<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1996
REGISTRATION STATEMENT NO. 33-
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
____________________
PAXSON COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
____________________
<TABLE>
<S> <C> <C>
Delaware 4832 59-3212788
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
601 Clearwater Park Road
West Palm Beach, Florida 33401
(407) 659-4122
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Anthony L. Morrison, Esq.
Secretary, Vice President, and General Counsel
Paxson Communications Corporation
601 Clearwater Park Road
West Palm Beach, Florida 33401
(407) 659-4122
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Michael L. Jamieson, Esq. Roger Meltzer, Esq.
Holland & Knight Cahill Gordon & Reindel
400 North Ashley Drive, Suite 2050 80 Pine Street
Tampa, Florida 33602 New York, New York 10005
(813) 227-8500 (212) 701-3000
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. / /
____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
=====================================================================================================
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities to be registered registered(1) per share(2) offering price(1)(2) fee
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
par value $.001 per share.. 11,500,000 shares $15.675 $180,263,000 $62,159
=====================================================================================================
</TABLE>
(1) Includes 1,500,000 shares to cover over-allotments, if any, pursuant to
over-allotment options granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
____________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE> 2
PAXSON COMMUNICATIONS CORPORATION
____________________
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Form S-1 Item Number and Caption Caption in Prospectus
- --------------------------------------------- -----------------------------------------
<S> <C>
1. Forepart of Registration Statement and Forepart of the Registration Statement
Outside Front Cover Page of Prospectus and Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Underwriting
6. Dilution Dilution
7. Selling Security Holders Principal and Selling Stockholders
8. Plan of Distribution Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered Prospectus Summary; Dividend Policy;
Price Range of Class A Common Stock;
Capitalization; Description of Capital
Stock
10. Interests of Named Experts and Counsel Inapplicable
11. Information with Respect to the Inside Front and Outside Back Cover
Registrant Pages; Certain Definitions and Market
and Industry Data; Prospectus Summary;
Risk Factors; The Proposed Acquisitions;
Dividend Policy; Use of Proceeds;
Capitalization; The Company; Dilution;
Selected Historical and Pro Forma
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal and Selling Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Experts;
Financial Statements
12. Disclosure of Commission Position on Inapplicable
Indemnification for Securities Act
Liabilities
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus, one to be
used in connection with a United States offering to U.S. or Canadian Persons
(as defined) (the "U.S. Prospectus") and one to be used in connection with a
concurrent international offering (the "International Prospectus"). The two
prospectuses relate to a public offering of 10,000,000 shares of Class A Common
Stock, par value $.001 per share, of Paxson Communications Corporation. The
complete U.S. Prospectus follows this explanatory note. After the U.S.
Prospectus are the following alternate pages for the International Prospectus:
a front cover page, a "Certain United States Tax Consequences to Non-United
States Holders" section and a back cover page. All other pages of the U.S.
Prospectus are to be used for both the United States offering and the
international offering. Each alternate page for the International Prospectus
included herein is labeled "Alternate Page for International Prospectus."
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1996
PROSPECTUS
10,000,000 Shares
Paxson Communications Corporation
Class A Common Stock
____________________
Of the 10,000,000 shares of Class A Common Stock, par value $.001 per
share (the "Class A Common Stock"), offered hereby, 8,800,000 shares are being
issued and sold by Paxson Communications Corporation (the "Company" or "Paxson
Communications") and 1,200,000 shares are being sold by certain stockholders of
the Company (the "Selling Stockholders"). See "Principal and Selling
Stockholders." Of the 10,000,000 shares of Class A Common Stock offered
hereby, 8,000,000 shares are being offered in the United States and Canada (the
"U.S. Offering") by the U.S. Underwriters (as defined) and 2,000,000 shares are
being offered in a concurrent international offering (the "International
Offering" and, together with the U.S. Offering, the "Offering") outside the
United States and Canada by the Managers (as defined). The public offering
price and aggregate underwriting discount per share are identical for both
offerings. See "Underwriting."
The Company's authorized capital stock includes Class A Common Stock,
Class B Common Stock and Class C Common Stock (collectively, the "Common
Stock") and preferred stock. The rights of holders of Common Stock are
identical, except that each share of Class B Common Stock generally entitles
its holders to ten votes, whereas each share of Class A Common Stock entitles
its holders to one vote and the holders of Class C Common Stock generally have
no right to vote. Shares of Class B Common Stock and Class C Common Stock are
convertible into shares of Class A Common Stock on a one-for-one basis at the
option of the holder. See "Description of Capital Stock."
The Company's Class A Common Stock is listed on the American Stock
Exchange under the symbol "PXN." The last reported sale price of the Company's
Class A Common Stock as reported on the American Stock Exchange on January 15,
1996 was $15.00 per share.
_________________________
SEE "RISK FACTORS" STARTING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE CLASS A
COMMON STOCK OFFERED HEREBY.
_________________________
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.
<TABLE>
<CAPTION>
=============================================================================
Underwriting
Price to Discounts and Proceeds to Proceeds to Selling
Public Commissions(1) Company (2) Stockholders
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share $ $ $ $
- -----------------------------------------------------------------------------
Total (3) $ $ $ $
=============================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
U.S. Underwriters and the Managers against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company and the Selling Stockholders have granted the U.S.
Underwriters a 30-day option to purchase up to 1,500,000 additional shares
of Class A Common Stock solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
_______________________
The shares of Class A Common Stock are being offered by the U.S.
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for
the shares of Class A Common Stock offered hereby will be available for
delivery on or about , 1996, at the offices of Smith Barney Inc., 388
Greenwich Street, New York, New York 10013.
________________________
Smith Barney Inc.
PaineWebber Incorporated
CIBC Wood Gundy Securities Corp.
BT Securities Corporation
, 1996
<PAGE> 5
_____________
IN CONNECTION WITH THIS OFFERING, THE U.S. UNDERWRITERS AND THE MANAGERS
MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE CLASS A COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED
ON THE AMERICAN STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
_____________
<PAGE> 6
CERTAIN DEFINITIONS AND MARKET AND INDUSTRY DATA
The terms "EBITDA," "broadcast cash flow," "segment operating profit" and
"Adjusted EBITDA" are referred to in various places in this Prospectus. EBITDA
is defined as net income (loss) before (i) extraordinary item and cumulative
effect of a change in accounting principle, (ii) benefit (provision) for income
taxes, (iii) other income (expense), net, (iv) interest expense, (v)
depreciation and amortization, (vi) option plan compensation and (vii)
non-recurring items including terminated operations, less scheduled broadcast
rights payments. Broadcast cash flow is defined as income (loss) from broadcast
operations plus non-cash expenses, less scheduled broadcast rights payments and
non-cash revenue. Although EBITDA and broadcast cash flow are not measures of
performance under United States generally accepted accounting principles
("GAAP"), the terms are widely used in the broadcast industry as a measure of a
broadcasting company's financial performance. "Segment operating profit" is
defined as segment EBITDA before corporate overhead allocations. "Adjusted
EBITDA" is defined as EBITDA for the period, less (i) operating profit for the
Infomall TV Network segment for such period plus (ii) four times such segment's
operating profit for the most recently completed quarter prior to the measuring
date. Neither EBITDA, broadcast cash flow, segment operating profit, nor
Adjusted EBITDA, should be considered in isolation or as a substitute for net
income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity.
The term "time brokerage agreement" (a "TBA," also known in the broadcast
industry as a "local marketing agreement"), generally refers to an agreement
under which a radio or television programmer agrees to purchase from a
broadcast station licensee substantially all of the broadcast time on a
station, provides programming and sells advertising during the purchased time,
receives all the revenue derived from advertising, pays certain expenses of the
station and performs other functions, with the licensee retaining
responsibility for ultimate control of the station in accordance with FCC
policies. Time brokerage agreements are more fully described in "Business
- - Federal Regulation of Broadcasting." The term "joint sales agreement" (a
"JSA") refers to an agreement under which a broadcast station agrees to provide
sales and marketing services for another broadcast station while the owner of
such broadcast station provides the programming for such other broadcast
station.
Unless otherwise indicated herein, all market rankings, audience ratings
and audience rankings have been derived for the indicated radio station or
group of radio stations from surveys of the indicated demographic group
listening Monday-Sunday, 6:00 a.m. to 12:00 midnight, as reported by Arbitron,
Radio Market Report, The Arbitron Company ("Arbitron"). Unless otherwise
indicated, audience share data is expressed as the local average quarter-hour
share for each indicated radio station. A radio station's local audience share
is derived by comparing the radio station's average quarter-hour share to the
total average quarter-hour share for all radio stations listed as inside the
Metro Survey Area by Arbitron. Average quarter-hour share is a percentage of
the estimated number of persons who listen to a given radio station for a
minimum of five minutes within a quarter-hour compared to the total number of
persons who listen to radio in the market within such quarter-hour. The most
recent Arbitron survey utilized in this Prospectus is Fall 1995.
Market radio advertising revenue, revenue share data and revenue rankings
for radio stations have been obtained from Miller, Kaplan Market Revenue
Report, a monthly publication of Miller, Kaplan, Arase & Co., Certified Public
Accountants ("Miller Kaplan"); provided, however, that market radio advertising
revenue, revenue share data, and revenue rankings for the Company's radio
stations in the Cookeville, Tennessee area have been estimated by the Company
without the benefit of any independent investigation or confirmation, as no
published data on that survey area is available from Miller Kaplan. Arbitron
and Miller Kaplan both compile their audience share, revenue share, revenue
ranking and other statistical data under procedures and methodologies that are
described, and that have the limitations provided, in their respective reports.
All such information provided herein is subject to those limitations. This
Prospectus reflects data from the December 1995 Miller, Kaplan Market Review
Report unless otherwise indicated. The Company does not assume responsibility
for the accuracy or completeness of such published data.
All television station audience rating data in this Prospectus has been
obtained from the Nielsen Station Index Viewers and Profile for November 1995,
a publication of A. C. Nielsen Co. ("Nielsen"). All market rank and television
household data has been obtained from U.S. Television Household Estimates for
November 1995, as prepared by Nielsen for each designated market area ("DMA").
In addition, revenue data for the West Palm Beach television market has been
obtained from the local office of Ernst & Young LLP. The Company does not
assume responsibility for the accuracy or completeness of such published data.
ii
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements contained elsewhere in this Prospectus. Except as otherwise
indicated by the context, references in this Prospectus to the "Company"
include Paxson Communications Corporation and its direct and indirect
wholly-owned subsidiaries. Capitalized terms used without definition in the
following summary are defined elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes that the over-allotment
option is not exercised. See "Underwriting."
The Company
Paxson Communications Corporation (the "Company" or "Paxson
Communications") has created a nationwide network of television stations
dedicated to the airing of infomercial programming (the "Infomall TV Network"
or "inTV"*). In addition, the Company has a significant radio and
network-affiliated television broadcasting presence in the state of Florida.
The Company owns 16 radio stations in the four largest Florida cities and owns
one network-affiliated television station and operates another pursuant to a
TBA in the West Palm Beach market.
The Company introduced its Infomall TV Network in January 1995. At the
commencement of the Company's operation of inTV, the Company owned four
stations. inTV has expanded rapidly and currently consists of 21 owned,
operated pursuant to a TBA or affiliated inTV stations. Upon completion of the
Proposed Acquisitions (as defined) the Company will have 30 owned, operated
pursuant to a TBA or affiliated inTV stations operating in 28 television
markets, 20 of which are among the 30 largest in the United States.
The Company believes that (i) its inTV stations comprise the only national
network of television stations dedicated to the airing of infomercial
programming, (ii) inTV network stations represent a valuable national
television broadcasting distribution infrastructure that would be difficult and
expensive to replicate, and (iii) its radio and network-affiliated television
stations in Florida's five largest markets provide it with a significant
statewide presence.
The Company was founded in 1991 by Lowell W. "Bud" Paxson. Mr. Paxson has
been at the forefront of several innovative broadcasting concepts over the last
decade, including his leadership role in the creation and early growth of
electronic retailing as the creator and co-founder of Home Shopping Network,
Inc. and Silver King Communications, Inc. Mr. Paxson has made equity
investments in the Company in excess of $33 million.
Business Strategy
The Company's business strategy is to increase revenue and cash flow by
(i) expanding its inTV network, (ii) applying its multiple station operating
strategy to its inTV stations and radio and network-affiliated television
stations, (iii) exploring the additional distribution potential of the
television stations comprising its national inTV network, and (iv) acquiring
additional radio stations in Florida markets should proposed or future
legislation permit.
Infomall TV Network
In January 1995, Paxson Communications introduced the Infomall TV Network
in order to capitalize on what the Company believes to be a rapidly growing
industry. The Company has assembled 17 stations dedicated to inTV programming
and has entered into agreements with respect to nine stations in seven
additional markets to be owned or operated pursuant to a TBA by the Company as
inTV stations. In addition, the Company has inTV affiliation agreements with
four independently owned and operated television stations. The Company
believes that its network of inTV stations is the only group of television
stations in the United States that offers infomercial advertisers
________________
* inTV is a service mark of Paxson Communications Corporation.
<PAGE> 8
significant national, regional and local distribution capability and airtime
during each of the popular morning, daytime and prime time viewing hours.
The television stations acquired by the Company and converted to inTV
stations are typically non-network-affiliated stations with marginal operating
results that can be acquired at a relatively low cost compared to
network-affiliated stations. Certain of these stations are licensed to
communities outside the center of major television markets, but within such
markets' designated market area ("DMA") and by virtue of the FCC's "must carry"
rules are thus generally entitled to carriage on cable systems within such DMA.
Through the exercise of "must carry" rights and the improvement of its
stations' over-the-air signals, the Company intends to continue its efforts to
maximize its cable household market coverage beyond the 61% achieved currently.
The Company's goal is to reach approximately 85% of the cable homes in its
markets (although there can be no assurance that the Company will reach such
goal). The Company believes that it also reaches a significant number of
over-the-air television households that do not receive cable television. Upon
completion of the Proposed Acquisitions the markets to be served by the Company
will contain approximately 43 million households of which 27.8 million will be
served by cable television. The Company continues to evaluate the acquisition
of or affiliation with additional independent television stations to further
extend the national reach of its Infomall TV Network.
Shortly after the Company acquires a station or commences operating a
station pursuant to a TBA, the Company replaces the existing programming with
infomercial programming. The Company's infomercial programming format allows it
to substantially reduce operating expenses through the elimination of
programming expenses and through the use of standardized engineering and
operating systems. Unlike traditional television stations, inTV programming is
paid for by the advertiser as opposed to the broadcaster. In addition, the
Company's inTV stations are operated by an average of 15 people, substantially
fewer than network and independent television stations. To date, each of the
inTV stations owned or operated pursuant to a TBA has contributed rapidly to
broadcast cash flow, typically within two months after the commencement of
operations.
In 1995, its initial year of operations, inTV achieved segment revenue of
$____ million and segment operating profit of $______ million. Segment revenue
increased from $3.9 million during the first quarter of 1995 to $____million
during the fourth quarter of 1995. Segment operating profit from this division
increased from $1.5 million during the first quarter of 1995 to $____million
during the fourth quarter of 1995.
Paxson Radio
Paxson Communications owns and operates 18 radio stations (nine FM and
nine AM stations), with more radio stations in Florida than any other
broadcaster. The Company operates two FM and two AM stations, commonly
referred to as a "duopoly," serving each of Florida's four largest cities
(Miami, Tampa, Orlando and Jacksonville). In addition, the Company owns and
operates an AM/FM combination in Cookeville, Tennessee and has joint sales
agreements with an additional FM station in Jacksonville and an additional AM
station in Miami. The Company operates six radio networks with 338 affiliated
radio stations in the eastern and southeastern United States and controls 67
billboard locations (161 faces) in the Tampa and Orlando markets that support
the Company's radio station operations and provide advertising revenue.
The Company believes that its established position among the leading radio
broadcast groups in each of its Florida markets differentiates it from its
competitors and makes the Company attractive to regional and national
advertisers. In addition to having leading positions in its markets, the
Company believes that its Florida markets are highly attractive and among the
fastest growing radio markets in the nation.
The Company's radio operating strategy, which is implemented by the
Company's highly experienced management team, is to capitalize on the revenue
enhancing and cost saving opportunities of having FM and AM duopolies in
geographically proximate markets. The principal elements of the Company's
operating strategy include: (i) extensive market research, (ii) aggressive
marketing and promotion and (iii) strict cost controls.
2
<PAGE> 9
The Company acquired its radio properties between 1991 and 1995. In 1995,
Paxson Radio's operations generated segment revenue and segment operating
profit of $________ and $________, respectively.
Paxson Network-Affiliated Television
Paxson Communications owns and operates an ABC-TV affiliate, WPBF-TV, in
the West Palm Beach market. In August 1995, the Company entered into a time
brokerage agreement under which it provides programming and markets commercial
time for a second television station, WTVX-TV (a combined United Paramount
network and Warner Brothers network affiliate), also in the West Palm Beach
market. The West Palm Beach television market is one of the fastest growing
markets in the country as evidenced by its increased market ranking from 65th
in 1985 to 45th in 1995.
The Company acquired WPBF-TV in July 1994 for approximately $32.5 million
and began operating WTVX-TV under a time brokerage agreement in August 1995.
The Company has a long-term option to acquire WTVX-TV for approximately $19
million. The Company's television operating strategy is similar to its radio
operating strategy as the Company seeks to capitalize on the revenue enhancing
and cost saving opportunities from operating two television stations in one
market from a single studio facility. After the acquisition of WPBF-TV, the
Company installed its management team, implemented cost rationalization
measures and revamped WPBF-TV's programming. Pro forma for the inclusion of
WTVX-TV, in 1995 these television stations generated segment pro forma revenue
and segment pro forma operating profit of $_____ million and $______ million,
respectively. See "Business - Segment Data."
3
<PAGE> 10
Market Overview
Infomall TV Network
The following table lists those inTV properties that the Company owns,
operates pursuant to a TBA, or is affiliated with, and those properties which
the Company has agreements to acquire or operate pursuant to a TBA, as
identified under "Proposed Acquisitions" below (the "Proposed Acquisitions").
<TABLE>
<CAPTION>
National Actual or inTV Cable Current
TV Anticipated Carriage at inTV Total
Market Commence- Commence- Cable Market Cable
Market(1) Rank(2) Station ment of Operations ment(3) Carriage(4) Households(5)
- --------- -------------- ------- -------------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Owned or TBA Operated
Los Angeles, CA 2 KZKI-TV 5/95 1,452,633 1,952,322 2,997,230
Philadelphia, PA 4 WTGI-TV 2/95 1,225,022 1,433,773 1,961,070
San Francisco, CA 5 KLXV-TV 6/95 650,000 794,242 1,577,580
Boston, MA 6 WGOT-TV 5/95 603,833 839,029 1,624,860
Washington, DC 7 WYVN-TV (8) 4/96 0 0 1,237,970
Atlanta, GA 10 WTLK-TV 4/94 300,000 915,285 1,014,950
Houston, TX 11 KTFH-TV 3/95 646,590 774,417 867,460
Cleveland, OH* 13 WOAC-TV 10/95 331,505 336,161 965,820
Tampa, FL* 15 WFCT-TV 8/94 0 823,836 976,450
Miami, FL* 16 WCTD-TV 4/94 396,050 867,653 921,850
Denver, CO* 18 KUBD-TV 8/95 430,332 433,300 698,830
Phoenix, AZ* 19 KWBF-TV 1/96 23,000 23,000 660,770
St. Louis, MO* 20 WCEE-TV 1/96 227,468 227,468 568,670
Orlando, FL* 22 WIRB-TV 12/94 468,000 482,081 741,180
Hartford, CT 26 WTWS-TV 3/95 660,600 717,348 770,020
Raleigh, NC* 32 WRMY-TV (9)(10) 6/96 0 0 480,850
Dayton, OH* 53 WTJC-TV 10/95 297,666 313,153 341,040
----------- ------------ -------------
Total Owned and TBA Operated 7,712,699 10,933,068 18,406,600
Affiliates
Sacramento 21 KCMY-TV 7/95 624,108 640,092 687,820
Indianapolis 24 WIIB-TV 1/96 400,525 409,658 579,930
Norfolk 40 WJCB-TV 8/95 343,289 349,586 445,750
Fresno 57 KGMC-TV 1/96 178,500 178,500 255,860
----------- ------------ -------------
Total Affiliates 1,546,422 1,577,836 1,969,360
----------- ------------ -------------
Total Owned, TBA Operated and Affiliates 9,259,121 12,510,904 20,375,960
----------- ------------
Proposed Acquisitions
New York, NY 1 WHAI-TV 3/96 4,528,750
Dallas, TX 8 Channel 68 (10) 12/96 923,530
Atlanta, GA* 10 WNGM-TV 4/96 1,014,950
Cleveland, OH 13 WAKC-TV 3/96 965,820
Milwaukee, WI* 29 WHKE-TV 4/96 437,730
Grand Rapids, MI* 38 WJUE-TV (11) 6/96 390,350
West Palm Beach, FL** 45 WHBI-TV 7/96 467,730
Albany, NY* 52 WOCD-TV 5/96 356,510
San Juan, P.R.* NR WSJN-TV (12) 2/96 298,217
-------------
Total Proposed Acquisitions 9,383,587
-------------
Total inTV Network*** 9,259,121 12,510,904 27,778,777
=========== ============ =============
<CAPTION>
Current inTV Total
Cable Market TV
Market(1) Carriage%(6) Households(7)
- --------- ------------ --------------------
<S> <C> <C>
Owned or TBA Operated
Los Angeles, CA 65.1% 4,917,550
Philadelphia, PA 73.1% 2,645,690
San Francisco, CA 50.3% 2,257,210
Boston, MA 51.6% 2,121,530
Washington, DC 0.0% 1,883,590
Atlanta, GA 90.2% 1,583,520
Houston, TX 89.3% 1,574,300
Cleveland, OH* 34.8% 1,452,090
Tampa, FL* 84.4% 1,395,480
Miami, FL* 94.1% 1,340,860
Denver, CO* 62.0% 1,159,730
Phoenix, AZ* 3.5% 1,169,530
St. Louis, MO* 40.0% 1,108,480
Orlando, FL* 65.0% 997,850
Hartford, CT 93.2% 911,490
Raleigh, NC* 0.0% 791,690
Dayton, OH* 91.8% 501,140
------------ --------------------
Total Owned and TBA Operated 59.4% 27,811,730
Affiliates
Sacramento 93.1% 1,100,810
Indianapolis 70.6% 925,340
Norfolk 78.4% 619,390
Fresno 69.8% 481,620
------------ --------------------
Total Affiliates 80.1% 3,127,160
------------ --------------------
Total Owned, TBA Operated and Affiliates 61.4% 30,938,890
Proposed Acquisitions
New York, NY 6,695,140
Dallas, TX 1,821,900
Atlanta, GA* 1,583,520
Cleveland, OH 1,452,090
Milwaukee, WI* 782,810
Grand Rapids, MI* 637,100
West Palm Beach, FL** 576,460
Albany, NY* 507,120
San Juan, P.R.* 1,064,200
--------------------
Total Proposed Acquisititions 15,120,340
--------------------
Total inTV Network*** 43,023,620
====================
</TABLE>
- -------------------------
* Operated pursuant to a time brokerage agreement.
** inTV affiliate pending acquisition by licensee. TBA operated upon
acquisition by licensee.
*** Does not reflect duplicate households in Cleveland and Atlanta markets.
(1) Each station is licensed by the FCC to serve a specific community,
which is included in the listed market.
(2) See "Certain Definitions and Market and Industry Data" for information
concerning market rank.
(3) Cable households reached at commencement of station's operations.
(4) Cable households reached at 1/96.
(5) Source: AC Nielsen. San Juan cable households provided by J. Walter
Thompson Latin America, June 1995.
(6) Cable households reached at 1/96 as a percent of the market's total cable
households. Source: AC Nielsen. San Juan cable households provided by J.
Walter Thompson Latin America, June 1995.
(7) Figures represent total television households in each market only and are
not necessarily indicative of the number of television households reached
by each station in its market.
(8) Station is not currently on the air.
(9) Option to acquire 40% ownership interest.
(10) Pending construction.
(11) 70% ownership interest to be acquired.
(12) 50% ownership interest to be acquired; station signal will be satellite
simulcast in the San Juan area on WKPV-TV and WJWN-TV, stations in which
the Company is also acquiring a 50% interest.
4
<PAGE> 11
Paxson Radio
<TABLE>
<CAPTION> Commencement
National Radio of
Radio Market(1) Market Rank (2) Station Format Operations
- --------------- --------------- ------- ------ ------------
<S> <C> <C> <C> <C>
Miami, FL 11 WLVE-FM Smooth Jazz 4/93
WZTA-FM Album Oriented Rock 4/92
WINZ-AM News/Sports 4/92
WFTL-AM Talk/Sports 6/95
Tampa, FL 21 WHPT-FM Rock Adult Contemporary 11/91
WSJT-FM Smooth Jazz 7/95
WHNZ-AM News/Sports 11/91
WNZE-AM Sports 8/94
Orlando, FL 35 WMGF-FM Soft Adult Contemporary 6/92
WJRR-FM Modern Rock 7/92
WWNZ-AM News 4/92
WWZN-AM Sports 12/94
Jacksonville, FL 50 WROO-FM Young Country 9/91
WPLA-FM Alternative Rock 6/92
WNZS-AM Sports 5/93
WZNZ-AM News 6/92
Cookeville, TN -- WGSQ-FM Country 4/94
WPTN-AM Talk 4/94
<CAPTION>
Commencement
Affiliate of
Radio Networks (3) Stations Format Operations
- ------------------ --------- ------ -----------------------------------
<S> <C> <C> <C>
Alabama Radio Network 74 News 1/95
Florida Radio Network 56 News 3/93
Tennessee Radio Network 79 News 4/94
University of Florida Sports Network 53 Sports 4/94
University of Miami Sports Network 25 Sports 4/95
Penn State Sports Network 51 Sports 4/94
</TABLE>
Paxson Network-Affiliated Television
<TABLE>
<CAPTION>
Commencement
National TV Network of
TV Market (1) Market Rank (2) Station Affiliation Operations
- ------------- --------------- ------- ----------- ------------
<S> <C> <C> <C> <C>
West Palm Beach, FL 45 WPBF-TV ABC 7/94
WTVX-TV(4) Warner/UPN 8/95
</TABLE>
- --------------
* Operated under a time brokerage agreement.
(1) Each station is licensed by the FCC to serve a specific
community, which is included in the listed market.
(2) See "Certain Definitions and Market and Industry Data" for
information concerning market rank.
(3) The Company has terminated its operation of the South Carolina
Radio Network, and will not renew the rights to the Virginia Tech
Sports Network, which will expire in March 1996. See "Certain
Transactions."
5
<PAGE> 12
The Offering
<TABLE>
<S> <C>
Class A Common Stock Offered:
Company .................................. 8,800,000 shares
Selling Stockholders ..................... 1,200,000 shares
------------------
Total ................................... 10,000,000 shares
==================
U.S. Offering ............................ 8,000,000 shares
International Offering ................... 2,000,000 shares
------------------
Total ................................... 10,000,000 shares
==================
Common Stock to be Outstanding after this Offering:
Class A Common Stock (a) ................. 35,869,826 shares
Class B Common Stock (b) ................. 8,311,639 shares
------------------
Total (a)(b)(c) ......................... 44,181,465 shares
==================
Use of proceeds ................................... The Company intends to use
the net proceeds of the
Offering to fund the
Proposed Acquisitions,
fund capital expenditures
associated with certain
previous acquisitions,
repay all amounts
outstanding under the
Company's New Credit
Facility (as defined),
which amounts may
subsequently be
reborrowed, and for other
general corporate
purposes, including
working capital, capital
expenditures and potential
acquisitions.
Voting rights ..................................... The holders of the Class A
Common Stock and the Class
B Common Stock vote
together as a single class
on all matters submitted
to a vote of stockholders
of the Company, with each
share of Class A Common
Stock entitled to one
vote, and each share of
Class B Common Stock
entitled to ten votes,
except as otherwise
provided by law. Holders
of Class C Common Stock
have no right to vote on
any matter voted on by the
Stockholders of the
Company, except as may be
provided by law or as
provided in certain
circumstances in the
Company's Certificate of
Incorporation (as
defined). See
"Description of Capital
Stock." Upon consummation
of the Offering and as a
result of his ownership of
Class B Common Stock, Mr.
Paxson will continue to
control the outcome of any
matters submitted to a
vote of stockholders,
including the election of
a majority of the
directors.
American Stock Exchange symbol .................... PXN
Dividend policy ................................... The Company has not paid
cash dividends on its
Common Stock and does not
intend for the foreseeable
future to declare or pay
any cash dividends and
intends to retain
earnings, if any, for the
future operation and
expansion of the Company's
business. The Company's
ability to pay dividends
in the future is subject
to limitations and
prohibitions of certain of
the Company's debt
instruments and of its
Preferred Stock (as
defined). See "Dividend
Policy."
</TABLE>
- -----------------
(a) Excludes (i) up to 1,500,000 shares of Class A Common Stock that may be
sold by the Company and Selling Stockholders upon exercise of the
over-allotment option, (ii) 1,666,334 shares of Class A Common Stock
issuable upon exercise of options granted prior to the commencement of the
Offering under the Company's Stock Incentive Plan and (iii) up to
2,352,129 shares of Class A Common Stock that are issuable by the Company
upon the exercise of certain warrants. See "Underwriting" and
"Description of Capital Stock."
(b) Excludes up to 903,043 shares of Class B Common Stock that are issuable
by the Company upon exercise of certain warrants, and which Class B Common
Stock is generally convertible into Class A Common Stock at the holder's
option. See "Description of Capital Stock."
(c) Excludes up to 4,472,628 shares of Class C Common Stock that are issuable
by the Company upon exercise of certain Warrants, which Class C Common
Stock is generally convertible into Class A Common Stock at the holder's
option. See "Description of Capital Stock."
Risk Factors
Investors should carefully consider the information set forth under the
heading "Risk Factors," in addition to the other information contained in this
Prospectus, before purchasing the securities offered hereby.
6
<PAGE> 13
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical and pro forma financial data, insofar as
it relates to each of the four years ended December 31, 1994, has been derived
from Company prepared financial information and should be read in conjunction
with the audited financial statements, including the consolidated balance
sheets at December 31, 1993 and 1994 and the related consolidated statements of
operations for each of the years in the three year period ended December 31,
1994 and the notes thereto appearing elsewhere in this Prospectus. The summary
historical and pro forma financial data as of and for the nine months ended
September 30, 1994 and 1995 have been derived from unaudited financial
statements also appearing herein and which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for the unaudited interim
periods. Results for the nine months ended September 30, 1995 are not
necessarily indicative of results that may be expected for the entire year.
The summary financial information should be read in conjunction with the
information contained in the Company's consolidated financial statements and
the notes thereto, Management's Discussion and Analysis of Financial Condition
and Results of Operations, Pro Forma Financial Information and Selected
Historical and Pro Forma Financial Data included elsewhere herein.
The following unaudited summary pro forma statement of operations data and
other data give effect to, (i) the consummation of the Offering; (ii) the
offering of $230 million aggregate principal amount of the Company's 11 5/8%
Senior Subordinated Notes due 2002 (the "Notes") and the execution of a $100
million senior secured revolving credit facility maturing June 30, 2002 (the
"New Credit Facility"); and (iii) significant business acquisitions since
January 1, 1994, as if they had occurred on January 1, 1994. In addition,
depreciation and amortization expense has been increased for each period to
reflect primary purchase price allocations for all stations included in the
Proposed Acquisitions. The following unaudited summary pro forma balance sheet
data give effect to, (i) the consummation of the Offering, the Proposed
Acquisitions, and the release of the holder's put on the Class A and Class B
common stock warrants; (ii) receipt of proceeds from the repayment of
indebtedness owed by Whitehead Media, Inc. ("Whitehead Media") to the Company;
(iii) repayment of a note payable to the Company's principal stockholder; (iv)
the execution of the New Credit Facility; and (v) certain acquisitions which
have closed subsequent to September 30, 1995, as if they had occurred on
September 30, 1995. The Offering and the Proposed Acquisitions and certain
management assumptions and adjustments are described in the accompanying notes
hereto. The pro forma information should be read in conjunction with the
Company's consolidated financial statements and the notes thereto, as of
December 31, 1994 and for the three years then ended, appearing elsewhere in
this Prospectus. This pro forma information is not necessarily indicative of
the Company's actual or future operating results or financial position.
7
<PAGE> 14
Summary Historical and Pro Forma Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
----------------------------------------------------- -------------------------------
Pro Pro
Forma Forma
1991 1992 1993 1994 1994(a) 1994 1995 1995(a)
------- ------- -------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Total revenue $ 830 $17,062 $ 32,062 $ 62,067 $85,371 $39,841 $ 71,524 $77,390
Operating expenses,
excluding
depreciation,
amortization and
option plan
compensation 1,719 17,922 28,872 51,225 70,883 32,813 58,978 62,888
Option plan
compensation(b) -- -- -- -- -- -- 9,809 9,809
Depreciation and
amortization 497 5,977 9,351 12,404 27,185 8,558 13,079 20,389
------- ------- -------- -------- ------- ------- --------- -------
Loss from operations (1,386) (6,837) (6,161) (1,562) (12,697) (1,530) (10,342) (15,696)
Interest expense,
net(c) (52) (1,262) (2,052) (4,875) (28,550) (3,191) (7,853) (21,413)
Other income
(expense), net 10 134 221 (5) (119) 162 (46) (46)
Benefit (provision)
for income
taxes -- -- (2,960) 1,680 1,680 1,769 960 960
Extraordinary item and
cumulative effect of
a change in
accounting
principle(d) -- 110 (457) -- -- (10,626)
------- ------- -------- -------- ------- ---------
Net loss $(1,428) $(7,855) (11,409) (4,762) (2,790) (27,907)
======= =======
Dividends and
accretion on
preferred stock and
common
stock warrants(e) (151) (3,386) (2,407) (9,121)
-------- -------- ------- ---------
Net loss attributable
to common
stock and common
stock
equivalents $(11,560) $ (8,148) $(5,197) $ (37,028)
======== ======== ======= =========
Net loss per share (f) $ (0.36) $ (0.14) $ (0.09) $ (0.81)
Net loss per share
attributable to
common stock and
common
stock equivalents(f) (0.37) (0.24) (0.16) (1.08)
Weighted average
shares
outstanding --
primary and fully
diluted (g) 31,582 33,430 32,506 34,405
======== ======== ======= =========
Cash dividends
declared -- -- -- -- -- -- --
Other Data:
EBITDA (h) $ (796) $ (162) $ 4,522 $ 11,790 $15,795 $ 8,295 $ 15,391 $17,417
Capital expenditures(i) 60 1,273 1,963 5,917 5,917 4,604 18,864 18,864
Adjusted EBITDA (j) $27,582
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1995
------------------------
Actual Pro Forma(a)
------ ------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 57,945 $ 89,001
Working capital 66,417 98,673
Total assets 283,929 406,989
Total debt 231,509 230,309
Redeemable preferred stock and Class A and B common stock warrants (k) 52,999 48,620
</TABLE>
(see footnotes on the following page)
8
<PAGE> 15
Notes to Summary Historical and Pro Forma Financial Data
(in thousands)
(a) Pro forma statement of operations and other data for the year ended
December 31, 1994 and the nine months ended September 30, 1995 give effect to:
(i) the consummation of the Offering; (ii) the Notes and the execution of the
New Credit Facility; and (iii) significant business acquisitions since January
1, 1994 as if such events had occurred on January 1, 1994. In addition,
depreciation and amortization expense has been increased for each period to
reflect preliminary purchase price allocations for all station acquisitions
made by the Company since January 1, 1994 and for the Proposed Acquisitions.
The pro forma balance sheet data as of September 30, 1995 give effect to (i)
the consummation of the Offering, the Proposed Acquisitions and the release of
the holder's put on the Class A and Class B common stock warrants; (ii) receipt
of proceeds from the repayment of indebtedness owed by Whitehead Media to the
Company; (iii) repayment of a note payable to the Company's principal
stockholder; (iv) the execution of the New Credit Facility; and (v) certain
acquisitions which have closed subsequent to September 30, 1995, as if such
events included in (i) through (v) had occurred on September 30, 1995.
(b) Option plan compensation represents a non-cash charge associated with
the granting of common stock options to employees under the Company's Stock
Incentive Plan. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations" and "Management -
Stock Incentive Plan."
(c) Interest expense, net is equal to total interest expense less interest
income.
(d) Extraordinary item and cumulative effect of a change in accounting
principle reflects a gain of $110 in 1992 as a result of a change in the method
of calculating depreciation and an extraordinary loss of $457 and $10,626 in
1993 and 1995, respectively, associated with the write-off of capitalized
financing costs on debt retired. The pro forma statement of operations data
for the year ended December 31, 1994 and the nine months ended September 30,
1995, does not reflect an extraordinary loss on the write-off of previously
capitalized financing costs of $6,300 and $10,626, respectively.
(e) Dividends and accretion on preferred stock and common stock warrants
represent the Senior Preferred Stock (as defined herein) (15% dividend rate),
redeemable Class A and Class B common stock warrants and Junior Preferred Stock
(as defined herein) (12% dividend rate). Such capital stock is mandatorily
redeemable and certain issues accrete. See "Description of Capital Stock."
(f) Loss per share data for the years ended December 31, 1993 and 1994
give a pro forma effect to (i) the Company's amended capital structure related
to the merger with ANG; and (ii) a stock dividend on common shares outstanding
on January 1, 1995. Loss per share data for the historical nine months ended
September 30, 1994 give pro forma effect to a stock dividend on common shares
outstanding on January 1, 1995. For periods prior to January 1, 1993, loss per
share data was not computed as such amounts were not relevant.
(g) Weighted average shares outstanding for the years ended December 31,
1993 and 1994 give pro forma effect to an increase in the weighted average
number of shares outstanding relating to (i) the merger with ANG of 21,055 and
22,287 shares, respectively; and (ii) a stock dividend on common shares
outstanding on January 1, 1995 of 10,527 and 11,143 shares, respectively.
Weighted average shares outstanding for the nine months ended September 30,
1994 give pro forma effect to a stock dividend on January 1, 1995 of 10,835
shares. For periods prior to January 1, 1993, weighted average shares
outstanding was not computed as such amounts were not relevant.
(h) EBITDA is defined as net income (loss) before (i) extraordinary item
and cumulative effect of a change in accounting principle; (ii) benefit
(provision) for income taxes; (iii) other income (expense), net; (iv) interest
expense; (v) depreciation and amortization; (vi) option plan compensation; and
(vii) non-recurring items including terminated operations, less scheduled
broadcast rights payments.
(i) Includes all capital expenditures including expenditures associated
with the upgrade and conversion of acquired and TBA operated television
stations to the inTV format. Pro forma capital expenditures exclude $33,500
associated with the Proposed Acquisitions and additional capital expenditures
on existing properties which will be funded from proceeds of the Offering.
9
<PAGE> 16
(j) Adjusted EBITDA is defined as EBITDA for the latest twelve months
ended September 30, 1995, less (i) segment operating profit for the Infomall TV
Network for such period plus (ii) four times segment operating profit for the
Infomall TV Network for the quarter ended September 30, 1995. Adjusted EBITDA
is calculated on a basis consistent with calculations under the indenture
governing the Notes (the "Indenture").
(k) The put rights of the holders of the Class A and Class B common stock
warrants will be released upon the closing of the Offering and such warrants
are not included in the pro forma amount at September 30, 1995.
10
<PAGE> 17
RISK FACTORS
Prospective investors should consider carefully the following risk factors
in addition to the other information set forth in this Prospectus before
purchasing the Class A Common Stock.
High Level of Indebtedness; Ability to Service Indebtedness; Net Losses
The Company is highly leveraged. At September 30, 1995, on a pro forma
basis, after giving effect to this Offering and the Proposed Acquisitions, the
Company would have had $230.3 million of total debt, including $227.3 million
of Notes, in addition to $48.6 million of redeemable preferred stock. In
addition, subject to the restrictions in the Indenture and the New Credit
Facility, the Company may incur additional indebtedness from time to time to
finance acquisitions or capital expenditures or for other corporate purposes.
The level of the Company's indebtedness could have important consequences
to stockholders, including: (i) a substantial part of the Company's cash flow
from operations must be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing in
the future, if needed, may be limited; (iii) the Company's leveraged position
and covenants contained in the Indenture and the New Credit Facility (or any
replacement thereof) could limit its ability to expand and make capital
improvements and acquisitions; (iv) the Indenture and the New Credit Facility
contain certain restrictive covenants, including covenants that restrict or
prohibit the payment of dividends or other distributions by the Company to its
stockholders; and (v) the Company's level of indebtedness could make it more
vulnerable to economic downturns, limit its ability to withstand competitive
pressures and limit its flexibility in reacting to changes in its industry and
economic conditions generally. Certain of the Company's competitors currently
operate on a less leveraged basis and may have significantly greater operating
and financing flexibility than the Company.
The Company's ability to satisfy its debt obligations and to pay dividends
on its Preferred Stock (as defined herein) and Common Stock will depend upon
its future operating performance, which will be affected by prevailing economic
conditions and financial, business and other factors, many of which are beyond
its control. The Company expects that its operating cash flow will be
sufficient to meet its operating expenses and to service its debt and preferred
stock requirements as they become due. However, if the Company is unable to
service its indebtedness or make payments with respect to its preferred stock,
it will be forced to adopt an alternative strategy that may include actions
such as reducing or delaying capital expenditures, selling assets,
restructuring or refinancing its indebtedness or seeking additional equity
capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all, and the implementation of any of
these alternative strategies could have a negative impact on the value of the
Class A Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
The Company has incurred net losses in each of its fiscal years since
inception. Net losses for the fiscal years ended December 31, 1992, December
31, 1993 and December 31, 1994 were $7.9 million, $11.4 million and $4.8
million, respectively, and for the nine-month period ended September 30, 1995
was $27.9 million. Furthermore, the Company's Preferred Stock and certain
warrants to purchase shares of Class A Common Stock and Class B Common Stock
have certain dividend and accretion provisions. Net losses attributable to
Common Stock and common stock equivalents for the fiscal years ended December
31, 1993 and December 31, 1994 were $11.6 million and $8.1 million,
respectively, and for the nine-month period ended September 30, 1995 was $37.0
million. There can be no assurance that the Company will not continue to
generate net losses in the future.
11
<PAGE> 18
Dependence on Key Personnel
The Company's business depends upon the efforts, abilities and expertise
of its executive officers and other key employees, including Lowell W. Paxson.
If certain of these executive officers were to leave the Company, the Company's
operating results could be adversely affected. In addition, in the event of
Mr. Paxson's death, the Company may be required, in certain instances, to make
an offer to repurchase the Notes and to redeem its Preferred Stock. However,
there can be no assurance that if such an event were to occur, the Company will
have, or will have access to, sufficient funds to satisfy such repurchase or
redemption obligations. The Company maintains insurance on Mr. Paxson's life,
in the amount of five million dollars. Mr. Paxson has an employment agreement
that expires on December 31, 1999, unless terminated sooner as permitted
therein. See "Management - Employment Agreements."
"Must Carry" Regulations
The Company believes that its growth and success depend in part upon
access to households served by cable television systems. Pursuant to the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"), each broadcaster was required to elect to exercise either certain "must
carry" or retransmission consent rights in connection with carriage of their
signals by cable systems in their local market. By electing the "must carry"
rights, a broadcaster can demand carriage on a specified channel on cable
systems within its DMA. These "must carry" rights are not absolute, and their
exercise depends on variables such as (i) the number of activated channels on a
cable system, (ii) the location and size of a cable system, and (iii) the
amount of duplicative programming on a broadcast station. Therefore, under
certain circumstances, a cable system can decline to carry a given station.
Alternatively, if a broadcaster chooses to exercise retransmission consent
rights, it can prohibit cable systems from carrying its signal or grant the
appropriate cable system the authority to retransmit the broadcast signal for a
fee or other consideration. The Company's television stations have elected the
"must carry" alternative. The Company's elections of retransmission or "must
carry" status will continue until the next required election date of October 1,
1996.
The "must carry" rules have been subject to judicial scrutiny. In April
1993, the United States District Court for the District of Columbia upheld the
constitutionality of the "must carry" provisions. In June 1994, the Supreme
Court ruled that the "must carry" provisions were content-neutral and, thus,
not subject to strict scrutiny; however, the Supreme Court remanded the case to
the lower federal court with instructions to hold further proceedings with
respect to evidence that lack of the "must carry" requirements would harm local
broadcasting. On December 12, 1995, the District Court again upheld the
constitutionality of the "must carry" provisions. The District Court's most
recent decision has been appealed to the Supreme Court and management cannot
predict the final outcome of the Supreme Court case or the extent to which, in
the absence of any "must carry" obligation, its television stations might lose
viewers because of the deletion or repositioning of its signal on cable
television systems. See "Business - Federal Regulation of Broadcasting."
Government Regulation
Each of the Company's radio and television stations operates pursuant to
one or more licenses issued by the Federal Communications Commission (the
"FCC") that expire at different times, commencing in February 1996. The Company
may apply to renew those licenses, and third parties may challenge those
applications or file competing applications. Although the Company has no reason
to believe that its licenses will not be renewed in the ordinary course, there
can be no assurance that the licenses will be renewed.
The radio and television broadcasting industries are subject to extensive
and changing regulation. Among other things, the Communications Act of 1934, as
amended (the "Communications Act"), and FCC rules and
12
<PAGE> 19
policies require FCC consent to assignments of FCC licenses and transfers of
control of FCC licensees. Congress and the FCC currently have under
consideration and may in the future adopt new laws and regulations and policies
regarding a wide variety of matters which could, directly or indirectly,
adversely affect the ownership and operation of the Company's broadcast
properties, as well as the Company's business strategies. For example, changes
in the rule for attributing the ownership of media interests for purposes of
the FCC's multiple ownership and cross-ownership rules could require that the
Company restructure or divest itself of some existing broadcast interests.
Changes in the rules to treat television time brokerage agreements as
attributable interests could require the renegotiation of all or some of the
Company's existing time brokerage agreements with television licensees.
Relaxation of the existing multiple ownership and cross-ownership rules and
policies by the FCC or through new legislation such as that now pending in
Congress could give the Company greater freedom in structuring future
acquisitions and programming arrangements, but also may remove the restrictions
that now restrain larger media, entertainment and telecommunication companies,
with greater access to capital and resources than the Company, from competing
with the Company for the acquisition of media properties and the negotiation of
programming arrangements. The adoption of measures such as elimination of
restrictions on the offering of multiple network services by the existing major
television networks, the removal of restrictions on the participation by the
regional Bell holding companies in cable television and other direct-to-home
video technologies, and the removal of restrictions on nationwide broadcast
ownership could accelerate the existing trend toward vertical integration in
the telecommunications, media and home entertainment industries and cause the
Company to face more formidable competition in the future. See "Business -
Federal Regulation of Broadcasting."
Multiple Ownership Rules; Time Brokerage Agreements
On a national level, FCC rules and regulations currently generally prevent
an entity or individual from having an attributable interest in more than 12
television stations, with an additional limit on nationwide reach of 25% of the
total nationwide television households under which UHF stations are credited
with only 50% of the television households in their markets. On a local level,
the duopoly rules prohibit ownership interests in two or more television
stations with overlapping service areas. The FCC generally applies its
ownership limits to attributable interests held by an individual, corporation,
partnership or other entity. In the case of corporations holding broadcast
licenses, the interests of officers, directors and those who directly or
indirectly have the right to vote 5% or more of the corporation's voting stock
(or 10% or more of such stock in the case of insurance companies, certain
regulated investment companies and bank trust departments) are generally deemed
to be attributable, as are positions as an officer or director of a corporate
parent of a broadcast licensee.
The FCC has initiated rule making proceedings to consider proposals to
modify its television ownership restrictions, including ones that may permit
ownership, in some circumstances, of two television stations with overlapping
service areas. The FCC also is considering in these proceedings whether to
adopt restrictions on television time brokerage agreements. The duopoly rules
for television currently prevent the Company from acquiring the FCC licenses of
television stations with which it has time brokerage agreements in those
markets where the Company owns a television or radio station. In addition, if
the FCC were to decide that the provider of programming services under time
brokerage agreements should be treated as having an attributable ownership in
the television station it programs, and if it did not relax the duopoly rules,
or if the FCC were to adopt restrictions on time brokerage agreements without
grandfathering existing time brokerage agreements, the Company could be
required to modify or terminate certain of its time brokerage agreements.
Furthermore, if the FCC were to find that the licensees of the stations with
which the Company has time brokerage agreements failed to maintain control over
their operations as required by FCC rules and policies, the licensee of the
time brokerage agreements and/or the Company could be fined or could be set for
hearing, the outcome of which could be a fine or, under certain circumstances,
loss of the applicable FCC license. The Company is unable to predict the
ultimate outcome of possible changes to these FCC rules and the impact such FCC
rules may have on its broadcasting operations. See "Business - Federal
Regulation of Broadcasting."
13
<PAGE> 20
Voting Control by Founding Stockholder
After the Offering, Lowell W. Paxson will beneficially own approximately
66.8% of the outstanding Class A Common Stock (approximately 63.8% if the
Underwriters' over-allotment option is exercised in full) and 100% of the
outstanding Class B Common Stock and will have 90.0% of the voting power of the
outstanding Common Stock (88.8% if the Underwriters' over-allotment option is
exercised in full). As a result, Mr. Paxson will effectively be able to
control the outcome of matters requiring a stockholder vote, including the
election of directors, adopting or amending provisions of the Company's
certificate of incorporation and bylaws, and approving certain mergers or other
similar transactions, such as a sale of substantially all the Company's assets.
See "Principal and Selling Stockholders."
Purchasers of Class A Common Stock offered hereby will become minority
stockholders of the Company and will be unable to control the management or
business policies of the Company. Moreover, subject to contractual
restrictions and general fiduciary obligations, the Company is not prohibited
from engaging in transactions with its management and principal stockholders,
or with entities in which such persons are interested. The Company's
certificate of incorporation does not provide for cumulative voting in the
election of directors.
Anti-Takeover Effect of Charter Provisions, Bylaws, and State Law
The Company's certificate of incorporation and bylaws and Delaware law
contain provisions that may have the effect of inhibiting a non-negotiated
merger or other business combination. These provisions are intended to
encourage a person interested in acquiring the Company to negotiate with, and
to obtain the approval of, the Board of Directors in connection with the
transaction. However, certain of these provisions may discourage a future
acquisition of the Company, including an acquisition in which stockholders
might otherwise receive a premium for their shares. As a result, stockholders
who might desire to participate in such a transaction may not have the
opportunity to do so. See "Description of Capital Stock - Certain Provisions
of the Company's Certificate of Incorporation" and "- Bylaws."
In addition to its authorized shares of Common Stock, the Company's
certificate of incorporation authorizes the issuance of up to 1,000,000 shares
of preferred stock. The Board of Directors has authority to determine the
price, rights, preferences, privileges and restrictions, including the voting
rights of those shares, without any further vote or action by the stockholders.
The rights of holders of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of any Preferred Stock that may be issued in
the future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of the outstanding voting stock of the Company. The
Company has no current plans to issue additional shares of preferred stock.
See "Description of Capital Stock."
Shares Eligible for Future Sale; Registration Rights
Upon consummation of the Offering, the Company will have a total of
35,869,826 shares of Class A Common Stock (37,026,826 shares if the
Underwriters' over-allotment option is exercised in full and which gives effect
to the issuance of 814,000 shares upon the exercise of options and warrants),
8,311,639 shares of Class B Common Stock and no shares of Class C Common Stock
outstanding. Generally, shares of Class B Common Stock and Class C Common
Stock are convertible to shares of Class A Common Stock at the option of the
holder thereof. In addition, there will be outstanding options to purchase an
aggregate of 1,666,334 shares of Class A Common Stock and warrants to purchase
an aggregate of 2,352,129 shares of Class A Common Stock, 903,043 shares of
Class B Common Stock and 4,472,628 shares of Class C Common Stock, all of which
are currently exercisable. Of the outstanding shares, the shares of Class A
Common Stock sold in the Offering will be freely transferable
14
<PAGE> 21
without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), except for any such shares purchased by "affiliates" of the
Company as that term is defined in Rule 144 of the Securities Act ("Rule 144"),
which will be subject to the limitations of Rule 144 under the Securities Act.
24,843,698 shares of Class A Common Stock, all 8,311,639 shares of Class B
Common Stock and all shares of Class C Common Stock, including any such shares
acquired upon the exercise of outstanding options or warrants, will be
"restricted securities" for purposes of Rule 144 and, subject to the agreement
discussed below, may not be resold unless registered under the Securities Act
or sold pursuant to an applicable exemption from registration thereunder,
including the exemptions contained in Rule 144. All of such restricted shares
are eligible for sale on the open market under Rule 144 (subject to the volume
and manner of sale limitations of that rule) except for (i) shares issued upon
the exercise of warrants to purchase Class C Common Stock which will be so
eligible for sale, commencing in December 1996 (unless a proposed amendment to
Rule 144 is adopted by the Commission, in which case all such shares would
immediately be eligible for sale on the open market under Rule 144 (subject to
the volume and manner of sale limitations of that rule)); (ii) 94,767 shares of
Class A Common Stock which shall be so eligible in April 1997 (or in April 1996
if such proposed amendment is adopted); and (iii) 441,376 shares of Class A
Common Stock which shall be so eligible in July 1997 (or in July 1996 if such
proposed amendment is adopted).
The Company is a party to a stockholders' agreement (the "Stockholders
Agreement") with certain of its stockholders, which grants them the right to
require the Company, subject to certain limitations, to effect up to five
"demand" registrations under the Securities Act for the sale of such
stockholders' shares of Common Stock. The Stockholders Agreement also provides
that in the event that the Company proposes to register any of its Common Stock
under the Securities Act, whether or not for its own account, at any time or
times, the stockholders that are parties to the Stockholders Agreement shall be
entitled, with certain exceptions, to include their shares of Common Stock in
such registration unless the managing underwriters of such offering exclude
some or all of such shares from such registration under the circumstances
specified in the Stockholders Agreement.
The Company, its executive officers and directors and certain of the
Company's existing stockholders have agreed that, for a period of 180 days from
the date of this Prospectus, they will not, without the prior consent of Smith
Barney Inc., offer, sell, contract to sell or otherwise dispose of, any shares
of capital stock of the Company or any securities convertible into, or
exercisable or exchangeable for, capital stock of the Company. See
"Underwriting."
Because there has been only a limited public market for shares of the
Class A Common Stock, the Company is unable to predict the effect, if any, that
future sales of shares, or the availability of shares for future sale, will
have on the market price for the Class A Common Stock prevailing from time to
time. Sales of substantial amounts of Class A Common Stock, or the perception
that such sales could occur, could adversely affect market prices for the Class
A Common Stock and could impair the Company's future ability to obtain capital
through an offering of equity securities.
Change of Control
A "change of control" (as defined in the New Credit Facility) constitutes
an event of default under the New Credit Facility. In the event of a "change
of control" (as defined in the Indenture), the Company is required to offer to
repurchase all of the outstanding Notes at 101% of the principal amount thereof
plus any accrued and unpaid interest thereon to the date of the purchase. A
"change of control" (as defined with respect to the Preferred Stock) will
require the Company to redeem the Senior Preferred Stock and pay a higher
dividend on the Junior Preferred Stock, unless it is redeemed. The exercise by
the holders of the Notes of their right to require the Company to repurchase
the Notes upon a change of control could also cause a default under the New
Credit Facility and other indebtedness of the Company. The Company's ability
to repurchase the Notes or to repay such indebtedness may be limited by the
Company's then existing financial resources. There can be no assurance that in
the event of any
15
<PAGE> 22
such change of control, the Company will have, or will have access to,
sufficient funds or will be contractually permitted under the terms of
outstanding indebtedness to pay the required purchase price for all Notes
tendered by holders upon a change of control, repay outstanding indebtedness or
redeem Senior Preferred Stock or Junior Preferred Stock. See "Description of
Capital Stock - Senior Preferred Stock" and "- Junior Preferred Stock."
New Industry
inTV operates in a relatively new industry with a limited operating
history. Potential investors should be aware of the difficulties and
uncertainty that are normally associated with new industries, including a lack
of consumer and advertiser acceptance, difficulty in obtaining financing,
increasing competition, advances in technology, and changes in law and
regulations. There can be no assurance that this new industry will develop and
continue as a viable industry. Such development could require the Company to
sell its owned inTV dedicated television stations or convert them to other
uses that are less profitable than expected. Growth in revenue from the
Company's inTV business depends on increasing consumer awareness and acceptance
of infomercial programming and growing demand by infomercial advertisers. See
"Business - Infomall TV Network."
Ability to Manage Growth
Since inception, the Company has experienced rapid growth, primarily
through acquisitions. Rapidly growing businesses frequently encounter
unforeseen expenses and delays in completing acquisitions, as well as
difficulties and complications in integrating acquired operations without
disruption to overall operations. In addition, such rapid growth may adversely
affect the Company's operating results because of many factors, including
capital requirements, transitional management and operating adjustments, and
interest costs associated with acquisition debt. There can be no assurance that
the Company will successfully integrate recently acquired and future acquired
operations or successfully manage the costs often associated with rapid growth.
The Company continuously evaluates the acquisition or operation pursuant to
TBAs of additional television and radio stations.
Time Brokerage Agreements -- Rights of Preemption and Termination
A significant number of the television stations the Company operates or
intends to operate will be operated pursuant to time brokerage agreements and
will not be owned by the Company. The Company has options to purchase all but
two of the stations it operates under time brokerage agreements, which options
may be exercised only when permitted by applicable law. All of the Company's
time brokerage agreements allow, in accordance with FCC rules, regulations and
policies, preemption of the Company's programming by the FCC licensee of each
station with which the Company has a time brokerage agreement. In addition,
each time brokerage agreement provides that under certain limited circumstances
it may be terminated by the FCC licensee. Accordingly, there can be no
assurance that the Company will be able to air all the programming expected to
be aired on those stations with which it has a time brokerage agreement or that
the Company will receive the expected advertising revenue from the sale of
advertising in such programming. Although the Company believes that the terms
and conditions of each of its time brokerage agreements should enable the
Company to air and utilize the programming and other non-broadcast license
assets of the respective stations, there can be no assurance that early
terminations of the time brokerage agreements or unexpected preemptions of all
or a significant part of the programming by the FCC licensee of such stations
will not occur. An early termination of one of the Company's time brokerage
agreements, or repeated and material preemptions of programming could adversely
affect the Company's operations. In addition, the Company's time brokerage
agreements have expiration dates, ranging from seven to ten years. The Company
expects its future time brokerage agreements to have terms of not more than ten
years. There can be no assurance that the Company will be able to negotiate
extensions of its time brokerage agreements on terms satisfactory to the
Company.
16
<PAGE> 23
Industry and Economic Conditions; Seasonality
The profitability of the Company's radio and television stations is
subject to various factors that influence the radio and television broadcasting
industries as a whole. The Company's radio and television stations may be
affected by numerous factors, including changes in audience tastes, priorities
of advertisers, new laws and governmental regulations and policies, changes in
broadcast technical requirements, technological changes, proposals to eliminate
the tax deductibility of expenses incurred by advertisers and changes in the
willingness of financial institutions and other lenders to finance radio and
television station acquisitions and operations. The Company cannot predict
which, if any, of these or other factors might have a significant impact on the
radio and television broadcasting industry in the future, nor can it predict
what impact, if any, the occurrence of these or other events might have on the
Company's operations. Generally, advertising tends to decline during economic
recession or downturn. Consequently, the Company's broadcasting revenue is
likely to be adversely affected by a recession or downturn in the United States
economy or other events or circumstances that adversely affect advertising
activity. In addition, the Company's operating results in individual geographic
markets could be adversely affected by local regional economic downturns,
particularly in Florida. Seasonal revenue fluctuations are common in the radio
and television broadcasting industry and result primarily from fluctuations in
advertising expenditures by local retailers. Paxson Radio and Paxson
Network-Affiliated Television generally experience their lowest revenue for the
year in the first quarter, whereas their highest revenue generally occurs in
the fourth fiscal quarter. Because of the short operating history of inTV, the
Company's ability to assess the effects of seasonality on inTV is limited. It
appears, however, that inTV may experience its highest revenues in the first
and fourth quarters.
Competition; New Technology
The Company's television and radio stations are located in highly
competitive markets. The financial success of each of the Company's radio and
television stations depends, to a significant degree, upon its audience
ratings, its share of the overall radio or television (as applicable) sales
within its geographic market, the economic health of the market and the
popularity of its programming. The audience ratings and advertising of such
individual stations are subject to change and any adverse change in a
particular market could have a material adverse effect on the revenue and cash
flow of the Company. Paxson Radio stations compete for audience share and
advertising revenue directly with other FM and AM radio stations and with other
media within their respective markets. Although Paxson Radio competes with
other radio stations with comparable programming formats in most of its
markets, if another station in the market were to convert its programming
format to a format similar to one of the Company's radio stations, if a new
radio station were to adopt a competitive format or if an existing competitor
were to strengthen its operations, the Company's stations could suffer a
reduction in ratings or advertising revenue and could require increased
promotional and other expenses. Paxson Network-Affiliated Television stations
face similar competitive forces. In addition, to the extent that certain of
the Company's competitors have or may, in the future, obtain greater resources
than the Company, its ability to compete successfully in its broadcasting
markets may be impeded. There can be no assurance that the Company will be
able to maintain or increase its current audience ratings and advertising
revenue. See "Business - Competition."
The Company's owned and TBA operated inTV stations face significant
competition from various broadcasting stations and broadcasting and cable
networks that air both traditional and long-form paid programming in varied
amounts, as well as local cable operators that sell blocks of time to long-form
advertisers and could encounter competition from developments in technology
that may be subsequently commercialized. To the extent that the Infomall TV
Network is successful, it is likely that the Company will face additional
competition from new market entrants. See "Business - Competition."
17
<PAGE> 24
Technology Changes
Radio and television broadcasting are also subject to competition with new
media technologies that are being developed or have been introduced, such as,
for radio, the delivery of audio programming through cable television,
telephone or electrical wires or the introduction of digital audio broadcasting
("DAB") and, for television, direct satellite-to-home video programming and
so-called video dialtone in which telephone or other companies provide
broad-band wire links for delivery of video programming to homes by independent
program suppliers. DAB may provide a medium for the delivery by satellite or
terrestrial means of multiple audio programming formats to local and national
audiences. Further, the Company may be subject to other changes in technology
and the manner in which businesses and individual households adopt such
technologies and embrace new communication and distribution channels available
via the Internet, World Wide Web, and other such broadband networks.
Prospective technology enhancements may allow for increased economic,
distribution and communication efficiencies which may impact the Company. The
Company cannot predict the effect, if any, that these or other new technologies
may have on the industries in which the Company operates, or on the Company.
See "Business - Federal Regulation of Broadcasting."
Restrictions Imposed by Terms of Indebtedness
The New Credit Facility and the Indenture each contain certain covenants
that restrict, among other things, the Company's ability to incur additional
indebtedness, incur liens, make investments, pay dividends or make certain
other restricted payments, consummate certain asset sales, consolidate with any
other person or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of the assets of the Company. In addition, the New
Credit Facility also requires the Company to comply with certain financial
ratios and tests, under which the Company is required to achieve certain
financial and operating results. The Company's ability to meet these financial
ratios and tests may be affected by events beyond its control, and there can be
no assurance that they will be met. In the event of such a default under the
New Credit Facility, the lenders thereunder may terminate their lending
commitments and declare the indebtedness under the New Credit Facility
immediately due and payable, which would result in a default under the Notes.
There can be no assurance that the Company would have sufficient assets to pay
indebtedness then outstanding under the New Credit Facility and the Notes. Any
refinancing of the New Credit Facility is likely to contain similar restrictive
covenants.
Limited Public Market and Possible Volatility of Stock Price
Prior to the Offering, there has been only a limited public market for the
Common Stock and there can be no assurance that an active trading market for
the Class A Common Stock will develop and continue after the Offering. The
public offering price of the Class A Common Stock will be determined through
negotiations among the Company and representatives of the Underwriters based
upon a variety of factors. Additionally, the market price of the Class A
Common Stock could be subject to significant fluctuations in response to
quarterly and annual operating results of the Company, announcements of
technological improvements or new products by the Company or its competitors,
changes in financial estimates by securities analysts, changes in general
conditions in the economy, the financial markets, or the broadcasting,
advertising or television retail shopping industries, or other developments
affecting the Company, its customers or its competitors, some of which may be
unrelated to the Company's performance and beyond the Company's control.
No Dividends
The Company has not paid cash dividends and does not intend for the
foreseeable future to declare or pay any cash dividends on its Common Stock and
intends to retain earnings, if any, for the future operation and expansion of
the Company's business. In addition, the terms of the outstanding shares of
Preferred Stock of the
18
<PAGE> 25
Company, the Notes and the New Credit Facility restrict the declaration of
dividends with respect to Common Stock. See "Dividend Policy."
Dilution
Persons purchasing shares of Class A Common Stock in the Offering will
incur immediate and substantial dilution in the net tangible book value per
share of Class A Common Stock of approximately $________. Dilution for this
purpose represents the difference between the assumed $15.00 per share offering
price of the Class A Common Stock and the pro forma net tangible book value per
share of the Class A Common Stock as of December 31, 1995 adjusted for the
consummation of the Offering. See "Dilution."
19
<PAGE> 26
THE PROPOSED ACQUISITIONS
The Company currently has agreements, subject to various conditions
including the receipt of regulatory approvals, to purchase the assets of or, as
indicated below, to enter into time brokerage agreements with respect to the
following television stations (the "Proposed Acquisitions") (dollars in
thousands):
<TABLE>
<CAPTION>
Anticipated Expected Total
Commencement Purchase Capital Expected
Market(1) Station of Operations Price Expenditures Cost
- --------- ------- ------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
New York, NY WHAI-TV 3/96 $22,000 $ 1,000 $23,000
Dallas, TX Channel 68(2) 12/96 3,000 2,700 5,700
Atlanta, GA* WNGM-TV(3) 4/96 n/a 2,900 2,900
Cleveland, OH WAKC-TV(4) 3/96 18,000 1,200 19,200
Milwaukee, WI* WHKE-TV(5) 4/96 2,500 1,800 4,300
Grand Rapids, MI* WJUE-TV(5)(6) 6/96 1,000 4,200 5,200
West Palm Beach, FL** WHBI-TV(2)(7) 7/96 3,000 4,000 7,000
Albany, NY* WOCD-TV(5) 5/96 2,500 1,000 3,500
San Juan, P.R.* WSJN-TV(8) 2/96 4,000 500 4,500
-------- ------- --------
Total $56,000 $19,300 $75,300
======== ======= ========
</TABLE>
- --------------
* To be operated pursuant to a time brokerage agreement.
** inTV affiliate pending acquisition by licensee. TBA operated upon
acquisition by licensee.
(1) Each station is licensed by the FCC to serve a specific community which
is included in the listed market.
(2) Pending construction.
(3) The station license will be purchased and held by an affiliate of
Whitehead Media. The Company plans to enter into a time brokerage
agreement with Whitehead Media. The purchase price of $10 million will be
financed by a third party. The Company will provide for certain of this
station's capital expenditures.
(4) WAKC-TV is licensed within the Cleveland DMA and currently serves as the
Akron network-affiliated ABC station. The Company intends to operate it as
an inTV station.
(5) Station licenses will be held by subsidiaries of The Christian Network,
Inc. The Company plans to enter into time brokerage agreements with, and
to acquire certain assets of, these stations.
(6) 70% ownership interest to be acquired.
(7) The station license will be held by WPB Communications, Inc. Until
acquisition of the station by Cocola Media Corporation of Florida, the
Company plans to enter into an affiliation agreement with this station,
and thereafter to enter into a time brokerage agreement with this station.
(8) 50% ownership interest, to be acquired; WKPV-TV and WJWN-TV are satellite
stations simulcasting the signal of WSJN-TV in which the Company is also
acquiring a 50% interest.
20
<PAGE> 27
USE OF PROCEEDS
The net proceeds to the Company from the Offering (after deduction of the
underwriting discounts and commissions and estimated offering expenses) are
estimated to be approximately $124.3 million ($125.7 million if the
Underwriters' over-allotment option is exercised in full). The Company will
not receive any of the proceeds from the sale of the Class A Common Stock being
sold by the Selling Stockholders. The net proceeds to the Company from the
Offering will be used initially (i) to fund amounts required for the Proposed
Acquisitions, estimated to be approximately $75.3 million; (ii) to fund capital
expenditures associated with certain previous acquisitions; (iii) to repay all
amounts outstanding under the New Credit Facility; and (iv) for general
corporate purposes, including working capital, capital expenditures and
potential acquisitions. While the Company has no current understandings with
respect to potential acquisitions, the Company continually explores the
acquisition of television and radio properties. Pending the use of proceeds
described above, the net proceeds will be invested in short-term, investment
grade securities, certificates of deposit, or direct or guaranteed obligations
of the United States Government.
PRICE RANGE OF CLASS A COMMON STOCK
In November 1994, the Company's Class A Common Stock became publicly-held
through its merger with The American Network Group, Inc. ("ANG") and beginning
November 7, 1994, the Class A Common Stock was listed on the Nasdaq Small-Cap
Market. Since July 10, 1995, the Class A Common Stock has been listed on the
American Stock Exchange under the symbol PXN. The following table sets forth
for the periods indicated, the high and low last sales price per share for the
Class A Common Stock, as reported on the Nasdaq Small-Cap Market (until July
7, 1995) and the closing sale price per share for the Class A Common Stock on
the American Stock Exchange thereafter.
<TABLE>
<CAPTION>
High Low
------ -------
<S> <C> <C>
1994
Fourth quarter (beginning November 7, 1994) 16 10 5/8
1995
First Quarter ............................. 12 5/8 9
Second Quarter ............................ 14 8
Third Quarter ............................. 15 3/4 12
Fourth Quarter ............................ 16 3/8 11 l/2
1996
First Quarter (through January 15) ........ 15 3/4 14 1/8
</TABLE>
On January 15, 1996, the closing price of the Class A Common Stock on the
American Stock Exchange was $15.00 per share. As of that date, there were
approximately 382 holders of record of the Class A Common Stock. Because of
the limited trading activity in the Class A Common Stock, the preceding prices
may not be indicative of actual value of the Class A Common Stock or of the
trading prices that would result from a more active market.
DIVIDEND POLICY
The Company has not paid cash dividends and does not intend for the
foreseeable future to declare or pay any cash dividends on its Common Stock and
intends to retain earnings, if any, for the future operation and expansion of
the Company's business. Any determination to declare or pay dividends will be
at the discretion of
21
<PAGE> 28
the Company's board of directors and will depend upon the Company's future
earnings, results of operations, financial condition, capital requirements,
contractual restrictions under the Indenture and the New Credit Facility,
considerations imposed by applicable law and other factors deemed relevant by
the board of directors. In addition, the terms of the outstanding shares of
Preferred Stock contain restrictions on the declaration of dividends with
respect to the Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation - Liquidity and Capital Resources"
and "Description of Capital Stock."
DILUTION
The net tangible book value (deficit) of the Company as of December 31,
1995 was approximately ($__________) or ($_______) per share of Common Stock.
Net tangible book value (deficit) per share is equal to the Company's total
tangible assets less total liabilities divided by the total number of shares of
Common Stock outstanding. As of December 31, 1995, the net tangible book value
(deficit) would have been approximately ($___________) or ($________) per share
of Common Stock. After giving effect to the consummation of the Offering and
the deduction of underwriting discounts and commission and estimated offering
expenses payable by the Company (resulting in estimated net proceeds of
$_______________ the adjusted net tangible book value of the Company would have
been approximately $_______________ or $____ per share of Common Stock. This
represents an immediate increase of $______ per share to existing shareholders
due to the Offering and an immediate dilution of $_____ per share to new
investors. The following table illustrates this per share dilution.
<TABLE>
<S> <C>
Assumed public offering price............................ $
Net tangible book value (deficit) as of December 31, 1995 $
Increase attributable to the Offering.................... $
Pro forma net tangible book value after the Offering..... $
Dilution to new investors................................ $
</TABLE>
The above computation assumes no exercise of options under the Stock
Incentive Plan. As of December 31, 1995, there were options outstanding under
the Stock Incentive Plan to purchase a total of 1,771,334 shares of Class A
Common Stock at an exercise price of $3.42 per share. Of these options, ______
are currently exercisable. See "Capitalization" and "Management - Stock
Incentive Plan." If all of the outstanding options were exercised in full, the
dilution per share to new investors in this Offering would be increased by
$______ per share to a total of $_____ per share.
The above computation further assumes no exercise of currently exercisable
outstanding warrants to purchase an aggregate of 7,727,803 shares of Common
Stock at nominal exercise prices. If all of such warrants were exercised, the
dilution per share to new investors in this Offering would be increased by
$_____ to a total of $________.
22
<PAGE> 29
CAPITALIZATION
The following table sets forth the actual and pro forma capitalization of
the Company as of September 30, 1995. Pro forma capitalization gives effect to
(i) the consummation of the Offering, the Proposed Acquisitions and the release
of the holder's put on the Class A and Class B common stock warrants; (ii)
receipt of proceeds from the repayment of indebtedness owed by Whitehead Media
to the Company; (iii) repayment of a note payable to the Company's principal
stockholder; (iv) the execution of the New Credit Facility; and (v) certain
acquisitions which have closed subsequent to September 30, 1995, as if such
events included in (i) through (v) had occurred on September 30, 1995. This
table should be read in conjunction with the information contained in Pro Forma
Financial Information and the Company's consolidated financial statements and
notes thereto appearing elsewhere herein (dollars in thousands).
<TABLE>
<CAPTION>
As of September 30, 1995
------------------------
Actual Pro Forma
------ ---------
(dollars in thousands)
<S> <C> <C>
Cash and cash equivalents....................... $ 57,945 $ 89,001
========= =========
Long-term debt (including current maturities)
New Credit Facility........................... -- --
11 5/8% Senior Subordinated Notes due 2002 (a) $ 227,311 $ 227,311
Other debt (b)................................ 4,198 2,998
--------- ---------
231,509 230,309
Redeemable senior preferred stock (c)........... 16,138 16,138
Redeemable Class A and B Common Stock
warrants (c)(d)............................... 4,379 --
Redeemable Series B preferred stock (c)......... 2,083 2,083
Redeemable Junior preferred stock (c)........... 30,399 30,399
Class A Common Stock (c)........................ 26 36
Class B Common Stock (c)........................ 8 8
Class C Common Stock (c)........................ -- --
Class A and B Common Stock Warrants (d)......... -- 3,946
Class C common stock warrants (c)............... 5,339 4,920
Stock subscription notes receivable............. (72) (72)
Additional paid-in capital...................... 33,905 159,007
Deferred option plan compensation (e)........... (2,179) (2,179)
Accumulated deficit............................. (45,952) (45,952)
--------- ---------
Total capitalization............................ $ 275,583 $ 398,643
========= =========
</TABLE>
- --------------------
(a) Net of original issue discount of $2.7 million.
(b) Includes $1.2 million note payable to the Company's principal
stockholder.
(c) See "Description of Capital Stock."
(d) Reflects release of the holder's put on the Class A Common Stock and
Class B Common Stock warrants concurrent with the completion of this
Offering. See "Description of Capital Stock."
(e) See "Management - Stock Incentive Plan."
23
<PAGE> 30
THE COMPANY
The Company was organized in December 1993, as the successor to businesses
formed in 1991 primarily for the purpose of owning and operating pursuant to
TBAs radio and television broadcasting stations and networks. The Company's
principal executive offices are located at 601 Clearwater Park Road, West Palm
Beach, Florida 33401 and its telephone number is (407) 659-4122.
24
<PAGE> 31
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical and pro forma financial data, insofar as
it relates to each of the four years ended December 31, 1994, has been derived
from Company prepared financial information and should be read in conjunction
with the audited financial statements, including the consolidated balance
sheets at December 31, 1993 and 1994 and the related consolidated statements of
operations for each of the years for the three year period ended December 31,
1994 and the notes thereto appearing elsewhere in this Prospectus. The selected
historical and pro forma financial data as of and for the nine months ended
September 30, 1994 and 1995 has been derived from unaudited financial
statements also appearing herein and which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for the unaudited interim
periods. Results for the nine months ended September 30, 1995 are not
necessarily indicative of results that may be expected for the entire year. The
selected financial information should be read in conjunction with the
information contained in the Company's consolidated financial statements and
the notes thereto, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Pro Forma Financial Information" included
elsewhere herein.
The following unaudited summary pro forma statement of operations data and
other data give effect to, (i) the consummation of the Offering; (ii) the
offering of the Notes and the execution of the New Credit Facility; and (iii)
significant business acquisitions since January 1, 1994, as if they had
occurred on January 1, 1994. In addition, depreciation and amortization expense
has been increased for each period to reflect preliminary purchase price
allocations for all stations included in the Proposed Acquisitions. The
following unaudited summary pro forma balance sheet data give effect to, (i)
the consummation of the Offering, the Proposed Acquisitions, and the release of
the holders' put on the Class A and Class B common stock warrants; (ii) receipt
of proceeds from the repayment of indebtedness owed by Whitehead Media to the
Company; (iii) repayment of a note payable to the Company's principal
stockholder; (iv) the execution of the New Credit Facility; and (v) certain
acquisitions which have closed subsequent to September 30, 1995, as if they had
occurred on September 30, 1995. The Offering and the Proposed Acquisitions and
certain management assumptions and adjustments are described in the
accompanying notes hereto. The pro forma information should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto, as of December 31, 1994 and for the three years then ended, appearing
elsewhere in this Prospectus. This pro forma information is not necessarily
indicative of the Company's actual or future operating results or financial
position.
25
<PAGE> 32
Selected Historical and Pro Forma Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
----------------------------------------------------- -------------------------------
Pro Pro
Forma Forma
1991 1992 1993 1994 1994(a) 1994 1995 1995(a)
------- ------- -------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Total revenue $ 830 $17,062 $ 32,062 $ 62,067 $85,371 $39,841 $ 71,524 $77,390
Operating expenses,
excluding
depreciation,
amortization and
option plan
compensation 1,719 17,922 28,872 51,225 70,883 32,813 58,978 62,888
Option plan
compensation(b) -- -- -- -- -- -- 9,809 9,809
Depreciation and
amortization 497 5,977 9,351 12,404 27,185 8,558 13,079 20,389
------- ------- -------- ------- ------- ------- --------- -------
Loss from operations (1,386) (6,837) (6,161) (1,562) (12,697) (1,530) (10,342) (15,696)
Interest expense,
net(c) (52) (1,262) (2,052) (4,875) (28,550) (3,191) (7,853) (21,413)
Other income
(expense), net 10 134 221 (5) (119) 162 (46) (46)
Benefit (provision)
for income
taxes -- -- (2,960) 1,680 1,680 1,769 960 960
Extraordinary item and
cumulative effect of
a change in
accounting
principle(d) -- 110 (457) -- -- (10,626)
------- ------- -------- -------- ------- ---------
Net loss $(1,428) $(7,855) (11,409) (4,762) (2,790) (27,907)
======= =======
Dividends and
accretion on
preferred stock and
common
stock warrants(e) (151) (3,386) (2,407) (9,121)
-------- -------- ------- ---------
Net loss attributable
to common
stock and common
stock
equivalents $(11,560) $ (8,148) $(5,197) $ (37,028)
======== ======== ======= =========
Net loss per share (f) $ (0.36) $ (0.14) $ (0.09) $ (0.81)
Net loss per share
attributable to
common stock and
common
stock equivalents(f) (0.37) (0.24) (0.16) (1.08)
Weighted average
shares
outstanding --
primary and fully
diluted (g) 31,582 33,430 32,506 34,405
====== ======== ======= =========
Cash dividends
declared -- -- -- -- -- -- --
Other Data:
EBITDA (h) $ (796) $ (162) $ 4,522 $ 11,790 $15,795 $ 8,295 $ 15,391 $ 17,417
Capital expenditures(i) 60 1,273 1,963 5,917 5,917 4,604 18,864 18,864
Adjusted EBITDA (j) $ 27,582
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1995
------------------------
Actual Pro Forma(a)
------ ------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 57,945 $ 89,001
Working capital 66,417 98,673
Total assets 283,929 406,989
Total debt 231,509 230,309
Redeemable preferred stock and Class A and B common stock warrants (k) 52,999 48,620
</TABLE>
(see footnotes on the following page)
26
<PAGE> 33
Notes to Selected Historical and Pro Forma Financial Data
(in thousands)
(a) Pro forma statement of operations and other data for the year ended
December 31, 1994 and the nine months ended September 30, 1995 give effect to:
(i) the consummation of the Offering; (ii) the offering of the Notes and the
execution of the New Credit Facility; and (iii) significant business
acquisitions since January 1, 1994 as if such events had occurred on January 1,
1994. In addition, depreciation and amortization expense has been increased
for each period to reflect preliminary purchase price allocations for all
station acquisitions made by the Company since January 1, 1994 and for the
Proposed Acquisitions. The pro forma balance sheet data as of September 30,
1995 give effect to (i) the consummation of the Offering, the Proposed
Acquisitions and the release of the holders' put on the Class A and Class B
common stock warrants; (ii) receipt of proceeds from the repayment of
indebtedness owed by Whitehead Media to the Company; (iii) repayment of a note
payable to the Company's principal stockholder; (iv) the execution of the New
Credit Facility; and (v) certain acquisitions which have closed subsequent to
September 30, 1995, as if such events included in (i) through (v) had occurred
on September 30, 1995.
(b) Option plan compensation represents a non-cash charge associated with
the granting of common stock options to employees under the Company's Stock
Incentive Plan. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations" and "Management -
Stock Incentive Plan."
(c) Interest expense, net is equal to total interest expense less interest
income.
(d) Extraordinary item and cumulative effect of a change in accounting
principle reflects a gain of $110 in 1992 as a result of a change in the method
of calculating depreciation and an extraordinary loss of $457 and $10,626 in
1993 and 1995, respectively, associated with the write-off of capitalized
financing costs on debt retired. The pro forma statement of operations data for
the year ended December 31, 1994 and the nine months ended September 30, 1995,
does not reflect an extraordinary loss on the write-off of previously
capitalized financing costs of $6,300 and $10,626, respectively.
(e) Dividends and accretion on preferred stock and common stock warrants
represent the Senior Preferred Stock (as defined herein) (15% dividend rate),
Class A and Class B common stock warrants and Junior Preferred Stock (as
defined herein) (12% dividend rate). Such capital stock is mandatorily
redeemable and certain issues accrete. See "Description of Capital Stock."
(f) Loss per share data for the historical years ended December 31, 1993
and 1994 give a pro forma effect to (i) the Company's amended capital structure
related to the merger with ANG; and (ii) a stock dividend on common shares
outstanding on January 1, 1995. Loss per share data for the historical nine
months ended September 30, 1994 give pro forma effect to a stock dividend on
common shares outstanding on January 1, 1995. For periods prior to January 1,
1993, loss per share data was not computed as such amounts were not relevant.
(g) Weighted average shares outstanding for the years ended December 31,
1993 and 1994 give a pro forma effect to an increase in the number of shares
outstanding relating to (i) the merger with ANG of 21,055 and 22,287 shares,
respectively; and (ii) a stock dividend on common shares outstanding on January
1, 1995 of 10,527 and 11,143 shares, respectively. Weighted average shares
outstanding - primary and fully diluted for the nine months ended September 30,
1994 give pro forma effect to a stock dividend on January 1, 1995 of 10,835.
For periods prior to January 1, 1993, weighted average shares outstanding was
not computed as such amounts were not relevant.
(h) EBITDA is defined as net income (loss) before (i) extraordinary item
and cumulative effect of a change in accounting principle; (ii) benefit
(provision) for income taxes; (iii) other income (expense), net; (iv) interest
expense; (v) depreciation and amortization; (iv) option plan compensation and
(vii) non-recurring items including terminated operations; less scheduled
broadcast rights payments.
(i) Includes all capital expenditures including expenditures associated
with the upgrade and conversion of acquired television stations to the inTV
format. Pro forma capital expenditures exclude $33,500 associated with the
Proposed Acquisitions and additional capital expenditures on existing
properties which will be funded from proceeds of the Offering.
(j) Adjusted EBITDA is defined as EBITDA for the pro forma latest twelve
months ended September 30, 1995 less (i) segment operating profit for the
Infomall TV Network for such period plus (ii) four times segment operating
profit for the Infomall TV Network for the quarter ended September 30, 1995.
Adjusted EBITDA is calculated on a basis consistent with calculations under the
Indenture.
(k) The put rights of holders of the Class A and Class B common stock
warrants will be released upon the closing of the Offering and such warrants
are not included in the pro forma amount at September 30, 1995.
27
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company commenced Paxson Radio operations in September 1991 following
the acquisition of three radio stations in Florida. The Company has since
expanded Paxson Radio primarily through the acquisition of 15 additional
stations, the execution of joint sales agreements for two additional stations
in Florida, and significant internal growth of acquired stations. Paxson Radio
includes the operation of six radio networks and outdoor billboards which have
operating and financial characteristics different from those of radio stations.
These operations, however, are not material to the radio group or to the
Company overall. The billboards serve to increase awareness of the Company's
radio operations and the radio networks are utilized in part to provide sports
and other programming to certain of the Company's radio stations and to 338
affiliates in the eastern and southeastern United States.
The Company commenced Paxson Network-Affiliated Television operations in
July 1994, following the acquisition of WPBF-TV, an ABC affiliate, in West Palm
Beach, Florida. The Company expanded television operations in August 1995 with
the execution of a time brokerage agreement for WTVX-TV, a combined Warner/UPN
affiliate, also in West Palm Beach.
The Company commenced its Infomall TV Network operations with four inTV
stations in January 1995. The Company has since expanded the Infomall TV
Network to a total of 21 owned, operated pursuant to TBAs or affiliated inTV
stations. The Company has agreements to acquire or operate pursuant to a TBA
an additional nine stations, all of which are anticipated to close in 1996,
following completion of this Offering and the receipt of the net proceeds
therefrom. Upon completion of the Proposed Acquisitions, the Company will have
30 owned, operated pursuant to a TBA or affiliated inTV stations which provide
a national distribution network currently dedicated to airing of infomercial
programming.
The Company's operating data throughout the periods discussed have been
impacted significantly by the timing and mix of radio, television and inTV
acquisitions throughout such periods. Operating revenues are derived from the
sale of advertising local and national advertisers. The Company's primary
operating expenses involved in owning and operating Paxson Radio and Paxson
Network-Affiliated Television are syndicated program rights fees, commissions
on revenues, employee salaries, news gathering, promotion and administrative
expenses. Comparatively, operation of an inTV station involves low operating
expenses relative to traditional network or independent television station
operation. As a result, the Company's inTV stations generally contribute to
operating profit within a short time frame, typically within two months. The
costs of operating an inTV station do not vary significantly with revenue, with
the exception of costs associated with sales commissions and agency fees. As
such, upon obtaining a certain level of revenue sufficient to cover fixed
costs, additional revenue levels have a significant impact on the operating
results of an individual inTV station.
The Company's operations as a public company commenced in November 1994 as
a result of the Company's merger with ANG, a company primarily involved in the
operation of radio networks. The former operations of ANG are no longer
material to the Company.
28
<PAGE> 35
Results of Operations
Three Months Ended September 30, 1995 and 1994
Consolidated revenue for the three months ended September 30, 1995
increased 49% (or $8.9 million) to $27.2 million from $18.3 million for the
three months ended September 30, 1994. This increase was primarily due to new
television acquisitions and time brokerage operations and increased revenue
from existing television stations.
Operating expenses for the three months ended September 30, 1995 increased
53% (or $9.3 million) to $26.8 million from $17.5 million for the three months
ended September 30, 1994. This increase was primarily due to the costs of
operating newly acquired stations, direct expenses such as commissions which
rise in proportion to revenue, and higher corporate overhead, including option
plan compensation and higher depreciation and amortization related to assets
acquired.
Broadcast cash flow for the three months ended September 30, 1995
increased 76% (or $3.5 million) to $8.1 million, from $4.6 million for the
three months ended September 30, 1994. The increase in broadcast cash flow was
a direct result of television acquisitions, and improved performance of
existing television properties.
Net interest expense for the three months ended September 30, 1995
increased to $3.5 million from $1.8 million for the three months ended
September 30, 1994, an increase of 94%, primarily due to a greater level of
long-term debt throughout the period and higher borrowing rates. As a result
of acquisitions, at September 30, 1995, total long-term debt was $230 million,
or 179% higher than the $82.4 million outstanding at September 30, 1994.
The Company recognized $320,000 of income tax benefit which resulted
primarily from the 1995 net loss and reversal of deferred taxes associated with
the 1993 tax provision resulting from the change in tax status.
Nine Months Ended September 30, 1995 and 1994
Consolidated revenue for the nine months ended September 30, 1995
increased 80% (or $31.7 million) to $71.5 million from $39.8 million for the
nine months ended September 30, 1994. The increase was primarily due to the
acquisitions of WPBF-TV, WTLK-TV, WTGI-TV, WTWS-TV, and the time brokerages of
WIRB-TV, that commenced in December 1994, and KTFH-TV, that commenced in March
1995 and increased revenue from existing television stations.
Operating expenses for the nine months ended September 30, 1995 increased
98% (or $40.5 million) to $81.9 million from $41.4 million for the nine months
ended September 30, 1994. The increase was primarily due to the cost of
operating newly acquired stations, direct expenses such as commissions which
rise in proportion to revenue, and higher corporate overhead, including option
plan compensation and higher depreciation and amortization related to assets
acquired. The Company expects to recognize additional option plan compensation
expense with respect to granted options over the next five years in the
aggregate amount of approximately $2.2 million.
Broadcast cash flow for the nine months ended September 30, 1995 increased
110% (or $10 million) to $19.1 million from $9.1 million for the nine months
ended September 30, 1994. The increase in broadcast cash flow was a direct
result of acquisitions and improved performance of existing television
properties.
Net interest expense for the nine months ended September 30, 1995
increased to $7.9 million from $3.2 million for the nine months ended September
30, 1994, an increase of 146%, primarily due to the greater level of long-term
debt outstanding throughout the period and higher borrowing rates. As a result
of acquisitions, at September 30, 1995, long-term debt was $230 million, or
181% higher than the $82.4 million outstanding September 30, 1994.
The Company recognized $960,000 of income tax benefit during the nine
months ended September 30, 1995 which
29
<PAGE> 36
resulted primarily from the 1995 net loss and reversal of deferred taxes
associated with the 1993 tax provision resulting from the change in tax status.
Years Ended December 31, 1994 and 1993
Consolidated revenue in 1994 increased 93% (or $30 million) to $62.1
million from $32.1 million in 1993. This increase was primarily due to the
acquisition of WPBF-TV on July 1, 1994, revenue received under the time
brokerage agreement for WTLK-TV beginning April 4, 1994 and the subsequent
purchase thereof on July 13, 1994, the consolidation of the ANG operations
beginning April 14, 1994, and improved market conditions and improved sales
management within the Company's existing properties. In addition, revenue
increased because of the time brokerages of WCTD-TV beginning April 1, 1994 and
WFCT-TV beginning August 1, 1994.
Operating expenses in 1994 increased 66% (or $25.4 million) to $63.6
million from $38.2 million in 1993. The increase was primarily due to the costs
of operating WPBF-TV and WTLK-TV, direct expenses such as commissions which
rise in proportion to revenue, the consolidation of ANG, and higher
depreciation and amortization related to assets acquired. In addition,
operating expenses increased because of the time brokerages of WCTD-TV and
WFCT-TV and related fees. Somewhat offsetting these increases was the
elimination of time brokerage fees for stations acquired during May 1993 and
the sale of WWNZ-AM in 1993.
Broadcast cash flow for 1994 increased 112% (or $7.6 million) to $14.4
million, from $6.8 million in 1993. The increase in broadcast cash flow was a
direct result of acquisitions, revenue growth and continued expense controls.
Net interest expense increased to $4.9 million from $2.1 million, an
increase of 133%, primarily due to a greater level of long-term debt throughout
the year and higher borrowing rates. As a result of acquisitions, at December
31, 1994, long-term debt was $82.4 million, or 153% higher than the $32.6
million outstanding a year prior.
The Company recognized $1.7 million of income tax benefit which resulted
primarily from the 1994 net loss and related reversal of deferred taxes
associated with the 1993 tax provision.
Years Ended December 31, 1993 and 1992
Consolidated revenue in 1993 increased 88% (or $15.0 million) to $32.1
million from $17.1 million in 1992. This increase was primarily due to the
acquisition of WLVE-FM in April 1993 and the effect of a full year of
operations in 1993 of WZTA-FM, WINZ-AM, WMGF-FM, WJRR-FM, WWNZ-AM, WWZN-AM,
WPLA-FM and WZNZ-AM, all of which were acquired or commenced operation under
time brokerage agreements during the period from April to July 1992. In
addition, the increase in revenue was the result of stronger market conditions
and improved sales management, offset somewhat by the divestiture of WWNZ-AM,
which was operated for approximately eight months in 1992. Revenue generated
apart from the Company's radio stations increased due to the acquisition of
Florida Radio Network and the development of merchandising and direct marketing
activities.
Operating expenses in 1993 increased 60% (or $14.3 million) to $38.2
million from $23.9 million in 1992. This increase was primarily due to the
acquisition of WLVE-FM in April 1993 and the effect of a full year of
operations in 1993 of WZTA-FM, WINZ-AM, WMGF-FM, WJRR-FM, WWNZ-AM, WWZN-AM,
WPLA-FM and WZNZ-AM, all of which were acquired or commenced operation under
time brokerage agreements during the period from April to July 1992. This
increase was offset somewhat by savings from the consolidation of the
operations of three to four radio stations in each of the markets of Miami/Ft.
Lauderdale, Orlando and Jacksonville, particularly with regard to sales and
general and administrative costs as redundant personnel and office space were
eliminated. In addition, the Company realized decreases in promotional expenses
through economies of scale for stations owned or operated during similar
periods in each year. The divestiture of WWNZ-AM in early 1993 reduced expenses
in comparison to 1992 when the station was operated for eight
30
<PAGE> 37
months.
Broadcast cash flow for 1993 increased 94% (or $3.3 million) to $6.8
million from $3.0 million in 1992. The increase in broadcast cash flow was a
direct result of acquisitions, revenue growth and continued expense controls.
Net interest expense increased to $2.1 million from $1.3 million, an
increase of 62%, primarily due to a greater level of long-term debt throughout
the year. At December 31, 1993, long-term debt was $32.6 million, or 52% higher
than the $21.5 million outstanding a year prior.
The sale of WWNZ-AM resulted in a gain of approximately $427,000 in 1993.
In 1993 the Company provided for $3.0 million of income taxes which
resulted from the December 15, 1993 reorganization and consolidation. Prior to
December 15, 1993 the Company operated in the form of partnerships and S
corporations for federal and state income tax purposes. Therefore, all income
and loss for the periods prior to December 15, 1993 were taxed at the partner
and stockholder level and no provision for income taxes was recorded. The 1993
extraordinary loss relates to the write-off of deferred financing costs upon
extinguishment of the existing Company senior debt in March 1993.
Liquidity and Capital Resources
The Company's working capital at September 30, 1995 and December 31, 1994
was $66.4 million and $26.4 million, respectively, and the ratio of current
assets to current liabilities was 8.69:1 and 3.11:1, on such dates,
respectively. Working capital increased primarily due to proceeds from the
issuance of the Notes net of debt repaid and acquisitions.
Cash provided by operations of $4.1 million and $3.4 million for the nine
months ended September 30, 1995 and 1994, respectively, reflect the improvement
in operating results of existing properties, acquisitions and time brokerage
properties net of increased interest expense and increases in other assets.
Cash used for investing activities primarily reflects acquisitions and
investments, and purchases of equipment for these and existing properties.
Cash provided by financing activities primarily reflects the proceeds from the
issuance of the Notes and long-term debt net of debt repaid and loan
origination costs incurred. In addition, as of December 31, 1995 the Company
has loans of $15.3 million advanced to CNI to finance station acquisitions and
related capital expenditures. See "Certain Transactions." Non-cash activity
relates to option plan compensation, reciprocal trade advertising revenue and
expense and dividends and accretion on the Preferred Stock and common stock
warrants.
The Company was initially funded primarily by Mr. Paxson, who has made
equity investments in the Company since its inception totaling in excess of $33
million. Beginning in 1992, the Company has also utilized senior long-term
debt provided to its principal operating subsidiaries by consortiums of
financial institutions. Proceeds from the issuance of the Notes were used to
retire the Company's then existing senior indebtedness. On December 19, 1995,
the Company entered into the New Credit Facility, providing for a senior
secured revolving line of credit in an aggregate principal amount of $100
million. The New Credit Facility will mature on June 30, 2002.
The Company's primary capital requirements are interest and principal
payments on indebtedness. The Notes require semi-annual interest payments at a
fixed rate. Borrowings under the New Credit Facility bear interest at floating
rates and require interest payments on varying dates depending on the interest
rate option selected by the Company. In addition to debt service, the
Company's principal cash requirements will be for capital expenditures and, if
appropriate opportunities arise, the acquisition of additional broadcasting
stations or assets.
The Company believes that the proceeds of the Offering, cash flow from
operations, the recent repayment by Whitehead Media of the loans made to it by
the Company to finance Whitehead Media's acquisition of WTVX-TV and WOAC-TV,
31
<PAGE> 38
borrowings under the New Credit Facility and existing cash balances will be
sufficient to consummate the Proposed Acquisitions (including the expected
capital expenditures associated therewith) and to meet working capital
requirements for existing properties. To the extent that the Company pursues
future acquisitions, the Company may be required to obtain additional
financing. There can be no assurance that the Company will be able to obtain
such financing on terms acceptable to it.
32
<PAGE> 39
BUSINESS
General
Paxson Communications Corporation has created a nationwide network of
television stations dedicated to the airing of infomercial programming (the
"Infomall TV Network" or "inTV"). In addition, the Company has a significant
radio and network-affiliated television broadcasting presence in the state of
Florida. The Company owns 16 radio stations in the four largest Florida cities
and owns one network-affiliated television station and operates another
pursuant to a TBA in the West Palm Beach market.
The Company introduced its Infomall TV Network in January 1995. At the
commencement of the Company's operation of inTV, the Company owned four
stations. inTV has expanded rapidly and currently consists of 21 owned,
operated pursuant to a TBA or affiliated inTV stations. Upon completion of the
Proposed Acquisitions, the Company will have 30 owned, operated pursuant to a
TBA or affiliated inTV stations operating in 28 television markets, 20 of which
are among the 30 largest in the United States.
The Company believes that (i) its inTV stations comprise the only national
network of television stations dedicated to the airing of infomercial
programming, (ii) its inTV network stations represent a valuable national
television broadcasting distribution infrastructure that would be difficult and
expensive to replicate and (iii) its radio and network-affiliated television
stations in Florida's five largest markets provide it with a significant
statewide presence.
The Company was founded in 1991 by Lowell W. "Bud" Paxson. Mr. Paxson has
been at the forefront of several innovative broadcasting concepts over the last
decade, including his leadership role in the creation and early growth of
electronic retailing as the creator and co-founder of Home Shopping Network,
Inc. and Silver King Communications, Inc. Mr. Paxson has made equity
investments in the Company in excess of $33 million.
33
<PAGE> 40
Segment Data (a)
The following table sets forth certain data for each of the Company's segments:
<TABLE>
<CAPTION>
For the Three Months Ended Pro Forma
---------------------------------------------------------------------- For the Year For the Year
Ended Ended
March 31, June 30, September December December December
1995(b) 1995 30, 1995 31, 1995 31, 1995 31, 1995(e)
----------------- ------------ ------------------ ----------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Segment Revenue
Paxson Radio 12,306 12,816 14,405
Paxson
Network-Affiliated
Television 3,585 3,722 3,929
Infomall TV Network 3,903 6,823 8,330
Other 826 376 503
----------------- ------------ -------------- ----------------- ----------------- -------------
Total Segment Revenue 20,620 23,737 27,167
Segment Operating
Profit
Paxson Radio 1,594 2,748 3,148
Paxson
Network-Affiliated
Television 1,166 1,221 1,121
Infomall TV Network 1,545 3,240 3,933
Corporate and Other (b) (1,427) (1,175) (1,723)
----------------- ------------ -------------- ----------------- ----------------- -------------
Total EBITDA(c) 2,878 6,034 6,479
================= ============ ============== ================= ================= =============
Adjusted EBITDA(d)
</TABLE>
(a) Segment financial data present business operations for Paxson Radio,
Paxson Network-Affiliated Television and the Infomall TV Network.
(b) Corporate and other represents corporate overhead expenses, including
management expenses which are not allocated to the individual segments and
expenses associated with non-broadcast activities.
(c) EBITDA is defined as net income (loss) before (i) extraordinary item
and cumulative effect of a change in accounting principle; (ii) benefit
(provision) for income taxes; (iii) other income (expense), net; (iv) interest
expense; (v) depreciation and amortization; (iv) option plan compensation; and
(vii) non-recurring items including terminated operations, less scheduled
broadcast rights payments.
(d) Adjusted EBITDA is defined as EBITDA for the period, less (i) segment
operating profit for the Infomall TV Network for such period plus (ii) four
times such segment's operating profit for the most recently completed quarter
prior to the measuring date.
(e) Pro forma segment data gives effect to: (i) the consummation of the
Offering; (ii) the offering of the Notes and the execution of the New Credit
Facility; and (iii) significant business acquisitions consummated since January
1, 1995 (as reflected herein), as if such events included in (i) through (iii)
had occurred on January 1, 1995.
34
<PAGE> 41
Infomall TV Network
In January 1995, Paxson Communications introduced the Infomall TV Network
in order to capitalize on what the Company believes to be a rapidly growing
industry. The Company has assembled 17 stations dedicated to inTV programming
and has entered into agreements with respect to nine stations in seven
additional markets. In addition, the Company has affiliation agreements with
four independently owned and operated television stations. Upon completion of
the Proposed Acquisitions, the Company will have 30 owned, operated pursuant to
a TBA, or affiliated inTV stations operating in 28 television markets, 20 of
which are among the 30 largest in the United States. The Company believes that
its network of inTV stations is the only group of television stations in the
United States that offers infomercial advertisers significant national,
regional and local distribution capability and airtime during each of the
popular morning, daytime and prime time viewing hours.
The television stations acquired by the Company and converted to inTV
stations are typically non-network-affiliated stations with marginal operating
results that can be acquired at a relatively low cost compared to
network-affiliated stations. Certain of these stations are licensed to
communities outside the center of major television markets, but within such
markets' DMA, and thus, by virtue of the FCC's "must carry" rules, are
generally entitled to carriage on cable systems within such DMA. Through the
exercise of federal "must carry" rights and the improvement of its stations'
over-the-air signals, the Company intends to continue its efforts to maximize
its cable household market coverage beyond the 61% achieved currently. The
Company's goal is to reach approximately 85% of the cable homes in its markets
(although there can be no assurance that the Company will reach such goal).
See "Business - Federal Regulation of Broadcasting - "Must
Carry"/Retransmission Consent." The Company believes that it also reaches a
significant number of over-the-air television households that do not receive
cable television. The Company continues to evaluate the acquisition of or
affiliation with additional independent television stations to further extend
the national distribution reach of its Infomall TV Network.
In 1995, its initial year of operations, inTV achieved segment revenue of
$________ million and segment operating profit of $___ million. Segment
revenue increased from $3.9 million during the first quarter of 1995 to
$____million during the fourth quarter of 1995. Segment operating profit from
this segment increased from $1.5 million during the first quarter of 1995 to
$___ million during the fourth quarter of 1995.
Industry Background
During recent years, advertisers have evaluated the benefits of television
and cable advertising, with many sophisticated consumer product and service
advertisers now recognizing the effectiveness and reasonable cost of long-form
programming, or infomercials. An infomercial is an advertisement, usually
approximately one half-hour in length and often produced in an entertainment
format, that is paid for by the advertiser on the basis of air-time, market
size and past results from airing on a particular television station.
Regardless of the presentation format, the viewers are provided information
that can be used to make informed purchasing decisions from the comfort of
their home without the pressure of a salesperson or the crowds of a shopping
mall.
Increasingly, advertisers are recognizing the benefits of infomercials as
a powerful marketing tool. Infomercials provide advertisers with a
cost-effective medium through which to deliver sales messages, product
introductions or demonstrations to an interested target audience. Advertisers
are recognizing that infomercials can increase a company's or product's brand
awareness and loyalty while educating uninformed potential new customers. The
viewer or potential consumer is provided information that can be used to make
informed purchasing decisions. Due to the direct response nature of many
infomercials, advertisers are afforded the ability to evaluate their efficiency
on an immediate basis.
The Company believes that the infomercial industry has grown rapidly
during the past several years.
35
<PAGE> 42
Historically, and to a large extent currently, long-form informational
programming occupied time slots that were otherwise unprofitable for
broadcasters. Increasingly, infomercials are being placed in more expensive and
attractive time periods such as daytime, early fringe and primetime. In
addition, the quality of the infomercial advertiser has improved. Today,
infomercials are being used to promote major consumer brandnames:
<TABLE>
<S> <C> <C> <C>
Apple Computers Compaq Mattel Saturn
Avon Products Estee Lauder Mercedes Benz Sears Roebuck
Bank of America Fidelity Investments Microsoft Sega of America
Bell Atlanta General Motors Motorola Toyota
Black & Decker GTE NBC Visa
Braun Lexus Nissan Volvo
Cadillac Magnavox Philips Consumer Electronics Warner Music
Coca-Cola Mastercard Procter & Gamble
</TABLE>
The production quality of infomercial programming by these major
advertisers has also brought increased credibility to the infomercial industry.
In addition, infomercials have recently been successfully utilized to promote
newly introduced network television series and full length feature movies. The
Company believes that as the benefits of infomercial programming become more
widely understood, the number of advertisers and the volume of infomercial
programming will continue to grow. In terms of demand for airtime, major
corporate advertisers who use long-form "advertorials", or image building
programs rather than direct selling messages, may ultimately surpass
infomercial programmers who rely on immediate sales to viewers via telephone
response. Currently, the funds spent on advertorials by major corporations are
a relatively small part of their overall advertising budget. The Company
believes that such advertorial expenditures will continue to increase.
Infomercials are one type of long-form paid programming. Other types
include religious, ethnic and political paid programming. In certain of the
Company's markets, such as Los Angeles and Miami, the demand for airtime by
foreign language ethnic programmers has steadily increased. With regard to
political long-form paid programming, Ross Perot and others have utilized this
method of reaching voters. In general, religious, ethnic and political paid
programs have produced revenues for particular time periods (e.g., Sundays for
religious programming and weekday mornings for certain ethnic programming)
which are higher than otherwise available from infomercial advertisers during
such time periods.
Operating Strategy
By purchasing independent television stations, entering into TBAs, signing
affiliate stations, and extending their broadcast reach on cable via "must
carry" requirements, the Company has created a television network dedicated to
providing long-form, paid entertainment and information programming. Expansion
of the Infomall TV Network continues through the purchase, operation pursuant
to TBAs or affiliation with independent television stations in major United
States television markets. After giving effect to the Proposed Acquisitions,
the markets served by the inTV stations will have approximately of 27.8 million
cable households.
Shortly after the Company acquires a station or commences operating a
station pursuant to a TBA, the Company replaces the existing programming with
infomercial programming. The Company's infomercial programming format allows it
to substantially reduce operating expenses through the elimination of
programming expenses and through the use of standardized engineering and
operating systems. Unlike traditional television stations, inTV programming is
paid for by the advertiser as opposed to the broadcaster. In addition, the
Company's inTV stations are operated by an average of 15 people, substantially
fewer than network and independent television stations. To date, each of the
inTV stations owned or operated pursuant to a TBA has contributed rapidly to
broadcast cash flow, typically within two months after the commencement of
operations.
36
<PAGE> 43
inTV programming time is sold on a local, national and network basis.
Local programming time is sold by each station's local sales force and is
offered to merchants and businesses operating within a station's local market,
including medical clinics, automobile dealers and general merchandisers.
National and network programming time is sold by national advertising placement
agencies and the Company's own in-house national and network sales force.
National and network programming times appeal to advertisers who desire to
reach viewers in targeted inTV markets and all inTV markets. Currently, the
Company maintains national sales offices in New York, Los Angeles, Chicago, and
at the Company's headquarters in West Palm Beach. Support and administration of
the Infomall TV Network is also centralized at the Company's West Palm Beach
headquarters, including most accounting and personnel functions as well as
administration of the inTV programming traffic scheduling systems.
The benefits of the Infomall TV Network are being realized as inTV makes
accessible relatively more desirable broadcast time periods (e.g."prime-time"),
generally unavailable to infomercial and other paid programmers at reasonable
rates on traditional television stations. The Company believes that attractive
rates and further growth of inTV's audience reach should continue to attract a
greater breadth of advertising clients. Moreover, as infomercial scheduling
information and promotional support (through radio, television and print
advertising as well as other media) become more available, the Company believes
that the viewing population will further increase.
The Company seeks to increase the percentage of time sold to local
infomercial and other long-form paid programmers. Such local advertisers and
paid programmers have the potential to be consistent, long-term clients in each
of the Company's inTV markets. Because such advertising can be complementary
to local retailing outlets and professional businesses, and may result in
increased store traffic as well as immediate sales via telephone, the Company
believes that the rates paid by such advertisers have the potential to exceed
those paid by national direct marketers who lack a local store presence.
When the Company commences operation of an inTV station, revenues are
derived primarily from national infomercial advertisers. Such revenues enable
new inTV stations to quickly cover operating costs. As the Company's inTV
stations mature, however, a local sales staff is developed, generally
consisting of two sales persons and a manager. The Company's experience with
its more mature inTV stations is that local sales can increase to become
significant, increasing the overall demand for airtime and, therefore,
resulting in higher average rates.
Expansion Strategy
The Company assembled its Infomall TV Network through the conversion of
independent television stations to inTV stations. In most cases, those
stations were non-network-affiliated stations with marginal operating results.
Certain stations are licensed to communities outside the center of major
television markets, but within such markets' DMA, and by virtue of the FCC's
"must carry" rules, are therefore entitled to carriage on cable systems within
such DMA. The Company's inTV stations subsequently extend their reach to a
substantial percentage of such DMA's cable households through the exercise of
federal "must carry" rights. See "Business - Federal Regulation of
Broadcasting - "Must Carry"/Retransmission Consent."
The Company has paid an aggregate of $103 million (including capital
expenditures through the date hereof) to assemble its inTV network, with an
additional $89.5 million committed for inTV stations included in the Proposed
Acquisitions and for capital expenditures on existing inTV stations. The
Company intends to continue to evaluate the acquisition of or affiliation with
independent television stations to further extend the national distribution
system for its Infomall TV Network.
In order to increase cable household penetration by its existing and
proposed stations, the Company is studying the employment of various
distribution-enhancing technologies. Such technologies include signal
transmission through fiber optic lines either alone or along with microwave
transmission, as well as low power television
37
<PAGE> 44
("LPTV") broadcast signal transmission and television signal compression and
satellite technology. The Company envisions that implementation of one or more
of these technologies could significantly increase the households reached in
several of its largest existing and proposed inTV markets, including New York,
Los Angeles, San Francisco, Boston, Washington, D.C., Phoenix and St. Louis.
The Company may also selectively consider joint venture or other
relationships with established members of the infomercial and electronic
retailing industries with whom the Company can further exploit both its
infomercial distribution system and its knowledge of the infomercial and
telemarketing industries generally. For example, the Company recently
announced a joint venture to be established with the L.L. Knickerbocker
Company, Inc. ("Knickerbocker"), a Nasdaq traded company engaged in the
development and distribution of products to the electronic retailing industry.
This joint venture, which will be known as "Paxson/Knickerbocker Media
Marketing", will permit the Company, together with its co-venturer, to identify
products and services which are suited to exploiting advantages of long-form
advertising, develop marketing strategies and infomercials for such products
and services, including the airing of infomercials for such products and
services on the Infomall TV Network, and participate in the revenues and
profits from sales of such products and services. For example, Olympic gold
medalist Florence Griffith Joyner has agreed with Paxson/Knickerbocker Media
Marketing to promote a new exercise product using infomercials to be aired on
the Infomall TV Network. The Knickerbocker joint venture illustrates the
Company's continuing efforts to fully utilize and exploit its Infomall TV
Network and its knowledge of the infomercial and electronic retailing industry.
In addition to the Paxson/Knickerbocker Media Marketing venture, the Company
is exploring the launch of the Home Business Network ("HBN"), which will market
home based, independent distributor businesses. The Company currently expects
that the distribution businesses marketed by HBN will initially include health,
beauty and fitness products.
The Company has recently completed the negotiation of an agreement to
acquire from the City of West Palm Beach a nineteen acre tract of land on which
it plans to construct an office, studio and warehouse facility currently
targeted for completion during the fourth quarter of 1996. This newly
constructed facility is expected to contain production studios and inbound and
outbound telemarketing capabilities, all of which the Company expects will be
utilized to fully exploit the Paxson/Knickerbocker Media Marketing venture, HBN
and other future complimentary telemarketing and infomercial businesses.
The Company is presently finalizing plans for the launch of its Infomall
Netsite. The Company's presence on the Internet through the Infomall Netsite
will provide both the Company and Infomall TV Network advertisers with a
complimentary outlet to provide additional product or service information to a
growing audience to augment their inTV infomercial sales. It is envisioned
that infomercials aired on the Company's Infomall TV Network stations will
promote and guide viewers and customers to the Infomall Netsite. Information
with regard to the Infomall Netsite will be provided on inTV infomercials.
Infomall Properties
The stations included in the Company's Infomall TV Network are either (i)
owned by the Company, (ii) operated by the Company pursuant to time brokerage
agreements entered into with the FCC licensee, or (iii) owned by independent
television station operators that enter into affiliation agreements with the
Company. After giving effect to the Proposed Acquisitions, the Company will own
or operate pursuant to TBAs 26 inTV stations, and have affiliation agreements
with four independently owned and operated stations that are currently
dedicated to inTV.
38
<PAGE> 45
Infomall TV Network
The following table lists those inTV properties that the Company owns,
operates pursuant to a TBA, or is affiliated with, and the Proposed
Acquisitions.
<TABLE>
<CAPTION>
National Actual or inTV Cable
TV Anticipated Carriage at Current inTV Total
Market Commence- Commence- Cable Market Cable
Market(1) Rank(2) Station ment of Operations ment(3) Carriage(4) Households(5)
- --------- -------------- ------- -------------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Owned or TBA Operated
Los Angeles, CA 2 KZKI-TV 5/95 1,452,633 1,952,322 2,997,230
Philadelphia, PA 4 WTGI-TV 2/95 1,225,022 1,433,773 1,961,070
San Francisco, CA 5 KLXV-TV 6/95 650,000 794,242 1,577,580
Boston, MA 6 WGOT-TV 5/95 603,833 839,029 1,624,860
Washington, DC 7 WYVN-TV (8) 4/96 0 0 1,237,970
Atlanta, GA 10 WTLK-TV 4/94 300,000 915,285 1,014,950
Houston, TX 11 KTFH-TV 3/95 646,590 774,417 867,460
Cleveland, OH* 13 WOAC-TV 10/95 331,505 336,161 965,820
Tampa, FL* 15 WFCT-TV 8/94 0 823,836 976,450
Miami, FL* 16 WCTD-TV 4/94 396,050 867,653 921,850
Denver, CO* 18 KUBD-TV 8/95 430,332 433,300 698,830
Phoenix, AZ* 19 KWBF-TV 1/96 23,000 23,000 660,770
St. Louis, MO* 20 WCEE-TV 1/96 227,468 227,468 568,670
Orlando, FL* 22 WIRB-TV 12/94 468,000 482,081 741,180
Hartford, CT 26 WTWS-TV 3/95 660,600 717,348 770,020
Raleigh, NC* 32 WRMY-TV (9)(10) 6/96 0 0 480,850
Dayton, OH* 53 WTJC-TV 10/95 297,666 313,153 341,040
----------- ------------ -------------
Total Owned and TBA Operated 7,712,699 10,933,068 18,406,600
Affiliates
Sacramento 21 KCMY-TV 7/95 624,108 640,092 687,820
Indianapolis 24 WIIB-TV 1/96 400,525 409,658 579,930
Norfolk 40 WJCB-TV 8/95 343,289 349,586 445,750
Fresno 57 KGMC-TV 1/96 178,500 178,500 255,860
----------- ------------ -------------
Total Affiliates 1,546,422 1,577,836 1,969,360
----------- ------------ -------------
Total Owned, TBA Operated and Affiliates 9,259,121 12,510,904 20,375,960
----------- ------------
Proposed Acquisitions
New York, NY 1 WHAI-TV 3/96 4,528,750
Dallas, TX 8 Channel 68 (10) 12/96 923,530
Atlanta, GA* 10 WNGM-TV 4/96 1,014,950
Cleveland, OH 13 WAKC-TV 3/96 965,820
Milwaukee, WI* 29 WHKE-TV 4/96 437,730
Grand Rapids, MI* 38 WJUE-TV (11) 6/96 390,350
West Palm Beach, FL** 45 WHBI-TV 7/96 467,730
Albany, NY* 52 WOCD-TV 5/96 356,510
San Juan, P.R.* NR WSJN-TV (12) 2/96 298,217
-------------
Total Proposed Acquisitions 9,383,587
-------------
Total inTV Network*** 9,259,121 12,510,904 27,778,777
=========== ============ =============
</TABLE>
<TABLE>
<CAPTION>
Current inTV Total
Cable Market TV
Market(1) Carriage%(6) Households(7)
- --------- ------------ --------------------
<S> <C> <C>
Owned or TBA Operated
Los Angeles, CA 65.1% 4,917,550
Philadelphia, PA 73.1% 2,645,690
San Francisco, CA 50.3% 2,257,210
Boston, MA 51.6% 2,121,530
Washington, DC 0.0% 1,883,590
Atlanta, GA 90.2% 1,583,520
Houston, TX 89.3% 1,574,300
Cleveland, OH* 34.8% 1,452,090
Tampa, FL* 84.4% 1,395,480
Miami, FL* 94.1% 1,340,860
Denver, CO* 62.0% 1,159,730
Phoenix, AZ* 3.5% 1,169,530
St. Louis, MO* 40.0% 1,108,480
Orlando, FL* 65.0% 997,850
Hartford, CT 93.2% 911,490
Raleigh, NC* 0.0% 791,690
Dayton, OH* 91.8% 501,140
------------ --------------------
Total Owned and TBA Operated 59.4% 27,811,730
Affiliates
Sacramento 93.1% 1,100,810
Indianapolis 70.6% 925,340
Norfolk 78.4% 619,390
Fresno 69.8% 481,620
------------ --------------------
Total Affiliates 80.1% 3,127,160
------------ --------------------
Total Owned, TBA Operated and Affiliates 61.4% 30,938,890
Proposed Acquisitions
New York, NY 6,695,140
Dallas, TX 1,821,900
Atlanta, GA* 1,583,520
Cleveland, OH 1,452,090
Milwaukee, WI* 782,810
Grand Rapids, MI* 637,100
West Palm Beach, FL** 576,460
Albany, NY* 507,120
San Juan, P.R.* 1,064,200
--------------------
Total Proposed Acquisititions 15,120,340
--------------------
Total inTV Network*** 43,023,620
====================
</TABLE>
- ------------------------------
* Operated pursuant to a time brokerage agreement.
** inTV affiliate pending acquisition by licensee. TBA operated upon
acquisition by licensee.
*** Does not reflect duplicate households in Cleveland and Atlanta markets.
(1) Each station is licensed by the FCC to serve a specific community,
which is included in the listed market.
(2) See "Certain Definitions and Market and Industry Data" for information
concerning market rank.
(3) Cable households reached at commencement of station's operations.
(4) Cable households reached at 1/96.
(5) Source: AC Nielsen. San Juan cable households provided by J. Walter
Thompson Latin America, June 1995.
(6) Cable households reached at 1/96 as a percent of the market's total cable
households. Source: AC Nielsen. San Juan cable households provided by J.
Walter Thompson Latin America, June 1995.
(7) Figures represent total television households in each market only and are
not necessarily indicative of the number of television households reached
by each station in its market.
(8) Station is not currently on the air.
(9) Option to acquire 40% ownership interest.
(10) Pending construction.
(11) 70% ownership interest to be acquired.
(12) 50% ownership interest to be acquired; station signal will be satellite
simulcast in the San Juan area on WKPV-TV and WJWN-TV, stations in which
the Company is also acquiring a 50% interest.
39
<PAGE> 46
Paxson Radio
Paxson Communications owns and operates 18 radio stations (nine FM and
nine AM stations), with more radio stations in Florida than any other
broadcaster. The Company operates two FM and two AM stations, commonly referred
to as a "duopoly" serving Florida's four most populous cities (Miami, Tampa,
Orlando and Jacksonville). In addition, the Company owns and operates an AM/FM
combination in Cookeville, Tennessee and has JSAs with an additional FM station
in Jacksonville and an additional AM station in Miami. The Company's radio
stations employ broadly diversified programming formats, including News, Talk,
Sports, Country, Soft Adult Contemporary, Smooth Jazz, Album Oriented Rock,
Modern Rock and Alternative Rock. The Company operates six radio networks,
primarily in the southeastern United States, that provide daily statewide news
segments, sports programming and satellite distribution of play-by-play
broadcasts of professional and collegiate sports teams for 338 affiliated
stations throughout the eastern and southeastern United States and controls 67
billboard locations (161 faces) in the Tampa and Orlando markets that support
the Company's radio station operations and provide advertising revenue.
The Company believes that its established position among the leading radio
broadcast groups in each of its Florida markets differentiates it from its
competitors and makes the Company attractive to regional and national
advertisers. In addition to having leading positions in its markets, the
Company believes that its Florida markets are highly attractive. According to
Miller Kaplan, the Miami, Tampa, Orlando and Jacksonville markets are among the
fastest growing radio markets within the top 100 DMAs, with average compound
annual growth for the three years ended December 31, 1995 of 10.3%.
The Company acquired its radio properties between 1991 and 1995. In 1995,
Paxson Radio operations generated segment revenue and segment operating profit
of $______ and $______, respectively.
Radio Broadcasting
The Company was one of the first radio broadcasters to capitalize on
changes in federal regulations permitting radio market duopolies, and has
subsequently assembled eight duopolies in each of Florida's four most populous
cities. Beginning with the acquisition of an AM/FM combination in the Tampa
market and a Jacksonville FM station in 1991, the Company made acquisitions of,
or entered into time brokerage agreements with, radio stations in selected
Florida markets. The Company has pursued a strategy of entering into time
brokerage agreements with, and concurrently obtaining an option to purchase,
stations in markets in which the Company already owns a station in the same
radio service (AM or FM). Following changes in the FCC's rules regarding
multiple ownership of radio stations in September 1992, the Company was able to
exercise such purchase options. By June 1995 the Company had assembled both FM
and AM duopolies in the Miami, Tampa, Orlando and Jacksonville markets (for a
total cost of $65.1 million), in addition to an AM/FM combination in
Cookeville, Tennessee. The Company will continue to consider radio acquisition
and disposition opportunities.
During 1995, several changes were instituted by management in Paxson Radio
to strengthen performance. These changes included a new sales approach whereby
each sales person sells time primarily for one particular station to more
effectively capture advertising revenue. In addition, the Company also
instituted changes in individual markets including (i) a management change at
the station general manager and sales manager positions in the Miami and
Orlando markets, (ii) a change in the morning drive personalities in the Miami
and Jacksonville markets, and (ii) an FM format change in Jacksonville.
Current regulatory changes embodied in proposed federal telecommunications
legislation will permit a radio broadcaster to own up to five FM stations in
each of the Miami, Orlando and Tampa markets and four FM stations in the
Jacksonville market. The Company plans to opportunistically pursue in-market
acquisitions to capitalize on
40
<PAGE> 47
the inherent leverage in operating multiple stations in a single market.
Operating Strategy
The Company believes that its radio properties are well positioned in
attractive and growing markets, and the Company hopes to continue to improve
cash flow growth through the integration of recent duopoly acquisitions and
enhanced station performance. The Company believes that the geographic
proximity of its FM and AM duopolies throughout Florida give it the ability to
realize synergistic revenue and promotional opportunities as well as
significant cost efficiencies. The Company's group of Florida stations enables
an advertiser to cover an entire geographic region, while effectively reaching
targeted demographic groups. Various cross-market promotional opportunities
exist, such as the ability to provide listeners with tickets to another
market's sporting events or local entertainment attractions. Personnel and
technical costs can be minimized by virtue of the ability to service markets in
close proximity to one another. Finally, the stations' geographic concentration
allows management to more easily and rapidly respond to market developments.
The Company believes that its experienced management team is one of its
strongest assets. Local managers are responsible for the day-to-day operations
of their respective stations. The Company believes that the autonomy of its
station management and its incentive-based compensation enable it to attract
and retain skilled and experienced managers capable of implementing the
Company's aggressive marketing and promotion strategy. Local managers have
incentive compensation linked to the station's broadcast cash flow performance.
Corporate management is responsible for long-range planning, establishment
of primary policies and procedures, resource allocation, accounting and
auditing, regulatory and legal compliance, license renewals and the evaluation
of potential acquisitions. Corporate management reviews sales pacing reports
from each station on a daily basis. In addition, members of senior management
visit the Company's stations on a regular basis to review performance and to
assist local management with its programming, sales and recruiting efforts, as
well as to develop overall station operating and marketing strategies.
The principal elements of the Company's operating strategy include:
Targeted Programming and Extensive Market Research. The Company provides
programming designed to appeal to targeted demographic groups, and seeks to
convert its rating shares into disproportionately large shares of each market's
advertising dollars. The Company believes that effective programming is a key
element in sustaining and improving audience shares within its targeted
demographic groups, and uses extensive ongoing research to refine each
station's programming. For example, the Company decided to operate News and
Sports formats in all four of its Florida markets following extensive research
demonstrating the popularity of each format with an upscale male audience.
Similarly, in July 1995, after conducting programming research, Tampa's WSJT-FM
began broadcasting a Smooth Jazz format, designed to appeal to adults aged
25-54 (a demographic group attractive to advertisers). The Company will
continue to identify and refine programming to enhance its stations' audience
and advertiser appeal.
Aggressive Marketing and Promotion. The Company believes that effective
marketing and promotion play a significant role in maximizing each station's
performance. The Company utilizes local television, print media, outbound
telemarketing and billboards to promote its stations. In the Orlando and Tampa
markets, the Company's unsold billboard locations are used to promote its
stations. The Company also believes that community involvement is particularly
important in creating public awareness and its stations participate in numerous
community programs and activities.
Strict Cost Controls. Management believes that it is critical to maintain
the lowest possible cost structure
41
<PAGE> 48
compatible with its operating strategy. Strict financial reporting standards
and cost control measures are implemented to ensure a focus on improvements in
operating results throughout Paxson Radio. Management regularly receives
operating reports that track station performance, thereby enabling better
monitoring by management and establishing greater accountability throughout the
station group. In addition, since local management incentive programs are tied
to increasing broadcast cash flow, local managers are focused on minimizing
costs and exceeding budgeted cash flow results.
42
<PAGE> 49
Radio Properties
The following table sets forth certain information about the Company's
current radio stations:
<TABLE>
<CAPTION>
National % of
Radio Market Station Power Audience
Market(s) Rank(b) Station Format Frequency (Watts) Share(c)
- ---------- ------------ -------- ------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Miami/Ft. Lauderdale 11 WLVE-FM Smooth Jazz 93.9 100,000 4.2
WZTA-FM Album Oriented Rock 94.9 100,000 3.6
WINZ-AM News and Sports 940 50,000 1.4
WFTL-AM Talk and Sports 1400 1,000 0.3
Tampa/St. Petersburg 21 WHPT-FM Rock Adult Contemporary 102.5 100,000 5.9
WSJT-FM Smooth Jazz 94.1 100,000 5.4
WHNZ-AM News and Sports 570 5,000(day) 0.6
10,000(night)
WNZE-AM Sports 820 50,000(day) 0.4
1,000(night)
Orlando 35 WMGF-FM Soft Adult Contemporary 107.9 100,000 7.1
WJRR-FM Modern Rock 101.1 100,000 4.5
WWNZ-AM News 740 50,000 1.3
WWZN-AM Sports 540 50,000 0.7
Jacksonville 50 WROO-FM Young Country 107.3 100,000 5.4
WPLA-FM Alternative Rock 93.3 50,000 3.8
WNZS-AM Sports 930 5,000 2.8
WZNZ-AM News 1460 5,000 0.3
Cookeville n/c WGSQ-FM Country 94.7 100,000 n/c
WPTN-AM Talk 780 1,000 n/c
</TABLE>
- -------------
(a) Each station is licensed by the FCC to serve a specific community within
the market, which may differ from the listed market.
(b) Source: Miller Kaplan.
(c) Adults 25-54 Monday-Sunday 6 AM-Midnight in radio market per Fall 1995
Arbitron Radio Market Reports.
n/a Insignificant share.
n/c Market not covered by Arbitron; revenue not independently reported.
Market Overviews
Miami/Ft. Lauderdale, FL. The Company owns and operates radio stations
WLVE-FM, WZTA-FM, WINZ-AM and WFTL-AM in the Miami/Ft. Lauderdale radio market,
the 11th largest radio market in the United States. The Company also provides
certain sales and marketing services to WACC-AM through a joint sales
agreement, and has an option to acquire a 49% interest in such station. The
Miami/Ft. Lauderdale radio market had advertising revenue of $136.3 million in
1995, a 9.9% increase over 1994. The Company's Miami/Ft. Lauderdale radio
stations had a 9.5% combined audience share in the Miami/Ft. Lauderdale 25-54
year old demographic category, according to the Fall 1995 Arbitron ratings
survey.
WLVE-FM is programmed in a Smooth Jazz format, playing a blend of
contemporary jazz and vocals, targeting the upscale 25-54 year old audience.
WLVE-FM does not have a direct competitor within the format category. WZTA-FM
became the only Album-Oriented Rock station in the Miami market when its former
competitor changed formats to Alternative Rock in May 1995. WINZ-AM is the only
station in the Miami market with an All News
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format throughout the daytime hours. After 7:00 p.m. WINZ-AM carries sports
programming with broadcast rights to the Miami Heat NBA basketball team and the
University of Miami football games. WFTL-AM located in Broward County has a
talk radio format and through a simulcast with WINZ-AM increases the Company's
broadcast reach of the Miami Heat.
Tampa/St. Petersburg, FL. The Company owns and operates radio stations
WHPT-FM, WSJT-FM, WHNZ-AM and WNZE-AM in the Tampa/St. Petersburg radio market,
the 21st largest radio market in the United States. The Tampa/St. Petersburg
radio market had advertising revenue of $77.4 million in 1995, a 9.8% increase
over 1994. The Company's Tampa/St. Petersburg stations had a 12.3% combined
audience share in the Fall 1995 Arbitron ratings survey, including WSJT-FM
which commenced broadcasting in July 1995.
WHPT-FM is formatted with a distinctive blend of music categorized as Rock
Adult Contemporary targeted toward white-collar, adult listeners. The Company
purchased WEZY-FM in Lakeland, Florida in March 1995 and subsequently moved the
station to the Tampa market. The Company reformatted the station as WSJT-FM, a
Smooth Jazz station targeted to adults in the 25-54 year old demographic
category. WHPT-FM and WSJT-FM have two of the strongest signals in the State of
Florida. WHNZ-AM is the only radio station in the Tampa market with an All News
format throughout the daytime hours. After 7:00 p.m. the station carries sports
talk and play-by-play sports programming, including University of Florida
football and basketball games. WNZE-AM is one of two AM radio stations in the
Tampa market that provides an All Sports format, including play-by-play
coverage of the Florida State football and basketball games. In addition,
WNZE-AM achieves economies by utilizing satellite programming.
Orlando, FL. The Company owns and operates radio stations WMGF-FM,
WJRR-FM, WWNZ-AM and WWZN-AM in Orlando, the 35th largest radio market in the
United States. The Orlando radio market had advertising revenue of $63.5
million in 1995, a 10.7% increase over 1994. The Company's Orlando radio
stations had a 13.6% combined audience share in the Orlando 25-54 year old
demographic category, according to the Fall 1995 Arbitron ratings survey.
WMGF-FM is a Soft Adult Contemporary format appealing to the 35-54
audience. WJRR-FM, a Modern Rock station, complements WMGF-FM by appealing
primarily to the 18-49 year old male audience. WWNZ-AM is the only station in
the market with an All News format. WWZN-AM is the only All Sports radio
station in the Orlando market, and includes play-by-play programming and sports
talk shows. Cost savings are obtained through the utilization of satellite
programming, which is used to augment the station's sports-talk programming.
Jacksonville, FL. The Company owns and operates radio stations WROO-FM,
WPLA-FM, WNZS-AM and WZNZ-AM in Jacksonville, the 50th largest radio market in
the United States. The Company also provides certain sales and marketing
services to WFSJ-FM under a joint sales agreement. The Jacksonville radio
market had advertising revenue of $34.7 million in 1995, an 8.4% increase over
1994. The Company's radio stations had a 12.3% combined audience share in the
25-54 year old demographic category, according to the Fall 1995 Arbitron
ratings survey.
WROO-FM broadcasts a Young Country format that appeals to the 18-49 year
old demographic category. WPLA-FM was recently reformatted as an Alternative
Rock radio station, designed to appeal to a younger 18-34 target audience.
WNZS-AM broadcasts an All Sports format, including the leading sports talk show
in the market, and carries live play-by-play sports broadcasts, including
Florida State University mens' football and basketball games. WZNZ-AM has an
all News format consisting of satellite-delivered CNN Headline News
programming.
Cookeville, TN. The Company owns and operates WGSQ-FM and WPTN-AM in the
Cookeville, Tennessee radio market, serving the Upper Cumberland region between
Nashville and Knoxville (ranked the 45th and 70th largest markets,
respectively). The Company's stations are first on a combined basis within its
market in all
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categories of listenership. Radio station WGSQ-FM broadcasts a country format.
WPTN-AM programs an All Talk format featuring various local and
nationally-syndicated personalities, including Rush Limbaugh. The stations have
a combined 30% share of the 12+ demographic group in Arbitron's most recent
county-by-county survey.
Radio Networks
The Company operates six radio networks that serve approximately 338
affiliates. The programs produced and distributed by the Company's radio
networks include news broadcasts, sports play-by-play and sports talk shows,
and business and agricultural news and information. In addition to providing
radio programming, the Company also offers its affiliates printed script for
news, sports and weather information, that the Company either generates
internally or consolidates from wire services and other sources. The Company
believes radio networks are attractive to advertisers because they provide an
opportunity to advertise simultaneously on multiple stations. In addition, the
Company's networks provide certain programming to the Company's radio broadcast
stations.
In December 1992, the Company purchased the Florida Radio Network in order
to build statewide advertising sales. The network produces daily news segments
for 56 affiliated stations in Florida, thereby giving the Company a presence in
almost every market in Florida. On November 4, 1994, the Company merged with
ANG significantly expanding the Company's radio network holdings. As a result
of the merger, the Company owns and operates a radio network in Tennessee, as
well as several collegiate sports radio networks. Such radio networks currently
produce and distribute news, sports play-by-play and other programs, giving the
Company 79 affiliated radio stations in Tennessee. In January 1995, the Company
acquired the Alabama Radio Network, which produces and distributes news, sports
and other programs to 74 affiliates in Alabama. The Company has the exclusive
rights to produce and broadcast the men's football and basketball games and
weekly coaches' radio shows of the University of Florida Gators through 53
affiliates, the University of Miami Hurricanes through 25 affiliates, and
Pennsylvania State University Nittany Lions through 51 affiliates. The
broadcasts are distributed to radio stations that have subscribed for them
pursuant to affiliate agreements. Certain affiliates of the Company's sports
networks are also affiliates of its state radio networks.
During 1995, the Company upgraded the technical facilities at each of its
radio news networks with digital sound programming. The Company believes that
such quality improvements will enable it to maintain its network presence in
each of the states in which it has networks.
Billboard Properties
The Company currently owns 67 billboard locations, including 55 billboards
with 113 faces in the Tampa market, and 12 billboard locations at which the
Company will have 48 faces in the Orlando market. While the Company will sell
the use of the billboards to a broad group of potential advertisers, the
Company takes advantage of the relationships it has with its radio advertisers
to broaden its billboard client base, as well as expand the Company's share of
the advertiser's media purchases within a market. In addition, as broadcasters
are major users of billboard advertising campaigns, the Company can control its
own billboard promotional expenditures through the use of its unsold
billboards, as well as assure full use of all its owned billboards. As
opportunities are presented to the Company, it will consider the acquisition of
additional billboards in markets in which it owns broadcasting properties.
Paxson Network-Affiliated Television
Paxson Communications owns and operates an ABC-TV affiliate, WPBF-TV, in
the West Palm Beach market. In August 1995, the Company entered into a time
brokerage agreement under which it provides programming and markets commercial
time for a second television station, WTVX-TV (a combined United Paramount
Network and
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Warner Brothers Network affiliate), also in the West Palm Beach market. The
West Palm Beach television market is one of the fastest growing markets in the
country, as evidenced by its increased market ranking from 65th in 1985 to 45th
in 1995.
The Company acquired WPBF-TV in July 1994 for approximately $32.5 million
and began operating WTVX-TV under a time brokerage agreement in August 1995.
The Company has a long-term option to acquire WTVX-TV for approximately $19
million. After the acquisition of WPBF-TV, the Company installed its
management team, implemented cost rationalization measures and revamped
WPBF-TV's programming. Pro forma for the inclusion of WTVX-TV, these
television stations generated segment pro forma revenue and segment pro forma
operating profit of $_____ million and $______ million, respectively, in 1995.
Operating Strategy
The Company's television operating strategy is similar to its radio
operating strategy as the Company seeks to capitalize on the revenue enhancing
and cost saving opportunities from operating two television stations in one
market from a single studio facility.
WPBF-TV (channel 25) is the ABC-TV affiliate in the West Palm Beach,
Florida market. The station achieved a 10 share of household audience in the
November 1995 Nielsen ratings survey, tied for third place in the market.
WPBF-TV airs ninety minutes of local news each weekday and an hour each
Saturday and Sunday. In addition, the station's current schedule includes the
following syndicated programs: Hard Copy, A Current Affair, Coach, Geraldo!,
Jerry Springer and Sally Jessy Raphael. The highly rated Montel Williams Show
will join WPBF's lineup in the fall of 1996. Monday through Friday, WTVX-TV
airs a second run of Sally Jessy Raphael as part of a three hour daytime talk
show block, and a second run of Jerry Springer at 10:00 p.m. The second runs
of Sally Jessy Raphael and Jerry Springer air at no net cost to WTVX-TV, as
they were included in WPBF's negotiations for these programs. WTVX-TV is a
leading provider of children's programming in the West Palm Beach market with
the following syndicated programs: Flintstones, Mighty Max, Goof Troop, Bonkers
and Animaniacs. The station also airs off network and original syndicated
family-oriented programming such as Family Matters, Step by Step, Baywatch,
Highlander, Kung Fu, Land's End, High Tide and Renegade. This fall, WTVX-TV
will add the NBC network sitcom Mad About You to its program lineup. WTVX-TV
achieved a four share of household audience in the November 1995 Nielsen
ratings, ranking fifth in the market. WPBF-TV and WTVX-TV will continue to
carry Southeastern Conference and Atlantic Coast Conference college football
games, featuring among other teams the University of Florida Gators and the
Florida State University Seminoles.
Advertising
Virtually all the Company's broadcasting revenue is derived from local,
regional and national advertising. Advertising rates charged by radio and
network television stations are based on a station's ability to attract
audiences in the demographic groups that advertisers wish to reach, and the
number of stations competing in the market area. A station's audience is
reflected in rating surveys of the number of listeners tuned to the station and
the time spent listening. The Company believes that its regional presence in
Florida's most populous markets and its targeted demographic groups in those
markets make it attractive to national, regional and local radio and television
advertisers. The Company strives to maximize radio revenue by constantly
managing the number of commercials available and all broadcast revenue by
adjusting prices based upon demand by advertisers to reach the Company's
stations' target demographic groups. In addition to the sales of advertising
time for cash, stations typically exchange advertising time for goods or
services that can be used by the station in its business operations, including
radio, television and billboard advertising and such items as travel and
entertainment services. The Company generally limits the use of such trade
transactions to promotional items or services for which the Company would
otherwise have paid cash. In addition, it is the Company's general policy not
to preempt advertising spots paid for in cash with
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advertising spots paid for in trade.
inTV advertising rates are primarily based on the number of cable
households reached, the effectiveness of infomercials, the nature of the
advertiser, the nature of the advertisement (local, national or network), and
ultimately the demand for available infomercial time. The Company attempts to
maximize revenue by increasing the number of cable homes reached providing
advertisers with increased viewership. The Company increases the number of
cable households reached both by increasing the reach of each of its stations
through the exercise of "must carry" rights and by acquiring broadcast stations
in additional markets. In addition, certain advertisers can measure the success
of an infomercial program almost immediately after a show is broadcast. The
Company believes the success of infomercials with viewers continues to drive
advertisers to use infomercials. As such, the demand for infomercials continues
to increase.
Competition
The Company's radio and television stations compete with the other radio
and television broadcasting stations in their respective market areas, as well
as with other advertising media, including newspapers, television, magazines,
outdoor advertising, transit advertising and direct mail marketing. Competition
within the radio and television broadcasting industries occurs primarily in
individual market areas, so a station in one market does not generally compete
with stations in other market areas. In each of its markets, the Company's
radio and television stations face competition from other stations with
substantial financial resources, including, in certain instances, stations
whose programming is directed to the same demographic groups. In addition to
management experience, factors that are material to competitive positions
include a station's rank in its market, authorized power, assigned frequency or
station (as applicable), audience characteristics, local program acceptance and
the programming characteristics of other stations in the market area. The
Company attempts to improve its radio station's competitive position with
extensive research and promotional campaigns aimed at the demographic groups
targeted by its stations, and through sales efforts designed to attract
advertisers, including those who have done little or no radio advertising, by
emphasizing the effectiveness of radio advertising in increasing the
advertisers' revenue. Recent changes in the FCC's policies and rules permit
increased joint ownership and joint operation of local radio stations.
Stations, such as those owned by the Company, taking advantage of these joint
arrangements may in certain instances have lower operating costs and may be
able to offer advertisers more attractive rates and services. The Company
attempts to improve its television stations' competitive positions with local
tie-in promotions and strong local news segments. Although the Company believes
that each of the Company's radio and television stations can compete
effectively in its market, there can be no assurance that any of the Company's
radio or television stations will be able to maintain or increase its current
audience rating or advertising revenue market share.
Although the radio and television broadcasting industries are highly
competitive, some barriers to entry exist. The operation of a radio or
television broadcasting station requires a license from the FCC, and the number
of radio and television stations that can operate in a given market is limited
by the availability of the FM and AM radio frequencies or stations (as
applicable) that the FCC will license in that market. The radio and television
broadcasting industries historically have grown in terms of total revenue,
despite the introduction of new technologies for the delivery of entertainment
and information, such as cable, audio tapes and compact discs. The Company
believes that radio's portability makes it less vulnerable than other media to
competition from new methods of distribution or other technological advances.
There can be no assurance, however, that the involvement or introduction in the
future of any new media technology will not have an adverse effect on the radio
or television broadcasting industries.
The Company's development of inTV and creation of a national long-form
paid programming distribution system is a relatively new concept, and there can
be no assurance of its success. The concept is subject to competition from
several sources. The Company's inTV stations face significant competition from
established broadcasting stations
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and cable television. Various television networks carry blocks of infomercials
and local cable operators also sell blocks of time to long-form advertisers. To
the extent that the Infomall TV Network is successful, it is likely that the
Company will face competition from new market entrants, some of which could
have significantly greater financial resources than the Company. In addition,
the Company could encounter competition as a result of technological
developments. The Company believes, however, that it can compete on a
favorable basis because it contains the only group of television stations in
the United States that currently offers infomercial advertisers both
significant national and regional distribution capabilities and inventory
availability during popular morning, daytime and prime time hours.
Time Brokerage Agreements
In an effort to continue to expand the number of television markets in
which the Company has a presence, while remaining in compliance with FCC
regulations concerning aggregate and multiple station ownership limitations,
the Company has entered into time brokerage agreements with third parties
pursuant to which the Company enjoys many, but not all, of the benefits of
operating a television station while not owning such station. Currently, the
Company operates television stations WCTD-TV, WFCT-TV, WTVX-TV, WIRB-TV,
KUBD-TV, WTJC-TV, WOAC-TV, WRMY-TV, WCEE-TV and KWBF-TV pursuant to time
brokerage agreements and, upon consummation of the Proposed Acquisitions, the
Company will also operate television stations WHKE-TV, WNGM-TV, WHBI-TV,
WOCD-TV and WJUE-TV pursuant to time brokerage agreements. The Company expects
to operate WSJN-TV pursuant to a time brokerage agreement pending its
acquisition of a 50% equity interest therein upon the receipt of regulatory
approvals. Pending the acquisition by Cocola Media Corporation of Florida
("Cocola") of WHBI-TV from WPB Communications, Inc., the Company expects to
enter an affiliation agreement with Cocola pursuant to which WHBI-TV would air
inTV programming. The Company has and may in the future enter into other time
brokerage agreements to operate stations prior to their acquisition.
After giving effect to the consummation of the five agreements involving
time-brokered stations, eight of the Company's 15 time-brokered stations will
be operated pursuant to time brokerage agreements with subsidiaries of The
Christian Network, Inc. ("CNI"), three stations (WTVX-TV, WOAC-TV and WNGM-TV)
will be operated pursuant to time brokerage agreements with Whitehead Media or
its affiliates, one station (WFCT-TV) will be operated by the Company and a CNI
subsidiary pursuant to a time brokerage agreement with Bradenton Broadcast
Television Company, Ltd. ("BBTC"), one station (WHBI-TV) will initially carry
inTV programming pursuant to an affiliation agreement and, upon consummation of
the acquisition thereof by Cocola from WPB Communications, Inc., will be
operated by the Company pursuant to a time brokerage agreement with Cocola, and
one station (WRMY-TV) will be operated pursuant to a time brokerage agreement
with Roberts Broadcasting Company of Raleigh - Durham, Ltd. ("Roberts
Company"). CNI is a Section 501(c)(3) non-profit corporation to which Mr.
Paxson was a substantial financial contributor and of which he was a director.
Since December 1993, Mr. Paxson and the Company have engaged in a number of
transactions related to time brokerage agreements with CNI or its subsidiaries,
and the Company has made loans of $15.3 million to CNI and its subsidiaries in
connection with acquisitions and related capital expenditures. See "Certain
Transactions." In addition to the time brokerage agreements with subsidiaries
of CNI, Whitehead Media, BBTC, Cocola and Roberts Company (or any of their
affiliates) referred to above, the Company may, to the extent attractive
opportunities arise in the future, enter into additional time brokerage
agreements with subsidiaries of CNI, Whitehead Media, Cocola, Roberts Company
or other third parties to enable the Company to operate additional television
stations that it might not otherwise be able to own itself under current FCC
multiple station ownership restrictions.
With certain limited exceptions, the time brokerage agreements of the
Company involve a basic transaction structure. The Company (i) finances the
acquisition by the third party of some or all of the assets of the brokered
stations and secures such financing by encumbering such assets including, to
the extent permitted under FCC rules and regulations, the FCC license and all
of the capital stock of the acquiring company; and (ii) enters into a time
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brokerage agreement with such third party which allows the Company to operate
the brokered station, in accordance with FCC guidelines. In the case of
Whitehead Media, the Company initially financed the acquisition by Whitehead
Media of each of WTVX-TV and WOAC-TV. Whitehead Media subsequently obtained
third party financing, a portion of the proceeds of which were used to repay
the debt owed by Whitehead Media to the Company. The third party financing
provided to Whitehead Media is unconditionally guaranteed by Lowell W. Paxson,
Chief Executive Officer of the Company, and certain affiliates of Mr. Paxson,
all of which are directly or indirectly owners of capital stock of the Company.
At the time of such refinancing, the time brokerage agreement between the
Company and Whitehead Media was modified and the Company was granted an option
to purchase the station. See "Certain Transactions". The Company operates
stations WTVX-TV and WOAC-TV pursuant to time brokerage agreements and has
options to purchase each of such stations, which options to purchase would
otherwise be prohibited under FCC rules and regulations because each of such
stations serves a market in which the Company has or expects to own another
television station which also serves the same market. In general, payments
made to the FCC licensee under the time brokerage agreement are established,
and renegotiated from time to time, based upon increases in expenses for which
the FCC licensee must, in accordance with FCC regulations, remain primarily
liable, including servicing the indebtedness owed by such FCC licensee to the
Company or, in the case of Whitehead Media, to third parties. In certain
circumstances, the Company may acquire certain tangible assets useful in the
construction or operation of the brokered station and lease such assets to the
brokered station. In addition, unless prohibited by FCC rules and regulations,
the FCC licensee also grants to the Company an option to purchase the station
for an amount payable in cash together with the forgiveness of all outstanding
indebtedness. Upon the consummation of the Proposed Acquisitions, the Company
will have options to purchase each station operated under a time brokerage
agreement or, in the case of WJUE, an option to purchase a 70% equity interest
therein, other than WIRB-TV and WHBI-TV.
Federal Regulation of Broadcasting
The FCC regulates radio and television broadcast stations pursuant to the
Communications Act. The Communications Act permits the operation of radio and
television broadcast stations only in accordance with a license issued by the
FCC upon a finding that the grant of such license would serve the public
interest, convenience and necessity. The Communications Act provides for the
FCC to exercise its licensing authority to provide a fair, efficient and
equitable distribution of broadcast service throughout the United States.
The Communications Act empowers the FCC, among other things, to determine
the frequencies, location and power of broadcast stations; to issue, modify,
renew and revoke station licenses; to approve the assignment or transfer of
control of broadcast licenses; to regulate the equipment used by stations; to
impose fees for processing applications; to adopt regulations to implement the
provisions of the Communications Act; and to impose penalties for violations of
the Communications Act or FCC regulations. The FCC may revoke licenses for,
among other things, false statements made to the FCC or willful or repeated
violations of the Communications Act or of FCC rules. Legislation has been
introduced from time to time to amend the Communications Act in various
respects and the FCC from time to time considers new regulations or amendments
to its existing regulations. The Company cannot predict whether Congress will
enact any such legislation, whether the FCC will adopt new or amend existing
regulations, or what the effect of such actions would be on the Company.
The following is a brief summary of certain provisions of the
Communications Act and the rules of the FCC. Reference should be made to the
Communications Act and the rules, orders, decisions and published policies of
the FCC for further information on FCC regulation of television and radio
broadcast stations.
License Renewal. The Communications Act provides that a broadcast station
license may be granted to an applicant if the public interest, convenience and
necessity will be served thereby, subject to certain limitations. In making
licensing determinations, the FCC considers an applicant's legal, technical,
financial and other qualifications.
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Broadcast station licenses are granted for specific, limited periods, and, upon
application, are renewable for additional terms. Under the Communications Act,
radio station licenses may be granted for a maximum term of seven years, and
television station licenses may be granted for a maximum term of five years.
The Company's current licenses, and the licenses of stations with which the
Company has time brokerage agreements expire on the following dates:
<TABLE>
<CAPTION>
Radio Station Market(a) License Expiration
- ------------- --------- ------------------
<S> <C> <C>
WLVE-FM Miami/Ft. Lauderdale February 1, 1996
WZTA-FM Miami/Ft. Lauderdale February 1, 1996
WINZ-AM Miami/Ft. Lauderdale February 1, 1996
WFTL-AM Miami/Ft. Lauderdale February 1, 1996
WHPT-FM Tampa/St. Petersburg February 1, 1996
WSJT-FM Tampa/St. Petersburg February 1, 1996
WHNZ-AM Tampa/St. Petersburg February 1, 1996
WNZE-AM Tampa/St. Petersburg February 1, 1996
WJRR-FM Orlando February 1, 1996
WMGF-FM Orlando February 1, 1996
WWNZ-AM Orlando February 1, 1996
WWZN-AM Orlando February 1, 1996
WPLA-FM Jacksonville February 1, 1996
WROO-FM Jacksonville February 1, 1996
WNZS-AM Jacksonville February 1, 1996
WZNZ-AM Jacksonville February 1, 1996
WPTN-AM Cookeville August 1, 1996
WGSQ-FM Cookeville August 1, 1996
Owned Television Stations Market(a) License Expiration
- ------------------------- --------- ------------------
KZKI Los Angeles December 1, 1998
WTGI Philadelphia August 1, 1999
KLXV San Francisco December 1, 1998
WGOT Boston April 1, 1999
WYVN Washington, D.C. October 1, 1996
WTLK Atlanta April 1, 1997
KTFH Houston August 1, 1998
WTWS Hartford/New Haven April 1, 1999
WPBF West Palm Beach February 1, 1997
Time Brokerage
Television Stations Market(a) License Expiration
- ------------------- --------- ------------------
WFCT Tampa/St. Petersburg February 1, 1997
WCTD Miami/Ft. Lauderdale February 1, 1997
WOAC Cleveland October 1, 1997
KUBD Denver April 1, 1998
WIRB Orlando February 1, 1997
WTVX West Palm Beach February 1, 1997
WTJC Dayton October 1, 1997
WRMY Raleigh December 1, 1996
KWBF Phoenix October 1, 1998
WCEE St. Louis December 1, 1997
</TABLE>
(a) Each station is licensed by the FCC to serve a specific community
which is included in the listed market.
On October 1, 1995, the Company filed license renewal applications for all
of its Florida radio stations with the FCC. These applications are subject to
public comment and interested third parties could have filed formal petitions
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to deny each license renewal application with the FCC on or before January 2,
1996. The license for each station expires on February 1, 1996 and, if the FCC
has not acted upon the renewal application at that point, the Communications
Act provides for the license to automatically continue until the pending
renewal application has been resolved. Based upon its review of FCC records,
the Company is not aware of any petitions or other informal objections filed
against any one of its pending radio station license renewal applications.
Generally, the FCC renews licenses without a hearing. The Communications
Act authorizes the filing of petitions to deny and of competing applications
against license renewal applications during specified periods after the renewal
applications have been filed. Interested parties, including members of the
public, may file petitions to deny as a means to raise issues concerning the
renewal applicant's qualifications.
If a substantial and material question of fact concerning a renewal or
other application is raised by the FCC or other interested parties, or if for
any reason the FCC cannot determine whether an applicant would serve the public
interest, convenience and necessity, the FCC will hold an evidentiary hearing
on the application. In a comparative hearing with a competing applicant, the
incumbent licensee may be entitled to a renewal expectancy to support retention
of its license, depending upon the nature of the incumbent's operation of the
station during the prior license term. In recent years, there have been a
number of petitions to deny and competing applications filed with respect to
broadcast license renewal applications, but in the vast majority of cases the
FCC has renewed incumbent operators' station licenses.
Ownership Matters. The Communications Act requires the prior approval of
the FCC for the assignment of a broadcast license or the transfer of control of
a corporation or other entity holding a license. In determining whether to
approve an assignment of a broadcast license or a transfer of control of a
broadcast licensee, the FCC considers, among other things, the financial and
legal qualifications of the prospective assignee or transferee, including
compliance with FCC restrictions on alien ownership and control, compliance
with rules limiting the common ownership of certain attributable interests in
broadcast, cable and newspaper properties, and the character qualifications of
the transferee or assignee and the individuals or entities holding attributable
interests in them.
The FCC generally applies its ownership limits to attributable interests
held by an individual, corporation, partnership, or other association or
entity. In the case of corporations holding broadcast licenses, the interests
of officers, directors, and those who, directly or indirectly, have the right
to vote five percent or more of the corporation's stock are generally
attributable, as are positions of an officer or director of a corporate parent
of a broadcast licensee. The FCC treats all partnership interests as
attributable, except for those limited partnership interests that are insulated
under FCC policies. For insurance companies, certain regulated investment
companies and bank trust departments, that hold stock for investment purposes
only, such interests become attributable with the ownership of ten percent or
more of the stock of the corporation holding broadcast licenses. The FCC's
rules specify exceptions to the general principles for attribution. For
example, in a corporation with a single majority shareholder, such as the
Company, no other shareholder is deemed to hold an attributable interest.
Current FCC nationwide ownership rules allow one entity to hold
attributable interests in up to 20 FM radio stations, 20 AM radio stations and
12 television stations nationwide, provided that an entity may have a
noncontrolling attributable interest in an additional five FM, five AM and two
television stations that are, in the case of television stations, controlled by
members of minority groups or, in the case of radio stations, by certain small
businesses. The FCC's rules also prohibit any entity from acquiring an
additional television station if, after the acquisition, the entity would hold
an attributable interest in television stations reaching more than 25% of the
United States television households. Historically, VHF stations have shared a
larger part of the market than UHF stations. As such, only half of the
households in the market area of any UHF station owned by an entity are
included when calculating whether an entity reaches more than 25% of the United
States television households. A higher ceiling applies to attributable
interests held in television stations controlled by certain ethnic or racial
minority groups.
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In addition to the nationwide limits on broadcast ownership, the FCC's
rules limit the number of co-located radio or television broadcast stations in
which a single entity may own an attributable interest. For television, no
single entity may hold an attributable interest in television stations with
overlapping Grade B service contours. The Grade B contour is a predicted signal
strength contour that generally approximates the area within which a viewer can
receive off-the-air a signal adequate for normal viewing. The local ownership
restrictions for radio broadcast stations vary based on market size and
audience share. In markets with fifteen or more commercial radio stations, a
single entity may have an attributable interest in two AM and two FM stations
unless common ownership would result in excessive concentration in the local
market. Excessive concentration is presumed where the combined audience share
of the same market of stations owned by a single entity exceeds 25%. No
divestiture is required, however, if a station combination at or below the 25%
mark at the time of acquisition subsequently exceeds that limit. The FCC's
rules specify the definition of a market based on primary service contours for
the stations involved and the acceptable means for determining audience share.
Under local radio ownership rules, an entity with an attributable interest
in one radio station is considered also to have an attributable interest in any
other radio station in the same market for which the first radio station
provides the programming for more than 15% of the broadcast time, on a weekly
basis. As a result, such programming arrangements may not be entered into by
radio station combinations that could not be commonly owned under FCC rules.
The FCC's cross-ownership rules prohibit the common ownership of
attributable interests in certain combinations of media outlets serving the
same geographic area. Under these rules, a single entity may not have an
attributable interest in: (i) both a radio station and a television station
that serve specified overlapping areas; (ii) a daily newspaper and either a
radio station or a television station that serve specified overlapping areas;
or (iii) a television station and a cable television system that serve
specified overlapping areas. The FCC has established a liberal waiver policy to
permit common ownership of a radio station and a television station in any of
the nation's 25 largest markets, and in some circumstances involving failed
stations and in other situations where more stringent waiver standards can be
met. In addition, legislative proposals have been made from time to time to
liberalize or strengthen these prohibitions. See "Proposed Changes."
In cases involving competing media in the same market, FCC policy in
certain instances prohibits common ownership interests under its cross-interest
policy even if the interests involved are non-voting or other non-attributable
interests not specifically forbidden under the FCC's cross-ownership rules. The
FCC has initiated proceedings to inquire whether it should change or eliminate
this policy, covering joint ventures and common key employees. The policy does
not necessarily prohibit these interests, but may require that the FCC consider
whether they could have a significant adverse affect on programming diversity
and competition in the market. See "Proposed Changes."
In cases where one person or entity (such as Mr. Paxson in the case of the
Company) holds more than 50% of the combined voting power of the common stock
of a broadcasting corporation, a minority shareholder of the corporation
generally would not acquire an attributable interest in the corporation. Any
attributable interest by any shareholder in another broadcast station or daily
newspaper in a market where such a corporation owns or seeks to acquire a
station may still be subject to review by the FCC under its cross-interest
policy, and could result in the Company's being unable to obtain from the FCC
one or more authorizations needed to acquire other broadcast stations.
Furthermore, if a majority shareholder of a company (such as Mr. Paxson in the
case of the Company) were no longer to hold more than 50% of the combined
voting power of the common stock of the Company, the interests of minority
shareholders that had theretofore been considered non-attributable could become
attributable, with the result that any other media interests held by such
shareholders would be combined with the media interests of such company for
purposes of determining the shareholders' compliance with FCC ownership rules.
In the event of any noncompliance, steps required to achieve compliance could
include divestitures by either the shareholder or the affected company.
Furthermore, other media interests of shareholders having or acquiring an
attributable interest in
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<PAGE> 59
such a company could result in the company's being unable to obtain FCC
consents for future acquisitions. Conversely, the Company's media interests
could operate to restrict other media investments by shareholders having or
acquiring an interest in the Company.
Under the Communications Act, no FCC license may be held by a corporation
of which any officer or director is an alien or of which more than one-fifth of
its capital stock is owned of record or voted by aliens or their
representatives or by a foreign government or representative thereof, or by any
corporation organized under the laws of a foreign country (collectively
"Aliens"). Furthermore, the Communications Act provides that no FCC license may
be granted to any corporation directly or indirectly controlled by any other
corporation of which any officer or more than one-fourth of its directors are
Aliens, or of which more than one-fourth of its capital stock is owned of
record or voted by Aliens if the FCC should find that the public interest would
be served by the refusal of such license. Restrictions on alien ownership also
apply, in modified form, to other types of business organizations, including
partnerships.
Congress and the FCC are actively considering a number of matters that
bear upon broadcast ownership restrictions. See "Proposed Changes." The Company
cannot predict whether any proposed changes will be adopted nor can it predict
what other matters might be considered in the future, nor can it judge in
advance what impact, if any, the implementation of any of these proposals or
changes might have on its business.
Programming and Operation. The Communications Act requires broadcasters
to serve the public interest. Since the late 1970's, the FCC gradually has
relaxed or eliminated many of the more formalized procedures it developed to
promote the broadcast of certain types of programming responsive to the needs
of a station's market. Nevertheless, broadcast licensees continue to be
required to present programming that responds to community problems, needs and
interests and to maintain certain records demonstrating such responsiveness.
Complaints from listeners or viewers about a broadcast station's programming
often will be considered by the FCC when it evaluates renewal applications of a
licensee, although such complaints may be filed at any time.
Broadcast of obscene or indecent material is regulated by the FCC as well
as by state and federal law. Stations also must follow various rules
promulgated under the Communications Act that regulate, among other things,
political advertising, sponsorship identifications, the advertising of contests
and lotteries, and technical operations, including limits on radio frequency
radiation. In addition, licensees must develop and implement affirmative action
programs designed to promote equal employment opportunities, and must submit
reports to the FCC with respect to these matters on an annual basis and in
connection with a renewal application. Pursuant to the Children's Television
Act of 1990, the FCC has adopted rules limiting advertising in children's
television programming and required that television broadcast stations serve
the educational and informational needs of children. The Children's Television
Act specifically requires that the FCC consider compliance with these
obligations in deciding whether to renew a television broadcast license.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
short term renewals (less than the full five or seven years) or, for
particularly egregious violations, the denial of a license renewal application
or the revocation of a license.
Time Brokerage Agreements. Over the past several years a significant
number of radio broadcast licensees, including certain of the Company's
subsidiaries, have entered into time brokerage agreements. While these
agreements may take varying forms, under a typical time brokerage agreement
separately-owned and licensed radio stations agree to enter into arrangements
of varying sorts, subject to compliance with the requirements of antitrust laws
and with the FCC's rules and policies. These arrangements are subject under FCC
rules and regulations to maintenance by the licensee of each station of
independent control over the programming and station operations of its own
station.
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Typically, a time brokerage agreement is a programming agreement between
two separately owned radio stations serving a common service area, whereby the
licensee of one station programs substantial parts of the broadcast day on the
other licensee's station, subject to ultimate editorial and other controls
being exercised by the licensee of the brokered station. The broker then sells
advertising time during such program segments for its own account. Such
arrangements are an extension of the concept of time brokerage, under which a
licensee of a station sells the right to broadcast blocks of time on its
station to an entity or entities which program the blocks of time and sell
their own commercial advertising for their own account during the time periods
in question.
The FCC has determined that issues of joint advertising sales should be
left to antitrust enforcement. In addition, it has specifically exempted time
brokerage agreements from its cross-interest policy. Furthermore, the FCC and
the staff of the FCC's Mass Media Bureau have held that time brokerage
agreements do not per se constitute a transfer of control and are not contrary
to the Communications Act provided that the licensee of the station maintains
ultimate responsibility for and control over operations of its broadcast
station (including, specifically, control over station finances, licensee
personnel and programming) and complies with applicable FCC rules and with
antitrust laws. Thus far, the FCC has not considered what relevance, if any, a
time brokerage agreement may have upon its evaluation of a licensee's
performance at renewal time.
Under certain circumstances, the FCC will consider a station brokering
time on another radio station serving the same market to have an attributable
ownership interest in the brokered station for purposes of the FCC's radio
local ownership rules. In particular, a radio broadcast station is not
permitted to enter into a time brokerage agreement giving it the right to
program more than 15% of the broadcast time, on a weekly basis, of another
local station that it could not own under the FCC's revised local radio duopoly
multiple ownership rules. Nevertheless, time brokerage agreements entered into
before September 16, 1992 are generally grandfathered. The FCC has no present
rules on the attribution of television time brokerage agreements as it does
with radio time brokerage agreements. The FCC has adopted an interim policy on
the grant of transfer and assignment applications that include television time
brokerage agreements and the FCC is now considering whether to adopt rules
governing television time brokerage agreements. See "Proposed Changes."
The FCC rules also prohibit a broadcast licensee from simulcasting more
than 25% of its programming on another station in the same broadcast service
(that is, AM-AM or FM-FM) whether it owns both stations or operates both
through a time brokerage agreement where the brokered and brokering stations
serve substantially the same geographic area.
"Must Carry"/Retransmission Consent. Some provisions of the 1992 Cable
Act and the implementing rules adopted by the FCC, such as signal and carriage
and equal employment opportunity requirements, directly affect television
broadcasting. Other provisions, although focused exclusively on the regulation
of cable television, may indirectly affect the Company because of the
competition between over-the-air television stations and cable systems.
The 1992 Cable Act contains broadcast signal carriage requirements that
allow local commercial television broadcast stations to elect once every three
years to require a cable system to carry the station on certain designated
cable channels subject to certain exceptions, or to negotiate for
retransmission consent to carry the station. A cable system generally is
required to devote up to one-third of its activated channel capacity for the
mandatory carriage of local commercial television stations. Local
non-commercial television stations are also given mandatory carriage rights;
however, such stations are not given the option to negotiate retransmission
consent for the carriage of their signals by cable systems. Additionally, cable
systems are required to obtain retransmission consent for all distant
commercial television stations (except for commercial satellite-delivered
independent superstations such as WTBS), commercial radio stations and certain
low power television stations carried by such systems after October 6, 1993.
The constitutionality of the mandatory signal carriage requirements has been
challenged in federal court in an ongoing proceeding. See "Proposed Changes."
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The 1992 Cable Act also established a mechanism to modify local television
markets under which television stations licensed to communities in one area of
dominant influence or ADI, as defined by the ratings service Arbitron, may
become qualified for "must carry" status on cable systems serving communities
outside their ADI and within the ADI of other television stations. The FCC is
authorized to entertain requests for expansion or other modification of
television station markets. The grant of such requests by a licensee to extend
its "must carry" rights into another ADI may fractionalize the viewing audience
of other television stations already classified as entitled to "must carry"
rights within the ADI.
Equal Employment Opportunity Requirements. The 1992 Cable Act also
codified the FCC's existing equal employment opportunity ("EEO") regulations
and reporting forms used by television broadcast stations. In addition, as
required by the 1992 Cable Act, the FCC has adopted rules providing for a
review of the EEO performance of each television station at the mid-point in
its license term (in addition to an examination at renewal time) and for the
FCC to inform the licensee of any improvements in recruiting practices that may
be needed as a result of the review.
Syndicated Exclusivity/Territorial Exclusivity. The FCC has imposed on
cable operators syndicated exclusivity rules and expanded existing network
non-duplication rules. These syndicated exclusivity rules allow local broadcast
stations to require that cable operators black out certain syndicated
non-network programming carried on distant signals (that is, signals of
broadcast stations, including so-called super stations, which serve areas
substantially removed from the cable system's local community). The network
non-duplication rules allow local broadcast network affiliates to require that
cable operators black out duplicating network broadcast programming carried on
more distant signals that are not significantly viewed over the air.
Financial Interest/Syndication and Prime Time Access Rules. Previously,
financial interest/syndication ("FIN/SYN") rules applied to any network and
posed various restrictions on its operation and activities. Network status has
been considered to exist under these rules when a broadcast company's weekly
programming offerings exceed 15 hours. These rules prohibited networks from
engaging in syndication for the sale, licensing or distribution of television
programs for non-network broadcast exhibition in the United States.
Furthermore, these rules prohibited networks from sharing profits from any
syndication and from acquiring any new financial or proprietary interest in
programs of which they are not the sole producer.
The FCC has relaxed the restrictions on current FIN/SYN rules, enabling
the major networks to acquire specified amounts and kinds of financial
interests in program syndication and to engage in program syndication
themselves. The Company cannot predict the effect of these relaxed restrictions
under the FIN/SYN rules on the Company's ability to acquire desirable
programming at reasonable prices.
The FCC's prime time access rule also places programming restrictions on
affiliates of major national television networks. In the past, this rule
restricted affiliates of networks in the 50 largest television markets (as
defined by the rule) generally to no more than three hours of network
programming during the four hours of prime time. Recently, the FCC changed its
definition of network to include those entities that deliver more than 15 hours
of prime time programming (a term defined in those rules) to affiliates
reaching 75% of the nation's television homes. Under this definition, certain
national television networks are not subject to the prime time access rule. In
July 1995, the FCC issued an order repealing the prime time access rules,
subject to a one-year transition period during which the rules will continue in
effect. The order remains subject to reconsideration. If the order is not
modified or overturned, the prime time access rules will terminate on August
30, 1996. The Company cannot predict what effect the repeal of the rules may
have on the operation of its network-affiliated television stations or the
market for syndicated television programming.
Television and radio broadcast stations also may be subject to a number of
other federal, state and local regulation, including regulations of the Federal
Aviation Administration affecting tower height and marking, and
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<PAGE> 62
federal, state and local environmental and land use restrictions and general
business regulation, and a variety of local regulatory concerns.
Proposed Changes. The Congress and the FCC have under consideration, and
in the future may consider and adopt, new laws, regulations and policies
involving a wide variety of matters that could affect, directly or indirectly,
the operation, ownership and profitability of the Company's broadcast stations,
result in the loss of audience and advertising revenue for the Company's
broadcast stations and affect the ability of the Company to acquire additional
broadcast stations or finance such acquisitions.
-- Pending Legislation to Amend the Communications Act. On June 15, 1995,
the United States Senate passed a bill that, among other measures, would
eliminate the 12-station nationwide television ownership limitation and
increase the FCC's national audience reach limitation for television from 25%
to as much as 35%. The Senate bill also provided for the grandfathering of
existing television time brokerage agreements, established a two-step licensing
process that would tend to protect broadcasters from renewal challenges, and
extended the television license term from five years to ten years.
On August 4, 1995, the United States House of Representatives passed a
bill that, among other measures, would limit the authority of the FCC to
regulate the multiple ownership of broadcast stations. If enacted into law, the
House bill, like the Senate bill, would eliminate the FCC's existing 12-station
ownership limit for television stations and increase the FCC's permissible
nationwide audience reach for television stations from 25% to as much as 35%.
Under the House bill, a single entity could hold two UHF television stations or
a UHF and a VHF television station in the same market, unless the FCC
determines that the combination would harm competition or diversity. The
ownership of two VHF television stations in the same market would not be
permitted without an affirmative finding by the FCC that the combination would
not harm competition or diversity in the market. (The Senate bill, in contrast,
would allow present FCC local television ownership restrictions to stand.) The
House bill also includes requirements for the establishment of a television
rating code and for the inclusion of an electronic device (commonly called a
V-Chip) in new television sets, intended principally to permit parents to block
programming they deem unsuitable for children. The legislation also would lift
the present ban on the ownership of cable television systems by telephone
companies, thus allowing telephone companies to compete more freely in the
delivery of video programming directly to home. The House bill would revise
renewal procedures in a manner similar to that in the Senate bill, but would
extend license terms only to seven years to parallel radio broadcast license
terms. A joint House-Senate conference committee has been appointed to
reconcile the House and Senate bills and has released a tentative version of
the "Telecommunications Act of 1995" together with a Joint Explanatory
Statement of the Committee of Conference. The conference agreement provides
for elimination of the 12-station nationwide television ownership limitation
and increases the permissible nationwide audience reach from television
stations to 35% of the television households. The conference agreement would
also grandfather existing television time brokerage agreements and permit such
agreements in the future. The conference agreement also directs the FCC to
conduct a rulemaking proceeding to determine whether its rules restricting the
ownership of more than one television station in a local market should be
retained, modified or eliminated. The FCC is also directed to extend its
current radio-television waiver policy to the top 50 markets. Finally, the
conference agreement establishes a two-step licensing process that would tend
to protect broadcasters from renewal challenges and extends television and
radio license terms to eight years.
With regard to cable carriage matters, the conference agreement directs
the FCC to act on requests to modify television stations' local markets for
"must carry" purposes within 120 days of filing with the FCC. The conference
agreement further provides that telephone companies providing cable service
through open video systems will be subject to rules to be adopted by the FCC
requiring "must carry" for commercial and noncommercial broadcast stations,
network nonduplication, syndicated exclusivity protection and retransmission
consent options. The FCC is further directed to determine television
stations' markets for purposes of must cary by use of Nielsen's DMAs in place
of the current Areas of Dominant Influence (ADIs). Once the report of such
conference committee has been adopted, the reconciled bill must be passed by
both the House and Senate and approved by the President (or a presidency veto
overridden) before it could become law. There can be no assurance that the
legislation will become law in either the House or Senate version and the
ultimate impact on
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the Company cannot be predicted.
-- FCC Proceedings to Revise Broadcast Ownership Rules. In January 1995,
the FCC issued a further notice of proposed rule making which proposed the
following changes in regulations governing television broadcasting: (i) raising
the national ownership limits to up to 24 stations and raising the national
reach restrictions to 35% or simply eliminating the numerical station limit
altogether and replacing it with an escalating national reach restriction which
would eventually hit a ceiling of 50%; (ii) modifying the reach discount as it
applies to UHF stations; (iii) narrowing the geographic area where common
ownership restrictions would be triggered by limiting it to overlapping Grade A
contours rather than Grade B contours and by permitting (or granting waivers in
particular cases or markets) certain UHF/UHF or UHF/VHF overlaps; (iv) 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 (v) treating television time
brokerage agreements the same as radio time brokerage agreements which would
presently preclude certain television time brokerage agreements where the
programmer owns or has an attributable interest in another television station
in the same market. In June 1995, the FCC announced an interim policy for
processing television transfer and assignment application that include
television time brokerage agreements. Pending the adoption of new rules, the
FCC has stated that it will not grant applications that propose a time
brokerage arrangement if the arrangement also includes both debt financing by
the time broker and an option for the time broker to purchase the brokered
station. The FCC will continue to grant applications with time-brokerage
arrangement if they include only one of those elements (that is, either debt
financing by the broker or an option of the time broker to purchase). Adoption
of the most restrictive proposals in this proceeding could limit the Company's
alternatives for entering into new time brokerage agreements and making new
broadcast acquisitions and, if existing arrangements are not grandfathered,
could require the Company to modify or terminate certain of its time brokerage
agreements.
In January 1995, the FCC issued a further notice of proposed rule making
that combined several long-pending proceedings to consider changes in its
ownership rules and policies. In the new proceeding, the FCC is considering,
among other things, (i) whether to make non-voting stock interests
attributable; (ii) whether to change attribution thresholds; (iii) how to treat
limited liability companies for purposes of attribution; (iv) whether to extend
the cross-interest policy to require review of multi-layered business
relationships, including debt relationships, that now are not subject to
scrutiny; and (v) whether to change the insulation standards for
non-attribution of limited partnership interests. Adoption of the most
restrictive alternatives available to the FCC could require that the Company,
in assessing acquisition and compliance strategies, take into account
additional interests in itself and its principals that are now exempt from FCC
ownership regulation, and potentially divest or restructure some interests.
In a second notice of proposed rule making the FCC is seeking comment on
whether the FCC should relax attribution and other rules to facilitate greater
minority and female ownership. The Company cannot predict the outcome of these
proceedings or how they will affect the Company's business.
-- FCC Inquiry on Broadcast of Commercial Matter. 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 propose any limits on commercial advertising at the
conclusion of its deliberation or the effect the imposition of limits on the
commercial matter broadcast by television stations would have upon the
Company's operations.
-- Digital Audio Broadcasting. The FCC recently has allocated spectrum
to a new technology, digital audio broadcasting ("DAB"), to deliver
satellite-based audio programming to a national or regional audience and is
considering rules for a DAB service. DAB may provide a medium for the delivery
by satellite or terrestrial means of multiple new audio programming formats
with compact disc quality sound to local and national audiences. It is not
known at this time whether this technology also may be used in the future by
existing radio broadcast stations either on existing or alternate broadcasting
frequencies. In addition, applications by several entities currently are
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pending at the FCC for authority to offer multiple channels of digital,
satellite-delivered S-Band aural services that could compete with conventional
terrestrial radio broadcasting. These satellite radio services use technology
that may permit higher sound quality than is possible with conventional AM and
FM terrestrial radio broadcasting. Thus far, the FCC has not granted the
pending requests for authorizations to offer satellite radio, nor has it
adopted rules for the proposed satellite radio service. Implementation of DAB
would provide an additional audio programming service that could compete with
the Company's radio stations for listeners, but the effect upon the Company
cannot be predicted.
-- Advanced High Definition Television System. The FCC has also begun to
adopt rules for implementing advanced (high definition) television ("ATV") in
the United States. Implementation of ATV service should improve the technical
quality of television broadcasts. The FCC has decided that it will set aside
specific new channel allotments for ATV service. Initial eligibility for these
channels will be limited to existing television licensees. The FCC has not yet
adopted a new technical standard for ATV, nor has it adopted a new Table of
Allotments for ATV channels.
Under the FCC's current plan for phasing in ATV service, each television
station would be able to continue to provide conventional television service on
its regular channel until advanced television service has become the prevalent
medium. In August 1995, the FCC issued its Fourth Further Notice of Proposed
Rule Making and Third Notice of Inquiry in its ATV proceeding. The notice and
inquiry requested public comment on a number of issues in connection with the
establishment of ATV television broadcasting, including: (i) procedures and
timetables for existing broadcasters to move to ATV channels and relinquish
their present spectrum; (ii) restrictions on the use of ATV channels during the
transition period; (iii) the effect of conversion to digital transmission on a
broadcaster's public interest obligations; (iv) incentives for the rapid
adoption of ATV transmission technologies by broadcasters and by the public,
and (v) the impact of ATV on cable television carriage or retransmission
consent. Fifteen years after the start date, television broadcasters would be
required to surrender their conventional television licenses. Implementation of
ATV service is likely to impose additional costs on television stations
providing new service due to increased equipment costs. While the Company
believes the FCC will authorize ATV, the Company cannot predict when such
authorization might be given or the effect such authorization might have on the
Company's business.
-- "Must Carry"/Retransmission Consent. On April 8, 1993, a special
three-judge federal district court issued a decision upholding the
constitutional validity of the mandatory signal carriage requirements. In June
1994, the United States Supreme Court vacated this decision and remanded it to
the district court to determine, among other matters, whether the statutory
carriage requirements are necessary to preserve the economic viability of the
broadcast industry. On December 12, 1995, a three-judge federal district court
panel again upheld the constitutional validity of the mandatory signal carriage
requirements, ruling that reasonable evidence supported Congress' conclusion
that "must carry" rules are necessary to preserve the economic validity of the
broadcast industry. The district court's decision has been appealed to the
Supreme Court, but the mandatory broadcast signal carriage requirements will
remain in effect pending the outcome of the further proceedings. The Company
cannot predict whether the Supreme Court will ultimately uphold or strike down
the mandatory signal carriage requirements. If a station is not carried by a
cable system in its area or is shifted to an undesirable channel on such cable
system, the station could experience a decline in viewership that could
adversely affect its revenue, particularly revenue from stations carried on a
cable system solely to comply with the "must carry" law (for example, if the
Infomall programming competes with the cable system's own, similar
non-broadcast offering).
The pending telecommunications bill now before Congress would require that
new providers of cable services provide mandatory carriage for local commercial
television stations. The "Telecommunications Act of 1995", as tentatively
adopted by the Joint House-Senate Conference Committee, provides that telephone
companies providing video programming, i.e, cable service, to subscribers other
than on a common carrier basis, will (i) either be subject to the existing
cable carriage requirements including mandatory carriage of local commercial
television stations implemented through the "must-carry"/retransmission consent
election or (ii) can provide such cable services through
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open video systems for which the FCC is required to adopt certain regulations
including specific regulations mandating "must carry" for commercial and
noncommercial stations and retransmission consent.
Other changes that may result from matters under consideration by the FCC
or the Congress include: (i) changes to the broadcast license renewal process;
(ii) spectrum use or other fees on FCC licensees; (iii) the FCC's EEO rules and
other matters relating to female or minority involvement in the broadcasting
industry; (iv) rules relating to political broadcasting; (v) technical and
frequency allocation matters; (vi) changes in the FCC's cross-interest,
multiple ownership and cross-ownership rules and policies; (vii) changes in
policies governing the ability of telephone companies to deliver audio and
visual programming to the home by wire; (viii) changes in the tax deductibility
of advertising expenses; (ix) changes in standards governing the evaluation and
regulation of television programming directed toward children, and violent or
indecent programming; and (x) changes in regulation of the relationship between
major television networks and their affiliates.
The foregoing is only a brief summary of certain provisions of the
Communications Act and of specific FCC and other regulations. Reference is made
to the Communications Act, FCC regulations, and the public notices and rulings
of the FCC for further information concerning the nature and extent of federal
regulation of broadcast stations.
Employees
As of December 31, 1995, the Company had approximately 714 full-time
employees and approximately 202 part-time employees, for a total of 916
employees. None of its employees is represented by a labor union. The Company
considers its relations with its employees to be good.
Seasonality
Seasonal revenue fluctuations are common within the radio and television
broadcasting industry and result primarily from fluctuations in advertising
expenditures by local retailers. Paxson Radio and Paxson Network-Affiliated
Television generally experience their lowest revenue for the year in the first
quarter, whereas the highest revenue for the year generally occurs in the
fourth fiscal quarter. Because of the short operating history, the Company's
ability to assess the effects of seasonality on inTV is limited. It appears,
however, that inTV may experience its highest revenues during the first and
fourth quarters.
Patents and Trademarks
The Company has 26 registered trademarks and 12 trademark registrations
pending relating to its business. It does not own any patents or patent
applications. The Company does not believe that any of its trademarks are
material to its business or operations.
Properties and Facilities
The following table sets forth information with respect to the Company's
offices and its studios and broadcast tower locations. Management believes that
the Company's properties are in good condition and are suitable for its
operations.
<TABLE>
<CAPTION>
Lease
Location Property Owned/Leased Expiration
- -------- -------- ------------ ----------
<S> <C> <C> <C>
Miami, FL Studio/Offices Owned
WLVE-FM Tower Leased January 2000
WZTA-FM Tower Leased April 2007
WINZ-AM Tower Owned
</TABLE>
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<TABLE>
<CAPTION>
Lease
Location Property Owned/Leased Expiration
- -------- -------- ------------ ----------
<S> <C> <C> <C>
WFTL-AM Tower Owned
Tampa, FL Studio/Offices Leased May 1998
WHNZ-AM Tower Owned
WHPT-FM Tower Owned
WNZE-AM Tower Owned
WSJT-FM Tower Owned
Orlando, FL Studio/Offices Leased March 2002
WJRR-FM Tower Leased April 2000
WMGF-FM Tower Leased February 2001
WWNZ-AM Tower Owned
WWZN-AM Tower Owned
Jacksonville, FL Studio/Offices Leased February 1999
WROO-FM Tower Leased March 1999
WPLA-FM Tower Owned
WNZS-AM Tower Leased Perpetual
WZNZ-AM Tower Owned
Cookeville, TN Studio/Offices Leased December 1998
WGSQ-FM Tower Leased July 2007
WPTN-AM Tower Owned
Los Angeles, CA Studio/Offices Leased October 1998
Tower Leased June 2005
Sales Office Leased July 1998
Philadelphia, PA Studio Leased September 2000
Tower Owned
San Francisco, CA Studio/Offices Leased June 2005
Tower Leased June 2020
Boston, MA Studio/Offices Leased February 2006
Tower Leased June 2026
Atlanta, GA Studio/Offices Leased June 2001
Tower Leased October 2015
Houston, TX Studio/Offices Leased October 1998
KTFH-TV Tower Owned
K33DB Tower Leased January 1997
Hartford, CT Studio Leased October 1999
Tower Leased October 2035
West Palm Beach, FL Studio/Offices Leased October 1998
Tower Owned
Headquarters Owned
</TABLE>
Legal Proceedings
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<PAGE> 67
The Company is involved in litigation from time to time in the ordinary
course of its business. In the opinion of management, no material legal
proceedings are pending to which the Company, or any of its property, is
subject.
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<PAGE> 68
MANAGEMENT
Directors and Executive Officers
Set forth below is certain information concerning the Company's
directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Lowell W. Paxson 60 Chairman of the Board, Director and Chief
Executive Officer
James B. Bocock 51 President, Chief Operating Officer and Director
Dean M. Goodman 48 President, inTV and Paxson Network-Affiliated
Television
Jon Jay Hoker 56 President, Paxson Radio
Arthur D. Tek 46 Vice President, Treasurer, Chief Financial
Officer and Director
Anthony L. Morrison 34 Vice President, Secretary and General Counsel
Michael J. Marocco 37 Director
John A. Kornreich 50 Director
J. Patrick Michaels, Jr. 51 Director
S. William Scott 62 Director
</TABLE>
Lowell W. Paxson has been Chairman of the Board, Chief Executive
Officer and a Director of the Company since its inception. Mr. Paxson
was the creator, co-founder and president of Home Shopping Network, Inc.
("HSN"), a position he held from HSN's inception in May 1985 to December
1990. He remained a consultant to HSN through 1994. Mr. Paxson was a
pioneer in the home shopping concept on radio beginning in 1977, which
he later transferred to television through HSN. Mr. Paxson has been
involved in radio for over 40 years, during which time he owned a
majority interest in a number of radio stations. At HSN, in which he was
a major initial stockholder, he was actively involved in the acquisition
and operation of ten television stations which were later spun-off by
HSN as Silver King Communications, Inc. Mr. Paxson earned his Bachelor's
degree from Syracuse University in 1956. He served as a U.S. Army
captain from 1956 to 1957. Mr. Paxson served on the boards of a variety
of charitable, civic and educational institutions. He holds memberships
in the National Cable Television Association and the National
Association of Broadcasters.
James B. Bocock has been President and Chief Operating Officer of
the Company since July 1991 and has been a Director since January 1994.
Mr. Bocock was Vice President - Broadcast Affiliations for HSN from
September 1986 to June 1991. While at HSN, Mr. Bocock negotiated HSN's
acquisition of several full and low power television stations. Mr.
Bocock, a former radio station owner, has been involved in broadcasting
since 1962, including service as the general manager of a number of
radio stations throughout the United States.
Dean M. Goodman has been President of inTV and Paxson
Network-Affiliated Television since January 1995. Mr. Goodman joined the
Company in 1993 and prior to becoming President of Paxson Communications
Television, Inc., was the General Manager of the Company's Miami radio
group. Prior to joining the Company in 1993, Mr. Goodman was Executive
Vice President of the television and radio broadcast group of Gilmore
Broadcasting Corp. Prior to joining Gilmore Broadcasting Corp., Mr.
Goodman was Vice President and General Manager of Southwest Radio, Inc.
and Community Service
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<PAGE> 69
Broadcasters, Inc. Since 1993, Mr. Goodman has served as chairman of
the Florida Association of Broadcasters, and has been a director of the
National Association of Broadcasting since January 1995.
Jon Jay Hoker has been the President of Paxson Radio since January
1995. From April 1994 to January 1995 he was President of Paxson
Networks, Inc. Mr. Hoker is a former radio group owner, having formed
Hoker Broadcasting in 1985. Prior to forming his own group, Mr. Hoker
was a vice president with Belo Broadcasting from 1982 to 1985. Mr. Hoker
was responsible for overall operations of radio stations in Dallas and
Denver as well as overseeing all radio acquisitions. Mr. Hoker began his
broadcast career with ABC, where he worked from 1971 to 1981.
Arthur D. Tek has been Vice President and Chief Financial Officer
of the Company since December 1992. He has been Treasurer and a Director
of the Company since January 1994. Prior to joining the Company, Mr. Tek
was Chief Financial Officer and Controller of Chase Communications,
Inc., a television and radio broadcasting firm, from February 1990 to
December 1992. Mr. Tek was Vice President - Finance for SunGroup, Inc.,
a radio station group, from November 1986 to February 1990. Mr. Tek has
been a director of the Broadcast Cable Financial Management Association
since June 1995.
Anthony L. Morrison has been Vice President, Secretary and General
Counsel since February 1995. He was an attorney in the New York office
of the law firm of O'Melveny & Myers from June 1990 to February 1995,
with a practice consisting of banking, finance, and general corporate
matters. Mr. Morrison was an attorney with the New York office of White
& Case from November 1987 to June 1990.
Michael J. Marocco has served as a Director since December 1993. He
has been the President of Sandler Media Group, Inc. since May 1989. Mr.
Marocco has been a general partner of Sandler Associates since 1993 and,
through affiliates, a general partner of the Sandler Partnerships (as
defined herein). Mr. Marocco is a principal of certain other investment
partnerships that invest primarily in companies in the communications
industry. The Sandler Partnerships hold an equity interest in the
Company. See "Principal and Selling Stockholders." He was a Vice
President at Morgan Stanley & Co. Inc., serving in its communications
group, from 1984 to 1989. Mr. Marocco is a director of YES
Entertainment, Inc.
John A. Kornreich has served as a Director since December 1993. He
joined Sandler Media Group, Inc. in 1988 and is a general partner of
Sandler Associates and, through affiliates, a general partner of the
Sandler Partnerships and the 21st Century Communications Partnership.
The Sandler Partnerships hold an equity interest in the Company. See
"Principal and Selling Stockholders." In 1986, Mr. Kornreich formed J.K.
Media, L.P., a private investment partnership funded primarily by
communications industry executives, for which Mr. Kornreich serves as
the sole general partner.
J. Patrick Michaels, Jr. has been serving as a Director since
February 1995. Mr. Michaels founded and since 1973 has been the Chairman
of the Board of Directors and Chief Executive Officer of Communications
Equity Associates, Inc. ("CEA"), a firm that specializes in providing
financial services to a variety of organizations in the media,
communications and entertainment industries. During 1973, Mr. Michaels
was Vice President of Cable Funding Corporation, a specialized finance
company lending to the cable television industry. From October 1968
through December 1972, Mr. Michaels served as one of the original
employees and Vice President of TM Communications, the cable subsidiary
of The Times Mirror Company. Mr. Michaels holds equity interests in a
number of media companies, some of which may be deemed competitive with
the Company. Mr. Michaels is the Vice Chairman of the Board of
Directors, Acting President and Acting Chief Operating Officer of Video
Jukebox Network, Inc.
S. William Scott has been serving as a Director since February
1995. From 1983 to 1987, Mr.
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<PAGE> 70
Scott was Executive Vice President, Westinghouse Broadcasting Television
Group. From 1981 through the end of 1983, Mr. Scott served as President
and Chief Operating Officer of a Westinghouse Broadcasting/American
Broadcasting Company joint venture for cable television known as the
Satellite News Channels. Currently, Mr. Scott provides consulting
services to various media companies, including the Company.
All officers are elected until the next annual meeting of the Board
of Directors or until their respective successors are chosen and
qualified. Directors serve for a one-year term or until their successors
are elected.
Board Committees
The Company's Board of Directors appointed a Compensation Committee
and an Audit Committee in February 1995. Neither committee existed in
1994. The Compensation Committee consists of Lowell W. Paxson, Michael
J. Marocco, and John A. Kornreich. The Compensation Committee recommends
to the Board both base salary levels and bonuses for the Chief Executive
Officer and the other officers of the Company. The Compensation
Committee also reviews and makes recommendations with respect to the
Company's existing and proposed compensation plans, and serves as the
committee responsible for administering the Company's Stock Incentive
Plan. Until February 1995, the Compensation Committee's functions were
exercised by the Board of Directors.
In February 1995, the Board appointed an Audit Committee consisting
of James B. Bocock, Michael J. Marocco, and John A. Kornreich. The
duties of the Audit Committee are to recommend to the Board of Directors
the selection of independent certified public accountants, to meet with
the Company's independent certified public accountants to review the
scope and results of the audit, and to consider various accounting and
auditing matters related to the Company, including its system of
internal controls and financial management practices. Until February
1995, the Audit Committee's functions were exercised by the Board of
Directors.
The Company does not have a nominating committee. This function is
performed by the Board of Directors.
All directors receive reimbursement of reasonable out-of-pocket
expenses incurred in connection with meetings of the Board of Directors.
No director receives separate compensation for services rendered as a
director.
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<PAGE> 71
Executive Compensation
The following table presents certain information concerning the
compensation received or accrued for services rendered during the fiscal
years ended December 31, 1993, 1994 and 1995 for the Company's Chief
Executive Officer and four highest paid executive officers
(collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
Annual Compensation Long-term Compensation
--------------------------------------- ------------------------------------------
Number of
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary(a) Bonus Compensation(b) Options# Compensation
- ---------------------- ---- --------- ------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Lowell W. Paxson 1995 $350,000 $-0- $-0- -0- $-0-
Chairman and Chief 1994 -0- -0- -0- -0- -0-
Executive Officer(c) 1993 -0- -0- -0- -0- -0-
James B. Bocock 1995 225,000 -0- 164,325 850,000 -0-
President and Chief 1994 160,000 -0- -0- -0- -0-
Operating Officer 1993 125,000 -0- -0- -0- -0-
Dean M. Goodman 1995 200,000 75,000 229,625 223,361 -0-
President-Paxson 1994 183,750 207,057 -0- -0- -0-
Television 1993 126,562 53,665 -0- -0- -0-
Jon Jay Hoker 1995 200,000 50,000 182,688 150,000 -0-
President-Paxson 1994 140,000 51,043 -0- -0- -0-
Radio(d) 1993 -0- -0- -0- -0- -0-
Arthur D. Tek 1995 150,000 -0- -0- 150,000 3,000 (e)
Vice President, 1994 112,500 -0- -0- -0- -0-
Treasurer, and Chief 1993 100,000 -0- -0- -0- -0-
Financial Officer
</TABLE>
- ------------------
(a) Includes amount Named Executive Officer elected to defer pursuant to the
Company's Profit Sharing Plan.
(b) Represents the difference between the price paid by the Named Executive
Officer upon the exercise of certain of his options granted under the
Stock Incentive Plan and the fair market value of such securities at the
time of exercise.
(c) Mr. Paxson has entered into a five and one-half year employment agreement
that commenced on June 30, 1994. See "Employment Agreements."
(d) Mr. Hoker was employed by the Company commencing in January 1994.
(e) Represents relocation allowance in excess of general allowance under
Company's relocation plan.
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<PAGE> 72
Option Grants in 1995
The following table sets forth certain information relating to option
grants pursuant to the Stock Incentive Plan in the year ended December 31, 1995
to the individuals named in the Summary Compensation Table above.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Values at
Assumed Annual Rates of Stock
Number of Shares of Price Appreciation for
Common Stock % of Total Options Exercise Option Term (b)
Underlying Options Granted to Employees in Price Per Expiration ------------------------------------
Name Granted (a) Fiscal Year Share Date 0%(c) 5% 10%
- ---------------- ------------------ ----------- ---------- ---------- ---------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lowell W. Paxson -0- -0-% N/A N/A $-0- $-0- $-0-
James B. Bocock 850,000 45.6% $3.42 2/12/2005 5,593,000 11,628,000 $21,343,500
Dean M. Goodman 223,361 11.9% 3.42 2/12/2005 1,469,715 3,055,579 5,608,595
Jon Jay Hoker 150,000 8.0% 3.42 2/12/2005 987,000 2,052,000 3,766,500
Arthur D. Tek 150,000 8.0% 3.42 2/12/2005 987,000 2,052,000 3,766,500
</TABLE>
- ------------------------
(a) All options granted to the named executive officers were granted
pursuant to the Stock Incentive Plan. The options were granted pursuant
to a five years vesting schedule retroactive to the executive's date of
employment. All options are for Class A Common Stock.
(b) Potential realizable value is based on the assumed growth rates for the
option term. The actual value, if any, an executive may realize will
depend on the excess of the stock price over the exercise price on the
date the option is exercised, therefore, there is no assurance the value
realized by an executive will be at or near the amounts reflected in this
table.
(c) Denotes realizable value at the date of grant which reflected a market
value of $10.00 per share.
Aggregate Option Exercises in 1995
The following table sets forth certain information with responsible to the
unexercised options to purchase. Class A Common Stock granted under the Stock
Incentive Plan to the individuals named in the Summary Compensation Table
above.
Aggregate Options Exercised in 1995 and December 31, 1995 Option Values
<TABLE>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Shares December 31, 1995 at December 31, 1995 (a)
Acquired on Value ---------------------- -------------------------------
Name Exercise Realized Exercisable Nonexercisable Exercisable Nonexercisable
- ---- -------- -------- ----------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Lowell W. Paxson -0- -0- -0- -0- $ -0- $ -0-
James B. Bocock 15,000 164,325 665,000 170,000 7,866,950 2,011,100
Dean M. Goodman 20,000 229,625 113,361 90,000 1,341,061 1,064,700
Jon Jay Hoker 15,000 182,688 15,000 120,000 177,450 1,419,600
Arthur D. Tek -0- -0- 90,000 60,000 1,064,700 709,800
</TABLE>
- ----------------------------
(a) Based on the public trading price of the Class A Common Stock of $15.25
on December 29, 1995.
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<PAGE> 73
Stock Incentive Plan
The Company established the Company's Stock Incentive Plan (the "Stock
Incentive Plan") in November 1994 to provide incentives to officers and other
employees who contribute significantly to the strategic and long-term
performance objectives and growth of the Company. The Stock Incentive Plan is
administered by the Compensation Committee of the Company's Board of Directors.
The Stock Incentive Plan provides for the issuance of options, in the form
of incentive stock options or non-qualified stock options, to officers and
employees selected by the Compensation Committee. Under the Stock Incentive
Plan, options exercisable for an aggregate amount of 2,143,575 shares of Class
A Common Stock are available for issuance. The Company intends to either amend
the Stock Incentive Plan or create an additional stock incentive plan to
increase the number of shares available for options to 4,143,575, subject to
approval by the Company's stockholders at the 1996 Annual Meeting. The
exercise price per share of Class A Common Stock deliverable upon the exercise
of each stock option is determined by the Compensation Committee at the date
the stock option is granted and as provided in the terms of the Stock Incentive
Plan. Stock options are exercisable in whole or in part on such date or dates
as are determined by the Compensation Committee at the date of the grant. The
Compensation Committee may, in its sole discretion, accelerate the time at
which any stock option may be exercised. Stock options expire on the date or
dates determined by the Compensation Committee at the time the stock options
are granted. Holders of more than 10% of the combined voting power of the
capital stock of the Company may be granted stock options, provided that the
exercise price be 110% of the fair market value of Class A Common Stock as of
the date of the grant, and provided that the term of the stock option shall not
exceed five years after the date of the grant.
Stock options granted under the Stock Incentive Plan may be exercised by
the participant to whom granted or by his or her legal representative. If a
Stock Incentive Plan participant's employment is terminated for cause, each
stock option which has not been exercised shall terminate.
The Compensation Committee also has the discretion to award restricted
stock. Participants who receive restricted stock do not become 100% vested in
their restricted stock until five years after the effective date of the award.
During the restricted period prior to vesting, the participant may transfer the
restricted stock to a trust for the benefit of the participant or an immediate
family member, but may not otherwise sell, assign, transfer, give or otherwise
dispose of, mortgage, pledge or encumber such restricted stock. The
Compensation Committee may, in its discretion, provide that a participant shall
be vested in whole or with respect to any portion of the participant's award
not previously vested if the participant's employment with the Company is
terminated because of death, disability or retirement.
Profit Sharing Plan
The Company has a profit sharing plan under Section 401(k) of the Internal
Revenue Code (the "Profit Sharing Plan"). The Profit Sharing Plan provides that
employees of the Company must complete one year of service in order to be
eligible to defer salary and, if available, receive matching contributions
under the Section 401(k) portion of the Profit Sharing Plan. Participants may
elect to defer a specified percentage of their compensation into the Profit
Sharing Plan on a pre-tax basis. The Company may, at its sole discretion, make
matching contributions based on a percentage of deferred salary contributions
at a percentage rate to be determined by the Board of Directors of the Company,
which matching contributions may be in Company stock. In addition, the Company
may make supplemental profit sharing contributions in such amounts as the Board
of Directors of the Company may determine. Participants earn a vested right to
their profit sharing contribution in increasing amounts over a period of five
years. After five years of service, the participant's right to his or her
profit sharing contribution vests 100%. Thereafter the participant may receive
a distribution of the entire value of his or her account at age 55, 62 or 65 or
upon
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<PAGE> 74
termination of employment, death or disability.
Employment Agreements
Mr. Paxson is employed as Chairman and Chief Executive Officer of the
Company under an employment agreement. The agreement provides that Mr. Paxson
will be employed for a five and one-half year period commencing on June 30,
1994, unless sooner terminated. Mr. Paxson began receiving an annual base
salary of $350,000 commencing on January 1, 1995. Mr. Paxson's salary will be
$385,000 in 1996, $423,500 in 1997, $465,850 in 1998 and $500,000 in 1999. In
addition to the base salary, Mr. Paxson may receive an annual bonus at the
discretion and in an amount set by members of the Compensation Committee that
are not employees of the Company. Mr. Paxson's employment agreement is
renewable for successive one-year terms, subject to good faith negotiation of
its terms. Under the terms of the agreement, Mr. Paxson is eligible to
participate in all employee benefit plans and arrangements that are generally
available to other senior executives, and is entitled to vacation days in an
amount determined annually by the Board of Directors after good faith
negotiation. Mr. Paxson is reimbursed for all reasonable expenses incurred by
him in the discharge of his duties, including entertainment and travel. Mr.
Paxson's employment agreement is terminable by the Board of Directors before
expiration for good cause, as defined in the agreement, or by Mr. Paxson for
good reason, as defined in the agreement. In the event of Mr. Paxson's
permanent disability or death, the Company will pay Mr. Paxson, or his estate,
as the case may be, his then existing salary for the remaining term of the
agreement, in the case of disability, or one year, in the case of death.
In addition, Mr. Paxson is a party to a noncompete agreement with the
Company for a period ending on December 31, 1999 or the date of a change of
control (as defined with respect thereto) of the Company. See "Certain
Transactions - Home Shopping Network, Inc."
CERTAIN TRANSACTIONS
Mr. Paxson is the Chairman and Chief Executive Officer of the Company.
Messrs. Marocco and Kornreich are directors of the Company and principals of
the Sandler Partnerships, which are significant stockholders of the Company.
See "Principal and Selling Stockholders." Mr. Michaels is a director of the
Company and the owner of CEA. Mr. Scott is a director of the Company and
provides it certain consulting services. Set forth below is a description of
certain transactions and relationships between Mr. Paxson, his affiliates and
others and the Company, between the Sandler Partnerships and the Company, CEA
and the Company and Mr. Scott and the Company.
WFCT-TV Transactions. On December 17, 1993, BBTC entered into an
agreement whereby CNI, a Section 501(c)(3) Florida non-profit corporation to
which Mr. Paxson was a substantial contributor and of which he was a director,
would make available to BBTC up to $3,120,000 for certain expenses in
connection with the redemption of a limited partnership interest in BBTC and
the construction of television station WFCT-TV, Bradenton, Florida (the "BBTC
Loan Agreement"). In connection with the loan, BBTC granted to CNI an
irrevocable, exclusive option to purchase the assets owned by BBTC that are
used or useful in the construction or operation of WFCT-TV, including the
licenses issued by the FCC for WFCT-TV, subject to the satisfaction of certain
conditions and the receipt of necessary regulatory approvals. CNI's option may
be exercised, subject to the prior approval of the FCC, at any time during the
10-year period beginning August 2, 1995. The price payable to BBTC upon
exercise of the option is $91,000 in cash and the forgiveness of all
outstanding indebtedness under the BBTC Loan Agreement, in the amount of
$1,120,000 as of December 31, 1995. WFCT-TV commenced broadcasting operations
on August 1, 1994.
BBTC also entered into an agreement with Paxson Broadcasting of Tampa
Limited Partnership ("Paxson-Tampa"), an indirect, wholly-owned subsidiary of
the Company, as of December 17, 1993. Under this agreement,
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<PAGE> 75
Paxson-Tampa provides certain specified services relating to the construction
and installation of WFCT-TV facilities. Pursuant to a time brokerage agreement,
BBTC makes air-time available to CNI on WFCT-TV. In exchange for certain
specified payments, BBTC has broadcast programming and commercial announcements
produced by CNI.
In connection with the foregoing transactions, Mr. Paxson agreed to lend
CNI up to $3,120,000 to fund the loan to BBTC. On June 15, 1994, CNI and BBTC
revised the BBTC Loan Agreement to reduce the maximum amount of the loan from
$3,120,000 to $1,400,000, and to provide that BBTC lease rather than purchase
the equipment and related tangible personal property required to construct
WFCT-TV from Paxson Communications of Tampa-66, Inc. ("Paxson-66"), an
indirect, wholly-owned subsidiary of the Company.
Mr. Paxson assigned his rights and interests in the CNI loan to Paxson-66
in the amount of $1,120,000 (representing the then outstanding principal
balance owed by CNI), and CNI agreed that the maximum principal amount of the
loan would be reduced from $3,120,000 to $1,400,000. On June 15, 1994, CNI
granted Paxson-66 the option to acquire the WFCT-TV assets from CNI for
$191,000 after CNI exercises its option to purchase such assets from BBTC. On
June 15, 1994, CNI assigned to Paxson-66 its rights and interests under the
time brokerage agreement to provide up to 12 hours per day of programming on
WFCT-TV.
Worship Channel Studio. On January 1, 1993, Mr. Paxson agreed to lend CNI
up to $2,500,000 to fund CNI's acquisition of certain equipment and related
tangible property used in the production of television programming. Mr. Paxson
assigned his rights and interests under the loan to Paxson-66 in consideration
for the Company's promissory note in the principal amount of $2,500,000, which
the Company subsequently repaid. In accordance with the terms of an agreement
dated as of June 15, 1994, CNI sold to Paxson-66 CNI's production assets in
consideration for the cancellation of CNI's $2,500,000 promissory note held by
Paxson-66. CNI and Paxson-66 have also contracted, effective as of August 1,
1994, for Paxson-66 to lease CNI's television production and distribution
facility for the purpose of producing television programming for the Infomall
TV Network.
Christian Network, Inc. The Company and CNI entered into an agreement in
May 1994 (the "CNI Agreement") under which the Company agreed that, if the tax
exempt status of CNI were jeopardized by virtue of its relationships with the
Company and its subsidiaries, the Company would take certain actions to try and
ensure that CNI's tax exempt status would no longer be so jeopardized. Such
steps could include, but not be limited to, rescission of one or more
transactions or payment of additional funds by the Company. The Company
believes that all of its agreements with CNI have been on terms at least as
favorable to CNI as it would obtain in arm's length transactions. The Company
intends any future agreements with CNI to be at least as favorable to CNI as
CNI would obtain in arm's length transactions. Accordingly, if the Company's
activities with CNI are consistent with the terms governing their relationship,
the Company believes that it will not be required to take any action under the
CNI Agreement. However, there can be no assurance that the Company will not be
required to take any actions under the CNI Agreement at a material cost to the
Company. At December 31, 1995, the Company had made loans to CNI and its
subsidiaries in an aggregate amount of $15,345,424 to finance station
acquisitions and related capital expenditures.
Stockholders Agreement. On December 15, 1993, in connection with the
issuance of the Company's Initial Senior Preferred Stock (as defined herein)
and warrants to purchase shares of Class A Common Stock and Class B Common
Stock, the Company entered into a stockholders agreement with two entities
controlled by Lowell W. Paxson (collectively, "Management Investors"), and the
four purchasers of the Initial Senior Preferred Stock (the "Sandler Group"),
three of which are affiliates of Michael J. Marocco and John A. Kornreich, two
directors of the Company. On December 22, 1994, in connection with the issuance
of the Junior Preferred Stock and Series B Preferred Stock (as defined herein),
the purchasers of the Junior Preferred Stock and warrants to purchase Class C
Common Stock became parties to the stockholders agreement, which was amended
and restated (as so amended and restated, the "Stockholders Agreement"). At the
same time, the Sandler Group entered into an exchange agreement and consent
with the Company under which certain call rights with respect to warrants held
by the Sandler Group
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<PAGE> 76
were terminated effective upon consummation of this Offering, the parties to
the Stockholders Agreement further modified such agreement and the Sandler
Group exercised certain of their warrants and exchanged them for the Series B
Preferred Stock. The ownership interests of the Sandler Group in the Initial
Senior Preferred Stock and Series B Preferred Stock are identical. The rights
of the holders of Senior Preferred Stock and the Junior Preferred Stock differ
in certain respects under the Stockholders Agreement.
Under the terms of the Stockholders Agreement, each holder of Senior
Preferred Stock has redemption rights that can be triggered by a change of
control (as defined with respect thereto) of the Company or by certain
bankruptcy-related events. In addition, subject to certain limitations and only
after December 15, 1999, each holder of Senior Preferred Stock has the right to
require that any shares of Senior Preferred Stock held by such holder be
purchased for cash by the Company.
If a holder of Senior Preferred Stock chooses to exercise its put or
similar rights with respect to Senior Preferred Stock or Warrant Shares and the
Company is unable to purchase all of the shares on the applicable purchase date
because of a material contractual obligation that prohibits such a repurchase,
the Company is required to take reasonable actions to enable the Company to
purchase the securities subject to the put notice, and is required to engage a
nationally recognized investment banking firm in order to advise and assist the
Company in connection with such actions.
The Stockholders Agreement also grants to each holder of Senior Preferred
Stock and each holder of Junior Preferred Stock the right of first refusal to
purchase, subject to certain conditions, its pro rata share of any new
securities the Company may issue. The Company must give each holder of Senior
Preferred Stock and each holder of Junior Preferred Stock written notice of the
Company's intention to issue certain new securities. The parties to the
Stockholders Agreement have certain registration rights granted therein. See
"Shares Eligible For Future Sale - Registration Rights."
Airplane. During 1994, the Company purchased an aircraft for $250,000
from a company controlled by Mr. Paxson. The Company believes that the terms
of such transaction were at least as favorable as it would have obtained in an
arm's length transaction with an unaffiliated third party.
Home Shopping Network, Inc. In connection with the departure in 1990 of
Mr. Paxson from HSN, he executed a consulting agreement containing various
restrictions upon activities by him that might be considered competitive with
HSN, including activities as an investor in competitive and other enterprises.
Although Mr. Paxson's consulting services to HSN terminated in 1994, certain of
the restrictions survived. As the Company's business evolved, the possible
effect of the consulting agreement upon Mr. Paxson's role as the Company's
chief executive officer and controlling stockholder became unclear. The Company
considered it advisable to eliminate doubts concerning, among other matters,
Mr. Paxson's role as a chief executive officer and controlling stockholder as
the Company's business developed, and the scope of HSN's rights under the
consulting agreement. Accordingly, on August 25, 1995, the Company and Mr.
Paxson agreed with HSN to, among other things, terminate HSN's rights under the
consulting agreement in consideration of a payment to HSN by the Company of
$1,200,000. In conjunction with this transaction Mr. Paxson advanced
$1,200,000 to the Company in the form of a note bearing interest at 6%. The
Company repaid the note in October 1995. An intangible asset has been recorded
for $1,200,000 which will be amortized through maturity of the agreement.
Shortly before the transaction with HSN, Mr. Paxson agreed with the
Company that upon termination of HSN's rights under the consulting agreement,
he will not compete with the Company for a period ending on December 31, 1999
(the date that the HSN consulting agreement would have otherwise terminated) or
the date of a change of control (as defined with respect thereto) of the
Company.
Todd Communications, Inc. In 1993, Mr. Paxson contributed a demand note
receivable in the amount of
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<PAGE> 77
$1,750,000 from Todd Communications, Inc., a company which owns WFSJ-FM (St.
Augustine, Florida) and is beneficially owned by a member of Mr. Paxson's
family. The note receivable accrues interest at the short-term annual
applicable federal rate prescribed by the Internal Revenue Service with the
balance of principal and interest due upon demand. Interest income received
during 1994 on the note aggregated $70,900. The Company also performs limited
sales support and administrative functions for Todd Communications, Inc., under
a joint sales agreement. Todd Communications, Inc. is billed for efforts
expended on terms comparable to those generally available from unaffiliated
third parties.
Whitehead Media. The Company initially financed the acquisition by
Whitehead Media of each of WTVX-TV and WOAC-TV. Whitehead Media subsequently
obtained refinancing from Banque Paribas, an affiliate of a holder of the
Company's Junior Preferred Stock, and Canadian Imperial Bank of Commerce, an
affiliate of one of the U.S. Underwriters, the proceeds of which were used to
repay the debt owed by Whitehead Media to the Company and will be used to fund
Whitehead Media's acquisition of WNGM-TV. The third party financing provided
to Whitehead Media is unconditionally guaranteed by Mr. Paxson and Second
Crystal Diamond, Limited Partnership ("Second Crystal"), an affiliate
controlled by Mr. Paxson and through which he beneficially owns and controls a
substantial portion of the Company's Class A Common Stock and Class B Common
Stock. Such guarantees are secured by a pledge of a significant portion of
Second Crystal's Class A Common Stock. The Company is permitted to operate
stations WTVX-TV and WOAC-TV pursuant to time brokerage agreements and as a
result of the third party financing to Whitehead Media has an option to
purchase each of such stations, which options to purchase would otherwise be
prohibited under FCC rules and regulations because each of such stations serves
a market in which the Company has or will own another television station which
also serves the same market.
KLDT-TV. In connection with CNI securing the rights to acquire television
station KLDT-TV in Dallas, Texas and, prior to such acquisition, operate the
station pursuant to a time brokerage agreement, Mr. Paxson initially loaned CNI
$1,000,000 to make a deposit with respect to such acquisition and guarantied
the obligations of CNI under the purchase agreement and the time brokerage
agreement. On January 9, 1996, the Company purchased such note from Mr. Paxson
at its face value.
Communications Equity Associates, Inc. J. Patrick Michaels, Jr. is
Chairman of the Board and Chief Executive Officer of CEA. Prior to his becoming
a Director in February 1995, the Company engaged CEA as a financial advisor in
connection with the private placements of the Senior Preferred Stock and Junior
Preferred Stock and the Private Offering, as well as with the Company's various
lending relationships. In connection with such matters, management of the
Company believes that its arrangements with CEA have been, and will continue to
be, on terms comparable to those generally available from unaffiliated third
parties.
S. William Scott, Consulting. S. William Scott has an arrangement with
the Company pursuant to which he provides consulting services to the Company
with respect to the development of its news programming for its radio and
television broadcast business and its radio network business. During 1993, 1994
and 1995, Mr. Scott was paid $84,000, $84,000 and $80,000 respectively, for
such services. Mr. Scott has been providing such services since before he
became a Director.
World Travelers Network. Effective January 1, 1996, Mr. Paxson purchased
certain assets of World Travelers Network, Inc. ("WTN"), a wholly-owned
subsidiary of the Company. WTN's business was unprofitable and the Company had
determined to discontinue its operations. Mr. Paxson purchased all of the
assets of WTN except for its accounts receivable for $70,322 in cash, which
price was equal to the book value of such assets. WTN retained its accounts
receivable and accounts payable. The parties agreed that if Mr. Paxson resells
such assets at a profit prior to April 1, 1996, the amount of any profit will
be paid to the Company.
South Carolina Radio Network. Effective January 1, 1996, Mr. Paxson
purchased from the Company certain assets of the Company's South Carolina Radio
Network, an unprofitable business segment which the Company had
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determined to discontinue. Mr. Paxson purchased all of the assets of the South
Carolina Radio Network other than cash and accounts receivable for $45,413 in
cash paid to the Company, which price was equal to the book value of such
assets. The Company retained the cash, accounts receivable and accounts
payable of the South Carolina Radio Network operation. The parties agreed that
if Mr. Paxson resells such assets at a profit prior to April 1, 1996, the
amount of any profit will be paid to the Company.
Transfer of Partnership Interest. On January 26, 1996, the Company transferred
a partnership interest, substantially concurrently with its acquisition of such
interest, to Mr. Paxson for approximately $900,000, which amount equaled the
consideration paid for such interest by the Company.
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<PAGE> 79
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as to the Company's
voting securities beneficially owned as of January 15, 1995, and as adjusted to
reflect the sale of the 10,000,000 shares of Class A Common Stock offered
hereby by (i) each director of the Company, (ii) each Named Executive Officer,
(iii) all directors and executive officers of the Company as a group, (iv) any
person who is known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock, and (v) each Selling Stockholder.
<TABLE>
<CAPTION>
Percentage
of
Class A Class B Voting
Common Stock Common Stock Power of all
Names of Stockholders, -------------------------- -------------------------- Common
Directors and Executive Number of Percent of Number of Percent of Stock Prior Number of Shares
Officers(a) Shares(b) Class A Shares Shares(b) Class B Shares to Offering Offered
- ----------------------------- ---------- -------------- --------- --------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Lowell W. Paxson(c) 24,256,555 92.5% 8,311,639 100% 98.3% 306,000
James B. Bocock(d) 665,000 2.5% -- -- * 33,000
Dean M. Goodman(d) 143,361 * -- -- * 23,000
Jon Jay Hoker(e) 45,850 * -- -- * 16,000
Arthur D. Tek(d) 90,000 * -- -- * 23,000
Anthony L. Morrison (d) 5,000 * -- -- * 5,000
Michael J. Marocco(f)(g)(h) 2,419,252 8.4% 806,417 8.8% 8.9% 318,801
John A. Kornreich(f)(g)(h) 2,419,252 8.4% 806,417 8.8% 8.9% 318,801
Sandler Partnerships(g)(h) 2,419,252 8.4% 806,417 8.8% 8.9% 318,801
J. Patrick Michaels, Jr.(i) 200,000 * -- -- * 21,000
S. William Scott(d) 8,000 * -- -- -- 5,000
All directors and executive
officers as a group(a)(j) 27,833,018 94.0% 9,118,056 100% 98.6% 750,801
Other Selling Stockholders(a)
- -----------------------------
BT Capital Partners, Inc. (k) -- -- -- -- -- 178,500
First Union Corporation of
Virginia (k)(l) -- -- -- -- -- 178,500
National Union Fire Insurance
Company (g)(m) 289,877 1.1% 96,626 1.1% 1.1% 38,199
Union Ventures Corporation
(k)(n) -- -- -- -- -- 24,000
PXN Investment Partnership
(o) 125,000 * -- -- * 13,000
Robert W. Johnson, IV (p) 100,000 * -- -- * 10,000
Smith PXN Company (q) 66,776 * -- -- * 7,000
Other Selling Stockholders
as a group 582,253 2.2% 96,626 1.1% 1.4% 449,199
</TABLE>
<TABLE>
<S> <C>
Percentage
of Voting
Power of all
Names of Stockholders, Common
Directors and Executive Stock After
Officers(a) Offering
- ----------------------------- --------
<S> <C>
Lowell W. Paxson(c) 90%
James B. Bocock(d) *
Dean M. Goodman(d) *
Jon Jay Hoker(e) *
Arthur D. Tek(d) *
Anthony L. Morrison (d) *
Michael J. Marocco(f)(g)(h) 8.3%
John A. Kornreich(f)(g)(h) 8.3%
Sandler Partnerships(g)(h) 8.3%
J. Patrick Michaels, Jr.(i) *
S. William Scott(d) *
All directors and executive
officers as a group(a)(j) 97.2%
Other Selling Stockholders(a)
- -----------------------------
BT Capital Partners, Inc. (k) --
First Union Corporation of
Virginia (k)(l) --
National Union Fire Insurance
Company (g)(m) 1.9%
Union Ventures Corporation
(k)(n) --
PXN Investment Partnership
(o) *
Robert W. Johnson, IV (p) *
Smith PXN Company (q) *
Other Selling Stockholders
as a group 1.2%
</TABLE>
- ------------------
* Less than one percent.
(a) The address of all persons in this table, unless otherwise specified, is
c/o Paxson Communications Corporation, 601 Clearwater Park Road, West Palm
Beach, Florida 33401.
(b) As used in this table, beneficial ownership means sole or shared power to
vote or direct the voting of a security, or the sole or shared investment
power with respect to a security (i.e., the power to dispose, or direct
the disposition, of a security). A person is deemed as of any date to
have beneficial ownership of any security that such person has a right to
acquire within 60 days after such date. For purposes of computing the
percentage of outstanding shares held by each person named above, any
security that such person has the right to acquire within 60 days of the
date of calculation is deemed to be outstanding, but is not deemed to be
outstanding for purposes of computing the percentage ownership of any
other person. This table does not include 4,853,628 shares of non-voting
Class C Common Stock issuable upon the exercise of warrants. In addition,
for purposes of this table, beneficial ownership does not include the
number of shares of Class A
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<PAGE> 80
Common Stock issuable upon conversion of Class C Common Stock even
though such shares are convertible under certain circumstances into
shares of Class A Common Stock.
(c) Mr. Paxson is the beneficial owner of all of his Class A Common Stock and
all of his Class B Common Stock through his control of Second Crystal
Diamond, L.P. and Paxson Enterprises, Inc.
(d) Reflects vested options under the Company's Stock Incentive Plan. Shares
offered will be obtained by exercising options.
(e) 45,000 of Mr. Hoker's shares reflect vested options under the Company's
Stock Incentive Plan. Shares offered will be obtained by exercising
options.
(f) Messrs. Marocco and Kornreich do not own any shares of the Company's
Common Stock. Because of their interests in the general partner of Sandler
Mezzanine Partners, L.P., Sandler Mezzanine Foreign Partners, L.P. and
Sandler Mezzanine T-E Partners, L.P. (the "Sandler Partnerships"), Messrs.
Marocco and Kornreich may be deemed to possess or share beneficial
ownership of the shares of Senior Preferred Stock and Common Stock subject
to warrants held by the Sandler Partnerships. Messrs. Marocco and
Kornreich are also stockholders, directors and officers of certain
corporations that serve as general partners of Sandler Mezzanine General
Partnership, which is the general partner of each of the Sandler
Partnerships. The Sandler Partnerships' ownership includes 2,419,252
shares of Class A Common Stock subject to warrants and 806,417 shares of
Class B Common Stock subject to warrants.
(g) Address is c/o Sandler Media Group, Inc., 767 Fifth Avenue, New York, NY
10281.
(h) Represents shares of Class A Common Stock and Class B Common Stock
subject to warrants held by the Sandler Partnerships. Shares offered will
be obtained by exercising Class A Common Stock warrants.
(i) Address is 101 East Kennedy Boulevard, Suite 3300, Tampa, FL 33602. Mr.
Michaels does not own any shares of Common Stock directly. Because of Mr.
Michaels' interest in certain trusts and a partnership, he may be deemed
the beneficial owner of such Class A Common Stock. Mr. Michaels disclaims
beneficial ownership in such Class A Common Stock, except to the extent of
his pecuniary interests in such trusts and partnerships.
(j) Includes 1,771,334 shares subject to vested options under the Company's
Stock Incentive Plan and shares described in footnote (f).
(k) Shares offered will be obtained by exercising Class C Common Stock
warrants and converting resulting Class C Common Stock to Class A Common
Stock.
(l) Address is 301 South College Street, 18th Floor, Charlotte, NC
28288-0732.
(m) Shares offered will be obtained by exercising Class A Common Stock
warrants.
(n) Address is c/o Union Bank, 445 South Figueroa Street, 13th Floor, Los
Angeles, CA 90071.
(o) Address is c/o Communications Equity Associates, 101 East Kennedy
Boulevard, Tampa, FL 33602, Attn: George Pollock, Jr.
(p) Address is 630 Fifth Avenue, Suite 1510, New York, NY 10111.
(q) Address is 500 Plum Street, Suite 600, Syracuse, NY 13204, Attn: Lynn H.
Smith.
DESCRIPTION OF CAPITAL STOCK
General
The Company's capital stock consists of 197,500,000 shares of common
stock with a par value of $.001 per share, and 1,000,000 shares of
preferred stock with a par value of $.001 per share. Of the 197,500,000
shares of common stock that the Company is authorized to issue: (a)
150,000,000 shares are designated as Class A Common Stock, (b) 35,000,000
shares are designated as Class B common stock (the "Class B Common Stock"),
and (c) 12,500,000 shares are designated as Class C non-voting common stock
(the "Class C Common Stock" and with the Class A Common Stock and Class B
Common Stock, collectively, the "Common Stock"). Of the 1,000,000 shares of
preferred stock that the Company is authorized to issue: (a) 2,000 shares
have been designated as 15% Cumulative Compounding Redeemable Preferred
Stock (the "Initial Senior Preferred Stock"), (b) 714.286 shares have been
designated as Series B 15% Cumulative Compounding Redeemable Preferred Stock
(the "Series B Preferred Stock," and with the Initial Senior Preferred
Stock, collectively, the "Senior Preferred Stock"), and (c) 33,000 shares
have been designated as Junior Cumulative Compounding Redeemable Preferred
Stock (the "Junior Preferred Stock," and, with the Senior Preferred Stock,
collectively, the "Preferred Stock"). Currently, 26,226,826 shares of Class
A Common Stock, 8,311,639 shares of Class B Common Stock, no shares of Class
C Common Stock, 2,000 shares of Initial Preferred Stock, 714.286 shares of
Series B Preferred Stock, and 33,000 shares of Junior Preferred Stock are
outstanding. In addition, 18,831,215 shares of Class A Common Stock are
reserved for issuance with respect to: (a) the conversion of shares of Class
B Common Stock to Class A Common Stock, (b) the conversion of shares of
Class C Common Stock to Class A
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<PAGE> 81
Common Stock, (c) the exercise of warrants issued in connection with the
issuance of the Initial Senior Preferred Stock and the Junior Preferred
Stock, and (d) the exercise of certain rights under the Company's Stock
Incentive Plan.
Common Stock
Dividends. Subject to the Preferred Stock's prior right to dividends,
holders of record of shares of Class A Common Stock, Class B Common Stock
and Class C Common Stock on the record date are entitled to receive such
dividends as may be declared by the Company's board of directors out of
funds legally available for such purpose. No dividends may be declared or
paid in cash or property on any share of any class of the Common Stock,
however, unless simultaneously the same dividend is declared or paid on each
share of the other classes of Common Stock. In the case of any stock
dividend, holders of Class A Common Stock are entitled to receive the same
percentage dividend (payable in shares of Class A Common Stock) as holders
of Class B Common Stock receive (payable in shares of Class B Common Stock)
and holders of Class C Common Stock receive (payable in shares of Class C
Common Stock).
Until December 15, 1998, the consent of the holders of a majority of
the outstanding shares of the Initial Senior Preferred Stock and of the
Series B Preferred Stock is required for the Company to declare any
dividends on its Common Stock; and thereafter, such consent will continue to
be required as long as any Senior Preferred Stock remains outstanding,
except under certain limited circumstances. In addition, as long as any
Junior Preferred Stock is outstanding, the Company cannot declare dividends
on its Common Stock, except under certain limited circumstances.
Voting Rights. Holders of shares of Class A Common Stock and Class B
Common Stock will vote as a single class on all matters submitted to a vote
of the stockholders of the Company, with each share of Class A Common Stock
entitled to one vote and each share of Class B Common Stock entitled to ten
votes, except as otherwise provided by law. Holders of Class C Common Stock
have no right to vote on any matter voted on by the stockholders of the
Company, except as may be provided by law or as provided in limited
circumstances in the Company's certificate of incorporation.
Liquidation Rights. Upon liquidation, dissolution, or winding-up of
the Company, the holders of Class A Common Stock are entitled to share pro
rata with holders of Class B Common Stock and Class C Common Stock in
all assets available for distribution after payment in full to creditors and
payment in full to any holders of Preferred Stock then outstanding of any
amount required to be paid under the terms of such Preferred Stock.
Other Provisions. Each share of Class B Common Stock and Class C
Common Stock is convertible at the option of its holder into one share of
Class A Common Stock at any time.
Senior Preferred Stock
Dividends. The holders of the Senior Preferred Stock are entitled
under the Company's certificate of incorporation to cumulative dividends on
a basis preferential to the holders of Common Stock and the holders of
Junior Preferred Stock. From their respective dates of issue through
December 15, 2000, the holders of Senior Preferred Stock would be entitled
to receive cumulative dividends from the Company on each share of Senior
Preferred Stock at the per annum rate of 15% of the Liquidation Price of
such share. The Liquidation Price for each share of Senior Preferred Stock
is defined as the sum of $1,000 plus all accrued and unpaid dividends with
respect to such share. Accrued dividends on the Senior Preferred Stock are
payable semi-annually to the holders of record of the Senior Preferred Stock
as of the close of business on the applicable record date. The Company has
the option to defer the payment of accrued dividends until the Senior Preferred
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<PAGE> 82
Stock is redeemed. On January 1 and July 1 of each year, all dividends that
have accrued on each share of Senior Preferred Stock and that have not
theretofore been accumulated shall, to the extent not paid for any reason,
be accumulated, and dividends will accrue on such accumulation until such
accumulated dividends are paid. As of December 31, 1995, the Company has
not paid any cash dividends on the Senior Preferred Stock, and there are
$5,415,618 in accrued and unpaid dividends on the Senior Preferred Stock.
Voting Rights. The affirmative vote or written consent of the holders
of a majority of the outstanding shares of each class of Senior Preferred
Stock is required in order for the Company to take the following actions:
amend, alter or repeal any of the provisions of the certificate of
incorporation or any resolution of the Company's board of directors or any
other instrument establishing and designating the Senior Preferred Stock or
any other capital stock of the Company so as to adversely affect the rights,
privileges, preferences or powers of the Senior Preferred Stock; create or
designate any stock on a parity with or senior to the Senior Preferred
Stock; enter into an agreement that would prevent the Company from
performing its obligations with respect to the Senior Preferred Stock; or
pay dividends to the holders of, or redeem, securities of the Company or its
subsidiaries junior to the Senior Preferred Stock, except as specifically
provided therein.
Liquidation Rights. Upon liquidation, dissolution, or winding-up of
the Company, the holders of Senior Preferred Stock are entitled to a
preference of $7,000 per share, plus accrued and unpaid dividends, over all
classes and series of junior stock, including the Junior Preferred Stock,
Class A Common Stock, Class B Common Stock, and Class C Common Stock, with
respect to the assets available for distribution after payment in full of
creditors.
Redemption Rights. All the shares of Senior Preferred Stock are
redeemable on or after December 15, 1996, at the option of the Company, in
whole at any time, at a redemption price equal to the Liquidation Price for
such shares, plus the amount of all unpaid dividends thereon, as of the
redemption date, payable in cash. The Company is obligated to redeem on
December 15, 2000, out of unrestricted funds legally available therefor, all
the shares of the Senior Preferred Stock then outstanding, at a redemption
price equal to the Liquidation Price for such shares, plus the amount of all
unpaid dividends thereon, as of the redemption date, payable in cash.
Holders of shares of the Senior Preferred Stock are entitled to require the
Company to redeem their shares of Senior Preferred Stock upon the occurrence
of certain events, such as a "change of control" (as defined with respect
thereto) of the Company or the bankruptcy or similar event by the Company.
Junior Preferred Stock
Dividends. The holders of the Junior Preferred Stock are entitled
under the Company's certificate of incorporation to cumulative dividends on
a basis preferential to the holders of Common Stock, but subordinate to the
holders of Senior Preferred Stock. Until December 22, 2001, the holders of
Junior Preferred Stock are entitled to receive cumulative dividends from the
Company on each share of Junior Preferred Stock at the per annum rate of 12%
of the Liquidation Price of such share. The Liquidation Price for each
share of Junior Preferred Stock is defined as the sum of $1,000 plus all
accrued and unpaid dividends with respect to such share. For each year
thereafter, the per annum rate shall increase by 1%. In addition, the
dividend rate may be increased under certain circumstances, such as a change
in control of the Company. Accrued dividends on the Junior Preferred Stock
are payable semi-annually to the holders of record of the Junior Preferred
Stock as of the close of business on the applicable record date. Until
December 22, 1999, the Company has the option to defer the payment of
accrued dividends until the Junior Preferred Stock is redeemed. On January
1 and July 1 of each year, all dividends that have accrued on each share of
Junior Preferred Stock and that have not theretofore been accumulated shall,
to the extent not paid for any reason, be accumulated, and dividends will
accrue on such accumulation until such accumulated dividends are paid. As
of December 31, 1995, the Company has not paid any cash dividends on the
Junior Preferred Stock, and there are $4,188,513 in accrued and unpaid
dividends on the Junior Preferred Stock. Holders of Junior Preferred Stock
shall not be entitled
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to any dividends until the full amount of accrued and unpaid dividends to which
holders of Senior Preferred Stock are entitled are paid.
Voting Rights. The affirmative vote or written consent of the holders
of a majority of the outstanding shares of Junior Preferred Stock is
required in order for the Company to take the following actions: amend,
alter or repeal any of the provisions of the certificate of incorporation or
any resolution of the Company's board of directors or any other instrument
establishing and designating the Junior Preferred Stock or any other capital
stock of the Company so as to adversely affect the rights, privileges,
preferences or powers of the Junior Preferred Stock; create or designate any
stock on a parity with or senior to the Junior Preferred Stock; enter into
an agreement that would prevent the Company from performing its obligations
with respect to the Junior Preferred Stock; or pay dividends to the holders
of, or redeem, securities of the Company or its subsidiaries junior to the
Junior Preferred Stock, except as specifically provided therein.
Liquidation Rights. Upon liquidation, dissolution or winding-up of the
Company, the holders of Junior Preferred Stock are entitled to a preference
of $1,000 per share, plus accrued and unpaid dividends, over all classes and
series of junior stock, including the Class A Common Stock, Class B Common
Stock, and Class C Common Stock, with respect to the assets available for
distribution after payment in full of creditors, but the rights of holders
of Junior Preferred Stock are subordinate in all such respects to those of
holders of Senior Preferred Stock.
Redemption Rights. Subject to the rights of the Senior Preferred
Stock, all the shares of Junior Preferred Stock are redeemable, at the
option of the Company, in whole at any time, at a redemption price equal to
the Liquidation Price for such shares, plus the amount of all unpaid
dividends thereon, as of the redemption date, payable in cash. Subject to
the rights of the Senior Preferred Stock, the Company is obligated to redeem
the Junior Preferred Stock on December 22, 2003, out of unrestricted funds
legally available therefor, all the shares of the Junior Preferred Stock
then outstanding, at a redemption price equal to the Liquidation Price for
such shares, plus the amount of all unpaid dividends thereon, as of the
redemption date, payable in cash. Holders of shares of the Junior Preferred
Stock are entitled to require the Company to redeem their shares of Junior
Preferred Stock upon the occurrence of certain events, such as a "change of
control" (as defined with respect thereto) of the Company or the default by
the Company under the terms of the Stockholders Agreement.
Warrants
In connection with the issuance of the Initial Senior Preferred Stock,
the Company entered into a warrant agreement pursuant to which the Company
issued to the holders of the Initial Preferred Stock warrants entitling the
holders thereof to purchase shares of common stock of the Company. The
warrant agreement was subsequently amended and certain warrants were
cancelled in exchange for the issuance of the Series B Preferred Stock to
the holders thereof. Currently, holders of such warrants are entitled to
purchase for a nominal exercise price 2,709,129 shares of Class A Common
Stock and 903,044 shares of Class B Common Stock. The holders of such
warrants are entitled to notice of the consolidation, merger, or sale of
substantially all of the assets of the Company, a reclassification of,
tender offer or exchange offer for, Class A Common Stock and Class B Common
Stock, a granting by the Company of subscription rights to the holders of
Common Stock, or the voluntary or involuntary dissolution, liquidation or
winding up of the Company. In addition, the holders of such warrants have
certain anti-dilution protections that provide for, among other things, an
increase in the number of shares of Class A Common Stock and Class B Common
Stock for which each such warrant is exercisable in the event of certain
issuances of shares of Common Stock by the Company at less than fair market
value.
In connection with the issuance of the Junior Preferred Stock, the
Company entered into a separate warrant agreement pursuant to which the
Company issued to such holders of Junior Preferred Stock warrants currently
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<PAGE> 84
entitling the holders thereof to purchase for a nominal exercise price
4,853,628 shares of Class C Common Stock. The holders of such warrants are
entitled to notice of the consolidation, merger or sale of substantially all
of the assets of the Company, a reclassification of, tender offer or
exchange offer for, Common Stock, a granting by the Company of subscription
rights to the holders of Common Stock, or the voluntary or involuntary
dissolution, liquidation or winding up of the Company. In addition, the
holders of such warrants have certain anti-dilution protections that provide
for, among other things, an increase in the number of shares of Class C
Common Stock for which each such warrant is exercisable in the event of
certain issuances of shares of Common Stock by the Company at less than fair
market value.
Certain Provisions of the Company's Certificate of Incorporation and Bylaws
General. The provisions of the certificate of incorporation (the
"Certificate of Incorporation") and bylaws (the "Bylaws") and the Delaware
statutory law described in this section may delay or make more difficult
acquisitions or changes of control of the Company that are not approved by
the Company's board of directors.
Advance Notice for Raising Business or Making Nominations at Meetings.
The Bylaws establish an advance notice procedure for stockholder proposals
to be brought before a meeting of stockholders of the Company and for
nominations by stockholders of candidates for election as directors at an
annual meeting or a special meeting at which directors are to be elected.
Subject to any other applicable requirements, only such business may be
conducted at a meeting of stockholders as has been brought before the
meeting by, or at the direction of, the Company's board of directors, or by
a stockholder who has given to the Secretary of the Company timely written
notice, in proper form, of the stockholder's intention to bring that
business before the meeting. The presiding officer at such meeting has the
authority to make such determinations. Only persons who are nominated by a
stockholder who has given timely written notice, in proper form, to the
Secretary prior to a meeting at which directors are to be elected will be
eligible for election as directors of the Company.
To be timely, notice of nominations or other business to be brought
before any meeting must be received by the Secretary of the Company not
later than 120 days in advance of the anniversary date of the Company's
proxy statement for the previous year's annual meeting or, in the case of
special meetings or the Company's 1996 annual meeting of stockholders, at
the close of business on the seventh day following the date on which notice
of such meeting is first given to stockholders.
The notice of any stockholder proposal or nomination for election as a
director must set forth the information required under the Bylaws. The
person submitting the notice of nomination and any person acting in concert
with such person, must provide their names and business addresses, the name
and address under which they appear on the Company's books (if they so
appear) and the class and number of shares of the Company's capital stock
that are beneficially owned by them.
Preferred Stock and Additional Common Stock. Under the Certificate of
Incorporation, the Company's board of directors has the authority to provide
by board resolution for the issuance of shares of one or more series of
preferred stock. The Company's board of directors is authorized to fix by
resolution the terms and conditions of each such other series. See
"General."
The Company believes that the availability of additional preferred
stock, issuable in series, and additional shares of the Common Stock could
facilitate certain financings and acquisitions and provide a means for
meeting other corporate needs that might arise. The authorized shares of
preferred stock, as well as authorized but unissued shares of Common Stock,
will be available for issuance without further action by the Company's
stockholders, unless stockholder action is required by applicable law or the
rules of any stock exchange on which any series of the Company's stock may
then be listed.
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<PAGE> 85
These provisions give the Company's board of directors the power to
approve the issuance of a series of preferred stock, or additional shares of
Common Stock, that could, depending on its terms, either impede or
facilitate the completion of a merger, tender offer or other takeover
attempt.
Limitation of Liability and Indemnification. As permitted by the
Delaware General Corporation Law, the Company's Certificate of Incorporation
provides that directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derives
an improper personal benefit. In addition, the Company's Bylaws provide
that the Company shall, to the fullest extent authorized by Section 145 of
the Delaware General Corporation Law, as amended from time to time,
indemnify all director and officers and all persons serving at the request
of the company as director, trustee, officer, employee or agent of another
corporation or of a partnership, trust or other enterprise. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and, therefore, is unenforceable.
Delaware Business Combination Statute. Section 203 of the Delaware
General Corporation Law (Section 203) provides that, subject to certain
exceptions specified therein, an interested stockholder of a Delaware
corporation shall not engage in any business combination with the
corporation for a three-year period following the date that such stockholder
becomes an interested stockholder unless (i) prior to such date, the board
of directors of the corporation approved either the business combination or
the transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares) or (iii) on or
subsequent to such date, the business combination is approved by the board
of directors of the corporation and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder.
Except as otherwise specified in Section 203, an interested stockholder is
defined to include (x) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within three years immediately
prior to the relevant date and (y) the affiliates and associates of any such
person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions
imposed thereunder. The certificate of incorporation does not exclude the
Company from the restrictions imposed under Section 203. The provisions of
Section 203 may encourage companies interested in acquiring the Company to
negotiate in advance with the Company's board of directors because the
stockholder approval requirement would be avoided if a majority of the
directors then in office approve either the business combination or the
transaction which results in the stockholder becoming an interested
stockholder. Such provisions also may have the effect of preventing changes
in the management of the Company. It is possible that such provisions could
make it more difficult to accomplish transactions which stockholders may
otherwise deem to be in their best interests.
Transfer Agent and Registrar
The transfer agent and registrar for the Class A Common Stock is First
Union National Bank, Charlotte, North Carolina.
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<PAGE> 86
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 35,869,826
shares of Class A Common Stock (37,026,826 if the Underwriter's
over-allotment option is exercised in full and which gives effect to the
issuance of 814,000 shares upon the exercise of warrants and options),
8,311,639 shares of Class B Common Stock and no shares of Class C Common
Stock outstanding, assuming no exercise of the Underwriter's over-allotment
and no further exercise of outstanding options and warrants. Of these
shares, the 10,000,000 shares of Class A Common Stock sold in this Offering
and 1,383,128 shares of Class A Common Stock outstanding prior to this
Offering will be freely tradeable without restriction or further
registration under the Securities Act, except that any shares purchased by
the Company's affiliates ("Affiliates"), as that term is defined in Rule 144
under the Securities Act, may generally only be sold in compliance with the
limitations of Rule 144 described below. The remaining 24,843,698 shares of
Class A Common Stock and all of the shares of Class B Common Stock held by
existing stockholders upon completion of this offering will be restricted
securities within the meaning of Rule 144 and may not be sold except in
compliance with the registration requirements of the Securities Act or an
applicable exemption under the Securities Act, including an exemption
pursuant to Rule 144.
Sales of Restricted Shares
Approximately 23,950,555 shares of Class A Common Stock and all of the
outstanding shares of Class B Common Stock are eligible for sale in the
public market pursuant to Rule 144 under the Securities Act. In addition,
536,143 shares of Class A Common Stock will become eligible for sale at
various times in the public market pursuant to Rule 144. In addition,
certain existing holders of (i) 24,486,698 shares of Class A Common Stock
(ii) warrants exercisable for 2,352,129 additional shares of Class A Common
Stock, (iii) all 8,311,639 shares of the Class B Common Stock which are
converted into the same number of shares of Class A Common Stock, (iv)
warrants exercisable for 903,043 shares of Class B Common Stock which are
converted into the same number of shares of Class A Common Stock, and (v)
warrants exercisable for 4,472,628 shares of Class C Common Stock which are
converted into the same number of shares of Class A Common Stock, have
rights to require registration of their shares under certain circumstances.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned shares for at least two years (including the holding period of certain
prior owners), will be entitled to sell in brokers' transactions or to
market makers, within any three-month period commencing 90 days after the
Company becomes subject to the reporting requirements of Section 13 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), a number
of shares that does not exceed the greater of (i) 1% of the then outstanding
shares of Class A Common Stock (a limit of approximately 358,698 shares
immediately after the Offering), or (ii) the average weekly trading volume
in the Common Stock during the four calendar weeks immediately preceding
such sale, subject, generally, to the filing of a Form 144 with respect to
such sales and certain other limitations and restrictions. In addition, a
person (or person whose shares are aggregated) who is not deemed to have
been an Affiliate at any time during the 90 days immediately preceding the
sale and who has beneficially owned the shares proposed to be sold for at
least three years, is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above. Further, Rule 144A under the
Securities Act as currently in effect permits the immediate sale of
restricted shares to certain qualified institutional buyers without regard
to the volume restrictions described above. The Commission has proposed an
amendment to Rule 144 which would reduce the holding period required for
shares subject to Rule 144 to become eligible for sale in the public market
from two years to one year, and from three years to two years in the case of
Rule 144(k). If this proposal is adopted, additional shares of Class A
Common Stock will become eligible for sale to the public sooner than would
be the case under Rule 144, as currently in effect.
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<PAGE> 87
Options
As of December 31, 1995, options to purchase 1,771,334 shares of Class
A Common Stock were outstanding under the Stock Incentive Plan, and
2,053,775 shares of Class A Common Stock were reserved for issuance under
the Stock Incentive Plan. The Company has filed a registration statement on
Form S-8 under the Securities Act with respect to the shares issuable under
the Stock Incentive Plan, and shares of Class A Common Stock issued under
the Stock Incentive Plan are therefore immediately eligible for sale in the
public market. Executive officers of the Company who are included in the
Selling Stockholders have agreed with the Underwriters that shares issuable
to them under the Stock Incentive Plan are subject to a 180-day lock-up
period. See "Underwriting."
Warrants
Upon completion of the Offering, there will be outstanding warrants to
purchase 2,352,129 shares of Class A Common Stock (2,009,129 shares if the
Underwriter's over-allotment option is exercised in full), warrants to
purchase 903,043 shares of Class B Common Stock and warrants to purchase
4,472,628 shares of Class C Common Stock. Shares of Class B Common Stock
and Class C Common Stock are convertible to shares of Class A Common Stock
at the option of the holder thereof on a one-for-one basis. The holders of
warrants to purchase Class B Common Stock or Class C Common Stock may elect,
under certain circumstances, to receive an identical number of shares of
Class A Common Stock in lieu of receiving shares of Class B Common Stock or
Class C Common Stock. Shares issuable pursuant to the exercise of warrants
to purchase Class A Common Stock or Class B Common Stock (including any
shares of Class A Common Stock issued as a result of the exercise of the
right of a holder of warrants to purchase Class B Common Stock to instead
receive Class A Common Stock) will upon issuance be eligible for sale in
compliance with the limitations of Rule 144 previously described. Shares of
Class A Common Stock that are issuable upon the exercise of warrants to
purchase shares of Class C Common Stock which have been converted to shares
of Class A Common Stock shall be eligible for sale in compliance with the
limitations of Rule 144 after December 22, 1996. The holders of all of the
warrants described above have agreed with the Underwriters that any shares
of Common Stock they may receive upon the exercise of warrants are subject
to a 180-day lock-up. See "Underwriting."
Registration Rights
Pursuant to registration rights granted in the Stockholders Agreement,
certain holders of Senior Preferred Stock may require the Company to
register with the Commission under and in accordance with the Securities Act
all or part of their "Registrable Shares" (as defined in the Stockholders
Agreement). Registrable Shares are defined to include shares issued or
issuable as "Warrant Shares" (as defined in the Stockholders Agreement) (as
adjusted for certain stock splits, stock dividends, recapitalizations and
similar events) and any securities issued to the holders of Senior Preferred
Stock pursuant to their exercise of certain rights of first refusal. The
Company is required to effectuate a demand registration at the request of
holders of Senior Preferred Stock only if (i) it has been requested and
consented to by the holders of a majority of the Registrable Shares held by
the holders of Senior Preferred Stock, and (ii) the shares as to which
registration is requested represent at least 25% of the aggregate
Registrable Shares held by holders of Senior Preferred Stock participating
in such registration. Generally, the holders of Senior Preferred Stock as a
group are entitled to three demand registrations.
Pursuant to the registration rights granted in the Stockholders
Agreement, two holders of Junior Preferred Stock each have one demand
registration right, exercisable after six months from the date hereof, to
require the Company to register with the Commission under and in accordance
with the Securities Act all of its Registrable Shares.
Pursuant to the registration rights granted in the Stockholders
Agreement, the Management Investors (which
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<PAGE> 88
are affiliates of Mr. Paxson) may require the Company to register with the
Commission under and in accordance with the Securities Act all or part of
their respective Registrable Shares. The Company is required to effectuate
a demand registration for the Management Investors only if (i) it has been
requested or consented to by Management Investors holding a majority of the
Registrable Shares held by the Management Investors, and (ii) the shares as
to which registration is requested represent at least 25% of the aggregate
Registrable Shares held by the Management Investors participating in such
registration. Generally, the Management Investors as a group are entitled
to five demand registrations.
If at any time the Company proposes to file on its own behalf or on
behalf of any holder or holders of any equity securities a registration
statement under the Securities Act (other than a registration statement on
Form S-4 or Form S-8 or any successor form for the registration of
securities to be offered pursuant to an employee benefit plan), then the
Company must give notice to the holders of Senior Preferred Stock, the
holders of Junior Preferred Stock, the Management Investors and certain
other stockholders of their respective rights to include certain Registrable
Shares held by such persons in a piggy-back registration. The Company has
the right to abandon any such registration.
In the case of a demand or certain piggy-back registrations, the
Company will pay all registration expenses except underwriting discounts and
commissions and transfer taxes. In the case of a piggy-back registration,
each participating holder of Senior Preferred Stock or Junior Preferred
Stock, each participating Management Investor and each of certain other
participating parties shall pay its pro rata share of the incremental
registration filing fees and shall pay all fees and disbursements of its
counsel (other than a single counsel for certain holders) incurred in
connection therewith.
The registration rights provisions of the Stockholders Agreement
allocate Registrable Shares among participating holders of Senior Preferred
Stock, holders of Junior Stock Preferred Stock and the Management Investors
if fewer than all the requested shares are to be included in a registration
statement. The registration rights of such holders generally have priority
over those of other parties that may have registration rights.
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<PAGE> 89
UNDERWRITING
Upon the terms and subject to the conditions stated in the U.S.
Underwriting Agreement dated the date of this Prospectus, each of the
underwriters of the U.S. Offering of Class A Common Stock named below (the
"U.S. Underwriters"), for whom Smith Barney Inc., PaineWebber Incorporated,
CIBC Wood Gundy Securities Corp., and BT Securities Corporation are acting
as representatives (the "Representatives"), has severally agreed to
purchase, and the Company and the Selling Stockholders have agreed to sell
to each U.S. Underwriter, the number of shares of Class A Common Stock set
forth opposite the name of such U.S. Underwriter.
<TABLE>
<CAPTION>
U.S. Underwriter Number of Shares
---------------- ----------------
<S> <C>
Smith Barney Inc. . . . . . . . . . . . . .
PaineWebber Incorporated . . . . . . . . . .
CIBC Wood Gundy Securities Corp. . . . . . .
BT Securities Corporation . . . . . . . . . ----
Total . . . . . . . . . . . . . . . . . . . 8,000,000
=========
</TABLE>
Under the terms and subject to the conditions stated in the
International Underwriting Agreement dated the date of this Prospectus, each
of the managers of the concurrent International Offering of Class A Common
stock named below (the "Managers"), for whom Smith Barney Inc., PaineWebber
International (U.K.) Ltd., CIBC Wood Gundy Securities Corp. and Bankers
Trust International PLC are acting as lead managers (the "Lead Managers")
has severally agreed to purchase, and the Company has agreed to sell to each
Manager, the number of shares of Class A Common Stock set forth opposite the
name of such Manager.
<TABLE>
<CAPTION>
Manager Number of Shares
------- ----------------
<S> <C>
Smith Barney Inc. . . . . . . . . . . . . . . . . .
PaineWebber International (U.K.) Ltd. . . . . . .
CIBC Wood Gundy Securities Corp. . . . . . . . . .
Bankers Trust International PLC . . . . . . . . . . ----
Total . . . . . . . . . . . . . . . . . . . . . 2,000,000
=========
</TABLE>
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<PAGE> 90
Each of the U.S. Underwriting Agreement and the International
Underwriting Agreement provides that the obligations of the several U.S.
Underwriters and the several Managers to pay for and accept delivery of the
shares are subject to approval of certain legal matters by counsel and to
certain other conditions. The U.S. Underwriters and the Managers are
obligated to take and pay for all shares of Class A Common Stock offered
hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The U.S. Underwriters and the Managers initially propose to offer part
of the shares of Class A Common Stock directly to the public at the public
offering price set forth on the cover page of this Prospectus and part of
the shares to certain dealers at such price less a concession not in excess
of $___________ per share below the public offering price. The U.S.
Underwriters and the Managers may allow, and such dealers may reallow, a
concession not in excess of $_______ per share to any other U.S. Underwriter
or Manager, respectively, or to certain other dealers. After the Offering,
the public offering price and such concessions may be changed by the U.S.
Underwriters and the Managers.
The Company and the Selling Stockholders have granted to the U.S.
Underwriters an option, exercisable within 30 days from the date of this
Prospectus, to purchase up to an aggregate of 1,500,000 additional shares of
Class A Common Stock at the public offering price set forth on the cover
page of this Prospectus less underwriting discounts and commissions. The
U.S. Underwriters may exercise such option to purchase additional shares
solely for the purpose of covering over-allotments, if any, incurred in
connection with the sale of the shares of Class A Common Stock offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number of shares set
forth next to such U.S. Underwriter's name in the preceding table bears to
the total number of shares in such table.
The Company, the U.S. Underwriters and the Managers have agreed to
indemnify each other against certain liabilities, including under the
Securities Act.
The Company, its officers and directors, and certain of the Company's
existing stockholders have agreed that, for a period of 180 days from the
date of this Prospectus, they will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell, or otherwise dispose of,
any shares of Common Stock of the Company or any securities convertible
into, or exercisable or exchangeable for, Common Stock of the Company.
The U.S. Underwriters and the Managers have entered into an agreement
between U.S. Underwriters and Managers pursuant to which each U.S.
Underwriter has agreed that, as part of the distribution of the 8,000,000
shares of Class A Common Stock offered in the U.S. Offering (plus any of the
shares to cover over-allotments): (i) it is not purchasing any such shares
for the account of anyone other than a U.S., or Canadian Person and (ii) it
has not offered or sold, and will not, offer, sell, resell or deliver,
directly or indirectly, any of such shares or distribute any prospectus
relating to the U.S. Offering outside the United States or Canada to anyone
other than a U.S or Canadian Person. In addition, each Manager has agreed
that as part of the distribution of the 2,000,000 shares offered in the
International Offering: (i) it is not purchasing any such shares for the
account of any U.S. or Canadian Person and (ii) it has not offered or sold,
and will not, offer, sell, resell or deliver, directly or indirectly, any of
such shares or distribute any prospectus relating to the International
Offering in the United States or Canada or to any U.S. or Canadian Person.
Each U.S. Underwriter and Manager has also agreed that it will offer to sell
shares only in compliance with all relevant requirements of any applicable
laws.
The foregoing limitations do not apply to stabilization transactions or
to certain other transactions specified in the U.S. Underwriting Agreement,
the International Underwriting Agreement and the Agreement Between U.S.
Underwriters and Managers, including: (i) certain purchases and sales
between
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<PAGE> 91
U.S. Underwriters and the Managers, (ii) certain offers, sales, resales,
deliveries or distributions to or through investment advisors or other
persons exercising investment discretion, (iii) purchases, offers or sales
by a U.S. Underwriter who is also acting as Manager or by a Manager who is
also acting as U.S. Underwriter and (iv) other transactions specifically
approved by the Representatives. As used herein, "U.S. or Canadian Person"
means any resident or national of the United States or Canada, any
corporation, partnership or other entity created or organized in or under
the laws of the United States or Canada, or any estate or trust the income
of which is subject to U.S. or Canadian income taxation regardless of the
source of its income (other than the foreign branch of any U.S. or Canadian
Person), and includes any United States or Canadian branch of a person other
than a U.S. or Canadian Person.
Any offer of shares of Class A Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
relevant province of Canada in which such offer is made.
Each Manager has represented and agreed (i) that it has not offered or
sold and will not offer or sell in the United Kingdom, by means of any
document, any shares of Class A Common Stock other than to persons whose
ordinary business it is to buy or sell shares or debentures, whether as
principal or agent or in circumstances which do not constitute an offer to
the public within the meaning of the Companies Act 1985, (ii) that it has
complied and will comply with all applicable provisions of the Financial
Services Act of 1986 with respect to anything done by it in relation to the
shares of Class A Common Stock in, from or otherwise involving, the United
Kingdom and (iii) that any document received by it in connection with the
issue of the shares of Class A Common Stock has not been passed on and will
not be passed on in the United Kingdom to any person unless that person is
of a kind described in Article 9(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1988 or is a person to whom
such documents may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction by the Company
or the Managers that would permit an offering to the general public of the
shares of Class A Common Stock offered hereby in any jurisdiction other than
the United States.
Purchasers of the shares of Class A Common Stock offered hereby may be
required to pay stamp taxes and other charges in accordance with the laws
and practices of the country of purchase in addition to the offering price
set forth on the cover page of this Prospectus.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales
may be made between the U.S. Underwriters and the Managers of such number of
shares of Class A Common Stock as may be mutually agreed. The price of any
shares of Class A Common Stock so sold shall be the public offering price as
then in effect for shares of Class A Common Stock being sold by the U.S.
Underwriters, less all or any part of the selling concessions unless
otherwise determined by mutual agreement. To the extent that there are
sales between the U.S. Underwriters and the Managers pursuant to the
Agreement Between U.S. Underwriters and Managers, the number of shares of
Class A Common Stock initially available for sale by the U.S. Underwriters
and by the Managers may be more or less that the number of shares of Class A
Common Stock appearing on the front cover of this Prospectus.
BT Capital Partners, Inc., an affiliate of BT Securities Corporation,
one of the U.S. Underwriters, is a holder of the Junior Preferred Stock and
warrants for Class C Common Stock and is a Selling Stockholder in this
Offering. Bankers Trust Company, another affiliate of BT Securities
Corporation, has in the past provided commercial banking services for an
affiliate of the Company and may provide other financial or investment
banking services through its affiliates to the Company or its affiliates in
the future.
Smith Barney Inc. ("Smith Barney") and CIBC Wood Gundy Securities Corp.
("CIBC") participated
85
<PAGE> 92
as initial purchasers in connection with the sale by the Company of its
Notes in September 1995. In addition, an affiliate of CIBC, Canadian
Imperial Bank of Commerce, is a lender under the New Credit Facility and,
additionally, has provided Whitehead Media with a loan, the proceeds of
which were used in part to repay indebtedness to the Company incurred in
connection with the acquisition of stations WTVX-TV and WOAC-TV.
Smith Barney and CIBC have from time to time provided investment
banking and financial advisory services to the Company and may continue to
do so in the future. Smith Barney and CIBC have received customary fees for
such services.
LEGAL MATTERS
Certain legal matters with respect to the issuance of Class A Common
Stock will be passed upon for the Company by Holland & Knight (a partnership
including professional associations), and for the Underwriters by Cahill
Gordon & Reindel (a partnership including a professional corporation).
Certain legal matters under the Communications Act and the rules and
regulations promulgated thereunder by the FCC will be passed upon for the
Company and the Underwriters by Dow, Lohnes & Albertson.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1993 and for each of the two years in the period ended December 31,
1994, the financial statements of KZKI-TV (a division of Sandino
Telecasters, Inc.) as of and for the year ended January 31, 1995, the
financial statements of Paugus Television, Inc. (WGOT-TV), and Delaware
Valley Broadcasters (WTGI-TV) and WTVX-TV, Krypton Broadcasting of Ft.
Pierce, Inc. as of and for the year ended December 31, 1994 and the combined
financial statements of San Jacinto Television Corporation and DuPont
Investment Group, 85 Ltd. as of and for the year ended December 31, 1994
included in this Prospectus have been so included in reliance on the reports
of Price Waterhouse LLP, independent certified public accountants, given on
authority of said firm as experts in auditing and accounting (the reports
related to the financial statements of KZKI-TV (a division of Sandino
Telecasters, Inc.), Paugus Television, Inc. (WGOT-TV) the combined financial
statements of San Jacinto Television Corporation and DuPont Investment
Group, 85 Ltd. contain an explanatory paragraph relating to the entities
ability to continue as a going concern as described in Note 1 to such
financial statements and combined financial statements). Price Waterhouse
LLP has not examined, compiled or applied agreed upon procedures to the Pro
Forma Financial Information included in this Prospectus and, consequently,
assumes no responsibility for the Pro Forma Financial Information and does
not express an opinion or any other form of assurance with respect thereto.
The consolidated financial statements of the Company for the year
ending December 31, 1992 included in this Prospectus have been so included
in reliance on the report of by Ryals, Brimmer, Burek & Keelan, independent
certified public accountants given on authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-1 under the Securities Act with respect to the shares of Class A
Common Stock offered by this Prospectus. For the purposes hereof, the term
Registration Statement means the original Registration Statement and any and
all amendments thereto, including the schedules and exhibits to such
Registration Statement or any such
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<PAGE> 93
amendment. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, to which reference is hereby made. Each statement
made in this Prospectus concerning a document filed as an exhibit to the
Registration Statement is qualified in its entirety by reference to such
exhibit for a complete statement of its provisions.
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports and other
information with the Commission. Reports, proxy statements, and other
information filed by the Company can be inspected and copied at the public
reference facilities of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as the following Regional Offices: 7
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies can be obtained by mail at prescribed rates. Requests should be
directed to the Commission's Public Reference Section, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549.
Reports, proxy statements, and other information concerning the Company
can also be inspected and copied at the offices of the American Stock
Exchange, 86 Trinity Place, New York, NY 10006.
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<PAGE> 94
INDEX TO PRO FORMA FINANCIAL INFORMATION
<TABLE>
<S> <C>
Pro Forma Financial Information .............................................. P-2
Unaudited Pro Forma Consolidated Statement of Operations:
For the Year Ended December 31, 1994 ....................................... P-3
For the Nine Months Ended September 30, 1995 ............................... P-3
Notes to Unaudited Pro Forma Consolidated Statement of Operations........... P-4
Unaudited Pro Forma Consolidated Balance Sheet:
As of September 30, 1995 ................................................... P-5
Notes to Unaudited Pro Forma Consolidated Balance Sheet..................... P-6
</TABLE>
P-1
<PAGE> 95
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma statement of operations and other data for the
year ended December 31, 1994 and the nine months ended September 30, 1995 give
effect to: (i) the consummation of the Offering; (ii) the offering of the
Notes and the execution of the New Credit Facility; and (iii) significant
business acquisitions consummated since January 1, 1994 (as reflected herein),
as if such events included in (i) through (iii) had occurred on January 1,
1994. In addition, depreciation and amortization expense has been increased
for each period to reflect preliminary purchase price allocations for all
stations included in the Proposed Acquisitions. The unaudited pro forma
balance sheet data as of September 30, 1995 give effect to (i) the consummation
of the Offering and the Proposed Acquisitions; (ii) receipt of proceeds from
the repayment of indebtedness owed by Whitehead Media to the Company; (iii)
repayment of a note payable to the Company's principal stockholder; (iv) the
execution of the New Credit Facility; and (v) certain acquisitions which have
closed subsequent to September 30, 1995, as if such events included in (i)
through (v) had occurred on September 30, 1995.
The Proposed Acquisitions will be accounted for using the purchase method
of accounting. The total cost of the Proposed Acquisitions will be allocated
to the tangible and intangible assets acquired and liabilities assumed based
upon their respective fair values. The allocation of the respective purchase
prices included in the pro forma financial information is preliminary. The
Company does not expect that the final allocation of the purchase prices will
materially differ from the preliminary allocation.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable under the circumstances.
The pro forma consolidated financial information should be read in conjunction
with the Company's consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus. The unaudited pro forma statement of
operations data are not necessarily indicative of the results that would have
occurred if the Offering and the Proposed Acquisitions had occurred on the
dates indicated, nor are they indicative of the Company's future results of
operations. There can be no assurance whether or when the Proposed Acquisitions
will be consummated.
P-2
<PAGE> 96
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1994
-------------------------------------------------------------------------------------------------
The Los West Palm Pro Forma Pro
Company Merger(a) Philadelphia Houston Angeles Boston Beach Adjustments Forma
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenue $62,067 $9,539 $3,111 $2,665 $1,712 $1,222 $5,190 $ (135)(b) $85,371
Operating expenses, excluding
depreciation and 51,225 9,197 2,721 2,221 1,041 1,946 4,073 (1,541)(c) 70,883
amortization
Depreciation and amortization 12,404 1,288 391 225 743 203 521 11,410 (d) 27,185
------- ------ ------ ---- ---- ---- ---- ------- -------
Income (loss) from operations (1,562) (946) (1) 219 (72) (927) 596 (10,004) (12,697)
Interest income (expense), net (4,875) 258 (461) (106) (856) (332) (748) (21,430)(e) (28,550)
Other income (expense), net (5) (505) 442 (51) (124) 124 (f) (119)
Benefit for income taxes 1,680 1,680
------ ------ ------ ---- ---- ---- ----
Net income (loss) $(4,762) $(688) $(967) $555 $(928) $(1,310) $(276)
====== ==== ====== ======= ======
Dividends and accretion on
preferred stock and common
stock warrants (g) (3,386) (19,705)
------ -------
Net loss attributable to
common stock and common stock
equivalents $(8,148) $(20,393)
======= ========
Net loss per share (h) (0.14)
Net loss per share
attributable to common stock (0.24)
and common stock equivalents (h)
Weighted average shares
outstanding -
primary and fully diluted (i) 33,430
======
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1995
-------------------------------------------------------------------------------------------------
Los West Palm Pro Forma Pro
Company Philadelphia Houston Angeles Boston Beach Adjustments Forma
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenue $71,524 $370 $648 $1,019 600 $3,124 105 (b) $77,390
Operating expenses, excluding
depreciation, amortization 58,978 273 413 351 583 2,682 (392)(c) 62,888
and option plan compensation
Option plan compensation (j) 9,809 9,809
Depreciation and amortization 13,079 33 92 279 128 294 484 (d) 20,389
------- ---- --- ---- ---- ---- ----- -------
Income (loss) from operations (10,342) 64 143 389 (111) 148 (5,987) (15,696)
Interest expense, net (7,853) (45) (46) (271) (174) (532) (12,492)(e) (21,413)
Other expense, net (46) (31) (10) (88) 129 (f) (46)
Benefit, for income taxes 960 960
Extraordinary item and
cumulative effect of a change
in accounting principle (10,626)
-------- ---- ---- ----- ------ -----
Net income (loss) $(27,907) $(12) $97 $118 $(295) $(472)
======== ==== ==== ===== ====== =====
Dividends and accretion on
preferred stock and common stock
warrants (g) (9,121)
--------
Net loss attributable to
common stock and common stock
equivalents $(37,028)
========
Loss per share data:
Net loss per share (h) $(0.81)
Net loss per share
attributable to common stock
and common stock
equivalents (h) (1.08)
Weighted average shares
outstanding - primary and
fully diluted (i) 34,405
======
</TABLE>
P-3
<PAGE> 97
Notes to Unaudited Pro Forma Consolidated Statement of Operations
(in thousands)
(a) Reflects the inclusion of the results of operations of
The American Network Group, Inc. ("ANG"), WPBF-TV and WTLK-TV,
in the period prior to their respective acquisitions and
consolidation with the Company.
(b) To reflect the elimination of time brokerage revenue
of $135 (WTLK-TV) and $184 (Houston) recorded in the prior
operators' financial information for the year ended December
31, 1994, and the nine months ended September 30, 1995,
respectively, and the increase in revenue of $289 for the month
of January 1995 to reflect a full nine months of revenue for
the period ended September 30, 1995 as Los Angeles' prior
operator's fiscal year was February 1 to January 31.
(c) To reflect the elimination of (i) $1,437 and $372 of
general and administrative costs which represent redundant
facilities and staff for operations acquired; (ii) $152 and $0
of general and administrative expenses which represent legal
and investment banking expenses related to the sale of the
station to the Company in a prior operator's financial
information; (iii) $152 and $184 which represent time brokerage
fees paid to prior operators; (iv) the increase in time
brokerage expense of $200 and $104 for additional fees to be
paid to operators for the year ended December 31, 1994 and the
nine months ended September 30, 1995, respectively; and (v) the
increase in operating expense of $60 for the month of January
1995 to reflect a full nine months of expenses for the period
ended September 30, 1995 as Los Angeles' prior operator's
fiscal year was February 1 to January 31.
(d) To reflect the increase in depreciation and
amortization expense for purchase accounting allocations made
for the acquisitions which have closed since January 1, 1994
and the Proposed Acquisitions as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Nine Months Ended
December 31, 1994 September 30, 1995
------------------ -------------------------
<S> <C> <C>
Pro forma depreciation............................ $ 17,905 $ 13,429
Pro forma amortization............................ 9,280 6,960
-------- --------
Total pro forma depreciation and amortization..... 27,185 20,389
Less: amounts as reported......................... (15,775) (13,905)
-------- --------
Total............................................. $ 11,410 $ 6,484
======== ========
</TABLE>
(e) Adjustment necessary to reflect interest expense
associated with the Notes.
(f) To reflect the elimination of (i) $636 and $129 of
non-recurring expenses relating to bankruptcy reorganization
expenses and management fees for the year ended December 31,
1994 and the nine months ended September 30, 1995,
respectively; and (ii) $512 of bankruptcy reorganization income
for the year ended December 31, 1994.
(g) Dividends and accretion on preferred stock and common
stock warrants represent such amount for the Senior Preferred
Stock (15% dividend rate), redeemable Class A and B common
stock warrants and Junior Preferred Stock (12% dividend rate).
Such capital stock is mandatorily redeemable and certain issues
accrete. See "Description of Capital Stock."
(h) Loss per share data for the year ended December 31,
1994 give pro forma effect to (i) the Company's amended capital
structure related to the merger with ANG, and (ii) a stock
dividend on common shares outstanding on January 1, 1995.
(i) Weighted average shares outstanding for the year ended
December 31, 1994 give pro forma effect to (i) the Company's
amended capital structure related to the merger with ANG of
22,287 shares; and (ii) a stock dividend on common shares
outstanding on January 1, 1995 of 11,143 shares.
(j) Option plan compensation represents a non-cash charge
associated with the granting of common stock options to
employees under the Company's Stock Incentive Plan. See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results of Operations" and
"Management-Stock Incentive Plan."
P-4
<PAGE> 98
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
As of September 30, 1995
--------------------------------------------------------------------
Transactions
Subsequent to Pro Forma
Company September 30, 1995 Adjustments Pro Forma (a)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 57,945 $24,196 (b) $124,260 (h) $ 89,001
(1,200) (c) (10,000) (i)
6,800 (d) (75,300) (g)
(23,500 (e) (14,200) (j)
Accounts receivable, net 14,173 14,173
Prepaid expenses and other current assets 1,559 1,559
Current deferred income taxes 195 195
Current program rights 1,182 1,182
-------- ------- -------- ---------
Total current assets 75,054 6,296 24,760 106,110
Property and equipment, net 75,064 3,900 (f) 15,300 (f) 108,464
14,200 (j)
Intangible assets, net 87,687 43,000 (f) 130,687
Investment in broadcast properties 28,013 (24,196) (b) 17,000 (f) 40,417
19,600 (f)
Other assets, net 15,245 3,200 (d) 18,445
Related party notes receivable 2,500 2,500
Program rights, net 366 366
-------- ------- -------- ---------
Total assets $283,929 $ 8,800 $114,260 $ 406,989
======== ======= ======== =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 6,048 $ 6,048
Current portion of program rights 1,056 1,056
Related party note payable 1,200 $(1,200) (c) 0
Current portion of long-term debt 333 333
-------- ------- -------- ---------
Total current liabilities 8,637 (1,200) 7,437
Program rights payable 637 637
Long-term debt 2,665 10,000 (d) $(10,000) (i) 2,665
Deferred income taxes 605 605
Senior subordinated notes, net (l) 227,311 227,311
Redeemable Senior Preferred stock (m) 16,138 16,138
Redeemable class A and B common
stock warrants (n) 4,379 (433) (k) --
(3,946) (n)
Redeemable Series B preferred stock (m) 2,083 2,083
Redeemable Junior preferred stock (m) 30,399 30,399
Class A Common Stock (m) 26 10 (k) 36
Class B Common Stock (m) 8 8
Class C Common Stock (m) -- --
Class A and B Common Stock Warrants (n) -- 3,946 (n) 3,946
Class C common stock warrants (m) 5,339 (419) (k) 4,920
Stock subscription notes receivable (72) (72)
Additional paid-in-capital 33,905 125,102 (k) 159,007
Deferred option plan compensation (2,179) (2,179)
Accumulated deficit (45,952) (45,952)
-------- ------- -------- ---------
Total liabilities and stockholders' equity $283,929 $ 8,800 $114,260 $ 406,989
======== ======= ======== =========
</TABLE>
P-5
<PAGE> 99
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(dollars in thousands)
(a) Pro forma balance sheet data as of September 30, 1995 give effect to:
(i) the consummation of the Offering, the Proposed Acquisitions and the release
of the holders' put on the Class A and Class B common stock warrants; (ii)
receipt of proceeds from the repayment of indebtedness owed by Whitehead Media
to the Company; (iii) repayment of a note payable to the Company's principal
stockholder; (iv) the execution of the New Credit Facility; and (v) certain
acquisitions which have closed subsequent to September 30, 1995, as if such
events included in (i) through (v) had occurred on September 30, 1995.
(b) To reflect the proceeds from the repayment of indebtedness owed by
Whitehead Media to the Company.
(c) Reflects the use of cash to repay a note payable to the Company's
principal stockholder.
(d) Proceeds from the initial $10 million borrowing on the New Credit
Facility net of an estimated $3.2 million of additional deferred financing
costs associated with the offering of the Notes and the New Credit Facility.
(e) Reflects the use of cash for the acquisitions subsequent to September
30, 1995.
(f) To reflect the increases in fixed and intangible assets for purchase
accounting allocations made for the Proposed Acquisitions ($75.3 million) and
the acquisitions subsequent to September 30, 1995 ($23.5 million). Allocation
of purchase price reflects capital expenditures and ownership of Akron, New
York and Dallas with remaining properties reflected as investments in broadcast
properties in which the Company financed the acquisition of time brokered
stations by third parties.
(g) Reflects the use of cash for the Proposed Acquisitions.
(h) To reflect the proceeds from the Offering, net of the underwriting
discounts and commissions and estimated offering expenses.
(i) To reflect the repayment of the New Credit Facility.
(j) To reflect the use of proceeds for capital expenditures on existing
properties.
(k) To reflect the capitalization due to the Offering.
(l) Net of original issue discount of $2.7 million.
(m) See "Description of Capital Stock."
(n) Upon consummation of the Offering, the holders' put rights on the
Class A and Class B common stock warrants will be released and the unexercised
warrants reclassified to common equity.
For additional information with respect to specific prices and capital
expenditures for each Proposed Acquisition, see "Proposed Acquisitions."
P-6
<PAGE> 100
PAXSON COMMUNICATIONS CORPORATION
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PAXSON COMMUNICATIONS CORPORATION
Consolidated Financial Statements -- December 31, 1994, 1993 and 1992
Report of Independent Certified Public Accountants............................................. F-2
Consolidated Balance Sheets.................................................................... F-3
Consolidated Statements of Operations.......................................................... F-5
Consolidated Statements of Changes in Common Stockholders' Equity.............................. F-6
Consolidated Statements of Cash Flows.......................................................... F-7
Notes to Consolidated Financial Statements..................................................... F-9
PAXSON COMMUNICATIONS CORPORATION
Unaudited Interim Consolidated Financial Statements -- September 30, 1995 and 1994
Consolidated Balance Sheets September 30, 1995 and December 31, 1994........................... F-28
Consolidated Statements of Operations for the Nine Months Ended................................ F-29
Consolidated Statements of Operations for the Three Months Ended............................... F-30
Consolidated Statements of Changes in Common Stockholders' Equity.............................. F-31
Consolidated Statements of Cash Flows.......................................................... F-32
Notes to Consolidated Financial Statements..................................................... F-33
KZKI-TV (A DIVISION OF SANDINO TELECASTERS, INC.)
Financial Statements -- January 31, 1995
Report of Independent Certified Public Accountants............................................. F-35
Balance Sheet.................................................................................. F-36
Statements of Operations....................................................................... F-37
Statements of Changes in Divisional Deficit.................................................... F-38
Statements of Cash Flows....................................................................... F-39
Notes to Financial Statements.................................................................. F-40
PAUGUS TELEVISION, INC. (WGOT-TV)
Financial Statements -- December 31, 1994
Report of Independent Certified Public Accountants............................................. F-43
Balance Sheet.................................................................................. F-44
Statement of Operations........................................................................ F-45
Statement of Changes in Stockholders' Deficit.................................................. F-46
Statement of Cash Flows........................................................................ F-47
Notes to Financial Statements.................................................................. F-48
DELAWARE VALLEY BROADCASTERS (WTGI-TV)
Financial Statements -- December 31, 1994
Report of Independent Certified Public Accountants............................................. F-52
Balance Sheet.................................................................................. F-53
Statement of Operations........................................................................ F-54
Statement of Changes in Partner's Deficit...................................................... F-55
Statement of Cash Flows........................................................................ F-56
Notes to Financial Statements.................................................................. F-57
SAN JACINTO TELEVISION CORPORATION AND DUPONT INVESTMENT GROUP, 85 LTD.
Combined Financial Statements -- December 31, 1994
Report of Independent Certified Public Accountants............................................. F-61
Combined Balance Sheet......................................................................... F-62
Combined Statement of Operations............................................................... F-63
Combined Statement of Changes in Combined Deficit.............................................. F-64
Combined Statement of Cash Flows............................................................... F-65
Notes to Combined Financial Statements......................................................... F-66
KRYPTON BROADCASTING OF FT. PIERCE, INC. (WTVX-TV)
Financial Statements -- December 31, 1994
Report of Independent Certified Public Accountants............................................. F-71
Balance Sheet.................................................................................. F-72
Statement of Operations........................................................................ F-73
Statement of Changes in Shareholder's Equity................................................... F-74
Statement of Cash Flows........................................................................ F-75
Notes to Financial Statements.................................................................. F-76
</TABLE>
F-1
<PAGE> 101
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
of Paxson Communications Corp.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in common
stockholders' equity and of cash flows present fairly, in all material respects,
the financial position of Paxson Communications Corp. and its subsidiaries (the
"Company") at December 31, 1994 and 1993, and the 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. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. The financial statements of the Company for the year ended December 31,
1992 were audited by other independent accountants whose report dated June 20,
1994 expressed an unqualified opinion on those statements.
/s/ Price Waterhouse LLP
- --------------------------------------
PRICE WATERHOUSE LLP
Tampa, Florida
March 15, 1995
F-2
<PAGE> 102
PAXSON COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 21,571,658 $ 7,019,747
Accounts receivable, less allowance for doubtful accounts of
$556,950 and $212,244, respectively....................... 13,569,198 6,366,719
Related party note receivable................................ 1,750,000 1,750,000
Prepaid expenses and other current assets.................... 1,579,954 1,423,335
Current deferred income taxes................................ 194,940 --
Current program rights....................................... 1,980,000 --
------------- ------------
Total current assets................................. 40,645,750 16,559,801
Property and equipment, net.................................... 45,350,430 20,900,713
Intangible assets, net......................................... 53,350,967 25,362,841
Other assets, net.............................................. 13,078,346 3,751,253
Program rights, net............................................ 244,888 --
------------- ------------
Total assets......................................... $ 152,670,381 $ 66,574,608
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..................... $ 5,123,691 $ 1,088,409
Current portion of program rights payable.................... 986,562 --
Current portion of long-term debt............................ 6,393,415 401,632
Current deferred income taxes................................ -- 2,175,191
------------- ------------
Total current liabilities............................ 12,503,668 3,665,232
Program rights payable......................................... 562,770 --
Long-term debt................................................. 76,013,542 32,206,770
Deferred income taxes.......................................... 1,474,940 784,809
Minority interest.............................................. 1,217,314 --
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of the consolidated financial statements.
F-3
<PAGE> 103
PAXSON COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1993
------------ -----------
<S> <C> <C>
Redeemable Cumulative Compounding Senior preferred stock,
$0.001 par value; 15% dividend rate per annum, 2,000 shares
authorized, issued and outstanding in 1994 and 1993.......... 14,060,054 11,634,907
Redeemable Class A & B common stock warrants................... 1,735,979 2,163,633
Redeemable Cumulative Compounding Series B preferred stock,
$0.001 par value; 15% dividend rate per annum, 714.286 shares
authorized, issued and outstanding in 1994................... 1,274,671 --
Redeemable Cumulative Compounding Junior preferred stock,
$0.001 par value; 12% dividend rate per annum, 33,000 shares
authorized, issued and outstanding in 1994................... 26,808,053 --
Common stock, $0.001 par value; 1,500 shares authorized; 1,200
shares issued and outstanding in 1993........................ -- 1
Class A common stock, $0.001 par value; one vote per share;
150,000,000 shares authorized, 26,042,561 and 23,686,461 (pro
forma) shares issued and outstanding, in 1994 and 1993,
respectively................................................. 26,042 --
Class B common stock, $0.001 par value; ten votes per share,
35,000,000 shares authorized, 8,311,639 and 7,895,487 (pro
forma) shares issued and outstanding, in 1994 and 1993,
respectively................................................. 8,312 --
Class C common stock, $0.001 par value; non-voting; 12,500,000
shares authorized, 0 shares issued and outstanding........... -- --
Class C common stock warrants.................................. 5,338,952 --
Stock subscription notes receivable............................ (77,666) --
Additional paid-in capital..................................... 20,647,647 16,895,623
Accumulated deficit............................................ (8,923,897) (776,367)
Commitments and contingencies (Notes 15 and 16)
------------ -----------
Total liabilities and stockholders' equity........... $152,670,381 $66,574,608
=========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of the consolidated financial statements.
F-4
<PAGE> 104
PAXSON COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992
----------- ------------ -----------
<S> <C> <C> <C>
Revenue:
Local and national advertising............................. $56,668,983 $ 29,405,559 $15,342,982
Retail and other........................................... 2,779,215 1,655,155 967,422
Trade...................................................... 2,619,245 1,001,317 751,433
----------- ------------ -----------
Total revenue................................................ 62,067,443 32,062,031 17,061,837
----------- ------------ -----------
Operating expenses:
Direct..................................................... 16,221,385 8,645,094 4,505,274
Programming................................................ 8,750,624 5,291,237 2,259,450
Sales and promotion........................................ 5,753,025 3,507,480 2,357,020
Technical.................................................. 2,113,117 1,543,583 1,560,304
General and administrative................................. 11,689,343 7,323,352 5,742,974
Trade...................................................... 2,426,118 1,029,105 544,583
Retail..................................................... 568,372 834,314 418,535
Time brokerage agreement fees.............................. 503,698 698,463 533,548
Sports rights fees......................................... 2,379,516 -- --
Program rights amortization................................ 820,754 -- --
Depreciation and amortization.............................. 12,403,528 9,350,633 5,977,301
----------- ------------ -----------
Total operating expenses..................................... 63,629,480 38,223,261 23,898,989
----------- ------------ -----------
Loss from operations......................................... (1,562,037) (6,161,230) (6,837,152)
Other income (expense):
Interest expense, net...................................... (4,874,710) (2,052,406) (1,262,308)
Gain (loss) on sale of radio broadcasting station.......... 28,105 427,397 (40,282)
Other income (expense), net................................ (33,432) (205,614) 175,163
----------- ------------ -----------
Loss before benefit (provision) for income taxes and
extraordinary item......................................... (6,442,074) (7,991,853) (7,964,579)
Benefit (provision) for income taxes......................... 1,680,000 (2,960,000) --
----------- ------------ -----------
Net loss before extraordinary item and change in accounting
principle.................................................. (4,762,074) (10,951,853) (7,964,579)
Extraordinary item........................................... -- (457,147) --
Cumulative effect of a change in accounting principle........ -- -- 109,540
----------- ------------ -----------
Net loss..................................................... (4,762,074) (11,409,000) (7,855,039)
Dividends and accretion on preferred stock and common stock
warrants................................................... (3,385,456) (151,367) --
----------- ------------ -----------
Net loss attributable to common stock and common stock
equivalents................................................ $(8,147,530) $(11,560,367) $(7,855,039)
============ ============= ============
Pro forma per share data (Note 1):
Pro forma net loss before extraordinary item............... $ (0.14) $ (0.35)
Extraordinary item........................................... -- (0.01)
----------- ------------
Pro forma net loss........................................... (0.14) (0.36)
Dividends and accretion on preferred stock and common stock
warrants................................................... (0.10) (0.01)
----------- ------------
Pro forma net loss attributable to common stock and common
stock equivalents.......................................... $ (0.24) $ (0.37)
============ =============
Pro forma weighted average shares outstanding -- primary and
fully diluted.............................................. 33,430,116 31,581,948
============ =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of the consolidated financial statements.
F-5
<PAGE> 105
PAXSON COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS C STOCK
COMMON STOCK COMMON SUBSCRIPTION ADDITIONAL
---------------------------- COMMON STOCK NOTES PAID-IN ACCUMULATED
CLASS A CLASS B CLASS C STOCK WARRANTS RECEIVABLE CAPITAL DEFICIT
-------- -------- ------- ------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992..... $ 1 $10,850,892 $ (1,428,008)
Stockholder capital
contributions................ 16,760,110
Stockholder capital
distributions................ (4,000,000)
Net loss....................... (7,855,039)
-------- -------- ------- ------ ---------- ------------ ----------- ------------
Balance at December 31, 1992... 1 23,611,002 (9,283,047)
Stockholder capital
contributions................ 13,351,668
Net loss prior to
reorganization on December
15, 1993..................... (10,784,000)
Reclassification of
undistributed deficit prior
to reorganization............ (20,067,047) 20,067,047
Dividends on redeemable
preferred stock.............. (97,808)
Accretion on Senior redeemable
preferred stock.............. (15,144)
Accretion on Class A & B common
stock warrants............... (38,415)
Net loss subsequent to
reorganization on December
15, 1993..................... (625,000)
-------- -------- ------- ------ ---------- ------------ ----------- ------------
Balance at December 31, 1993... 1 16,895,623 (776,367)
Recapitalization of common
stock........................ $15,791 $5,264 (1) (21,054)
Stock issued for ANG
acquisition.................. 1,570 277 $(77,666) 3,784,530
Net proceeds from issuance of
common stock warrants........ $5,338,952
Dividends on redeemable
preferred stock.............. (2,216,137)
Accretion on Senior preferred
stock........................ (325,147)
Accretion on Series B preferred
stock........................ (7,968)
Accretion on Junior preferred
stock........................ (15,648)
Accretion on Class A & B common
stock warrants............... (820,556)
Net loss....................... (4,762,074)
Stock dividend................. 8,681 2,771 (11,452)
-------- -------- ------- ------ ---------- ------------ ----------- ------------
Balance at December 31, 1994... $26,042 $8,312 $ 0 $ 0 $5,338,952 $(77,666) $20,647,647 $ (8,923,897)
======== ======= ======= ======== ========== =========== ============ =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of the consolidated financial statements.
F-6
<PAGE> 106
PAXSON COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (4,762,074) $(11,409,000) $ (7,855,039)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................. 12,403,528 9,350,633 5,977,301
Program rights amortization.................... 820,754 -- --
(Gain) loss on sale of assets.................. (28,105) (427,397) 40,282
Provision for doubtful accounts................ 344,706 89,681 109,900
(Benefit) provision for income taxes........... (1,680,000) 2,960,000 --
Loss on extinguishment of long-term debt....... -- 457,147 --
Change in accounting principle................. -- -- (109,540)
Decrease (increase) in accounts receivable..... (1,683,664) 470,942 (6,374,819)
Decrease (increase) in prepaid expenses and
other current assets........................ 234,301 1,308,404 (2,554,721)
Decrease in intangible assets.................. -- 175,452 125,007
Increase in other assets....................... (392,504) (20,731) (166,432)
(Decrease) increase in accounts payable and
accrued liabilities......................... (177,542) (109,491) 893,373
------------ ------------ ------------
Net cash provided by (used in) operating
activities.................................. 5,079,400 2,845,640 (9,914,688)
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of broadcasting properties........ (56,143,061) (32,145,000) (19,360,000)
Deposits on broadcasting properties............ (4,291,241) -- --
Deposits on buildings and equipment............ (642,890) -- --
Proceeds from sale of radio broadcasting
station..................................... 200,000 5,010,000 --
Purchases of property and equipment............ (5,916,512) (1,962,553) (1,273,388)
Increase in related party note receivable...... -- (1,750,000) --
------------ ------------ ------------
Net cash used for investing activities......... (66,793,704) (30,847,553) (20,633,388)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt................... 50,000,000 38,100,000 19,000,000
Payments of long-term debt..................... (401,500) (27,001,362) (12,019)
Payments of loan origination costs and interest
rate caps................................... (5,030,352) (3,730,836) (640,237)
Payments for program rights.................... (335,646) -- --
Net proceeds from issuance of redeemable
preferred stock............................. 26,694,761 11,521,955 --
Net proceeds from issuance of common stock
warrants.................................... 5,338,952 2,125,218 --
Net stockholder capital contributions.......... -- 13,351,668 12,760,110
------------ ------------ ------------
Net cash provided by financing activities...... 76,266,215 34,366,643 31,107,854
------------ ------------ ------------
Increase in cash and cash equivalents............ 14,551,911 6,364,730 559,778
Cash and cash equivalents at beginning of year... 7,019,747 655,017 95,239
------------ ------------ ------------
Cash and cash equivalents at end of year......... $ 21,571,658 $ 7,019,747 $ 655,017
=========== =========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of the consolidated financial statements.
F-7
<PAGE> 107
PAXSON COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid for interest......................... $ 4,765,800 $ 2,321,400 $ 1,129,331
=========== =========== ===========
Cash paid for income taxes..................... -- -- --
=========== =========== ===========
Non-cash operating and financing activities:
Issuance of common stock in connection with the
merger with ANG............................. $ 3,786,377 -- --
=========== =========== ===========
Dividends on redeemable preferred stock........ $ 2,216,137 $ 97,808 --
=========== =========== ===========
Accretion on redeemable securities............. $ 1,169,319 $ 53,559 --
=========== =========== ===========
Issuance of Series B preferred stock........... $ 1,248,209 -- --
=========== =========== ===========
Trade revenue.................................. $ 2,619,245 $ 1,001,317 $ 751,433
=========== =========== ===========
Trade expense.................................. $ 2,426,118 $ 1,029,105 $ 544,583
=========== =========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of the consolidated financial statements.
F-8
<PAGE> 108
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Paxson Communications Corp. (the "Company"), a Delaware corporation, was
organized in December 1993 for the purpose of owning and operating radio and
television broadcasting stations and networks. The radio broadcasting activities
were previously operated by Paxson Enterprises, Inc. and related Paxson
Affiliates from the beginning of 1991 (all under common control of Mr. Lowell W.
Paxson, collectively referred to herein as "Enterprises"). On December 15, 1993,
Enterprises reorganized and consolidated the radio broadcasting activities
within the Company in exchange for 1,200 shares of Company common stock. The
Company accounted for the reorganization and consolidation in a manner similar
to the pooling of interests accounting method as the transactions took place
within entities under common control. Accordingly, all financial data, prior to
December 15, 1993, have been consolidated to include the operating results of
Enterprises' radio broadcasting stations, and the undistributed deficit prior to
the reorganization has been reclassified to additional paid-in capital.
On April 14, 1994, the Company acquired 68.1% of the common voting stock of
The American Network Group, Inc. ("ANG"), a publicly traded company, for $2.5
million. As a result, the Company has consolidated the financial results of ANG
since April 14, 1994. On November 4, 1994, a majority of the non-affiliated ANG
stockholders approved a merger, whereby ANG merged into the Company and,
accordingly, the holders of ANG common stock received the Company's Class A
common stock in exchange for ANG common stock outstanding. Additionally, upon
commencement of the merger, the Company shares exchanged for the ANG shares,
which were previously publicly traded, were listed on the NASDAQ Small-Cap
Exchange. These publicly traded shares represent approximately 3% of the
Company's Class A common shares outstanding and less than 1% of the Company's
voting power.
In connection with the merger with ANG, the Company amended its capital
structure to provide two classes of common voting stock, Class A common stock
and Class B common stock. Upon consummation of the recapitalization, the
Company's unclassified common stock outstanding was converted into 15,790,974
shares of Class A common stock and 5,263,658 shares of Class B common stock. The
pro forma effect of this conversion on the related Company common shares has
been included in the Company's balance sheet assuming the recapitalization
occurred at December 31, 1993. The pro forma net loss per share data has been
presented on the Company's statement of operations based on the weighted average
common shares outstanding after giving effect to the recapitalization.
On December 22, 1994, the Company amended its capital structure to
designate its preferred stock as 1,000,000 shares including: Senior preferred
stock -- 15% Cumulative Compounding Redeemable Stock; Series B preferred
stock -- 15% Cumulative Compounding Redeemable Stock, and Junior preferred stock
- -12% Cumulative Compounding Redeemable Stock and its common stock as 192,500,000
shares including: Class A common stock, one vote per share, 150,000,000 shares
authorized (increased from 45,000,000 shares); Class B common stock, ten votes
per share, 30,000,000 shares authorized (increased from 7,000,000 shares); and
Class C common stock, non-voting, 12,500,000 shares authorized. Additionally,
the Company announced a stock dividend for its common stock of an additional
one-half share for each common share outstanding for holders of record on
January 1, 1995. Accordingly, all Company common stock data has been
retroactively restated for the effects of the stock dividend for all periods
presented.
F-9
<PAGE> 109
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
Operations
At December 31, 1994, the Company owns and operates fifteen radio stations,
seven radio networks and two television stations and operates (under time
brokerage agreements) one radio station and three television stations located
primarily in the Southeastern United States as follows:
<TABLE>
<CAPTION>
RADIO HOLDINGS:
RADIO MARKET STATION FORMAT OWNED SINCE
- --------------------- --------------------- ------------------------------- --------------
<S> <C> <C> <C>
Miami, FL WLVE-FM New Adult Jazz 1993
WZTA-FM Classic Rock 1992
WINZ-AM News and Sports 1992
Tampa, FL WHPT-FM Rock/Adult Contemporary 1991
WHNZ-AM News and Sports 1991
Orlando, FL WMGF-FM Soft Adult Contemporary 1993
WJRR-FM Album Oriented Rock 1993
WWNZ-AM News 1992
WWZN-AM Sports 1994
Jacksonville, FL WROO-FM Country 1991
WAIA-FM Classic Rock 1993
WNZS-AM Sports 1993
WZNZ-AM News 1993
Cookeville, TN WGSQ-FM Country 1994
WPTN-AM News/Talk 1994
</TABLE>
<TABLE>
<CAPTION>
RADIO NETWORKS:
MARKET NETWORK AFFILIATION OWNED SINCE
- --------------------- --------------------- ------------------------------- --------------
<S> <C> <C> <C>
Florida Florida Radio -- 1993
Florida Sports University of Florida 1994
Tennessee Tennessee Radio -- 1994
South Carolina South Carolina Radio -- 1994
Pennsylvania Penn State Sports Pennsylvania State 1994
University
Virginia Virginia Sports Virginia Polytechnic Institute 1994
Georgia Georgia Sports University of Georgia 1994
</TABLE>
<TABLE>
<CAPTION>
TELEVISION HOLDINGS:
TELEVISION MARKET STATION AFFILIATION OWNED SINCE
- --------------------- --------------------- ------------------------------- --------------
<S> <C> <C> <C>
West Palm Beach, FL WPBF-TV ABC 1994
Atlanta, GA WTLK-TV Independent 1994
</TABLE>
<TABLE>
<CAPTION>
TIME BROKERAGE RADIO STATION:
RADIO MARKET STATION FORMAT BROKERED SINCE
- --------------------- --------------------- ------------------------------- --------------
<S> <C> <C> <C>
Tampa, FL WNZE-AM Sports 1994
</TABLE>
<TABLE>
<CAPTION>
TIME BROKERAGE TELEVISION STATION:
TELEVISION MARKET STATION AFFILIATION BROKERED SINCE
- --------------------- --------------------- ------------------------------- --------------
<S> <C> <C> <C>
Miami, FL WCTD-TV Independent 1994
Tampa, FL WFCT-TV Independent 1994
Orlando, FL WIRB-TV Independent 1994
</TABLE>
F-10
<PAGE> 110
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
Principles of Consolidation
The consolidated financial statements include accounts of the Company and
its subsidiaries. All intercompany balances and transactions have been
eliminated.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
Property and Equipment
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Broadcasting towers and equipment............................. 6-13 years
Office furniture and equipment................................ 6-10 years
Buildings and building improvements........................... 40 years
Leasehold improvements........................................ Term of lease
Vehicles and other............................................ 5 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred. The Company periodically assesses its property and
equipment and other long term assets for impairment.
Intangible Assets
Intangible assets are stated at cost and are being amortized using the
straight-line method over the estimated useful life as follows:
<TABLE>
<S> <C>
FCC licenses.................................................. 25 years
Covenants not to compete...................................... Contract term
Favorable lease and other radio contracts..................... Contract term
Goodwill...................................................... 25 years
</TABLE>
Excess Costs Over Acquired Net Assets
The excess cost over acquired net assets has been capitalized as goodwill
and is being amortized on a straightline basis over 25 years. The Company
periodically reviews the valuation of goodwill for impairment.
Other Assets
Loan origination costs and interest rate cap agreements are stated at cost
and are amortized over the life of the loan or agreement using the effective
interest method. Interest rate cap agreements are amortized to interest expense.
Escrow funds represent funds held in escrow on acquisitions pending FCC
approval. Other assets are stated at cost.
Program Rights
The Company obtains licenses for program rights which allow the Company to
broadcast program material in accordance with contractual agreements. Pursuant
to a licensing agreement, an asset is recorded for the program rights acquired
and a liability is recorded for the obligation incurred, at the gross amount of
the liability. Program rights are amortized on a method that approximates the
straight-line basis over the related term. Program rights which will not be
aired are charged to expense. Current program rights represent
F-11
<PAGE> 111
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
programs which will be amortized during the next year; current liabilities
represent program rights which will be paid within the next year under
contractual arrangements.
Minority Interest
Minority interest represents the third party limited partners' interest in
the radio broadcasting stations located in Cookeville, Tennessee and minority
shareholders' interest in a start-up travel agency.
Redeemable Preferred Stock -- Senior, Series B & Junior and Redeemable
Common Stock Warrants
The differences between the fair value of the redeemable preferred stock
(Senior, Series B and Junior) at their date of issue and their redemption values
are being accreted using the effective interest method. The differences between
the fair value of the redeemable common stock warrants (Class A and B) at their
date of issue and their redemption values are being accreted on a straight line
method.
Stock Subscription Notes Receivable
In conjunction with the merger with ANG, the Company acquired and reissued
stock subscription notes receivable in exchange for shares of the Company Class
A common stock.
Revenue Recognition
Revenue is recognized as advertising air time is broadcast.
Trade and Barter Agreements
The Company enters into trade and barter agreements which give rise to
sales of advertising air time in exchange for products, services and
programming. Sales from trade and barter agreements are recognized at the fair
market value of products, services or programs received as the related
advertising air time is broadcast. Products, services and programs received are
expensed when used or when programs are broadcast. If the Company uses trade
products or services before advertising air time is provided, a trade liability
is recognized.
Time Brokerage Agreements
The Company operates certain stations under time brokerage agreements
("TBA's"). Under TBA's, the stations' operating revenues and expenses are
controlled by the Company and, accordingly, are reflected in the Company's
financial statements over the term of the TBA. A monthly time brokerage fee is
paid to the licensees of these stations.
Income Taxes
Provisions are made to record deferred income taxes in recognition of items
reported differently for financial reporting purposes than for federal and state
income tax purposes. The Company records deferred income taxes using the
liability method in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes".
Prior to the reorganization and consolidation on December 15, 1993,
Enterprises operated in the form of partnerships and S corporations for federal
and state income tax purposes. Therefore, all income and loss for that period
was taxed at the partner and stockholder level and no provision for income taxes
was recorded.
The Company and its subsidiaries have filed consolidated tax returns for
all periods subsequent to December 15, 1993.
F-12
<PAGE> 112
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
A pro forma provision (benefit) for income taxes to reflect the effect on
the Statement of Operations had Enterprises filed a consolidated income tax
return for all periods, prior to the aforementioned reorganization and
consolidation on December 15, 1993, is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-----------------------------
1993 1992
----------- -----------
<S> <C> <C>
Tax benefit for net operating loss.......................... $(3,159,146) $(2,940,799)
Valuation allowance for net operating loss carryforward..... 3,159,146 2,940,799
----------- -----------
Provision for income taxes.................................. $ 0 $ 0
========== ==========
</TABLE>
Change in Accounting Principle
In 1992, depreciation was computed on all property and equipment using the
straight line method. The straight line method was adopted to recognize
depreciation expense in accordance with the estimated use of depreciable assets
over their service lives. In 1991, depreciation amounts were computed using the
declining balance method. As a result of this change, net loss before the
cumulative effect of a change in accounting principle increased by approximately
$669,000 for the year ended December 31, 1992. The cumulative effect on the
prior year, 1991, of the change in depreciation method was $109,540.
F-13
<PAGE> 113
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
2. ACQUISITIONS AND DISPOSITIONS:
Acquisitions
In 1994 and 1993, the Company purchased the assets of the following radio
broadcasting stations, radio networks and television broadcasting stations.
<TABLE>
<CAPTION>
ACQUISITION/TBS
DATE STATION/NETWORK MARKET ACQUISITION PRICE
- --------------- -------------------------- -------------------- -----------------
<S> <C> <C> <C>
December 1994 WGTO-AM(1) Orlando, FL $ 1,550,000
December 1994 WIRB-TV* Orlando, FL *
August 1994 WNZE-AM(2) Tampa, FL $ 1,100,000
August 1994 WFCT-TV* Tampa, FL $ 1,120,000
July 1994 WPBF-TV West Palm Beach, FL $32,500,000
July 1994 WTLK-TV*** Atlanta, GA $ 9,500,000
April 1994 WGSQ-FM Cookeville, TN **
April 1994 WPTN-AM Cookeville, TN **
April 1994 Florida Sports Network Florida **
April 1994 Tennessee Radio Network Tennessee **
South Carolina Radio
April 1994 Network South Carolina **
April 1994 Penn State Sports Network Pennsylvania **
April 1994 Virginia Sports Network Virginia **
April 1994 Georgia Sports Network Georgia **
April 1994 WCTD-TV* Miami, FL $ 3,300,000
May 1993 WMGF-FM*** Orlando, FL $ 6,250,000
May 1993 WJRR-FM*** Orlando, FL $ 6,700,000
May 1993 WWZN-AM***(3) Orlando, FL $ 250,000
May 1993 WA1A-FM*** Jacksonville, FL $ 2,000,000
May 1993 WZNZ-AM*** Jacksonville, FL $ 500,000
May 1993 WNZS-AM Jacksonville, FL $ 450,000
March 1993 WLVE-FM Miami, FL $14,950,000
March 1993 Florida Radio Network Florida $ 1,100,000
</TABLE>
- ---------------
(1) Renamed WWZN-AM by the Company in December 1994.
(2) Acquisition closed in February 1995.
(3) Sold by the Company in November 1994.
* The Company operates under a time brokerage agreement and does not own the
FCC licenses.
** Acquired in conjunction with the merger with ANG (Note 1).
*** Previously operated under a time brokerage agreement.
F-14
<PAGE> 114
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
Dispositions
In 1994 and 1993, the Company disposed of the assets of the following radio
broadcasting stations.
<TABLE>
<CAPTION>
DISPOSITION DISPOSITION
DATE STATION MARKET PRICE GAIN
- -------------- -------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
November 1994 WWZN-AM Orlando, FL $ 300,000 $ 28,105
March 1993 WWNZ-FM Orlando, FL $ 5,010,000 $ 427,397
</TABLE>
Pro Forma Financial Information (unaudited)
The following pro forma financial information represents the unaudited pro
forma results of operations as if the aforementioned acquisitions had been
completed at the beginning of 1993 and 1994, after giving effect to certain
adjustments, including increased depreciation and amortization of property and
equipment and intangible assets and interest expense for acquisition debt. These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations which would have been
achieved had these acquisitions been completed as of these dates, nor are the
results indicative of the Company's future results of operations.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
------------------------------
1993
------------
1994 (UNAUDITED)
-----------
(UNAUDITED)
<S> <C> <C>
Revenues............................................... $71,013,521 $ 56,199,603
----------- ------------
Income (loss) from operations.......................... $(2,733,637) $ (8,892,846)
----------- ------------
Net loss attributable to common stock and common stock
equivalents.......................................... $(8,649,191) $(21,812,057)
----------- ------------
Net loss per share attributable to common stock and
common stock equivalents............................. $ (0.26) $ (0.69)
----------- ------------
Pro forma weighted average shares outstanding.......... 33,430,116 31,581,948
========== ===========
</TABLE>
3. RELATED PARTIES:
During 1994 and 1993, the Company entered into certain operating and
financing transactions with related parties as described below.
The Christian Network
The Company has entered into several agreements with The Christian Network,
Inc. ("CNI"), a not-for-profit ministry founded by Mr. Paxson.
In December 1994, CNI entered into a time brokerage agreement with the
owners of a television broadcasting station, WIRB-TV, Melbourne, Florida. CNI
assigned its rights and obligations under the time brokerage agreement to the
Company. Additionally, CNI entered into an asset purchase agreement in which CNI
would purchase substantially all the tangible, real and intangible assets of the
station for $3,800,000. The Company has guaranteed CNI's obligations under the
asset purchase agreement. The transaction will take place upon FCC approval.
In April 1994, CNI purchased WCTD-TV, an independent television
broadcasting station in Miami, Florida, for $4,400,000. The Company acquired
certain of the WCTD-TV broadcasting assets for $3,300,000, as part of the CNI
acquisition, as well as an option to acquire the station from CNI. The option is
exercisable over a five year period upon payment to CNI of $100,000 plus the
remaining principal on its third party
F-15
<PAGE> 115
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
$1,100,000 note payable. The note amortizes monthly over a five year period
concurrent with the option agreement. The Company leases the broadcasting assets
it acquired to CNI for operation at WCTD-TV under a five year lease agreement
for approximately $5,000 per month. Additionally, the Company purchases up to
twelve hours per day of broadcasting time on WCTD-TV from CNI under a five-year
time brokerage agreement for approximately $35,000 per month.
In June 1994, the Company and CNI agreed to assist Bradenton Broadcast
Television Company Ltd., ("BBTC") in the construction and operation of an
independent television broadcasting station WFCT-TV, in Bradenton, Florida
serving the Tampa Bay, Florida market. CNI leases the Company related studio
facilities under a five year agreement for approximately $150,000 per annum. The
Company has an option to purchase the station license for approximately
$191,000. The Company leases certain broadcasting assets to BBTC for fees of
$60,000 per annum. Additionally, the Company entered into a partial time
brokerage agreement with BBTC and CNI, whereby the Company purchases up to
twelve hours per day of broadcasting time from BBTC for a monthly fee of
approximately $3,500. The station began broadcasting on August 1, 1994.
Todd Communications
Mr. Paxson contributed a demand note receivable with Todd Communications,
Inc., a related party owner of WFSJ-FM (St. Augustine, Florida), formerly
WSTF-FM, in the amount of $1,750,000. The note receivable accrues interest at
the short-term annual Applicable Federal Rate prescribed by the Internal Revenue
Service, with the balance of principal and interest due upon demand. Interest
income received related to the note aggregated $70,900 for the year ended
December 31, 1994. The Company performs limited sales support and administrative
functions for Todd Communications, Inc. which is billed for efforts expended.
Marketing Magic
During 1994, the Company formed a travel agency, The World Travelers
Network, with Marketing Magic. During 1994, Marketing Magic brokered advertising
space and time and other goods and services to the Company through both trade
and cash transactions of approximately $1,500,000.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Broadcasting towers and equipment................. $39,445,071 $15,745,386
Office furniture and equipment.................... 5,075,412 3,727,183
Buildings and leasehold improvements.............. 4,302,476 3,064,918
Land and land improvements........................ 3,142,532 2,238,257
Vehicles and other................................ 3,877,851 1,233,168
----------- -----------
55,843,342 26,008,912
Accumulated depreciation.......................... (10,492,912) (5,108,199)
----------- -----------
Property and equipment, net....................... $45,350,430 $20,900,713
========== ==========
</TABLE>
Depreciation expense aggregated $5,433,038, $2,804,157 and $1,979,491 for
the three years ended December 31, 1994.
F-16
<PAGE> 116
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
5. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
FCC licenses...................................... $42,332,125 $17,262,192
Covenants not to compete.......................... 11,811,375 11,147,875
Favorable lease and other contracts............... 6,514,507 6,111,100
Goodwill.......................................... 7,819,778 58,643
----------- -----------
68,477,785 34,579,810
Accumulated amortization.......................... (15,126,818) (9,216,969)
----------- -----------
Intangible assets, net............................ $53,350,967 $25,362,841
========== ==========
</TABLE>
Amortization expense aggregated $5,940,575, $5,927,744 and $3,866,024 for
the three years ended December 31, 1994.
6. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
----------- ----------
<S> <C> <C>
Loan origination costs............................. $ 7,739,288 $3,730,836
Escrow funds for station acquisitions.............. 4,291,241 --
Interest rate caps, net............................ 983,803 290,219
Deposits on building and equipment................. 642,890 --
Organization costs................................. 407,672 331,036
Other assets....................................... 724,835 80,651
----------- ----------
14,789,729 4,432,742
Accumulated amortization........................... (1,711,383) (681,489)
----------- ----------
Other assets, net.................................. $13,078,346 $3,751,253
========== =========
</TABLE>
Amortization expense aggregated $1,029,915, $618,732 and $131,786 for the
three years ended December 31, 1994.
7. PROGRAM RIGHTS:
Program rights relate to the broadcast operations of WPBF-TV, purchased in
July 1994, and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Program rights.................................. $ 3,045,642
Accumulated amortization........................ (820,754)
------------
2,224,888
Less current program rights..................... (1,980,000)
------------
$ 244,888
==========
</TABLE>
F-17
<PAGE> 117
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
Program rights amortization expense aggregated $820,754 for the year ended
December 31, 1994.
8. PROGRAM RIGHTS PAYABLE:
Program rights payable represent the obligation incurred to secure the
right to broadcast program material in accordance with a contractual agreement.
Future minimum annual payments under these contractual agreements as of December
31, 1994, are as follows:
<TABLE>
<S> <C>
1995............................................. $ 986,562
1996............................................. 431,008
1997............................................. 131,762
----------
$1,549,332
=========
</TABLE>
9. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
Revolving credit loans, total commitment of $150,000,000,
interest at LIBOR plus 2.75% (averaged 8.06% at December
31, 1994) payable quarterly, principal payments due
quarterly from December 31, 1995 to June 30, 2001......... $82,000,000 $32,000,000
Note payable, $1,100,000 principal, interest at 8.5% payable
monthly, principal payments of $100,000 due monthly
through April 1994........................................ -- 400,000
Mortgage note payable, $211,000 principal, interest at
9.75%, principal and interest payment of $1,813 due
monthly from January 1991 to December 1998, remaining
balance due December 1998................................. 206,902 208,402
Mortgage note payable, $200,055 principal, interest at 10%,
principal and interest payment of $3,000 due monthly from
January 1995 to April 1999, remaining balance due April
1999...................................................... 200,055 --
----------- -----------
82,406,957 32,608,402
Less current portion........................................ (6,393,415) (401,632)
----------- -----------
$76,013,542 $32,206,770
========== ==========
</TABLE>
On March 31, 1993, the Company executed an agreement with certain foreign
and domestic banks for revolving credit loans totalling $32,000,000. The
agreement was amended in December 1993 and in July 1994 to increase the facility
to include term and revolving loan commitments to $40,000,000 and $150,000,000,
respectively. Interest on the facility accrues at an initial rate of LIBOR plus
2.75%, decreasing to LIBOR plus 1.75% based on operating cash flows achieved
(interest at December 31, 1994 accrued at LIBOR plus 2.75%). Principal payments
are due from December 1995 to June 2001. These term and revolving credit loans
are secured by certain radio and television broadcasting assets and subsidiary
guarantees. Additionally, the credit agreement limits the distribution of cash
dividends from the radio and television broadcasting subsidiaries to other
Company entities.
The term and revolving credit agreement contains a number of covenants (all
of which the Company was in compliance with at December 31, 1994) that, among
other things, require the Company to maintain interest rate cap protection for
75% of the loan balance, maintain specified financial ratios and place certain
limitations on asset sales and purchases, incurrences of additional indebtedness
and liens related to leases,
F-18
<PAGE> 118
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
changes in business or capital structure, and transactions with affiliates. The
credit agreement requires a maximum commitment fee of 0.375% per annum on the
daily average amount of available revolving credit commitments.
In December 1994, in conjunction with the purchase of WWZN-AM, Orlando,
Florida, formerly WGTO-AM, the Company assumed a mortgage of $200,055, with
monthly payments due until April 1999.
In March 1993, the Company extinguished a $21,300,000 credit agreement.
Loan origination costs of $457,147 associated with the debt have been retired
and reflected as an extraordinary item.
Aggregate maturities of long-term debt at December 31, 1994 for the next
five years are as follows:
<TABLE>
<S> <C>
1995............................................ $ 6,393,415
1996............................................ 10,645,339
1997............................................ 21,772,464
1998............................................ 24,973,954
1999............................................ 18,621,785
------------
$ 82,406,957
==========
</TABLE>
10. INCOME TAXES:
As a result of the reorganization and consolidation on December 15, 1993,
the tax status of the Company changed to a taxable entity requiring the
cumulative change in tax status to be computed as of that date and be reflected
in the current year tax provision for continuing operations reflecting the
cumulative differences between the tax basis and book basis of assets and
liabilities.
Significant components of the (benefit) provision for income taxes are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
--------------------------
1994 1993
----------- ----------
<S> <C> <C>
Current tax (benefit) expense
Federal............................................... -- --
State................................................. -- --
----------- ----------
Total current.................................... -- --
----------- ----------
Deferred tax (benefit) expense
Federal............................................... $(1,503,200) $2,674,000
State................................................. (176,800) 286,000
----------- ----------
Total deferred............................................. (1,680,000) 2,960,000
----------- ----------
Total (benefit) provision.................................. $(1,680,000) $2,960,000
========== =========
</TABLE>
F-19
<PAGE> 119
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
Significant components of the Company's deferred tax liabilities (assets)
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
----------- ----------
<S> <C> <C>
Deferred taxes -- current:
Assets
Doubtful accounts allowance and other......................... $ (194,940) $ (159,173)
Net operating loss carryforward............................... -- (235,187)
Liabilities
Unrecognized cash to accrual adjustments...................... -- 2,334,364
----------- ----------
(194,940) 1,940,004
Deferred tax asset valuation allowance for net operating loss
carryforwards................................................ -- 235,187
----------- ----------
Deferred tax (asset) liability -- current.......................... (194,940) 2,175,191
----------- ----------
Deferred taxes -- noncurrent:
Assets
Net operating loss carryforward.......................... (4,126,507) --
Liability
Tax over book depreciation and amortization................... 1,474,940 784,809
Deferred tax asset valuation allowance for net
operating loss carryforwards................................ 4,126,507 --
----------- ----------
Deferred tax liability -- non-current......................... 1,474,940 784,809
----------- ----------
$ 1,280,000 $2,960,000
========== =========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. A valuation allowance
has been provided for the net operating loss carryforwards. A portion of the net
operating losses were acquired in the acquisition of ANG. Future recognition of
the benefit from these losses will be applied first to reduce goodwill related
to the acquisition, then to reduce other non-current intangible assets related
to the acquisition and then to reduce income tax expense.
The reconciliation of income tax benefit attributable to continuing
operations, computed at U.S. Federal Statutory tax rates, to provision for
income taxes is:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Tax benefit at U.S. Federal Statutory tax rates................... $(2,190,305) $(2,717,230)
State income tax benefit, net of federal benefit.................. (257,682) (290,104)
Tax benefits attributable to losses recognized for book purposes
in period that Enterprises operated as non-taxable entities..... -- 3,397,783
Deferred taxes attributable to income recognized on accrual basis
for book purposes, in period that Enterprises operated as
non-taxable entities, but recognized for tax purposes after
reorganization.................................................. -- 2,334,364
Non-deductible items.............................................. 83,000 --
Valuation allowance for net operating loss carryforwards.......... 684,987 235,187
----------- -----------
(Benefit) provision for income taxes.............................. $(1,680,000) $ 2,960,000
========== ==========
</TABLE>
F-20
<PAGE> 120
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
The following table summarizes the Company's total (benefit) provision for
income taxes:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1994 1993
----------- ----------
<S> <C> <C>
Tax (benefit) provision before extraordinary item.................. $(1,680,000) $2,960,000
Extraordinary item................................................. -- --
----------- ----------
$(1,680,000) $2,960,000
========== =========
</TABLE>
Extraordinary item in 1993 relates to debt retirements in the period before
the Company reorganized on December 15, 1993 which are taxable at the
stockholder level and, accordingly, are not tax effected.
The Company has net operating loss carryforwards for income tax purposes of
approximately $10.8 million at December 31, 1994. Net operating losses expire
through 2009. A portion of the net operating losses relate to ANG and are
limited to annual utilization as a result of the change in ownership.
11. EMPLOYEE BENEFIT PLANS:
Savings and Profit Sharing Plan
In October 1991, the Company established retirement savings and cafeteria
plans pursuant to Sections 401(k) and 125 of the Internal Revenue Code which
cover substantially all of the Company's employees. Employer contributions to
the retirement savings plan are discretionary. The Company elected not to make
retirement savings contributions for the three plan years ended December 31,
1994. Under the cafeteria plan, employees may elect to participate in health,
dental, life and disability insurance benefit plans funded through employee
payroll deductions.
Stock Incentive Plan
On November 4, 1994, the Company instituted a stock incentive plan to
provide incentives to officers and employees through the issuance of options and
restricted stock. The options may be either in the form of incentive or
non-qualified stock options. The issuance, exercise price, exercise dates and
number of options are determined at the discretion of the Company's compensation
committee. The aggregate number of Company Class A common shares available for
issuance is 2,143,575 shares (after giving effect for the January 1, 1995 stock
dividend). At December 31, 1994, no options had been issued under this plan. On
February 13, 1995, options were authorized to be granted under the stock
incentive plan which would allow for the purchase of Class A common shares at an
exercise price of $3.42 per share. Subsequent to grant, such options may be
exercised by the officers or employees upon vesting.
12. REDEEMABLE PREFERRED STOCK:
Redeemable Senior Preferred Stock
Redeemable Senior preferred stock consists of 2,000 15% cumulative
compounding shares, par value of $0.001 per share, stated value of $7,000 per
share, issued with 225 detachable redeemable common stock purchase warrants
(exercisable into 3,116,865 shares of Company Class A common stock and 1,038,955
shares of Company Class B common stock after giving effect to the Company's
recapitalization and stock dividends, at $0.01 per share), issued on December
15, 1993 in exchange for $14,000,000. The holder of preferred stock is entitled
to preferential cumulative dividends at a rate of 15% per share, per annum,
payable quarterly commencing on December 31, 1993. These shares have
preferential liquidation rights and are entitled to elect 25% of the Company's
Board of Directors.
F-21
<PAGE> 121
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
The Senior preferred shares are redeemable, at the option of the holder, on
or after the seventh anniversary of the issue date (December 15, 2000) at $7,000
per share plus all accrued and unpaid dividends to date. The shares may also be
redeemed, at the option of the Company, on or after the fourth anniversary of
the issue date (December 15, 1997) at $7,000 per share plus all accrued and
unpaid dividends to date. The shares also provide redemption features in the
event of certain changes in ownership control of the Company, bankruptcy, and
twelve month dividend arrearages after the fifth anniversary of issue date
(December 15, 1998).
Cumulative preferred dividends in arrears aggregated $2,197,808 and $97,808
at December 31, 1994 and 1993, respectively.
Redeemable Series B Preferred Stock
Redeemable Series B preferred stock consists of 714.286 15% Cumulative
Compounding shares, par value of $0.001 per share, stated value of $7,000 per
share, issued on December 22, 1994 as a result of the call of 94.6223 detachable
redeemable common stock purchase warrants into 1,310,779 shares of Class A
common stock and 436,926 shares of Class B common stock which were then
surrendered for Series B preferred stock. The holder of Series B preferred stock
is entitled to cumulative dividends at a rate of 15% per share, per annum,
payable quarterly commencing on December 31, 1994. Series B preferred stock
ranks prior to all classes of Junior preferred stock and junior to Senior
preferred stock.
The Series B preferred shares are redeemable, at the option of the holder,
on or after December 15, 2000 at $7,000 per share plus all accrued and unpaid
dividends to date. The shares may also be redeemed at the option of the Company,
on or after December 15, 1997 at $7,000 per share plus all accrued and unpaid
dividends to date.
Cumulative Series B preferred dividends in arrears aggregated $18,493 at
December 31, 1994.
Redeemable Junior Preferred Stock
Redeemable Junior preferred stock consists of 33,000 cumulative compounding
shares, par value of $0.001 per share, stated value of $1,000 per share, issued
with 3,235,753 Class C common stock warrants, issued on December 22, 1994 in
exchange for $33,000,000. The holder of Junior preferred stock is entitled to
cumulative dividends at a rate of 12% per annum prior to the seventh anniversary
of the issue date (December 22, 2001), 13% per annum from the seventh through
the eighth anniversary (December 22, 2002), and 14% per annum after the eighth
anniversary, payable semi-annually commencing on December 31, 1999.
The Junior preferred shares are redeemable, at the option of the Company,
at $1,030 plus unpaid, deferred, and accrued dividends prior to the third
anniversary (December 22, 1997), $1,020 plus unpaid, deferred, and accrued
dividends after the third and prior to the fourth anniversary (December 22,
1998), and $1,000 plus unpaid, deferred, and accrued dividends per share on or
after the fourth anniversary. A mandatory redemption is scheduled on the ninth
anniversary (December 22, 2003).
Cumulative Junior preferred dividends in arrears aggregated $97,644 at
December 31, 1994.
13. COMMON STOCK WARRANTS:
Redeemable Common Stock Warrants
In connection with the 1993 redeemable senior Preferred Stock issuance, the
Company issued 225 detachable redeemable common stock purchase warrants
entitling the holder to purchase one common share per warrant at an exercise
price of $0.01 per share. These purchase warrants represent an aggregate
purchase
F-22
<PAGE> 122
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
interest of 15% of the Company which must be maintained in the event of
subsequent changes in the Company's capital structure.
The stock purchase warrants include a put provision requiring the Company
to repurchase any warrants, at the option of the holder, at the fair market
value per share on or after the seventh anniversary of issue date (December 15,
2000).
On December 22, 1994, 94.6223 of the 120 callable warrants were called by
the Company into 1,310,779 shares of Class A common stock and 436,926 shares of
Class B common stock and were then surrendered for the Redeemable Series B
preferred stock. The remaining 130.3777 redeemable common stock purchase
warrants entitle the holders to purchase 2,709,129 Class A common shares and
903,044 Class B common shares (after giving effect to the stock dividend), or
approximately 9% of all common shares.
Class C Common Stock Warrants
In connection with the Redeemable Junior Preferred Stock issuance on
December 22, 1994, the Company issued 4,853,630 detachable Class C common stock
purchase warrants (after giving effect to the stock dividend), entitling the
holder to purchase one Class C common share per warrant at an exercise price of
$0.001 per share. These purchase warrants represent an aggregate purchase
interest of 10% of all currently outstanding common shares.
14. COMMON STOCK:
On December 15, 1993, in connection with the reorganization and
consolidation of its radio broadcasting activities, the Company authorized 1,500
shares and issued 1,200 shares of unclassified common stock.
In November 1994, in connection with the merger with ANG, the Company
amended its capital structure to provide two classes of common voting stock,
Class A common stock, and Class B common stock. Upon consummation of the
recapitalization, the Company's unclassified common stock outstanding was
converted into 15,790,974 shares of Class A common stock and 5,263,658 shares of
Class B common stock. Upon consummation of the merger, the holders of ANG common
stock received the Company's Class A common stock in exchange for ANG common
stock outstanding. Additionally, the Company's Class A common shares exchanged
for the ANG shares, which were previously publicly traded, were listed on the
NASDAQ Small-Cap Exchange. These publicly traded shares represent approximately
3% of the Company's Class A common shares outstanding and less than 1% of the
Company's voting power.
On December 22, 1994, the Company amended its capital structure to
designate a third class of non-voting common stock and amended authorized shares
of: Class A common stock, one vote per share, 150,000,000 shares authorized
(increased from 45,000,000 shares); Class B common stock, ten votes per share,
35,000,000 shares authorized (increased from 7,000,000 shares); and Class C
common stock, non-voting, 12,500,000 shares authorized. Additionally, the
Company announced a stock dividend for its common stock of an additional
one-half share for each common share outstanding for holders of record on
January 1, 1995.
Voting rights allow the voting common stockholders to elect up to 75% of
the Company's Board of Directors, but do not allow the common stockholders to
change the rights and privileges of the preferred stockholders without a
majority affirmative vote of the preferred stockholders. Class A common stock
and Class B common stock will vote as a single class in all matters submitted to
a vote of the stockholders with each share of Class A common stock entitled to
one vote and each share of Class B common stock entitled to ten votes. Each
share of Class B common stock is convertible, at the option of its holder, into
one share of Class A common stock at any time.
F-23
<PAGE> 123
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
15. COMMITMENTS AND CONTINGENCIES:
The Company incurred total expenses of $2,405,745, for the year ended
December 31, 1994, under operating leases for radio broadcasting facilities and
equipment and employment agreements. Future minimum annual payments under these
non-cancelable operating leases and agreements, as of December 31, 1994, are as
follows:
<TABLE>
<S> <C>
1995.......................................... $ 2,413,078
1996.......................................... 2,054,570
1997.......................................... 1,938,186
1998.......................................... 1,696,972
1999.......................................... 1,264,769
Thereafter.................................... 1,356,414
-----------
$10,723,989
==========
</TABLE>
The Company has entered into commitments for radio broadcast rights related
to sporting events that are not currently available for broadcast and are
therefore not included in the financial statements. The Company incurred total
expenses of $2,379,516 and had total commitments of approximately $5,589,300 as
of and for the year ended December 31, 1994.
On December 31, 1992, the Company entered into an agreement to purchase the
assets of WEZY-FM, a radio broadcasting station in Lakeland, Florida. The
purchase was contingent upon obtaining land for a new tower/transmitter site and
regulatory approval for its construction. In January 1995, the Company received
all required approvals for a tower site and will close and begin construction in
the first half of 1995. The previous owner will operate the station under a time
brokerage agreement until the tower is complete. The total purchase price is
$4,750,000.
16. SUBSEQUENT EVENTS:
Purchases:
WTGI-TV, Philadelphia, Pennsylvania
On February 3, 1995, the Company purchased the assets of WTGI-TV, an
independent television broadcasting station in Wilmington, Delaware, serving the
Philadelphia, Pennsylvania market for $10,200,000.
F-24
<PAGE> 124
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
Asset Purchase Agreements
Subsequent to year end, the Company entered into several agreements to
purchase the assets of television and radio broadcasting stations. Applications
to transfer the Federal Communications Commission licenses in connection with
the purchases have been filed. The Company is waiting for approval to close the
following transactions:
<TABLE>
<CAPTION>
PURCHASE
STATION MARKET PRICE
- --------- --------------------------- ------------
<S> <C> <C>
KZKI-TV Los Angeles, CA $ 18,000,000
KLXV-TV San Francisco, CA $ 5,000,000
WTWS-TV Hartford/New Haven, CT(1) $ 2,700,000
Channel
68 Dallas, TX(2) $ 2,000,000
KTFH-TV Houston, TX(3) $ 7,900,000
WGOT-TV Boston, MA $ 3,050,000
WFTL-AM Miami, FL $ 2,000,000
</TABLE>
- ---------------
(1) Approval received, scheduled to close in March 1995.
(2) Station not currently on the air. The Company estimates spending $2,000,000
in build-out costs before broadcasting can begin.
(3) Operated under a time brokerage agreement since March 1, 1995.
Other
In September 1994, the Company entered into an agreement with Whitehead
Media, Inc. ("Whitehead"), in which the Company agreed to loan Whitehead
$17,175,000 to purchase WTVX-TV, West Palm Beach, Florida. Whitehead has signed
an asset purchase agreement for WTVX-TV and has filed an application with the
FCC for transfer of the license. Under the agreement, the Company would operate
WTVX-TV under a time brokerage agreement.
17. SEGMENT DATA:
Since closing the acquisition of WPBF-TV in July 1994, the Company operates
two principal business segments consisting of radio and television. The radio
segment includes fifteen stations for which the Company is the licensee, and one
station operated under a time brokerage agreement, all of which operate in five
different markets. The radio segment also operates seven radio networks. The
television segment includes two stations for which the Company is the licensee
and three stations which are operated under time brokerage agreements; all of
which operate in five different markets. The other segment includes corporate
and ancillary service company activities.
F-25
<PAGE> 125
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
Selected financial information for these segments is presented below:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
RADIO
Total revenue.......................................... $ 50,323,875 $31,058,472 $16,480,445
Operating expenses, less depreciation and
amortization......................................... 38,919,088 25,012,435 14,746,078
Depreciation and amortization.......................... 9,118,001 9,128,847 5,760,756
------------ ----------- -----------
Income (loss) from operations.......................... $ 2,286,786 $(3,082,810) $(4,026,389)
=========== ========== ==========
Cumulative effect of change in accounting principle.... -- -- $ 105,572
=========== ========== ==========
Total identifiable assets.............................. $ 71,126,358 $61,686,096 $35,193,821
=========== ========== ==========
Capital expenditures................................... $ 2,490,960 $ 1,962,553 $ 429,531
=========== ========== ==========
TELEVISION
Total revenue.......................................... $ 10,844,820 -- --
Operating expenses, less depreciation and
amortization......................................... 8,524,316 -- --
Depreciation and amortization.......................... 2,888,176 -- --
------------ ----------- -----------
Loss from operations................................... $ (567,672) -- --
=========== ========== ==========
Cumulative effect of change in accounting principle.... -- -- --
=========== ========== ==========
Total identifiable assets.............................. $ 55,784,331 -- --
=========== ========== ==========
Capital expenditures................................... $ 3,185,280 -- --
=========== ========== ==========
OTHER
Total revenue.......................................... $ 898,748 $ 1,003,559 $ 581,392
Operating expenses, less depreciation and
amortization......................................... 3,782,548 3,860,193 3,175,610
Depreciation and amortization.......................... 397,351 221,876 216,545
------------ ----------- -----------
Loss from operations................................... $ (3,281,151) $(3,078,420) $(2,810,763)
=========== ========== ==========
Cumulative effect of change in accounting principle.... -- -- $ 3,968
=========== ========== ==========
Total identifiable assets.............................. $ 25,759,692 $ 4,888,512 $ 1,873,263
=========== ========== ==========
Capital expenditures................................... $ 240,272 -- $ 843,857
=========== ========== ==========
CONSOLIDATED
Total revenue.......................................... $ 62,067,443 $32,062,031 $17,061,837
Operating expenses, less depreciation and
amortization......................................... 51,225,952 28,872,628 17,921,688
Depreciation and amortization.......................... 12,403,528 9,350,633 5,977,301
------------ ----------- -----------
Loss from operations................................... $ (1,562,037) $(6,161,230) $(6,837,152)
=========== ========== ==========
Cumulative effect of change in accounting principle.... -- -- $ 109,540
=========== ========== ==========
Total identifiable assets.............................. $152,670,381 $66,574,608 $37,067,084
=========== ========== ==========
Capital expenditures................................... $ 5,916,512 $ 1,962,553 $ 1,273,388
=========== ========== ==========
</TABLE>
F-26
<PAGE> 126
PAXSON COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1993
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
MARCH 31, JUNE 30, 30, 31,
1994 QUARTER QUARTER QUARTER QUARTER
- -------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenue......................... $ 9,365,158 $12,148,603 $18,327,456 $22,226,226
Operating expenses, less depreciation
and amortization.................... 8,324,334 10,268,884 14,219,712 18,413,022
Depreciation and amortization......... 2,410,146 2,855,767 3,292,245 3,845,370
----------- ----------- ----------- -----------
Income (loss) from operations......... $(1,369,322) $ (976,048) $ 815,499 $ (32,166)
========== ========== ========== ==========
Net loss before extraordinary item.... $(1,798,625) $ (318,376) $ (672,445) $(1,972,628)
========== ========== ========== ==========
Net loss.............................. $(1,798,625) $ (318,376) $ (672,445) $(1,972,628)
========== ========== ========== ==========
Pro forma per share data (Note 1):
Pro forma net loss before
extraordinary item............... $ (0.06) $ (0.01) $ (0.02) $ (0.06)
Pro forma net loss.................. $ (0.06) $ (0.01) $ (0.02) $ (0.06)
Pro forma weighted average common
shares outstanding.................. 31,581,948 32,506,032 33,430,116 33,430,116
========== ========== ========== ==========
Stock Price:
High................................ -- -- -- $ 16.00*
Low................................. -- -- -- $ 10.17*
1993
- --------------------------------------
Total revenue......................... $ 6,034,575 $ 8,920,029 $ 7,758,618 $ 9,348,809
Operating expenses, less depreciation
and amortization.................... 6,186,466 8,524,197 6,720,123 7,441,842
Depreciation and amortization......... 1,894,865 2,142,004 2,163,065 3,150,699
----------- ----------- ----------- -----------
Loss from operations.................. $(2,046,756) $(1,746,172) $(1,124,570) $(1,243,732)
========== ========== ========== ==========
Net loss before extraordinary item.... $(2,131,761) $(2,406,988) $(1,672,633) $(4,740,471)
========== ========== ========== ==========
Net loss.............................. $(2,131,761) $(2,406,988) $(1,672,633) $(5,197,618)
========== ========== ========== ==========
Pro forma per share data (Note 1):
Pro forma net loss before
extraordinary item............... $ (0.07) $ (0.08) $ (0.05) $ (0.15)
Pro forma net loss.................. $ (0.07) $ (0.08) $ (0.05) $ (0.16)
Pro forma weighted average common
shares outstanding.................. 31,581,948 31,581,948 31,581,948 31,581,948
========== ========== ========== ==========
Stock Price:
High................................ -- -- -- --
Low................................. -- -- -- --
</TABLE>
- ---------------
The Company's common stock is traded on the Nasdaq Stock Market under the
symbol PAXN.
* Stock price after giving effect to the January 1, 1995 stock dividend (Note
1).
F-27
<PAGE> 127
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 57,945,458 $ 21,571,658
Accounts receivable, less allowance for doubtful accounts of $836,403
and $556,950 respectively........................................... 14,172,666 13,569,198
Prepaid expenses and other current assets............................. 1,558,525 1,579,954
Current deferred income taxes......................................... 194,940 194,940
Current program rights................................................ 1,182,436 1,980,000
------------- ------------
Total current assets........................................... 75,054,025 38,895,750
Property and equipment, net............................................. 75,063,826 45,350,430
Intangible assets, net.................................................. 87,686,913 53,350,967
Investments in broadcast properties..................................... 28,013,671 --
Other assets, net....................................................... 15,244,694 13,078,346
Related party notes receivable.......................................... 2,500,000 1,750,000
Program rights, net..................................................... 366,344 244,888
------------- ------------
Total assets................................................... $283,929,473 $152,670,381
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.............................. $ 6,047,737 $ 5,123,691
Current portion of program rights payable............................. 1,055,599 986,562
Related party note payable............................................ 1,200,000 --
Current portion of long-term debt..................................... 333,009 6,393,415
------------- ------------
Total current liabilities...................................... 8,636,345 12,503,668
Program rights payable.................................................. 637,043 562,770
Long-term debt.......................................................... 2,664,786 76,013,542
Deferred income taxes................................................... 605,145 1,474,940
Minority interest....................................................... -- 1,217,314
Senior subordinated notes, net.......................................... 227,311,106 --
Redeemable Cumulative Compounding Senior preferred stock, $0.001 par
value; 15% dividend rate per annum, 2,000 shares authorized, issued
and outstanding....................................................... 16,138,416 14,060,054
Redeemable Class A & B common stock warrants............................ 4,378,925 1,735,979
Redeemable Cumulative Compounding Series B preferred stock, $0.001 par
value; 15% dividend rate per annum, 714.286 shares authorized,
issued and outstanding................................................ 2,083,167 1,274,671
Redeemable Cumulative Compounding Junior preferred stock, $0.001 par
value; 12% dividend rate per annum, 33,000 shares authorized, issued
and outstanding....................................................... 30,399,729 26,808,053
Class A common stock, $0.001 par value; one vote per share; 150,000,000
shares authorized, 26,157,226 shares issued and outstanding........... 26,157 26,042
Class B common stock, $0.001 par value; ten votes per share, 30,000,000
shares authorized, 8,311,639 shares issued and outstanding............ 8,312 8,312
Class C common stock, $0.001 par value; non-voting; 12,500,000 shares
authorized, 0 shares issued and outstanding........................... -- --
Class C common stock warrants........................................... 5,338,952 5,338,952
Stock subscription notes receivable..................................... (71,833 ) (77,666)
Additional paid-in capital.............................................. 33,904,823 20,647,647
Deferred option plan compensation....................................... (2,179,102 ) --
Accumulated deficit..................................................... (45,952,498 ) (8,923,897)
Commitments and contingencies...........................................
------------- ------------
Total liabilities and stockholders' equity..................... $283,929,473 $152,670,381
============== =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-28
<PAGE> 128
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------------
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Local and national advertising.............................. $ 65,333,616 $ 36,450,956
Retail and other............................................ 3,837,003 1,557,979
Trade....................................................... 2,353,098 1,832,282
------------ ------------
Total revenue....................................... 71,523,717 39,841,217
Operating expenses:
Direct...................................................... 17,624,276 11,108,734
Programming................................................. 9,358,796 5,620,889
Sales and promotion......................................... 6,767,364 3,875,130
Technical................................................... 3,674,362 1,428,195
General and administrative.................................. 15,912,555 7,906,908
Trade....................................................... 2,081,962 1,514,811
Time brokerage agreement fees............................... 757,369 365,678
Sports rights fees.......................................... 1,509,565 539,875
Option plan compensation.................................... 9,809,105 --
Program rights amortization................................. 1,291,754 452,710
Depreciation and amortization............................... 13,079,041 8,558,158
------------ ------------
Total operating expenses............................ 81,866,149 41,371,088
------------ ------------
Loss from operations.......................................... (10,342,432) (1,529,871)
Other income (expense):
Interest expense, net....................................... (7,853,189) (3,190,568)
Other income, net........................................... (45,773) 161,993
------------ ------------
Loss before income tax benefit................................ (18,241,394) (4,558,446)
Income tax benefit............................................ 960,000 1,769,000
------------ ------------
Loss before extraordinary item................................ (17,281,394) (2,789,446)
Extraordinary item............................................ (10,625,727) --
------------ ------------
Net loss...................................................... (27,907,121) (2,789,446)
------------ ------------
Dividends and accretion on preferred stock and
common stock warrants....................................... (9,121,480) (2,407,459)
------------ ------------
Net loss attributable to common stock and
common stock equivalents.................................... $(37,028,601) $ (5,196,905)
=========== ===========
Net loss per share before extraordinary item.................. $ (.50) $ (.09)
Extraordinary item............................................ (.31) --
------------ ------------
Net loss per share............................................ (.81) (.09)
Dividends and accretion on preferred stock and common stock
warrants per share.......................................... (.27) (.07)
------------ ------------
Net loss attributable to common stock and common stock
equivalents per share....................................... $ (1.08) $ (.16)
=========== ===========
Weighted average shares outstanding primary and fully
diluted..................................................... 34,404,800 32,506,032
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-29
<PAGE> 129
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1995 1994
------------ -----------
(UNAUDITED)
<S> <C> <C>
Revenue:
Local and national advertising................................. $ 24,878,716 $16,735,366
Retail and other............................................... 1,339,280 561,654
Trade.......................................................... 949,373 1,030,436
------------ -----------
Total revenue.......................................... 27,167,369 18,327,456
Operating expenses:
Direct......................................................... 6,069,426 4,831,072
Programming.................................................... 3,418,730 2,625,192
Sales and promotion............................................ 2,294,178 1,457,709
Technical...................................................... 1,527,073 564,822
General and administrative..................................... 5,922,881 3,105,159
Trade.......................................................... 888,119 502,495
Time brokerage agreement fees.................................. 207,422 140,678
Sports rights fees............................................. 490,210 539,875
Option plan compensation....................................... 404,976 --
Program rights amortization.................................... 514,697 452,710
Depreciation and amortization.................................. 5,024,785 3,292,245
------------ -----------
Total operating expenses......................................... 26,762,497 17,511,957
------------ -----------
Income from operations........................................... 404,872 815,499
Other income (expense):
Interest expense, net.......................................... (3,544,543) (1,799,853)
Other income, net.............................................. (32,010) (61,091)
------------ -----------
Loss before income tax benefit................................... (3,171,681) (1,045,445)
Income tax benefit............................................... 320,000 373,000
------------ -----------
Loss before extraordinary item................................... (2,851,681) (672,445)
Extraordinary item............................................... (10,625,727) --
------------ -----------
Net loss......................................................... (13,477,408) (672,445)
------------ -----------
Dividends and accretion on preferred stock and common stock
warrants....................................................... (3,257,319) (820,400)
------------ -----------
Net loss attributable to common stock and common stock
equivalents.................................................... $(16,734,727) $(1,492,845)
=========== ==========
Net loss per share before extraordinary item..................... $ (.08) $ (.02)
Extraordinary item............................................... (.31) --
------------ -----------
Net loss per share............................................... (.39) (.02)
Dividends and accretion on preferred stock and common stock
equivalents per share.......................................... (.10) (.02)
------------ -----------
Net loss attributable to common stock and common stock
equivalents per share.......................................... $ (.49) $ (.04)
=========== ==========
Weighted average shares outstanding primary and fully diluted.... 34,458,766 33,430,116
=========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-30
<PAGE> 130
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS C STOCK DEFERRED
COMMON STOCK COMMON SUBSCRIPTION ADDITIONAL OPTION
--------------------------- COMMON STOCK NOTES PAID-IN PLAN ACCUMULATED
CLASS A CLASS B CLASS C STOCK WARRANTS RECEIVABLE CAPITAL COMPENSATION DEFICIT
------- ------- ------- ------- ---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1993.........
Recapitalization of
common stock..... $15,791 $5,264 $ 1 $16,895,623 $ (776,367)
Stock issued for
ANG
acquisition...... 1,570 277 (1 ) $(77,666) (21,054)
Net proceeds from
issuance of
common stock
warrants......... $5,338,952 3,784,530
Dividends on
redeemable
preferred
stock............ (2,216,137)
Accretion on
redeemable
securities....... (1,169,319)
Net Loss........... (4,762,074)
Stock dividend..... 8,681 2,771 (11,452)
------- ------- ------- ------- ---------- ------------ ----------- ------------ ------------
Balance at December
31, 1994......... 26,042 8,312 $ 0 0 5,338,952 (77,666) 20,647,647 $ 0 (8,923,897)
Stock issued for
Cookeville
acquisition
(unaudited)...... 95 1,199,905
Deferred Option
Plan Compensation
(unaudited)...... 11,988,207 (11,988,207 )
Option plan
compensation
(unaudited)...... 9,809,105
Stock options
exercised
(unaudited)...... 20 69,064
Note repayments
(unaudited)...... 5,833
Dividends on
redeemable
preferred stock
(unaudited)...... (5,507,650)
Accretion on
redeemable
securities
(unaudited)...... (3,613,830)
Net loss
(unaudited)...... (27,907,121)
------- ------- ------- ------- ---------- ------------ ----------- ------------ ------------
Balance at
September 30,
1995
(unaudited)...... $26,157 $8,312 $ 0 $ 0 $5,338,952 $(71,833) $33,904,823 $(2,179,102 ) $(45,952,498)
======= ======= ======= ======== ========= =========== ========== ============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-31
<PAGE> 131
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1995 1994
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cash flow from operating activities:
Net loss.............................................................. $(27,907,121) $(2,789,446)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization......................................... 13,079,041 8,558,158
Option plan compensation.............................................. 9,809,105 --
Program rights amortization........................................... 1,291,754 992,585
Provision for doubtful accounts....................................... 653,602 271,938
Income tax benefit.................................................... (960,000) (1,769,000)
Loss on sale of assets................................................ 98,556 --
Minority interest in net loss......................................... -- (6,425)
Extraordinary loss on write-off of loan costs......................... 10,625,727 --
Increase in accounts receivable....................................... (1,257,071) (1,623,908)
Decrease (increase) in prepaid expenses and other current assets...... 21,432 (312,638)
Increase in intangible assets......................................... (1,200,000) --
Increase in other assets.............................................. (1,056,165) (1,005,814)
Increase in accounts payable and accrued liabilities.................. 924,046 1,060,230
------------ -----------
Net cash provided by operating activities............................. 4,122,906 3,375,680
------------ -----------
Cash flows from investing activities:
Acquisitions of broadcast properties.................................. (53,847,917) (55,052,599)
Deposits on broadcast properties...................................... (2,660,000) (1,220,000)
Increase in related party note receivable............................. (750,000) --
Proceeds from sale of fixed assets.................................... 716,820 --
Investments in broadcast properties................................... (28,013,671) --
Purchase of property and equipment.................................... (18,864,364) (4,604,001)
------------ -----------
Net cash used for investing activities................................ (103,419,132) (60,876,600)
------------ -----------
Cash flows from financing activities:
Increase in related party note payable................................ 1,200,000 7,700,000
Proceeds from long-term debt.......................................... 317,539,000 50,000,000
Payments of long-term debt............................................ (169,639,157) (401,111)
Payments of loan origination costs.................................... (13,032,399) (3,428,451)
Proceeds from exercise of common stock options........................ 69,084 --
Repayments of stock subscription notes receivable..................... 5,833 --
Payments for program rights........................................... (472,335) (257,200)
------------ -----------
Net cash provided by financing activities............................. 135,670,026 53,613,238
------------ -----------
Increase (decrease) in cash and cash equivalents........................ 36,373,800 (3,887,682)
------------ -----------
Cash and cash equivalents at beginning of period........................ 21,571,658 7,019,747
------------ -----------
Cash and cash equivalents at end of period.............................. $ 57,945,458 $ 3,132,065
============= ============
Supplemental disclosures of cash flow information:
Cash paid for interest................................................ $ 8,188,957 $ 2,770,489
============= ============
Cash paid for income taxes............................................ -- --
============= ============
Non-cash operating and financing activities:
Issuance of Common stock for Cookeville acquisition................... $ 1,200,000 $ --
============= ============
Dividends on redeemable preferred stock............................... $ 5,507,650 $ 1,571,425
============= ============
Accretion on redeemable securities.................................... $ 3,613,830 $ 836,034
============= ============
Trade revenue......................................................... $ 2,353,098 $ 1,832,282
============= ============
Trade expense......................................................... $ 2,081,962 $ 1,514,811
============= ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-32
<PAGE> 132
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
Paxson Communications Corporation's (the "Company") financial information
contained in the financial statements and notes thereto as of September 30, 1995
and for the nine month and three month periods ended September 30, 1995 and
1994, are unaudited. In the opinion of management, all adjustments necessary for
the fair presentation of such financial information have been included. These
adjustments are of a normal recurring nature. There have been no changes in
accounting policies since the period ended December 31, 1994. The composition of
accounts has significantly changed since December 31, 1994 to reflect the
operations of acquisitions discussed below, the issuance of $230,000,000 of
11 5/8% senior subordinated notes ("the Notes"), the extraordinary expense
related to write-off of loan origination costs, inclusion of the stock incentive
plan options and the reclassification of related party notes receivable amounts
to long term assets. The Notes have been presented net of original issue
discount. The Company has classified the notes receivable amounts advanced in
conjunction with its financing of certain acquisitions of television properties
for which it has long-term time brokerage agreements as Investments in broadcast
properties. This classification reflects the Company's intent to purchase
certain assets of the station from the licensee and the long-term nature of the
time brokerage relationships.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements, footnotes, and
discussions should be read in conjunction with the December 31, 1994 financial
statements and related footnotes and discussions contained in the Company's Form
10-K, filed with the United States Securities and Exchange Commission on March
31, 1995, Form 10-Q filed on May 12, 1995, Form 10-Q/A filed August 30, 1995,
the definitive proxy statement filed by the Company on May 4, 1995 for the
annual meeting of stock holders held June 1, 1995, Forms 8-K filed June 1, 1995
and August 19, 1995 and Forms 8-K/A filed July 31, 1995 and October 18, 1995. In
conjunction with the issuance of the Notes the Company filed a Form S-4 with the
Securities and Exchange Commission on October 27, 1995.
PRO FORMA FINANCIAL INFORMATION
The following represents the unaudited pro forma results of operations as
if the acquisitions and time brokerage arrangements described in Item 2 of Part
I had been completed at the beginning of 1995 and 1994, after giving effect to
certain adjustments, including increased depreciation and amortization of
property and equipment and intangible assets and interest expense for
acquisition debt. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which would have been achieved had these acquisitions been completed as of these
dates, nor are the results indicative of the Company's future results of
operations.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------------
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues........................................................ $ 80,791,755 $ 61,969,565
=========== ===========
Broadcast cash flow............................................. $ 21,185,459 $ 11,686,549
=========== ===========
Loss from operations............................................ $ (5,941,957) $(10,700,389)
=========== ===========
Net loss attributable to common stock and common stock
equivalents................................................... $(54,670,222) $(32,717,865)
=========== ===========
Net loss attributable to common stock and common stock
equivalents per share......................................... $ (1.59) $ (1.01)
=========== ===========
Pro forma weighted average shares outstanding primary and fully
diluted....................................................... 34,404,800 32,506,032
=========== ===========
</TABLE>
F-33
<PAGE> 133
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
-----------------------------
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues........................................................ $ 28,575,947 $ 20,962,178
=========== ===========
Broadcast cash flow............................................. $ 8,815,139 $ 5,803,914
=========== ===========
Loss from operations............................................ $ (885,814) $ (1,593,871)
=========== ===========
Net loss attributable to common stock and common stock
equivalents................................................... $(32,422,596) $(22,435,631)
=========== ===========
Net loss attributable to common stock and common stock
equivalents per share......................................... $ (.94) $ (.67)
=========== ===========
Pro forma weighted average shares outstanding primary
and fully diluted............................................. 34,458,766 33,430,116
=========== ===========
</TABLE>
"Broadcast cash flow" is defined as Income (loss) from operations plus
non-cash expenses and non-broadcast operating results, less scheduled broadcast
rights payments and non-cash revenues. The Company has included broadcast cash
flow data because such data is commonly used as a measure of performance for
broadcast companies and is also used by investors to measure the Company's
ability to service debt. Broadcast cash flow is not, and should not be used as
an indicator or alternative to operating income, net income or cash flow as
reflected in the Consolidated Financial Statements as it is not a measure of
financial performance under generally accepted accounting principles.
F-34
<PAGE> 134
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
of KZKI-TV (a division of Sandino Telecasters)
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in divisional deficit and of cash flows present
fairly, in all material respects, the financial position of KZKI-TV (a division
of Sandino Telecasters), (the "Station") at January 31, 1995 and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Station's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Station will continue as a going concern. As discussed in Note 1 to the
financial statements, the Station has incurred cumulative net losses and has
significant notes payable which are due on demand, which raise substantial doubt
about the Station's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Price Waterhouse LLP
- --------------------------------------
PRICE WATERHOUSE LLP
Tampa, Florida
July 17, 1995
F-35
<PAGE> 135
KZKI-TV (A DIVISION OF SANDINO TELECASTERS)
BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY
MAY 17, 31,
1995 1995
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 22,053 $ 91,180
Accounts receivable............................................... 3,289 6,695
Prepaid expenses and other assets................................. 3,733 10,813
----------- ----------
Total current assets...................................... 29,075 108,688
Property and equipment, net......................................... 2,008,203 2,180,634
Intangible assets, net.............................................. 6,685,736 6,792,333
----------- ----------
Total assets $ 8,723,014 $9,081,655
========= =========
LIABILITIES AND DIVISIONAL DEFICIT
Current liabilities:
Accounts payable and accrued liabilities.......................... $ 30,399 $ 41,261
Unearned revenue.................................................. 34,915 71,074
Related party payables
Accrued interest............................................... 2,920,897 2,650,378
Notes payable.................................................. 8,872,874 9,572,874
----------- ----------
Total current liabilities................................. 11,859,085 12,335,587
----------- ----------
Divisional deficit.................................................. (3,136,071) (3,253,932)
----------- ----------
Commitments and contingencies (see Note 6)
Total liabilities and divisional deficit.................. $ 8,723,014 $9,081,655
========= =========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of the financial statements.
F-36
<PAGE> 136
KZKI-TV (A DIVISION OF SANDINO TELECASTERS)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
MAY 17, JANUARY 31,
1995 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
Revenue:
Network programming................................................ $ 330,413 $ 871,701
Paid programming and other......................................... 688,142 840,210
------------ -----------
Total revenue.............................................. 1,018,555 1,711,911
------------ -----------
Operating expenses:
Technical.......................................................... 113,671 395,512
Direct............................................................. 15,150 64,363
Programming........................................................ 9,758 22,215
General and administrative......................................... 212,568 558,220
Depreciation and amortization...................................... 279,028 743,396
------------ -----------
Total operating expenses................................... 630,175 1,783,706
------------ -----------
Income (loss) from operations........................................ 388,380 (71,795)
Related party interest expense....................................... (270,519) (855,800)
------------ -----------
Net income (loss).......................................... $ 117,861 $ (927,595)
========== =========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of the financial statements.
F-37
<PAGE> 137
KZKI-TV
(A DIVISION OF SANDINO TELECASTERS)
STATEMENT OF CHANGES IN DIVISIONAL DEFICIT
<TABLE>
<S> <C>
Balance at February 1, 1994..................................................... $(2,326,337)
Net loss........................................................................ (927,595)
-----------
Balance at January 31, 1995..................................................... (3,253,932)
Net income through May 17, 1995 (unaudited)..................................... 117,861
-----------
Balance at May 17, 1995 (unaudited)............................................. $(3,136,071)
==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-38
<PAGE> 138
KZKI-TV
(A DIVISION OF SANDINO TELECASTERS)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
MAY 17, JANUARY 31,
1995 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................. $ 117,861 $ (927,595)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization..................................... 279,028 743,396
Decrease (increase) in accounts receivable........................ 3,406 (5,297)
Decrease (increase) in prepaid expenses and other assets.......... 7,080 (7,069)
(Decrease) increase in accounts payable and accrued liabilities... (10,862) 31,209
(Decrease) increase in unearned revenue........................... (36,159) 56,228
Increase in related party accrued interest........................ 270,519 855,800
------------ -----------
Net cash provided by operating activities......................... 630,873 746,672
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment............................... -- (204,410)
------------ -----------
Cash flows from financing activities:
Proceeds from related party note payable.......................... -- 418,588
Payments of related party note payable............................ (700,000) (935,000)
------------ -----------
Net cash used for financing activities............................ (700,000) (516,412)
------------ -----------
(Decrease) increase in cash and cash equivalents.................... (69,127) 25,850
Cash and cash equivalents at beginning of year...................... 91,180 65,330
------------ -----------
Cash and cash equivalents at end of period.......................... $ 22,053 $ 91,180
========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest............................................ $ 0 $ 0
========== =========
Cash paid for income taxes........................................ $ 0 $ 0
========== =========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-39
<PAGE> 139
KZKI-TV
(A DIVISION OF SANDINO TELECASTERS)
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
KZKI-TV (A division of Sandino Telecasters) (the "Station"), is engaged in
the operation of a television broadcasting station in the Los Angeles,
California market. Sandino Telecasters operates the television station under a
license granted by the Federal Communications Commission.
The Station has incurred cumulative net losses through January 31, 1995
totaling approximately $3,254,000. Additionally, the Station owes approximately
$12,223,000 on demand notes payable and accrued interest to a related party. The
Station does not have sufficient means to repay the notes payable if called (see
Note 4). These conditions raise substantial doubt regarding the Station's
ability to continue as a going concern. Owners plan to liquidate the Station's
liabilities through a sale of the Station's assets (see Note 7).
Cash and cash equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
Property and equipment
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Broadcasting tower and equipment.............................. 10 years
Leasehold improvements........................................ Term of lease
Office furniture and equipment................................ 6 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
Intangible assets
Intangible assets consists of the FCC license which is stated at cost and
is being amortized using the straight-line method over the estimated useful life
of 25 years.
Revenue recognition
Revenue is recognized as advertising air time is broadcast.
Income taxes
The Station's operating results have been included in the tax return filed
by Sandino Telecasters. A provision for intercompany income taxes, which
approximates the income tax provision calculated for Station income on a
standalone basis was calculated to be $0 based upon cumulative net losses.
Interim financial data
The interim financial data of the Station is unaudited; however, in the
opinion of Station management, the interim financial data includes all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of results of the interim period. The results of operations
for the period from February 1, 1995 through May 17, 1995 are not necessarily
indicative of the results that could be expected for the entire fiscal year
ending January 31, 1996.
F-40
<PAGE> 140
KZKI-TV
(A DIVISION OF SANDINO TELECASTERS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 1995
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1995
----------
<S> <C>
Broadcasting tower and equipment................................. $2,171,897
Leasehold improvements........................................... 473,413
Office furniture and equipment................................... 33,002
----------
2,678,312
Accumulated depreciation......................................... (497,678)
----------
Property and equipment, net...................................... $2,180,634
=========
Depreciation expense for the year................................ $ 459,396
=========
</TABLE>
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1995
-----------
<S> <C>
FCC licenses................................................. $ 7,100,000
Accumulated amortization..................................... (307,667)
-----------
Intangible assets, net....................................... $ 6,792,333
=========
Amortization expense for the year............................ $ 284,000
=========
</TABLE>
4. RELATED PARTY NOTES PAYABLE:
Related party notes payable consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1995
-----------
<S> <C>
Note payable, prime + 1% interest compounded annually,
interest and principal due on demand....................... $ 7,100,000
Revolving credit note payable, prime + 1% interest compounded
annually, interest and principal due on demand............. 2,472,874
-----------
$ 9,572,874
=========
</TABLE>
In 1991, the Station borrowed $7,100,000 from Astrum Management Group
("Astrum"), a minority shareholder of Sandino Telecasters, in order to purchase
the FCC license and begin operations (see Note 5). The note accrues interest at
prime + 1% and is due on demand. At January 31, 1995, accrued interest payable
on the note was $2,319,638; no interest or principal repayments have been made
to date.
Additionally, the Station entered into a revolving credit agreement with
Astrum, whereby Astrum funded initial construction of the Station and continues
to fund working capital shortfalls. The working capital note accrues interest at
prime + 1% and is due on demand. At January 31, 1995, accrued interest payable
on the note was $330,740; no interest repayments have been made to date.
F-41
<PAGE> 141
KZKI-TV
(A DIVISION OF SANDINO TELECASTERS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 1995
5. RELATED PARTY TRANSACTIONS:
The Station has entered into several agreements with related parties. As
discussed in Note 4, the Station has significant outstanding notes payable and
accrued interest payable with Astrum, a minority shareholder of Sandino
Telecasters. Additionally, Astrum provides financial management and accounting
services for the Station. The value of these services based on estimated hours
expended by Astrum was approximately $6,000, for the year ended January 31,
1995. All other overhead, debt and interest allocations have been appropriately
reflected in the Station's financial statements.
6. COMMITMENTS AND CONTINGENCIES:
The Station incurred expenses of approximately $44,922 for the year ended
January 31, 1995 under a non-cancelable operating lease for office space.
Additionally, the Station incurred expenses of approximately $10,695 for a
special use permit from the U.S. Department of Forestry for use of the land
surrounding the station's tower. Future minimum annual payments under the
operating lease as of January 31, 1995, are $31,820, due during fiscal year
1996.
7. SUBSEQUENT EVENT:
On May 17, 1995, the Owners sold the Station's assets to Paxson
Communications Corporation for approximately $18,000,000.
F-42
<PAGE> 142
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
of Paugus Television, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of Paugus Television,
Inc. (the "Company"), at December 31, 1994 and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
accompanying financial statements, the Company has incurred cumulative net
losses from operations and has significant notes payable which are due on demand
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1 to
the accompanying financial statements. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Price Waterhouse LLP
- --------------------------------------
PRICE WATERHOUSE LLP
Tampa, Florida
August 21, 1995
F-43
<PAGE> 143
PAUGUS TELEVISION, INC. (WGOT-TV)
BALANCE SHEET
<TABLE>
<CAPTION>
MAY 17, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 42,148 $ 14,127
Accounts receivable, less allowance for doubtful accounts of
$14,948 and $23,965, respectively.......................... 92,659 124,510
Prepaid expenses and other assets............................. 35,120 21,319
Current program rights........................................ 42,971 68,754
------------ ------------
Total current assets.................................. 212,898 228,710
Property and equipment, net..................................... 111,526 202,203
Intangible assets, net.......................................... 574,923 587,318
Program rights, net............................................. 34,671 34,671
------------ ------------
Total assets.......................................... $ 934,018 $ 1,052,902
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities...................... $ 8,121 $ 135,340
Other payables................................................ 168,306 182,051
Current program rights payable................................ 106,060 111,594
Related party payables:
Accrued interest payable................................... 1,217,469 1,043,505
Notes payable.............................................. 6,931,243 6,767,800
------------ ------------
Total current liabilities............................. 8,431,199 8,240,290
Program rights payable.......................................... 21,400 36,089
------------ ------------
Total liabilities..................................... 8,452,599 8,276,379
Stockholders' deficit:
Common stock, $1 par, 300 shares authorized, 284.38 shares
issued and outstanding..................................... 284 284
Additional paid-in capital.................................... 2,843,516 2,843,516
Retained deficit.............................................. (10,362,381) (10,067,277)
------------ ------------
Total stockholders' deficit........................... (7,518,581) (7,223,477)
------------ ------------
Commitments and contingencies (see Note 8)
Total liabilities and stockholders' deficit........... $ 934,018 $ 1,052,902
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-44
<PAGE> 144
PAUGUS TELEVISION, INC. (WGOT-TV)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
MAY 17, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue:..........................................................
Local and national advertising.................................. $ 296,586 $ 877,165
Trade........................................................... 62,834 305,821
Production and other............................................ 240,395 38,698
------------ ------------
Total revenue..................................................... 599,815 1,221,684
------------ ------------
Operating expenses:
Technical....................................................... 82,967 194,241
News............................................................ 49,670 193,583
Direct.......................................................... 87,086 184,081
Sales........................................................... 54,992 141,393
Production...................................................... 54,769 131,089
Programming and promotion....................................... 81,278 116,631
General and administrative...................................... 113,831 534,430
Trade........................................................... 58,495 275,352
Program rights amortization..................................... 25,784 174,034
Depreciation and amortization................................... 101,729 203,456
------------ ------------
Total operating expenses.......................................... 710,601 2,148,290
------------ ------------
Loss from operations.............................................. (110,786) (926,606)
Other income (expense):
Related party interest expense.................................. (174,155) (331,815)
Loss on sale of assets.......................................... -- (13,146)
Other expense, net.............................................. (10,163) (37,951)
------------ ------------
Net loss.......................................................... $ (295,104) $ (1,309,518)
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-45
<PAGE> 145
PAUGUS TELEVISION INC. (WGOT-TV)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
---------------------------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994................... $284 $2,843,516 $ (8,757,759) $(5,913,959)
Net loss..................................... (1,309,518) (1,309,518)
------ ---------- ------------ -----------
Balance at December 31, 1994................. 284 2,843,516 (10,067,277) (7,223,477)
Net loss through May 17, 1995 (unaudited).... (295,104) (295,104)
------ ---------- ------------ -----------
Balance at May 17, 1995 (unaudited).......... $284 $2,843,516 $(10,362,381) $(7,518,581)
====== ========= =========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-46
<PAGE> 146
PAUGUS TELEVISION, INC. (WGOT-TV)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR
FOR THE ENDED
PERIOD ENDED DECEMBER
MAY 17, 31,
1995 1994
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $ (295,104) $(1,309,518)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization................................... 101,729 203,456
Program rights amortization..................................... 25,784 174,034
Allowance for doubtful accounts................................. (9,017) 708
Loss on sale of assets.......................................... -- 13,146
Decrease (increase) in accounts receivable...................... 40,868 (62,644)
(Increase) decrease in prepaid expenses and other assets........ (13,801) 157,833
(Decrease) increase in accounts payable and accrued
liabilities.................................................. (127,219) 8,466
Decrease in other payables...................................... (13,745) (193,227)
Increase in related party accrued interest...................... 173,964 322,947
------------ -----------
Net cash used for operating activities.......................... (116,541) (684,799)
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment............................. -- (43,374)
Sale of property and equipment.................................. 1,342 42,000
------------ -----------
Net cash used for investing activities.......................... 1,342 (1,374)
------------ -----------
Cash flows from financing activities:
Payments for program rights..................................... (20,223) (142,581)
Proceeds from related party notes payable....................... 163,443 791,888
------------ -----------
Net cash provided by financing activities....................... 143,220 649,307
------------ -----------
Increase (decrease) in cash and cash equivalents.................. 28,021 (36,866)
Cash and cash equivalents at beginning of year.................... $ 14,127 $ 50,993
------------ -----------
Cash and cash equivalents at end of period........................ $ 42,148 $ 14,127
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest.......................................... $ 0 $ 0
========== ==========
Non-cash operating activities:
Trade revenue................................................... $ 62,834 $ 305,821
========== ==========
Trade expense................................................... $ 58,495 $ 275,352
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-47
<PAGE> 147
PAUGUS TELEVISION, INC. (WGOT-TV)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Paugus Television, Inc. (the "Company"), a Delaware Corporation, was
organized in 1988 for the purpose of owning and operating a television station,
WGOT-TV, in Manchester, New Hampshire, serving the Boston, Massachusetts market.
The Company has incurred substantial cumulative net losses through December
31, 1994 totalling approximately $10,067,000. Additionally, the Company owes
approximately $7,811,000 on demand notes payable and accrued interest to a
related party. The Company does not have sufficient means to repay the notes
payable (see Note 6). These conditions raise substantial doubt regarding the
Company's ability to continue as a going concern. Management plans to liquidate
the Company's liabilities through a sale of the Company's assets (see Note 9).
Property and equipment
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Broadcasting tower and equipment.............................. 7 years
Office furniture equipment and other.......................... 5 years
Leasehold improvements........................................ Term of lease
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
Intangible assets
Intangible assets are stated at cost and are being amortized using the
straight-line method over the estimated useful life as follows:
<TABLE>
<S> <C>
Goodwill...................................................... 25 years
Favorable lease agreement..................................... Term of lease
Organization costs............................................ 5 years
</TABLE>
Program rights
The Company obtains licenses for program rights which allow the Company to
broadcast program material in accordance with contractual agreements. Pursuant
to a licensing agreement, an asset is recorded for the program rights acquired
and a liability is recorded for the obligation incurred, at the gross amount of
the liability. Program rights are amortized on a method that approximates the
straight-line basis over the related term. Program rights which will not be
aired are charged to expense. Current program rights represent programs which
will be amortized during the next year, current liabilities represent program
rights which will be paid within the year under contractual agreement.
Income taxes
Provisions are made to record deferred income taxes in recognition of items
reported differently for financial reporting purposes than for federal and state
income tax purposes. The Company records deferred income taxes using the
liability method in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes".
F-48
<PAGE> 148
PAUGUS TELEVISION, INC. (WGOT-TV)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
Revenue recognition
Revenue is recognized as advertising air time is broadcast.
Trade agreements
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertised air time is broadcast. Products and services received are
expensed when used in the broadcast operations. If the Company uses exchanged
products or services before advertising air time is provided, a trade liability
is recognized.
Interim financial data
The interim financial data of the Company is unaudited; however, in the
opinion of the Company's management, the interim data includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair statement
of results for the interim periods. The results of operations for the period
ended May 17, 1995 are not necessarily indicative of the results that can be
expected for the entire fiscal year ending December 31, 1995.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER
31,
1994
-----------
<S> <C>
Broadcasting tower and equipment................................ $ 1,138,870
Office furniture, equipment and other........................... 188,992
Leasehold improvements.......................................... 122,491
-----------
1,450,353
Accumulated depreciation........................................ (1,248,150)
Property and equipment, net..................................... $ 202,203
==========
Depreciation expense for the year............................... $ 170,537
==========
</TABLE>
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Goodwill........................................................ $ 734,245
Favorable lease agreement....................................... 119,500
Organization costs.............................................. 14,705
------------
868,450
Accumulated amortization........................................ (281,132)
------------
Intangible assets, net.......................................... $ 587,318
------------
Amortization expense for the year............................... $ 32,919
==========
</TABLE>
F-49
<PAGE> 149
PAUGUS TELEVISION, INC. (WGOT-TV)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
4. PROGRAM RIGHTS:
Program rights consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Program rights............................................... $ 305,751
Accumulated amortization..................................... (202,326)
------------
103,425
Less current program rights.................................. (68,754)
------------
$ 34,671
==========
Amortization expense for the year............................ $ 174,034
==========
</TABLE>
5. PROGRAM RIGHTS PAYABLE:
Program rights payable represent the obligation incurred to secure the
right to broadcast program material in accordance with a contractual agreement.
Future minimum annual payments under these contractual agreements as of December
31, 1994, are as follows:
<TABLE>
<S> <C>
1995......................................................... $111,594
1996......................................................... 36,089
------------
$147,683
==========
</TABLE>
6. RELATED PARTY NOTES PAYABLE:
Related party notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Note payable to stockholder, interest at Federal Funds Rate +1%,
principal and interest due on demand.................................. $3,853,650
Note payable to stockholder, interest at Federal Funds Rate +1%,
principal and interest due on demand.................................. 2,914,150
------------
$6,767,800
==========
</TABLE>
The Company has entered into multiple note payable agreements with its
primary stockholders, the Perceival Lowell Trust and the Roger L. Putnam Trust
(the "Trusts") whereby the Trusts fund working capital shortfalls on a monthly
basis. The notes payable are secured by all assets of the Company, including the
FCC license, accrue interest at the Federal Funds rate +1% and are due on
demand. At December 31, 1994, accrued interest payable on the notes was $569,047
and $474,458, respectively. No principal or interest payments were made for the
year ended December 31, 1994.
F-50
<PAGE> 150
PAUGUS TELEVISION, INC. (WGOT-TV)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
7. INCOME TAXES:
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Assets
Fixed assets.......................................................... $ 9,432
Allowance for doubtful accounts....................................... 9,255
Net operating loss carryforwards...................................... 4,038,004
Valuation allowance................................................... (4,049,045)
Liabilities
Intangible assets..................................................... (7,646)
------------
$ 0
==========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. A valuation allowance
has been provided for the net operating loss carryforwards.
8. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $94,652 for the year ended
December 31, 1994 under non-cancelable operating leases for office equipment and
tower space. Future minimum annual payments under these non-cancelable operating
leases as of December 31, 1994, are as follows:
<TABLE>
<CAPTION>
PAYMENT
--------
<S> <C>
1995.............................................................. $ 95,320
1996.............................................................. 15,600
--------
$110,920
========
</TABLE>
9. SUBSEQUENT EVENT:
On May 17, 1995, the Company sold the assets to Paxson Communications
Corporation for approximately $3,100,000.
F-51
<PAGE> 151
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Partners of
Delaware Valley Broadcasters Limited Partnership (WTGI-TV)
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in partners' deficit and of cash flows present fairly,
in all material respects, the financial position of Delaware Valley Broadcasters
Limited Partnership (WTGI-TV, the "Partnership") at December 31, 1994 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern, which contemplates the realization
of assets and the liquidation of liabilities in the ordinary course of business.
On February 25, 1987, the Partnership filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code, thereby
raising substantial doubt about their ability to continue as a going concern.
Management's plans in regard to the bankruptcy matters are described in Note 1
to the accompanying financial statements. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Price Waterhouse LLP
- ----------------------------
PRICE WATERHOUSE LLP
Tampa, Florida
August 21, 1995
F-52
<PAGE> 152
DELAWARE VALLEY BROADCASTERS LIMITED PARTNERSHIP (WTGI-TV)
BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 3, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 62,644 $ 74,952
Accounts receivable, less allowance for doubtful accounts of
$53,119 (unaudited) and $44,727, respectively.............. 364,299 364,373
Other current assets.......................................... 51,213 53,171
------------ ------------
Total current assets.................................. 478,156 492,496
Property and equipment, net (Note 2)............................ 778,838 795,578
Intangible assets, net.......................................... 95,160 96,773
------------ ------------
Total assets.......................................... $ 1,352,154 $ 1,384,847
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Current Liabilities:
Accounts payable and accrued liabilities...................... $ 282,384 $ 307,926
Unearned revenue.............................................. 31,487 64,670
Current notes payable (Note 4)................................ 40,431 57,410
Liabilities subject to Chapter 11 proceedings (Note 6)........ 1,956,618 1,956,618
Related party liabilities (Notes 5 and 6):
Accrued interest........................................... 142,263 140,533
Management fees payable.................................... 2,079,894 2,069,753
Accrued interest subject to Chapter 11 proceedings......... 2,662,317 2,619,257
Liabilities subject to Chapter 11 proceedings.............. 4,980,425 4,980,425
Note payable............................................... 156,000 156,000
------------ ------------
Total current liabilities............................. 12,331,819 12,352,592
Partners' deficit............................................... (10,979,665) (10,967,745)
------------ ------------
Commitments and contingencies (Note 7)
Total liabilities and partners' deficit............... $ 1,352,154 $ 1,384,847
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-53
<PAGE> 153
DELAWARE VALLEY BROADCASTERS LIMITED PARTNERSHIP (WTGI-TV)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
FEBRUARY 3, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Local and national advertising................................. $341,684 $2,664,362
Network and other.............................................. 26,922 364,862
Trade.......................................................... 1,810 81,959
------------ ------------
Total revenue.................................................... 370,416 3,111,183
------------ ------------
Operating expenses:
Direct......................................................... 85,878 648,539
Technical...................................................... 50,016 408,204
Sales and promotions........................................... 21,489 246,106
Programming.................................................... 16,913 263,352
General and administrative..................................... 98,230 1,033,570
Trade.......................................................... 1,207 121,177
Depreciation and amortization.................................. 32,613 391,355
------------ ------------
Total operating expenses......................................... 306,346 3,112,303
Income (loss) from operations.................................... 64,070 (1,120)
Interest expense, net (Note 1)................................... (44,790) (460,605)
Management fees (Note 5)......................................... (31,200) (318,526)
Reorganization expenses (Note 1)................................. (186,407)
------------ ------------
Net loss......................................................... $(11,920) $ (966,658)
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-54
<PAGE> 154
DELAWARE VALLEY BROADCASTERS LIMITED PARTNERSHIP (WTGI-TV)
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
SPECIAL
GENERAL LIMITED LIMITED
PARTNERS PARTNERS PARTNER TOTAL
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994..................... $(90,010) $ (9,901,076) $(10,001) $(10,001,087)
Net loss....................................... (8,700) (956,991) (967) (966,658)
-------- ------------ -------- ------------
Balance at December 31, 1994................... (98,710) (10,858,067) (10,968) (10,967,745)
Net loss through February 3, 1995
(unaudited).................................. (107) (11,801) (12) (11,920)
-------- ------------ -------- ------------
Balance at February 3, 1995 (unaudited)........ $(98,817) $(10,869,868) $(10,980) $(10,979,665)
======== =========== ======== ===========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-55
<PAGE> 155
DELAWARE VALLEY BROADCASTERS LIMITED PARTNERSHIP (WTGI-TV)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
FEBRUARY 3, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $(11,920) $ (966,658)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.................................... 32,613 391,355
Allowance for doubtful accounts.................................. 8,392 34,363
Increase in accounts receivable.................................. (8,318) (114,771)
(Increase) decrease in prepaid expenses and other current
assets........................................................ 1,958 (11,085)
Increase (decrease) in accounts payable and accrued
liabilities................................................... (25,542) 135,869
Increase (decrease) in other liabilities......................... (33,183) 87,710
Increase in related party accrued interest....................... 1,730 5,920
Increase in related party management fees payable................ 10,141 233,547
Increase in related party accrued interest subject to Chapter 11
proceedings................................................... 43,060 403,581
------------ ------------
Net cash provided by operating activities........................ 18,931 199,831
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment.............................. (14,260) (49,252)
------------ ------------
Net cash used for investing activities........................... (14,260) (49,252)
------------ ------------
Cash flows from financing activities:
Payments on note payable......................................... (16,979) (113,568)
------------ ------------
Net cash used for financing activities........................... (16,979) (113,568)
------------ ------------
Increase (decrease) in cash and cash equivalents................... (12,308) 37,011
Cash and cash equivalents at beginning of year..................... 74,952 37,941
------------ ------------
Cash and cash equivalents at end of period......................... $ 62,644 $ 74,952
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest........................................... $ -- $ 51,104
========== ==========
Non-cash operating activities:
Trade revenue.................................................... $ 1,810 $ 81,959
========== ==========
Trade expense.................................................... $ 1,207 $ 121,177
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-56
<PAGE> 156
DELAWARE VALLEY BROADCASTERS LIMITED PARTNERSHIP (WTGI-TV)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Delaware Valley Broadcasters Limited Partnership (the "Partnership")
was organized in March 1984 for the purpose of constructing, owning and
operating a television broadcasting station in Wilmington, Delaware. The
Partnership consists of two general partners, 44 limited partners and a special
limited partner. Delaware Valley Broadcasters, Inc., a general partner, performs
the duties of the managing partner for which a fee is paid (Note 5).
On February 25, 1987, the Partnership filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code in
Wilmington, Delaware. On May 1, 1989, the Plan of Reorganization which had been
submitted by the Partnership was accepted by the creditors and confirmed by the
Court. Subsequently, the Partnership was unable to realize the financing
anticipated by the Plan of Reorganization and therefore defaulted on payments.
On September 23, 1993, the Partnership refiled under Chapter 11 of the United
States Bankruptcy Code in Philadelphia, Pennsylvania. This secondary filing in
Pennsylvania was dismissed and remanded back to Delaware with a Court Order
mandating the Delaware Court to oversee the sale of the station.
The financial statements of the Partnership have been prepared on a
"going-concern" basis which contemplates the realization of assets and the
liquidation of liabilities in the ordinary course of business. However, as a
result of the Chapter 11 filing and the Court mandated sale, such realization of
assets and liquidation of liabilities are subject to a significant number of
uncertainties including management's plan to liquidate the Partnership's
liabilities through the Court approved sale of the Company's assets (Note 8).
Reorganization expenses included in the Statement of Operations for the
year ended December 31, 1994 is comprised of professional fees of $186,407.
Partnership ownership and allocations
The Partnership ownership interest consists of the following:
<TABLE>
<S> <C>
General Partners.................................................. 0.9%
Limited Partners.................................................. 99.0%
Special Limited Partner........................................... 0.1%
-----
100.0%
=====
</TABLE>
All items of income, loss or gain are allocated to the Partners' capital
accounts in proportion to their ownership interest.
Cash and cash equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
Property and equipment
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Broadcasting tower and equipment................................. 5-15 years
Building and improvements........................................ 32 years
Transmitters..................................................... 5 years
Office furniture and equipment................................... 5-7 years
</TABLE>
F-57
<PAGE> 157
DELAWARE VALLEY BROADCASTERS LIMITED PARTNERSHIP (WTGI-TV)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
Intangible assets
Intangible assets consist of the FCC license which is stated at cost and is
being amortized using the straight-line method over the estimated useful life of
15 years.
Income taxes
Income or loss of the Partnership is included in the tax returns of the
individual partners. Accordingly, federal income taxes are not recognized by the
Partnership.
Related party transactions
The Partnership pays an annual management fee to a general partner who acts
as the stations' managing partner and to the special limited partner who acts as
the stations' administrative contractor (Note 5).
Additionally, a significant amount of liabilities subject to Chapter 11
proceedings and accrued interest is owed to either limited or general partners.
Interest expense on liabilities to related parties aggregated $442,064 for the
year ended December 31, 1994 (Note 6).
Revenue recognition
Revenue is recognized as advertising air time is broadcast.
Trade agreements
The Partnership enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Partnership uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
Interim financial data
The interim financial data of the Company is unaudited; however, in the
opinion of the Company, the interim data includes all adjustments, consisting of
only normal recurring adjustments necessary for a fair statement of results of
the interim periods. The results of operations for the period from January 1,
1995 through February 3, 1995 are not necessarily indicative of the results that
can be expected for the entire fiscal year ending December 31, 1995.
F-58
<PAGE> 158
DELAWARE VALLEY BROADCASTERS LIMITED PARTNERSHIP (WTGI-TV)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Broadcasting tower and equipment............................ $ 3,527,199
Building, land and improvements............................. 418,169
Office furniture and equipment.............................. 175,500
Transmitters................................................ 62,572
------------
4,183,440
Accumulated depreciation.................................... (3,387,862)
------------
Property and equipment, net................................. $ 795,578
==========
</TABLE>
Depreciation expense aggregated $372,000 for the year ended December 31,
1994.
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
FCC license.................................................. $ 290,319
Accumulated amortization..................................... (193,546)
------------
Intangible assets, net....................................... $ 96,773
==========
</TABLE>
Amortization expense aggregated $19,355 for the year ended December 31,
1994.
4. CURRENT NOTES PAYABLE:
Current notes payable at December 31, 1994 consists of a mortgage note
payable secured by the station's tower and land. Although the Partnership has
been making payments on the mortgage note payable of approximately $7,500 a
month, the balance is currently past due and is classified as a current
liability.
5. RELATED PARTY TRANSACTIONS:
At December 31, 1994, the Partnership has a $156,000 demand note payable to
a general partner. In 1988, the Court approved the execution of an agreement
with a general partner, whereby a general partner loaned the Partnership
$156,000 at 16% interest per annum, to fund current working capital needs. This
note payable has been given post-petition payment priority by the court and is
due on demand, and therefore classified as a current payable.
Delaware Valley Broadcasters, Inc., a general partner, performs the duties
of the managing partner, as outlined in the limited partnership agreement (the
"Partnership Agreement"). The Partnership Agreement specifies that the
Partnership will pay the managing partner a fee consisting of $100,000 per year
plus 5% of gross revenues. Under the terms of this agreement the Partnership
accrued an aggregate of $250,725 due to the general partner for the year ended
December 31, 1994.
Weatherly Private Capital ("Weatherly"), the special limited partner,
performs the duties of administrative contractor, who, as outlined in the
Weatherly Agreement, prepared and underwrote the limited partnership offering
and performs on-going investor relations and financial consulting. The Weatherly
Agreement specifies that the Partnership will pay Weatherly an annual management
fee of 2% of the original
F-59
<PAGE> 159
DELAWARE VALLEY BROADCASTERS LIMITED PARTNERSHIP (WTGI-TV)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
capital raised for ongoing duties. The Partnership accrued $67,800 due to
Weatherly for the year ended December 31, 1994.
Management fees payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Delaware Valley Broadcasters, Inc. (Managing general
partner)................................................... $1,527,353
Weatherly Private Capital (Special limited partner).......... 542,400
------------
$2,069,753
==========
</TABLE>
6. LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS:
The principal categories of claims classified in the Balance Sheet as
liabilities subject to Chapter 11 proceedings at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Accounts payable and accrued expenses........................ $1,336,618
Notes payable................................................ 220,000
Program license contracts.................................... 400,000
------------
$1,956,618
==========
Related party:
Secured notes payable...................................... $3,882,828
Notes payable.............................................. 1,097,597
------------
$4,980,425
==========
</TABLE>
Reorganization expenses included in the statement of operations consist
primarily of professional fees related directly to the bankruptcy proceedings
(Note 1).
7. COMMITMENTS AND CONTINGENCIES:
The Partnership incurred lease expense of approximately $127,575 for the
year ended December 31, 1994, under a non-cancelable operating leases for office
facilities. Future minimum annual payments under this non-cancelable operating
lease as of December 31, 1994, is $65,475 for the year ended December 31, 1995.
8. SUBSEQUENT EVENT:
On February 3, 1995, the Partnership sold all the assets, as specified in
the asset purchase agreement, to Paxson Communications Corporation for
approximately $10,200,000.
F-60
<PAGE> 160
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors, Stockholders and Partners
of San Jacinto Television Corporation and DuPont Investment Group, 85 Ltd.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of changes in combined deficit and of cash
flows present fairly, in all material respects, the combined financial position
of San Jacinto Television Corporation and DuPont Investment Group, 85 Ltd.,
(collectively referred to as the "Company") at December 31, 1994 and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
The accompanying combined financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
combined financial statements, the Company has incurred recurring losses from
operations that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The combined financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Price Waterhouse LLP
- --------------------------------------
PRICE WATERHOUSE LLP
Tampa, Florida
August 21, 1995
F-61
<PAGE> 161
SAN JACINTO TELEVISION CORPORATION AND DUPONT INVESTMENT GROUP, 85 LTD.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 325,801 $ 314,951
Accounts receivable, less allowance for doubtful accounts of
$102,655 and $65,234, respectively............................ 115,115 172,313
Prepaid expenses................................................. 13,592 14,070
----------- ------------
Total current assets..................................... 454,508 501,334
Property and equipment, net........................................ 1,196,011 1,264,598
Intangible assets, net............................................. 641,867 647,500
----------- ------------
Total assets............................................. $ 2,292,386 $2,413,432
========= ==========
LIABILITIES AND COMBINED DEFICIT
Current liabilities:
Accounts payable and accrued liabilities......................... $ 55,450 $ 28,999
Notes payable to shareholders.................................... 500,000 500,000
Liabilities subject to Plan of Reorganization (Note 1, 5)........ 2,364,898 2,605,077
----------- ------------
Total current liabilities................................ 2,920,348 3,134,076
----------- ------------
Combined deficit:
Stockholders' deficit (San Jacinto Television Corporation)....... (252,276) (386,834)
Partners' deficit (DuPont Investment Group, 85 Ltd.)............. (375,686) (333,810)
----------- ------------
Total combined deficit................................... (627,962) (720,644)
Commitments and contingencies (Note 6)
----------- ------------
Total liabilities and combined deficit................... $ 2,292,386 $2,413,432
========= ==========
</TABLE>
The accompanying Notes to Combined Financial Statements are
an integral part of the combined financial statements.
F-62
<PAGE> 162
SAN JACINTO TELEVISION CORPORATION AND DUPONT INVESTMENT GROUP, 85 LTD.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1995 1994
---------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Local and national advertising.................................... $259,907 $1,601,023
Network and other................................................. 104,624 616,677
Trade............................................................. 99,142 447,044
Time brokerage fees............................................... 184,332 --
---------- ------------
Total revenue............................................. 648,005 2,664,744
---------- ------------
Operating expenses:
Direct............................................................ 76,788 425,066
Sales and promotions.............................................. 73,572 330,745
Technical......................................................... 15,308 175,219
Programming....................................................... 3,810 47,616
General and administrative........................................ 149,444 818,811
Trade............................................................. 93,826 423,075
Depreciation and amortization..................................... 92,357 225,276
---------- ------------
Total operating expenses.................................. 505,105 2,445,808
---------- ------------
Income from operations.............................................. 142,900 218,936
Other income (expense):
Loss on sale of assets............................................ -- (69,996)
Interest expense, net............................................. (45,522) (105,862)
Reorganization income, net (Note 1)............................... -- 512,312
---------- ------------
Net income.......................................................... $ 97,378 $ 555,390
======== ==========
</TABLE>
The accompanying Notes to Combined Financial Statements are
an integral part of the combined financial statements.
F-63
<PAGE> 163
SAN JACINTO TELEVISION CORPORATION AND DUPONT INVESTMENT GROUP, 85 LTD.
COMBINED STATEMENT OF CHANGES IN COMBINED DEFICIT
<TABLE>
<CAPTION>
DUPONT INVESTMENT GROUP, 85
SAN JACINTO TELEVISION CORPORATION LTD.
STOCKHOLDERS' DEFICIT PARTNERS' DEFICIT
-------------------------------------------- -------------------------------
COMMON ACCUMULATED TREASURY GENERAL LIMITED
STOCK DEFICIT STOCK TOTAL PARTNER PARTNER TOTAL
------ ----------- -------- ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994....... $1,591 $(1,078,475) $(10,000) $(1,086,884) $ $ (89,150) $ (89,150)
Distribution to partners......... (100,000) (100,000)
Net income (loss)................ 700,050 700,050 (144,660) (144,660)
------ ----------- -------- ----------- ------- --------- ---------
Balance at December 31, 1994..... 1,591 (378,425) (10,000) (386,834) (333,810) (333,810)
Distribution to partners
(unaudited).................... (4,696) (4,696)
Net income (loss) (unaudited).... 134,558 134,558 (37,180) (37,180)
------ ----------- -------- ----------- ------- --------- ---------
Balance at June 30, 1995
(unaudited).................... $1,591 $ (243,867) $(10,000) $ (252,276) $ $(375,686) $(375,686)
======== ============ ========= ============ ======= ========== ==========
</TABLE>
The accompanying Notes to Combined Financial Statements are
an integral part of the combined financial statements.
F-64
<PAGE> 164
SAN JACINTO TELEVISION CORPORATION AND DUPONT INVESTMENT GROUP, 85 LTD.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 97,378 $ 555,390
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 92,357 225,276
Allowance for doubtful accounts.................................. 37,421 42,768
Negotiated settlements........................................... -- (579,543)
Decrease (increase) in accounts receivable....................... 19,777 (59,075)
Decrease in prepaid expenses..................................... 478 14,879
Increase in accounts payable and accrued liabilities............. 26,451 3,184
Decrease in liabilities subject to Plan of Reorganization........ (240,179) (112,715)
------------- ------------
Net cash provided by operating activities........................ 33,683 90,164
------------- ------------
Cash flows from investing activities:
Purchases of property and equipment.............................. (18,137) (115,885)
Sale of property and equipment................................... -- 84,377
------------- ------------
Net cash used for investing activities........................... (18,137) (31,508)
------------- ------------
Cash flows from financing activities:
Distribution to partners......................................... (4,696) (100,000)
------------- ------------
Net cash used for financing activities........................... (4,696) (100,000)
------------- ------------
Decrease in cash and cash equivalents.............................. 10,850 (41,344)
Cash and cash equivalents at beginning of year..................... 314,951 356,295
------------- ------------
Cash and cash equivalents at end of year........................... $ 325,801 $ 314,951
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest........................................... $ 10,382 $ 57,862
========== ==========
Non-cash operating activities:
Trade revenue.................................................... $ 99,142 $ 447,044
========== ==========
Trade expense.................................................... $ 93,826 $ 423,075
========== ==========
</TABLE>
The accompanying Notes to Combined Financial Statements are
an integral part of the combined financial statements.
F-65
<PAGE> 165
SAN JACINTO TELEVISION CORPORATION AND DUPONT INVESTMENT GROUP, 85 LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
San Jacinto Television Corporation, ("San Jacinto"), was organized in
September 1984 for the purpose of constructing, owning and operating a
television station, KTFH-TV, in Houston, Texas. DuPont Investment Group, 85
Ltd., ("DuPont"), a limited partnership and majority shareholder of San Jacinto,
purchased a low power station, K33DB, in 1989 from which San Jacinto
simultaneously rebroadcasts its signal to cover the Southern region of Houston.
The financial positions, results of operations and of cash flows of San Jacinto
and DuPont (collectively referred to as the "Company"), which reflect the
broadcast operations of the station, are combined for financial statement
purposes.
On February 7, 1989, San Jacinto filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. On
December 9, 1993, the Plan of Reorganization which had been submitted by San
Jacinto was accepted by the creditors and confirmed by the Bankruptcy Court. The
Plan of Reorganization provides for the repayment of pre-petition liabilities
over a four year period, funded by operating cash flows.
The combined financial statements of the Company have been prepared on a
"going-concern" basis which contemplates the realization of assets and the
liquidation of liabilities in the ordinary course of business. However, as a
result of the Chapter 11 filing of San Jacinto and approved Plan of
Reorganization, such realization of assets and liquidation of liabilities are
subject to a significant number of uncertainties, including funding the Plan of
Reorganization from positive cash flows. Company management plans to liquidate
the Company liabilities through a sale of the Company assets (See Note 8).
Reorganization income included in the Statement of Operations for the six
months ended June 30, 1995 and the year ended December 31, 1994, respectively,
is comprised of the following:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
Income from negotiated settlements........................... $ $ (579,543)
Professional fees............................................ -- 67,231
----------- ------------
$ $ (512,312)
========= ==========
</TABLE>
Income from negotiated settlements represents debt forgiveness via
negotiations and discounting by certain creditors in exchange for accelerated
payment by the Company.
Partnership allocations
All items of income or loss are allocated to the limited partner.
Principles of combination
The combined financial statements include accounts of San Jacinto and
DuPont. All intercompany balances and transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
F-66
<PAGE> 166
SAN JACINTO TELEVISION CORPORATION AND DUPONT INVESTMENT GROUP, 85 LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
Property and equipment
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Broadcasting tower and equipment........................... 6-13 years
Office furniture equipment and other....................... 6-10 years
Building................................................... 40 years
Leasehold improvements..................................... Term of lease
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
Intangible assets
Intangible assets consist of FCC licenses which are stated at cost and are
being amortized using the straight-line method over the estimated useful life of
25 years.
Revenue recognition
Revenue from broadcast operations is recognized as advertising air time is
broadcast.
Trade agreements
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertised air time is broadcast. Products and services received are
expensed when used in the broadcast operations. If the Company uses exchanged
products or services before advertising air time is provided, a trade liability
is recognized.
Income taxes
San Jacinto is a C-Corporation for federal income tax purposes and has
experienced cumulative net losses of $378,425 as of December 31, 1994. Income or
loss of DuPont, is included in the tax returns of the individual partners.
Accordingly, federal income taxes are not recognized by the Partnership (see
Note 7).
Treasury stock
Treasury stock is accounted for under the cost method. Currently, San
Jacinto holds 80 shares of $1 par value in Treasury at its acquisition cost of
$10,000.
Interim financial data
The interim financial data of the Company is unaudited; however, in the
opinion of the Company, the interim data includes all adjustments, consisting of
only normal recurring adjustments necessary for a fair presentation of results
of the interim periods. The results of operations for the six months ended June
30, 1995 are not necessarily indicative of the results that can be expected for
the entire fiscal year ending December 31, 1995.
Effective March 1, 1995, the Company and Paxson Communications Corporation,
("Paxson"), entered into a time brokerage agreement whereby Paxson provides
programming for the station for total fees of $184,332 for the period March 1,
1995 through June 30, 1995.
F-67
<PAGE> 167
SAN JACINTO TELEVISION CORPORATION AND DUPONT INVESTMENT GROUP, 85 LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Broadcasting tower and equipment........................................ $1,845,473
Land.................................................................... 152,827
Building and leasehold improvements..................................... 125,895
Office furniture and equipment.......................................... 95,566
------------
2,219,761
Accumulated depreciation................................................ (955,163)
------------
Property and equipment, net............................................. $1,264,598
==========
Depreciation expense for the year....................................... $ 191,476
==========
</TABLE>
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
FCC licenses............................................................ $ 848,500
Accumulated amortization................................................ (201,000)
------------
Intangible assets, net.................................................. $ 647,500
==========
Amortization expense for the year....................................... $ 33,800
==========
</TABLE>
4. NOTES PAYABLE TO SHAREHOLDERS:
Notes payable to shareholders consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Shareholder notes payable, (12% interest due annually, principal
payments past due since December 31, 1991)............................ $360,000
Shareholder notes payable, (12% interest due annually, principal
payments past due since December 31, 1993)............................ 140,000
------------
$500,000
==========
</TABLE>
Notes payable to shareholders accrue interest at 12% per annum, with
principal payments due on December 31, 1991 and 1993, respectively. Notes
payable have past their stated maturities and are therefore classified as
current liabilities. Interest paid monthly to shareholders on the outstanding
past due balances, aggregated $57,862 for the year ended December 31, 1994.
F-68
<PAGE> 168
SAN JACINTO TELEVISION CORPORATION AND DUPONT INVESTMENT GROUP, 85 LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
5. LIABILITIES SUBJECT TO PLAN OF REORGANIZATION:
The principal categories of claims classified in the Combined Balance Sheet
as liabilities subject to Plan of Reorganization at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Unsecured claims........................................................ $1,692,839
Notes payable........................................................... 753,243
Administrative claims................................................... 158,995
------------
$2,605,077
==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $44,012 for the year ended
December 31, 1994 under non-cancelable operating leases for office equipment and
tower space. Future minimum annual payments under these non-cancelable operating
leases as of December 31, 1994, are as follows:
<TABLE>
<CAPTION>
PAYMENT
-------
<S> <C>
1995....................................................................... $45,892
1996....................................................................... 41,792
1997....................................................................... 2,894
-------
$90,578
=======
</TABLE>
7. INCOME TAXES:
Significant components of the Company's deferred tax liabilities (assets)
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Deferred taxes
Assets
Doubtful accounts allowance and other.............................. $ (24,117)
Net operating loss carryforward.................................... (190,046)
Liabilities........................................................... --
------------
(214,163)
Deferred tax asset valuation allowance............................. 214,163
------------
Deferred tax (asset) liability.......................................... $ 0
==========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. A valuation allowance
has been provided for the net deferred asset.
F-69
<PAGE> 169
SAN JACINTO TELEVISION CORPORATION AND DUPONT INVESTMENT GROUP, 85 LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
The reconciliation of income tax benefit attributable to continuing
operations, computed at U.S. Federal Statutory tax rates, to provision for
income taxes is:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1994
------------------
<S> <C>
Tax at U.S. Federal Statutory tax rates............................. $ 188,833
State income tax.................................................... 24,993
Partnership income/(loss) effect.................................... 55,694
Permanent differences............................................... 25,884
Utilization of net operating losses................................. (295,404)
------------------
$ 0
==============
</TABLE>
8. SUBSEQUENT EVENT:
On January 20, 1995, the Company entered into an asset purchase agreement
to sell substantially all of the operating assets and related intangible assets
to Paxson for approximately $7,900,000. On March 1, 1995, Paxson began operating
the station under a time brokerage agreement ("TBA"). Under a TBA, the stations'
operating revenues and expenses are operated by Paxson in exchange for a monthly
time brokerage fee.
F-70
<PAGE> 170
[PRICE WATERHOUSE LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Trustee of
WTVX-TV, Krypton Broadcasting of Ft. Pierce, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in accumulated shareholders' deficit and of cash flows
present fairly, in all material respects, the financial position of WTVX-TV,
Krypton Broadcasting of Ft. Pierce, Inc. (the "Company") at December 31, 1994
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
- --------------------------------------
Price Waterhouse LLP
Tampa, Florida
October 11, 1995
F-71
<PAGE> 171
WTVX-TV, KRYPTON BROADCASTING OF FT. PIERCE, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
AUGUST 4, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 870,689 $ 592,898
Accounts receivable, net of allowance for doubtful accounts
of $56,794 and $68,491....................................... 707,061 824,324
Current program rights.......................................... 30,816 82,318
Other current assets............................................ 67,180 44,129
----------- -----------
Total current assets.................................... 1,675,746 1,543,669
Property and equipment, net....................................... 4,382,814 4,485,318
Intangible assets, net............................................ 1,959,868 1,994,077
Program rights, net............................................... 31,130 51,436
----------- -----------
Total assets............................................ $ 8,049,558 $ 8,074,500
=========== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Liabilities:
Accounts payable and accrued liabilities........................ $ 132,786 $ 127,640
Current program rights payable.................................. 67,104 128,217
Accrued interest................................................ 1,660,227 1,128,077
Liabilities subject to Chapter 11 proceedings................... 3,647,033 3,647,033
----------- -----------
Total current liabilities............................... 5,507,150 5,030,967
Program rights payable............................................ 4,775 33,983
Debt.............................................................. 8,535,260 8,535,260
----------- -----------
Total liabilities....................................... 14,047,185 13,600,210
Commitments and contingencies (Note 8)
Shareholder's deficit............................................. (5,997,627) (5,525,710)
----------- -----------
Total liabilities and shareholder's deficit............. $ 8,049,558 $ 8,074,500
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-72
<PAGE> 172
WTVX-TV, KRYPTON BROADCASTING OF FT. PIERCE, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
AUGUST 4, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Local and national advertising................................. $2,580,512 $4,167,639
Production and other........................................... 17,853 58,398
Trade and barter............................................... 430,875 792,036
Tower rent..................................................... 94,992 172,292
------------ ------------
Total revenue.......................................... 3,124,232 5,190,365
------------ ------------
Operating expenses:
Direct......................................................... 522,928 845,679
Technical...................................................... 378,343 513,743
Sales and promotions........................................... 795,345 844,417
Programming.................................................... 184,690 487,165
General and administrative..................................... 295,974 445,116
Trade and barter............................................... 433,256 787,155
Program rights amortization.................................... 71,808 149,607
Depreciation and amortization.................................. 293,514 521,147
------------ ------------
Total operating expenses............................... 2,975,858 4,594,029
Income from operations........................................... 148,374 596,336
Interest expense................................................. (532,150) (747,547)
Reorganization expenses (Note 1)................................. (98,371) (131,431)
Other income..................................................... 10,230 7,143
------------ ------------
Loss before income taxes......................................... (471,917) (275,499)
Provision for intercompany income taxes.......................... -- --
------------ ------------
Net loss............................................... $ (471,917) $ (275,499)
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-73
<PAGE> 173
WTVX-TV, KRYPTON BROADCASTING OF FT. PIERCE, INC.
STATEMENT OF CHANGES IN SHAREHOLDER'S DEFICIT
<TABLE>
<S> <C>
Balance at January 1, 1994...................................................... $(5,250,211)
Net loss........................................................................ (275,499)
-----------
Balance at December 31, 1994.................................................... (5,525,710)
Net loss through August 4, 1995 (unaudited)..................................... (471,917)
-----------
Balance at August 4, 1995 (unaudited)........................................... $(5,997,627)
==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-74
<PAGE> 174
WTVX-TV, KRYPTON BROADCASTING OF FT. PIERCE, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
AUGUST 4, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $ (471,917) $ (275,499)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.................................... 293,514 521,147
Program rights amortization...................................... 71,808 149,607
Allowance for doubtful accounts.................................. (11,697) 39,267
(Increase)/decrease in accounts receivable....................... 128,960 (169,954)
(Increase) in other current assets............................... (23,051) (16,765)
Increase/(decrease) in accounts payable and accrued
liabilities................................................... 5,146 (28,022)
Increase in accrued interest..................................... 532,150 747,547
--------- ---------
Net cash provided by operating activities........................ 524,913 967,328
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment.............................. (156,801) (346,703)
--------- ---------
Net cash used for investing activities........................... (156,801) (346,703)
--------- ---------
Cash flows from financing activities:
Payment of program rights payable................................ (90,321) (199,195)
--------- ---------
Net cash used for financing activities........................... (90,321) (199,195)
--------- ---------
Increase in cash and cash equivalents.............................. 277,791 421,430
Cash and cash equivalents at beginning of period................... 592,898 171,468
--------- ---------
Cash and cash equivalents at end of period......................... $ 870,689 $ 592,898
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest........................................... $ 0 $ 0
========= =========
Non-cash operating activities:
Trade and barter revenue......................................... $ 430,875 $ 792,036
========= =========
Trade and barter expense......................................... $ 433,256 $ 787,155
========= =========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of the financial statements.
F-75
<PAGE> 175
WTVX-TV, KRYPTON BROADCASTING OF FT. PIERCE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
WTVX-TV, Krypton Broadcasting of Ft. Pierce, Inc. (the "Company"),
operating as a subsidiary of Krypton International Corporation, is engaged in
the operation of a television broadcasting station in Ft. Pierce, Florida,
serving the West Palm Beach, Florida market.
On June 1, 1993, the Company filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code in Miami, Florida. On
August 4, 1995, the Company sold all the assets, as specified in the related
asset purchase agreement, to Whitehead Media Corporation for approximately
$17,175,000, which exceeded recorded net assets.
Reorganization expenses included in the Statement of Operations for the
year ended December 31, 1994 is comprised of professional and attorney fees of
$131,431.
Cash and cash equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less. Cash and cash equivalents are recorded at
fair value.
Property and equipment
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Broadcasting tower and equipment......................................... 7-40 years
Building and improvements................................................ 40 years
Office furniture, equipment and other.................................... 7 years
Vehicles................................................................. 5 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
Intangible assets
Intangible assets consist of the FCC license, which is stated at cost and
is being amortized using the straight-line method over 25 years.
Program rights
The Company obtains licenses for program rights which allow the Company to
broadcast program material in accordance with contractual agreements. Pursuant
to a licensing agreement, an asset is recorded for the program rights acquired
and a liability is recorded for the obligation incurred, at the gross amount of
the liability. Program rights are amortized on a method that approximates the
straight-line basis over the related term. Program rights which will not be
aired are charged to expense. Current program rights represent programs which
will be amortized during the next year; current liabilities represent program
rights which will be paid within the year under contractual agreements. Program
rights payable represent the obligation incurred to secure the right to
broadcast program material in accordance with a contractual agreement.
F-76
<PAGE> 176
WTVX-TV, KRYPTON BROADCASTING OF FT. PIERCE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
Income taxes
The Company's operating results have been included in the consolidated tax
returns of Krypton International Corporation, and a provision for intercompany
income taxes, which approximates the income tax provision calculated for the
Company on a standalone basis, has been included in the financial statements.
Revenue recognition
Revenue is recognized as advertising air time is broadcast.
Trade agreements
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
Interim financial data
The interim financial data of the Company is unaudited; however, in the
opinion of the Company, the interim data includes all adjustments, consisting of
only normal recurring adjustments necessary for a fair statement of results of
the interim periods. The results of operations for the period ended August 4,
1995 are not necessarily indicative of the results that can be expected for the
entire fiscal year ending December 31, 1995.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Broadcasting tower and equipment........................................ $ 5,097,621
Building, land and improvements......................................... 704,823
Office furniture, equipment and other................................... 219,986
Vehicles................................................................ 26,145
------------
6,048,575
Less accumulated depreciation........................................... (1,563,257)
------------
Property and equipment, net............................................. $ 4,485,318
==========
Depreciation expense for the year....................................... $ 427,309
==========
</TABLE>
F-77
<PAGE> 177
WTVX-TV, KRYPTON BROADCASTING OF FT. PIERCE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
FCC license............................................................. $2,356,473
Less accumulated amortization........................................... (362,396)
------------
Intangible assets, net.................................................. $1,994,077
==========
Amortization expense for the year....................................... $ 93,838
==========
</TABLE>
4. PROGRAM RIGHTS:
Program rights consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Program rights......................................................... $231,925
Less accumulated amortization.......................................... (98,171)
------------
133,754
Less current program rights............................................ 82,318
------------
$ 51,436
==========
Amortization expense for the year...................................... $149,607
==========
</TABLE>
5. LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS:
The principal categories of claims classified in the Balance Sheet as
liabilities subject to Chapter 11 proceedings at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Accounts payable....................................................... $ 392,102
Accrued interest....................................................... 650,932
Program license contracts.............................................. 2,603,999
------------
$3,647,033
==========
</TABLE>
Reorganization expenses included in the statement of operations consist
primarily of professional and attorney fees related directly to the bankruptcy
proceedings (Note 1).
F-78
<PAGE> 178
WTVX-TV, KRYPTON BROADCASTING OF FT. PIERCE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
6. INCOME TAXES:
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Assets:
Intangible assets..................................................... $ 24,231
Allowance for doubtful accounts....................................... 25,773
Net operating loss carryforwards...................................... 780,419
Valuation allowance................................................... $ (830,423)
--------
$ 0
========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. A valuation allowance
has been provided for the deferred tax assets.
7. DEBT:
A portion of the Krypton International Corporation's debt and interest
costs which are directly related to WTVX-TV were allocated to the Company based
on the original purchase price of the station. Debt allocated at December 31,
1994 was approximately $8,535,000. Interest expense allocated for the year ended
December 31, 1994 was approximately $748,000. There are no other costs pushed
down by Krypton International Corporation as there are no others which are
directly related to the Company.
8. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $64,900 for the year ended
December 31, 1994 under non-cancelable operating leases for office equipment and
office space. Future minimum annual payments under these non-cancelable
operating leases as of December 31, 1994, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................................ $ 44,668
1996............................................................ 4,538
1997............................................................ 3,492
1998............................................................ 873
1999............................................................ --
------------
$ 53,571
==========
</TABLE>
F-79
<PAGE> 179
================================================================================
No person is authorized in connection with any offering made hereby to
give any information or to make any representations other than those contained
in this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which it is unlawful to make such offer or
solicitation. Neither delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that the information
herein is correct as of any time subsequent to the date hereof.
__________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Definitions and Market
and Industry Data ........................
Prospectus Summary.........................
Risk Factors...............................
The Proposed Acquisitions..................
Use of Proceeds............................
Price Range of Class A Common
Stock.....................................
Dividend Policy............................
Dilution...................................
Capitalization.............................
The Company................................
Selected Historical and Pro Forma
Financial Data............................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.............................
Business...................................
Management.................................
Certain Transactions.......................
Principal and Selling Stockholders ........
Description of Capital Stock...............
Shares Eligible for Future Sale............
Underwriting...............................
Legal Matters..............................
Experts....................................
Available Information......................
Pro Forma Financial Information ........... P-1
Index to Financial Statements ............. F-1
</TABLE>
================================================================================
================================================================================
10,000,000 Shares
Paxson Communications
Corporation
Class A Common Stock
_______________
P R O S P E C T U S
, 1996
_______________
Smith Barney Inc.
PaineWebber Incorporated
CIBC Wood Gundy Securities Corp.
BT Securities Corporation
================================================================================
<PAGE> 180
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[Alternate Page for International Prospectus]
SUBJECT TO COMPLETION, DATED ___________, 1996
PROSPECTUS
10,000,000 Shares
Paxson Communications Corporation
Class A Common Stock
____________________
Of the 10,000,000 shares of Class A Common Stock, par value $.001 per
share (the "Class A Common Stock"), offered hereby, 8,800,000 shares are being
issued and sold by Paxson Communications Corporation (the "Company" or "Paxson
Communications") and 1,200,000 shares are being sold by certain stockholders of
the Company (the "Selling Stockholders"). See "Principal and Selling
Stockholders." Of the 10,000,000 shares of Class A Common Stock offered
hereby, 2,000,000 shares are being offered in a international offering outside
the United States and Canada by the Managers (as defined) (the "International
Offering"), and 8,000,000 shares are being offered in the United States and
Canada (the "U.S. Offering" and, together with the International Offering, the
"Offering") by the U.S. Underwriters (as defined). The public offering price
and aggregate underwriting discount per share are identical for both offerings.
See "Underwriting."
The Company's authorized capital stock includes Class A Common Stock,
Class B Common Stock and Class C Common Stock (collectively, the "Common
Stock") and preferred stock. The rights of holders of Common Stock are
identical, except that each share of Class B Common Stock generally entitles
its holders to ten votes, whereas each share of Class A Common Stock entitles
its holders to one vote and the holders of Class C Common Stock generally have
no right to vote. Shares of Class B Common Stock and Class C Common Stock are
convertible into shares of Class A Common Stock on a one-for-one basis at the
option of the holder. See "Description of Capital Stock."
The Company's Class A Common Stock is listed on the American Stock
Exchange under the symbol "PXN." The last reported sale price of the Company's
Class A Common Stock as reported on the American Stock Exchange on January 15,
1996 was $15.00 per share.
______________________
See "Risk Factors" starting on page 11 for a discussion of certain factors
that should be considered in connection with an investment in the Class A
Common Stock offered hereby.
This document may not be passed on in the United Kingdom to any person
unless the person is of a kind described in Article 9(3) of the Financial
Services Act 1986 (Investment Advertisements) Order 1988 or as a person to whom
such document may otherwise lawfully be issued or passed on.
________________________
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.
<TABLE>
<CAPTION>
================================================================================
Underwriting
Price to Discounts and Proceeds to Proceeds to Selling
Public Commissions(1) Company (2) Stockholders
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share $ $ $ $
- --------------------------------------------------------------------------------
Total (3) $ $ $ $
================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify
the Managers and the U.S. Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company and the Selling Stockholders have granted the U.S.
Underwriters a 30-day option to purchase up to 1,500,000 additional shares
of Class A Common Stock solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
_______________________
The shares of Class A Common Stock are being offered by the several
Managers named herein, subject to prior sale, when, as and if accepted by them
and subject to certain conditions. It is expected that certificates for the
shares of Class A Common Stock offered hereby will be available for delivery on
or about , 1996, at the offices of Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013.
________________________
Smith Barney Inc.
PaineWebber International
CIBC Wood Gundy Securities Corp.
Bankers Trust International PLC
_________, 1996
<PAGE> 181
[Alternate Page for International Prospectus]
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following general discussion is a summary of certain U.S. federal
income and estate tax consequences of the ownership and disposition of Class A
Common Stock applicable to Non-U.S. Holders of such Class A Common Stock who
acquire and own such Class A Common Stock as a capital asset within the meaning
of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the
"Code"). A "Non-U.S. Holder" is a person other than (i) a citizen or resident
of the United States, (ii) a corporation or partnership created or organized in
the United States or under the laws of the United States or of any state, or
(iii) an estate or trust whose income is includable in gross income for United
States federal income tax purposes regardless of its source. For purposes of
the withholding tax on dividends discussed below, a non-resident fiduciary of
an estate or trust will be considered a Non-U.S. Holder.
This discussion does not consider specific facts and circumstances that
may be relevant to a particular Non-U.S. Holder's tax position and does not
consider U.S. state and local or non-U.S. tax consequences. This discussion
also does not consider the tax consequences to any person who is a stockholder,
partner or beneficiary of a holder of the Class A Common Stock. Further, it
does not consider Non-U.S. Holders subject to special tax treatment under the
federal income tax laws (including banks and insurance companies, dealers in
securities, and holders of securities held as part of a "straddle," hedge or
"conversion transaction").
The following discussion is based on provisions of the Code, the
applicable Treasury regulations promulgated and proposed thereunder and
judicial authority and administrative interpretations as of the date hereof.
The foregoing are subject to change, possibly on a retroactive basis, and any
such change could affect the continuing validity of this discussion.
The following summary is included herein for general information.
Accordingly, each prospective Non-U.S. Holder is urged to consult a tax advisor
with respect to United States federal tax consequences of holding and disposing
of the Class A Common Stock, as well as any tax consequences that may arise
under the laws of any U.S. state, local or other U.S. or Non-U.S. tax
jurisdiction.
Dividends
In general, dividends paid to a Non-U.S. Holder of the Class A Common
Stock will be subject to withholding of U.S. federal income tax at a 30% rate
unless such rate is reduced by an applicable income tax treaty. Dividends that
are effectively connected with such holder's conduct of a trade or business in
the United States or, if a tax treaty applies, attributable to permanent
establishment, or, in the case of an individual, a "fixed base," in the United
States ("U.S. trade or business income") are generally subject to U.S. federal
income tax at regular rates, but are not generally subject to the 30%
withholding tax if the Non-U.S. Holder files the appropriate form with the
payor. Any U.S. trade or business income received by a Non-U.S. Holder that is
a corporation may also, under certain circumstances, be subject to an
additional "branch profits tax" at the 30% rate or such lower rate as may be
applicable under an income tax treaty.
Dividends paid to an address in a foreign country are presumed (absent
actual knowledge to the contrary) to be paid to a resident of such country for
purposes of the withholding discussed above and, under the current
interpretation of U.S. Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Under proposed U.S. Treasury regulations
not currently in effect, however, a Non-U.S. Holder of the Class A Common Stock
who wishes to claim the benefit of an applicable treaty rate would be required
to satisfy applicable certification and other requirements, which would include
the requirement that the Non-U.S. Holder file a form which contains the
holder's name and address and an official statement by the competent authority
in the foreign country (as designated in the applicable tax treaty) attesting
to the holder's status as a resident thereof.
A Non-U.S. Holder of the Class A Common Stock that is eligible for a
reduced rate of U.S. withholding tax pursuant to an income treaty may obtain a
refund of any excess amounts currently withheld by filing an appropriate claim
for a refund with the U.S. Internal Revenue Service.
<PAGE> 182
[Alternate Page for International Prospectus]
Disposition of Common Stock
Except as described below, a Non-U.S. Holder generally will not be subject
to U.S. federal income tax in respect of gain recognized on a disposition of
Class A Common Stock, provided that: (a) the gain is not U.S. trade or business
income, (b) the Non-U.S. Holder is not an individual who is present in the
United States for 183 or more days in the taxable year of the disposition and
who meets certain other requirements, (c) the Non-U.S. Holder is not subject to
tax pursuant to the provisions of the U.S. tax laws applicable to certain
United States expatriates and (d) either the Company is not a "U.S. real
property holding corporation" for federal income tax purposes or (i) the Class
A Common Stock is "regularly traded on an established securities market"
(within the meaning of the relevant provisions of the Code) and (ii) the
Non-U.S. Holder has not held, directly or indirectly, at any time during the
5-year period ending on the date of disposition, more than 5% of the Class A
Common Stock. The Company believes that it is not now and has not been within
the past five years, and anticipates that it will not become, a U.S. real
property holding corporation for U.S. federal income tax purposes.
Federal Estate Taxes
In general, an individual who is a Non-U.S. Holder for U.S. estate tax
purposes will incur liability for U.S. federal estate tax if the fair market
value of the property included in such individual's taxable estate for U.S.
federal estate tax purposes exceeds the statutory threshold amount. For these
purposes, Class A Common Stock owned or treated as owned by an individual who
is a Non-U.S. Holder at the time of death will be included in the individual's
taxable estate for U.S. federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
U.S. Information Reporting Requirements and Backup Withholding Tax
The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply whether
or not withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the Non-U.S. Holder resides. The United States backup
withholding tax (which generally is a withholding tax imposed at the rate of
31% on certain payments to persons that fail to furnish the information
required under the United States information reporting requirements) will
generally not apply to dividends paid on the Class A Common Stock to a Non-U.S.
Holder at an address outside the United States.
Except as provided below, Non-U.S. Holders will not be subject to
information reporting or backup withholding with respect to the payment of
proceeds from the disposition of the Class A Common Stock effected by the
Non-U.S. office of a broker. However, if the broker is a U.S. person or a U.S.
related person, information reporting (but not backup withholding) would apply
unless the broker has documentary evidence in its records as to the Non-U.S.
Holder's Non-U.S. status, or the Non-U.S. Holder certifies as to its Non-U.S.
status under penalty of perjury or otherwise establishes an exemption. For
this purpose, a "U.S. related person" is (i) a "controlled foreign corporation"
for U.S. federal income tax purposes, or (ii) a Non-U.S. person 50% or more of
whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the payment (or for such part of the period
that the broker has been in existence) is derived from activities that are
effectively connected with the conduct of a U.S. trade or business.
Non-U.S. Holders will be subject to information and backup withholding at
a rate of 31% with respect to the payment of proceeds from the disposition of
the Class A Common Stock effected by or through the United States office of a
broker, U.S. or Non-U.S., unless the Non-U.S. Holder certifies as to its
Non-U.S. status under penalty of perjury or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to
a Non-U.S. Holder will be allowed as a credit against such Non-U.S. Holder's
U.S. federal income tax, and any amounts withheld in excess of such Non-U.S.
Holder's federal income tax liability would be refunded, provided that the
required information is furnished to the Internal Revenue Service.
<PAGE> 183
[Alternate Page for International Prospectus]
================================================================================
No person is authorized in connection with any offering made hereby to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Manager. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby to any person in any jurisdiction
in which it is unlawful to make such offer or solicitation. Neither delivery
of this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that the information herein is correct as of any time
subsequent to the date hereof.
There are restrictions on the offer and sale of the shares of Class A Common
Stock offered hereby in the United Kingdom. All applicable provisions of the
Financial Services Act 1986 and the Companies Act 1985 with respect to anything
done by any person in relation to the Class A Common Stock in, from or
otherwise involving the United Kingdom must be complied with. See
"Underwriting."
In this Prospectus, reference to "dollars" and "$" are to United States
dollars.
__________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Definitions and Market
and Industry Data........................
Prospectus Summary........................
Risk Factors..............................
The Proposed Acquisitions.................
Use of Proceeds...........................
Price Range of Class A Common
Stock....................................
Dividend Policy...........................
Dilution .................................
Capitalization............................
The Company...............................
Selected Historical and Pro Forma
Financial Data...........................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................
Business..................................
Management................................
Certain Transactions......................
Principal and Selling Stockholders........
Description of Capital Stock..............
Shares Eligible for Future Sale...........
Underwriting..............................
Certain United States Tax Consequences
to Non-United States Holders.............
Legal Matters.............................
Experts...................................
Available Information.....................
Pro Forma Financial Information .......... P-1
Index to Financial Statements ............ F-1
</TABLE>
================================================================================
================================================================================
10,000,000 Shares
Paxson Communications
Corporation
Class A Common Stock
_______________
P R O S P E C T U S
, 1996
_______________
Smith Barney Inc.
PaineWebber International
CIBC Wood Gundy Securities Corp.
Bankers Trust International PLC
================================================================================
<PAGE> 184
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
Registration fees - Securities and Exchange
Commission........................................... $62,159.00
----------
NASD Filing Fee....................................... 18,526.00
----------
American Stock Exchange filing fee....................
----------
Legal fees and expenses*..............................
----------
Accounting fees and expenses*.........................
----------
Printing and engraving expenses*......................
----------
Blue Sky fees and expenses*...........................
----------
Transfer Agent's fees and expenses*...................
----------
Miscellaneous*........................................
----------
TOTAL............ $
----------
</TABLE>
- ---------------
* Estimated
Item 14. Indemnification of Directors and Officers.
The Company is a Delaware corporation. The Company's Certificate of
Incorporation and Bylaws provide for the mandatory indemnification of the
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. Reference is made to the Delaware General Corporation Law and
to Section 145 thereof, which permits, and in some cases requires,
indemnification of directors, officers, employees and agents of the Company
under certain circumstances, subject to certain limitations.
The Delaware general corporation law permits the indemnification by a
Delaware corporation of its directors, officers, employees and other agents
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than derivative
actions that are by or in the right of the corporation) if they acted in good
faith and in a manner they reasonably believe to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe their conduct was illegal. A
similar standard of care is applicable in the case of derivative actions,
except that indemnification extends only to expenses (including attorneys'
fees) incurred in connection with defense or settlement of such an action, and
court approval is required before there can be any indemnification if the
person seeking indemnification has been found liable to the corporation.
The underwriters also will agree to indemnify the directors and officers
of the Company against certain liabilities as set forth in Section __ of the
Underwriting Agreement (U.S.) (see Exhibit 1.1 hereof) and Section ___ of the
Underwriting Agreement (International) (see Exhibit 1.2 hereof).
The Company has purchased insurance with respect to, among other things,
any liabilities that may arise under the statutory provisions referred to
above.
II-1
<PAGE> 185
Item 15. Recent Sales of Unregistered Securities.
The Company was incorporated on November 15, 1993. Since that date, the
Company has issued and sold the following unregistered securities:
(1) On December 15, 1993, the Company entered into a Consolidation
Agreement with various entities beneficially owned by the Company's current
Chief Executive Officer, Lowell W. Paxson, which resulted in the issuance of
1,081 shares of common stock to Second Crystal Diamond, LP ("Second Crystal")
and 119 shares to Paxson Enterprises, Inc. ("PEI"), two entities beneficially
owned by Mr. Paxson.
(2) On November 15, 1993, the Company issued 1,000 shares of 15%
Cumulative Compounding Redeemable Preferred Stock, par value $0.001 per share
and warrants to acquire 225 shares of common stock pursuant to a Stock Purchase
Agreement, dated as of December 5, 1993, by and among the Company and Sandler
Mezzanine Partners, L.P., Sandler Mezzanine Foreign Partners, L.P., Sandler
Mezzanine T-H Partners, L.P. and National Union Fire Insurance Company
(collectively, the "Sandler Group"). Such preferred stock and warrants were
issued for an aggregate purchase price of $14,000,000. See Exhibit 10.2.
(3) On December 22, 1994, the Company issued 714.286 shares of Series B
15% Cumulative Compounding Redeemable Preferred Stock to the Sandler Group in
exchange for the termination of 94.6223 of their warrants issued on December
15, 1995, pursuant to an Exchange and Consent Agreement dated as of December
22, 1994 by and among the Company and the Sandler Group. See Exhibit 10.5.
(4) On December 22, 1994, the Company issued 33,000 shares of Senior
Cumulative Compounding Redeemable Preferred Stock to BT Capital Partners, Inc.,
First Union Corporation of Virginia, Paribas North America, Inc. and Union
Venture Corporation, pursuant to a Stock Purchase Agreement dated as of
December 22, 1995, by and among the Company and such purchasers. In connection
therewith, the Company also issued such parties warrants to purchase 3,235,753
shares of Class C Common Stock. The issuance of such preferred stock and
warrants was in consideration for an aggregate purchase price of $33,000,000.
See Exhibit 10.3.
(5) On April 1, 1995, the Company issued 94,767 shares of Class A
Common Stock to Plymouth County Retirement Association ("Plymouth") pursuant to
an agreement to dissolve limited partnership, pursuant to which Plymouth's
interest in a limited partnership controlled by the Company was effectively
exchanged for such shares.
The issuance of the securities described in items 1, 2, 3, 4 and 5 above
are deemed to be exempt from registration under the Securities Act of 1933, as
amended, in reliance on Section 4(2) thereunder, as transactions by an issuer
not involving a public offering. The recipients of such securities represented
their intentions to acquire these securities for investment only and not with a
view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the securities issued in such transactions.
II-2
<PAGE> 186
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1.1 -- Underwriting Agreement (U.S.)+
1.2 -- Underwriting Agreement (International)+
3.1.1 -- Certificate of Incorporation of the Company**
3.1.2 -- The Company's Certificate of Designations of the Company's 15% Cumulative Compounding Redeemable
Preferred Stock*
3.1.3 -- The Company's Certificate of Designations of the Company's Series B 15% Cumulative Compounding
Redeemable Preferred Stock**
3.1.4 -- The Company's Certificate of Designations of the Company's Junior Cumulative Compounding
Redeemable Preferred Stock**
3.1.5 -- Bylaws of the Company*
4.1 -- Form of Stock Certificate of Class A Common Stock being registered*
5 -- Legal Opinion of Holland & Knight+
9 -- Amended and Restated Stockholders Agreement, dated as of December 22, 1994, by and among the
Company and certain stockholders thereof**
10.1 -- Securities Purchase Agreement, dated as of September 22, 1995, by and among the Company, the
Guarantors named therein and the Initial Purchasers named therein*******
10.2 -- Stock Purchase Agreement, dated as of December 15, 1993, by and among the Company and certain
purchasers of the Company securities**
10.3 -- Stock Purchase Agreement dated as of December 22, 1994, by and among the Company and certain
purchasers of the Company securities**
10.4 -- Amended and Restated Stockholders Agreement dated as of December 22, 1994, by and among the
Company and certain stockholders thereof (incorporated by reference to Exhibit 9)
10.5 -- Exchange and Consent Agreement dated as of December 22, 1994 by and among the Company and certain
stockholders thereof**
10.9 -- Asset Purchase Agreement, dated as of March 10, 1994, by and between Phipps-Potamkin Television
Partners and the Company*
10.10 -- Asset Purchase Agreement, dated as of March 31, 1994, by and between Paxson Communications of
Atlanta-14, Inc. and TV-14, Inc.*
10.11 -- Time Brokerage Agreement dated as of March 31, 1994, by and between TV-14, Inc. and Paxson
Communications of Atlanta-14, Inc.*
10.12 -- Asset Purchase Agreement between Delaware Valley Broadcasters Limited Partnership and the Company
dated October 14, 1994**
10.13 -- Asset Purchase Agreement between Paxson Communications of New London-26, Inc. and R&R Media Corp.
dated November 25, 1994**
10.14 -- Asset Purchase Agreement between the Company and Sandino Telecasters, Inc. dated December 5, 1994**
10.15 -- Asset Purchase Agreement by and among Paxson Communications of San Jose-65, Inc. and Friendly
Bible Church, Inc. and United Christian Broadcasting, Inc. dated December 21, 1994**
10.16 -- Asset Purchase Agreement by and among Channel 56 of Orlando, Inc., Treasure Coast Communications,
Inc. and the Company dated December 23, 1994**
10.17 -- Asset Purchase Agreement by and among the Company and San Jacinto Television Corp. and DuPont
Investment Group 85, Ltd. dated January 20, 1995**
10.18 -- Asset Purchase Agreement by and among Paxson Communications of Boston-60, Inc. and Paugus
Television, Inc. and The Roger L. Putnam Trust and The Estate of Percival Lowell, dated January
20, 1995**
10.19 -- First Amendment, dated as of May 17, 1995, to Asset Purchase Agreement by and between Paxson
Communications of Boston-60, Inc., Paugus Television, Inc., The Roger L. Putnam Trust and The
Estate of Percival Lowell, dated as of January 20, 1995****
10.20 -- Warrant Agreement dated as of December 15, 1993 by and among the Company and William Watson as
Warrant Agent*
10.21 -- Asset Purchase Agreement by and among Paxson Broadcasting of Tampa, L.P. and Largo Broadcasting
Company dated July 20, 1994**
10.22 -- Asset Purchase Agreement between Paxson Broadcasting of Orlando, L.P. and Florida Media, Inc.
dated September 23, 1994**
10.23 -- Asset Purchase Agreement between the Company and Tri-Talk Radio, L.C. dated February 24, 1995**
</TABLE>
II-3
<PAGE> 187
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.24 -- Agreement between United Broadcast Group, Ltd. and Paxson Communications of Dallas-68, Inc.
dated December 14, 1994 and related Joint Request for Approval of Settlement Agreement**
10.25 -- Warrant Agreement dated as of December 22, 1994 by and among the Company and William Watson as
Warrant Agent**
10.26 -- Employment Agreement dated as of June 30, 1994, by and between the Company and Lowell W. Paxson*
10.27 -- Paxson Communications Corp. Profit Sharing Plan*
10.28 -- Paxson Communications Corp. Stock Incentive Plan*
10.29 -- Asset Purchase Agreement, dated as of March 31, 1995, by and among The Christian Network, Inc.
and LeSea Broadcasting Corporation and the Company***
10.30 -- Stock Purchase Agreement, dated as of April 30, 1995, by and among Channel 59 of Denver, Inc.
and David M. Drucker and Charles Ergen and the Company***
10.31 -- Asset Purchase Agreement, dated as of April 30, 1995, by and among Channel 59 of Denver, Inc.
and Echonet Corporation and the Company***
10.32 -- First Letter Agreement, dated as of December 2, 1994, to Asset Purchase Agreement by and
between Paxson Communications Corp. and Sandino Telecasters, Inc., dated as of December 5,
1994****
10.33 -- Second Letter Agreement, dated as of December 5, 1994, to Asset Purchase Agreement by and
between Paxson Communications Corp. and Sandino Telecasters, Inc., dated as of December 5,
1994****
10.34 -- Third Amendment, dated as of May 17, 1995, to Asset Purchase Agreement by and between Paxson
Communications Corp. and Sandino Telecasters, Inc., dated as of December 5, 1994****
10.35 -- Asset Purchase Agreement, dated January 31, 1995, between Gary A. Rosen in his capacity as
Bankruptcy Trustee for Flying A Communications, Inc. and Paxson Communications Corp.*****
10.36 -- Real Estate Sale and Purchase Agreement, dated as of May 18, 1995, by and between F&M Bank --
Martinsburg and Paxson Communications of Washington-60, Inc.*****
10.37 -- Asset Purchase Agreement, dated as of June 1, 1995, by and between Channel 26 of Dayton, Inc.
and Video Mall Communications, Inc. for Television Station WTJC-TV, Springfield, Ohio*****
10.38 -- Asset Purchase Agreement, dated as of May 23, 1995, by and among Whitehead Media, Inc., Morton
J. Kent and Canton, Inc. for Television Station WOAC(TV) Canton, Ohio*****
10.39 -- Option Agreement dated December 29,1995 by and among Whitehead Media, Inc., Whitehead Media of
Ohio, Inc. and Paxson Communications of Cleveland-67, Inc. for WOAC (TV), Channel 67, Canton,
Ohio*******
10.40 -- Time Brokerage Agreement, dated October 30, 1995 between Whitehead Media, Inc. and Paxson
Communications of Cleveland-67, Inc. for WOAC (TV), Channel 67, Canton, Ohio*******
10.41 -- Amendment to Time Brokerage Agreement dated December 29,, 1995 between Whitehead Media, Inc.
and Paxson Communications of Cleveland-67, Inc. for WOAC (TV), Channel 67, Canton, Ohio******
10.42 -- Time Brokerage Agreement, dated September 22, 1994, effective as of August 4, 1995, between
Whitehead Media, Inc. and Paxson Communications Corporation for Television Station WTVX-TV Fort
Pierce, Florida******
10.43 -- Amendment to Time Brokerage Agreement, dated as of April 19, 1995, between Whitehead Media,
Inc. and Paxson Communications Corporation for Television Station WTVX-TV Fort Pierce,
Florida******
10.44 -- Amendment to Time Brokerage Agreement, dated December 29, 1995 by and between Whitehead Media,
Inc. and Paxson Communications of Ft. Pierce-34, Inc. for Television Station WTVX-TV, Ft.
Pierce, Florida*******
10.45 -- Option Agreement dated December 29, 1995 by and among Whitehead Media, Inc., Whitehead Media of
Florida, Inc., and Paxson Communications of Ft. Pierce-34, Inc. for Television Station WTVX-TV
Ft. Pierce, Florida
10.46 -- Non-compete Agreement dated August 18, 1995 between Paxson Communications Corporation and
Lowell W. Paxson*******
10.47 -- Asset Purchase Agreement dated as of August 23, 1995 by and among Valuevision International,
Inc., VVI Bridgeport, Inc., VVI Akron, Inc., and Paxson Communications Corporation*******
10.48 -- Time Brokerage Agreement dated August 31, 1995 by and between Channel 56 of Orlando, Inc. and
Paxson Communications of Orlando-56 Inc. for Television Station WIRB(TV), Melbourne,
Florida*******
10.49 -- Loan Agreement dated August 31, 1995 among Paxson Communications of Orlando-56, Inc. and
Channel 56 of Orlando, Inc.*******
10.50 -- Time Brokerage Agreement dated August 31, 1995 by and between UHF Channel 59 Corp. and Paxson
Communications of Denver-59, Inc. for Television Station KUBD(TV), Denver, Colorado*******
10.51 -- Loan Agreement dated August 31, 1995 by and between Paxson Communications of Denver-59, Inc.
and Channel 59 of Denver, Inc.*******
10.52 -- Option Agreement dated August 31, 1995 by and among Paxson Communications of Denver-59, Inc.,
Channel 59 of Denver, Inc., and UHF Channel 59 Corp.*******
</TABLE>
II-4
<PAGE> 188
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.53 -- Asset Purchase Agreement dated August 31, 1995 by and between Channel 13 of
Flagstaff, Inc., Michael C. Gelfand, and Del Ray Television Company, Inc.*******
10.54 -- Indenture dated as of September 28, 1995 among the Company, the Bank of New York,
as Trustee, and the Guarantors named therein (the indenture)*******
10.55 -- Original Note No. 1 for $115,000,000 CUSIP No. 704231-AA-7, with Guarantee of
Guarantors listed therein*******
10.56 -- Original Note No. 2 for $115,000,000, CUSIP No. 704231-AA-7, with Guarantee of
Guarantors listed therein*******
10.57 -- Form of New Note with Form of New Guarantee*******
10.58 -- Registration Rights Agreement dated as of September 28, 1995 by and among the
Company, the Guarantors named therein and each of the Purchasers referred to
therein*******
10.59 -- Asset Purchase Agreement dated October 2, 1995 by and between Whitehead Media,
Inc. and NGM Television Partners, Limited for Television Station WNGM-TV, Athens,
Georgia*******
10.60 -- Option Agreement dated December 29, 1995, by and between Whitehead Media, Inc.,
Whitehead Media of Georgia, Inc. and Paxson Communications of Atlanta-14, Inc. for
WNGM (TV), Channel 34, Athens, Georgia*******
10.61 -- Time Brokerage Agreement dated December 29, 1995 by and between Whitehead Media of
Georgia, Inc. and Paxson Communications of Atlanta-14, Inc. for WNGM (TV), Athens,
Georgia*******
10.62 -- Time Brokerage Agreement dated October 16, 1995 by and between Channel 26 of
Dayton, Inc. and Paxson Communications of Dayton-26, Inc. for Television Station
WTJC(TV), Springfield, Ohio*******
10.63 -- Loan Agreement dated October 6, 1995 by and among Paxson Communications of
Dayton-26, Inc. and Channel 26 of Dayton, Inc.*******
10.64 -- Option Agreement dated October 6, 1995 by and between Paxson Communications of
Dayton-26, Inc. and Channel 26 of Dayton, Inc.*******
10.65 -- Asset Purchase Agreement dated August 25, 1995 by and between Channel 13 of St.
Louis, Inc. and McEntee Broadcasting, Inc., for Television Station WCEE-TV, Mt.
Vernon, Illinois*******
10.66 -- Credit Agreement dated as of December 19, 1995, among PCC, the Lenders named
therein, Union Bank, as Agent*******
21 -- Subsidiaries of the Company
23 -- Consent of Holland & Knight (contained in Exhibit 5)
23.1 -- Consent of Price Waterhouse LLP, independent certified public accountants
23.2 -- Consent of Ryals, Brimmer, Burek & Keelan, independent certified public accountants
24 -- Powers of Attorney (included on signature pages of Registration Statement)
</TABLE>
______________
* Filed with the Company's Registration Statement of Form S-4, filed
September 26, 1994, Registration No. 33-84416 and incorporated
herein by reference.
** Filed with the Company's Annual Report on Form 10-K, dated March 31,
1995 and incorporated herein by reference.
*** Filed with the Company's Quarterly Report on Form 10-Q, dated May 12,
1995 and incorporated herein by reference.
**** Filed with the Company's Report on Form 8-K dated June 1, 1995 and
incorporated herein by reference.
***** Filed with the Company's Quarterly Report on Form 10-Q, dated August
14, 1995 and incorporated herein by reference.
****** Filed with the Company's Report on Form 8-K, dated August 21, 1995 and
incorporated herein by reference.
******* Filed with the Company's Registration Statement on Form S-4, as
amended, filed January 23, 1996 and incorporated herein by reference.
+ To be filed by amendment.
(b) Financial Statement Schedules
All financial statement schedules are omitted because they are either not
applicable or the required information is included in the financial statements
or notes thereto appearing elsewhere in this Registration Statement
II-5
<PAGE> 189
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
PAXSON COMMUNICATIONS CORPORATION, a Delaware corporation, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of West Palm Beach, State of Florida, on January
26, 1996.
PAXSON COMMUNICATIONS
CORPORATION
By: /s/ LOWELL W. PAXSON
--------------------------
Lowell W. Paxson
Chairman of the Board
POWER OF ATTORNEY
Each of the undersigned officers and directors of PAXSON COMMUNICATIONS
CORPORATION (the "Company"), a Delaware corporation, for himself and not for
one another, does hereby constitute and appoint ANTHONY L. MORRISON and ARTHUR
D. TEK, and each and either of them and his substitutes, a true and lawful
attorney in his name, place and stead, in any and all capacities, to sign his
name to any and all amendments to this registration statement, including
post-effective amendments, and to cause the same to be filed with the
Securities and Exchange Commission, granting unto said attorneys and each of
them full power of substitution and full power and authority to do and perform
any act and thing necessary and proper to be done in the premises, as fully to
all intents and purposes as the undersigned could do if personally present, and
each of the undersigned for himself hereby ratifies and confirms all that said
attorneys or any one of them shall lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----------------
<S> <C> <C>
/s/ LOWELL W. PAXSON Chairman of the Board, Chief January 26, 1996
- --------------------- Executive Officer, and
Lowell W. Paxson Director (Principal
Executive Officer)
/s/ ARTHUR D. TEK Vice President, Chief January 26, 1996
- ------------------ Financial Officer, and
Arthur D. Tek Director (Principal
Financial Officer)
/s/ KENNETH M. GAMACHE Controller (Principal January 26, 1996
- ----------------------- Accounting Officer)
Kenneth M. Gamache
/s/ JAMES B. BOCOCK President, Chief Operating January 26, 1996
- -------------------- Officer, and Director
James B. Bocock
/s/ MICHAEL J. MAROCCO Director January 26, 1996
- -----------------------
Michael J. Marocco
/s/ JOHN A. KORNREICH Director January 26, 1996
- ----------------------
John A. Kornreich
Director January , 1996
- -----------------------------
J. Patrick Michaels, Jr.
/s/ S. WILLIAM SCOTT Director January 26, 1996
- ---------------------
S. William Scott
</TABLE>
II-7
<PAGE> 1
EXHIBIT 21
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EXHIBIT 23.1
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EXHIBIT 23.1
Consent of Independent Certified Public Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of Paxson Communications Corporation of: our
report dated March 15, 1995 relating to the consolidated financial statements
of Paxson Communications Corp.; our report dated July 17, 1995 relating to the
financial statements of KZKI-TV (a division of Sandino Telecasters); our report
dated August 21, 1995 relating to the financial statements of Paugus
Television, Inc. (WGOT-TV); our report dated August 21, 1995 relating to the
financial statements of Delaware Valley Broadcasters Limited Partnership
(WTGI-TV); our report dated August 21, 1995 relating to the combined financial
statements of San Jacinto Television Corporation and DuPont Investment Group,
85 Ltd. (KTFH-TV); and our report dated October 11, 1995 relating to the
financial statements of WTVX-TV, Krypton Broadcasting of Ft. Pierce, Inc.,
which appear in such Prospectus. We also consent to the references to us under
the heading "Experts" in such Prospectus.
Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
January 26, 1996
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EXHIBIT 23.2
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EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-1 of Paxson
Communications Corporation of our report dated June 20, 1994, relating to the
consolidated financial statements of Paxson Communications Corporation which
appears on page F-4 of Paxson Communications Corporation's Registration
Statement on Form S-4 (Registration No. 33-84416). We also consent to the
references to us under the heading "Experts" in such Prospectus.
/S/ BRIMMER, BUREK, KEELAN & MCNALLY LLP
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BRIMMER, BUREK, KEELAN & MCNALLY LLP, SUCCESSOR TO RYALS, BRIMMER, BUREK &
KEELAN
Tampa, Florida
January 26, 1996
