Plant & Equipment:
Land and improvements................................. 3,481 2,269
Buildings and leasehold improvements.................. 9,939 15,731
Newspaper equipment................................... 12,045 23,516
Furniture and fixtures................................ 1,879 3,051
Autos and trucks...................................... 449 918
-------- --------
27,793 45,485
Less accumulated depreciation and amortization........ (1,562) (24,266)
-------- --------
26,231 21,219
Intangible assets, net................................. 183,029 57,472
Consulting/non-compete contracts....................... -- 3,267
Other assets........................................... 204 203
-------- --------
Total assets......................................... $219,738 $ 93,060
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt.................. $ 126 $ 392
Accounts payable...................................... 900 718
Consulting/non-compete contracts...................... 787 815
Interest.............................................. 7,642 9
Income taxes.......................................... -- 63
Accrued liabilities................................... 1,072 1,209
Deferred income....................................... 3,157 2,909
-------- --------
Total current liabilities............................ 13,684 6,115
Long-term debt......................................... 168,305 360
Consulting/non-compete contracts....................... 2,778 3,582
Deferred income taxes.................................. 41,972 1,490
-------- --------
Total liabilities.................................... 226,739 11,547
-------- --------
Commitments
Stockholder's Equity:
Common Stock-no par value:
Authorized 44,150 shares
Issued and outstanding 44,150 shares in 1995 and
1994................................................ 4,150 4,150
Paid in capital....................................... (4,150) 46,665
Intercompany receivables from parent.................. (3,355) (47,192)
Retained earnings..................................... (3,646) 77,890
-------- --------
Total stockholder's equity........................... (7,001) 81,513
-------- --------
Total liabilities and stockholder's equity........... $219,738 $ 93,060
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-44
<PAGE>
PARK NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DEC.
PRO FORMA PERIOD 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:
Newspaper revenue......... $ 78,904 $ 51,723 $ 27,181 $ 76,810 $ 84,751
-------- -------- -------- -------- --------
Operating expenses:
Cost of sales (exclusive
of depreciation and
amortizations)........... 33,810 20,783 13,027 32,364 39,221
Selling, general and ad-
ministrative............. 21,869 15,107 6,762 22,216 27,155
Depreciation.............. 2,537 1,621 833 2,260 2,577
Amortization.............. 3,688 2,356 524 1,775 2,395
Amortization of excess of
cost over net assets
acquired................. 1,942 1,241 664 1,781 1,923
-------- -------- -------- -------- --------
63,846 41,108 21,810 60,396 73,271
-------- -------- -------- -------- --------
Operating income........ 15,058 10,615 5,371 16,414 11,480
Interest expense........... (24,810) (15,851) (23) (76) (177)
Interest income............ 291 186 3 11 45
Other expense.............. (511) (26) (485) (832) (204)
-------- -------- -------- -------- --------
(Loss) income before in-
come taxes............. (9,972) (5,076) 4,866 15,517 11,144
Provision (benefit) for in-
come taxes................ (2,792) (1,430) 2,222 7,007 5,335
-------- -------- -------- -------- --------
Net (loss) income....... $ (7,180) (3,646) 2,644 8,510 5,809
========
Retained earnings, begin-
ning of period............ -- 77,890 69,380 63,571
-------- -------- -------- --------
Retained earnings, end of
period.................... $ (3,646) $ 80,534 $ 77,890 $ 69,380
======== ======== ======== ========
Loss per share............. $(162.63) $ (82.58)
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-45
<PAGE>
PARK NEWSPAPERS, 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...................................................................... $ (3,646) $ 2,644 $ 8,510 $ 5,809
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization......................................................... 5,218 2,021 5,816 6,895
Amortization of consulting/non-compete contracts
included in operating expenses....................................................... -- 292 1,142 1,161
Payments on consulting/non-compete contracts.......................................... (513) (320) (869) (1,175)
Provision for losses on accounts receivable........................................... 127 85 292 347
Provision for deferred income taxes................................................... (1,430) (122) (59) (326)
Loss on sale of property, plant and equipment......................................... -- 199 116 34
Changes in operating assets and liabilities net of effects
from the disposal of companies:
Accounts receivable.................................................................. (182) (902) 488 (524)
Inventory and other assets........................................................... (628) 134 488 625
Accounts payable and accrued liabilities............................................. 5,057 984 (6,214) 995
Deferred income...................................................................... (84) 332 128 169
-------- ------- ------- -------
Net cash provided by operating activities........................................... 3,919 5,347 9,838 14,010
-------- ------- ------- -------
Investing Activities:
Purchases of property, plant and equipment............................................. (1,691) (431) (3,458) (1,512)
Proceeds from sale of property, plant and equipment.................................... 8 -- 202 15
Proceeds from sales of companies....................................................... -- -- -- 6,336
-------- ------- ------- -------
Net cash provided by (used in) investing activities................................. (1,683) (431) (3,256) 4,839
-------- ------- ------- -------
Financing Activities:
Additional loan proceeds............................................................... 1,447 -- -- --
Principal payments on long-term debt................................................... (1,185) (122) (451) (1,580)
Net intercompany transfers to parent................................................... (3,355) (5,164) (6,400) (18,636)
-------- ------- ------- -------
Net cash used in financing activities............................................... (3,093) (5,286) (6,851) (20,216)
-------- ------- ------- -------
Decrease in cash...................................................................... (857) (370) (269) (1,367)
Cash beginning of period................................................................ 1,567 1,937 2,206 3,573
-------- ------- ------- -------
Cash end of period...................................................................... $ 710 $ 1,567 $ 1,937 $ 2,206
======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-46
<PAGE>
PARK NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Park Newspapers, Inc. (the Company or PNI), through wholly owned subsidiary
companies, publishes paid circulation newspapers and non-paid controlled
distribution publications (shoppers). Substantially all of the Company's
newspaper revenues are derived from advertising and circulation.
Advertising rates and rate structures vary among the publications and are
based, among other things, on circulation and type of advertising.
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.
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 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.
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.
F-47
<PAGE>
PARK NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 is recorded on subscriptions prepaid by customers. Such
income is recognized when earned.
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 $195,000 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 $1,416,000 for the
period May 11 to December 31, 1995, $801,000 for the period January 1 to
May 10, 1995, $1,988,000 in 1994 and $2,102,000 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 investors 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 made to the acquiror, the
remainder of the purchase price ($138,000,000) was derived from existing
cash-on-hand at PCI at closing of the Acquisition.
F-48
<PAGE>
PARK NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 PNI 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 PNI. Pro forma income tax benefit has been computed at an effective rate
of 28%.
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 NEWSPAPERS, INC.
--------------------------------------
WITHOUT MERGER WITH MERGER
ADJUSTMENTS ADJUSTMENTS
-------------- MERGER -----------
OLD PARK ADJUSTMENTS NEW PARK
-------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets
Cash................................ $ 1,567 -- $ 1,567
Accounts receivable, net............ 7,508 -- 7,508
Inventory........................... 972 -- 972
Consulting/non-compete contracts.... 730 $ (730) --
Other............................... 406 -- 406
------- -------- --------
Total current assets.............. 11,183 (730) 10,453
------- -------- --------
Property, plant & equipment.......... 42,092 (15,926) 26,166
Less accumulated depreciation and
amortization...................... 21,474 (21,474) --
------- -------- --------
Net property, plant & equipment..... 20,618 5,548 26,166
Intangible assets, net............... 56,269 130,357 186,626
Consulting/non-compete contracts..... 3,009 (3,009) --
Other assets......................... 199 -- 199
------- -------- --------
$91,278 $132,166 $223,444
======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term
debt............................... $ 630 -- $ 630
Accounts Payable.................... 1,540 -- 1,540
Consulting/non-compete contracts.... 836 -- 836
Interest............................ 20 -- 20
Income taxes........................ 487 -- 487
Accrued liabilities................. 1,019 -- 1,019
Deferred income..................... 3,241 -- 3,241
------- -------- --------
Total current liabilities.......... 7,773 -- 7,773
</TABLE>
F-49
<PAGE>
PARK NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MAY 10, 1995
--------------------------------------
PARK NEWSPAPERS, INC.
--------------------------------------
WITHOUT MERGER WITH MERGER
ADJUSTMENTS ADJUSTMENTS
-------------- MERGER -----------
OLD PARK ADJUSTMENTS NEW PARK
-------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long term debt.................. -- $167,539 167,539
Consulting/non-compete con-
tracts......................... 3,241 -- 3,241
Deferred income taxes........... 1,271 43,620 44,891
------- -------- --------
Total liabilities............ 12,285 211,159 223,444
------- -------- --------
Stockholder's Equity:
Common stock................... 4,150 -- 4,150
Paid in capital................ 46,665 (50,815) (4,150)
Intercompany receivables from
parent........................ (52,356) 52,356 --
Retained earnings.............. 80,534 (80,534) --
------- -------- --------
Total stockholder's equity...... 78,993 (78,993) --
------- -------- --------
$91,278 $132,166 $223,444
======= ======== ========
</TABLE>
3.LOSS PER SHARE
Earnings per share of common stock is computed on the weighted average
number of common shares outstanding during each period (dollars and shares
in thousands except per share amounts):
<TABLE>
<CAPTION>
PRO FORMA NEW PARK
--------------- ---------
NEW PARK PERIOD
--------------- ---------
05/10/95-
1995 12/31/95
--------------- ---------
(UNAUDITED)
---------------
<S> <C> <C>
Average shares........................ 44 44
============= ========
Net loss.............................. $ (7,180) $ (3,646)
============= ========
Per share amount...................... $ (162.63) $ (82.58)
============= ========
Earnings per share has not been shown prior to May 11, 1995 because such
information is not meaningful.
4.INTANGIBLE ASSETS
Intangible assets are comprised of the following (dollars in thousands):
<CAPTION>
DECEMBER 31 DECEMBER 31
------------------------- -----------
NEW PARK OLD PARK
------------------------- -----------
ESTIMATED LIVES 1995 1994
--------------- --------- -----------
<S> <C> <C> <C>
Advertiser and subscriber relation-
ships................................ 14 - 40 years $109,303 $ 35,236
Other intangibles..................... -- -- 3,960
Excess of cost over net assets ac-
quired............................... 40 77,323 72,226
-------- --------
Total intangibles................... 186,626 111,422
Less accumulated amortization......... 3,597 53,950
-------- --------
$183,029 $ 57,472
======== ========
</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
F-50
<PAGE>
PARK NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 PUBLICATION
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 for these newspaper publications (before depreciation and
amortization) were $145,000 in 1995 (pro forma unaudited), $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........................... $168,065 --
Subordinated notes of certain newspaper subsidiaries
due to former owners............................... 360 $ 744
Promissory notes.................................... 6 8
-------- -----
Total debt.......................................... 168,431 752
Less:Current maturities of long-term debt........... 126 392
-------- -----
Long-term debt...................................... $168,305 $ 360
======== =====
</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:
<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>
F-51
<PAGE>
PARK NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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% shareholders' 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%.
Cash payments of interest were $8,255,974 for the period of May 11 to
December 31, 1995, $43,552 for the period of January 1 to May 10, 1995,
$97,930 in 1994 and $185,041 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.............................................................. $ 126
1997.............................................................. 120
1998.............................................................. 52,155
1999.............................................................. 2,858
2000.............................................................. 3,166
</TABLE>
The fair value of the Company's long-term debt approximates $180,405,000.
The fair value is estimated based on current rates offered to the Company
for debt of the same remaining maturities.
F-52
<PAGE>
PARK NEWSPAPERS, 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>
PERIOD YEAR ENDED 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.......................... -- $1,904 $ 5,662 $ 4,466
Deferred......................... $(1,208) (106) (58) (284)
------- ------ --------- ---------
$(1,208) 1,798 5,604 4,182
------- ------ --------- ---------
State:
Current.......................... -- 440 1,404 1,195
Deferred......................... (222) (16) (1) (42)
------- ------ --------- ---------
(222) 424 1,403 1,153
------- ------ --------- ---------
Total income tax expense (bene-
fit)........................... $(1,430) $2,222 $ 7,007 $ 5,335
======= ====== ========= =========
</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 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>
Computed tax expense at U.S. statutory
rate................................... $ (1,777) $ 1,703 $ 5,431 $ 3,900
Increase in tax expense resulting from:
State income taxes, net of federal in-
come tax.............................. (144) 276 912 749
Amortization not tax deductible........ 434 231 623 673
Miscellaneous, net..................... 57 12 41 13
-------- ------- ------- -------
Total income tax expense (benefit).... $ (1,430) $ 2,222 $ 7,007 $ 5,335
======== ======= ======= =======
</TABLE>
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:
Property, plant & equipment, intangible assets...... $ 42,742 $ 1,490
Net operating loss carry forwards................... (770) --
Allowance for doubtful accounts and other........... (77) (96)
-------- -------
Net deferred tax liabilities....................... $ 41,895 $ 1,394
======== =======
Classification of deferred taxes:
Non-current liabilities............................. $ 41,972 $ 1,490
Current assets...................................... (77) (96)
-------- -------
$ 41,895 $ 1,394
======== =======
</TABLE>
F-53
<PAGE>
PARK NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total cash payments of state income taxes were $135,000 for the period May
11 through December 31, 1995, $352,000 for the period January 1 through May
10, 1995, $1,391,143 in 1994 and $1,212,969 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 $135,380 for the period May 11 through December 31, 1995,
$76,519 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 $227,076 and the amounts payable over the next five years are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1996.............................................................. $112
1997.............................................................. 76
1998.............................................................. 36
1999.............................................................. 3
2000.............................................................. --
</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
$271,476 in 1994 and $527,949 in 1993. In connection with these operating
facilities, in 1994 the Company purchased five buildings from RHP
Incorporated and its subsidiaries at the appraised fair market value of
$600,000 and such lease and rent payments ceased as of the date of
purchase.
F-54
<PAGE>
PARK NEWSPAPERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NEW PARK
---------------------
JUNE 30 DECEMBER 31
1996 1995
-------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash.................................................... $ 4,210 $ 710
Accounts receivable, less allowance for doubtful
accounts of $293 in 1996 and $314 in 1995.............. 6,900 7,563
Inventory............................................... 824 1,089
Other................................................... 513 912
-------- --------
Total current assets................................... 12,447 10,274
-------- --------
Property, Plant & Equipment:
Property, plant & equipment............................. 28,522 27,793
Less accumulated depreciation and amortization.......... (3,127) (1,562)
-------- --------
25,395 26,231
Intangible assets, net................................... 180,442 183,029
Other assets............................................. 5,699 204
-------- --------
$223,983 $219,738
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt.................... $ 126 $ 126
Accounts payable........................................ 1,277 900
Consulting/non-compete contracts........................ 775 787
Interest................................................ 2,452 7,642
Income taxes............................................ -- --
Accrued liabilities..................................... 1,184 1,072
Deferred income......................................... 3,162 3,157
-------- --------
Total current liabilities.............................. 8,976 13,684
Long-term debt........................................... 155,120 168,305
Consulting/non-compete contracts......................... 2,403 2,778
Deferred income taxes.................................... 39,807 41,972
-------- --------
Total liabilities...................................... 206,306 226,739
-------- --------
Commitments
Stockholder's Equity:
Common Stock--no par value:
Authorized 44,150 shares, issued and outstanding 44,150
shares in
1996 and 1995......................................... 4,150 4,150
Paid in capital......................................... 21,184 (4,150)
Intercompany receivables from Parent.................... -- (3,355)
Retained earnings (deficit)............................. (7,657) (3,646)
-------- --------
Total stockholder's equity............................... 17,677 (7,001)
-------- --------
$223,983 $219,738
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
F-55
<PAGE>
PARK NEWSPAPERS, 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:
Newspaper revenue....................... $ 38,804 $ 38,490 $11,309 $27,181
-------- -------- ------- -------
Operating expenses:
Cost of sales (exclusive of depreciation
and amortization)...................... 19,205 19,348 6,321 13,027
Selling, general and administrative..... 10,714 8,228 1,466 6,762
Depreciation............................ 1,584 1,278 355 833
Amortization............................ 1,807 1,825 507 524
Amortization of excess of cost over net
assets acquired........................ 989 979 272 664
-------- -------- ------- -------
34,299 31,658 8,921 21,810
-------- -------- ------- -------
Operating income....................... 4,505 6,832 2,388 5,371
Interest expense......................... (10,850) (11,495) (3,193) (23)
Interest income.......................... 127 145 (17) 3
Other income (expense)................... (24) (255) 25 (485)
-------- -------- ------- -------
(Loss) income before income taxes...... (6,242) (4,773) (797) 4,866
Provision (benefit) for income taxes..... (2,231) (1,500) (207) 2,222
-------- -------- ------- -------
Net (loss) income...................... (4,011) $ (3,273) (590) 2,644
========
Retained earnings (deficit), beginning of
period................................... (3,646) 0 77,890
-------- ------- -------
Retained earnings (deficit), end of
period................................... $ (7,657) $ (590) $80,534
======== ======= =======
Loss per share........................... $ (90.85) $ (74.13)
======== ========
Average shares........................... 44.2 44.2
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
F-56
<PAGE>
PARK NEWSPAPERS, 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 (loss) income...................................................................... $ (4,011) $ (590) $2,644
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating
activities:
Depreciation and amortization......................................................... 4,380 1,134 2,021
Amortization of consulting/non-compete contracts included in operating expenses....... -- -- 292
Amortization of debt issue costs...................................................... 55
Payments on consulting/non-compete contracts.......................................... (387) (103) (320)
Provision for losses on accounts receivable........................................... 148 43 85
Provision for deferred income taxes................................................... (313) 49 (122)
Corporate overhead allocation......................................................... 216 -- --
Loss (gain) on sale of property, plant and equipment.................................. (161) -- 199
Changes in operating assets and liabilities:
Accounts receivable.................................................................. 515 1,184 (902)
Inventory and other assets........................................................... 572 200 134
Accounts payable and accrued liabilities............................................. (4,701) 3,481 984
Deferred income...................................................................... 5 (139) 332
-------- ------ ------
Net cash (used in) provided by operating activities................................. (3,682) 5,259 5,347
-------- ------ ------
Investing Activities:
Purchases of property, plant and equipment............................................. (780) (313) (431)
Proceeds from sale of property, plant, and equipment................................... 169 -- --
Increase in long-term other assets..................................................... (100) -- --
-------- ------ ------
Net cash used in investing activities............................................... (711) (313) (431)
-------- ------ ------
Financing Activities:
Proceeds from new debt................................................................. 155,000 -- --
Debt issue costs....................................................................... (5,449) -- --
Principal payments on long-term debt................................................... (168,185) -- (122)
Net intercompany transfers from Parent................................................. 26,527 (5,095) (5,164)
-------- ------ ------
Net cash provided by (used in) financing activities................................. 7,893 (5,095) (5,286)
-------- ------ ------
Increase (decrease) in cash........................................................... 3,500 (149) (370)
Cash beginning of period................................................................ 710 1,567 1,937
-------- ------ ------
Cash end of period...................................................................... $ 4,210 $1,418 $1,567
======== ====== ======
Non-Cash Financing Activities:
Capitalization of intercompany receivable from Parent.................................. $(21,320)
========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
unaudited financial statements.
F-57
<PAGE>
PARK NEWSPAPERS, 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. 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, the Company 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.
Upon a Change of Control Triggering Event, each holder of the Newspapers
Notes will have the right to require the Company to offer to purchase such
holder's Newspapers 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
Newspapers 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 Newspapers 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.
F-58
<PAGE>
PARK NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)
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.
3. CORPORATE OVERHEAD ALLOCATED
Corporate overhead was allocated to the Company as follows: $1,322,000 for
the period 1/1/96--6/30/96, $801,000 for the period 1/1/95--5/10/95, and
$212,000 for the period of 5/11/95--6/30/95.
4. 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-59
<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
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 26
The Company............................................................... 33
Use of Proceeds........................................................... 34
Capitalization............................................................ 35
Unaudited Pro Forma Condensed Consolidated Financial Statements........... 36
Selected Historical and Pro Forma Consolidated Financial Data............. 46
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 52
Business.................................................................. 64
Management................................................................ 103
Securities Ownership of Certain Beneficial Owners......................... 110
Description of Certain Indebtedness....................................... 111
Description of the Units.................................................. 114
Description of the Notes.................................................. 114
Description of the Warrants............................................... 142
The Exchange Offer........................................................ 148
Certain Federal Income Tax Consequences................................... 157
Description of Capital Stock.............................................. 162
Plan of Distribution...................................................... 163
Legal Matters............................................................. 164
Experts................................................................... 164
Available Information..................................................... 164
Index..................................................................... 165
Index to Financial Statements............................................. F-1
</TABLE>
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$80,000,000
[LOGO OF PARK COMMUNICATIONS, INC.]
PARK COMMUNICATIONS, INC.
OFFER TO EXCHANGE
SERIES B 13 3/4% SENIOR
PAY-IN-KIND NOTES DUE 2004
FOR ALL OUTSTANDING
13 3/4% SENIOR PAY-IN-KIND
NOTES DUE 2004
-------------------------
PROSPECTUS
-------------------------
SEPTEMBER 6, 1996
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