<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-10267
PROSPECTUS
150,000 SHARES
[PAXSON PAXSON COMMUNICATIONS CORPORATION
LOGO]
12 1/2% CUMULATIVE EXCHANGEABLE
PREFERRED STOCK
---------------------
Paxson Communications Corporation (the "Company") is offering (the
"Offering") 150,000 shares of 12 1/2% Cumulative Exchangeable Preferred Stock,
par value $.001 per share (the "New Preferred Stock").
Dividends on the New Preferred Stock will accrue from its date of issuance
and will be payable semi-annually commencing April 30, 1997, at a rate per annum
of 12 1/2% of the liquidation preference per share. Dividends may be paid, at
the Company's option, on any dividend payment date occurring on or prior to
October 31, 2002 either in cash or by the issuance of additional shares of New
Preferred Stock (and payment of cash in lieu of fractional shares) having an
aggregate liquidation preference equal to the amount of such dividends. The
liquidation preference of the New Preferred Stock will be $1,000 per share. The
New Preferred Stock is redeemable at the Company's option, in whole or in part,
at any time on or after October 31, 2001, at the redemption prices set forth
herein, plus, without duplication, accumulated and unpaid dividends to the date
of redemption. In addition, prior to October 31, 1999, the Company may, at its
option, redeem up to an aggregate of 35% of the shares of New Preferred Stock
(whether initially issued or issued in lieu of cash dividends) with the net
proceeds from one or more Public Equity Offerings (as defined) or Major Asset
Sales (as defined), at the redemption price set forth herein, plus, without
duplication, accumulated and unpaid dividends to the redemption date; provided,
however, that after any such redemption there is at least $75 million aggregate
liquidation preference of the New Preferred Stock outstanding. The Company is
required, subject to certain conditions, to redeem all of the New Preferred
Stock outstanding on October 31, 2006, at a redemption price equal to 100% of
the liquidation preference thereof, plus, without duplication, accumulated and
unpaid dividends to the date of redemption. Upon the occurrence of a Change of
Control (as defined), the Company will, subject to certain conditions, offer to
purchase all of the then outstanding shares of New Preferred Stock at a price
equal to 101% of the liquidation preference thereof, plus, without duplication,
accumulated and unpaid dividends to the date of purchase. The New Preferred
Stock ranks junior to the Company's outstanding preferred stock with respect to
dividend rights and rights on liquidation of the Company. The Company's
outstanding preferred stock restricts the payment of dividends on capital stock
ranking junior to such preferred stock. On a pro forma basis, after giving
effect to the Proposed Acquisitions (as defined) and the Offering, as though
such transactions had occurred on June 30, 1996, there would have been
outstanding the Indebtedness (as defined) referred to below and $39.4 million of
existing preferred stock (including accumulated but unpaid dividends thereon)
ranking senior to the New Preferred Stock.
Subject to certain conditions, the New Preferred Stock is exchangeable in
whole or in part on a pro rata basis, at the option of the Company, on any
dividend payment date, for the Company's 12 1/2% Exchange Debentures due 2006
(including any such securities paid in lieu of cash interest, as described
herein, the "Exchange Debentures"); provided, that immediately after giving
effect to any partial exchange, there shall be outstanding shares of New
Preferred Stock with an aggregate liquidation preference of not less than $75
million and not less than $75 million in aggregate principal amount of Exchange
Debentures. In addition, subject to certain conditions, the Company has agreed
to exchange all outstanding New Preferred Stock for Exchange Debentures when
such an exchange is permitted under the terms of certain of its Indebtedness and
capital stock. Interest on the Exchange Debentures will be payable at a rate of
12 1/2% per annum and will accrue from the date of issuance thereof. Interest on
the Exchange Debentures will be payable semi-annually in cash or, at the option
of the Company, on or prior to October 31, 2002 in additional Exchange
Debentures, in arrears on each April 30 and October 31, commencing on the first
such date after the exchange of the New Preferred Stock for the Exchange
Debentures. The Exchange Debentures mature on October 31, 2006 and are
redeemable, at the option of the Company, in whole or part, on or after October
31, 2001, at the redemption prices set forth herein, plus accrued and unpaid
interest to the date of redemption. In addition, prior to October 31, 1999, the
Company may, at its option, redeem up to an aggregate of 35% of the aggregate
principal amount of Exchange Debentures (whether issued in exchange for New
Preferred Stock or in lieu of cash interest payments) with the net proceeds from
one or more Public Equity Offerings or Major Asset Sales at the redemption price
set forth herein, plus, without duplication, accrued and unpaid interest to the
redemption date; provided, however, that after any such redemption the aggregate
principal amount of the Exchange Debentures then outstanding is at least $75
million.
The Exchange Debentures will be subordinated to all existing and future
Senior Debt (as defined) of the Company and will rank pari passu with the
Company's 11 5/8% Senior Subordinated Notes due 2002 (the "Notes") and will rank
pari passu with or senior to all future Indebtedness of the Company that
expressly provides that it ranks pari passu with or junior to the Exchange
Debentures, as the case may be. The Exchange Debentures will be unconditionally
guaranteed, jointly and severally, on a senior subordinated basis, by each of
the Company's subsidiaries (the "Guarantors"). On a pro forma basis, after
giving effect to the Proposed Acquisitions and the Offering as though such
transactions had occurred on June 30, 1996, there would have been $104.3 million
of Senior Debt of the Company outstanding and $227.5 million of Indebtedness
ranking pari passu with the Exchange Debentures.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
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>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
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<S> <C> <C> <C>
Per Share......................................... $1,000.00 $35.00 $965.00
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Total............................................. $150,000,000 $5,250,000 $144,750,000
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</TABLE>
(1) Plus accumulated dividends, if any, from October 4, 1996.
(2) The Company and the Guarantors have agreed to indemnify the Underwriters (as
defined) against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $1,000,000.
---------------------
The New Preferred Stock is offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to approval of certain legal matters by counsel. It is expected that delivery of
the New Preferred Stock will be made on or about October 4, 1996, at the offices
of BT Securities Corporation, One Bankers Trust Plaza, New York, New York.
---------------------
BT SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
FIRST UNION CAPITAL MARKETS CORP.
AS ADVISOR
---------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 1, 1996.
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PROSPECTUS INSIDE FRONT COVER
Depiction of various Company radio station, television station and network logos
or service marks shown.
[ARTWORK]
TWO PAGE FOLD-OUT OF PROSPECTUS INSIDE COVER
Map of the United States and Puerto Rico, with separate enlarged map of
Florida, identifying locations of the Company's owned, operated or affiliated
television and radio stations, as well as the Company's radio networks and areas
of billboard concentration.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NEW PREFERRED STOCK OF THE
COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities 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
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 Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 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 10007; and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies can be obtained by mail from
the Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a web
site that contains reports, proxy and information statements and other
information regarding the Company, the address of which is http://www.sec.gov.
The Company's Class A Common Stock is listed on the American Stock Exchange and
material filed by the Company can be inspected at the offices of the American
Stock Exchange at 86 Trinity Place, New York, New York 10006.
---------------------
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN CONTAIN
FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, FLUCTUATIONS IN THE COMPANY'S QUARTERLY ACTIVITIES AND
RESULTS OF OPERATIONS, THE RISKS INHERENT IN THE COMPANY'S BUSINESS AND OTHER
FACTORS DISCUSSED IN THIS PROSPECTUS UNDER THE HEADING "RISK FACTORS" OR IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN.
FOR CALIFORNIA RESIDENTS
WITH RESPECT TO SALES OF THE NEW PREFERRED STOCK BEING OFFERED HEREBY TO
CALIFORNIA RESIDENTS, AS OF THE DATE OF THIS PROSPECTUS, SUCH NEW PREFERRED
STOCK MAY BE SOLD ONLY TO: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933, (2) BANKS, SAVINGS AND LOAN
ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT-SHARING
TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR
OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO
THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN
REVIEWED, BUT NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN
$14,000,000 AND SUBSIDIARIES OF THE FOREGOING, (3) ANY PERSON (OTHER THAN A
PERSON FORMED FOR THE SOLE PURPOSE OF PURCHASING THE NEW PREFERRED STOCK BEING
OFFERED HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE NEW
PREFERRED STOCK BEING OFFERED HEREBY OR (4) ANY PERSON WHO (A) HAS AN INCOME OF
$65,000 AND A NET WORTH OF $250,000, OR (B) HAS A NET WORTH OF $500,000 (IN EACH
CASE, EXCLUDING HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES).
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CERTAIN DEFINITIONS AND MARKET AND INDUSTRY DATA
The terms "EBITDA," "operating 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, net, (v) time
brokerage fees relating to financing of stations which the Company has an
agreement or option to acquire, (vi) depreciation and amortization, including
amortization of broadcast rights, (vii) option plan compensation and (viii)
non-recurring items including terminated operations, less scheduled broadcast
rights payments. "Operating cash flow" is defined as net income excluding
non-cash items, nonrecurring items including terminated operations, interest,
other income, income taxes and time brokerage fees, less scheduled program
rights payments. Although EBITDA and operating cash flow are not measures of
performance under United States generally accepted accounting principles
("GAAP"), the terms are often 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 latest twelve months ended June 30, 1996,
less (i) segment operating profit for the Infomall TV Network for such period
plus (ii) four times such segment's operating profit for the quarter ended June
30, 1996. Neither EBITDA, operating 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, and are being shown to provide an understanding of
calculations required under certain covenants in the certificate of designation
governing the New Preferred Stock and the indenture governing the Exchange
Debentures.
The term "time brokerage agreement" (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 sold during the purchased time, 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.
Radio market rank information has been obtained from BIA Publications, Inc.
("BIA") and represents rankings as of Spring 1996 for the indicated markets.
Radio audience share ratings for the indicated radio station or group of radio
stations have been obtained from surveys of persons aged 25-54 listening
Monday-Sunday, 6:00 a.m. to 12:00 midnight, as reported by Arbitron, Radio
Market Report for Spring 1996, The Arbitron Company ("Arbitron"), except that a
preliminary Spring 1996 survey has been used for Panama City and Tallahassee,
Florida, and the Cookeville, Tennessee figures are based on 12+ surveys
contained in Arbitron's 1996 County by County Ratings conducted during 1995.
Audience share data is expressed as the local average quarter-hour share for
each indicated radio station. A radio station's 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.
Market radio advertising revenue for 1995 and combined revenue share at June
30, 1996 for the radio stations owned and proposed to be acquired by the Company
in Miami, Tampa, Orlando and Jacksonville, Florida, have been obtained from the
December 1995 and June 1996 issues of the Miller, Kaplan Market Revenue Report,
a monthly publication of Miller, Kaplan, Arase & Co., Certified Public
Accountants ("Miller Kaplan"). Market radio advertising revenue for 1995 and
combined revenue share at December 31, 1995 for the radio stations to be
acquired by the Company in Tallahassee, Pensacola and Panama City, Florida have
been prepared by BIA based upon revenue estimates from November 1995 surveys
(the "BIA Survey") of radio station general managers and owners for the year
ended December 31, 1995. Combined radio station market revenue rankings have
been obtained from the BIA Survey, except that the ranking for Cookeville is
based upon Company estimates. Arbitron, BIA and Miller Kaplan 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. The Company does not assume responsibility for the
accuracy or completeness of such published data.
All television station audience share ratings in this Prospectus have been
obtained from the Nielsen Station Index Viewers and Profile of May 1996, a
publication of A.C. Nielsen Co. ("Nielsen"). All market rank, total market
television household data and total market cable television household data has
been obtained from U.S. Television Household Estimates for May 1996, as prepared
by Nielsen for each designated market area ("DMA"), except that television and
cable household data for San Juan has been obtained from J. Walter Thompson
Latin America, as of June 1995. The Company does not assume responsibility for
the accuracy or completeness of such published data. Revenue data for the West
Palm Beach television market has been obtained from the local office of Ernst &
Young LLP. Data indicating the number of cable television households reached by
inTV in a DMA is as of May 15, 1996, and has been provided to the Company by the
local cable system operators in each DMA, unless otherwise indicated.
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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 and in the documents
incorporated by reference herein. 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.
THE COMPANY
Paxson Communications Corporation (the "Company" or "Paxson
Communications") is a diversified broadcasting company whose principal
businesses consist of a nationwide network of television stations (the "Infomall
TV Network" or "inTV") dedicated to the airing of long form paid programming,
consisting mainly of infomercials ("inTV programming"), and a major radio
station group operating primarily in Florida. In addition to the Infomall TV
Network, the Company's television operations include ownership of an ABC network
affiliated television station and the operation of a UPN/WB network affiliated
television station pursuant to a time brokerage agreement, each of which
operates in the West Palm Beach television market. The Company also owns and
operates radio networks and billboards which complement its Florida radio
broadcasting business.
The Company was founded in 1991 by Lowell W. "Bud" Paxson who personally
financed the Company's early growth and continues to lead the Company as its
majority stockholder and chief executive. 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., and was one of the first radio operators to take advantage
of duopoly radio station ownership. In April 1996, the Company raised over $150
million of new equity capital through the public sale of shares of its Class A
Common Stock, which trades on the American Stock Exchange under the symbol
"PXN."
INFOMALL TV NETWORK
The Company introduced its Infomall TV Network in January 1995 in order to
capitalize on what the Company believes to be a rapidly growing industry. inTV
has since expanded rapidly through increasing cable carriage of its existing
stations and acquiring additional stations, and currently consists of 29 owned,
time brokered or affiliated television stations. Broadcasting and Cable magazine
recently ranked the Company as the seventh largest television broadcaster in the
United States, based on the number of television households in each DMA in which
a broadcaster owns a station (i.e., excluding stations operated pursuant to time
brokerage agreements or affiliated stations) and counting only 50% of the
households in those DMAs which a broadcaster serves via a UHF frequency. Upon
completion of the Proposed inTV Acquisitions (as defined) and pending
affiliation agreements, the Infomall TV Network will consist of a total of 42
television stations operating in 37 television markets, including 22 of the 30
largest television markets in the United States.
The Company believes that its inTV stations comprise the only national
network of television stations dedicated to the airing of infomercial
programming, and that its inTV stations represent a valuable national television
broadcasting distribution infrastructure that would be difficult and expensive
to replicate. The Company believes that the Infomall TV Network is the only
group of broadcast television stations in the United States offering long form
paid programmers and 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 converted by the Company 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 by virtue
of the FCC's "must carry" rules are thus generally
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<PAGE> 6
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 attempts to maximize its cable household coverage within its
markets. While the Company's cable household coverage for its owned or operated
inTV stations was in the aggregate 57.1% of the total cable households in its
markets as of May 1996, the Company's goal is to reach approximately 85% of the
cable homes in its markets. In general, the Company has been successful in
improving its stations' cable household coverage over time, as demonstrated by
the aggregate cable household coverage of the four inTV stations (WCTD-TV,
Miami, WTLK-TV, Atlanta, WFCT-TV, Tampa and WIRB-TV, Orlando) with which the
Company launched the Infomall TV Network (the "Original inTV Stations"), which
improved from 73.2% as of January 1995 to 92.6% as of June 1996. There can be no
assurance that the Company will be able to achieve its goal of reaching 85% of
cable households in its markets, or that the Company's experience in this regard
with the Original inTV Stations is or will be representative of the results of
the Infomall TV Network as a whole. 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 inTV Acquisitions, the
Infomall TV Network will serve DMAs currently containing approximately 49.7
million television households, of which 31.9 million households are served by
cable television. The Company continues to evaluate the acquisition of or
affiliation with additional television stations to further extend the national
reach of its Infomall TV Network.
The Company's inTV strategy is to continue to maximize revenues and
operating cash flow through improved performance of its existing inTV stations
and continued expansion of the Infomall TV Network. Shortly after the Company
acquires a television station or commences operating a television station
pursuant to a time brokerage agreement, the Company adds such station to the
Infomall TV Network and replaces substantially all of the existing programming
with inTV programming, which, unlike traditional television programming, is paid
for by the advertiser as opposed to the broadcaster. The introduction of inTV
programming allows the Company to eliminate substantially all programming
expenses and achieve significant reductions in other operating expenses. The
Company's inTV stations are operated by an average of 15 people, compared to
network and independent stations which average over 100 and 60 people,
respectively, in markets of similar size to the Company's. To date, virtually
all of the inTV stations owned or operated by the Company have contributed
rapidly to operating cash flow, typically within two months after commencing
inTV operations.
Once a station is part of the Infomall TV Network and expenses have been
reduced, the Company focuses on maximizing such station's revenues. The
Company's revenue strategies include increasing its cable household coverage
through broadcast signal improvements and the exercise of "must carry" rights,
and creating increased demand for its inventory by focusing on local sales as
well as targeting additional long form programming formats such as religious and
ethnic programming to allow rate increases. The Company has been successful in
implementing its revenue enhancing strategies, as evidenced by the 13.7%
increase in the average half hour rate per hundred thousand cable television
households reached and the 21.2% increase in cable television households reached
for the Original inTV Stations, calculated as of June 30, 1996 compared to the
comparable period or date in the prior year.
PAXSON RADIO
The Company has assembled a substantial statewide radio broadcasting group
with operations in Florida's largest markets, which the Company believes to be
among the most attractive and fastest growing in the nation. Upon completion of
the Proposed Radio Acquisitions (as defined), Paxson Communications will own and
operate 40 radio stations (26 FM and 14 AM stations), with more radio stations
in Florida than any other broadcaster. The Company believes that the addition of
the Proposed Radio Acquisitions will enable the Company to build or strengthen
its radio duopolies (two FM or two AM stations in a market) or "super-duopolies"
(more than two FM or two AM stations in a market) in its Florida radio markets,
and will result in the Company's radio group ranking number one in combined
revenue share in three of its seven Florida markets.
The Florida radio markets in which the Company operates continue to
experience substantial concentration of station ownership among large radio
group owners. The Company believes that concentration of station
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<PAGE> 7
ownership will result in a more stable radio marketplace and more predictable
cash flow for owners of station groups in such markets. 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.
The Company's radio expansion strategy is to acquire additional stations to
enhance its position in its current markets and to selectively enter new
markets, primarily in Florida, building upon its multiple radio station
ownership strategy in each of its markets and taking advantage of relaxed
multiple radio station ownership limitations implemented by recent changes in
federal telecommunications law. In addition to its Florida stations, the Company
owns and operates two AM and two FM stations in Cookeville, Tennessee. The
Company also operates six radio networks with 346 affiliated radio stations in
the eastern and southeastern United States and controls 185 billboard locations
(455 faces) in the Tampa and Orlando markets that support the Company's radio
station operations and provide advertising revenue.
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 operating multiple FM and AM stations
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 facilitated in part by
news and other programming for all stations being largely centrally produced.
PAXSON NETWORK-AFFILIATED TELEVISION
Paxson Communications owns and operates an ABC-TV affiliate, WPBF-TV, in
the West Palm Beach market. Pursuant to a time brokerage agreement, the Company
provides programming and markets commercial time for a second television
station, WTVX-TV (a combined United Paramount Network and Warner Brothers
Network affiliate), which is 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 assignable option to acquire WTVX-TV for approximately
$19 million. The network-affiliated television broadcasting industry is
currently undergoing significant consolidation as a result of the relaxation of
multiple ownership rules in the newly enacted Telecommunications Act of 1996.
The Company has not been successful in locating traditional television stations
at attractive prices to expand its network-affiliated television station group.
As the Company believes that the current consolidation will place small station
group operators at a significant disadvantage versus larger group operators, and
that the Company could benefit from redeploying its investment in its
network-affiliated television operations to its core inTV and radio group
businesses, it is considering the sale or exchange for other broadcast assets of
its network-affiliated television operations. The Company has engaged an
investment banking firm to advise it with respect to such a sale or exchange and
assist it in locating potential purchasers, and has received several offers to
acquire its network-affiliated television operations. The Company has not
accepted any of such offers, and there can be no assurance that any offers will
be received which will be acceptable to the Company.
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<PAGE> 8
BROADCAST PROPERTY OVERVIEW
INFOMALL TV NETWORK
The following table lists those inTV properties that the Company owns,
operates or is affiliated with, and those properties which the Company has
agreements to acquire or operate, as identified under "Proposed inTV Stations"
below. (Television and cable households in thousands.)
<TABLE>
<CAPTION>
ACTUAL OR INTV CABLE
NATIONAL ANTICIPATED CARRIAGE
TV COMMENCE- AT CURRENT TOTAL CURRENT TOTAL
MARKET MENT OF COMMENCE- INTV CABLE MARKET CABLE INTV CABLE MARKET TV
MARKET(1) RANK STATION OPERATIONS MENT(2) CARRIAGE(3) HOUSEHOLDS CARRIAGE(3) HOUSEHOLDS
- ---------------------------- -------- ----------------- --------- ---------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Owned or Operated
New York, NY................ 1 WHAI-TV 3/96 626 783 4,529 17.3% 6,695
Los Angeles, CA............. 2 KZKI-TV 5/95 1,453 2,183 2,997 72.8 4,918
Philadelphia, PA............ 4 WTGI-TV 2/95 1,225 1,489 1,961 76.0 2,646
San Francisco, CA........... 5 KLXV-TV 6/95 650 861 1,578 54.6 2,257
Boston, MA.................. 6 WGOT-TV 5/95 604 846 1,625 52.1 2,122
Washington, DC.............. 7 WYVN-TV 9/96 0 0 1,238 0.0 1,884
Atlanta, GA................. 10 WTLK-TV 4/94 300 944 1,015 93.0 1,584
Atlanta, GA*................ 10 WNGM-TV 4/96 182 183 1,015 18.0 1,584
Houston, TX................. 11 KTFH-TV 3/95 647 793 867 91.5 1,574
Cleveland, OH*.............. 13 WOAC-TV 10/95 332 336 966 34.8 1,452
Cleveland, OH............... 13 WAKC-TV 3/96 560 560 966 58.0 1,452
Tampa, FL*.................. 15 WFCT-TV 8/94 0 864 976 88.5 1,395
Miami, FL*.................. 16 WCTD-TV 4/94 396 883 922 95.8 1,341
Phoenix, AZ................. 17 KWBF-TV 3/96 23 26 661 3.9 1,170
Denver, CO.................. 18 KUBD-TV 8/95 430 426 699 60.9 1,160
St. Louis, MO............... 20 WCEE-TV 1/96 23 24 569 4.2 1,108
Orlando, FL*................ 22 WIRB-TV(5) 12/94 468 687 741 92.7 998
Hartford, CT*............... 26 WTWS-TV(6) 3/95 661 721 770 93.6 911
Milwaukee, WI*.............. 29 WHKE-TV 7/96 257 276 438 63.0 783
Raleigh, NC*................ 32 WRMY-TV(7) 6/96 0 29 481 6.0 792
Greensboro, NC.............. 48 WAAP-TV 7/96 323 323 345 93.7 553
Birmingham, AL*............. 51 WNAL-TV(8) 9/96 31 31 338 9.3 525
Albany, NY.................. 52 WOCD-TV 5/96 251 251 357 70.5 507
Dayton, OH.................. 53 WTJC-TV 10/95 298 315 341 92.3 501
San Juan, PR................ NR WSJN-TV(9) 2/96 285 285 298 95.6 1,064
------ ------ ------ ------
Total Owned or
Operated(10)...... 10,024 14,119 24,711 57.1% 37,939
====== ====== ====== ======
Affiliates
Sacramento, CA*............. 21 KCMY-TV(8) 7/95 624 644 688 93.7% 1,101
Indianapolis, IN............ 24 WIIB-TV 1/96 401 417 580 71.9 925
Norfolk, VA................. 40 WJCB-TV 8/95 343 362 446 81.2 619
Fresno, CA.................. 57 KGMC-TV 1/96 179 164 256 64.1 482
------ ------ ------ ------
Total Affiliates.... 1,546 1,587 1,969 80.6% 3,127
====== ====== ====== ======
Total Owned,
Operated and
Affiliates(10).... 11,570 15,706 26,680 58.9% 41,066
====== ====== ====== ======
Proposed inTV Stations
Philadelphia, PA............ 4 WTVE-TV(11) 10/96 1,961 2,646
Dallas, TX.................. 8 Channel 68(4) 12/96 924 1,822
Seattle, WA................. 12 KBCB-TV(4) 6/97 1,040 1,464
Minneapolis, MN............. 14 KXLI-TV 10/96 702 1,412
Phoenix, AZ*................ 17 KAJW-TV(4) 1/97 661 1,170
Salt Lake City, UT*......... 37 KZAR-TV(4)(12) 12/96 359 656
Salt Lake City, UT.......... 37 KOOG-TV 3/97 359 656
Grand Rapids, MI*........... 38 WJUE-TV(4)(13) 10/96 390 637
Oklahoma City, OK........... 43 KMNZ-TV 2/97 353 585
West Palm Beach, FL......... 45 WHBI-TV(4)(11) 2/97 468 576
Providence, RI.............. 46 WOST-TV(4)(14) 12/96 412 557
Little Rock, AR............. 58 KVUT-TV(4) 6/97 284 473
Tulsa, OK................... 59 KGLB-TV(4) 2/97 287 459
------ ------
Total Proposed inTV
Stations(10)...... 5,219 8,641
====== ======
Total inTV
Network(10)....... 31,900 49,707
====== ======
</TABLE>
(see footnotes on the following page)
4
<PAGE> 9
* Operated or to be operated pursuant to a time brokerage agreement; except
as noted, the Company has an option to acquire a 100% ownership interest.
(1) Each station is licensed by the FCC to serve a specific community, which is
included in the listed market.
(2) Cable households reached at commencement of station's operations.
(3) Cable households reached at 5/96, and as a percentage of the total market
cable households.
(4) Station is currently under construction or not operating.
(5) No option to acquire any ownership interest.
(6) To be operated pursuant to a time brokerage agreement upon completion of an
FCC-required restructuring of the Company's investment in such station in
connection with the Company's acquisition of WHAI-TV.
(7) Option to acquire 40% ownership interest.
(8) The Company has agreed to acquire these stations. See "The Proposed
Acquisitions and Capital Expenditures."
(9) 50% ownership interest.
(10) Figures represent total cable and television households in each market only
and are not necessarily indicative of the number of households reached by
each station in its market; totals do not double count markets where the
Company has more than one station.
(11) Pending inTV affiliate.
(12) Option to acquire a 50% ownership interest.
(13) 70% ownership interest to be acquired.
(14) 50% ownership interest to be acquired.
PAXSON RADIO
<TABLE>
<CAPTION>
AUDIENCE
SHARE
(PERSONS
25-54)
MARKET ----------- REVENUE REVENUE
MARKET(1) RANK FORMAT 1995 1996 SHARE RANK
- ---------------------------------------- ------ -------------------------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Miami/Ft. Lauderdale, FL 11
WLVE-FM............................... Smooth Jazz 3.9 % 3.8%
WZTA-FM............................... Active Rock 2.8 4.4
WINZ-AM............................... News 1.4 0.6
WFTL-AM............................... Hot Talk 0.4 0.4
WPLL-FM(2)(3)......................... Modern Adult Contemporary 2.8
WSRF-AM(2)(3)......................... Block/Long-Form n/r
WIOD-AM(2)............................ Talk/Sports/Entertainment 3.9
----
Total Market*.................. 15.9% 20.5% 1
Tampa/St. Petersburg, FL 21
WHPT-FM............................... Rock Adult Contemporary 5.9 % 5.4%
WSJT-FM............................... Smooth Jazz 0.2 5.1
WHNZ-AM............................... News 1.0 0.6
WZTM-AM............................... Sports 0.2 0.4
WKES-FM(2)............................ To be determined
Total Market................... 11.5% 12.0% 5
Orlando, FL 39
WMGF-FM............................... Soft Adult Contemporary 7.3 % 7.7%
WJRR-FM............................... Active Rock 4.9 3.9
WWNZ-AM............................... News 1.5 0.5
WQTM-AM............................... Sports 0.8 1.0
WTKS-FM(2)(3)......................... Hot Talk 7.9
WDIZ-FM(2)(3)......................... Modern Adult Contemporary 4.3
----
Total Market*.................. 25.3% 27.9% 3
Jacksonville, FL 53
WROO-FM............................... Country 7.5 % 5.2%
WPLA-FM............................... Rock Alternative 2.0 4.4
WFSJ-FM............................... Smooth Jazz 4.7 3.9
WNZS-AM............................... Sports 1.4 1.9
WZNZ-AM............................... News 0.5 0.1
WPVJ-FM(2)(4)......................... To be determined
----
Total Market................... 15.5% 17.6% 3
Pensacola, FL 125
WOWW-FM............................... Rock Alternative 3.2%
WTKX-FM............................... Album Oriented Rock 5.6
----
Total Market................... 8.8% 21.7% 3
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
AUDIENCE
SHARE
(PERSONS
MARKET 25-54) REVENUE REVENUE
MARKET(1) RANK FORMAT 1995 1996 SHARE RANK
- ---------------------------------------- ------ -------------------------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Tallahassee, FL 167
WSNI-FM............................... Oldies 7.4%
WXSR-FM............................... Active Rock 4.2
WTPS-FM............................... Hot Adult Contemporary 2.1
WTNT-FM............................... Country 6.3
WNLS-AM............................... Sports 1.1
----
Total Market................... 21.1% 40.3% 1
Panama City, FL 224
WPBH-FM............................... Soft Adult Contemporary 3.5%
WPAP-FM............................... Country 10.5
WFSY-FM............................... Hot Adult Contemporary 8.8
WEBZ-FM............................... Big Band 4.4
WGNE-AM............................... Smooth Jazz n/r
----
Total Market................... 27.2% 46.4% 1
Cookeville, TN n/c
WGSQ-FM............................... Country 27.0%
WPTN-AM............................... Talk 4.1
WHUB-FM............................... Adult Contemporary 14.9
WHUB-AM............................... Country 4.1
----
Total Market................... 50.1% n/a 1
</TABLE>
<TABLE>
<CAPTION>
COMMENCEMENT
AFFILIATE OF
RADIO NETWORKS STATIONS FORMAT OPERATIONS
- ------------------------------------------------------------------------ --------- ------- ------------
<S> <C> <C> <C>
Alabama Radio Network................................................... 74 News 1/95
Florida Radio Network................................................... 56 News 3/93
Tennessee Radio Network................................................. 87 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 OF
TV MARKET(1) MARKET RANK STATION NETWORK AFFILIATION OPERATIONS
- -------------------------------------------- ----------- ------- ------------------- ------------
<S> <C> <C> <C> <C>
West Palm Beach, FL......................... 45 WPBF-TV ABC 7/94
WTVX-TV(3) Warner/UPN 8/95
</TABLE>
- ---------------
* Pro forma for the Proposed Radio Acquisitions.
(1) Each station is licensed by the FCC to serve a specific community, which is
included in the listed market.
(2) Included in Proposed Radio Acquisitions.
(3) Operated pursuant to a time brokerage agreement.
(4) Station is currently not operating.
n/a Revenue not independently reported.
n/c Market not covered by Arbitron.
n/r Not rated.
RECENT DEVELOPMENTS
On September 27, 1996, the Company completed the acquisition of television
station KXLI-TV, Minneapolis, Minnesota, which station is to be added to the
Company's Infomall TV Network, and radio station WIOD-AM in the Miami/Ft.
Lauderdale market (subject to the funding of the purchase price of WIOD-AM by
the Company, which is expected to occur on October 1, 1996). See "The Proposed
Acquisitions and Capital Expenditures."
6
<PAGE> 11
THE OFFERING
Securities Offered......... 150,000 shares (the "Shares") of 12 1/2% Cumulative
Exchangeable Preferred Stock, par value $.001 per
share, plus any additional shares of such stock
issued from time to time in lieu of cash dividends
(the "New Preferred Stock").
Issue Price................ $1,000 per share, plus accumulated and unpaid
dividends, if any, from October 4, 1996 (the "Issue
Date").
Liquidation Preference..... $1,000 per share, plus accumulated and unpaid
dividends.
Optional Redemption........ The New Preferred Stock is redeemable, at the
option of the Company, in whole or in part, at any
time on or after October 31, 2001 at the redemption
prices set forth herein, plus, without duplication,
accumulated and unpaid dividends to the date of
redemption. In addition, prior to October 31, 1999,
the Company may, at its option, use the net
proceeds of one or more Public Equity Offerings or
Major Asset Sales to redeem up to an aggregate of
35% of the shares of New Preferred Stock (whether
initially issued or issued in lieu of cash
dividends) at the redemption price set forth
herein, plus, without duplication, accumulated and
unpaid dividends to the date of redemption;
provided, however, that after any such redemption,
there is at least $75 million aggregate liquidation
preference of the New Preferred Stock outstanding
and that such redemption occurs within 90 days
following the closing of such Public Equity
Offering or Major Asset Sale.
Mandatory Redemption....... The Company is required, subject to certain
conditions, to redeem all of the New Preferred
Stock outstanding on October 31, 2006 at a
redemption price equal to 100% of the liquidation
preference thereof, plus, without duplication,
accumulated and unpaid dividends to the date of
redemption.
Dividends.................. At a rate equal to 12 1/2% per annum of the
liquidation preference per share, payable
semi-annually beginning April 30, 1997 and
accumulating from the Issue Date. The Company, at
its option, may pay dividends on any dividend
payment date occurring on or before October 31,
2002 either in cash or by the issuance of
additional shares of New Preferred Stock having an
aggregate liquidation preference equal to the
amount of such dividends.
Dividend Payment Dates..... April 30 and October 31, commencing April 30, 1997.
Voting..................... The New Preferred Stock will be non-voting, except
as otherwise required by law and except in certain
circumstances described herein, including (i)
amending certain rights of the holders of the New
Preferred Stock and (ii) the issuance of any class
of equity securities that ranks on a parity with or
senior to the New Preferred Stock, other than
certain additional shares of New Preferred Stock or
parity securities issued to finance the redemption
by the Company of its Existing Preferred Stock (as
defined). In addition, if the Company (i) after
October 31, 2002, fails to pay cash dividends in
respect of three or more semi-annual dividend
periods in the aggregate, (ii) fails to make a
mandatory redemption or a Change of Control Offer
(as defined) or (iii) fails to comply with certain
covenants or make certain payments on its
Indebtedness or Existing Preferred Stock, holders
of a majority of the outstanding shares of New
Preferred Stock, voting as a class, will be
7
<PAGE> 12
entitled to elect the lesser of two directors or
that number of directors constituting at least 25%
of the Company's board of directors.
Exchange Provisions........ Exchangeable into the Exchange Debentures, at the
Company's option, subject to certain conditions in
whole or in part, on a pro rata basis, on any
scheduled dividend payment date; provided that
immediately after giving effect to any such partial
exchange, there shall be outstanding shares of New
Preferred Stock (whether initially issued or issued
in lieu of cash dividends) with an aggregate
liquidation preference of not less than $75 million
and not less than $75 million of aggregate
principal amount of Exchange Debentures. Subject to
certain conditions, the Company has agreed to
exchange all outstanding New Preferred Stock for
Exchange Debentures when such an exchange is
permitted under the terms of certain of its
Indebtedness and capital stock.
Ranking.................... The New Preferred Stock will, with respect to
dividend rights and rights on liquidation,
winding-up and dissolution of the Company, rank
senior to all classes of common stock and junior to
all other classes of preferred stock of the Company
outstanding upon consummation of the Offering.
Change of Control.......... In the event of a Change of Control, the Company
will, subject to certain conditions, offer to
purchase all outstanding shares of New Preferred
Stock at a purchase price equal to 101% of the
liquidation preference thereof, plus, without
duplication, accumulated and unpaid dividends to
the date of purchase. There can be no assurance
that the Company will have sufficient funds to
purchase all of the New Preferred Stock in the
event of a Change of Control or that the Company
would be able to obtain financing for such purpose
on favorable terms, if at all.
Certain Restrictive
Provisions................. The Certificate of Designation will contain certain
restrictive provisions that, among other things,
limit the ability of the Company and its
subsidiaries to incur additional Indebtedness,
issue additional preferred stock ranking senior to
or pari passu with the New Preferred Stock, pay
dividends or make certain other restricted
payments, or merge or consolidate with or sell all
or substantially all of their assets to any other
person.
THE EXCHANGE DEBENTURES
Issue...................... 12 1/2% Exchange Debentures due 2006 issuable in
exchange for the New Preferred Stock in an
aggregate principal amount equal to the liquidation
preference of the New Preferred Stock so exchanged,
plus, without duplication, accumulated and unpaid
dividends to the date fixed for the exchange
thereof (the "Exchange Date"), plus any additional
Exchange Debentures issued from time to time in
lieu of cash interest.
Maturity................... October 31, 2006
Interest Rate and Payment
Dates.................... The Exchange Debentures will bear interest at a
rate of 12 1/2% per annum. Interest will accrue
from the date of issuance or from the most recent
interest payment date to which interest has been
paid or provided for or, if no interest has been
paid or provided for, from the Exchange Date.
Interest will be payable semi-annually in cash (or,
at the option of the Company, on or prior to
October 31, 2002, in additional Exchange
8
<PAGE> 13
Debentures) in arrears on each April 30 and October
31, commencing with the first such date after the
Exchange Date.
Optional Redemption........ The Exchange Debentures are redeemable, at the
option of the Company, in whole or in part, at any
time on or after October 31, 2001 at the redemption
prices set forth herein, plus accrued and unpaid
interest to the date of redemption. In addition,
prior to October 31, 1999, the Company may, at its
option, use the net proceeds of one or more Public
Equity Offerings or Major Asset Sales to redeem up
to 35% of the aggregate principal amount of the
Exchange Debentures (whether issued in exchange for
New Preferred Stock or in lieu of cash interest
payments), at the redemption price set forth
herein, plus accrued and unpaid interest to the
date of redemption; provided, however, that after
any such redemption, the aggregate principal amount
of the Exchange Debentures outstanding must equal
at least $75 million and that such redemption
occurs within 90 days following the closing of such
Public Equity Offering or Major Asset Sale.
Ranking.................... The Exchange Debentures will be subordinated to all
existing and future Senior Debt of the Company. In
addition, the Exchange Debentures will be
effectively subordinated to all existing and future
Indebtedness of the Company's subsidiaries. The
Exchange Debentures will rank pari passu with the
Notes and will rank pari passu or senior to any
class or series of Indebtedness that expressly
provides that it ranks pari passu or subordinate to
the Exchange Debentures, as the case may be.
Guarantees................. The Exchange Debentures will be unconditionally
guaranteed, jointly and severally, on a senior
subordinated basis by each of the Guarantors (the
"Guarantees"). The Guarantees will be general
unsecured obligations of the Guarantors and will be
subordinated in right of payment to all existing
and future Senior Debt of the Guarantors.
Change of Control.......... In the event of a Change of Control, the Company
will, subject to certain conditions, be required to
offer to purchase all outstanding Exchange
Debentures at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid
interest to the date of purchase. There can be no
assurance that the Company will have sufficient
funds to purchase all the Exchange Debentures in
the event of a Change of Control or that the
Company would be able to obtain financing for such
purpose on favorable terms, if at all. See "Risk
Factors -- Change of Control" and "Description of
the New Preferred Stock and Exchange
Debentures -- Exchange Debentures -- Change of
Control."
Certain Covenants.......... The indenture governing the Exchange Debentures
(the "Exchange Indenture") will contain certain
covenants that, among other things, limit the
ability of the Company and its subsidiaries to
incur additional Indebtedness, pay dividends or
make certain other restricted payments, sell
assets, enter into certain transactions with
affiliates or merge or consolidate with or sell all
or substantially all of their assets to any other
person.
9
<PAGE> 14
USE OF PROCEEDS
The net proceeds from the Offering, together with borrowings under the
Credit Facility (as defined) and existing working capital, will be used to
redeem the Company's 15% Cumulative Compounding Redeemable Preferred Stock and
Series B 15% Cumulative Compounding Redeemable Preferred Stock (together, the
"Senior Preferred Stock"), and to fund the Proposed Acquisitions and expected
capital expenditures. See "Use of Proceeds."
RISK FACTORS
An investment in the New Preferred Stock involves certain risks that a
prospective investor should carefully consider. See "Risk Factors."
10
<PAGE> 15
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical and pro forma financial data, insofar as
it relates to each of the five years ended December 31, 1995, 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, 1994 and 1995 and the related consolidated statements of
operations and of cash flows for each of the years in the three year period
ended December 31, 1995 and the notes thereto appearing elsewhere herein and
incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995. The summary historical and pro forma financial
data for the twelve months ended December 31, 1995, and as of and for the six
months and twelve months ended June 30, 1996 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 six months ended June 30, 1996 are not
necessarily indicative of results that may be expected for the entire year. The
summary historical and pro forma financial data should be read in conjunction
with the information contained in the Company's consolidated financial
statements and the notes thereto, the financial statements and notes thereto
related to certain of the Proposed Acquisitions, "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
significant business acquisitions of KZKI-TV, WGOT-TV and WTVX-TV in 1995; (iii)
the proposed significant business acquisition of the Fort Lauderdale radio
stations (WPLL-FM and WSRF-AM); (iv) the business acquisitions of Todd
Communications, Inc. (WFSJ-FM), WHUB, Inc. (WHUB-FM and WHUB-AM) and Southern
Broadcasting Companies, Inc. (WSNI-FM, WPAP-FM and WPBH-FM) and the proposed
business acquisitions of WDIZ-FM, WTKS-FM, WIOD-AM, KXLI-TV and Ponce Nicasio
Broadcasting Ltd. (KCMY-TV); (v) the sale of 10,300,000 shares of the Company's
Class A Common Stock effective April 3, 1996, and the related exercise of
certain common stock purchase warrants (the "Equity Offering"); (vi) the
termination of the put rights of the holders of Class A and Class B Common Stock
warrants; (vii) the issuance of the Notes; and (viii) the redemption of the
Senior Preferred Stock, as if such events had occurred on January 1, 1995. Other
Proposed Acquisitions are asset acquisitions or are immaterial both individually
and in the aggregate and therefore are not included in the pro forma financial
information. Where necessary, prior operators' fiscal years have been conformed
to the Company's December 31 year end. In addition, depreciation and
amortization expense and interest expense have been increased for each of the
periods presented to reflect the purchase of all stations included in the
Proposed Acquisitions and acquisitions which have closed subsequent to June 30,
1996. The following unaudited summary pro forma balance sheet data gives effect
to (i) the consummation of the Offering; (ii) the Proposed Acquisitions and
related capital expenditures; (iii) capital expenditures on existing properties;
(iv) acquisitions which have closed subsequent to June 30, 1996; and (v) the
redemption of the Senior Preferred Stock, as if such events had occurred on June
30, 1996. 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 and the financial statements and notes thereto related to certain of the
Proposed Acquisitions included elsewhere in this Prospectus. See "Pro Forma
Financial Information" 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.
11
<PAGE> 16
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED PRO FORMA
YEAR ENDED DECEMBER 31, JUNE 30, 1996 FOR TWELVE
------------------------------------------------------------- ------------------- MONTHS ENDED
PRO FORMA PRO JUNE 30,
1991 1992 1993 1994 1995 1995(A) ACTUAL FORMA(A) 1996(A)
------- ------- -------- ------- -------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenue........... $ 830 $17,062 $ 32,062 $62,067 $103,074 $ 138,296 $ 69,370 $ 82,208 $157,056
Operating expenses,
excluding depreciation,
amortization and option
plan compensation...... 1,719 17,922 28,872 51,225 82,103 110,228 51,724 61,728 119,750
Option plan
compensation(b)........ -- -- -- -- 10,803 10,803 2,292 2,292 3,691
Depreciation and
amortization........... 497 5,977 9,351 12,404 18,719 46,474 11,737 25,281 49,491
------- ------- -------- ------- -------- -------- -------- -------- --------
Income (loss) from
operations............. (1,386) (6,837) (6,161) (1,562) (8,551) (29,209 ) 3,617 (7,093 ) (15,876)
Interest expense........ (52) (1,262) (2,052) (5,210) (16,303) (38,966 ) (15,098) (19,483 ) (38,966)
Interest income......... -- -- 113 335 1,709 1,701 4,035 2,737 3,867
Other income (expense),
net.................... 10 134 108 (5) (982) (1,177 ) (559) (720 ) (1,976)
Benefit (provision) for
income taxes........... -- -- (2,960) 1,680 1,280 1,280 -- -- 640
Extraordinary item and
cumulative effect of a
change in accounting
principle(c)........... -- 110 (457) -- (10,626) (10,626 ) -- -- (10,626)
------- ------- -------- ------- -------- -------- -------- -------- --------
Net loss................ $(1,428) $(7,855) (11,409) (4,762) (33,473) (76,997 ) (8,005) (24,559 ) (62,937)
======= =======
Dividends and accretion
on preferred stock and
common stock
warrants(d)............ (151) (3,386) (13,297) (24,101 ) (7,414) (12,245 ) (24,300)
-------- ------- -------- -------- -------- -------- --------
Net loss attributable to
common stock........... $(11,560) $(8,148) $(46,770) $(101,098) $(15,419) $(36,804) $(87,237)
======== ======= ======== ======== ======== ======== ========
Net loss per share(e)... $ (0.36) $ (0.14) $ (0.97) $ (1.62 ) $ (0.20) $ (0.51 ) $ (1.32)
Net loss per share
attributable to common
stock(e)............... (0.37) (0.24) (1.36) (2.12 ) (0.38) (0.77 ) (1.83)
Weighted average shares
outstanding -- primary
and fully diluted(f)... 31,582 33,430 34,430 47,611 40,567 47,803 47,722
Cash dividends
declared............... -- -- -- -- -- -- -- -- --
OTHER DATA:
EBITDA(g)............... $ (796) $ (162) $ 4,522 $11,790 $ 24,582 $ 31,184 $ 20,380 $ 23,214 $ 40,953
Capital
expenditures(h)........ $ 60 $ 1,273 $ 1,963 $ 5,917 $ 25,017 $ 25,017 $ 13,936 $ 13,936 $ 29,364
Adjusted EBITDA(i)...... $ 47,406
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(j)........... -- -- -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------
ACTUAL PRO FORMA(A)
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $115,577 $ 434
Working capital............................................................................ 123,194 8,051
Total assets............................................................................... 437,449 663,774
Total debt................................................................................. 231,843 331,843
Redeemable preferred stock................................................................. 55,473 34,090
Redeemable exchangeable preferred stock ($150,000 initial liquidation preference).......... -- 143,750
</TABLE>
(see footnotes on the following page)
12
<PAGE> 17
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
(a) Pro forma statement of operations data and other data for the six
months and twelve months ended June 30, 1996 and the year ended December 31,
1995 give effect to (i) the consummation of the Offering; (ii) the significant
business acquisitions of KZKI-TV, WGOT-TV and WTVX-TV in 1995; (iii) the
proposed significant business acquisition of the Fort Lauderdale radio stations
(WPLL-FM and WSRF-AM); (iv) the business acquisitions of Todd Communications,
Inc. (WFSJ-FM), WHUB, Inc. (WHUB-FM and WHUB-AM), and Southern Broadcasting
Companies, Inc. (WSNI-FM, WPAP-FM and WPBH-FM) and the proposed business
acquisitions of WDIZ-FM, WTKS-FM, WIOD-AM, KXLI-TV and Ponce Nicasio
Broadcasting Ltd. (KCMY-TV); (v) the Equity Offering; (vi) the termination of
the put rights of the holders of Class A and Class B Common Stock warrants;
(vii) the issuance of the Notes; and (viii) the redemption of the Senior
Preferred Stock, as if such events had occurred on January 1, 1995. Other
Proposed Acquisitions are asset acquisitions or are immaterial both individually
and in the aggregate and therefore are not included in the pro forma financial
information. Where necessary, prior operators' fiscal years have been conformed
to the Company's December 31 year end. In addition, depreciation and
amortization expense and interest expense have been increased for each of the
periods presented to reflect the purchase of all stations included in the
Proposed Acquisitions and acquisitions which have closed subsequent to June 30,
1996. The pro forma balance sheet data as of June 30, 1996 gives effect to: (i)
the consummation of the Offering; (ii) the Proposed Acquisitions and related
capital expenditures; (iii) capital expenditures on existing properties; (iv)
acquisitions which have closed subsequent to June 30, 1996; and (v) the
redemption of the Senior Preferred Stock, as if such events had occurred on June
30, 1996.
(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) 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.
(d) Dividends and accretion on preferred stock and common stock warrants
for the years ended December 31, 1993, 1994 and 1995 and the six months ended
June 30, 1996 represent the Senior Preferred Stock (15% dividend rate),
redeemable Class A and Class B common stock warrants and Existing Preferred
Stock (12% dividend rate). Such capital stock is mandatorily redeemable and
certain issues accrete. See "Description of Capital Stock."
(e) Loss per share data for the years ended December 31, 1993 and 1994 give
retroactive 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. For periods prior to January 1, 1993, loss per share data was
not computed as such amounts were not relevant.
(f) Weighted average shares outstanding for the years ended December 31,
1993 and 1994 give retroactive 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. For
periods prior to January 1, 1993, weighted average shares outstanding was not
computed as such amounts were not relevant.
(g) 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, net, (v) time brokerage fees relating to financing of stations which
the Company has an agreement or option to acquire; (vi) depreciation and
amortization, including amortization of broadcast rights; (vii) option plan
compensation; and (viii) non-recurring items including terminated operations,
less scheduled broadcast rights payments. See "Certain Definitions and Market
and Industry Data."
13
<PAGE> 18
(h) Includes all capital expenditures including expenditures associated
with the upgrade and conversion of acquired and operated television stations to
the inTV format. Pro forma capital expenditures exclude $73,028 of capital
expenditures associated with the Proposed Acquisitions ($45,607) and additional
capital expenditures on existing properties ($27,421). These pro forma capital
expenditures have been included as uses of funds for purposes of calculating pro
forma total debt.
(i) Adjusted EBITDA is defined as EBITDA for the twelve month period ended
June 30, 1996, less (i) segment operating profit for the Infomall TV Network for
such period plus (ii) four times such segment's operating profit for the quarter
ended June 30, 1996. Adjusted EBITDA is calculated on a basis consistent with
calculations under the Exchange Indenture and the certificate of designation of
the New Preferred Stock. See "Certain Definitions and Market and Industry Data."
(j) For purposes of this calculation, earnings are defined as net loss
before income taxes, extraordinary items, the cumulative effect of a change in
accounting principle and fixed charges. Fixed charges consist of interest
expense, amortization of deferred financing costs and the component of operating
lease expense which management believes represents an appropriate interest
factor. Earnings were inadequate to cover combined fixed charges and preferred
stock dividends by approximately $1.4 million, $8.0 million, $8.1 million, $9.0
million, $32.7 million, and $12.8 million, for the years ended December 31,
1991, 1992, 1993, 1994 and 1995 and for the six-month period ended June 30,
1996, respectively. On a pro forma basis, earnings were insufficient to cover
combined fixed charges and preferred stock dividends by approximately $36.4
million, $76.5 million and $91.0 million for the six month and twelve month
periods ended June 30, 1996, and the year ended December 31, 1995, respectively.
14
<PAGE> 19
RISK FACTORS
Prospective investors should consider carefully the following risk factors
in addition to the other information set forth in or incorporated by reference
in this Prospectus before purchasing the New Preferred Stock.
HIGH LEVEL OF INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS AND SATISFY
PREFERRED STOCK DIVIDEND REQUIREMENTS
The Company is highly leveraged. At June 30, 1996, on a pro forma basis,
after giving effect to this Offering, the Proposed Acquisitions and related
capital expenditures, estimated capital expenditures on existing properties and
acquisitions which have closed subsequent to June 30, 1996, the Company would
have had $331.8 million of total debt and $189.4 million of redeemable preferred
stock inclusive of accumulated and unpaid dividends, including the New Preferred
Stock. In addition, subject to restrictions in the indenture governing the Notes
(the "Indenture"), the Company's $100 million senior secured revolving credit
facility (the "Credit Facility"), and the terms of the Company's Junior
Cumulative Compounding Redeemable Preferred Stock (the "Existing Preferred
Stock") and the New Preferred Stock, the Company may incur additional
indebtedness and issue additional shares of preferred stock from time to time to
finance acquisitions or capital expenditures or for other corporate purposes.
Interest expense for the years ended December 31, 1993, 1994 and 1995 was $2.1
million, $5.2 million and $16.3 million, respectively, and was $15.1 million for
the six months ended June 30, 1996.
The level of the Company's indebtedness could have important consequences
to holders of the New Preferred Stock, including: (i) a significant portion 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
Credit Facility (or any replacement thereof) could limit its ability to expand
and make capital improvements and acquisitions; (iv) the Indenture and the
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 also has substantial dividend and redemption obligations under
the Existing Preferred Stock. Dividends accrue on the Existing Preferred Stock
at an annual rate of 12% of the liquidation price thereof. Until December 22,
1999, the Company has the option to defer cash payment of accrued dividends, in
which case all dividends which have accrued as of January 1 and July 1 of each
year are added to the liquidation price of the Existing Preferred Stock. To
date, the Company has paid no cash dividends on the Existing Preferred Stock,
and as of June 30, 1996, there was an aggregate of $6,419,822 in accrued and
unpaid dividends thereon. The Company is obligated to redeem on December 22,
2003, out of unrestricted funds legally available therefor, all the shares of
the Existing Preferred Stock then outstanding, at a redemption price equal to
the liquidation price for such shares, as of the redemption date, plus the
amount of all accrued and unpaid dividends thereon, payable in cash. Holders of
shares of the Existing Preferred Stock are entitled to require the Company to
redeem their shares of Existing Preferred Stock upon the occurrence of a
bankruptcy or similar event relating to the Company or the default by the
Company under the terms of the Stockholders Agreement. Failure or inability of
the Company to pay amounts which become payable with respect to the Existing
Preferred Stock could have adverse consequences to the holders of the New
Preferred Stock. See "Description of Capital Stock -- Existing Preferred Stock."
The Company's ability to pay cash dividends on, and satisfy its redemption
obligations in respect of, the New Preferred Stock and to satisfy its debt
obligations and its dividend and redemption obligations with respect to the
Existing Preferred 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
15
<PAGE> 20
its control. The Company expects that its operating cash flow will be sufficient
to meet its operating expenses, service its debt and fund payment of any cash
dividend requirements on the Preferred Stock as such obligations become due. If
the Company is unable to service its indebtedness or make required cash 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 New Preferred Stock. In the event of a liquidation of
the Company, the New Preferred Stock would be subordinate in right of payment to
the Company's debt instruments and its Existing Preferred Stock, as well as
other indebtedness incurred and any preferred stock which the Company may issue
ranking senior to the New Preferred Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
HISTORY OF NET LOSSES; INSUFFICIENCY OF EARNINGS TO COVER FIXED CHARGES
The Company has incurred net losses in each of its fiscal years since
inception. Net losses for the fiscal years ended December 31, 1993, 1994 and
1995 were $11.4 million, $4.8 million and $33.5 million, respectively, and for
the six months ended June 30, 1996, the Company incurred a net loss of $8.0
million. As a result of the foregoing, for the year ended December 31, 1995 and
on a pro forma basis for the six months ended June 30, 1996, the Company's
earnings would have been insufficient to cover combined fixed charges and
preferred stock dividend requirements by approximately $32.7 million and $36.4
million, respectively. The Company expects to continue to experience net losses
in the foreseeable future, principally as a result of non-cash charges for
depreciation and amortization expense related to fixed assets and goodwill
relating to acquisitions, including the Proposed Acquisitions, which may be
greater than the net losses experienced by the Company in the past.
LIMITATIONS ON ABILITY TO PAY DIVIDENDS
The Credit Facility prohibits the payment of cash dividends on the New
Preferred Stock through the maturity of the borrowings under the Credit Facility
in 2002. For all dividend payment dates through and including October, 2001, the
Company may, at its option, pay dividends by issuing additional shares of New
Preferred Stock with an aggregate liquidation preference equal to the amount of
such dividends. After October 31, 2002, if the Company is in arrears in the
payment of dividends for three or more semi-annual dividend periods, the holders
of the New Preferred Stock will be permitted to elect the lesser of two
directors or that number of directors constituting 25% of the board of directors
of the Company.
The terms of the Existing Preferred Stock provide that the Company may not
declare or pay any cash dividends or make any cash distributions in respect of
the New Preferred Stock until all accrued and unpaid dividends on the Existing
Preferred Stock have been declared and paid and, in the event the Company is
required to redeem the Existing Preferred Stock, monies sufficient for such
purpose have been set aside. The Indenture also limits the ability of the
Company to pay cash dividends to holders of its capital stock.
In addition to the limitations imposed on the payment of dividends by the
Credit Facility, the Indenture and the terms of the Existing Preferred Stock,
under Delaware law the Company is permitted to pay dividends on its capital
stock, including the New Preferred Stock, only out of its surplus or, in the
event that it has no surplus, out its net profits for the year in which a
dividend is declared or for the immediately preceding fiscal year. Surplus is
defined as the excess of a company's total assets over the sum of its total
liabilities plus the par value of its outstanding capital stock. In order to pay
dividends in cash, the Company must have surplus or net profits equal to the
full amount of the cash dividend at the time such dividend is declared. In
determining the Company's ability to pay dividends, Delaware law permits the
board of directors of the Company to revalue the Company's assets and
liabilities from time to time to their fair market values in order to create
surplus. The Company cannot predict what the value of its assets or the amount
of its liabilities will be in the future and, accordingly, there can be no
assurance that the Company will be able to pay cash dividends on the New
Preferred Stock.
16
<PAGE> 21
RANKING OF THE NEW PREFERRED STOCK; SUBORDINATION OF EXCHANGE DEBENTURES
The New Preferred Stock will rank junior in right of payment upon
liquidation to all existing and future indebtedness of the Company and to all
shares of preferred stock of the Company (including the Existing Preferred
Stock) other than preferred stock which by its terms ranks on a parity with or
junior to the New Preferred Stock. The New Preferred Stock will rank senior in
right of payment upon liquidation to the Common Stock (as defined). The payment
of principal, premium, if any, and interest on, and any other amounts owing in
respect of, the Exchange Debentures, if issued, will be subordinated to the
prior payment in full of all existing and future Senior Debt of the Company. As
of June 30, 1996, on a pro forma basis after giving effect to the Proposed
Acquisitions and the Offering and the application of the net proceeds therefrom,
approximately $104.3 million of Senior Debt would have been outstanding
(represented by secured borrowings and borrowings under the Credit Facility) and
the Company would have had no further borrowing availability under the Credit
Facility. The Company is negotiating with its lenders to increase the aggregate
commitment of the Credit Facility. The Indenture, the Credit Facility and the
Exchange Indenture limit the incurrence by the Company of additional
indebtedness. In the event of the bankruptcy, liquidation, dissolution,
reorganization or other winding up of the Company, the assets of the Company
will be available to pay obligations on the Exchange Debentures only after all
Senior Debt has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Exchange Debentures. In
addition, under certain circumstances, the Company may not pay principal of,
premium, if any, or interest on, or any other amounts owing in respect of, the
Exchange Debentures, or purchase, redeem or otherwise retire the Exchange
Debentures, if a payment default or a non-payment default exists with respect to
certain Senior Debt, including Senior Debt under the Indenture and the Credit
Facility. See "Description of the New Preferred Stock and Exchange
Debentures -- The Exchange Debentures -- Subordination."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The 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. The Indenture may limit the
ability of the Company to pay interest on the Exchange Debentures by issuing
additional Exchange Debentures in lieu of cash interest. In addition, the 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 Credit
Facility, the lenders thereunder may terminate their lending commitments and
declare the indebtedness under the 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 Credit Facility and the Notes. Any refinancing of the Credit Facility
is likely to contain similar restrictive covenants.
RESTRICTIONS IMPOSED BY TERMS OF EXISTING PREFERRED STOCK
The terms of the Existing Preferred Stock provide that the Company may not
declare or pay any cash dividends or make any cash distributions in respect of
the New Preferred Stock until all accrued and unpaid dividends on the Existing
Preferred Stock have been declared and paid and, in the event the Company is
required to redeem the Existing Preferred Stock, monies sufficient for such
purpose have been set aside. So long as any shares of Existing Preferred Stock
remain outstanding, the Company may not directly or indirectly purchase, redeem,
exchange or otherwise acquire the New Preferred Stock or any Common Stock,
including the exchange of the New Preferred Stock for the Exchange Debentures.
The dividend rate on the Existing Preferred Stock will increase to an annual
rate of 30% (i) upon the occurrence of certain bankruptcy events, (ii) upon a
change of control of the Company, as defined in the Stockholders Agreement (as
defined), (iii) upon the failure to choose a successor to Mr. Paxson in the
event of his death or incapacity as provided in the Stockholders Agreement, (iv)
if the Company incurs indebtedness in excess of that permitted by certain
17
<PAGE> 22
financial leverage ratios, (v) upon the failure to pay cash dividends on or
after December 22, 2000, equal to the amount of dividends payable in any twelve
month period or (vi) if the Existing Preferred Stock remains outstanding after
December 22, 2003. Such increased dividend rate shall remain in effect for so
long as any such event continues and will increase by 5% on each anniversary of
such event or, in the case of a bankruptcy event, upon the failure of the
Company to redeem the Existing Preferred Stock at the request of the holders
thereof. See "Description of Capital Stock -- Existing Preferred Stock."
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 circumstances, to make
an offer to repurchase the Notes and to redeem its Existing Preferred Stock. See
"Certain Transactions -- Stockholders Agreement." There can be no assurance that
if such an event were to occur, the Company would have, or would 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 is required to elect, every three years, 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 area of dominant influence, as defined by
Arbitron ("ADI"), provided the broadcaster's television signal can be delivered
to the cable system operator's cable head end at a specified strength. These
"must carry" rights are not absolute, and their exercise depends on variables
such as the number of activated channels on a cable system, the location and
size of a cable system, and 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, which elections will govern the period January
1, 1997 to December 31, 1999.
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, but 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 or the Company might
have to seek to enter into agreements requiring it to make payments in order to
obtain carriage of its signal. 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 October 1996. The Company may
apply to renew those licenses, and third parties may challenge those
18
<PAGE> 23
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 policies require FCC
consent to assignments of FCC licenses and transfers of control of corporations
or other entities holding broadcast licenses. 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. In addition,
relaxation of the existing multiple ownership and cross-ownership rules and
policies by the FCC, as provided in the newly-enacted Telecommunications Act of
1996 (the "1996 Act"), removes certain restrictions on larger media,
entertainment and telecommunications 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.
Changes in the FCC's rules following passage of the 1996 Act, such as
elimination of restrictions on the offering of multiple network services by the
existing major television networks, the relaxation of restrictions on the
participation by the regional Bell holding companies in cable television and
other direct-to-home video technologies, the removal of nationwide restrictions
and the relaxation of local restrictions on radio broadcast ownership and the
relaxation of restrictions on nationwide broadcast television 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
Current FCC 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 the interests of officers and directors of a corporate parent of a
broadcast licensee. 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.
The 1996 Act eliminated the existing restrictions on the number of
television stations that a single entity may own nationwide and increased the
nationwide ceiling for national television audience reach to 35% of the
television households, with UHF stations counting only 50% of their respective
market television households. Congress also has directed the FCC to institute a
proceeding to review its present rules to determine whether to retain, modify or
eliminate its present restrictions on the number of television stations in which
a single entity may hold an attributable interest within a single market.
Prior to passage of the 1996 Act, the FCC initiated rule making proceedings
to consider proposals to modify its television ownership restrictions, including
rule makings that may permit ownership, in some circumstances, of two television
stations with overlapping service areas, and these rule making procedures may be
incorporated in the proceedings required by the 1996 Act. The FCC also is
considering in these proceedings whether to adopt restrictions on television
time brokerage agreements. The television duopoly and one-to-a-market rules
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 corresponding 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 renegotiate or terminate certain of its time brokerage agreements. The 1996
Act specifies, however, that none of the provisions relating to broadcast
ownership shall be construed to prohibit the origination, continuation or
19
<PAGE> 24
renewal of any television time brokerage agreement that is in compliance with
the regulations of the FCC. The Committee Report accompanying the 1996 Act notes
that the Act grandfathers time brokerage agreements in existence upon enactment
of the act and allows time brokerage agreements in the future, consistent with
the FCC's rules. Nevertheless, if in individual cases the FCC were to find that
the licensee of a station with which the Company has a time brokerage agreement
failed to maintain control over its operations as required by FCC rules and
policies, the licensee of the time brokerage agreement 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."
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. The failure of this industry to develop could require the Company to
sell its owned inTV 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."
CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to purchase
all of the shares of New Preferred Stock then outstanding at 101% of the then
effective liquidation preference plus, without duplication, accumulated and
unpaid dividends to the repurchase date. There can be no assurance that, were a
Change of Control to occur, the Company would have sufficient funds to pay the
purchase price for all the shares of New Preferred Stock which the Company might
be required to purchase. In such event, the Company could be required to seek
third party financing to the extent it did not have sufficient available funds
to meet its purchase obligations, and there can be no assurance that the Company
would be able to obtain such financing on favorable terms, if at all. Further,
the Credit Facility, the Indenture and the terms of the Existing Preferred Stock
restrict the Company's ability to repurchase shares of New Preferred Stock,
including upon a Change of Control.
A "change of control" (as defined in the Credit Facility) constitutes an
event of default under the Credit Facility. In the event of a "change of
control" (as defined in the Indenture), the Company will be required to offer to
repurchase all of the outstanding Notes at a price equal to 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
Existing Preferred Stock) will require the Company to pay a significantly higher
dividend on the Existing Preferred Stock, unless it is redeemed. The repurchase
by the Company of the Notes upon a change of control could also cause a default
under the Credit Facility. There can be no assurance that in the event of any
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 repay its indebtedness under the Credit Facility,
pay the required purchase price for all Notes or shares of New Preferred Stock
tendered by holders upon a change of control, repay other outstanding
indebtedness or redeem Existing Preferred Stock, and it is unlikely that in such
event the Company would be able to repurchase shares of New Preferred Stock. See
"Description of Capital Stock."
CERTAIN TAX CONSIDERATIONS
Distributions on the New Preferred Stock, whether paid in cash or in
additional shares of New Preferred Stock, will be taxable as ordinary dividend
income to the extent of the Company's current and accumulated earnings and
profits. A holder's initial tax basis in any additional shares of New Preferred
Stock distributed by the Company in lieu of cash dividend payments on the New
Preferred Stock ("Dividend Shares") will equal
20
<PAGE> 25
the fair market value of such Dividend Shares on their date of distribution. In
addition, depending on the fair market value of shares of New Preferred Stock on
the date of their issuance, holders may be required to include additional
amounts of income based on the difference between (x) the fair market value of
such shares on the date of their issuance and (y) the amount payable in
redemption of such shares, unless the difference is de minimis under the
applicable standard (such difference being referred to as "Preferred Stock
Discount"). See "Certain Federal Income Tax Considerations -- Preferred Stock
Discount." If shares of New Preferred Stock (including Dividend Shares) bear
Preferred Stock Discount, such shares generally will have different tax
characteristics from other shares of New Preferred Stock and might trade
separately, which might adversely affect the liquidity of such shares.
Upon an exchange of New Preferred Stock for Exchange Debentures, the holder
generally should have capital gain or loss equal to the difference between the
issue price of the Exchange Debentures received and the holder's adjusted basis
in the New Preferred Stock redeemed. For a discussion of how to determine the
issue price of the Exchange Debentures, see "Certain Federal Income Tax
Considerations -- Redemption and Exchange of New Preferred Stock." Holders
should also note that if shares of New Preferred Stock are exchanged for
Exchange Debentures and the stated redemption price at maturity of such Exchange
Debentures exceeds their issue price by more than a de minimis amount, the
Exchange Debentures will be treated as having original issue discount ("OID")
equal to the entire amount of such excess.
For a discussion of these and other relevant tax issues, see "Certain
Federal Income Tax Considerations."
DISCRETION OF MANAGEMENT CONCERNING USE OF PROCEEDS
A portion of the net proceeds of this Offering is anticipated to be used to
fund the Proposed Acquisitions and expected capital expenditures. It is
anticipated that pending such use, such proceeds will be invested in certain
short-term investments. The Company is also negotiating to increase the
aggregate commitment under the Credit Facility and is considering the sale of
its network-affiliated television operations. The proceeds of this Offering,
together with the Company's existing working capital and funds which may become
available to the Company if the aggregate commitment under the Credit Facility
is increased or if the Company completes a sale of its network-affiliated
television operations, or if any of the Proposed Acquisitions is abandoned,
could constitute a significant amount of funds available to the Company, over
the application of which management will have substantial discretion, including
funding additional broadcast and non-broadcast acquisition opportunities that
may arise that are not included in the Proposed Acquisitions. There can be no
assurance the Company will deploy such funds in a manner that will enhance the
financial condition of the Company. See "Use of Proceeds."
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Exchange
Debentures in favor of other existing or future creditors of the Company. If a
court in a lawsuit on behalf of any unpaid creditor of the Company or a
representative of the Company's creditors were to find that, at the time the
Company issued the Exchange Debentures, the Company (x) intended to hinder,
delay or defraud any existing or future creditor or contemplated insolvency with
a design to prefer one or more creditors to the exclusion in whole or in part of
others or (y) did not receive fair consideration or reasonably equivalent value
for issuing such Exchange Debentures and the Company (i) was insolvent, (ii) was
rendered insolvent by reason of such issuance, (iii) was engaged or about to
engage in a business or transaction for which its remaining assets constituted
unreasonably small capital to carry on its business or (iv) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court could void the Company's obligations under the Exchange
Debentures and void such transactions. Alternatively, in such event, claims of
the holders of such Exchange Debentures could be subordinated to claims of the
other creditors of the Company.
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
21
<PAGE> 26
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. While the Company has no probable or pending
significant acquisitions other than the Proposed Acquisitions, the Company
continuously evaluates the acquisition or operation of additional television and
radio stations.
TIME BROKERAGE AGREEMENTS -- RIGHTS OF PREEMPTION AND TERMINATION
The Company operates ten television stations pursuant to time brokerage
agreements, which stations are not owned by the Company. 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 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 generally 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.
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 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
The Company's radio and network-affiliated television stations are located
in highly competitive markets. The financial success of each of the Company's
radio and network-affiliated television stations depends, to a significant
degree, upon its audience ratings, its share of the overall radio (or television
as applicable) sales
22
<PAGE> 27
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 operating 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 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 and their agents 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, which may have greater financial resources than the
Company. See "Business -- Competition."
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."
LACK OF ESTABLISHED MARKET FOR THE NEW PREFERRED STOCK
Prior to the Offering, there has been no market for the New Preferred
Stock. The Company does not intend to list the New Preferred Stock on any
securities exchange, and there can be no assurance that a trading market for the
New Preferred Stock will develop and continue after the Offering. The
Underwriters have advised the Company that they currently intend to make a
market in the New Preferred Stock, but they are not obligated to do so and may
discontinue market making activities at any time. If a market for the New
Preferred Stock were to develop, the New Preferred Stock could trade at prices
that may be lower than the initial offering price and 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.
23
<PAGE> 28
THE PROPOSED ACQUISITIONS AND CAPITAL EXPENDITURES
The Company currently has agreements, subject to various conditions
including the receipt of regulatory approvals, to acquire, invest in, purchase
the assets of or, as indicated below, finance the acquisition of assets of, and
enter into time brokerage agreements (or in the case of WHBI-TV, an affiliation
agreement) with respect to, the following television stations (the "Proposed
inTV Acquisitions") and radio stations (the "Proposed Radio Acquisitions" and,
collectively with the Proposed inTV Acquisitions, the "Proposed Acquisitions")
(dollars in thousands):
<TABLE>
<CAPTION>
ACTUAL OR
ANTICIPATED
COMMENCEMENT
OF PURCHASE
MARKET(1) STATION OPERATIONS PRICE
------------------------------------------ --------------- ------------ --------
<S> <C> <C> <C>
TELEVISION
Dallas, TX.............................. Channel 68 12/96 $ 3,000
Minneapolis, MN......................... KXLI-TV 10/96 12,000
Phoenix, AZ............................. KAJW-TV 1/97 12,000
Salt Lake City, UT...................... KOOG-TV 3/97 7,700
Grand Rapids, MI........................ WJUE-TV(2) 10/96 1,000
Oklahoma City, OK....................... KMNZ-TV 2/97 6,500
West Palm Beach, FL..................... WHBI-TV(3) 2/97 3,000
Providence, RI.......................... WOST-TV(4) 12/96 1,000
Tulsa, OK............................... KGLB-TV 2/97 825
Birmingham, AL.......................... WNAL-TV 9/96 10,000
Seattle, WA............................. KBCB-TV 6/97 8,000
Little Rock, AR......................... KVUT-TV 6/97 2,500
Sacramento, CA.......................... KCMY-TV 7/95 17,000
RADIO
Miami/Ft. Lauderdale, FL................ WPLL-FM and
WSRF-AM(5) 5/96 57,500
WIOD-AM 10/96 13,000
Tampa, FL............................... WKES-FM 2/97 35,323
Jacksonville, FL........................ WPVJ-FM(6) 12/96 4,000
Orlando, FL............................. WDIZ-FM(5) 6/96 22,000
WTKS-FM(5) 6/96 25,000
Expected Capital Expenditures(7).......... 73,028
Less Deposits and Other Amounts Paid as of
June 30, 1996........................... (20,503)
Less Common Stock to be Issued............ (11,000)
--------
Proposed Acquisitions and
Expected
Capital Expenditures.......... $282,873
========
</TABLE>
- ---------------
(1) Each station is licensed by the FCC to serve a specific community which is
included in the listed market.
(2) 70% ownership interest to be acquired.
(3) Pending inTV affiliate; see "Business -- Time Brokerage Agreements and Other
Interests in Broadcast Stations."
(4) 50% ownership interest to be acquired. See "Business -- Time Brokerage
Agreements and Other Interests in Broadcast Stations."
(5) Operated pursuant to a time brokerage agreement pending completion of
acquisition.
(6) Station not currently operating.
(7) Includes $45.6 million of capital expenditures associated with the Proposed
Acquisitions and $27.4 million of capital expenditures for existing
properties.
The Company regularly considers the acquisition of broadcasting and other
properties and businesses, and at any given time is in various stages of
considering such opportunities. Typically, consummation of potential
acquisitions is subject to various contingencies, including various regulatory
approvals. Consummation of potential acquisition opportunities other than the
Proposed Acquisitions may also be subject to, among other
24
<PAGE> 29
things, the Company obtaining additional financing and waivers or consents from
its lenders and holders of the Existing Preferred Stock. There can be no
assurance that the Company could obtain any such needed consents or waivers or
additional financing on terms acceptable to it, nor can there be any assurance
that the Company will consummate all of the Proposed Acquisitions or other
potential acquisition opportunities that may arise.
Company investments in broadcast properties (including certain of the
Proposed Acquisitions as noted above) involve arrangements with third parties,
including time brokerage agreements, as well as the co-ownership of certain
television stations and radio stations. These investments in broadcast
properties permit the Company to have a presence in additional markets and to
enjoy many, but not all, of the benefits of ownership while at the same time
remaining in compliance with FCC regulations. For a description of the Company's
relationships with these companies, see "Business -- Time Brokerage Agreements
and Other Interests in Broadcast Stations." The Company has structured its
relationships with these companies in a manner designed to ensure strict
compliance with the FCC's rules and regulations governing television station
ownership.
RECENT DEVELOPMENTS
On September 27, 1996, the Company completed the acquisition of television
station KXLI-TV, Minneapolis, Minnesota, which station is to be added to the
Company's Infomall TV Network, and radio station WIOD-AM in the Miami/Ft.
Lauderdale market (subject to the funding of the purchase price of WIOD-AM by
the Company, which is expected to occur on October 1, 1996).
USE OF PROCEEDS
The net proceeds to the Company from the Offering (estimated to be
approximately $143.8 million) together with working capital of $67.5 million and
borrowings of $100 million under the Credit Facility will be used to fund (i)
the redemption of the Senior Preferred Stock ($28.4 million) and (ii) the
Proposed Acquisitions and expected capital expenditures ($282.9 million). Should
any of the Proposed Acquisitions not be completed, proceeds from the Offering
designated for such Proposed Acquisitions would be available to the Company for
general corporate purposes, including but not limited to possible additional
acquisitions. Pending the use of proceeds described above, the net proceeds will
be invested in Cash Equivalents (as defined).
25
<PAGE> 30
CAPITALIZATION
The following table sets forth the actual and pro forma cash and
capitalization of the Company as of June 30, 1996. Pro forma capitalization
gives effect to (i) the consummation of the Offering (providing $143.8 million
of cash); (ii) the Proposed Acquisitions, related capital expenditures and
capital expenditures on existing properties (utilizing $282.9 million of cash);
(iii) acquisitions which have closed subsequent to June 30, 1996 (utilizing
$47.6 million of cash); and (iv) the redemption of the Senior Preferred Stock,
(utilizing $28.4 million of cash), as if such events had occurred on June 30,
1996. 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.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
--------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................................ $115,577 $ 434
Long-term debt (including current maturities):
Credit Facility........................................................ $ -- $ 100,000
11 5/8 Senior Subordinated Notes due 2002(1)........................... 227,508 227,508
Other debt............................................................. 4,335 4,335
-------- --------
231,843 331,843
Redeemable senior preferred stock(2)..................................... 18,393 --
Redeemable Series B preferred stock(2)................................... 2,990 --
Redeemable junior preferred stock(2)..................................... 34,090 34,090
Redeemable Exchangeable Preferred Stock(3)............................... -- 143,750
Class A Common Stock(2).................................................. 39 40
Class B Common Stock(2).................................................. 8 8
Class C Common Stock(2).................................................. -- --
Class A and B Common Stock Warrants(2)................................... 6,863 6,863
Class C common stock warrants(2)......................................... 4,282 4,282
Stock subscription notes receivable...................................... (17) (17)
Additional paid-in capital............................................... 197,425 208,424
Deferred option plan compensation(4)..................................... (1,950) (1,950)
Accumulated deficit...................................................... (71,114) (78,156)
-------- --------
Total capitalization........................................... $422,852 $ 649,177
======== ========
</TABLE>
- ---------------
(1) Net of issue discount.
(2) See "Description of Capital Stock."
(3) The $150.0 million initial liquidation preference of the Redeemable
Exchangeable Preferred Stock has been reduced to its carrying value by $6.25
million of estimated transaction costs and discounts.
(4) See "Management -- Stock Incentive Plan."
26
<PAGE> 31
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 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 (561) 659-4122.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical and pro forma financial data, insofar as
it relates to each of the five years ended December 31, 1995, 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, 1994 and 1995 and the related consolidated statements of
operations and cash flows for each of the years in the three year period ended
December 31, 1995 and the notes thereto appearing elsewhere herein and
incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995. The selected historical and pro forma
financial data for the twelve months ended December 31, 1995, and as of and for
the six months and twelve months ended June 30, 1996 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 six months ended June 30, 1996 are not
necessarily indicative of results that may be expected for the entire year. The
selected historical and pro forma financial data should be read in conjunction
with the information contained in the Company's consolidated financial
statements and notes thereto, the financial statements and notes thereto related
to certain of the Proposed Acquisitions, "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
significant business acquisitions of KZKI-TV, WGOT-TV and WTVX-TV in 1995; (iii)
the proposed significant business acquisition of the Fort Lauderdale radio
stations (WPLL-FM and WSRF-AM); (iv) the business acquisitions of Todd
Communications, Inc. (WFSJ-FM), WHUB, Inc. (WHUB-FM and WHUB-AM) and Southern
Broadcasting Companies, Inc. (WSNI-FM, WPAP-FM and WPBH-FM), and the proposed
acquisitions of WDIZ-FM, WTKS-FM, WIOD-AM, KXLI-TV and Ponce Nicasio
Broadcasting Ltd. (KCMY-TV); (v) the Equity Offering; (vi) the termination of
the put rights of the holders of Class A and Class B Common Stock warrants;
(vii) the issuance of the Notes; and (viii) the redemption of the Senior
Preferred Stock, as if such events had occurred on January 1, 1995. Other
Proposed Acquisitions are asset acquisitions or are immaterial both individually
and in the aggregate and therefore are not included in the pro forma financial
information. Where necessary, prior operators' fiscal years have been conformed
to the Company's December 31 year end. In addition, depreciation and
amortization expense and interest expense have been increased for each of the
periods presented to reflect the purchase of all stations included in the
Proposed Acquisitions and acquisitions which have closed subsequent to June 30,
1996. The following unaudited summary pro forma balance sheet data gives effect
to (i) the consummation of the Offering; (ii) the proposed acquisitions and
related capital expenditures; (iii) capital expenditures on existing properties;
(iv) acquisitions which have closed subsequent to June 30, 1996; and (v) the
redemption of the Senior Preferred Stock, as if such events had occurred on June
30, 1996. 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 and the financial statements and notes thereto related to certain of the
Proposed Acquisitions included elsewhere in this Prospectus. See "Pro Forma
Financial Information" 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.
27
<PAGE> 32
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FOR
SIX MONTHS ENDED TWELVE
YEAR ENDED DECEMBER 31, JUNE 30, 1996 MONTHS
------------------------------------------------------------- ------------------- ENDED
PRO FORMA PRO JUNE 30,
1991 1992 1993 1994 1995 1995(A) ACTUAL FORMA(A) 1996(A)
------- ------- -------- ------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenue.............. $ 830 $17,062 $ 32,062 $62,067 $103,074 $ 138,296 $ 69,370 $ 82,208 $ 157,056
Operating expenses,
excluding depreciation,
amortization and option
plan compensation........ 1,719 17,922 28,872 51,225 82,103 110,228 51,724 61,728 119,750
Option plan
compensation(b).......... -- -- -- -- 10,803 10,803 2,292 2,292 3,691
Depreciation and
amortization............. 497 5,977 9,351 12,404 18,719 46,474 11,737 25,281 49,491
------- ------- -------- ------- -------- -------- -------- -------- --------
Income (loss) from
operations............... (1,386) (6,837) (6,161) (1,562) (8,551) (29,209) 3,617 (7,093) (15,876)
Interest expense........... (52) (1,262) (2,052) (5,210) (16,303) (38,966) (15,098) (19,483) (38,966)
Interest income............ -- -- 113 335 1,709 1,701 4,035 2,737 3,867
Other income (expense),
net...................... 10 134 108 (5) (982) (1,177) (559) (720) (1,976)
Benefit (provision) for
income
taxes.................... -- -- (2,960) 1,680 1,280 1,280 -- -- 640
Extraordinary item and
cumulative effect of a
change in accounting
principle(c)............. -- 110 (457) -- (10,626) (10,626) -- -- (10,626)
------- ------- -------- ------- -------- -------- -------- -------- --------
Net loss................... $(1,428) $(7,855) (11,409) (4,762) (33,473) (76,997) (8,005) (24,559) (62,937)
======= =======
Dividends and accretion on
preferred stock and
common stock
warrants(d).............. (151) (3,386) (13,297) (24,101) (7,414) (12,245) (24,300)
-------- ------- -------- -------- -------- -------- --------
Net loss attributable to
common stock............. $(11,560) $(8,148) $(46,770) $(101,098) $(15,419) $(36,804) $ (87,237)
======== ======= ======== ======== ======== ======== ========
Net loss per share(e)...... $ (0.36) $ (0.14) $ (0.97) $ (1.62) $ (0.20) $ (0.51) $ (1.32)
Net loss per share
attributable to common
stock(e)................. (0.37) (0.24) (1.36) (2.12) (0.38) (0.77) (1.83)
Weighted average shares
outstanding -- primary
and fully diluted(f)..... 31,582 33,430 34,430 47,611 40,567 47,803 47,722
Cash dividends declared.... -- -- -- -- -- -- -- -- --
OTHER DATA:
EBITDA(g).................. $ (796) $ (162) $ 4,522 $11,790 $ 24,582 $ 31,184 $ 20,380 $ 23,214 $ 40,953
Capital expenditures(h).... $ 60 $ 1,273 $ 1,963 $ 5,917 $ 25,017 $ 25,017 $ 13,936 $ 13,936 $ 29,364
Adjusted EBITDA(i)......... $ 47,406
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(j)............. -- -- -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------
ACTUAL PRO FORMA(A)
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $115,577 $ 434
Working capital............................................................................ 123,194 8,051
Total assets............................................................................... 437,449 663,774
Total debt................................................................................. 231,843 331,843
Redeemable preferred stock................................................................. 55,473 34,090
Redeemable exchangeable preferred stock ($150,000 initial liquidation preference).......... -- 143,750
</TABLE>
(see footnotes on the following page)
28
<PAGE> 33
NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
(a) Pro forma statement of operations data and other data for the six
months and twelve months ended June 30, 1996 and the year ended December 31,
1995 give effect to (i) the consummation of the Offering; (ii) the significant
business acquisitions of KZKI-TV, WGOT-TV and WTVX-TV in 1995; (iii) the
proposed significant business acquisition of the Fort Lauderdale radio stations
(WPLL-FM and WSRF-AM); (iv) the business acquisitions of Todd Communications,
Inc. (WFSJ-FM), WHUB, Inc. (WHUB-FM and WHUB-AM) and Southern Broadcasting
Companies, Inc. (WSNI-FM, WPAP-FM and WPBH-FM), and the proposed business
acquisitions of WDIZ-FM, WTKS-FM, WIOD-AM, KXLI-TV and Ponce Nicasio
Broadcasting Ltd. (KCMY-TV); (v) the Equity Offering; (vi) the termination of
the put rights of the holders of Class A and Class B Common Stock warrants;
(vii) the issuance of the Notes; and (viii) the redemption of the Senior
Preferred Stock, as if such events had occurred on January 1, 1995. Other
Proposed Acquisitions are asset acquisitions or are immaterial both individually
and in the aggregate and therefore are not included in
the pro forma financial information. Where necessary, prior operators' fiscal
years have been conformed to the Company's December 31 year end. In addition,
depreciation and amortization expense and interest expense have been increased
for each of the periods presented to reflect the purchase of all stations
included in the Proposed Acquisitions and acquisitions which have closed
subsequent to June 30, 1996. The pro forma balance sheet data as of June 30,
1996 gives effect to: (i) the consummation of the Offering; (ii) the Proposed
Acquisitions and related capital expenditures; (iii) capital expenditures on
existing properties; (iv) acquisitions which have closed subsequent to June 30,
1996; and (v) the redemption of the Senior Preferred Stock, as if such events
had occurred on June 30, 1996.
(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) 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.
(d) Dividends and accretion on preferred stock and common stock warrants
for the years ended December 31, 1993, 1994 and 1995 and the six months ended
June 30, 1996 represent the Senior Preferred Stock (15% dividend rate),
redeemable Class A and Class B common stock warrants and Existing Preferred
Stock (12% dividend rate). Such capital stock is mandatorily redeemable and
certain issues accrete. See "Description of Capital Stock."
(e) Loss per share data for the years ended December 31, 1993 and 1994 give
retroactive 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. For periods prior to January 1, 1993, loss per share data was
not computed as such amounts were not relevant.
(f) Weighted average shares outstanding for the years ended December 31,
1993 and 1994 give retroactive 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. For
periods prior to January 1, 1993, weighted average shares outstanding was not
computed as such amounts were not relevant.
(g) 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, net, (v) time brokerage fees relating to financing of stations which
the Company has an agreement or option to acquire; (vi) depreciation and
amortization, including amortization of broadcast rights; (vii) option plan
compensation; and (viii) non-recurring items including terminated operations,
less scheduled broadcast rights payments. See "Certain Definitions and Market
and Industry Data."
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<PAGE> 34
(h) Includes all capital expenditures including expenditures associated
with the upgrade and conversion of acquired and operated television stations to
the inTV format. Pro forma capital expenditures exclude $73,028 of capital
expenditures associated with the Proposed Acquisitions ($45,607) and additional
capital expenditures on existing properties ($27,421). These pro forma capital
expenditures have been included as uses of funds for purposes of calculating pro
forma total debt.
(i) Adjusted EBITDA is defined as EBITDA for the twelve month period ended
June 30, 1996, less (i) segment operating profit for the Infomall TV Network for
such period plus (ii) four times such segment's operating profit for the quarter
ended June 30, 1996. Adjusted EBITDA is calculated on a basis consistent with
calculations under the Exchange Indenture and the certificate of designation of
the New Preferred Stock. See "Certain Definitions and Market and Industry Data."
(j) For purposes of this calculation, earnings are defined as net loss
before income taxes, extraordinary items, the cumulative effect of a change in
accounting principle and fixed charges. Fixed charges consist of interest
expense, amortization of deferred financing costs and the component of operating
lease expense which management believes represents an appropriate interest
factor. Earnings were inadequate to cover combined fixed charges and preferred
stock dividends by approximately $1.4 million, $8.0 million, $8.1 million, $9.0
million, $32.7 million, and $12.8 million, for the years ended December 31,
1991, 1992, 1993, 1994 and 1995 and for the six-month period ended June 30,
1996, respectively. On a pro forma basis, earnings were insufficient to cover
combined fixed charges and preferred stock dividends by approximately $36.4
million, $76.5 million and $91.0 million for the six month and twelve month
periods ended June 30, 1996, and the year ended December 31, 1995, respectively.
30
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Since its inception in 1991, the Company has grown primarily through the
acquisition or management of radio and television broadcast stations and radio
networks, as well as subsequent improvement in the operation of these
properties. Certain of the Company's radio and television stations were and
continue to be operated under time brokerage agreements for various periods.
Under time brokerage agreements, the stations' operating revenues and expenses
are controlled by the Company and are included in its consolidated statements of
operations. The Company operates three business segments: (1) the Infomall TV
Network ("inTV"), a nationwide network of owned, operated or affiliated
television stations dedicated to the airing of long form paid programming,
consisting primarily of infomercials; (2) Paxson Radio, consisting of radio
broadcasting stations, radio news and sports networks and billboard operations;
and (3) Paxson Network-Affiliated Television, consisting of network-affiliated
television broadcasting stations in West Palm Beach, Florida.
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 to 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 usually contribute to
operating profit within a short time frame. 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 currently expects to continue acquiring additional stations
which may have similar effects on the comparability of revenues, operating
expenses, interest expense and operating cash flow as those described below.
The Company's past results are not necessarily indicative of future
performance due to various risks and uncertainties which may significantly
reduce revenues and increase operating expenses. For example, a reduction in
expenditures by radio and television advertisers in the Company's markets may
result in lower revenues. The Company may be unable to reduce expenses,
including certain variable expenses, in an amount sufficient in the short term
to offset lost revenues caused by poor market conditions. The Company's
television stations are dependent upon "must carry" regulations for carriage on
cable systems in each market. The constitutionality of "must carry" regulations
is currently being litigated in the U.S. Supreme Court and if such regulations
were invalidated, the Company could suffer decreased revenues or increased
carriage expenses if the Company's stations lose cable carriage or are forced to
pay cable systems for carriage. The broadcasting industry continues to undergo
rapid technological change which may increase competition within the Company's
markets as new delivery systems, such as direct broadcast satellite and computer
networks, attract customers. The changing nature of audience tastes and viewing
and listening habits may affect the continued attractiveness of the Company's
broadcasting stations to advertisers, upon whom the Company is dependent for its
revenue.
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount (contingent or otherwise) of assets and liabilities
at the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. The fair value of the Company's
investments in broadcast properties and programming rights payable were based
upon the net present value of applicable estimated future cash flows using a
discounted rate approximating market rates. The fair values of the Company's
long-term debt and the Notes were estimated based on market rates and
instruments with similar risks and maturities. The fair value
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<PAGE> 36
estimates presented are based on pertinent information available to management
as of June 30, 1996. As a result of the foregoing, the estimates presented in
the Company's financial statements are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of the Company's financial statements.
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.
This Prospectus contains forward-looking statements which involve risks and
uncertainties and are made pursuant to the safe harbor provisions of the
Securities Litigation Reform Act of 1995. The Company's actual results may
differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in this Prospectus under the heading "Risk Factors."
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 and 1995
Consolidated revenues for the six months ended June 30, 1996 increased 56%
(or $25.0 million) to $69.4 million from $44.4 million for the six months ended
June 30, 1995. This increase was primarily due to new television station
acquisitions and time brokerage operations ($14.0 million), new radio stations
($3.5 million) and increased revenues from existing television stations ($5.0
million) and radio stations ($3.6 million).
Operating expenses for the six months ended June 30, 1996 increased 19% (or
$10.7 million) to $65.8 million from $55.1 million for the six months ended June
30, 1995. The increase was due to higher direct expenses such as commissions
which rise in proportion to revenues ($3.9 million), other non-direct costs of
operating new television stations ($3.4 million) and radio stations ($1.8
million) increased non-direct costs of network-affiliated television operations
($1.3 million) which is primarily due to the addition of WTVX, higher
depreciation and amortization related to assets acquired ($3.7 million), and
increased time brokerage agreement fees ($2.5 million), all of which were
partially offset by lower option plan compensation costs ($7.1 million).
Operating cash flow for the six months ended June 30, 1996 increased 127%
(or $11.4 million) to $20.4 million, from $9.0 million for the six months ended
June 30, 1995. The increase in operating cash flow was a direct result of
television station acquisitions and improved performance of the existing
television and radio properties.
Interest expense for the six months ended June 30, 1996 increased to $15.1
million from $4.9 million for the six months ended June 30, 1995, an increase of
208% primarily due to a greater level of debt throughout the period and higher
borrowing rates. As a result of acquisitions, at June 30, 1996, total long-term
debt and senior subordinated notes were $231.8 million, or 75% higher than the
$132.3 million outstanding a year prior.
Interest income for the six months ended June 30, 1996 increased to $4.0
million from $0.6 million, primarily due to greater levels of cash and cash
equivalents invested throughout the period primarily as a result of the receipt
of the proceeds of the Equity Offering.
Three Months Ended June 30, 1996 and 1995
Consolidated revenues for the three months ended June 30, 1996 increased
57% (or $13.5 million) to $37.2 million from $23.7 million for the three months
ended June 30, 1995. This increase was primarily due to new television station
acquisitions and time brokerage operations ($7.1 million), new radio stations
($2.4 million) and increased revenues from existing television stations ($2.1
million) and radio stations ($2.1 million).
Operating expenses for the three months ended June 30, 1996 increased 4%
(or $1.2 million) to $33.8 million from $32.6 million for the three months ended
June 30, 1995. The increase was due to higher direct
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<PAGE> 37
expenses such as commissions which rise in proportion to revenues ($2.5
million), other non-direct costs of operating new television stations ($1.5
million) and radio stations ($1.1 million), increased non-direct costs of
network-affiliated television operations ($0.9 million) which is primarily due
to the addition of WTVX, higher depreciation and amortization related to assets
acquired ($1.8 million), and increased time brokerage agreement fees ($1.7
million) all of which were partially offset by lower option plan compensation
costs ($8.9 million).
Operating cash flow for the three months ended June 30, 1996 increased 93%
(or $5.7 million) to $11.8 million, from $6.1 million for the three months ended
June 30, 1995. The increase in operating cash flow was a direct result of
television station acquisitions and improved performance of the radio
properties.
Interest expense for the three months ended June 30, 1996 increased to $7.4
million from $2.8 million for the three months ended June 30, 1995, an increase
of 164% primarily due to a greater level of debt throughout the period and
higher borrowing rates. As a result of acquisitions, at June 30, 1996, total
long-term debt and senior subordinated notes were $231.8 million, or 75% higher
than the $132.3 million outstanding a year prior.
Interest income for the three months ended June 30, 1996 increased to $3.2
million from $0.3 million, primarily due to greater levels of cash and cash
equivalents invested throughout the period primarily as a result of the receipt
of the proceeds of the Equity Offering.
The following table sets forth, for the periods indicated, selected
information for the Company's business segments:
<TABLE>
<CAPTION>
AS OF AND FOR AS OF AND FOR
THE SIX MONTHS THE THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INFOMALL TV NETWORK
Total revenue................... $ 27,327,040 $ 10,725,592 $ 14,611,120 $ 6,822,598
Operating expenses, less
depreciation, amortization and
option plan compensation...... 14,482,609 6,216,319 7,848,987 3,765,974
Depreciation and amortization... 4,438,053 2,074,228 2,367,123 1,236,922
Option plan compensation........ 7,238 -- 3,675 --
------------ ----------- ------------ -----------
Income (loss) from operations... $ 8,399,140 $ 2,435,145 $ 4,391,335 $ 1,819,702
============ =========== ============ ===========
Operating cash flow........... $ 13,988,000 $ 5,018,000 $ 7,463,000 $ 3,367,000
============ =========== ============ ===========
Total identifiable assets..... $173,354,366 $ 74,506,976 $173,354,366 $ 74,506,976
============ =========== ============ ===========
Capital expenditures............ $ 6,537,552 $ 885,369 $ 5,016,886 $ 536,704
============ =========== ============ ===========
PAXSON RADIO
Total revenue................... $ 31,626,945 $ 25,121,812 $ 17,091,255 $ 12,816,094
Operating expenses, less
depreciation, amortization and
option plan compensation...... 25,084,027 21,425,930 12,968,931 10,248,871
Depreciation and amortization... 5,299,811 4,135,204 2,710,785 2,095,254
Option plan compensation........ 254,251 1,561,000 220,847 1,561,000
------------ ----------- ------------ -----------
Income (loss) from operations... $ 988,856 $ (2,000,322) $ 1,190,692 $ (1,089,031)
============ =========== ============ ===========
Operating cash flow........... $ 7,012,000 $ 4,208,000 $ 4,666,000 $ 2,753,000
============ =========== ============ ===========
Total identifiable assets..... $ 84,284,513 $ 66,742,444 $ 84,284,513 $ 66,742,444
============ =========== ============ ===========
Capital expenditures............ $ 1,445,034 $ 4,091,180 $ 701,677 $ 2,375,462
============ =========== ============ ===========
</TABLE>
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<PAGE> 38
<TABLE>
<CAPTION>
AS OF AND FOR AS OF AND FOR
THE SIX MONTHS THE THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
PAXSON NETWORK-AFFILIATED
TELEVISION
Total revenue................... $ 9,696,270 $ 7,306,968 $ 5,155,602 $ 3,721,971
Operating expenses, less
depreciation, amortization and
option plan compensation...... 8,092,005 5,258,401 4,226,926 2,706,693
Depreciation and amortization... 1,465,120 1,572,113 718,129 785,451
Option plan compensation........ -- -- -- --
------------ ----------- ------------ -----------
Income (loss) from operations... $ 139,145 $ 476,374 $ 210,547 $ 229,827
============ =========== ============ ===========
Operating cash flow............. $ 2,722,000 $ 2,340,000 $ 1,494,000 $ 1,180,000
============ =========== ============ ===========
Total identifiable assets....... $ 37,930,692 $ 38,062,872 $ 37,930,692 $ 38,062,872
============ =========== ============ ===========
Capital expenditures............ $ 881,759 $ 1,523,408 $ 761,818 $ 1,039,109
============ =========== ============ ===========
CORPORATE AND OTHER
Total revenue................... $ 720,011 $ 1,201,876 $ 383,522 $ 375,982
Operating expenses, less
depreciation, amortization and
option plan compensation...... 4,065,590 4,744,537 2,212,590 2,242,195
Depreciation and amortization... 533,945 272,711 269,150 152,000
Option plan compensation........ 2,030,428 7,843,129 309,027 7,843,129
------------ ----------- ------------ -----------
Income (loss) from operations... $ (5,909,952) $(11,658,501) $ (2,407,245) $ (9,861,342)
============ =========== ============ ===========
Operating cash flow............. $ (3,346,000) $ (2,602,000) $ (1,829,000) $ (1,175,000)
============ =========== ============ ===========
Total identifiable assets....... $141,879,080 $ 15,651,339 $141,879,080 $ 15,651,339
============ =========== ============ ===========
Capital expenditures............ $ 5,071,759 $ 3,089,520 $ 4,816,340 $ 558,710
============ =========== ============ ===========
CONSOLIDATED
Total revenue................... $ 69,370,260 $ 44,356,348 $ 37,241,499 $ 23,736,645
Operating expenses, less
depreciation, amortization and
option plan compensation...... 51,724,231 37,645,267 27,257,434 18,963,733
Depreciation and amortization... 11,736,929 8,054,256 6,065,187 4,269,627
Option plan compensation........ 2,291,917 9,404,129 533,549 9,404,129
------------ ----------- ------------ -----------
Income (loss) from operations... $ 3,617,189 $(10,747,304) $ 3,385,329 $ (8,900,844)
============ =========== ============ ===========
Operating cash flow............. $ 20,376,000 $ 8,964,000 $ 11,794,000 $ 6,125,000
============ =========== ============ ===========
Total identifiable assets....... $437,448,651 $194,963,631 $437,448,651 $194,963,631
============ =========== ============ ===========
Capital expenditures............ $ 13,936,104 $ 9,589,477 $ 11,296,721 $ 4,509,985
============ =========== ============ ===========
</TABLE>
"Operating cash flow" is defined as net income excluding non-cash items,
non-recurring items including terminated operations, interest, other income,
income taxes and time brokerage fees, less scheduled program rights payments.
The Company has included operating cash flow data because the financial
performance of broadcast companies is frequently evaluated based on some measure
of cash flow from operations and such data may assist investors in measuring the
Company's ability to service debt. Operating 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.
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<PAGE> 39
Years Ended December 31, 1995 and 1994
Consolidated revenues for 1995 increased 66% (or $41.0 million) to $103.1
million from $62.1 million for 1994. This increase was primarily due to the new
television station acquisitions and time brokerage operations ($19.2 million),
acquisition of WPBF-TV on July 1, 1994 ($7.1 million) and increased revenues
from existing television stations ($9.1 million).
Operating expenses for 1995 increased 75% (or $48.0 million) to $111.6
million from $63.6 million in 1994. The increase was primarily due to higher
direct expenses such as commissions which rise in proportion to revenues ($8.1
million), other non-direct costs of operating newly acquired and operated
television stations ($5.5 million), higher corporate overhead ($6.3 million),
option plan compensation ($10.8 million), higher depreciation and amortization
related to assets acquired ($6.3 million), and increased expenses from a full
year of operating existing television stations ($1.6 million).
Interest expense for 1995 increased to $16.3 million from $5.2 million for
1994, an increase of 213%, primarily due to a greater level of long-term debt
throughout the period and higher borrowing rates. As a result of acquisitions,
at December 31, 1995, total long-term debt, including the Notes, was $240.0
million, or 191% higher than the $82.4 million outstanding a year prior.
The Company has accumulated $35.7 million of taxable losses. The Company
recognized $1.3 million 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.
Operating cash flow for 1995 increased 108% (or $15.6 million) to $30.0
million, from $14.4 million for 1994. The increase in operating cash flow was a
direct result of new television station acquisitions and time brokerage
operations ($9.1 million), acquisition of WPBF-TV on July 1, 1994 ($1.7
million), and improved performance of existing television properties ($5.5
million).
Years Ended December 31, 1994 and 1993
Consolidated revenues for 1994 increased 93% (or $30.0 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 ($7.5 million), revenue received under
the time brokerage agreement for WTLK-TV beginning April 4, 1994 ($2.2 million)
and the subsequent purchase thereof on July 13, 1994, the consolidation of the
ANG operations beginning April 14, 1994 ($8.4 million), and improved market
conditions and better sales management within the Company's existing properties
($10.8 million). In addition, revenue increased because of the time brokerages
of WCTD-TV beginning April 1, 1994 and WFCT-TV beginning August 1, 1994
(totalling $1.1 million).
Operating expenses for 1994 increased 66% (or $25.4 million) to $63.6
million from $38.2 million in 1993. The increase was primarily due to direct
expenses such as commissions which rise in proportion to revenue ($7.3 million),
other non-direct costs of operating WPBF-TV and WTLK-TV ($4.1 million), the
consolidation of ANG ($6.3 million), higher costs for the Company's existing
properties ($3.4 million), and higher depreciation and amortization related to
assets acquired ($3.0 million). In addition, operating expenses increased
because of the time brokerages of WCTD-TV and WFCT-TV and related fees ($1.3
million).
Interest expense increased to $5.2 million from $2.1 million, an increase
of 148%, 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.
Operating cash flow for 1994 increased 112% (or $7.6 million) to $14.4
million, from $6.8 million in 1993. The increase in operating cash flow was a
direct result of acquisitions, revenue growth and continued expense controls.
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<PAGE> 40
LIQUIDITY AND CAPITAL RESOURCES
On April 3, 1996, the Company completed the Equity Offering, resulting in
gross proceeds of $164.8 million before transaction costs. Estimated total
issuance costs (including those prepaid) of approximately $10 million resulted
in net proceeds of approximately $154.8 million. A portion of the Equity
Offering proceeds was used by the Company to repay the outstanding balances
under the Credit Facility aggregating approximately $27.7 million, to complete
acquisitions and fund capital expenditures and for general corporate purposes.
The remaining proceeds from the Equity Offering will be utilized to fund a
portion of the Proposed Acquisitions and related capital requirements, along
with borrowings under the Credit Facility and the proceeds of this Offering. The
completion of each of the Proposed Acquisitions is subject to a variety of
factors and to the satisfaction of various conditions, and there can be no
assurance that any of the Proposed Acquisitions will be completed.
The Company's working capital at June 30, 1996 and December 31, 1995 was
$123.2 million and $74.3 million, respectively, and the ratio of current assets
to current liabilities was 9.27:1 and 6.37:1 on such dates, respectively.
Working capital increased primarily due to the Equity Offering.
Cash provided by (used in) operations of $3.4 million and ($0.2) million
for the six months ended June 30, 1996 and 1995, respectively, reflects 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 in investing activities of $100.3 million primarily reflects
the completion of acquisitions and investments and purchases of equipment for
acquired and existing properties. Cash provided by financing activities of
$144.4 million primarily reflects the proceeds of the Equity Offering and
long-term debt borrowings net of debt repayments. In addition, the Company has
advanced $900,000 to The Christian Network, Inc. ("CNI") during the six months
ended June 30, 1996 under a demand note bearing interest at the prime rate
(currently 8.25%). At June 30, 1996, the Company had total advances to CNI
outstanding of approximately $2.1 million, which has been included in
investments in broadcast properties. Non-cash activity relates to option plan
compensation, stock issued for the WFSJ-FM acquisition, a note payable incurred
with the WOCD-TV acquisition, reciprocal trade and barter advertising revenue
and expense and accretion of discount on the Notes, as well as dividends and
accretion on the redeemable preferred stock and common stock warrants.
The Company's primary capital requirements are for the acquisition of
broadcasting properties and related capital expenditures and interest and
principal payments on indebtedness. The Notes require semi-annual interest
payments at a fixed rate. The Company presently has no outstanding borrowings
under the Credit Facility. Borrowings under the 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 estimates that, in addition to the $45.6 million
of capital expenditures associated with the Proposed Acquisitions, it will spend
approximately $27.4 million for property and equipment for its existing
operations.
The Company believes that the proceeds of the Offering, cash flow from
operations, existing cash balances and available borrowings under the Credit
Facility will be sufficient to consummate the Proposed Acquisitions (including
the expected capital expenditures associated therewith) and to meet its
anticipated short term and long term working capital requirements for its
existing properties and those to be acquired upon completion of the Proposed
Acquisitions. While on a pro forma basis for the Proposed Acquisitions and
expected capital expenditures, the Company's $100 million Credit Facility would
be fully drawn, in light of the anticipated timing of the consummation of the
Proposed Acquisitions and funding of expected capital expenditures and cash flow
generated from operations, the Company currently does not anticipate borrowing
the full amount available under the Credit Facility. Nonetheless, the Company is
in discussions with its existing bank lenders to increase the aggregate
commitment amount of the Credit Facility and to obtain lower borrowing costs and
liberalized financial covenants. There can be no assurance that the Company will
be successful in its negotiations or obtain any such increase. The Company may
issue additional shares of New Preferred Stock or other securities ranking on a
parity with the New Preferred Stock in order to fund the redemption of the
Existing Preferred Stock. There can be no assurance that any such capital stock
will be
36
<PAGE> 41
issued. To the extent that the Company pursues future acquisitions or requires
additional working capital, 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. The failure to raise funds necessary
to finance the Company's future cash requirements could adversely affect the
Company's ability to pursue its business strategy. In addition, should the
Company suffer a significant impairment to its cash flow from operations due to
the occurrence of one or more adverse events, including those set forth under
"Risk Factors," its liquidity could become insufficient on a short term basis
due to diminished borrowing capacity under the Credit Facility and on a long
term basis, the Company could have insufficient resources to repay indebtedness
under the Credit Facility, the Notes or the Exchange Debentures when due or to
complete any required redemption of the New Preferred Stock or the Existing
Preferred Stock.
37
<PAGE> 42
BUSINESS
GENERAL
Paxson Communications Corporation is a diversified broadcasting company
whose principal businesses consist of the Infomall TV Network, a nationwide
network of television stations dedicated to the airing of long form paid
programming, consisting mainly of infomercials, and a major radio station group
operating primarily in Florida. In addition to the Infomall TV Network, the
Company's television operations include ownership of an ABC network affiliated
television station and the operation of a UPN/WB network affiliated television
station pursuant to a time brokerage agreement, each of which operates in the
West Palm Beach television market. The Company also owns and operates radio
networks and billboards which complement its Florida radio broadcasting
business.
The Company was founded in 1991 by Lowell W. "Bud" Paxson who personally
financed the Company's early growth and continues to lead the Company as its
majority stockholder and chief executive. 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., and was one of the first radio operators to take advantage
of duopoly radio station ownership. In April 1996, the Company raised over $150
million of new equity capital through the public sale of shares of its Class A
Common Stock, which trades on the American Stock Exchange under the symbol
"PXN."
SEGMENT DATA (1)
The following table sets forth certain data for each of the Company's
segments:
<TABLE>
<CAPTION>
FOR THE PRO FORMA
FOR THE THREE MONTHS ENDED TWELVE FOR THE
-------------------------------------------------------------------------- MONTHS ENDED TWELVE
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, JUNE 30, MONTHS ENDED
1995 1995 1995 1995 1996 1996 1996 JUNE 30, 1996(2)
--------- -------- ------------- ------------ --------- -------- ------------ ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SEGMENT REVENUE
Infomall TV
Network........... $ 3,903 $ 6,823 $ 8,330 $ 10,598 $12,716 $ 14,611 $ 46,255 $ 50,083
Paxson Radio........ 12,306 12,816 14,405 15,226 14,536 17,091 61,258 85,917
Paxson
Network-Affiliated
Television........ 3,585 3,722 3,929 5,301 4,541 5,156 18,927 19,408
Corporate and
Other(3).......... 826 376 503 425 336 384 1,648 1,648
------- ------- ------- ------- ------- ------- -------- --------
Total Segment
Revenue....... $20,620 $ 23,737 $27,167 $ 31,550 $32,129 $ 37,242 $128,088 $157,056
======= ======= ======= ======= ======= ======= ======== ========
SEGMENT INCOME
(LOSS) FROM
OPERATIONS
Infomall TV
Network........... $ 615 $ 1,820 $ 2,762 $ 3,607 $ 4,008 $ 4,391 $ 14,768 $ 475
Paxson Radio........ (911) (1,089) 327 89 (202) 1,191 1,405 (6,116)
Paxson
Network-Affiliated
Television........ 247 230 (204) 1,368 (71) 211 1,304 1,429
Corporate and
Other(3).......... (1,797) (9,861) (2,480) (3,274) (3,503) (2,407) (11,664) (11,664)
------- ------- ------- ------- ------- ------- -------- --------
Total Segment
Income (Loss)
from
Operations.... $(1,846) $ (8,900) $ 405 $ 1,790 $ 232 $ 3,385 $ 5,813 $(15,876)
======= ======= ======= ======= ======= ======= ======== ========
</TABLE>
38
<PAGE> 43
<TABLE>
<CAPTION>
FOR THE PRO FORMA
FOR THE THREE MONTHS ENDED TWELVE FOR THE
-------------------------------------------------------------------------- MONTHS ENDED TWELVE
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, JUNE 30, MONTHS ENDED
1995 1995 1995 1995 1996 1996 1996 JUNE 30, 1996(2)
------- ------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA
Segment Operating
Profit
Infomall TV
Network......... $ 1,659 $ 3,347 $ 4,056 $ 5,196 $ 6,408 $ 7,372 $ 23,032 $ 24,182
Paxson Radio...... 1,594 2,748 3,148 3,895 2,485 4,804 14,332 18,209
Paxson Network-
Affiliated
Television...... 1,166 1,221 1,121 1,868 1,194 1,464 5,647 5,743
Corporate and
Other(3)........ (1,427) (1,175) (1,723) (2,112) (1,517) (1,829) (7,181) (7,181)
------- ------- ------- ------- ------- ------- -------- --------
Total
EBITDA(4)..... $ 2,992 $ 6,141 $ 6,602 $ 8,847 $ 8,570 $ 11,811 $ 35,830 $ 40,953
======= ======= ======= ======= ======= ======= ======== ========
Adjusted
EBITDA(5)......... $ 47,406
========
</TABLE>
- ---------------
(1) Segment financial data present business operations for Paxson Radio, Paxson
Network-Affiliated Television and the Infomall TV Network.
(2) Pro forma segment data give effect to the Proposed Acquisitions as if such
events had occurred on January 1, 1995. Prior operators' fiscal years have
been conformed to the Company's December 31, 1995 year end.
(3) 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.
(4) 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, net, and time brokerage fees relating to financing of
stations which the Company has an agreement or option to acquire; (v)
depreciation and amortization, including amortization of broadcast rights;
(vi) option plan compensation; and (vii) non-recurring items including
terminated operations, less scheduled broadcast rights payments.
(5) 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.
INFOMALL TV NETWORK
The Company introduced its Infomall TV Network in January 1995 in order to
capitalize on what the Company believes to be a rapidly growing industry. inTV
has since expanded rapidly through increasing cable carriage of its existing
stations and acquiring additional stations, and currently consists of 29 owned,
time brokered or affiliated television stations. Broadcasting and Cable magazine
recently ranked the Company as the seventh largest television broadcaster in the
United States, based on the number of television households in each DMA in which
a broadcaster owns a station (i.e., excluding stations operated pursuant to time
brokerage agreements or affiliated stations) and counting only 50% of the
households in those DMAs which a broadcaster serves via a UHF frequency. Upon
completion of the Proposed inTV Acquisitions and pending affiliation agreements,
the Infomall TV Network will consist of a total of 42 television stations
operating in 37 television markets, including 22 of the 30 largest television
markets in the United States.
The Company believes that its inTV stations comprise the only national
network of television stations dedicated to the airing of infomercial
programming, and that its inTV stations represent a valuable national television
broadcasting distribution infrastructure that would be difficult and expensive
to replicate. The Company believes that the Infomall TV Network is the only
group of broadcast television stations in the United States offering long form
paid programmers and 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 converted by the Company 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 by virtue
of the FCC's "must carry" rules are thus generally
39
<PAGE> 44
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 attempts to maximize its cable household coverage within its
markets. While the Company's cable household coverage for its owned or operated
inTV stations was in the aggregate 57.1% of the total cable households in its
markets as of May 1996, the Company's goal is to reach approximately 85% of the
cable homes in its markets. In general, the Company has been successful in
improving its stations' cable household coverage over time, as demonstrated by
the aggregate cable household coverage of the Original inTV Stations, which
improved from 73.2% as of January 1995 to 92.6% as of June 1996. There can be no
assurance that the Company will be able to achieve its goal of reaching 85% of
cable households in its markets, or that the Company's experience in this regard
with the Original inTV Stations is or will be representative of the results of
the Infomall TV Network as a whole. 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 inTV Acquisitions, the
Infomall TV Network will serve DMAs currently containing approximately 49.7
million television households, of which 31.9 million households are served by
cable television. The Company continues to evaluate the acquisition of or
affiliation with additional television stations to further extend the national
reach of its Infomall TV Network.
In 1995, its initial year of operations, inTV achieved segment revenue of
$29.7 million, segment income from operations of $8.8 million and segment
operating profit of $14.3 million. Segment revenue increased from $10.7 million
during the first six months of 1995 to $27.3 million during the first six months
of 1996. Segment income from operations increased from $2.4 million during the
first six months of 1995 to $8.4 million during the first six months of 1996.
Segment operating profit increased from $5.0 million during the first six months
of 1995 to $13.8 million during the first six months of 1996.
The following table sets forth certain information with respect to the
results of operations of the Original inTV Stations. Because of the limited
operating history of the Infomall TV Network and the relatively small number of
the Company's inTV stations which are included in the table, the results shown
should not be considered to be representative of the results of the Company's
inTV operations as a whole.
ORIGINAL INTV STATION COMBINED OPERATING INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTV CABLE
HOUSEHOLDS SIX MONTHS SIX MONTHS
AT ENDED ENDED PERCENT CHANGE
COMMENCEMENT 6/30/95 6/30/96 1995 VS 1996
------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
Markets' Cable Television Households........... 3,520(1) 3,585(1) 3,650
Cable Households Reached(2).................... 1,164 2,789 3,379 21.2%
% Reached...................................... 33.1% 77.8% 92.6%
Average Rate(3)................................ $40.15 $45.65 13.7%
Revenue........................................ $5,960 $7,942 33.3%
Operating Cash Flow............................ $2,777 $4,364 57.1%
Margin......................................... 46.6% 54.9%
</TABLE>
- ---------------
(1) Management estimate.
(2) Number of cable households reached as of the indicated date.
(3) Average advertising rate per one-half hour per 100,000 cable households,
based on average number of cable households served during the period shown
of 2,726 for the six months ended June 30, 1995 (data for the first four
months of 1995 are based on management estimates), and 3,195 for the six
months ended June 30, 1996, assuming an average of 30 half-hours of
programming per day and 363 programming days per year. Actual half-hours of
programming broadcast per day may have been different.
The Original inTV Stations listed above are the Company's only inTV
stations which commenced operations in the inTV format on or prior to January 1,
1995, and thus represent the Company's most mature inTV stations. The Original
inTV Stations increased the number of cable homes reached as of June 30, 1996 by
21.2% over the number reached as of June 30, 1995, and increased their average
revenue rate received per half hour per 100,000 cable homes reached by 13.7% for
the six months ended June 30, 1996 over the same period in the prior year. This
growth enabled the Original inTV Stations to increase revenues by $2.0 million,
40
<PAGE> 45
or 33.3%, for the six month period ended June 30, 1996, over the same period in
the prior year. Reflecting the largely fixed cost nature of inTV operations,
operating cash flow of the Original inTV Stations for the six month period ended
June 30, 1996 increased $1.6 million, or 57.1%, over the same period in the
prior year, increasing the operating cash flow margin from 46.6% to 54.9%.
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 airtime, market size
and in certain cases 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 inconvenience
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 potential new customers. The viewer or potential
consumer is provided information that can be used to make informed purchasing
decisions. Unlike most traditional television advertising, the direct response
nature of many infomercials affords advertisers the ability to evaluate the
effectiveness of their advertising expenditures on an immediate basis.
The Company believes that the infomercial industry has grown rapidly during
the past several years. Historically, and to a large extent currently, long-form
informational programming occupied time slots that were less profitable for
broadcasters. Increasingly, infomercials are being placed in more expensive and
attractive time periods such as daytime, early fringe and prime time, and the
infomercial is becoming a more widely accepted form of advertising. Infomercials
have been used to promote major consumer brandnames, such as those listed below:
<TABLE>
<S> <C> <C> <C>
Apple Computers Coca-Cola Lexus Nissan
AT&T Compaq Magnavox Philips Consumer Electronics
Avon Products DIRECTV Mastercard/Visa Procter & Gamble
Bank of America E.I. duPont Mattel Royal Caribbean Cruise Line
Bayliner Boats Estee Lauder Mercedes Benz Sears Roebuck
Bell Atlantic Fidelity Investments MGM Sega of America
Black & Decker Ford Microsoft Toyota
Braun General Motors Motorola Volvo
Bristol Meyers GTE NBC Warner Music
</TABLE>
The production quality of infomercial programming by 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 programming, 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
41
<PAGE> 46
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 time brokerage
agreements, signing affiliate stations, and extending its stations' 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
increased cable carriage of existing inTV stations and the purchase, operation
or affiliation with independent television stations in major United States
television markets. The DMAs to be served by the Company's inTV stations upon
completion of the Proposed inTV Acquisitions currently contain approximately
49.7 million television households of which 31.9 million households are served
by cable television.
The Company's inTV operating strategy is to maximize revenues and operating
cash flow through improved performance of its inTV stations. Shortly after the
Company acquires a television station or commences operating a television
station pursuant to a time brokerage agreement, the Company adds such station to
the Infomall TV Network and replaces substantially all of the existing
programming with inTV programming, which, unlike traditional television
programming, is paid for by the advertiser as opposed to the broadcaster. The
introduction of inTV programming allows the Company to eliminate substantially
all programming expenses and achieve significant reductions in other operating
expenses. The Company's inTV stations are operated by an average of 15 people,
compared to network and independent stations which average over 100 and 60
people, respectively, in markets of similar size to the Company's. To date,
virtually all of the inTV stations owned or operated by the Company have
contributed rapidly to operating cash flow, typically within two months after
commencing inTV operations.
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
retailers, insurance companies, medical clinics, automobile and marine dealers,
financial services providers 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")
which are 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
42
<PAGE> 47
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 be
increased to generate significant revenue. The Company seeks to have local
advertising revenue represent 45% of total station revenues and is approaching
this goal in several of its markets. Increased local advertising revenues
generally result in greater absorption of the Company's inventory of programming
time, increasing the overall demand for air time and thereby enabling the
Company to achieve higher average advertising rates and to increase its
revenues.
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 generally entitled to carriage on cable systems within such
DMA, provided the broadcaster's television signal can be delivered to the cable
system operator's head end at a specified strength. 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."
In order to increase cable household penetration by its existing and
proposed stations, the Company currently employs and continues to study 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 ("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
inTV markets, including New York, Los Angeles, San Francisco, Boston,
Washington, D.C., 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 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.
The Company has recently launched its Infomall Netsite at www.paxson.com.
The Company's presence on the World Wide Web 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 may 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. Upon completion of the Proposed inTV Acquisitions and pending
affiliation agreements, the Company will own or operate 37 inTV stations and
have affiliation agreements with five independently owned and operated stations
that are or will be dedicated to inTV.
43
<PAGE> 48
INFOMALL TV NETWORK
The following table lists those inTV properties that the Company owns,
operates or is affiliated with, and those properties which the Company has
agreements to acquire or operate, as identified under "Proposed inTV Stations"
below. (Television and cable households in thousands.)
<TABLE>
<CAPTION>
INTV
ACTUAL OR CABLE
NATIONAL ANTICIPATED CARRIAGE TOTAL
TV COMMENCE- AT CURRENT MARKET CURRENT TOTAL
MARKET MENT OF COMMENCE- INTV CABLE CABLE INTV CABLE MARKET TV
MARKET(1) RANK STATION OPERATIONS MENT(2) CARRIAGE(3) HOUSEHOLDS CARRIAGE(3) HOUSEHOLDS
- ------------------------ -------- --------------- --------- --------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Owned or Operated
New York, NY............ 1 WHAI-TV 3/96 626 783 4,529 17.3% 6,695
Los Angeles, CA......... 2 KZKI-TV 5/95 1,453 2,183 2,997 72.8 4,918
Philadelphia, PA........ 4 WTGI-TV 2/95 1,225 1,489 1,961 76.0 2,646
San Francisco, CA....... 5 KLXV-TV 6/95 650 861 1,578 54.6 2,257
Boston, MA.............. 6 WGOT-TV 5/95 604 846 1,625 52.1 2,122
Washington, DC.......... 7 WYVN-TV 9/96 0 0 1,238 0.0 1,884
Atlanta, GA............. 10 WTLK-TV 4/94 300 944 1,015 93.0 1,584
Atlanta, GA*............ 10 WNGM-TV 4/96 182 183 1,015 18.0 1,584
Houston, TX............. 11 KTFH-TV 3/95 647 793 867 91.5 1,574
Cleveland, OH*.......... 13 WOAC-TV 10/95 332 336 966 34.8 1,452
Cleveland, OH........... 13 WAKC-TV 3/96 560 560 966 58.0 1,452
Tampa, FL*.............. 15 WFCT-TV 8/94 0 864 976 88.5 1,395
Miami, FL*.............. 16 WCTD-TV 4/94 396 883 922 95.8 1,341
Phoenix, AZ............. 17 KWBF-TV 3/96 23 26 661 3.9 1,170
Denver, CO.............. 18 KUBD-TV 8/95 430 426 699 60.9 1,160
St. Louis, MO........... 20 WCEE-TV 1/96 23 24 569 4.2 1,108
Orlando, FL*............ 22 WIRB-TV(5) 12/94 468 687 741 92.7 998
Hartford, CT*........... 26 WTWS-TV(6) 3/95 661 721 770 93.6 911
Milwaukee, WI*.......... 29 WHKE-TV 7/96 257 276 438 63.0 783
Raleigh, NC*............ 32 WRMY-TV(7) 6/96 0 29 481 6.0 792
Greensboro, NC.......... 48 WAAP-TV 7/96 323 323 345 93.7 553
Birmingham, AL*......... 51 WNAL-TV(8) 9/96 31 31 338 9.3 525
Albany, NY.............. 52 WOCD-TV 5/96 251 251 357 70.5 507
Dayton, OH.............. 53 WTJC-TV 10/95 298 315 341 92.3 501
San Juan, PR............ NR WSJN-TV(9) 2/96 285 285 298 95.6 1,064
------ ------ ------ ------
Total Owned or
Operated(10)...... 10,024 14,119 24,711 57.1% 37,939
------ ------ ------ ------
Affiliates
Sacramento, CA*......... 21 KCMY-TV(8) 7/95 624 644 688 93.7% 1,101
Indianapolis, IN........ 24 WIIB-TV 1/96 401 417 580 71.9 925
Norfolk, VA............. 40 WJCB-TV 8/95 343 362 446 81.2 619
Fresno, CA.............. 57 KGMC-TV 1/96 179 164 256 64.1 482
------ ------ ------ ------
Total Affiliates.... 1,546 1,587 1,969 80.6% 3,127
====== ====== ====== ======
Total Owned,
Operated and
Affiliates(10).... 11,570 15,706 26,680 58.9% 41,066
====== ====== ====== ======
Proposed inTV Stations
Philadelphia, PA........ 4 WTVE-TV(11) 10/96 1,961 2,646
Dallas, TX.............. 8 Channel 68(4) 12/96 924 1,822
Seattle, WA............. 12 KBCB-TV(4) 6/97 1,040 1,464
Minneapolis, MN......... 14 KXLI-TV 10/96 702 1,412
Phoenix, AZ*............ 17 KAJW-TV(4) 1/97 661 1,170
Salt Lake City, UT*..... 37 KZAR-TV(4)(12) 12/96 359 656
Salt Lake City, UT...... 37 KOOG-TV 3/97 359 656
Grand Rapids, MI*....... 38 WJUE-TV(4)(13) 10/96 390 637
Oklahoma City, OK....... 43 KMNZ-TV 2/97 353 585
West Palm Beach, FL..... 45 WHBI-TV(4)(11) 2/97 468 576
Providence, RI.......... 46 WOST-TV(4)(14) 12/96 412 557
Little Rock, AR......... 58 KVUT-TV(4) 6/97 284 473
Tulsa, OK............... 59 KGLB-TV(4) 2/97 287 459
------ ------
Total Proposed inTV
Stations(10)...... 5,219 8,641
TOTAL inTV
NETWORK(10)....... 31,900 49,707
====== ======
</TABLE>
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- ---------------
* Operated or to be operated pursuant to a time brokerage agreement; except
as noted, the Company has an option to acquire a 100% ownership interest.
(1) Each station is licensed by the FCC to serve a specific community, which is
included in the listed market.
(2) Cable households reached at commencement of station's operations.
(3) Cable households reached at 5/96, and as a percentage of the total market
cable households.
(4) Station is currently under construction or not operating.
(5) No option to acquire any ownership interest.
(6) To be operated pursuant to a time brokerage agreement upon completion of an
FCC-required restructuring of the Company's investment in such station in
connection with the Company's acquisition of WHAI-TV.
(7) Option to acquire 40% ownership interest.
(8) The Company has agreed to acquire these stations. See "The Proposed
Acquisitions and Capital Expenditures."
(9) 50% ownership interest.
(10) Figures represent total cable and television households in each market only
and are not necessarily indicative of the number of households reached by
each station in its market; totals do not double count markets where the
Company has more than one station.
(11) Pending inTV affiliate.
(12) Option to acquire a 50% ownership interest.
(13) 70% ownership interest to be acquired.
(14) 50% ownership interest to be acquired.
PAXSON RADIO
The Company has assembled a substantial statewide radio broadcasting group
with operations in Florida's largest markets, which the Company believes to be
among the most attractive and fastest growing in the nation. Upon completion of
the Proposed Radio Acquisitions (as defined), Paxson Communications will own and
operate 40 radio stations (26 FM and 14 AM stations), with more radio stations
in Florida than any other broadcaster. The Company believes that the addition of
the Proposed Radio Acquisitions will enable the Company to build or strengthen
its radio duopolies (two FM or two AM stations in a market) or "super-duopolies"
(more than two FM or two AM stations in a market) in its Florida radio markets,
and will result in the Company's radio group ranking number one in combined
revenue share in three of its seven Florida markets.
The Florida radio markets in which the Company operates continue to
experience substantial concentration of station ownership among large radio
group owners. The Company believes that concentration of station ownership will
result in a more stable radio marketplace and more predictable cash flow for
owners of station groups in such markets. 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.
The Company's radio expansion strategy is to acquire additional stations to
enhance its position in its current markets and to selectively enter new
markets, primarily in Florida, building upon its multiple radio station
ownership strategy in each of its markets and taking advantage of relaxed
multiple radio station ownership limitations implemented by recent changes in
federal telecommunications law. In addition to its Florida stations, the Company
also owns and operates two AM and two FM stations in Cookeville, Tennessee. The
Company operates six radio networks with 346 affiliated radio stations in the
eastern and southeastern United States and controls 185 billboard locations (455
faces) in the Tampa and Orlando markets that support the Company's radio station
operations and provide advertising revenue.
In 1995, Paxson Radio operations generated segment revenue, segment loss
from operations, and segment operating profit of $54.8 million, $1.6 million and
$11.4 million, respectively. Segment income (loss) from operations increased
from ($2.0) million during the first six months of 1995 to $1.0 million during
the first six months of 1996. Segment operating profit increased from $4.3
million during the first six months of 1995 to $7.3 million during the first six
months of 1996.
Radio Broadcasting
The Company was one of the first radio broadcasters to capitalize on
changes in federal regulations permitting radio market duopolies, and
subsequently assembled eight duopolies, two in each of Florida's four most
populous cities, in addition to AM/FM combinations in Cookeville, Tennessee. The
Company initially pursued a strategy of entering into time brokerage agreements
with, and concurrently obtaining an option to
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<PAGE> 50
purchase, stations in markets in which the Company already owns a station in the
same radio service (AM or FM), and 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. Further liberalization of the
multiple station ownership restrictions pursuant to the 1996 Act has enabled the
Company to enter into agreements to acquire additional stations in its Florida
markets. The Company will continue to consider additional radio acquisition
opportunities.
During the latter part of 1995, several changes were instituted by
management of Paxson Radio to strengthen performance, which resulted generally
in improved audience share, revenues and cash flow during 1996. These changes
included a new sales approach whereby each sales person is part of a team which
sells time on no more than two stations which are demographically compatible to
more effectively capture advertising revenue and provide better customer
service, and programming format changes based on market research.
Operating Strategy
The Company believes that its radio properties are well positioned in
attractive and growing markets, and seeks 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 certain
revenue opportunities and 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 major sporting events, concerts 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. 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
programming research, revenue and aggressive marketing and promotion strategy.
Local managers have incentive compensation linked to the station's operating
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 and 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, after conducting extensive
programming research, last year Miami's WZTA-FM altered its Classic Rock
format to broadcast a more contemporary Active Rock format appealing to a
more focused adult 25-54 demographic. Since then, WZTA-FM's market revenue
rank has increased to 8th with a 5% share from 16th with a 3.5% share. Its
corresponding audience share in this demographic has also increased from
2.7% to 4.4%. More recently, the Company's Jacksonville station, WAIA-FM,
changed its call letters to WPLA-FM and its format from Classic Rock to
Alternative Rock. With this change came
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<PAGE> 51
an increase in market revenue share to 4% from 2.5% with a corresponding
increase in its share of the 25-54 audience to 4.4% from 2%. 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,
newspapers, direct mail, 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 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 operating cash flow, local managers are focused on minimizing
costs and exceeding budgeted cash flow results.
Radio Properties
The following table sets forth certain information about the radio stations
the Company owns or proposes to acquire:
<TABLE>
<CAPTION>
AUDIENCE
SHARE
(PERSONS
25-54)
MARKET ----------- REVENUE REVENUE
MARKET(1) RANK FORMAT 1995 1996 SHARE RANK
-------------------------------- ------ ------------------------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Miami/Ft. Lauderdale, FL........ 11
WLVE-FM....................... Smooth Jazz 3.9 % 3.8%
WZTA-FM....................... Active Rock 2.8 4.4
WINZ-AM....................... News 1.4 0.6
WFTL-AM....................... Hot Talk 0.4 0.4
WPLL-FM(2)(3)................. Modern Adult Contemporary 2.8
WSRF-AM(2)(3)................. Block/Long-Form n/r
WIOD-AM(2).................... Talk/Sports/Entertainment 3.9
----
Total Market*.......... 15.9% 20.5% 1
Tampa/St. Petersburg, FL........ 21
WHPT-FM....................... Rock Adult Contemporary 5.9 % 5.4%
WSJT-FM....................... Smooth Jazz 0.2 5.1
WHNZ-AM....................... News 1.0 0.6
WZTM-AM....................... Sports 0.2 0.4
WKES-FM(2).................... To be determined
----
Total Market........... 11.5% 12.0% 5
Orlando, FL..................... 39
WMGF-FM....................... Soft Adult Contemporary 7.3 % 7.7%
WJRR-FM....................... Active Rock 4.9 3.9
WWNZ-AM....................... News 1.5 0.5
WQTM-AM....................... Sports 0.8 1.0
WTKS-FM(2)(3)................. Hot Talk 7.9
WDIZ-FM(2)(3)................. Modern Adult Contemporary 4.3
----
Total Market*.......... 25.3% 27.9% 3
</TABLE>
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<PAGE> 52
<TABLE>
<CAPTION>
AUDIENCE
SHARE
(PERSONS
MARKET 25-54) REVENUE REVENUE
MARKET(1) RANK FORMAT 1995 1996 SHARE RANK
-------------------------------- ------ ------------------------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Jacksonville, FL................ 53
WROO-FM....................... Country 7.5 % 5.2%
WPLA-FM....................... Rock Alternative 2.0 4.4
WFSJ-FM....................... Smooth Jazz 4.7 3.9
WNZS-AM....................... Sports 1.4 1.9
WZNZ-AM....................... News 0.5 0.1
WPVJ-FM (2)(4)................ To be determined
----
Total Market........... 15.5% 17.6% 3
Pensacola, FL................... 125
WOWW-FM....................... Rock Alternative 3.2%
WTKX-FM....................... Album Oriented Rock 5.6
----
Total Market........... 8.8% 21.7% 3
Tallahassee, FL................. 167
WSNI-FM....................... Oldies 7.4%
WXSR-FM....................... Active Rock 4.2
WTPS-FM....................... Hot Adult Contemporary 2.1
WTNT-FM....................... Country 6.3
WNLS-AM....................... Sports 1.1
----
Total Market........... 21.1% 40.3% 1
Panama City, FL................. 224
WPBH-FM....................... Soft Adult Contemporary 3.5%
WPAP-FM....................... Country 10.5
WFSY-FM....................... Hot Adult Contemporary 8.8
WEBZ-FM....................... Big Band 4.4
WGNE-AM....................... Smooth Jazz n/r
----
Total Market........... 27.2% 46.4% 1
Cookeville, TN.................. n/c
WGSQ-FM....................... Country 27.0%
WPTN-AM....................... Talk 4.1
WHUB-FM....................... Adult Contemporary 14.9
WHUB-AM....................... Country 4.1
----
Total Market........... 50.1% n/a 1
</TABLE>
- ---------------
* Pro forma for the Proposed Radio Acquisitions.
(1) Each station is licensed by the FCC to serve a specific community, which is
included in the listed market.
(2) Included in Proposed Radio Acquisitions.
(3) Operated pursuant to a time brokerage agreement.
(4) Station is not currently operating.
n/a Revenue not independently reported.
n/c Market not covered by Arbitron.
n/r Not rated.
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, and is operating WPLL-FM and
WSRF-AM under time brokerage agreements pending consummation of the acquisition
of such stations, and has agreed to acquire WIOD-AM in this market. The
Miami/Ft. Lauderdale radio market had advertising revenue of $136.3 million in
1995, a 9.9% increase over 1994. Including the Proposed Radio Acquisitions, the
Company's Miami/ Ft. Lauderdale radio stations have a 15.9% combined audience
share in the 25-54 year old demographic category and a 20.5% combined market
revenue share, ranking first in the market on a combined basis.
WLVE-FM is the only station in the market programmed in a Smooth Jazz
format, playing a blend of smooth contemporary jazz and selected Adult
Contemporary vocals targeting the upscale 25-54 year old male
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<PAGE> 53
and female audience. WZTA-FM is the market's only rock station, targeting 18-34
year olds but also rating well with 25-54 year old men. WPLL-FM (formerly
operating as WSHE-FM) switched to the Modern Adult Contemporary format on May 1
and targets females 25-54 years old. WINZ-AM is the market's only News/Talk
format and carries sports programming with broadcast rights to the Miami Heat
NBA basketball team and the University of Miami football games. WFTL-AM is
located in Broward County and serves the market with a talk radio format and
simulcasts Miami Heat games. WIOD-AM is the premier personality talk station in
South Florida. Long-time area personality Neil Rogers leads the lineup, and
typically achieves the top ratings among 25-54 year olds in his midday time
slot.
Tampa/St. Petersburg, FL. The Company owns and operates radio stations
WHPT-FM, WSJT-FM, WHNZ-AM and WZTM-AM in the Tampa/St. Petersburg radio market,
the 21st largest radio market in the United States, and has agreed to acquire
station WKES-FM in this market. 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 have an 11.5% combined audience share in
the 25-54 year old demographic category and a 12.0% combined market revenue
share.
WHPT-FM is formatted with a distinctive blend of adult rock music targeted
toward white-collar, adult listeners. WSJT-FM, which went on the air in July
1995, is a Smooth Jazz station targeted to adults 25-54 years old. WHPT-FM and
WSJT-FM have two of the most powerful signals in Florida. WHNZ-AM is an all news
station during daytime hours, with sports talk and play-by-play sports
programming at night, including University of Florida football and basketball
games. WZTM-AM is an all sports station, specializing in sports talk and
including play-by-play coverage of Florida State football and basketball games.
In addition, WZTM-AM achieves economies by utilizing satellite programming.
WKES-FM currently broadcasts religious programming. The Company intends to
change this station to a commercial format upon completion of the acquisition.
Orlando, FL. The Company owns and operates radio stations WMGF-FM,
WJRR-FM, WWNZ-AM and WQTM-AM in Orlando, the 39th largest radio market in the
United States, and has agreed to acquire stations WDIZ-FM and WTKS-FM in this
market, which it is operating pursuant to time brokerage agreements pending
consummation of such acquisitions. The Orlando radio market had advertising
revenue of $63.5 million in 1995, a 10.7% increase over 1994. Including the
Proposed Radio Acquisitions, the Company's Orlando radio stations have a 25.3%
combined audience share in the 25-54 year old demographic category and a 27.9%
combined market revenue share, ranking third in the market on a combined revenue
basis.
WMGF-FM is a Soft Adult Contemporary format appealing to 25-54 year old
females. WJRR-FM, the only Album Oriented Rock station in the market,
complements WMGF-FM by appealing primarily to the 25-54 year old male audience.
WDIZ-FM is the only station in the Orlando market programmed in a modern AC
format. WTKS-FM is a successful personality talk station. WWNZ-AM is the only
station in the market with an all news format. WQTM-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.
Jacksonville, FL. The Company owns and operates radio stations WROO-FM,
WPLA-FM, WFSJ-FM, WNZS-AM and WZNZ-AM in Jacksonville, the 53rd largest radio
market in the United States, and has agreed to acquire WPVJ-FM in this market.
The Jacksonville radio market had advertising revenue of $34.7 million in 1995,
an 8.4% increase over 1994. The Company's radio stations have a 15.5% combined
audience share in the 25-54 year old demographic category and a 17.6% combined
market revenue share, ranking third in the market on a combined revenue basis.
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, targeted to the 18-34 year old audience. WFSJ-FM is a Smooth
Jazz station targeted to adults 24-54 years old. WNZS-AM is the market's only
all sports station, utilizing several well-known sports personalities as
anchors, and carries play-by-play sports broadcasts, including Florida State
University football and basketball games. WZNZ-AM has an all news format
consisting of satellite-delivered CNN Headline News programming. WPVJ-FM is not
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<PAGE> 54
currently on the air. The Company intends to program this station with a format
to be determined upon completion of its market research.
Pensacola, FL. The Company has created a duopoly through its recent
acquisitions of radio stations WOWW-FM and WTKX-FM in Pensacola, the 125th
largest radio market in the United States. The Pensacola radio market had
advertising revenue of $8.8 million in 1995. These stations collectively have an
8.8% combined audience share in the 25-54 year old demographic category and a
21.7% combined market revenue share, ranking third in the market on a combined
revenue basis. WOWW-FM is a Modern Rock station, targeted to adults 18-49 years
old and WTKX-FM is an Album Oriented Rock station, targeted toward men 25-54
years old.
Tallahassee, FL. The Company has created a "super-duopoly" through its
recent acquisitions of radio stations WSNI-FM, WTNT-FM, WTPS-FM, WXSR-FM and
WNLS-AM in Tallahassee, the 167th largest radio market in the United States. The
Tallahassee radio market had advertising revenue of $8.8 million in 1995. These
stations collectively have a 21.1% combined audience share in the 25-54 year old
demographic category and a 40.3% combined market revenue share, ranking first in
the market on a combined revenue basis. WTNT-FM is the leading Country station
in the market, appealing to adults 25-54 years old. WTPS-FM has recently signed
on-air as a Hot Adult Contemporary station formatted for young adults 25-54
years old. WSNI-FM is a 60's or Oldies station, designed to appeal to adults
35-54 years old. WXSR-FM is an Alternative Rock station, targeted to 18-34 year
olds. WNLS-AM is an all sports station and the flagship station of the Florida
State University Seminoles.
Panama City, FL. The Company has created a "super-duopoly" through its
recent acquisitions of radio stations WPAP-FM, WPBH-FM, WEBZ-FM, WFSY-FM and
WGNE-AM in Panama City, the 223rd largest radio market in the United States. The
Panama City radio market had advertising revenue of $6.5 million in 1995. These
stations collectively have a 27.2% combined audience share in the 25-54 year old
demographic category and a 46.4% combined market revenue share, ranking first in
the market on a combined revenue basis. WPAP-FM is the oldest Country station in
Florida, and has enjoyed a significant ratings lead over the rest of the market.
WEBZ-FM is a Big Band formatted station, targeted to adults 45-64 years old.
WPBH-FM is a Soft Adult Contemporary station, appealing to females 35-54 years
old, WFSY-FM is an Adult Contemporary station targeting adults 25-54 years old,
and WGNE-AM is a Smooth Jazz radio station appealing to adults 25-54 years old.
Cookeville, TN. The Company owns and operates WGSQ-FM, WPTN-AM, WHUB-FM
and WHUB-AM in the Cookeville, Tennessee radio market, serving the Upper
Cumberland region between Nashville and Knoxville (ranked the 45th and 70th
largest markets, respectively). WGSQ-FM is a Country formatted station which has
a significant lead in audience share in the market. WHUB-FM is an Adult
Contemporary station formatted to adults 25-54 years old, and the number two
rated station in the market. WPTN-FM is programmed all talk, featuring a unique
mix of local and nationally known talk personalities. WHUB-AM is a Country
formatted station. These stations collectively have a 50.1% combined audience
share in the 12+ year old demographic category and rank first in the market in
combined revenue share, according to Company estimates.
Radio Networks
The Company operates six radio networks, comprised of three state news and
information networks and three sports programming networks, that serve
approximately 346 affiliates. The Company believes that each of its state news
and sports networks are attractive to advertisers because they provide an
economical opportunity to advertise simultaneously on multiple stations
throughout the state or region. The Alabama Radio Network, the Florida Radio
Network and the Tennessee Radio Network produce and distribute news,
informational, business and agricultural programming of interest to affiliates
and listeners in their respective states. In addition to providing radio
programming, these networks offer affiliates printed script for news, sports and
weather information which the Company generates internally, gathers from wire
and other sources or, as is the case with the Florida Radio Network, gathers
from (and distributes to) the radio groups in each of its Florida radio markets.
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The Company also operates the sports radio networks of the University of
Florida Gators, the University of Miami Hurricanes and the Penn State Nittany
Lions. Each of these sports networks produces sports play-by-play programming
and coaches talk shows for each university's football and basketball, and in
some cases, baseball programs. The Company distributes this programming to its
affiliates state-wide, including many of its own stations in each of its Florida
radio markets.
The Company has recently completed the technical upgrade of each of its
state news networks by installing digital equipment at each of its affiliates
and broadcast studios. This advanced technology allows each network to provide
its affiliates more tailored news, sports and long form programming in any
length at any time. The digitization of the signal distributed allows each
network to deliver a high quality signal to FM radio stations in addition to the
AM radio stations which were receiving the previously distributed analog signal.
The Company believes that the investment necessary to provide a digitized signal
to its expanded affiliate base creates a significant competitive barrier to
other potential radio network programmers.
Billboard Properties
The Company currently owns 185 billboard locations, including 57 billboards
with 115 faces in the Tampa market, and 128 billboard locations with 340 faces
in the Orlando market. While the Company sells the use of the billboards to a
broad group of 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. Pursuant to a time brokerage agreement, the Company
provides programming and markets commercial time for a second television
station, WTVX-TV (a combined United Paramount Network and Warner Brothers
Network affiliate), which is 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.
Television advertising expenditures in the West Palm Beach market totalled $88.2
million in 1995, an increase of 2.6%.
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 assignable option to acquire WTVX-TV for approximately
$19 million.
The network-affiliated television broadcasting industry is currently
undergoing significant consolidation as a result of the relaxation of multiple
ownership rules in the newly enacted Telecommunications Act of 1996. The Company
has not been successful in locating traditional television stations at
attractive prices to expand its network-affiliated television station group. As
the Company believes that the current consolidation will place small station
group operators at a significant disadvantage versus larger group operators, and
that the Company could benefit from redeploying its investment in its
network-affiliated television operations to its core inTV and radio group
businesses, it is considering the sale or exchange for other broadcast assets of
its network-affiliated television operations. The Company has engaged an
investment banking firm to advise it with respect to such a sale or exchange and
assist it in locating potential purchasers, and has received several offers to
acquire its network-affiliated television operations. The Company has not
accepted any of such offers, and there can be no assurance that any offers will
be received which will be acceptable to the Company.
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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 nine share of household audience in the
most recent Nielsen ratings survey, tied for third place in the market. WTVX-TV
achieved a three share of household audience in the most recent Nielsen ratings,
ranking fifth in the market. WPBF airs local news programming and a variety of
syndicated shows in addition to the ABC lineup. WTVX carries syndicated
programming and is a leading provider of children's programming in its market.
Both stations 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 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, thereby
providing advertisers with increased viewership. The Company seeks to increase
its local advertising sales in order to absorb its inventory of programming time
and thereby increase the overall demand for air time, enabling the Company to
achieve higher average advertising rates. 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, most 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
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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. Broadcasters with multiple stations in a local market,
such as the Company, which take 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, and to employ counter
programming in order to maximize combined audience and market revenue shares.
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 station (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 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 has 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 AND OTHER INTERESTS IN BROADCAST STATIONS
The Company has made certain investments in broadcast properties with third
parties consisting of time brokerage agreements and joint sales agreements, as
well as the co-ownership of certain television stations. These investments in
broadcast properties permit the Company to have a presence in additional markets
and to enjoy many, but not all, of the benefits of ownership while at the same
time remaining in compliance with FCC regulations.
Time Brokerage Agreements. 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 radio or television station while not owning
such station. The Company may in the future enter into other time brokerage
agreements to operate stations prior to their acquisition or to enable the
Company to operate additional stations that it might not be able to own itself
under current FCC multiple station ownership restrictions. The Company is
currently operating radio stations WPLL-FM, WSRF-AM, WDIZ-FM and WTKS-FM and
inTV station WNAL-TV pursuant to time brokerage agreements pending consummation
of the Company's acquisition of such stations. In addition, the Company intends
to operate inTV stations
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KCMY-TV, WJUE-TV and KAJW-TV pursuant to time brokerage agreements pending
consummation of the Company's acquisition of such stations.
The Company also operates or intends to operate certain stations pursuant
to time brokerage agreements other than in anticipation of the acquisition of
such stations. The Company currently operates each of WTVX-TV, WOAC-TV, WNGM-TV,
WCTD-TV, WFCT-TV, WHKE-TV, WIRB-TV and WRMY-TV under time brokerage agreements.
Three of such stations (WTVX-TV, WOAC-TV and WNGM-TV) are operated pursuant to
time brokerage agreements with entities owned or controlled by Eddie Whitehead
(collectively, "Whitehead Media"), four (WCTD-TV, WFCT-TV, WHKE-TV and WIRB-TV)
are operated pursuant to time brokerage agreements with subsidiaries of CNI and
one (WRMY-TV) is operated pursuant to a time brokerage agreement with Roberts
Broadcasting, as defined below (each of Whitehead Media, the subsidiaries of CNI
and Roberts Broadcasting which are parties to time brokerage agreements with the
Company are referred to herein as "TBA Licensees"). In connection with the
Company's acquisition of WHAI-TV, the Company was required by the FCC to
restructure its investment in WTWS-TV within six months of its acquisition of
WHAI-TV, in order to divest itself of an attributable interest, for FCC multiple
station ownership purposes, in WTWS-TV. The Company intends that, upon the
consummation of such restructured investment, WTWS-TV will be owned by Roberts
Broadcasting Company of Hartford, LLC, a limited liability corporation owned by
Steven Roberts and Michael Roberts (each of the entities owned or controlled by
Steven Roberts and Michael Roberts jointly and with which the Company has an
agreement is referred to herein as "Roberts Broadcasting"), and the Company will
operate WTWS-TV pursuant to a time brokerage agreement with an option to acquire
the station. In addition, after completing its investment in KZAR-TV, as
described below, the Company will operate the station pursuant to a time
brokerage agreement with a Roberts Broadcasting entity and will have an option
to acquire a 50% interest in the station.
With certain limited exceptions, the time brokerage agreements of the
Company entered into other than in anticipation of the consummation of an
acquisition involve a basic transaction structure. The Company (i) finances or
arranges (and typically guarantees) third party financing for the acquisition by
the TBA Licensee 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 brokerage
agreement with such TBA Licensee which allows the Company to operate the
brokered station, in accordance with FCC guidelines. In general, payments made
to the TBA Licensee under the time brokerage agreement are established, and
renegotiated from time to time, based upon increases in expenses for which the
TBA Licensee must, in accordance with FCC regulations, remain primarily liable,
including servicing the indebtedness owed by such TBA Licensee to the Company or
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 TBA 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. Of the ten stations operated or to
be operated pursuant to time brokerage agreements other than in anticipation of
the consummation of an acquisition, the Company has or will have options to
purchase six of such stations (WTVX-TV, WOAC-TV, WNGM-TV, WCTD-TV, WFCT-TV,
WHKE-TV and WTWS-TV) and options to purchase partial ownership in two of such
stations (WRMY-TV and KZAR-TV). If the Company were to sell its
network-affiliated television operations, such sale would likely include an
assignment of its time brokerage agreement for WTVX-TV. The Company has no
ownership interest in Whitehead Media, CNI or Roberts Broadcasting.
Other Investments in Television Properties. The Company is currently
operating station WRMY-TV pursuant to a time brokerage agreement and has also
agreed to lend to Roberts Broadcasting Company of Raleigh-Durham, L.P., a
limited partnership which is the licensee of the station and of which Roberts
Broadcasting is the sole general partner, up to $4,000,000 to relocate and
upgrade the station's transmitter facilities. The Company has an option to
convert a portion of its investment in WRMY-TV into a 40% limited partnership
interest, with Roberts Broadcasting holding the remaining 60% partnership
interest. The limited partnership agreement that governs the Company's
partnership interest in WRMY-TV provides the Company the right to approve
substantially all of the programming to be aired on the station and to
participate in certain
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<PAGE> 59
fundamental decisions concerning the operation and management of the station,
including, for example, the approval of station budgets.
The Company owns an option to acquire a 50% interest in the Roberts
Broadcasting entity which will be the licensee of KZAR-TV, and has agreed to
lend the station up to $3.7 million to relocate and upgrade its transmitter
facilities and to operate the station pursuant to a time brokerage agreement.
Similarly, the Company has agreed to acquire for $1,000,000 a 50% interest in
Offshore Television Company, L.L.C., a Delaware limited liability company which
will be the licensee of WOST-TV and of which Offshore Broadcasting Corporation
will be the sole other member, and to loan the station up to $2,500,000 to
relocate and upgrade its transmitter facilities. The business of WOST-TV and,
upon the Company's exercise of its option to acquire a 50% interest, KZAR-TV
will be managed under the terms of an operating agreement between the Company
and, respectively, Offshore Broadcasting Corporation and Roberts Broadcasting
which the Company expects will provide it and the other member of such limited
liability company the right to approve programming and other decisions
concerning the operation of the station.
The loan and security documents governing the terms and conditions of the
loans extended by the Company to each of WRMY-TV, KZAR-TV and WOST-TV contain
customary negative and affirmative covenants made for the benefit of the Company
as a lender to such stations, including limitations on the incurrence of
indebtedness, restrictions on liens, prohibitions on sales of assets and the
Company's prior approval of significant contracts and agreements.
The Company has also extended financing to Cocola Media Corporation of
Florida ("Cocola"), which has in turn financed the construction by WPB
Communications, Inc. of television station WHBI-TV, which is licensed to
Hispanic Broadcasting, Inc. WPB Communications, Inc. is the holder of an option
to acquire WHBI-TV from Hispanic Broadcasting, Inc. after the station commences
broadcast operations. After the consummation of the acquisition by WPB
Communications, Inc., Cocola has an option to acquire the station and, pending
the consummation of such option acquisition, the right to operate WHBI-TV
pursuant to a time brokerage agreement. The Company expects to enter an
affiliation agreement with Cocola after Cocola acquires WHBI-TV, pursuant to
which WHBI-TV would air inTV programming. The Company does not have any
ownership interest in Cocola, WPB Communications, Inc. or Hispanic Broadcasting,
Inc.
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. On February 8, 1996, the President signed into law the
Telecommunications Act of 1996 (the "1996 Act"). The 1996 Act changed many
provisions of the Communications Act and required the FCC to change its existing
rules and adopt new rules in several areas affecting broadcasting. The Company
cannot predict whether Congress will enact any further such legislation, the
extent to which the FCC will adopt new or amend existing regulations (although
the 1996 Act requires the FCC to institute rule making proceedings to amend
aspects of its broadcast rules), or what the effect of such actions may be on
the Company.
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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. Broadcast station licenses are granted for
specific, limited periods, and, upon application, are renewable for additional
terms. Prior to recent amendments to the Communications Act in the 1996 Act, the
Communications Act provided for radio broadcast station licenses to be granted
for a maximum term of seven years, and television station licenses to be granted
for a maximum term of five years. The 1996 Act extends the maximum permissible
license term for both television and radio broadcast stations to eight years.
The FCC has begun a rule making proceeding in which it has proposed to extend
the term for radio and television broadcast stations (other than experimental
stations) to the full eight year term permitted by the statute. In addition, the
1996 Act provides that, if a broadcast station fails to transmit broadcast
signals for any period of 12 consecutive months, the station license expires
automatically, without further FCC action, at the end of that 12-month period,
without regard to the stated term of the license. The FCC has interpreted this
provision as applying to failures to transmit after the passage of the 1996 Act.
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 STATIONS(A) MARKET(B) LICENSE EXPIRATION
------------------------------- ------------------------------- -------------------
<S> <C> <C>
WLVE-FM........................ Miami/Ft. Lauderdale February 1, 2003
WPLL-FM........................ Miami/Ft. Lauderdale February 1, 2003
WZTA-FM........................ Miami/Ft. Lauderdale February 1, 2003
WSRF-AM........................ Miami-Ft. Lauderdale February 1, 2003
WINZ-AM........................ Miami/Ft. Lauderdale February 1, 2003
WFTL-AM........................ Miami/Ft. Lauderdale February 1, 2003
WHPT-FM........................ Tampa/St. Petersburg February 1, 2003
WSJT-FM........................ Tampa/St. Petersburg February 1, 2003
WZTM-AM*....................... Tampa/St. Petersburg February 1, 2003
WHNZ-AM........................ Tampa/St. Petersburg February 1, 2003
WJRR-FM........................ Orlando February 1, 2003
WTKS-FM........................ Orlando February 1, 2003
WMGF-FM........................ Orlando February 1, 2003
WDIZ-FM........................ Orlando February 1, 2003
WWNZ-AM*....................... Orlando February 1, 2003
WQTM-AM........................ Orlando February 1, 2003
WPLA-FM........................ Jacksonville February 1, 2003
WROO-FM........................ Jacksonville February 1, 2003
WNZS-AM........................ Jacksonville February 1, 2003
WFSJ-FM........................ Jacksonville February 1, 2003
WZNZ-AM........................ Jacksonville February 1, 2003
WOWW-FM........................ Pensacola February 1, 2003
WTKX-FM........................ Pensacola February 1, 2003
WSNI-FM........................ Tallahassee February 1, 2003
WXSR-FM........................ Tallahassee February 1, 2003
WTPS-FM........................ Tallahassee February 1, 2003
WTNT-FM........................ Tallahassee February 1, 2003
WNLS-AM........................ Tallahassee February 1, 2003
WPBH-FM........................ Panama City February 1, 2003
WPAP-FM........................ Panama City February 1, 2003
WFSY-FM........................ Panama City February 1, 2003
</TABLE>
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<TABLE>
<CAPTION>
RADIO STATIONS(A) MARKET(B) LICENSE EXPIRATION
------------------------------- ------------------------------- -------------------
<S> <C> <C>
WEBZ-FM........................ Panama City February 1, 2003
WGNE-AM........................ Panama City February 1, 2003
WPTN-AM........................ Cookeville August 1, 2003
WGSQ-FM........................ Cookeville August 1, 2003
WHUB-FM........................ Cookeville August 1, 2003
WHUB-AM........................ Cookeville August 1, 2003
</TABLE>
<TABLE>
<CAPTION>
OWNED TELEVISION STATIONS MARKET LICENSE EXPIRATION
------------------------------- ------------------------------- -------------------
<S> <C> <C>
WHAI........................... New York April 1, 1999
KZKI........................... Los Angeles December 1, 1998
WTGI........................... Philadelphia August 1, 1999
KLXV........................... San Francisco December 1, 1998
WGOT........................... Boston April 1, 1999
WYVN(c)........................ Washington, D.C. October 1, 2003
WTLK........................... Atlanta April 1, 1997
KTFH........................... Houston August 1, 1998
WAKC........................... Cleveland October 1, 1997
KUBD........................... Denver April 1, 1998
KWBF........................... Phoenix October 1, 1998
WCEE........................... St. Louis December 1, 1997
WTWS........................... Hartford/New Haven April 1, 1999
WPBF........................... West Palm Beach February 1, 1997
WAAP........................... Greensboro December 1, 1996
WOCD........................... Albany June 1, 1999
WTJC........................... Dayton October 1, 1997
WSJN........................... San Juan February 1, 1997
</TABLE>
<TABLE>
<CAPTION>
TIME BROKERAGE
TELEVISION STATIONS MARKET LICENSE EXPIRATION
------------------------------- ------------------------------- -------------------
<S> <C> <C>
WNGM........................... Atlanta April 1, 1997
WOAC........................... Cleveland October 1, 1997
WFCT........................... Tampa/St. Petersburg February 1, 1997
WCTD........................... Miami/Ft. Lauderdale February 1, 1997
WIRB........................... Orlando February 1, 1997
WHKE........................... Milwaukee December 1, 1997
WRMY........................... Raleigh December 1, 1996
WNAL........................... Birmingham April 1, 1997
WTVX........................... West Palm Beach February 1, 1997
</TABLE>
- ---------------
* License renewal pending.
(a) The formal call sign assigned by the FCC does not include the "-AM" suffix
and does not necessarily include the "-FM" suffixes.
(b) Each station is licensed by the FCC to serve a specific community which is
included in the listed market.
(c) License application pending.
Generally, the FCC renews licenses without a hearing. The Communications
Act authorizes the filing of petitions to deny 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. The 1996 Act removed the opportunity for the filing of competing
applications against an incumbent licensee at renewal time. Instead, the FCC
will renew a broadcast license if, during the previous license term, the
incumbent licensee has met three requirements: (1) the station has served the
public interest, convenience and necessity; (2) the licensee has not seriously
violated the Communications Act or the FCC's rules; and (3) there have been no
other violations, which, taken together, would constitute a pattern of abuse. If
an applicant for renewal fails to satisfy this tripartite standard, the FCC
nevertheless may renew the license on appropriate terms and conditions,
including renewal
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<PAGE> 62
for less than a full license term. The FCC may not consider applications for the
channel by other parties until it first has decided to deny any form of renewal
to the incumbent licensee. Before denying renewal to an incumbent licensee, the
FCC first must allow the licensee a hearing on the licensee's alleged failure to
satisfy the statutory standard. The Communications Act, as amended, now
prohibits the FCC from considering whether another licensee would be preferable
until it first has determined that the incumbent does not qualify for renewal.
In recent years, there have been a number of petitions to deny 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 radio or television broadcast license or the transfer
of control of a corporation or other entity holding a broadcast license, 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 the interests 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 certain regulated investment companies, insurance companies and
banks holding stock through their trust departments in trust accounts, such
interests become attributable with the direct or indirect 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.
The 1996 Act substantially relaxed and restructured ownership rules
applicable to broadcast entities by removing restrictions on the number of
television stations a single entity may own or control nationwide and increasing
the nationwide audience reach ceiling for television ownership. Under the new
rules, an entity will be able to hold an attributable interest in television
stations reaching up to 35% of the United States television households. The 1996
Act also removed entirely the nationwide limits on the number of radio broadcast
stations in which a single entity may hold an attributable interest. In
addition, the 1996 Act mandated that the FCC change its local radio ownership
rules to increase the number of radio stations a single entity may own in a
single market.
The FCC also limits the number of co-located television broadcast stations
in which a single entity may own an attributable interest. Generally, 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 1996 Act directs the FCC
to conduct a rule making proceeding to determine whether these rules should be
retained or modified.
The local ownership restrictions for radio broadcast stations vary based on
market size:
In a market with fourteen or fewer commercial radio stations, a single
entity may own as many as five stations and three same-service stations
(that is, AM or FM), except that a single entity may not own, operate or
control more than 50% of the stations in the market;
In a market with between fifteen and twenty-nine commercial radio
stations, a single entity may own or control six stations and four stations
in the same service;
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In a market with thirty to forty-four commercial radio stations, a
single entity may own or control a total of seven stations and four
same-service stations; and
In a market of forty-five or more commercial radio stations, a single
entity may own or control a total of eight stations with up to five
same-service stations.
Under local radio ownership rules, an entity with an attributable interest
in one radio station also is considered 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 1996 Act deleted the statutory prohibition on a single
entity owning both a television station and a cable television system in the
same market, but did not require the FCC to change its rule that imposes this
restriction.) 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. The 1996 Act extends this liberal waiver policy to the top 50
markets. The FCC also may grant waivers 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 interests and relationships 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, such as non-voting equity interests, joint ventures and
key employees. The FCC has initiated proceedings to inquire whether it should
change or eliminate this policy. The policy does not necessarily prohibit these
interests, but may require that the FCC consider whether these relationships
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 stock of a
broadcasting corporation, a minority shareholder that is not an officer or
director 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 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 broadcast license may be held by a
corporation 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 broadcast license may be granted to any corporation
directly or indirectly controlled by any other corporation of which more than
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<PAGE> 64
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.
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
community of license. 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 human exposure to radio
frequency energy. 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 requiring that television broadcast stations serve
the educational and informational needs of children. The Children's Television
Act specifically requires the FCC to 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 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 and television broadcast licensees, including certain of the
Company's subsidiaries, have entered into time brokerage agreements with
separately owned and licensed radio or television stations. These arrangements
are subject to compliance with the antitrust laws and with the FCC's rules and
policies requiring that the licensee of each station maintain independent
control over the programming and station operations of its own station.
Typically, a time brokerage agreement is a programming agreement between
two separately owned broadcast 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 traditional 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
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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 multiple ownership rules. Nevertheless,
radio 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. The 1996 Act included a provision stating that the
broadcast ownership section of the 1996 Act is not to be construed to prohibit
the origination, continuation or renewal of any television time brokerage
agreement that complies with FCC regulations. See "Proposed Changes."
The FCC rules also prohibit a radio broadcast licensee from simulcasting
more than 25% of its programming on another station in the same radio broadcast
service (that is, AM-AM or FM-FM), whether it owns both stations or operates
both through a time brokerage agreement, if 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 the option once every three
years to elect 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 also are 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.
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 Supreme Court has set oral argument for October 7,
1996. 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 1996 Act allows for local telephone exchange carriers and other
entities to provide video programming over "Open Video Systems." The FCC is
required to adopt regulations mandating must carry for commercial and
noncommercial stations and retransmission consent for these systems.
The 1996 Act modified the way in which markets for carriage will be
determined for purposes of the must-carry rules. The 1996 Act provides that,
instead of using markets previously defined by the Arbitron ratings service, the
FCC may determine a broadcast station's market by using commercial publications
that
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delineate television markets based on viewing patterns. The FCC is authorized to
entertain requests for expansion or other modification of television station
markets, and is now required to resolve any market modification request within
120 days after the request is filed. The grant of such requests by a television
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.
The 1996 Act directed the FCC to adopt regulations to allow local exchange
telephone companies to provide video programming either as cable operators or
under the newly-established category of "Open Video Systems." If a local
exchange telephone company decides to provide video programming as a cable
operator, it will be subject to the same must-carry/retransmission consent
requirements as a cable operator. The 1996 Act also directed the FCC to adopt
rules requiring operators of Open Video Systems to be subject to regulations
regarding "must carry" for commercial and noncommercial broadcast stations,
network nonduplication, syndicated exclusivity protection and retransmission
consent options. Operators of Open Video Systems will be required to carry
identification of broadcast stations on any navigational device, guide, or menu
that they have on their System.
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. The FCC recently proposed rules that would reduce the EEO
recordkeeping and filing requirements for certain categories of broadcast
stations. The FCC also has proposed to give broadcasters credit for using the
recruiting resources of a central source, such as a state broadcast association,
and has proposed to adopt guidelines for imposing forfeitures for EEO
violations.
Syndicated Exclusivity/Territorial Exclusivity The FCC has imposed on
cable operators syndicated exclusivity rules and has 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.
Prime Time Access Rules. The FCC's recently terminated prime time access
rule placed programming restrictions on affiliates of major national television
networks. In the past, this rule generally 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 prime time access rules terminated 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.
V-Chip. The 1996 Act encourages the broadcast television industry to
establish a ratings system for video programming. If the industry fails to
establish such a ratings system within one year, the FCC is directed to appoint
a Committee to recommend a ratings system. The 1996 Act also requires the
inclusion of an electronic device (the "V-Chip") in new television sets, which
will enable parents to block programming that contains a certain rating.
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,
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and federal, state and local environmental and land use restrictions and general
business regulation, and a variety of local regulatory concerns.
Children's Television. Pursuant to the Children's Television Act of 1990,
the FCC has adopted rules limiting advertising in children's television
programming and requiring that television broadcast stations serve the
educational and informational needs of children. The Children's Television Act
specifically requires the FCC to consider compliance with these obligations in
deciding whether to renew a television broadcast license. On August 8, 1996, the
FCC adopted new rules on the enforcement of the Children's Television Act. Among
other measures, the FCC has specified a definition of "core programming" to be
considered in assessing whether a licensee has met its obligations to educate
and inform children. In general, "core programming" must be regularly scheduled
weekly programming of at least 30 minutes in length, aired between 7:00 a.m. and
10:00 p.m., a significant purpose of which is to serve the educational and
informational needs of children. Licensees will be required to identify "core
programming" in the information provided to television guides, at the time the
programming is aired, and in reports placed in the broadcaster's public file.
Licensees who air at least three hours of children's programming per week or the
equivalent will be eligible to have their licenses renewed by action of the
FCC's staff. Licensees who do not meet this processing standard will have their
renewal applications considered by the FCC Commissioners. The new rules
regarding on-air identification, program guides, public file, and reporting
requirements become effective January 2, 1997.
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.
Implementation of Amendments to the Communications Act. Since the
enactment of the 1996 Act in February 1996, the FCC has begun a number of
rule making proceedings to conform its rules to the new statute, to review
certain aspects of its rules as directed by the new statute or to provide
guidance and clarification on how the FCC will apply certain provisions of
the new statute. The 1996 Act is one of the most significant changes to the
Communications Act since its adoption in 1934. Although the focus of the
1996 Act is on telephony, the 1996 Act will result in changes to several
provisions of the law relating to broadcasters. The 1996 Act expressly
requires the FCC to change its rules in many significant respects, and
additional rule making proceedings may be required to adapt present FCC
requirements to the new law. As the 1996 Act only recently has been passed
and become law and the FCC has not yet completed all of the proceedings
that the 1996 Act requires, it remains to be seen how the FCC will
interpret certain provisions of the 1996 Act.
FCC Proceedings to Revise Broadcast Ownership Rules. The FCC has
several pending rule making proceedings to consider aspects of its
ownership rules affecting broadcasting that predate the enactment of the
1996 Act. The passage of the 1996 Act will affect the outcome of these
proceedings, and the FCC may initiate new or further proceedings to
consider some of these matters. In January 1995, the FCC issued a further
notice of proposed rule making which proposed the following changes in
regulations governing television broadcasting: (i) modifying the reach
discount as it applies to UHF stations; (ii) 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; (iii) 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 (iv) treating television time brokerage agreements the same
as radio time brokerage agreements which would preclude certain television
time brokerage agreements presently in effect, 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 applications that include 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
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has stated that it will continue to grant applications with time-brokerage
arrangements 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 the FCC's television
ownership 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 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 retain the so-called
"single majority shareholder" exception to attribution under which no
minority stock interest is attributable in a corporation with a single
shareholder voting more than a fifty percent interest; and (vi) 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 of 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 media ownership.
The 1996 Act directs the FCC to conduct a biennial review of its
broadcast ownership rules, to determine whether the rules continue to serve
the public interest, and to repeal or modify regulations found to no longer
serve the public interest.
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 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")
also known as digital television, or DTV, in the United States.
Implementation of ATV service should improve the technical quality of
television broadcasts. In anticipation of the implementation of ATV
operations, the 1996 Act directed the FCC to adopt ATV technical standards
and other rules necessary to protect the public interest. The FCC is
authorized (but not required) to establish minimum hours of ATV operation.
The 1996 Act also provides
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for the FCC to limit the eligibility for ATV licenses to existing
television licensees and permittees. The FCC is directed to condition ATV
licenses on recapture of either the new ATV spectrum or television
licensees' current spectrum channel, but neither the timetable nor the
subsequent use of recaptured spectrum is specified. Ten years after it
first issues ATV licenses, however, the FCC must evaluate its regulation
and public acceptance of ATV, including possible alternative uses of and
reduction in ATV spectrum.
The FCC is required to adopt rules permitting ATV licensees to offer
"ancillary or supplementary services" on newly-available ATV spectrum, so
long as such services are consistent with the FCC's ATV standards; do not
derogate required ATV services, including high definition television; and
are regulated in the same manner as similar non-ATV services. Ancillary or
supplementary services will not have must-carry rights on cable television
systems. All services using ATV spectrum must be consistent with the public
interest and renewal applicants will be required to establish that all
conventional and ATV program services are in the public interest. Failure
to comply with FCC requirements governing ancillary or supplementary ATV
services will reflect adversely on renewal qualifications.
Licensees which use ATV frequencies to provide ancillary or
supplementary services on a subscription or similar paid basis
(commercially-supported non-subscription broadcasting is excluded) will be
required to pay annual fees, based on the amount of spectrum being used and
the time it is used for ancillary and supplementary services. The fee is
not to exceed the amount which would have been received had the spectrum
been auctioned for similar uses.
The FCC has decided to 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 ATV has become the
prevalent medium. In August 1995, the FCC issued its Fourth Further Notice
of Proposed Rulemaking 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. In May 1996, the FCC issued its
Fifth Further Notice of Proposed Rulemaking in the ATV proceeding. The
notice proposed to adopt a fixed technical standard for ATV transmission.
On July 25, 1996, the FCC adopted its Sixth Further Notice of Proposed
Rule Making in its ATV proceeding. In the notice, the FCC proposed to seek
to provide a second channel for ATV service for all eligible television
broadcasters, to replicate broadcasters' present service areas, and to
minimize interference without preference to either conventional or ATV
service. The FCC also proposed an ATV allotment plan using the spectrum
occupied by existing channels 7-51 for ATV allotments to permit the
possible early recovery of spectrum. The FCC asked for comment on alternate
approaches to minimize the impact upon low power television and television
translator stations. The FCC will continue to accept applications for
modification of the facilities of existing television stations, but will
condition grants on the outcome of the ATV allotment proceeding.
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.
Other Changes that may result from matters under consideration by the
FCC or the Congress include: (i) spectrum use or other fees on FCC
licensees; (ii) the FCC's EEO rules and other matters relating to female or
minority involvement in the broadcasting industry; (iii) rules relating to
political
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broadcasting; (iv) technical and frequency allocation matters; (v) changes
in the FCC's cross-interest, multiple ownership and cross-ownership rules
and policies; (vi) changes in the tax deductibility of advertising
expenses; (vii) changes in standards governing violent or indecent
programming, the evaluation and regulation of television programming
directed towards children, and the presentation of television programming
directed at the informational and educational needs of children, including
the quantitative guidelines on the minimum amount of such programming to be
provided; and (viii) 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 June 30, 1996, the Company had approximately 873 full-time employees
and approximately 252 part-time employees, for a total of 1,125 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
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 during the first and fourth
quarters.
PATENTS AND TRADEMARKS
The Company has 23 registered trademarks and 17 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 the studio and broadcast tower locations of its owned radio and
television stations. Management believes that the Company's properties are in
good condition and are suitable for its operations.
<TABLE>
<CAPTION>
LEASE
PROPERTY OWNED/LEASED EXPIRATION
------------------------- ------------ --------------
<S> <C> <C> <C>
RADIO MARKET(A)
- ---------------
Miami, FL.......................... Studio/Offices Owned
WLVE-FM Tower Leased January 2000
WZTA-FM Tower Leased April 2007
WINZ-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
</TABLE>
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<PAGE> 71
<TABLE>
<CAPTION>
LEASE
PROPERTY OWNED/LEASED EXPIRATION
------------------------- ------------ --------------
<S> <C> <C> <C>
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
WFSJ-FM Tower
Pensacola, FL...................... WOWW-FM Studio/Offices Leased December 1996
WOWW-FM Tower Owned
WTKX-FM Studio/Offices Owned
WTKX-FM Tower Leased March 2018
Tallahassee, FL.................... WSNI-FM Studio/Offices Leased December 1998
WSNI-FM Tower Leased March 2005
WXSR-FM Studio/Offices Leased December 1998
WXSR-FM Tower Leased April 1998
WTPS-FM Studio/Offices Leased December 1998
WTPS-FM Tower Leased August 2000
WTNT-FM Studio/Offices Leased December 1999
WTNT-FM Tower Owned
WNLS-AM Studio/Offices Leased December 1999
WNLS-AM Tower Owned
Panama City, FL.................... WPBH-FM Studio/Offices Leased March 1999
WPBH-FM Tower Leased March 1999
WPAP-FM Studio/Offices Leased Annual
WPAP-FM Tower Leased March 2011
WFSY-FM, WEBZ-FM and
WGNE-AM Studio/Offices Owned
WFSY-FM Tower Leased July 2115
WEBZ-FM Tower Leased July 2113
WGNE-AM Tower Owned
Cookeville, TN..................... Studio/Offices Leased December 1998
WGSQ-FM Tower Leased July 2007
WPTN-AM Tower Owned
WHUB-AM/FM Studio/Offices Leased October 1998
WHUB-AM/FM Tower Owned
TELEVISION MARKET(A)
- ------------------
New York, NY....................... Studio Leased March 2001
Tower Leased March 2006
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
</TABLE>
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<TABLE>
<CAPTION>
LEASE
PROPERTY OWNED/LEASED EXPIRATION
------------------------- ------------ --------------
<S> <C> <C> <C>
San Francisco, CA.................. Studio/Offices Leased June 2005
Tower Leased June 2020
Boston, MA......................... Studio/Offices Leased February 2006
Tower Leased June 2026
Washington, D.C.................... Studio Owned
Tower Owned
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
Cleveland, OH...................... Studio Owned
Tower Owned
Hartford, CT....................... Studio Leased October 1999
Tower Leased October 2035
West Palm Beach, FL................ Studio/Offices Leased October 1998
Tower Owned
Headquarters Owned
Greensboro, NC..................... Studio Owned
Tower Owned
Albany, NY......................... Studio Leased May 1998
Tower Owned
Dayton, OH......................... Studio Owned
Tower Owned
</TABLE>
- ---------------
(a) Market listed may differ from actual location.
LEGAL PROCEEDINGS
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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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........................... 61 Chairman of the Board, Chief Executive
Officer and Director
James B. Bocock............................ 52 President, Chief Operating Officer and
Director
Dean M. Goodman............................ 49 President, inTV and Paxson
Network-Affiliated Television
Jon Jay Hoker.............................. 57 President, Paxson Radio
Arthur D. Tek.............................. 47 Vice President, Treasurer, Chief Financial
Officer and Director
Anthony L. Morrison........................ 35 Vice President, Secretary and General
Counsel
Michael J. Marocco*........................ 37 Director
John A. Kornreich*......................... 50 Director
J. Patrick Michaels, Jr.................... 52 Director
S. William Scott........................... 62 Director
Bruce L. Burnham........................... 62 Director
James L. Greenwald......................... 68 Director
</TABLE>
- ---------------
* Messrs. Kornreich and Marocco are expected to resign upon redemption of the
Senior Preferred Stock, which is to be effected with a portion of the proceeds
of this Offering.
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. Mr. Paxson 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 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
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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 was Vice
President and General Manager of ABC's Detroit and Houston radio stations. Mr.
Hoker is a past President of the Houston Association of Broadcasters and the
Dallas-Ft. Worth Association of Broadcasters 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 joined
Sandler Capital Management in 1989 and is a general partner of Sandler
Associates and, through affiliates, a general partner of the Sandler Media
Partnerships, Sandler Mezzanine Partnerships, and the 21st Century
Communications Partnerships. The Sandler Mezzanine 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 Capital Management in 1988 and is a general partner of Sandler
Associates and, through affiliates, a general partner of the Sandler Media
Partnerships, Sandler Mezzanine Partnerships, and the 21st Century
Communications Partnerships. The Sandler Mezzanine 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. 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.
Bruce L. Burnham has been serving as a director since February 1996. Mr.
Burnham has been President of The Burnham Group, a retail consulting and
marketing firm, since 1993. From 1981 to 1984, Mr. Burnham was Chairman and
Chief Executive Officer of Dayton's Department Stores, headquartered in
Minneapolis, and from 1979 to 1980 was President and Chief Executive Officer of
Bonwit Teller in New York City. Mr. Burnham is currently a director of Financial
Benefit Group, Inc. and J.B. Rudolph, Inc.
James L. Greenwald has been serving as a director since April 1996. From
1975 to 1994, Mr. Greenwald was Chairman and Chief Executive Officer of Katz
Communications, Inc., a broadcast advertising representa-
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tive sales firm; since 1994, Mr. Greenwald has been Chairman Emeritus of that
firm. Mr. Greenwald is a director of Granite Broadcasting Company and Source
Media, Inc.
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.
EXECUTIVE COMPENSATION
The following table presents certain information concerning the
compensation received or accrued for services rendered during the fiscal years
ended December 31, 1995, 1994 and 1993 for the Company's Chief Executive Officer
and four highest paid executive officers (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
ANNUAL COMPENSATION NUMBER OF
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) OPTIONS COMPENSATION
- ------------------------------- ---- --------- -------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lowell W. Paxson............... 1995 $ 350,000 $ -0- $ -0- -0- $ -0-
Chairman and Chief Executive 1994 -0- -0- -0- -0- -0-
Officer(3) 1993 -0- -0- -0- -0- -0-
James B. Bocock................ 1995 225,000 -0- 164,325 850,000 -0-
President and Chief Operating 1994 160,000 -0- -0- -0- -0-
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 Radio(4) 1994 140,000 51,043 -0- -0- -0-
1993 -0- -0- -0- -0- -0-
Arthur D. Tek.................. 1995 150,000 -0- -0- 150,000 3,000(5)
Vice President, Treasurer, 1994 112,500 -0- -0- -0- -0-
and 1993 100,000 -0- -0- -0- -0-
Chief Financial Officer
</TABLE>
- ---------------
(1) Includes amount Named Executive Officer elected to defer pursuant to the
Company's Profit Sharing Plan.
(2) 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.
(3) Mr. Paxson has entered into a five and one-half year employment agreement
that commenced on June 30, 1994. See "Employment Agreements."
(4) Mr. Hoker was employed by the Company commencing in January 1994.
(5) Represents relocation allowance in excess of general allowance under
Company's relocation plan.
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
NUMBER OF SHARES ANNUAL RATES OF STOCK PRICE
OF COMMON STOCK % OF TOTAL OPTIONS EXERCISE APPRECIATION FOR OPTION TERM(2)
UNDERLYING OPTIONS GRANTED TO EMPLOYEES PRICE PER EXPIRATION --------------------------------------
NAME GRANTED(1) IN FISCAL YEAR SHARE DATE 0%(3) 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 46.1% $3.42 2/12/2005 5,593,000 11,628,000 21,343,500
Dean M. Goodman..... 223,361 12.1% 3.42 2/12/2005 1,469,715 3,055,579 5,608,595
</TABLE>
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<PAGE> 76
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUES AT ASSUMED
NUMBER OF SHARES ANNUAL RATES OF STOCK PRICE
OF COMMON STOCK % OF TOTAL OPTIONS EXERCISE APPRECIATION FOR OPTION TERM(2)
UNDERLYING OPTIONS GRANTED TO EMPLOYEES PRICE PER EXPIRATION --------------------------------------
NAME GRANTED(1) IN FISCAL YEAR SHARE DATE 0%(3) 5% 10%
- -------------------- ------------------ -------------------- --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jon Jay Hoker....... 150,000 8.1% 3.42 2/12/2005 987,000 2,052,000 3,766,500
Arthur D. Tek....... 150,000 8.1% 3.42 2/12/2005 987,000 2,052,000 3,766,500
</TABLE>
- ---------------
(1) All options granted to the named executive officers were granted pursuant to
the Stock Incentive Plan. The options were granted pursuant to a five year
vesting schedule retroactive to the executive's date of employment. All
options are for Class A Common Stock.
(2) 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.
(3) 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 respect 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>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT DECEMBER 31, 1995 AT DECEMBER 31, 1995(1)
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 1,054,700 709,800
</TABLE>
- ---------------
(1) Based on the public trading price of the Class A Common Stock of $15.25 on
December 29, 1995.
STOCK INCENTIVE PLAN
The Company established its 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, and an
aggregate of 2,143,575 shares of Class A Common Stock are available for issuance
thereunder. In May 1996, the shareholders of the Company approved the adoption
of the Company's 1996 Stock Incentive Plan (the "1996 Plan", and collectively
with the Stock Incentive Plan, the "Stock Incentive Plans"), under which an
additional 2,000,000 shares of Class A Common Stock have been made available for
issuance. The Stock Incentive Plans are substantially identical except that the
class of persons eligible to receive awards under the 1996 Plan has been
expanded to include all persons performing services for the Company or any of
its subsidiaries and all persons who have in the past performed such services
(whether or not such persons are officers or employees of the Company or any
such subsidiary), and all persons performing services relating to the Company in
their capacity as an employee or independent contractor of a corporation or
other entity providing services to the Company.
The Stock Incentive Plans provide for the issuance of options, in the form
of incentive stock options or non-qualified stock options, and awards of
restricted stock to eligible persons selected by the Compensation Committee. 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
Plans. Stock options are exercisable in whole or in part on such
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<PAGE> 77
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 if
any of such options are intended to be incentive stock options, the exercise
price must be at least 110% of the fair market value of Class A Common Stock as
of the date of the grant and the term of the option may not exceed five years.
Options granted under the Stock Incentive Plans may be exercised by the
participant to whom granted or by his or her legal representative. If a
participant's employment is terminated for cause, each option which has not been
exercised shall terminate.
Restricted stock consists of shares of Class A Common Stock which are
subject to forfeiture in whole or in part if the recipient's employment with the
Company is terminated prior to the end of the restrictive period. Recipients 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 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.
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<PAGE> 78
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. 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 a wholly-owned subsidiary of the
Company as of December 17, 1993, under which the Company 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 the Company.
Mr. Paxson assigned his rights and interests in the CNI loan to the Company
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 the
Company 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 the Company its rights and interests under the time brokerage
agreement to provide up to 12 hours per day of programming on WFCT-TV. On May
31, 1996, the Company assigned its option to acquire the WFCT-TV assets to CNI
and agreed to finance or arrange financing for CNI in connection with CNI's
acquisition of such assets, in exchange for CNI's agreement to permit the
Company to operate the station pursuant to a time brokerage agreement after
CNI's acquisition and an option to acquire the station from CNI. CNI exercised
its option to acquire the station on July 17, 1996.
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 the Company 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 the Company CNI's production assets in
consideration for the cancellation of CNI's $2,500,000 promissory note held by
the Company. CNI and the Company have also contracted, effective as of August 1,
1994, for the Company to
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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 June 30, 1996, the Company had made loans to CNI and its
subsidiaries in an aggregate amount of $26.3 million to finance station
acquisitions and related capital expenditures, $15 million of which was forgiven
upon the purchase by the Company of four of these stations from CNI on July 1,
1996.
Stockholders Agreement. On December 15, 1993, in connection with the
issuance of the Company's Initial Senior Preferred Stock 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 Existing
Preferred Stock and Series B Preferred Stock, the purchasers of the Existing
Preferred Stock and warrants to purchase Class C Common Stock became parties to
the stockholders agreement, which was amended and restated (as amended, the
"Stockholders Agreement"). The parties to the Stockholders Agreement further
amended certain provisions thereof on March 26, 1996 in anticipation of, and
primarily conditioned upon the consummation of, the Equity Offering. Such
agreement, among other things, terminated the right of the holders of the Class
A and Class B warrants ("Warrant Shares") to require the Company to purchase
such Warrant Shares, permitted the Company to issue 2,000,000 additional shares
of stock (or options to purchase the same), permitted the Company to issue
125,000 shares of Common Stock (or options to purchase the same) at an exercise
price of $3.42 per share, deleted certain restrictions on the Company's ability
to acquire businesses in consideration for stock of the Company and modified
certain rights of the parties to register Common Stock of the Company.
The Stockholders Agreement, among other things, grants the parties thereto
a right of first refusal to purchase certain securities issued by the Company,
as well as certain registration rights. In connection with this Offering, the
Company has entered into an additional agreement with the parties to the
Stockholders Agreement dated September 16, 1996, that, among other things,
provides for the redemption of the Initial Senior Preferred Stock and Series B
Preferred Stock and the waiver of the parties' right of first refusal and
registration rights with respect to this Offering. In addition, such agreement
eliminates certain rights of the Sandler Group under the Stockholders Agreement
and provides for the termination of certain rights thereunder of the holders of
the Existing Preferred Stock effective upon the future redemption of the
Existing Preferred Stock by the Company.
Home Shopping Network, Inc. In connection with Mr. Paxson's departure from
HSN in 1990, 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,
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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 and the
Company executed a note bearing interest at 6%. The Company repaid the note in
October 1995.
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. The
Company recorded an intangible asset for $1,200,000 which will be amortized
through maturity of the agreement.
Todd Communications, Inc. In 1993, Mr. Paxson contributed a demand note
receivable in the amount of $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 accrued 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. The Company
also performed limited sales support and administrative functions for Todd
Communications, Inc., under a joint sales agreement. Todd Communications also
had a note outstanding to Mr. Paxson in the principal amount of $1,643,000.
During June 1996, the Company acquired Todd Communications for aggregate
consideration of $5 million, consisting of the cancellation of Todd's note held
by the Company in the principal amount of $1,822,000, assumption and immediate
repayment by the Company of the note to Mr. Paxson and the issuance of shares of
Class A Common Stock valued at $1,535,000.
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 Existing
Preferred Stock and warrants to acquire Class C Common Stock, and Canadian
Imperial Bank of Commerce, the proceeds of which were used to repay the debt
owed by Whitehead Media to the Company and 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 guaranteed 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.
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.
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 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 resold
such
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assets at a profit prior to April 1, 1996, the amount of any profit would be
paid to the Company. Mr. Paxson subsequently sold such assets to a third party
for $150,000, with the excess over $45,413 being paid to the Company.
Transfer of Partnership Interest. On January 26, 1996, the Company
acquired certain interests in a partnership with a view to securing programming
for its broadcast stations, and substantially concurrently with its acquisition,
transferred a portion of its interest to Mr. Paxson for approximately $900,000,
which amount equalled the consideration paid by the Company for its interests in
the partnership.
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
Existing Preferred Stock, as well as with the Company's various lending
relationships and other financing transactions. CEA continues to provide
advisory services to the Company, and 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.
DESCRIPTION OF NEW PREFERRED STOCK AND EXCHANGE DEBENTURES
THE NEW PREFERRED STOCK
The summary contained herein of certain provisions of the New Preferred
Stock to be issued by the Company in the Offering does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
Certificate of Designation relating thereto, the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, to
which exhibit reference is hereby made. The definitions of certain capitalized
terms used in the following summary are set forth under "-- Certain Definitions"
below. Other capitalized terms used herein and not otherwise defined under
"-- Certain Definitions" below are defined in the Certificate of Designation.
The Senior Preferred Stock is to be redeemed from the proceeds of this Offering
and is treated as no longer outstanding for purposes of the information set
forth below.
GENERAL
The Company is authorized to issue 1,000,000 shares of preferred stock,
$0.001 par value per share. As of the date of this Prospectus, 33,000 shares of
Existing Preferred Stock are outstanding. The Certificate of Incorporation of
the Company authorizes the Board of Directors, without stockholder approval, to
issue classes of preferred stock from time to time in one or more series, with
such designations, preferences and relative, participating, optional or other
special rights, qualifications, limitations or restrictions as may be determined
by the Board of Directors. The Board of Directors of the Company has adopted
resolutions creating a maximum of 440,000 shares of New Preferred Stock and has
filed a Certificate of Designation with respect thereto with the Secretary of
State of the State of Delaware as required by Delaware law. Of the 440,000
authorized shares of New Preferred Stock, 150,000 shares will be issued in this
Offering and 163,276 shares will be reserved for issuance as dividends in the
event the Company elects to pay dividends on the New Preferred Stock by issuing
additional shares of New Preferred Stock. See "-- Dividends" below. Subject to
certain conditions, the New Preferred Stock is exchangeable for Exchange
Debentures at the option of the Company on any dividend payment date. The New
Preferred Stock, when issued and paid for by the Underwriters in accordance with
the terms of the Underwriting Agreement, will be fully paid and nonassessable,
and the holders thereof will not have any subscription or preemptive rights.
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RANKING
The New Preferred Stock will, with respect to dividend distributions and
distributions upon the liquidation, winding-up or dissolution of the Company,
rank (i) senior to all classes of common stock of the Company, and to each other
class of capital stock or series of preferred stock established after the date
of this Prospectus by the Board of Directors of the Company the terms of which
do not expressly provide that it ranks senior to or on a parity with the New
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up or dissolution of the Company (collectively referred to
with the common stock of the Company as "Junior Securities"); (ii) subject to
certain conditions, on a parity with any class of capital stock or series of
preferred stock issued by the Company established after the date of this
Prospectus by the Board of Directors of the Company the terms of which expressly
provide that such class will rank on a parity with the New Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding-up or
dissolution of the Company (collectively referred to as "Parity Securities");
and (iii) junior to the Existing Preferred Stock and to each other class of
capital stock or series of preferred stock issued by the Company established
after the date of this Prospectus by the Board of Directors of the Company the
terms of which expressly provide that such class or series will rank senior to
the New Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up or dissolution of the Company (collectively referred to
as "Senior Securities"). The New Preferred Stock will be subject to the issuance
of series of Junior Securities, Parity Securities and Senior Securities;
provided that the Company may not issue any new class of Parity Securities or
Senior Securities (or amend the provisions of any existing class of capital
stock to make such class of capital stock Parity Securities or Senior
Securities) without the approval of the holders of at least a majority of the
shares of New Preferred Stock then outstanding, voting or consenting, as the
case may be, together as one class; provided, however, that the Company can
either: (i) issue additional shares of New Preferred Stock, or (ii) issue shares
of Parity Securities, which Parity Securities require cash dividends at a time
and in an amount not in excess of one percentage point greater than the dividend
rate borne by the Existing Preferred Stock (as existing on the Issue Date) and
which does not prevent either the payment of cash dividends on the New Preferred
Stock or the exchange of the New Preferred Stock for the Exchange Debentures, in
each case, in an amount sufficient to acquire the Existing Preferred Stock in
accordance with its terms on the Issue Date (including any premium required to
be paid), plus the amount of reasonable expenses incurred by the Company in
acquiring such Existing Preferred Stock and issuing such additional New
Preferred Stock or Parity Securities (as the case may be); with in either case
such shares being issued no sooner than the date the Company repurchases,
redeems or otherwise retires the Existing Preferred Stock.
DIVIDENDS
Holders of the New Preferred Stock will be entitled to receive, when, as
and if declared by the Board of Directors of the Company, out of funds legally
available therefor, dividends on the New Preferred Stock at a rate per annum
equal to 12 1/2% of the liquidation preference per share of New Preferred Stock,
payable semi-annually. All dividends will be cumulative whether or not earned or
declared on a daily basis from the Issue Date and will be payable semi-annually
in arrears on April 30 and October 31 of each year, commencing on April 30,
1997, to holders of record on the April 15 and October 15 immediately preceding
the relevant dividend payment date. Dividends may be paid, at the Company's
option, on any dividend payment date occurring on or prior to October 31, 2002
either in cash or by the issuance of additional shares of New Preferred Stock
(including fractional shares) having an aggregate liquidation preference equal
to the amount of such dividends. In the event that on or prior to October 31,
2002 dividends are declared and paid through the issuance of additional shares
of New Preferred Stock, as provided in the previous sentence, such dividends
shall be deemed paid in full and will not accumulate. The Credit Agreement, the
Indenture and the Existing Preferred Stock restrict the Company's ability to pay
cash dividends on its Capital Stock and will prohibit such payments in certain
instances and other future agreements may provide the same. See "Description of
Indebtedness" and "Description of Capital Stock -- Existing Preferred Stock."
Unpaid dividends accruing after October 31, 2002 on the New Preferred Stock
for any past dividend period and dividends in connection with any optional
redemption may be declared and paid at any time,
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without reference to any regular Dividend Payment Date, to holders of record on
such date, not more than forty-five (45) days prior to the payment thereof, as
may be fixed by the Board of Directors of the Company.
OPTIONAL REDEMPTION
The New Preferred Stock may be redeemed (subject to contractual and other
restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after October 31, 2001, in whole or in part, at the
option of the Company, at the redemption prices (expressed as a percentage of
liquidation preference) set forth below, plus, without duplication, an amount in
cash equal to all accumulated and unpaid dividends (including an amount in cash
equal to a prorated dividend for the period from the Dividend Payment Date
immediately prior to the redemption date to the redemption date) if redeemed
during the 12-month period beginning October 31 of each of the years set forth
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
--------------------------------------------------------------- ----------
<S> <C>
2001........................................................... 106.250%
2002........................................................... 104.167%
2003........................................................... 102.083%
2004 and thereafter............................................ 100.000%
</TABLE>
In addition, on or prior to October 31, 1999, the Company may, at its
option, use the Net Proceeds of either or both of one or more Public Equity
Offerings or Major Asset Sales to redeem for cash up to an aggregate of 35% of
the shares of New Preferred Stock (whether initially issued or issued as a
dividend payment) at a redemption price equal to 112.500% of the liquidation
preference thereof, plus without duplication, an amount in cash equal to all
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for the period from the Dividend Payment Date immediately
prior to the redemption date to the redemption date); provided, however, that
after any such redemption, there is at least $75 million in aggregate
liquidation preference of the New Preferred Stock outstanding. Any such
redemption will be required to occur on or prior to 90 days after the receipt by
the Company of the proceeds of each Public Equity Offering or Major Asset Sale.
In the event of partial redemptions of New Preferred Stock, the shares to
be redeemed will be determined pro rata, except that the Company may redeem all
shares held by any holders of fewer than ten shares (or shares held by holders
who would hold less than ten shares as a result of such redemption), as may be
determined by the Company. No optional redemption may be authorized or made
unless prior thereto all accumulated and unpaid dividends shall have been paid
in cash or a sum set apart for such payment on the New Preferred Stock.
The certificate of designation governing the Existing Preferred Stock
prohibits the redemption of the New Preferred Stock so long as any shares of
Existing Preferred Stock are outstanding. The Credit Agreement and the Indenture
also restrict the ability of the Company to redeem the New Preferred Stock. See
"Description of Indebtedness" and "Description of Capital Stock -- Existing
Preferred Stock."
MANDATORY REDEMPTION
The New Preferred Stock will also be subject to mandatory redemption
(subject to contractual and other restrictions with respect thereto and to the
legal availability of funds therefor) in whole on October 31, 2006 at a price
equal to the liquidation preference thereof, plus, without duplication, all
accumulated and unpaid dividends to the date of redemption. The certificate of
designation governing the Existing Preferred Stock prohibits the redemption of
the New Preferred Stock so long as any shares of Existing Preferred Stock are
outstanding. The Indenture and the Credit Agreement also restrict the ability of
the Company to redeem the New Preferred Stock and will prohibit any such
redemption in certain instances and other future agreements or certificates of
designation with respect to Senior Securities or Parity Securities may contain
similar restrictions and/or prohibitions. See "Description of Indebtedness" and
"Description of Capital Stock -- Existing Preferred Stock."
PROCEDURE FOR REDEMPTION
On and after a redemption date, unless the Company defaults in the payment
of the applicable redemption price, dividends will cease to accrue on shares of
New Preferred Stock called for redemption and
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all rights of holders of such shares will terminate except for the right to
receive the redemption price, without interest. If a notice of redemption shall
have been given as provided in the succeeding sentence and the funds necessary
for redemption (including an amount in respect of all dividends that will accrue
to the redemption date) shall have been segregated and irrevocably set apart by
the Company, in trust for the benefit of the holders of the shares called for
redemption, then dividends shall cease to accumulate on the redemption date on
the shares to be redeemed and, at the close of business on the day when such
funds are segregated and set apart, the holders of the shares to be redeemed
shall cease to be stockholders of the Company and shall be entitled only to
receive the redemption price for such shares. The Company will send a written
notice of redemption by first class mail to each holder of record of shares of
New Preferred Stock, not less than 30 days nor more than 60 days prior to the
date fixed for such redemption. Shares of New Preferred Stock issued and
reacquired will, upon compliance with the applicable requirements of Delaware
law, have the status of authorized but unissued shares of preferred stock of the
Company undesignated as to series and may with any and all other authorized but
unissued shares of preferred stock of the Company be designated or redesignated
and issued or reissued, as the case may be, as part of any series of preferred
stock of the Company.
EXCHANGE
The Company may at its option from time to time on any Dividend Payment
Date exchange, in whole or in part, on a pro rata basis, the then outstanding
shares of New Preferred Stock for Exchange Debentures; provided that immediately
after giving effect to any partial exchange, there shall be outstanding shares
of New Preferred Stock with an aggregate liquidation preference of not less than
$75 million and not less than $75 million aggregate principal amount of Exchange
Debentures; and provided, further, that (i) on the date of such exchange there
are no accumulated and unpaid dividends on the New Preferred Stock (including
the dividend payable on such date) or other contractual impediments to such
exchange; (ii) there shall be legally available funds sufficient therefor; (iii)
such exchange would be permitted under the terms of the Existing Preferred
Stock, to the extent then outstanding, and immediately after giving effect to
such exchange, no Default or Event of Default (each as defined in the Exchange
Indenture) would exist under the Exchange Indenture, no default or event of
default would exist under the Credit Agreement or the Existing Indenture and no
default or event of default under any other material instrument governing
Indebtedness outstanding at the time would be caused thereby; (iv) the Exchange
Indenture has been qualified under the Trust Indenture Act, if such
qualification is required at the time of exchange; and (v) the Company shall
have delivered a written opinion to the effect that all conditions to be
satisfied prior to such exchange have been satisfied. Subject to the
satisfaction of clauses (i) through (v) above, the Company has agreed to
exchange all outstanding shares of New Preferred Stock for Exchange Debentures
within 60 days after such exchange is permitted, without the Company obtaining
any waiver, consent, approval or authorization, under the terms of the Credit
Agreement, the Indenture and the Existing Preferred Stock or any Refinancings of
the foregoing; provided that any such Refinancing will not contain terms which
have the effect of placing a materially greater restriction on the Company's
ability to consummate such an exchange. The Company intends to comply with the
provisions of Rule 13e-4 promulgated pursuant to the Exchange Act in connection
with any exchange, to the extent applicable. The certificate of designation
governing the Existing Preferred Stock prohibits the Company from exchanging the
New Preferred Stock so long as any shares of Existing Preferred Stock are
outstanding. The Credit Agreement, the Indenture and the Existing Preferred
Stock currently prohibit the exchange of the New Preferred Stock and may
restrict the Company's ability to exchange the New Preferred Stock in the
future. See "Description of Indebtedness" and "Description of Capital
Stock -- Existing Preferred Stock."
The holders of outstanding shares of New Preferred Stock will be entitled
to receive, subject to the second succeeding sentence, $1.00 principal amount of
Exchange Debentures for each $1.00 liquidation preference of New Preferred Stock
held by them. The Exchange Debentures will be issued in registered form, without
coupons. Exchange Debentures issued in exchange for New Preferred Stock will be
issued in principal amounts of $1,000 and integral multiples thereof to the
extent possible, and will also be issued in principal amounts less than $1,000
so that each holder of New Preferred Stock will receive certificates
representing the entire amount of Exchange Debentures to which such holder's
shares of New Preferred Stock entitle such holder; provided that the Company may
pay cash in lieu of issuing an Exchange Debenture in a principal amount less
than $1,000. The Company will send a written notice of exchange by mail to each
holder of record
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of shares of New Preferred Stock not less than 30 nor more than 60 days before
the date fixed for such exchange. On and after the exchange date, dividends will
cease to accrue on the outstanding shares of New Preferred Stock that are to be
exchanged, and all rights of the holders of New Preferred Stock that is to be
exchanged (except the right to receive the Exchange Debentures, an amount in
cash equal to the accrued and unpaid dividends to the exchange date and, if the
Company so elects, cash in lieu of any Exchange Debenture which is in an amount
that is not an integral multiple of $1,000) will terminate. The Person entitled
to receive the Exchange Debentures issuable upon such exchange will be treated
for all purposes as the registered holder of such Exchange Debentures. See
"-- The Exchange Debentures."
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of the New Preferred Stock will initially be entitled to be
paid, out of the assets of the Company available for distribution, $1,000 per
share, plus an amount in cash equal to accumulated and unpaid dividends thereon
to the date fixed for liquidation, dissolution or winding-up (including an
amount equal to a prorated dividend for the period from the last Dividend
Payment Date to the date fixed for liquidation, dissolution or winding-up),
before any distribution is made on any Junior Securities, including, without
limitation, common stock of the Company. If upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the amounts payable with
respect to the New Preferred Stock and all other Parity Securities are not paid
in full, the holders of the New Preferred Stock and the Parity Securities will
share equally and ratably in any distribution of assets of the Company first in
proportion to the full liquidation preference to which each is entitled until
such preferences are paid in full, and then in proportion to their respective
amounts of accumulated but unpaid dividends. After payment of the full amount of
the liquidation preferences and accumulated and unpaid dividends to which they
are entitled, the holders of shares of New Preferred Stock will not be entitled
to any further participation in any distribution of assets of the Company.
However, neither the sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
property or assets of the Company nor the consolidation or merger of the Company
with one or more entities shall be deemed to be a liquidation, dissolution or
winding-up of the Company.
The Certificate of Designation for the New Preferred Stock does not contain
any provision requiring funds to be set aside to protect the liquidation
preference of the New Preferred Stock, although such liquidation preference will
be substantially in excess of the par value of such shares of New Preferred
Stock. In addition, the Company is not aware of any provision of Delaware law or
any controlling decision of the courts of the State of Delaware (the state of
incorporation of the Company) that requires a restriction upon the surplus of
the Company solely because the liquidation preference of the New Preferred Stock
will exceed its par value. Consequently, there will be no restriction upon the
surplus of the Company solely because the liquidation preference of the New
Preferred Stock will exceed the par value and there will be no remedies
available to holders of the New Preferred Stock before or after the payment of
any dividend, other than in connection with the liquidation of the Company,
solely by reason of the fact that such dividend would reduce the surplus of the
Company to an amount less than the difference between the liquidation preference
of the New Preferred Stock and its par value.
VOTING RIGHTS
Holders of the New Preferred Stock will have no voting rights with respect
to general corporate matters except as provided by Delaware law or as set forth
in the Certificate of Designation. The Certificate of Designation provides that
if (i) after October 31, 2002, dividends on the New Preferred Stock required to
be paid in cash are in arrears and unpaid for three (3) or more semi-annual
dividend periods (whether or not consecutive) or (ii) the Company fails to
redeem the New Preferred Stock on or before October 31, 2006 or fails to
discharge any redemption obligation with respect to the New Preferred Stock or
(iii) the Company fails to make a Change of Control Offer if such an offer is
required by the provisions set forth under "-- Change of Control" below or fails
to purchase shares of New Preferred Stock from holders who elect to have such
shares purchased pursuant to the Change of Control Offer or (iv) a breach or
violation of any of the provisions described under the caption "-- Certain
Covenants" below occurs and the breach or violation
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continues for a period of 60 days or more after the Company receives notice
thereof specifying the default from the holders of at least 25% of the shares of
New Preferred Stock then outstanding or (v) the Company fails to pay at the
final stated maturity (giving effect to any extensions thereof) the principal
amount of any Indebtedness of the Company or any Restricted Subsidiary of the
Company, or the final stated maturity of any such Indebtedness is accelerated,
if the aggregate principal amount of such Indebtedness, together with the
aggregate principal amount of any other such Indebtedness in default for failure
to pay principal at the final stated maturity (giving effect to any extensions
thereof) or which has been accelerated, aggregates $10,000,000 or more at any
time, in each case, after a 20-day period during which such default shall not
have been cured or such acceleration rescinded, or (vi) any event occurs or
condition exists which results in an increase in the dividend rate borne by the
Existing Preferred Stock in accordance with the terms thereof, then the number
of directors constituting the Board of Directors will be adjusted to permit the
holders of a majority of the then outstanding shares of New Preferred Stock,
voting separately and as a class, to elect the lesser of two directors and that
number of directors constituting 25% of the members of the Board of Directors of
the Company. Such voting rights will continue until such time as, in the case of
a dividend default, all accumulated and unpaid dividends on the New Preferred
Stock are paid in full in cash and, in all other cases, any failure, breach or
default giving rise to such voting rights is remedied, cured (including, but not
limited to, in the case of clause (v) through the issuance of Refinancing
Indebtedness or the waiver of any breach or default by the holder of such
Indebtedness) or waived by the holders of at least a majority of the shares of
New Preferred Stock then outstanding, at which time the term of any directors
elected pursuant to the provisions of this paragraph shall terminate. Each such
event described in clauses (i) through (vi) above is referred to herein as a
"Voting Rights Triggering Event." The voting rights provided herein shall be the
holder's exclusive remedy at law or in equity.
In addition, the Certificate of Designation provides that except as stated
above under "-- Ranking," the Company will not authorize any additional shares
of New Preferred Stock or any class of Senior Securities or Parity Securities
without the affirmative vote or consent of holders of at least a majority of the
shares of New Preferred Stock of the Company then outstanding which are entitled
to vote thereon, voting or consenting, as the case may be, as one class. The
Certificate of Designation also provides that the Company may not amend the
Certificate of Designation so as to affect materially and adversely the
specified rights, preferences, privileges or voting rights of the holders of
shares of New Preferred Stock, or authorize the issuance of any additional
shares of New Preferred Stock (other than shares of New Preferred Stock issued
as a dividend on shares of New Preferred Stock), without the affirmative vote or
consent of the holders of at least a majority of the then outstanding shares of
New Preferred Stock which are entitled to vote thereon, voting or consenting, as
the case may be, as one class. The Certificate of Designation also provides
that, except as set forth above, (a) the creation, authorization or issuance of
any shares of Junior Securities, Parity Securities or Senior Securities or (b)
the increase or decrease in the amount of authorized capital stock of any class,
including any preferred stock, shall not require the consent of the holders of
New Preferred Stock and shall not be deemed to affect adversely the rights,
preferences, privileges or voting rights of holders of shares of New Preferred
Stock.
Under Delaware law, holders of New Preferred Stock are entitled to vote as
a class upon a proposed amendment to the certificate of incorporation of the
Company, whether or not entitled to vote thereon by the certificate of
incorporation, if the amendment would increase or decrease the par value of the
shares of such class, or alter or change the powers, preferences, or special
rights of the shares of such class so as to affect them adversely.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the New
Preferred Stock will have the right to require that the Company redeem all or a
portion of such holder's New Preferred Stock pursuant to the offer described
below (the "Change of Control Offer"), at a redemption price equal to 101% of
the liquidation preference thereof, plus, without duplication, an amount in cash
equal to all accumulated and unpaid dividends per share, if any, to the Change
of Control Payment Date (as defined herein) (including an amount in cash equal
to a prorated dividend for the period from the Dividend Payment Date immediately
prior to the Change of Control Payment Date to the Change of Control Payment
Date).
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Prior to the mailing of the notice referred to below, but in any event
within 30 days following the date on which a Change of Control occurs, the
Company covenants that, if the purchase of the New Preferred Stock would violate
or constitute a default or be prohibited under the Credit Agreement, any then
outstanding Senior Debt, the Indenture or the Existing Preferred Stock, then the
Company will, to the extent needed to permit such purchase of New Preferred
Stock, either (i) repay in full all Indebtedness under the Credit Agreement,
such Senior Debt and the Existing Notes and, in the case of the Credit Agreement
or other Senior Debt, terminate all commitments thereunder and effect the
termination of any such prohibition under the Existing Preferred Stock or (ii)
obtain the requisite consents under the Credit Agreement, the instruments
governing such Senior Debt, the Indenture and the certificates of designation
governing the Existing Preferred Stock to permit the redemption of the New
Preferred Stock as provided below. The Company will first comply with the
covenant in the preceding sentence before it will be required to redeem New
Preferred Stock pursuant to the provisions described below.
Within 30 days following the date upon which a Change of Control occurs,
the Company must send, by first class mail, a notice to each holder of record of
the New Preferred Stock, with a copy to the Transfer Agent, which notice shall
govern the terms of the Change of Control Offer. Such notice will state, among
other things, the redemption date, which must be no earlier than 30 days nor
later than 45 days from the date such notice is mailed, other than as may be
required by law (the "Change of Control Payment Date"). Holders electing to have
New Preferred Stock redeemed pursuant to a Change of Control Offer will be
required to surrender the New Preferred Stock properly endorsed for transfer
together with such other customary documents as the Company may reasonably
request to the address specified in the notice prior to the close of business on
the business day prior to the Change of Control Payment Date.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
redemption of the Preferred Stock pursuant to a Change of Control Offer.
This "Change of Control" covenant will not apply in the event of (a)
changes in a majority of the Board of Directors of the Company in certain
instances as contemplated by the definition of "Change of Control" and (b)
certain transactions with Permitted Holders. In addition, this covenant is not
intended to afford holders of shares of New Preferred Stock protection in the
event of certain highly leveraged transactions, reorganizations, restructurings,
mergers and other similar transactions that might adversely affect the holders
of shares of New Preferred Stock but would not constitute a Change of Control.
The Company could, in the future, enter into certain transactions, including
certain recapitalizations of the Company, that would not constitute a Change of
Control, but would increase the amount of Indebtedness outstanding at such time.
If a Change of Control were to occur, there can be no assurance that the Company
would have sufficient funds to pay the redemption price for all the New
Preferred Stock that the Company might be required to redeem. Moreover, as of
the date of this Prospectus, after giving effect to the sale of the New
Preferred Stock and the application of the proceeds therefrom, the Company would
not have sufficient funds available to redeem all the New Preferred Stock
pursuant to a Change of Control Offer. In the event that the Company is required
to redeem the New Preferred Stock pursuant to a Change of Control Offer, the
Company expects that it would need to seek third-party financing to the extent
it does not have available funds to meet its redemption obligations. However,
there can be no assurance that the Company would be able to obtain such
financing on favorable terms, if at all. In addition, the Credit Agreement, the
Indenture and the Existing Preferred Stock restrict the Company's ability to
redeem the New Preferred Stock, including pursuant to a Change of Control Offer.
See "Description of Indebtedness" and "Description of Capital Stock -- Existing
Preferred Stock."
None of the provisions in the Certificate of Designation relating to a
repurchase upon a Change of Control may be waived by the Board of Directors of
the Company.
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CERTAIN COVENANTS
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any Restricted Subsidiary of the Company to, directly or
indirectly, incur any Indebtedness (including Acquired Indebtedness) other than
Permitted Indebtedness. Notwithstanding the foregoing limitation, the Company
and its Restricted Subsidiaries may incur Indebtedness if on the date of the
incurrence of such Indebtedness (i) no Voting Rights Triggering Event shall have
occurred and be continuing or shall occur as a consequence thereof and (ii)
after giving effect to the incurrence of such Indebtedness and the receipt and
application of the proceeds thereof, the ratio of the Company's total
Indebtedness to the Company's Adjusted EBITDA (determined on a pro forma basis
for the last four full fiscal quarters of the Company for which financial
statements are available at the date of determination) is less than 7.0 to 1;
provided, however, that if the Indebtedness which is the subject of a
determination under this provision is Acquired Indebtedness, or Indebtedness
incurred in connection with the simultaneous acquisition of any Person,
business, property or assets, then such ratio shall be determined by giving
effect (on a pro forma basis, as if the transaction had occurred at the
beginning of the four quarter period) to both the incurrence or assumption of
such Acquired Indebtedness or such other Indebtedness by the Company and the
inclusion in the Company's Adjusted EBITDA of the Consolidated EBITDA of the
acquired Person, business, property or assets; and provided, further, that in
the event that the Consolidated EBITDA of the acquired Person, business,
property or assets reflects an operating loss, no amounts shall be deducted from
the Company's Adjusted EBITDA in making the determinations described above.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment if at the time of such Restricted Payment and immediately
after giving effect thereto:
(i) any Voting Rights Triggering Event shall have occurred and be
continuing; or
(ii) the Company could not incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; or
(iii) the aggregate amount of Restricted Payments declared or made
after the Issue Date (the amount expended for such purposes, if other than
in cash, being the fair market value of such property as determined by the
Board of Directors of the Company in good faith) exceeds the sum of (a)
100% of the Company's Cumulative Consolidated EBITDA minus 1.4 times the
Company's Cumulative Consolidated Interest Expense, plus (b) 100% of the
aggregate Net Proceeds and the fair market value of securities or other
property received by the Company from the issue or sale, after the Issue
Date, of Capital Stock (other than Disqualified Capital Stock of the
Company or Capital Stock of the Company issued to any Restricted Subsidiary
of the Company) of the Company or any Indebtedness or other securities of
the Company convertible into or exercisable or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company which have been so
converted or exercised or exchanged, as the case may be, plus (c)
$10,000,000.
(b) Notwithstanding the foregoing, these provisions will not prohibit: (1)
the payment of any dividend or the making of any distribution within 60 days
after the date of its declaration if such dividend or distribution would have
been permitted on the date of declaration; (2) the purchase, redemption or other
acquisition or retirement of any Capital Stock of the Company or any warrants,
options or other rights to acquire shares of any class of such Capital Stock (x)
solely in exchange for shares of Qualified Capital Stock or other rights to
acquire Qualified Capital Stock, (y) through the application of the Net Proceeds
of a substantially concurrent sale for cash (other than to a Restricted
Subsidiary of the Company) of shares of Qualified Capital Stock or warrants,
options or other rights to acquire Qualified Capital Stock or (z) in the case of
Disqualified Capital Stock, solely in exchange for, or through the application
of the Net Proceeds of a substantially concurrent sale for cash (other than to a
Restricted Subsidiary of the Company) of, Disqualified Capital Stock that has a
redemption date no earlier than, is issued by the Company or the same Person as
and requires the payment of current dividends or distributions in cash no
earlier than, in each case, the Disqualified Capital Stock being purchased,
redeemed or otherwise acquired or retired and which Disqualified Capital Stock
does not prohibit cash dividends on the New Preferred Stock or the exchange
thereof for Exchange Debentures.
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Limitations on Transactions with Affiliates. The Company will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or suffer to exist any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any Affiliate (including entities in
which the Company or any of its Restricted Subsidiaries owns a minority
interest) or holder of 10% or more of the Company's Common Stock (an "Affiliate
Transaction") or extend, renew, waive or otherwise modify the terms of any
Affiliate Transaction entered into prior to the Issue Date unless (i) such
Affiliate Transaction is between or among the Company and its Wholly-Owned
Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and
reasonable to the Company or such Restricted Subsidiary, as the case may be, and
the terms of such Affiliate Transaction are at least as favorable as the terms
which could be obtained by the Company or such Restricted Subsidiary, as the
case may be, in a comparable transaction made on an arm's-length basis between
unaffiliated parties. In any Affiliate Transaction involving an amount or having
a value in excess of $1 million which is not permitted under clause (i) above,
the Company must obtain a Board Resolution certifying that such Affiliate
Transaction complies with clause (ii) above. In transactions with a value in
excess of $5 million which are not permitted under clause (i) above, the Company
must obtain a written opinion as to the fairness of such a transaction from an
independent investment banking firm.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "-- Limitation on Restricted
Payments" contained herein, (ii) any transaction approved by the Board of
Directors of the Company with an officer or director of the Company or of any
Subsidiary in his or her capacity as officer or director entered into in the
ordinary course of business, including compensation and employee benefit
arrangements with any officer or director of the Company or of any Subsidiary
that are customary for public companies in the broadcasting industry, or (iii)
modifications of the Existing Preferred Stock.
Merger, Consolidation and Sale of Assets. Without the affirmative vote of
the holders of a majority of the issued and outstanding shares of New Preferred
Stock, voting or consenting, as the case may be, as a separate class, the
Company will not, in a single transaction or a series of related transactions,
consolidate with or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, another
Person or adopt a plan of liquidation unless (i) either (1) the Company is the
surviving or continuing Person or (2) the Person (if other than the Company)
formed by such consolidation or into which the Company is merged or the Person
that acquires by conveyance, transfer or lease the properties and assets of the
Company substantially as an entirety or, in the case of a plan of liquidation,
the Person to which assets of the Company have been transferred shall be a
corporation, partnership or trust organized and existing under the laws of the
United States or any State thereof or the District of Columbia; (ii) the New
Preferred Stock shall be converted into or exchanged for and shall become shares
of such successor, transferee or resulting Person, having in respect of such
successor, transferee or resulting Person the same powers, preferences and
relative participating, optional or other special rights and the qualifications,
limitations or restrictions thereon, that the New Preferred Stock had
immediately prior to such transaction; (iii) immediately after giving effect to
such transaction and the use of the proceeds therefrom (on a pro forma basis,
including giving effect to any Indebtedness incurred or anticipated to be
incurred in connection with such transaction), the Company (in the case of
clause (1) of the foregoing clause (i)) or such Person (in the case of clause
(2) of the foregoing clause (i)) shall be able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; (iv) immediately
after giving effect to such transactions, no Voting Rights Triggering Event
shall have occurred or be continuing; and (v) the Company shall have delivered
to the Transfer Agent for the New Preferred Stock prior to the consummation of
the proposed transaction an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer complies with the
Certificate of Designation and that all conditions precedent in the Certificate
of Designation relating to such transaction have been satisfied. For purposes of
the foregoing, the transfer (by lease, assignment, sale or otherwise, in a
single transaction or series of related transactions) of all or substantially
all of the properties and assets of one or more Subsidiaries, the Capital Stock
of which constitutes all or substantially all of the properties or assets of the
Company, will be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
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Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any Restricted Subsidiary to issue any Preferred Stock (except to the
Company or to a Restricted Subsidiary) or permit any Person (other than the
Company or a Restricted Subsidiary) to hold any such Preferred Stock unless the
Company or such Restricted Subsidiary would be entitled to incur or assume
Indebtedness in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant in an aggregate principal amount equal to the aggregate
liquidation value of the Preferred Stock to be issued.
Transfer Agent and Registrar. First Union National Bank, Charlotte, North
Carolina, is the transfer agent (the "Transfer Agent") and registrar for the New
Preferred Stock.
Reports. The Company will provide to the holders of New Preferred Stock,
within 15 days after it files them with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and regulations
prescribe) which the Company files with the Commission pursuant to Section 13 or
15(d) of the Exchange Act. In the event that the Company is no longer required
to furnish such reports to its securityholders pursuant to the Exchange Act, the
Company will cause its consolidated financial statements, comparable to those
that would have been required to appear in annual or quarterly reports, to be
delivered to the holders of New Preferred Stock.
THE EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under an Exchange
Indenture (the "Exchange Indenture"), to be dated as of October 4, 1996 between
the Company, the Guarantors and The Bank of New York, as Trustee (the
"Trustee"). A copy of the form of Exchange Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summary of certain provisions of the Exchange Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended, as in effect on the
date of the Exchange Indenture (the "TIA"), and to all of the provisions of the
Exchange Indenture, including the definitions of certain terms therein and those
terms made a part of the Exchange Indenture by reference to the TIA as in effect
on the date of the Exchange Indenture. The definitions of certain capitalized
terms used in the following summary are set forth under "-- Certain Definitions"
below. The Credit Agreement, the Indenture and the Existing Preferred Stock
restrict the Company's ability to issue the Exchange Debentures. See
"Description of Indebtedness" and "Description of Capital Stock -- Existing
Preferred Stock."
The Exchange Debentures will be general unsecured obligations of the
Company and will be limited in aggregate principal amount to the liquidation
preference of the New Preferred Stock, plus, without duplication, accumulated
and unpaid dividends, on the date or dates on which it is exchanged for Exchange
Debentures of the New Preferred Stock into Exchange Debentures (plus any
additional Exchange Debentures issued in lieu of cash interest as described
herein). The Exchange Debentures will be issued in fully registered form only,
in denominations of $1,000 and integral multiples thereof (other than as
described in "-- The New Preferred Stock -- Exchange" or with respect to
additional Exchange Debentures issued in lieu of cash interest as described
herein). The Exchange Debentures will be subordinated to all existing and future
Senior Debt of the Company and will rank pari passu with the Company's Existing
Notes.
Principal of, premium, if any, and interest on the Exchange Debentures will
be payable, and the Exchange Debentures may be presented for registration of
transfer or exchange at the office of the Paying Agent and Registrar. At the
Company's option, interest, to the extent paid in cash, may be paid by check
mailed to the registered address of holders of the Exchange Debentures as shown
on the register for the Exchange Debentures. The Trustee will initially act as
Paying Agent and Registrar. The Company may change any Paying Agent and
Registrar without prior notice to holders of the Exchange Debentures. Holders of
the Exchange Debentures must surrender Exchange Debentures to the Paying Agent
to collect principal payments.
The Exchange Debentures will mature on October 31, 2006. Each Exchange
Debenture will bear interest at the rate of 12 1/2% per annum from the Exchange
Date or from the most recent interest payment date to which interest has been
paid or provided for or, if no interest has been paid or provided for, from the
Exchange
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Date. Interest will be payable semi-annually in cash (or, on or prior to October
31, 2002, in additional Exchange Debentures, at the option of the Company) in
arrears on each April 30 and October 31, commencing with the first such date
after the Exchange Date. Interest on the Exchange Debentures will be computed on
the basis of a 360-day year comprised of twelve 30-day months and the actual
number of days elapsed.
OPTIONAL REDEMPTION
The Exchange Debentures will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after October 31, 2001 at
the following redemption prices (expressed as percentages of the principal
amount) if redeemed during the twelve-month period commencing on October 31 of
the year set forth below, plus, in each case, accrued interest thereon to the
date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
--------------------------------------------------------------- ----------
<S> <C>
2001........................................................... 106.250%
2002........................................................... 104.167%
2003........................................................... 102.083%
2004 and thereafter............................................ 100.000%
</TABLE>
In addition, on or prior to October 31, 1999, the Company may, at its
option, use the Net Proceeds of either or both of one or more Public Equity
Offerings or Major Asset Sales to redeem for cash up to an aggregate of 35% of
the aggregate principal amount of the Exchange Debentures whether initially
issued or issued in payment of interest obligations thereon at a redemption
price equal to 112.500% of the aggregate principal amount so redeemed, plus
accrued interest to the redemption date; provided, however, that after any such
redemption, the aggregate principal amount of Exchange Debentures outstanding
must equal at least $75 million. Any such redemption will be required to occur
on or prior to 90 days after the receipt by the Company of the proceeds of each
Public Equity Offering or Major Asset Sale.
The Credit Agreement restricts the Company's ability to optionally redeem
the Exchange Debentures. See "Description of Indebtedness."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder will have the right
to require that the Company repurchase all or a portion of such holder's
Exchange Debentures pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101% of the principal amount
thereof plus accrued interest, if any, to the Change of Control Payment Date.
The Exchange Indenture will provide that, prior to the mailing of the
notice referred to below, but in any event within 30 days following the date on
which a Change of Control occurs, the Company covenants that if the purchase of
the Exchange Debentures would violate or constitute a default under the Credit
Agreement or any other then outstanding Senior Debt, then the Company will, to
the extent needed to permit such purchase of Exchange Debentures, either (i)
repay in full all Indebtedness under the Credit Agreement and such Senior Debt
(and terminate all commitments thereunder) or (ii) obtain the requisite consents
under the Credit Agreement and the instrument governing such Senior Debt to
permit the repurchase of the Exchange Debentures as provided below. The Company
will first comply with the covenant in the preceding sentence before it will be
required to repurchase Exchange Debentures pursuant to the provisions described
below; provided that the Company's failure to comply with the covenant described
in the preceding sentence will constitute an Event of Default described in
clause (iii) under "Events of Default" below.
Within 30 days following the date upon which a Change of Control occurs,
the Company must send, by first class mail, a notice to each holder of record of
the Exchange Debentures, with a copy to the Trustee, which notice shall govern
the terms of the Change of Control Offer. Such notice will state, among other
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things, the purchase date, which must be no earlier than 30 days nor later than
45 days from the date such notice is mailed, other than as may be required by
law (the "Change of Control Payment Date"). Holders electing to have an Exchange
Debenture purchased pursuant to a Change of Control Offer will be required to
surrender the Exchange Debenture, properly endorsed for transfer together with
such other customary documents as the Company may reasonably request, to the
Paying Agent at the address specified in the notice prior to the close of
business on the business day prior to the Change of Control Payment Date.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Exchange Debentures pursuant to a Change of Control Offer.
This "Change of Control" covenant will not apply in the event of (a)
changes in a majority of the Board of Directors of the Company in certain
instances as contemplated by the definition of "Change of Control" and (b)
certain transactions with Permitted Holders. In addition, this covenant is not
intended to afford holders of Exchange Debentures protection in the event of
certain highly leveraged transactions, reorganizations, restructurings, mergers
and other similar transactions that might adversely affect the holders of
Exchange Debentures, but would not constitute a Change of Control. The Company
could, in the future, enter into certain transactions, including certain
recapitalizations of the Company, that would not constitute a Change of Control,
but would increase the amount of Indebtedness outstanding at such time. If a
Change of Control were to occur, there can be no assurance that the Company
would have sufficient funds to pay the purchase price for all Exchange
Debentures and Existing Notes that the Company might be required to purchase.
Moreover, as of the date of this Prospectus, after giving effect to the sale of
the New Preferred Stock and the application of the proceeds therefrom, the
Company would not have sufficient funds available to purchase all the Exchange
Debentures, assuming they had been issued, pursuant to a Change of Control
Offer. In the event that the Company were required to purchase Exchange
Debentures pursuant to a Change of Control Offer, the Company expects that it
would need to seek third-party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can no
assurance that the Company would be able to obtain such financing on favorable
terms, if at all. In addition, the Credit Agreement restricts the Company's
ability to repurchase the Exchange Debentures, including pursuant to a Change of
Control Offer. See "Description of Indebtedness."
None of the provisions in the Exchange Indenture relating to a repurchase
upon a Change of Control is waivable by the Board of Directors of the Company.
In addition, the Trustee may not waive the right of any holder of the Exchange
Debentures to redeem its Exchange Debentures upon a Change of Control, except to
the extent the Trustee is acting at the direction of the holders of the Exchange
Debentures then outstanding.
SUBORDINATION
The Obligations represented by the Exchange Debentures are, to the extent
and in the manner provided in the Exchange Indenture, subordinated in right of
payment to the prior indefeasible payment and satisfaction in full of all
existing and future Senior Debt of the Company.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, whether voluntary or involuntary, or any liquidation,
dissolution or other winding-up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or any general assignment
for the benefit of creditors or other marshalling of assets or liabilities of
the Company (except in connection with the merger or consolidation of the
Company or its liquidation or dissolution following the transfer of
substantially all of its assets, upon the terms and conditions permitted under
the circumstances described under "-- Merger, Consolidation and Sale of Assets")
(all of the foregoing referred to herein individually as a "Bankruptcy
Proceeding" and collectively as "Bankruptcy Proceedings"), the holders of Senior
Debt of the Company will be entitled to receive payment and satisfaction in full
of all amounts due on or in respect of all Senior Debt of the Company before the
holders of the Exchange Debentures are entitled to receive or retain any payment
or distribution of any kind on account of the Exchange Debentures. In the event
that, notwithstanding the foregoing, the Trustee or any
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holder of Exchange Debentures receives any payment or distribution of assets of
the Company of any kind, whether in cash, property or securities, including,
without limitation, by way of set-off or otherwise, in respect of the Exchange
Debentures before all Senior Debt of the Company is paid and satisfied in full,
then such payment or distribution will be held by the recipient in trust for the
benefit of holders of Senior Debt and will be immediately paid over or delivered
to the holders of Senior Debt or their representative or representatives to the
extent necessary to make payment in full of all Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution, or provision
therefor, to or for the holders of Senior Debt. By reason of such subordination,
in the event of liquidation or insolvency, creditors of the Company who are
holders of Senior Debt may recover more, ratably, than other creditors of the
Company, and creditors of the Company who are not holders of Senior Debt or of
the Exchange Debentures may recover more, ratably, than the holders of the
Exchange Debentures.
No payment or distribution of any assets or securities of the Company or
any Restricted Subsidiary of any kind or character (including, without
limitation, cash, property and any payment or distribution which may be payable
or deliverable by reason of the payment of any other Indebtedness of the Company
being subordinated to the payment of the Exchange Debentures by the Company) may
be made by or on behalf of the Company or any Restricted Subsidiary, including,
without limitation, by way of set-off or otherwise, for or on account of the
Exchange Debentures, or for or on account of the purchase, redemption or other
acquisition of the Exchange Debentures, and neither the Trustee nor any holder
or owner of any Exchange Debentures shall take or receive from the Company or
any Restricted Subsidiary, directly or indirectly in any manner, payment in
respect of all or any portion of Exchange Debentures following the delivery by
the representative of the holders of Designated Senior Debt (the
"Representative") to the Trustee of written notice of the occurrence of a
Payment Default, and in any such event, such prohibition shall continue until
such Payment Default is cured, waived in writing or ceases to exist. At such
time as the prohibition set forth in the preceding sentence shall no longer be
in effect, subject to the provisions of the following paragraph, the Company
shall resume making any and all required payments in respect of the Exchange
Debentures, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Debt, no payment or distribution of any assets of the Company of any kind may be
made by the Company, including, without limitation, by way of set-off or
otherwise, on account of the Exchange Debentures, or on account of the purchase
or redemption or other acquisition of Exchange Debentures, for a period (a
"Payment Blockage Period") commencing on the date of receipt by the Trustee of
written notice from the Representative of such Non-Payment Event of Default
unless and until (subject to any blockage of payments that may then be in effect
under the preceding paragraph) the earliest of (w) more than 179 days shall have
elapsed since receipt of such written notice by the Trustee, (x) such
Non-Payment Event of Default shall have been cured or waived in writing or shall
have ceased to exist, (y) such Designated Senior Debt shall have been paid in
full or (z) such Payment Blockage Period shall have been terminated by written
notice to the Company or the Trustee from such Representative, after which, in
the case of clause (w), (x), (y) or (z), the Company shall resume making any and
all required payments in respect of the Exchange Debentures, including any
missed payments. Notwithstanding any other provision of the Exchange Indenture,
in no event shall a Payment Blockage Period commenced in accordance with the
provisions of the Exchange Indenture described in this paragraph extend beyond
179 days from the date of the receipt by the Trustee of the notice referred to
above (such period, an "Initial Blockage Period"). Any number of additional
Payment Blockage Periods may be commenced during the Initial Blockage Period;
provided, however, that no such additional Payment Blockage Period shall extend
beyond the Initial Blockage Period. After the expiration of the Initial Blockage
Period, no Payment Blockage Period may be commenced until at least 180
consecutive days have elapsed from the last day of the Initial Blockage Period.
Notwithstanding any other provision of the Exchange Indenture, no Non-Payment
Event of Default with respect to Designated Senior Debt which existed or was
continuing on the date of the commencement of any Payment Blockage Period
initiated by the Representative shall be, or be made, the basis for the
commencement of a second Payment Blockage Period initiated by the
Representative, whether or not within the Initial Blockage Period, unless such
Non-Payment Event of Default shall have been waived for a period of not less
than 90 consecutive days.
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Each Guarantee will, to the extent set forth in the Exchange Indenture, be
subordinated in right of payment to the prior payment in full of all Senior Debt
of the respective Guarantor, including obligations of such Guarantor with
respect to the Credit Agreement (including any guarantee thereof) to the extent
then existing, and will be subject to the rights of holders of Designated Senior
Debt of such Guarantor to initiate blockage periods, upon terms substantially
comparable to the subordination of the Exchange Debentures to all Senior Debt of
the Company.
If the Company or any Guarantor fails to make any payment on the Exchange
Debentures or any Guarantee, as the case may be, when due or within any
applicable grace period, whether or not on account of payment blockage
provisions, such failure would constitute an Event of Default under the Exchange
Indenture and would enable the holders of the Exchange Debentures to accelerate
the maturity thereof. See "-- Events of Default."
A holder of Exchange Debentures by his acceptance of Exchange Debentures
agrees to be bound by such provisions and authorizes and expressly directs the
Trustee, on his behalf, to take such action as may be necessary or appropriate
to effectuate the subordination provided for in the Indenture and appoints the
Trustee his attorney-in-fact for such purpose.
GUARANTEES
The Exchange Debentures are guaranteed on a senior subordinated basis by
the Guarantors. All payments pursuant to the Guarantees by the Guarantors are
subordinated in right of payment to the prior payment in full of all Senior Debt
of the Guarantor, to the same extent and in the same manner that all payments
pursuant to the Exchange Debentures are subordinated in right of payment to the
prior payment in full of all Senior Debt of the Company.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees of Senior Debt) and
after giving effect to any collections from or payments make by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
its Guarantee or pursuant to its contribution obligations under the Exchange
Indenture, result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to contribution from each other Guarantor in a pro rata amount
based on the Adjusted Net Assets of each Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if all or substantially all of its assets are sold or all of its
Capital Sock is sold, in each case in a transaction in compliance with the
covenant described under "-- Limitation on Certain Asset Sales," or the
Guarantor merges with or into or consolidates with, or transfers all or
substantially all of its assets to, the Company or another Guarantor in a
transaction in compliance with "-- Merger, Consolidation and Sale of Assets,"
and such Guarantor has delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent herein provided
for relating to such transaction have been complied with.
CERTAIN COVENANTS
The Exchange Indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will
not, and will not permit any Restricted Subsidiary of the Company to,
directly or indirectly incur any Indebtedness (including Acquired
Indebtedness) other than Permitted Indebtedness. Notwithstanding the
foregoing limitations, the Company and its Restricted Subsidiaries may
incur Indebtedness if (a) after giving effect to the incurrence of such
Indebtedness and the receipt and application of the proceeds thereof, the
ratio of the Company's total Indebtedness to the Company's Adjusted EBITDA
(determined on a pro forma basis for the last four full fiscal quarters of
the Company for which financial statements are available at the date of
determination) is less than 7.0 to 1; provided, however, that if the
Indebtedness which is the subject of a determination under this provision
is Acquired Indebtedness, or Indebtedness incurred in connection
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with the simultaneous acquisition of any Person, business, property or
assets, then such ratio shall be determined by giving effect (on a pro
forma basis, as if the transaction had occurred at the beginning of the
four quarter period) to both the incurrence or assumption of such Acquired
Indebtedness or such other Indebtedness by the Company and the inclusion in
the Company's Adjusted EBITDA of the Consolidated EBITDA of the acquired
Person, business, property or assets; and provided, further, that in the
event that the Consolidated EBITDA of the acquired Person, business,
property or assets reflects an operating loss, no amounts shall be deducted
from the Company's Adjusted EBITDA in making the determinations described
above and (b) no Default or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of such
Indebtedness.
Limitation on Restricted Payments. (a) The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
make any Restricted Payment if at the time of such Restricted Payment and
immediately after giving effect thereto:
(i) any Default or Event of Default shall have occurred and be
continuing; or
(ii) the Company could not incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation
on Incurrence of Additional Indebtedness" covenant; or
(iii) the aggregate amount of Restricted Payments declared or made
after the Issue Date (the amount expended for such purposes, if other
than in cash, being the fair market value of such property as determined
by the Board of Directors of the Company in good faith) exceeds the sum
of (a) 100% of the Company's Cumulative Consolidated EBITDA minus 1.4
times the Company's Cumulative Consolidated Interest Expense, plus (b)
100% of the aggregate Net Proceeds and the fair market value of
securities or other property received by the Company from the issue or
sale, after the Issue Date, of Capital Stock (other than Disqualified
Capital Stock of the Company or Capital Stock of the Company issued to
any Restricted Subsidiary of the Company) of the Company or any
Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Stock) of the Company which have been so converted or exercised or
exchanged, as the case may be, plus (c) $10,000,000.
(b) Notwithstanding the foregoing, these provisions will not prohibit:
(1) the payment of any dividend or the making of any distribution within 60
days after the date of its declaration if such dividend or distribution
would have been permitted on the date of declaration; (2) the purchase,
redemption or other acquisition or retirement of any Capital Stock of the
Company or any warrants, options or other rights to acquire shares of any
class of such Capital Stock either (x) solely in exchange for shares of
Qualified Capital Stock or other rights to acquire Qualified Capital Stock
or (y) through the application of the Net Proceeds of a substantially
concurrent sale for cash (other than to a Restricted Subsidiary of the
Company) of shares of Qualified Capital Stock or warrants, options or other
rights to acquire Qualified Capital Stock; (3) the acquisition of
Indebtedness of the Company that is subordinate or junior in right of
payment to the Exchange Debentures either (x) solely in exchange for shares
of Qualified Capital Stock (or warrants, options or other rights to acquire
Qualified Capital Stock) or for Indebtedness of the Company that is
subordinate or junior in right of payment to the Exchange Debentures, at
least to the extent that the Indebtedness being acquired is subordinated to
the Exchange Debentures and has a Weighted Average Life to Maturity no less
than that of the Indebtedness being acquired or (y) through the application
of the Net Proceeds of a substantially concurrent sale for cash (other than
to a Restricted Subsidiary of the Company) of shares of Qualified Capital
Stock (or warrants, options or other rights to acquire Qualified Capital
Stock) or Indebtedness of the Company which is subordinate or junior in
right of payment to the Exchange Debentures, at least to the extent that
the Indebtedness being acquired is subordinated to the Exchange Debentures
and has a Weighted Average Life to Maturity no less than that of the
Indebtedness being refinanced; (4) the retirement of the New Preferred
Stock in accordance with the optional and mandatory redemption and put
provisions as in effect on the Issue Date and the payment of cash dividends
on the New Preferred Stock; or (5) as long as no Default or Event of
Default shall have occurred and be continuing, the payment of cash
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dividends on the Existing Preferred Stock or the redemption thereof at
times and in amounts no less favorable to holders of the Exchange
Debentures than such provisions as are in effect in the related certificate
of designations on the Issue Date; provided, however, that any cash
dividends or cash redemptions or premiums in respect thereof paid with
respect to the Existing Preferred Stock shall reduce amounts otherwise
available for Restricted Payments.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an officers' certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Limitation on Restricted Payments"
were computed, which calculations may be based upon the Company's latest
available financial statements, and that no Default or Event of Default
exists and is continuing and no Default or Event of Default will occur
immediately after giving effect to any Restricted Payments.
Limitations on Transactions with Affiliates. The Company will not,
and will not cause or permit any or its Restricted Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with any
Affiliate (including entities in which the Company or any of its Restricted
Subsidiaries own a minority interest) or holder of 10% or more of the
Company's Common Stock (an "Affiliate Transaction") or extend, renew, waive
or otherwise modify the terms of any Affiliate Transaction entered into
prior to the Issue Date unless (i) such Affiliate Transaction is between or
among the Company and its Wholly-Owned Subsidiaries; or (ii) the terms of
such Affiliate Transaction is fair and reasonable to the Company or such
Restricted Subsidiaries, as the case may be, and the terms of such
Affiliate Transaction are at least as favorable as the terms which could be
obtained by the Company or such Restricted Subsidiary, as the case may be,
in a comparable transaction made on an arm's-length basis between
unaffiliated parties. In any Affiliate Transaction involving an amount or
having a value in excess of $1 million which is not permitted under clause
(i) above, the Company must obtain a resolution of the board of directors
certifying that such Affiliate Transaction complies with clause (ii) above.
In transactions with a value in excess of $5 million which are not
permitted under clause (i) above, the Company must obtain a written opinion
as to the fairness of such a transaction from an independent investment
banking firm.
The foregoing provisions will not apply to (i) any Restricted Payment
that is not prohibited by the provisions described under "-- Limitation on
Restricted Payments" contained herein, (ii) any transaction, approved by
the board of directors of the Company, with an officer or director of the
Company or of any Subsidiary in his or her capacity as officer of director
entered into in the ordinary course of business, including compensation and
employee benefit arrangements with any officer or director of the Company
or of any Subsidiary that are customary for public companies in the
broadcasting industry or (iii) modifications of the Existing Preferred
Stock.
Limitation on Certain Asset Sales. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, consummate an Asset
Sale unless (i) the Company or such Restricted Subsidiary, as the case may
be, receives consideration at least equal to the fair market value thereof
on the date the Company or Restricted Subsidiary (as applicable) entered
into the agreement to consummate such Asset Sale (as determined in good
faith by the Company's Board of Directors, and evidenced by a Board
Resolution); (ii) not less than 75% of the consideration received by the
Company or its Subsidiaries, as the case may be, is in the form of cash or
Cash Equivalents, other than in the case where the Company is exchanging
all or substantially all of the assets of one or more media properties
operated by the Company (including by way of the transfer of capital stock)
for all or substantially all of the assets (including by way of the
transfer of capital stock) constituting one or more media properties
operated by another Person, provided that at least 75% of the consideration
received by the Company in such exchange, other than the media properties,
is in the form of cash or Cash Equivalents; and (iii) the Asset Sale
Proceeds received by the Company or such Restricted Subsidiary are applied
(a) first, to the extent the Company elects, or is required, to prepay,
repay or purchase Indebtedness under any then existing Senior Debt of the
Company or any Restricted Subsidiary within 180 days following the receipt
of the Asset Sale Proceeds from any Asset Sale; (b) second, to the extent
of the balance of Asset Sale
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Proceeds after application as described above, to the extent the Company
elects, to make an Investment in assets (including Capital Stock or other
securities purchased in connection with the acquisition of Capital Stock or
property of another Person) used or useful in businesses similar or
ancillary to the business of the Company or Restricted Subsidiary as
conducted at the time of such Asset Sale, provided that such Investment
occurs or the Company or a Restricted Subsidiary enters into contractual
commitments to make such investment, subject only to customary conditions
(other than the obtaining of financing), on or prior to the 181st day
following receipt of such Asset Sale Proceeds (the "Reinvestment Date") and
Asset Sale Proceeds contractually committed are so applied within 360 days
following the receipt of such Asset Sale Proceeds; (c) third, to make any
required Excess Proceeds Offer (as defined in the Existing Indenture) to
holders of the Existing Notes in accordance with the terms of the
Indenture; and (d) fourth, to make an offer for the Exchange Debentures as
described under "-- Optional Redemption" above following a Major Asset Sale
or, if on the Reinvestment Date with respect to any Asset Sale, the
Available Asset Sale Proceeds exceed $10 million, the Company shall apply
an amount equal to such Available Asset Sale Proceeds to an offer to
repurchase the Exchange Debentures, at a purchase price in cash equal to
100% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of repurchase (an "Excess Proceeds Offer"). If an Excess
Proceeds Offer is not fully subscribed, the Company may retain the portion
of the Available Asset Sale Proceeds not required to repurchase Exchange
Debentures.
If the Company is required to make an Excess Proceeds Offer, the
Company shall mail, within 30 days following the Reinvestment Date, a
notice to the registered holders stating, among other things: (1) that such
holders have the right to require the Company to apply the Available Asset
Sale Proceeds to repurchase such Exchange Debentures at a purchase price in
cash equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase; (2) the purchase date, which
shall be no earlier than 30 days and not later than 60 days from the date
such notice is mailed; (3) the instructions, determined by the Company,
that each holder must follow in order to have such Exchange Debentures
repurchased; and (4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the repurchase of such
Exchange Debentures.
Limitation on Other Senior Subordinated Debt. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, incur, contingently or otherwise, any Indebtedness that is both
(i) subordinate in right of payment to any Senior Debt of the Company or
its Restricted Subsidiaries, as the case may be, and (ii) senior in right
of payment to the Exchange Debentures and the Guarantees, as the case may
be. For purposes of this covenant, Indebtedness is deemed to be senior in
right of payment to the Exchange Debentures and the Guarantees, as the case
may be, if it is not explicitly subordinate in right of payment to Senior
Debt at least to the same extent as the Exchange Debentures and the
Guarantees, as the case may be, are subordinate to Senior Debt.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company
will not permit any Restricted Subsidiary to issue any Preferred Stock
(except to the Company or to a Restricted Subsidiary) or permit any Person
(other than the Company or a Restricted Subsidiary) to hold any such
Preferred Stock unless the Company or such Restricted Subsidiary would be
entitled to incur or assume Indebtedness in compliance with the "Limitation
on Incurrence of Additional Indebtedness" covenant in an aggregate
principal amount equal to the aggregate liquidation value of the Preferred
Stock to be issued.
Limitation on Creation of Subsidiaries. The Company shall not create
or acquire, nor permit any of its Restricted Subsidiaries to create or
acquire, any Subsidiary other than (i) a Restricted Subsidiary existing as
of the date of the Exchange Indenture, (ii) a Restricted Subsidiary that is
acquired or created after the date hereof, or (iii) an Unrestricted
Subsidiary; provided, however, that each Restricted Subsidiary acquired or
created pursuant to clause (ii) shall at the time it has either assets or
stockholder's equity in excess of $5,000 execute a guarantee, satisfactory
in form and substance to the Trustee (and with such documentation relating
thereto as the Trustee shall require, including, without limitation a
supplement or amendment to the Exchange Indenture and opinions of counsel
as to the enforceability of
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such guarantee), pursuant to which such Restricted Subsidiary shall become
a Guarantor. As of the Issue Date, the Company will have no Subsidiaries,
other than the Guarantors.
Merger, Consolidation and Sale of Assets. The Company will not and
will not cause or permit any Guarantor to, in a single transaction or
series of related transactions, consolidate with or merge with or into, or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to, another Person or adopt a plan of
liquidation unless (i) either (1) the Company or the Guarantor, as the case
may be, is the survivor of such merger or consolidation or (2) the
surviving or transferee Person is a corporation, partnership or trust
organized and existing under the laws of the United States, any state
thereof or the District of Columbia and such surviving or transferee Person
expressly assumes by supplemental indenture all the obligations of the
Company or the Guarantor, as the case may be, under the Exchange Debentures
and the Exchange Indenture; (ii) immediately after giving effect to such
transaction and the use of proceeds therefrom (on a pro forma basis,
including any Indebtedness incurred or anticipated to be incurred in
connection with such transaction), the Company or the surviving or
transferee Person is able to incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; (iii) immediately after
giving effect to such transaction (including any Indebtedness incurred or
anticipated to be incurred in connection with the transaction) no Default
or Event of Default has occurred and is continuing; and (iv) the Company
has delivered to the Trustee an officers' certificate and opinion of
counsel, each stating that such consolidation, merger or transfer complies
with the Exchange Indenture, that the surviving Person agrees by
supplemental indenture to be bound thereby, and that all conditions
precedent in the Exchange Indenture relating to such transaction have been
satisfied. For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of related
transactions) of all or substantially all of the properties and assets of
one or more Subsidiaries the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company will be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
EVENTS OF DEFAULT
The following events are defined in the Exchange Indenture as "Events of
Default": (i) the failure to pay interest on any Exchange Debentures when the
same becomes due and payable and the Default continues for a period of 30 days
(whether or not such payment is prohibited by the subordination provisions of
the Exchange Indenture); (ii) the failure to pay the principal, or premium, if
any, on any Exchange Debentures, when such principal becomes due and payable, at
maturity, upon redemption or otherwise (whether or not such payment is
prohibited by the subordination provisions of the Exchange Indenture); (iii) a
default in the observance or performance of any other covenant or agreement
contained in the Exchange Debentures or the Exchange Indenture which default
continues for a period of 60 days after the Company receives written notice
thereof specifying the default from the Trustee or holders of at least 25% in
aggregate principal amount of outstanding Exchange Debentures; (iv) default in
the payment at final maturity of principal in an aggregate amount of $10,000,000
or more with respect to any Indebtedness of the Company or any Restricted
Subsidiary thereof which default shall not be cured, waived or postponed
pursuant to an agreement with the holders of such Indebtedness within 60 days
after written notice, or the acceleration of any such Indebtedness aggregating
$10,000,000 or more which acceleration shall not be rescinded or annulled within
20 days after written notice as provided in the Exchange Indenture; (v) any
final judgment or judgments which can no longer be appealed for the payment of
money in excess of $10,000,000 shall be rendered against the Company or any
Restricted Subsidiary thereof, and shall not be discharged for any period of 60
consecutive days during which a stay of enforcement shall not be in effect; and
(vi) certain events of bankruptcy, insolvency or reorganization affecting
Company or any of its Restricted Subsidiaries.
Upon the happening of any Event of Default specified in the Exchange
Indenture, the Trustee may, and the Trustee upon the request of 25% in principal
amount of the Exchange Debentures shall or the holders of at least 25% in
aggregate principal amount of outstanding Exchange Debentures may, declare the
principal of and accrued but unpaid interest, if any, on all the Exchange
Debentures to be due and payable by notice in
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writing to the Company and the Trustee specifying the respective Event of
Default and that it is a "notice of acceleration" (the "Acceleration Notice"),
and the same (i) shall become immediately due and payable or (ii) if there are
any amounts outstanding under the Credit Agreement, will become due and payable
upon the first to occur of an acceleration under the Credit Agreement or 5
Business Days after receipt by the Company and the Representative under the
Credit Agreement of such Acceleration Notice (unless all Events of Default
specified in such Acceleration Notice have been cured or waived). If an Event of
Default with respect to bankruptcy proceedings occurs and is continuing, then
such amount will ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holder of
Exchange Debentures.
The Exchange Indenture will provide that, at any time after a declaration
of acceleration with respect to the Exchange Debentures as described in the
preceding paragraph, the holders of a majority in principal amount of the
Exchange Debentures then outstanding (by notice to the Trustee) may rescind and
cancel such declaration and its consequences if (i) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction, (ii)
all existing Events of Default have been cured or waived except nonpayment of
principal or interest on the Exchange Debentures that has become due solely by
such declaration of acceleration, (iii) to the extent the payment of such
interest is lawful, interest (at the same rate specified in the Exchange
Debentures) on overdue installments of interest and overdue principal which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) the Company has paid the Trustee its reasonable compensation and reimbursed
the Trustee for its expenses, disbursements and advances and (v) in the event of
the cure or waiver of a Default or Event of Default of the type described in
clause (vi) of the description above of Events of Default, the Trustee has
received an officers' certificate and an opinion of counsel that such Default or
Event of Default has been cured or waived. The holders of a majority in
principal amount of the Exchange Debentures may waive any existing Default or
Event of Default under the Exchange Indenture, and its consequences, except a
default in the payment of the principal of or interest on any Exchange
Debentures.
The Company will deliver to the Trustee, on or before 100 days after the
end of the Company's fiscal year and on or before 50 days after the end of the
first, second and third fiscal quarters of such years, a certificate indicating
whether the signing officers know of any Default or Event of Default that
occurred during the previous year or quarter, as the case may be, and whether
the Company has complied with its obligations under the Exchange Indenture. In
addition, the Company will be required to notify the Trustee of the occurrence
and continuation of any Default or Event of Default within five business days
after the Company becomes aware of the same.
Subject to the provisions of the Exchange Indenture relating to the duties
of the Trustee in case an Event of Default thereunder should occur and be
continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under the Exchange Indenture at the request or direction of any
of the holders of the Exchange Debentures unless such holders have offered to
the Trustee reasonable indemnity or security against any loss, liability or
expense. Subject to such provision for security or indemnification and certain
limitations contained in the Exchange Indenture, the holders of a majority in
principal amount of the outstanding Exchange Debentures have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee.
SATISFACTION AND DISCHARGE OF EXCHANGE INDENTURE; DEFEASANCE
The Exchange Indenture provides the Company may elect either (a) to defease
and be discharged from any and all obligations with respect to the Exchange
Debentures (except for the obligations to register the transfer or exchange of
such Exchange Debentures, to replace temporary or mutilated, destroyed, lost or
stolen Exchange Debentures, to maintain an office or agency in respect of the
Exchange Debentures and to hold monies for payment in trust) ("defeasance") or
(b) to be released from their obligations with respect to the Exchange
Debentures under certain covenants contained in the Exchange Indenture and
described above under "-- Certain Covenants" ("covenant defeasance"), upon the
deposit with the Trustee (or other qualifying trustee), in trust for such
purpose, of money and/or U.S. Government Obligations which through the payment
of principal and interest in accordance with their terms will provide money, in
an amount
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sufficient to pay the principal of, premium, if any, and interest on the
Exchange Debentures on the scheduled due dates therefor or on a selected date of
redemption in accordance with the terms of the Exchange Indenture. Such a trust
may only be established if, among other things, the Company had delivered to the
Trustee an opinion of counsel (as specified in the Exchange Indenture) (i) to
the effect that neither the trust nor the Trustee will be required to register
as an investment company under the Investment Company Act of 1940, as amended,
and (ii) to the effect that holders of the Exchange Debentures or persons in
their positions will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the same amount and in
the same manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred which, in the case of a
defeasance only, must be based upon a private ruling concerning the Exchange
Debentures, a published ruling of the Internal Revenue Service or a change in
applicable federal income tax law.
REPORTS TO HOLDERS
The Company will file with the Trustee and provide to the holders of
Exchange Debentures, within 15 days after it files them with the Commission,
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may by
rules and regulations prescribe) which the Company files with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. In the event the Company is
no longer required to furnish such reports to its securityholders pursuant to
Exchange Act, the Company will cause its consolidated financial statements,
comparable to those which would have been required to appear in annual or
quarterly reports, to be delivered to the holders of the Exchange Debentures.
MODIFICATION OF THE EXCHANGE INDENTURE
From time to time, the Company, the Guarantors and the Trustee may, without
the consent of the holders of the Exchange Debentures, amend the Exchange
Indenture or the Exchange Debentures or supplement the Exchange Indenture for
certain specified purposes, including curing any ambiguity, defect or
inconsistency or making any change that does not materially and adversely affect
the rights of any of the holders. The Exchange Indenture contains provisions
permitting the Company, the Guarantors and the Trustee, with the consent of the
holders of a majority in principal amount of the outstanding Exchange
Debentures, to modify or supplement the Exchange Indenture and the Exchange
Debentures except that, without the consent of each holder of the Exchange
Debentures affected thereby, no such modification shall: (i) reduce the amount
of Exchange Debentures whose holders must consent to an amendment, supplement or
waiver to the Exchange Indenture or the Exchange Debentures; (ii) reduce the
rate of or change the time for payment of, interest on any Exchange Debentures;
(iii) reduce the principal of or premium on or change the stated maturity of any
Exchange Debenture; (iv) make any Exchange Debentures payable in money other
than that stated in the Exchange Debentures or change the place of payment from
New York, New York; (v) change the amount or time of any payment required by the
Exchange Debentures or reduce the premium payable upon any redemption of
Exchange Debentures or change the time before which no redemption may be made;
(vi) waive a default in the payment of principal of interest on, or redemption
payment with respect to any Exchange Debentures; or (vii) take any other action
otherwise prohibited by the Exchange Indenture to be taken without the consent
of each holder affected thereby. In addition, as long as any Shares of New
Preferred Stock remain outstanding, the holders of New Preferred Stock will have
the right to vote together with the holders of Exchange Debentures with respect
to amendments and modifications of the Exchange Indenture.
The consent of holders is not necessary to approve the particular form of
any proposed amendment. It is sufficient if such consent approves the substance
of the proposed amendment.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Certificate of Designation and the Exchange Indenture. Reference is made to the
Certificate of Designation and the Exchange Indenture for the full definition of
all such terms, as well as any other terms used herein for which no definition
is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person.
"Adjusted EBITDA" means, for any Person, prior to the date specified by the
Company in a written notice delivered to the Trustee of the Company's election
of its one time right to change the calculation of Adjusted EBITDA (the
"Calculation Change Notice"), the sum of (a) Consolidated EBITDA of such Person
and its Restricted Subsidiaries for the four most recent fiscal quarters for
which internal financial statements are available, minus inTV EBITDA for the
most recent four fiscal quarter period and (b) inTV EBITDA for the most recent
quarterly period, multiplied by four and, subsequent to the effective date
specified by the Company in its Calculation Change Notice, the Consolidated
EBITDA of such Person and its Restricted Subsidiaries for the four most recent
fiscal quarters for which internal financial statements are available.
"Adjusted Net Asset" of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities),
but excluding liabilities under the Guarantee, of such Guarantor at such date
and (y) the present fair ratable value of the assets of such Guarantor at such
date exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts (after giving effect to all other fixed and
contingent liabilities and after giving effect to any collection from any
Subsidiary of such Guarantor in respect of the obligations of such Subsidiary
under the Guarantee), excluding Indebtedness in respect of the Guarantee, as
they become absolute and matured.
"Affiliate" means, for any Person, a Person who, directly or indirectly,
through one or more intermediaries controls, or is controlled by, or is under
common control with, such other Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. With respect to the Company, Affiliate
will also include any Permitted Holders or Persons controlled by the Permitted
Holders.
"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Restricted Subsidiaries) in any single transaction or
series of related transactions involving assets with a fair market value in
excess of $2,000,000 of (a) any Capital Stock of or other equity interest in any
Restricted Subsidiary of the Company other than in a transaction where the
Company or a Restricted Subsidiary receives therefor one or more media
properties with a fair market value equal to the fair market value of the
Capital Stock issued, transferred or disposed of by the Company or the
Restricted Subsidiary (with such fair market values being determined by the
board of directors of the Company), (b) all or substantially all of the assets
of the Company or of any Restricted Subsidiary thereof, (c) real property or (d)
all or substantially all of the assets of any media property, or part thereof,
owned by the Company or any Restricted Subsidiary thereof, or a division, line
of business or comparable business segment of the Company or any Restricted
Subsidiary thereof; provided that Asset Sales shall not include sales, leases,
conveyances, transfers or other dispositions to the Company or to a Restricted
Subsidiary or to any other Person if after giving effect to such sale, lease,
conveyance, transfer or other disposition such other Person becomes a Restricted
Subsidiary, or the sale of all or substantially all of the assets of the Company
or a Restricted Subsidiary in a transaction complying with the "Merger
Consolidation and Sale of Assets" covenant, in which case only the assets not so
sold shall be deemed an Asset Sale.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Restricted Subsidiary from such Asset Sale
(including cash received as consideration for the assumption of
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liabilities incurred in connection with or in anticipation of such Asset Sale),
after (a) provision for all income or other taxes measured by or resulting from
such Asset Sale, (b) payment of all brokerage commissions, underwriting,
accounting, legal and other fees and expenses related to such Asset Sale, (c)
provision for minority interest holders in any Restricted Subsidiary as a result
of such Asset Sale and (d) deduction of appropriate amounts to be provided by
the Company or a Restricted Subsidiary as a reserve, in accordance with GAAP,
against any liabilities associated with the assets sold or disposed of in such
Asset Sale and retained by the Company or a Restricted Subsidiary after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities and liabilities related to environmental matters or against
any indemnification obligations associated with the assets sold or disposed of
in such Asset Sale, and (ii) promissory notes and other non-cash consideration
received by the Company or any Restricted Subsidiary from such Asset Sale or
other disposition upon the liquidation or conversion of such notes or non-cash
consideration into cash.
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sales that have not been applied
in accordance with clause (iii)(a), (b) or (c) and which has not yet been the
subject of an Excess Proceeds Offer in accordance with clause (iii)(d) of the
first paragraph of "-- Exchange Debentures -- Certain Covenants -- Limitation on
Certain Asset Sales."
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated) of capital stock, including each class of common stock and preferred
stock of such Person and (ii) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligation of
such Person to pay rent or other amounts under a lease to which such Person is a
party that is required to be classified and accounted for as capital lease
obligations under GAAP and, for purposes of this definition, the amount of such
obligations at any date shall be the capitalized amount of such obligations at
such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any commercial bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia or any U.S. branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $250,000,000; (v)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (iv) above; and (vi) investments
in money market funds which invest substantially all their assets in securities
of the types described in clauses (i) through (v) above.
A "Change of Control" of the Company will be deemed to have occurred at
such time as (i) any Person (including a Person's Affiliates), other than a
Permitted Holder, becomes the beneficial owner (as defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of 50% or
more of the total voting power of the Company's Common Stock, (ii) any Person
(including a Person's Affiliates), other than a Permitted Holder, becomes the
beneficial owner of more than 33 1/3% of the total voting power of the Company's
Common Stock, and the Permitted Holders beneficially own, in the aggregate, a
lesser percentage of the total voting power of the Common Stock of the Company
than such other Person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the Board
of Directors of the Company, (iii) there shall be consummated any consolidation
or merger of the
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Company in which the Company is not the continuing or surviving corporation or
pursuant to which the Common Stock of the Company would be converted into cash,
securities or other property, other than a merger or consolidation of the
Company in which the holders of the Common Stock of the Company outstanding
immediately prior to the consolidation or merger hold, directly or indirectly,
at least a majority of the voting power of the Common Stock of the surviving
corporation immediately after such consolidation or merger, (iv) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company has been approved by a majority of
the directors then still in office who either were directors at the beginning of
such period or whose election or recommendation for election was previously so
approved) cease to constitute a majority of the Board of Directors of the
Company or (v) any "change in control" occurs (as defined at such time) with
respect to the Existing Preferred Stock or any issue of Disqualified Capital
Stock.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of, such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, for any Person, for any period, an amount
equal to (a) the sum of Consolidated Net Income for such period, plus, to the
extent deducted from the revenues of such Person in determining Consolidated Net
Income, (i) the provision for taxes for such period based on income or profits
and any provision for taxes utilized in computing a loss in Consolidated Net
Income above, plus (ii) Consolidated Interest Expense, net of interest income
earned on cash or Cash Equivalents for such period, (including, for this
purpose, dividends on the Existing Preferred Stock outstanding on the Issue Date
and the New Preferred Stock and any Redeemable Dividends in each case only to
the extent that such dividends were deducted in determining Consolidated Net
Income), plus (iii) depreciation for such period on a consolidated basis, plus
(iv) amortization of intangibles and broadcast program licenses for such period
on a consolidated basis, minus (b) scheduled payments relating to broadcast
program license liabilities, except that with respect to the Company each of the
foregoing items shall be determined on a consolidated basis with respect to the
Company and its Restricted Subsidiaries only; provided, however, that, for
purposes of calculating Consolidated EBITDA during any fiscal quarter, cash
income from a particular Investment of such Person shall be included only if
cash income has been received by such Person as a result of the operation of the
business in which such Investment has been made in the ordinary course without
giving effect to any extraordinary unusual and non-recurring gains.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis,
including, but not limited to, Redeemable Dividends, whether paid or accrued, on
Subsidiary Preferred Stock, imputed interest included in Capitalized Lease
Obligations, all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, the net costs
associated with hedging obligations, amortization of other financing fees and
expenses, the interest portion of any deferred payment obligation, amortization
of discount or premium, if any, and all other non-cash interest expense (other
than interest amortized to cost of sales) plus, without duplication, all net
capitalized interest for such period and all interest incurred or paid under any
guarantee of Indebtedness (including a guarantee of principal, interest or any
combination thereof) of any Person, all time brokerage fees relating to
financing of radio or television stations which the Company has an agreement or
option to acquire, plus the amount of all dividends or distributions paid on
Disqualified Capital Stock (other than dividends paid or payable in shares of
Capital Stock of the Company).
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the net income (or loss) of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that (a) the net income of any Person (the "other
Person") in which the Person in question or any of its Subsidiaries has less
than a 100% interest (which interest does not cause the net income of such other
Person to be consolidated into the net income of the Person in question in
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accordance with GAAP) shall be included only to the extent of the amount of
dividends or distributions paid to the Person in question or to the Subsidiary,
(b) the net income of any Subsidiary of the Person in question that is subject
to any restriction or limitation on the payment of dividends or the making of
other distributions (other than pursuant to the Exchange Debentures or the
Notes) shall be excluded to the extent of such restriction or limitation, (c)
(i) the net income of any Person acquired in a pooling of interests transaction
for any period prior to the date of such acquisition and (ii) any net gain (but
not loss) resulting from an Asset Sale by the Person in question or any of its
Subsidiaries other than in the ordinary course of business shall be excluded,
(d) extraordinary, unusual and non-recurring gains and losses shall be excluded,
(e) expenses incurred in 1995 relating to the relocation of the Company's
headquarters shall be excluded, (f) losses associated with discontinued and
terminated operations in an amount not to exceed $1,000,000 per annum shall be
excluded and (g) all non-cash items (including, without limitation, cumulative
effects of changes in GAAP and equity entitlements granted to employees of the
Company and its Restricted Subsidiaries) increasing and decreasing Consolidated
Net Income and not otherwise included in the definition of Consolidated EBITDA
shall be excluded.
"Credit Agreement" means the Credit Agreement dated as of December 19,
1995, among the Company, the financial institutions party thereto in their
capacities as lenders thereunder and Union Bank, as agent, as the same may be
amended from time to time, and any one or more agreements evidencing the
refinancing, modification, replacement, renewal, restatement, refunding,
deferral, extension, substitution, supplement, reissuance or resale thereof.
"Cumulative Consolidated EBITDA" means, with respect to any Person, as of
any date of determination, Consolidated EBITDA from October 4, 1996 to the end
of the Company's most recently ended full fiscal quarter prior to such date,
taken as a single accounting period.
"Cumulative Consolidated Interest Expense" means, with respect to any
Person, as of any date of determination, Consolidated Interest Expense plus, for
purposes of the Certificate of Designation, any cash dividends paid on Senior
Securities or Parity Securities not already reflected in Consolidated Interest
Expense that do not require the approval of the holders of a majority of the
shares of New Preferred Stock outstanding to be issued, in each case from
October 4, 1996 to the end of the Company's most recently ended full fiscal
quarter prior to such date, taken as a single accounting period.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which,
at the time of determination, has an aggregate principal amount of at least
$25,000,000 (or accreted value in the case of Indebtedness issued at a discount)
and is specifically designated in the instrument evidencing such Senior Debt as
"Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof, in whole or in part, on
or prior to (i) the mandatory redemption date of the New Preferred Stock, in the
case of the New Preferred Stock or (ii) the final maturity date of the Exchange
Debentures, in the case of the Exchange Debentures. Without limitation of the
foregoing, Disqualified Capital Stock shall be deemed to include (i) any
Preferred Stock of a Restricted Subsidiary of the Company, (ii) any Preferred
Stock of the Company, with respect to either of which, under the terms of such
Preferred Stock, by agreement or otherwise, such Restricted Subsidiary or the
Company is obligated to pay current dividends or distributions in cash during
the period prior to the redemption date of the New Preferred Stock or the
maturity date of the Exchange Debentures; and (iii) as long as the New Preferred
Stock remains outstanding, Senior Securities and Parity Securities; provided,
however, that Preferred Stock of the Company or any Restricted Subsidiary
thereof that is issued with the benefit of provision requiring a change of
control offer to be made for such Preferred Stock in the event of a change of
control of the Company or Restricted Subsidiary, which
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provisions have substantially the same effect as the provisions of the
Certificate of Designations and Exchange Indenture described under "Change of
Control," shall not be deemed to be Disqualified Capital Stock solely by virtue
of such provisions; and provided, further, that the New Preferred Stock and the
Existing Preferred Stock in effect on the Issue Date shall not be considered
Disqualified Capital Stock.
"Exchange Date" means the date of original issuance of the Exchange
Debentures.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"Guarantor" means (i) each of the Company's Subsidiaries in existence on
the Issue Date and (ii) each of the Company's Restricted Subsidiaries that in
the future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of the Exchange Indenture as a Guarantor;
provided that any Person constituting a Guarantor as described above shall cease
to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of the Exchange Indenture.
"inTV EBITDA" means Consolidated EBITDA for the Infomall TV Network
determined on a basis consistent with the Company's internal financial
statements, generated by stations declared by the Board of Directors as inTV
properties.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurrable" and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof) or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables and other accrued liabilities arising in the ordinary
course of business, including, without limitation, any and all programming
broadcast obligations) if and to the extent any of the foregoing indebtedness
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, and shall also include, to the extent not otherwise
included, (i) any Capitalized Lease Obligations, (ii) obligations secured by a
Lien to which the property or assets owned or held by such Person are subject,
whether or not the obligation or obligations secured thereby shall have been
assumed (provided, however, that if such obligation or obligations shall not
have been assumed, the amount of such Indebtedness shall be deemed to be the
lesser of the principal amount of the obligation or the fair market value of the
pledged property or assets), (iii) guarantees of items of other Persons which
would be included within this definition for such other Persons (whether or not
such items would appear upon the balance sheet of the guarantor), (iv) all
obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (v) in the case of the
Company, Disqualified Capital Stock of the Company or any Restricted Subsidiary
thereof and (vi) obligations of any such Person under any Interest Rate
Agreement applicable to any of the foregoing (if and to the extent such Interest
Rate Agreement obligations would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP). The amount of Indebtedness of any
Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency giving
rise to the obligation, provided that (i) the amount outstanding at any time of
any Indebtedness issued with original issue discount is the principal amount of
such Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with GAAP
and (ii) Indebtedness shall not include any liability for federal, state, local
or other taxes. Notwithstanding any other provision of the foregoing definition,
any trade payable arising from the purchase of goods or materials or for
services obtained in the ordinary course of business or
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contingent obligations arising out of customary indemnification agreements with
respect to the sale of assets or securities shall not be deemed to be
"Indebtedness" of the Company or any Restricted Subsidiaries for purposes of
this definition. Furthermore, guarantees of (or obligations with respect to
letters of credit supporting) Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Investment" means, directly or indirectly, any advance, account receivable
(other than an account receivable arising in the ordinary course of business),
loan or capital contribution to (by means of transfers of property to others,
payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices and
repurchases or redemptions of the Notes, the Exchange Debentures, the Existing
Preferred Stock or the New Preferred Stock by the Company.
"Issue Date" means the date of original issuance of the New Preferred Stock
or the Exchange Debentures, as the case may be.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Major Asset Sale" means an Asset Sale or series of related Asset Sales
involving assets with a fair market value in excess of $25,000,000.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by the
Company, an Asset Sale or a Major Asset Sale, the aggregate net proceeds
received by the Company, after payment of expenses, commissions and the like
incurred in connection therewith, whether such proceeds are in cash or in
property (valued at the fair market value thereof, as determined in good faith
by the board of directors, at the time of receipt) and (b) in the case of any
exchange, exercise, conversion or surrender of outstanding securities of any
kind for or into shares of Capital Stock of the Company which is not
Disqualified Capital Stock, the net book value of such outstanding securities on
the date of such exchange, exercise, conversion or surrender (plus any
additional amount required to be paid by the holder to the Company upon such
exchange, exercise, conversion or surrender, less any and all payments made to
the holders, e.g., on account of fractional shares and less all expenses
incurred by the Company in connection therewith).
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Debt.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing, or otherwise relating to, any
Indebtedness.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in connection
with Designated Senior Debt.
"Permitted Holders" means collectively Lowell W. Paxson, his spouse,
children or other lineal descendants (whether adoptive or biological) and any
revocable or irrevocable inter vivos or testamentary trust or the probate estate
of any such individual, so long as one or more of the foregoing individuals is
the principal beneficiary of such trust or probate estate.
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"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Exchange Debentures and the Guarantees,
including any Exchange Debentures issued in accordance with the Exchange
Indenture as payment of interest on the Exchange Debentures;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed
$25,000,000;
(iii) all other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date, including, without limitation,
the Existing Notes, reduced by the amount of any scheduled amortization
payments or mandatory prepayments when actually paid or permanent
reductions thereon;
(iv) Obligations under Interest Rate Agreements of the Company
covering Indebtedness of the Company or any of its Restricted Subsidiaries;
provided, however, that such Interest Rate Agreements are entered into to
protect the Company and its Restricted Subsidiaries from fluctuations in
interest rates on Indebtedness incurred in accordance with the Certificate
of Designation or the Exchange Indenture to the extent the notional
principal amount of such Interest Rate Agreement does not exceed the
principal amount of the Indebtedness to which such Interest Rate Agreement
relates;
(v) Indebtedness of a Restricted Subsidiary of the Company to the
Company or to a Restricted Subsidiary of the Company for so long as such
Indebtedness is held by the Company or a Restricted Subsidiary of the
Company, in each case subject to no Lien held by a Person other than the
Company or a Restricted Subsidiary of the Company; provided that if as of
any date any Person other than the Company or a Restricted Subsidiary of
the Company owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(vi) Indebtedness of the Company to a Restricted Subsidiary of the
Company for so long as such Indebtedness is held by a Restricted Subsidiary
of the Company, in each case subject to no Lien; provided that (a) any
Indebtedness of the Company to any Restricted Subsidiary of the Company is
unsecured and subordinated, pursuant to a written agreement, to the
Company's Obligations under the Exchange Indenture and the Exchange
Debentures and (b) if as of any date any Person other than a Restricted
Subsidiary of the Company owns or holds any such Indebtedness or any Person
holds a Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by the
Company;
(vii) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business which
Indebtedness and Capitalized Lease Obligations do not in the aggregate
exceed 5% of the Company's consolidated total assets at any one time;
(viii) Refinancing Indebtedness; and
(ix) additional Indebtedness of the Company in an aggregate principal
amount not to exceed $10,000,000 at any one time outstanding.
"Permitted Investments" means, for any Person, Investments made on or after
the Issue Date consisting of:
(i) Investments by the Company, or by a Restricted Subsidiary thereof,
in the Company or a Restricted Subsidiary;
(ii) Cash Equivalents;
(iii) Investments by the Company, or by a Restricted Subsidiary
thereof, in a Person (or in all or substantially all of the business or
assets of a Person) if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Company, (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the
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Company or a Restricted Subsidiary thereof or (c) such business or assets
are owned by the Company or a Restricted Subsidiary;
(iv) reasonable and customary loans made to employees not to exceed
$500,000 to any employee, and not to exceed $5,000,000 in the aggregate at
any one time outstanding;
(v) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to the Company or a Restricted Subsidiary solely as
partial consideration for the consummation of an Asset Sale that is
otherwise permitted under the covenant described under "-- Limitation on
Certain Asset Sales";
(vi) time brokerage and other similar agreements under which
separately owned and licensed broadcast properties enter into cooperative
arrangements and which may include an option to acquire the broadcast
property at a future date;
(vii) accounts receivable of the Company and its Restricted
Subsidiaries generated in the ordinary course of business;
(viii) loans and guarantees of loans by third-party lenders to third
parties in connection with the acquisition of media properties, secured by
substantially all of such Person's assets (to the extent permitted by FCC
rules), which are made in conjunction with the execution of a time
brokerage agreement;
(ix) options on media properties having an exercise price of an amount
not in excess of $100,000 plus the forgiveness of any loan referred to in
clause (viii) above entered into in connection with the execution of time
brokerage agreements; and
(x) additional Investments of the Company and its Restricted
Subsidiaries from time to time of an amount not to exceed $75 million.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemption or upon liquidation.
"Public Equity Offering" means a public offering by the Company of shares
of its Common Stock (however designated and whether voting or non-voting) and
any and all rights, warrants or options to acquire such Common Stock.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Redeemable Dividend" means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of such Disqualified Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant, in each case
that does not (1) result in an increase in the aggregate principal amount
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of Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by the Company in connection with such Refinancing) or (2) create Indebtedness
with (A) a Weighted Average Life to Maturity that is less than the Weighted
Average Life to Maturity of the Indebtedness being Refinanced or (B) a final
maturity earlier than the final maturity of the Indebtedness being Refinanced;
provided that (x) if such Indebtedness being Refinanced is Indebtedness of the
Company, then such Refinancing Indebtedness shall be Indebtedness solely of the
Company and (y) if such Indebtedness being Refinanced is subordinate or junior
to the Exchange Debentures, then such Refinancing Indebtedness shall be
subordinate to the Exchange Debentures at least to the same extent and in the
same manner as the Indebtedness being Refinanced.
"Restricted Payment" means the following:
(A) For purposes of the Exchange Indenture, (i) the declaration or
payment of any dividend or the making of any other distribution (other than
dividends or distributions payable in Qualified Capital Stock) on shares of
the Company's Capital Stock other than the New Preferred Stock, (ii) the
purchase, redemption, retirement or other acquisition for value of any
Capital Stock of the Company, or any warrants, rights or options to acquire
shares of Capital Stock of the Company, other than the exchange of shares
of New Preferred Stock for the Exchange Debentures or through the exchange
of such Capital Stock or any warrants, rights or options to acquire shares
of any class of such Capital Stock for Qualified Capital Stock or warrants,
rights or options to acquire Qualified Capital Stock, (iii) the making of
any principal payment on, or the purchase, defeasance, redemption,
prepayment, decrease or other acquisition or retirement for value, prior to
any scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, of, any Indebtedness of the Company or its Subsidiaries that is
subordinated or junior in right of payment to the Exchange Debentures, (iv)
the making of any Investment (other than a Permitted Investment), (v) any
designation of a Restricted Subsidiary as an Unrestricted Subsidiary on the
basis of the fair market value of such Subsidiary utilizing standard
valuation methodologies and approved by the Board of Directors or (vi)
forgiveness of any Indebtedness of an Affiliate of the Company to the
Company or a Restricted Subsidiary.
(B) For purposes of the Certificate of Designation, (i) the
declaration or payment of any dividend or the making of any other
distribution (other than dividends or distributions payable in Qualified
Capital Stock) on shares of the Company's Parity Securities or Junior
Securities, (ii) any purchase, redemption, retirement or other acquisition
for value of any Parity Securities or Junior Securities of the Company, or
any warrants, rights or options to acquire shares of Parity Securities or
Junior Securities of the Company, other than through the exchange of such
Parity Securities or Junior Securities or any warrants, rights or options
to acquire shares of any class of such Parity Securities or Junior
Securities for Qualified Capital Stock or warrants, rights or options to
acquire Qualified Capital Stock, (iii) the making of any Investment (other
than a Permitted Investment), (iv) any designation of a Restricted
Subsidiary as an Unrestricted Subsidiary on the basis of the fair market
value of such Subsidiary utilizing standard valuation methodologies and
approved by the Board of Directors and (v) forgiveness of any Indebtedness
of an Affiliate of the Company to the Company or a Restricted Subsidiary.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The Board of Directors of the Company may
designate any Unrestricted Subsidiary or any Person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action), the Company could have incurred at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Additional Indebtedness" covenant.
"Senior Debt" means, the principal of and premium, if any, and interest
(including, without limitation, interest accruing or that would have accrued but
for the filing of a bankruptcy, reorganization or other insolvency proceeding
whether or not such interest constitutes an allowed claim in such proceeding)
on, and any and all other fees, expense reimbursement obligations, indemnities
and other amounts due pursuant to
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their terms of all agreements, documents and instruments providing for,
creating, securing or evidencing or otherwise entered into in connection with
(a) all Indebtedness of the Company owed to lenders under the Credit Agreement,
(b) all obligations of the Company with respect to any Interest Rate Agreement,
(c) all obligations of the Company to reimburse any bank or other person in
respect of amounts paid under letters of credit, acceptances or other similar
instruments, (d) all other Indebtedness of the Company which does not provide
that it is to rank pari passu with or subordinate to the Exchange Debentures and
(e) all deferrals, renewals, extensions and refundings of, and amendments,
modifications and supplements to, any of the Senior Debt described above.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include (i) Indebtedness of the Company to any of its Subsidiaries, (ii)
Indebtedness represented by the Exchange Debentures, (iii) any Indebtedness
which by the express terms of the agreement or instrument creating, evidencing
or governing the same is junior or subordinate in right of payment to any item
of Senior Debt, (iv) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business or (v)
Indebtedness incurred in violation of the Exchange Indenture except if such
Indebtedness was incurred under the Credit Agreement based on financial
information and certificates provided by responsible officers of the Company and
relied on in good faith by the lenders thereunder in which event such
Indebtedness shall be deemed to have been incurred in compliance with the
Exchange Indenture and constitute Senior Debt.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of the Company; provided that a Subsidiary organized or acquired after
the Issue Date may be so classified as an Unrestricted Subsidiary only if such
classification is in compliance with the covenant set forth under "Limitation on
Restricted Payments." The Trustee shall be given prompt notice by the Company of
each resolution adopted by the Board of Directors of the Company under this
provision, together with a copy of each such resolution adopted.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
BOOK-ENTRY; DELIVERY AND FORM
The New Preferred Stock and any Exchange Debentures issued in exchange
therefor initially will each be represented by a single permanent global
certificate in definitive, fully registered form (in each case, the "Global
Certificate"). Each Global Certificate will be deposited on the relevant Issue
Date with, or on behalf of, the Depository Trust Company, New York, New York
("DTC") and registered in the name of a nominee of DTC. Each Global Certificate
will be subject to certain restrictions on transfer set forth therein.
The Global Certificates. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of a Global Certificate, DTC or its
custodian will credit, on its internal system, the number of shares of New
Preferred Stock or principal amount of Exchange Debentures, as the case may be,
of the individual beneficial interests represented by such global securities to
the respective accounts of persons who have accounts with such depositary and
(ii) ownership of beneficial interests in a Global Certificate will
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be shown on, and the transfer of such ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Such accounts initially will be designated by
or on behalf of the Underwriters and ownership of beneficial interests in a
Global Certificate will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants.
So long as DTC, or its nominee, is the registered owner or holder of the
shares of New Preferred Stock or Exchange Debentures, DTC or such nominee, as
the case may be, will be considered the sole owner or holder of the shares of
New Preferred Stock or the principal amount of Exchange Debentures, as the case
may be, represented by each such Global Certificate for all purposes. No
beneficial owner of an interest in a Global Certificate will be able to transfer
that interest except in accordance with DTC's procedures, in addition to those
procedures provided for in the Certificate of Designation or Exchange Indenture.
Payments of the liquidation preference or principal, as the case may be, or
redemption price and dividends or interest, as the case may be, on a Global
Certificate will be made to DTC or its nominee as the registered owner thereof.
Neither the Company nor the Transfer Agent or Trustee or any Paying Agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in a Global
Certificate or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the liquidation preference or principal, as the case may be, redemption price or
dividends or interest, as the case may be, in respect of a Global Certificate,
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of a Global
Certificate as shown on the records of DTC or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in a
Global Certificate held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. If a holder
requires physical delivery of a certificated security for any reason, including
to sell shares of New Preferred Stock or Exchange Debentures to persons in
states that require physical delivery of a certificate, or to pledge such
securities, such holder must transfer its interest in such Global Certificate,
in accordance with the normal procedures of DTC and the procedures set forth in
the Certificate of Designation or Exchange Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Preferred Stock (including the presentation of shares
of New Preferred Stock for exchange as described below) or Exchange Debentures
only at the direction of one or more participants to whose account the DTC
interests in the applicable Global Certificate are credited and only in respect
of such shares of New Preferred Stock or Exchange Debentures as to which such
participant or participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in a Global Certificate among participants of DTC, it is
under no obligation to perform such procedures, and such
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procedures may be discontinued at any time. Neither the Company nor the Transfer
Agent or Trustee, as the case may be, will have any obligations under the rules
and procedures governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for a Global Certificate and a successor depositary is
not appointed by the Company within 90 days, certificated securities will be
issued in exchange for such Global Certificate.
DESCRIPTION OF INDEBTEDNESS
CREDIT FACILITY
On December 19, 1995 the Company entered into a credit agreement and
related documents (the "Credit Facility Loan Documents") with certain lenders
named therein and Union Bank, as agent on behalf of the lenders, which
established a senior secured revolving line of credit in an aggregate principal
amount of $100 million as the Credit Facility. The following summary of the
Credit Facility is based upon the terms of the Credit Facility Loan Documents.
The following summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the terms and conditions of the Credit
Facility Loan Documents.
The aggregate available commitment under the Credit Facility will be
reduced incrementally on a quarterly basis, beginning December 31, 1997. The
Credit Facility matures on June 30, 2002, unless previously terminated. Prior to
receiving any advance under the Credit Facility, the Company is required to be
in compliance with all financial and operating covenants. Certain acquisitions
to be funded under the Credit Facility are expected to require approval by
66 2/3% of the lenders thereunder. The lenders under the Credit Facility are
paid a commitment fee at the rate of 0.5% per annum on unused commitments,
payable quarterly. In addition, the agent thereunder receives other customary
fees.
Borrowings under the Credit Facility bear interest at a rate equal to, at
the option of the Company, either (i) the Base Rate (which is defined as the
higher of 1/2% plus the Federal Funds rate or the prime rate most recently
announced by the agent under the Credit Facility), or (ii) LIBOR, in each case
plus an applicable margin determined by reference to the ratio of total debt to
cash flow (as defined) of the Company.
The obligations of the Company under the Credit Facility are
unconditionally guaranteed, jointly and severally, by all material subsidiaries
of the Company. The obligations of the Company and such guarantors under the
Credit Facility are secured primarily by a first priority pledge of the stock of
all material subsidiaries of the Company and a first priority lien on all the
assets of the Company and such guarantors, with the exception of certain real
estate assets, which are subject to a negative pledge. The Lenders have the
right to require the Company and the guarantors to secure their obligations
under the Credit Facility by granting a first priority lien on all real estate
assets of the Company and the guarantors.
The Credit Facility contains customary conditions precedent to borrowings
thereunder, including, among other things, the absence of any adverse change in
the business, assets, operations, prospects, conditions, (financial or
otherwise), or material agreements of the Company and its subsidiaries, taken as
a whole. The Credit Facility also contains customary representations, warranties
and indemnities.
The Credit Facility contains, among other things, covenants restricting the
ability of the Company and its subsidiaries to dispose of assets, pay dividends,
repurchase or redeem capital stock and indebtedness, create liens, make capital
expenditures, make certain investments or acquisitions, enter into transactions
with affiliates and otherwise restrict corporate activities. The Credit Facility
also contains the following financial covenants: maximum ratio of total debt to
operating cash flow, minimum permitted interest coverage and a minimum permitted
fixed charge coverage ratio.
Events of default under the Credit Facility include those usual and
customary for transactions of this type, including, among other things, default
in the payment of principal or interest in respect of material amounts of
indebtedness of the Company or its subsidiaries, any non-payment default on such
indebtedness and a change of control, any material breach of the covenants or
representations and warranties included in the Credit Facility and related
documents, the institution of any bankruptcy proceedings and the failure of any
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security agreement related to the Credit Facility or lien granted thereunder to
be valid and enforceable. Upon the occurrence and continuance of an event of
default under the Credit Facility, the lenders may terminate their commitments
to lend and declare the then outstanding loans due and payable.
SENIOR SUBORDINATED NOTES
The following summary is based upon the terms of the Notes and the
Indenture. This summary does not purport to be a complete description of the
Notes or the Indenture and is subject to and qualified in its entirety by
reference to the terms of the Notes and the Indenture (including the definitions
contained therein), copies of which are available from the Company upon request.
The Notes are limited in aggregate principal amount to $230,000,000. The
Notes are general unsecured obligations of the Company, subordinated in right of
payment to Senior Indebtedness (as defined in the Indenture) of the Company and
senior in right of payment to any current or future indebtedness of the Company
subordinated thereto.
The Notes are fully and unconditionally guaranteed, on a senior
subordinated basis, as to payment of principal, premium, if any, and interest,
jointly and severally (the "Guarantees"), by all of the direct and indirect
subsidiaries of the Company (the "Guarantors"). The Guarantees are subordinated
to all Senior Indebtedness of the respective Guarantors.
The Notes will mature on October 1, 2002. The Notes bear interest at a rate
of 11 5/8% per annum from the date of original issuance until maturity. Interest
is payable semi-annually in arrears on April 1 and October 1, commencing April
1, 1996, to holders of record of the Notes at the close of business on the
immediately preceding March 15, and September 15, respectively.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after October 1, 1999 at a redemption price equal to 104% of
the principal amount thereof during the twelve-month period beginning on October
1, 1999, 102% of the principal amount thereof during the twelve-month period
beginning on October 1, 2000, and 100% of the principal amount thereof on or
after October 1, 2001, together with accrued and unpaid interest to the
redemption date. In addition, the Company, at its option, may redeem in the
aggregate up to 25% of the original principal amount of the Notes at any time
prior to October 1, 1998, at a redemption price equal to 110% of the principal
amount thereof plus accrued interest to the redemption date with the Net
Proceeds of one or more Public Equity Offerings or Major Asset Sales (each as
defined in the Indenture); provided, however, that at least $172,500,000
aggregate principal amount of Notes remains outstanding and that such redemption
occurs within 90 days following the closing of any such Public Equity Offering
or Major Asset Sale. The Company elected not to redeem any of the Notes with the
proceeds of the Equity Offering.
In the event of a Change of Control (as defined in the Indenture) of the
Company, the Company will be required to make an offer to purchase all
outstanding Notes at a price equal to 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase.
The Indenture contains covenants for the benefit of the holders of the
Notes that, among other things, and subject to certain exceptions, restrict the
ability of the Company and its Restricted Subsidiaries (as defined in the
Indenture) to: (i) incur additional indebtedness; (ii) pay dividends and make
distributions; (iii) issue stock of subsidiaries; (iv) make certain investments;
(v) repurchase stock; (vi) create liens; (vii) enter into transactions with
affiliates; (viii) enter into sale and leaseback transactions; (ix) merge or
consolidate the Company or the Guarantors; and (x) transfer and sell assets.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized 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) 33,000 shares have been designated as Junior Cumulative
Compounding Redeemable Preferred Stock (the "Existing Preferred Stock,") and (b)
effective upon consummation of the Offering, 440,000 shares have been designated
as 12 1/2% Cumulative Exchangeable Preferred Stock. The Senior Preferred Stock
is to be redeemed from the proceeds of this Offering and is treated as no longer
outstanding for purposes of the discussion below. As of June 30, 1996,
38,665,509 shares of Class A Common Stock, 8,311,639 shares of Class B Common
Stock, no shares of Class C Common Stock, and 33,000 shares of Existing
Preferred Stock are outstanding. In addition, 18,907,086 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 Common Stock, (c) the exercise of
warrants issued in connection with the issuance of the Existing Preferred Stock,
and (d) the exercise of certain rights under the Company's Stock Incentive
Plans.
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). So long as any Existing
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 the Common Stock are entitled to share pro rata 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 generally convertible or exchangeable at the option of its holder into
one share of Class A Common Stock at any time, subject to certain restrictions
in the case of the conversion or exchange of Class C Common Stock. Holders of
Common Stock do not have preemptive rights, although holders of Existing
Preferred Stock have limited preemptive rights under the Stockholders Agreement.
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EXISTING PREFERRED STOCK
Dividends. The holders of the Existing 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 New Preferred Stock. The
Company may not declare or pay any dividends, whether in cash, property or
otherwise or make any distributions in respect of the New Preferred Stock until
all accrued and unpaid dividends on the Existing Preferred Stock have been
declared and paid and, in the event the Company is required to redeem the
Existing Preferred Stock, monies sufficient for such purpose have been set
aside. Until December 22, 2001, the holders of Existing Preferred Stock are
entitled to receive cumulative dividends from the Company on each share of
Existing Preferred Stock at the per annum rate of 12% of the liquidation price
of such share ($1,000) plus all accrued and unpaid dividends with respect to
such share, including any deferred dividends as described below and any
dividends thereon. For each year thereafter, the per annum rate shall increase
by 1%. The dividend rate on the Existing Preferred Stock will increase to an
annual rate of 30% (i) upon the occurrence of certain bankruptcy events, (ii)
upon a change of control (as defined in the Stockholders Agreement) of the
Company, (iii) upon the failure to choose a successor to Mr. Paxson in the event
of his death or incapacity as provided in the Stockholders Agreement, (iv) if
the Company incurs indebtedness in excess of that permitted by certain financial
leverage ratios, (v) upon the failure to pay dividends on or after December 22,
2000 equal to the amount of dividends payable in any twelve month period or (vi)
if the Existing Preferred Stock remains outstanding after December 22, 2003.
Such increased dividend rate shall remain in effect for so long as any such
event continues and will increase by 5% on each anniversary of such event or, in
the case of a bankruptcy event, upon the failure of the Company to redeem the
Existing Preferred Stock at the request of the holders thereof.
Accrued dividends on the Existing Preferred Stock are payable semi-annually
to the holders of record of the Existing Preferred Stock as of the close of
business on the applicable record date. Until December 22, 1999, the Company may
at its option defer the payment of accrued dividends until the earlier of the
date the Existing Preferred Stock is redeemed or the liquidation, dissolution or
winding up of the Company. On January 1 and July 1 of each year, all dividends
that have accrued on each share of Existing 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 June 30, 1996, the Company has not paid
any cash dividends on the Existing Preferred Stock, and there were $6,419,822 in
accrued and unpaid dividends on the Existing Preferred Stock.
Voting Rights. The affirmative vote or written consent of the holders of a
majority of the outstanding shares of Existing 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 Existing Preferred Stock or any other capital stock of the
Company so as to adversely affect the rights, privileges, preferences or powers
of the Existing Preferred Stock; create or designate any stock on a parity with
or senior to the Existing Preferred Stock; enter into an agreement that would
prevent the Company from performing its obligations with respect to the Existing
Preferred Stock; or pay dividends to the holders of, or redeem, securities of
the Company or its subsidiaries junior to the Existing Preferred Stock, except
as specifically provided therein.
Liquidation Rights. Upon liquidation, dissolution or winding-up of the
Company, the holders of Existing 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 Common Stock, with respect to the assets
available for distribution after payment in full of creditors.
Redemption Rights; Priorities. So long as any shares of Existing Preferred
Stock remain outstanding, the Company may not directly or indirectly purchase,
redeem, exchange or otherwise acquire the New Preferred Stock or any Common
Stock. All the shares of Existing 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 accrued and unpaid
dividends thereon, as of the redemption date, payable in cash. The Company is
obligated to redeem on December 22, 2003, out of unrestricted funds legally
available therefor, all the shares of the Existing Preferred Stock then
outstanding, at a redemption price equal to the
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liquidation price for such shares, as of the redemption date (plus a 2% premium
if redeemed between December 23, 1997, and December 22, 1998), plus the amount
of all accrued and unpaid dividends thereon, payable in cash. Holders of shares
of the Existing Preferred Stock are entitled to require the Company to redeem
their shares of Existing Preferred Stock upon the occurrence of a bankruptcy or
similar event relating to the Company or the default by the Company under the
terms of the Stockholders Agreement.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
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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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations generally applicable to holders acquiring the New Preferred Stock
offered hereby on original issue, but does not purport to be a complete analysis
of all potential tax consequences. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal
Revenue Service ("IRS") rulings and pronouncements and judicial decisions now in
effect, all of which are subject to change at any time by legislative, judicial
or administrative action. Any such changes may be applied retroactively in a
manner that could adversely affect a holder of the New Preferred Stock and the
Exchange Debentures (jointly, the "Securities").
The discussion assumes that the holders of the Securities will hold them as
"capital assets" within the meaning of section 1221 of the Code. Although the
matter is not entirely free from doubt, the Company intends to treat the New
Preferred Stock as equity and the Exchange Debentures as indebtedness for
federal income tax purposes, and the balance of the discussion is based on the
assumption that such treatment will be respected. The discussion is not binding
on the IRS or the courts. The Company has not sought and will not seek any
rulings from the IRS with respect to the positions of the Company discussed
herein, and there can be no assurance that the IRS will not take a different
position concerning the tax consequences of the purchase, ownership or
disposition of the Securities or that any such position would not be sustained.
The tax treatment of a holder of the Securities may vary depending on his
particular situation or status. Certain holders (including S corporations,
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers and taxpayers subject to alternative minimum tax) may be subject
to special rules not discussed below. The following discussion is limited to the
United States federal income tax consequences relevant to a holder of the
Securities that is a citizen or resident of the United States or any state
thereof, or a corporation or other entity created or organized under the laws of
the United States or any political subdivision thereof, or an estate or trust
the income of which is subject to United States federal income tax regardless of
source or that is otherwise subject to United States federal income tax on a net
income basis in respect of the Securities. The following discussion does not
consider all aspects of United States federal income tax that may be relevant to
the purchase, ownership, and disposition of the Securities by such holder in
light of his personal circumstances. In addition, the description does not
consider the effect of any applicable foreign, state, local or other tax laws or
estate or gift tax considerations.
DISTRIBUTIONS ON NEW PREFERRED STOCK
Distributions on the New Preferred Stock, whether paid in cash or in
additional shares of New Preferred Stock ("Dividend Shares"), will be taxable to
the holder as ordinary dividend income to the extent that the cash amount or
fair market value of the New Preferred Stock on the date of distribution does
not exceed the Company's current and accumulated earnings and profits (as
determined for federal income tax purposes). The amount of the Company's
earnings and profits at any particular time depends on the future actions and
financial performance of the Company.
To the extent that the amount of any distribution on the outstanding New
Preferred Stock exceeds the Company's current and accumulated earnings and
profits (as determined for federal income tax purposes), the distribution will
be treated as a return of capital, thus reducing the holder's adjusted tax basis
in such outstanding New Preferred Stock. The amount of any such excess
distribution that is greater than the holder's adjusted tax basis in the
outstanding New Preferred Stock will be taxed as capital gain and will be
long-term capital gain if the holder's holding period for such outstanding New
Preferred Stock exceeds one year. A holder's initial tax basis in any Dividend
Shares distributed by the Company generally will equal the fair market value of
such Dividend Shares on their date of distribution. The holding period for such
Dividend Shares will commence with their distribution, and will not include the
holder's holding period for outstanding shares of New Preferred Stock with
respect to which such Dividend Shares were distributed. For purposes of the
remainder of this discussion, the term "dividend" refers to a distribution paid
out of allocable earnings and profits, unless the context indicates otherwise.
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To the extent that dividends are treated as ordinary income, dividends
received by corporate holders generally will be eligible for the 70%
dividends-received deduction under section 243 of the Code. There are, however,
many exceptions and restrictions relating to the availability of such
dividends-received deduction, such as restrictions relating to (i) the holding
period of the stock on which the dividends are sought to be deducted, (ii)
debt-financed portfolio stock, (iii) dividends treated as "extraordinary
dividends" for purposes of section 1059 of the Code, and (iv) taxpayers that pay
alternative minimum tax. Corporate stockholders should consult their own tax
advisor regarding the extent, if any, to which such exceptions and restrictions
may apply to their particular factual situations. In addition, on March 19,
1996, President Clinton proposed certain tax law changes that would, among other
things, (i) reduce the 70% dividends received deduction to 50% and (ii) require
a corporate holder to satisfy a separate 46-day holding period requirement with
respect to each dividend in order to be eligible for such dividends received
deduction. Both proposals are proposed to be effective for dividends received or
accrued more than 30 days after the enactment of the proposals. Subsequently, in
August 1996, President Clinton announced an intention to seek legislation that
would eliminate the dividends received deduction for certain types of preferred
stock. The Treasury Department's description of President Clinton's most recent
proposal, which may be in lieu of the March proposal, suggests that the New
Preferred Stock would be the type of stock to which the new limitations on the
dividends received deduction would apply. According to the Treasury's
description, the most recent proposal would only apply to preferred stock issued
after the date of enactment, which could include shares of New Preferred Stock
issued in lieu of cash dividends. It is not clear whether any proposals
ultimately will be enacted or, if enacted, will be enacted in the form proposed.
Under Section 1059 of the Code, the tax basis of New Preferred Stock that
has been held by a corporate shareholder for two years or less (ending on the
earliest of the date on which the Company declares, announces or agrees to the
payment of an actual or constructive dividend) is reduced (but not below zero)
by the non-taxed portion of an "extraordinary dividend" for which a dividends
received deduction is allowed. To the extent that a corporate holder's tax basis
in its New Preferred Stock would have been reduced below zero but for the
foregoing limitation, such holder must increase the amount of gain recognized on
the ultimate sale or exchange of such New Preferred Stock. Generally, an
"extraordinary dividend" is a dividend that (i) equals or exceeds 5% of the
holder's basis in the New Preferred Stock (treating all dividends having
ex-dividend dates within an 85-day period as a single dividend) or (ii) exceeds
20% of the holder's adjusted basis in the New Preferred Stock (treating all
dividends having ex-dividend dates within a 365-day period as a single
dividend). If an election is made by the holder, under certain circumstances the
fair market value of the New Preferred Stock as of the day before the
ex-dividend date may be substituted for the holder's basis in applying these
tests. Proposed legislation would require immediate recognition of gain under
Section 1059 of the Code to the extent a corporate holder's tax basis would
otherwise be reduced below zero, instead of deferring such gain until the sale
or exchange of such stock; such changes are proposed to take effect
retroactively. It is not clear whether such proposed legislation ultimately will
be enacted or, if enacted, will be enacted in the form proposed.
Special rules exist with respect to extraordinary dividends for "qualified
preferred dividends," which are any fixed dividends payable with respect to any
share of stock which (i) provides for fixed preferred dividends payable not less
frequently than annually and (ii) is not in arrears as to dividends at the time
the holder acquires such stock. A qualified preferred dividend does not include
any dividend payable with respect to any share if the actual rate of return of
such stock for the period the stock has been held by the holder receiving the
dividend exceeds 15%. CORPORATE STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE POSSIBLE APPLICATION OF SECTION 1059 OF THE CODE TO
THEIR OWNERSHIP AND DISPOSITION OF NEW PREFERRED STOCK.
PREFERRED STOCK DISCOUNT
The New Preferred Stock is subject to mandatory redemption on October 31,
2006 (the "Mandatory Redemption"). In addition, on or after October 31, 2001 and
subject to certain restrictions, the New Preferred Stock is redeemable at any
time at the option of the Company at specified redemption prices (the "Optional
Redemption"). See "Description of New Preferred Stock and Exchange
Debentures -- The New Preferred
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Stock -- Optional Redemption" and "-- Mandatory Redemption." Pursuant to Section
305(c) of the Code, holders of New Preferred Stock may be required to treat a
portion of the difference between the New Preferred Stock's issue price and its
redemption price as constructive distributions of property includible in income
on a periodic basis. For purposes of determining whether such constructive
distribution treatment applies, the Mandatory Redemption and the Optional
Redemption are tested separately. Constructive distribution treatment is
required if either (or both) of these tests is satisfied.
Section 305(c) of the Code provides that the entire amount of a redemption
premium with respect to preferred stock that is subject to mandatory redemption
is treated as being distributed to the holders of such preferred stock on an
economic accrual basis. Preferred stock generally is considered to have
redemption premium for this purpose if the price at which it must be redeemed
(the "Redemption Price") exceeds its issue price (its fair market value on the
date of its issuance) by more than a de minimis amount. For this purpose, such
excess (the "Preferred Stock Discount") will be treated as zero if it is less
than 1/4 of 1% of the Redemption Price multiplied by the number of complete
years from the date of issuance of the stock until the stock must be redeemed.
Preferred Stock Discount is taxable as a constructive distribution to the holder
(treated as a dividend to the extent of the Company's current and accumulated
earnings and profits and otherwise subject to the treatment described above for
distributions) over the term of the preferred stock using a constant interest
rate method similar to that described below for accruing original issue discount
("OID"). See "-- Original Issue Discount" below.
Under recently issued regulations (the "Regulations"), Preferred Stock
Discount will arise due to the Optional Redemption feature only if, based on all
of the facts and circumstances as of the date the New Preferred Stock is issued,
redemption pursuant to the Optional Redemption is more likely than not to occur.
Even if redemption were more likely than not to occur, however, constructive
distribution treatment would not result if the redemption premium were solely in
the nature of a penalty for premature redemption. For this purpose, a penalty
for premature redemption is a premium paid as a result of changes in economic or
market conditions over which neither the issuer nor the holder has legal or
practical control, such as changes in prevailing dividend rates. The Regulations
provide a safe harbor pursuant to which constructive distribution treatment will
not result from an issuer call right if (i) the issuer and the holder are
unrelated, (ii) there are no arrangements that effectively require the issuer to
redeem the stock and (iii) exercise of the option to redeem would not reduce the
yield of the stock. The Company does not believe that the Optional Redemption
would be treated as more likely than not to be exercised under these rules. If
the Optional Redemption were treated as more likely than not to be exercised,
Preferred Stock Discount could arise on Dividend Shares.
Dividend Shares received by holders of the New Preferred Stock may bear
Preferred Stock Discount depending upon the issue price of such shares (i.e.,
the fair market value of the Dividend Shares on the date of their issuance). If
shares of New Preferred Stock (including Dividend Shares) bear Preferred Stock
Discount, such shares generally will have different tax characteristics from
other shares of New Preferred Stock and might trade separately, which might
adversely affect the liquidity of such shares.
SALE, REDEMPTION AND EXCHANGE OF NEW PREFERRED STOCK
A redemption of shares of New Preferred Stock for cash or in exchange for
Exchange Debentures would be a taxable event.
A redemption of shares of New Preferred Stock for cash will generally be
treated as a sale or exchange if the holder does not own, actually or
constructively within the meaning of section 318 of the Code, any stock of the
Company other than the redeemed New Preferred Stock. If a holder does own,
actually or constructively, other stock of the Company, a redemption of New
Preferred Stock may be treated as a dividend to the extent of the Company's
current and accumulated earnings and profits (as determined for federal income
tax purposes). Such dividend treatment would not be applied if the redemption is
"not essentially equivalent to a dividend" with respect to the holder under
section 302(b)(1) of the Code. A distribution to a holder will be "not
essentially equivalent to a dividend" if it results in a "meaningful reduction"
in the holder's stock interest in the Company. For this purpose, a redemption of
New Preferred Stock that results in a reduction in the proportionate interest in
the Company (taking into account any actual ownership of common stock of the
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Company and any stock constructively owned) of a holder whose relative stock
interest in the Company is minimal and who exercises no control over corporate
affairs should be regarded as a meaningful reduction in the holder's stock
interest in the Company.
If the redemption of the New Preferred Stock for cash is not treated as a
distribution taxable as a dividend, the redemption would result in capital gain
or loss equal to the difference between the amount of cash received and the
holder's adjusted tax basis in the New Preferred Stock redeemed, except to the
extent that the redemption price includes dividends which have been declared by
the Board of Directors of the Company prior to the redemption. Similarly, upon
the sale of the New Preferred Stock (other than in a redemption or in exchange
of the Exchange Debentures), the difference between the sum of the amount of
cash and the fair market value of other property received and the holder's
adjusted basis in the New Preferred Stock would result in capital gain or loss.
This gain or loss would be long-term capital gain or loss if the holder's
holding period for the New Preferred Stock exceeds one year. Under current law,
capital gains recognized by corporations are taxed at a maximum rate of 35% and
the maximum rate on net capital gains in the case of individuals is 28%.
A redemption of New Preferred Stock in exchange for Exchange Debentures
will be subject to the same general rules as a redemption for cash, except that
the holder would have capital gain or loss equal to the difference between the
issue price of the Exchange Debentures received (as determined for purposes of
computing the original issue discount on such Exchange Debentures). See the
discussion below under "Original Issue Discount." Additionally, any such gain
may be eligible for deferral under the installment sale method as long as
neither the Exchange Debentures nor the New Preferred Stock are readily traded
in an established securities market.
If a redemption of New Preferred Stock is treated as a distribution that is
taxable as a dividend, the amount of the distribution will be measured by the
amount of cash or the issue price of the Exchange Debentures, as the case may
be, received by the holder. The holder's adjusted tax basis in the redeemed New
Preferred Stock will be transferred to any remaining stock holdings in the
Company. If the holder does not retain any actual stock ownership in the Company
(only having a stock interest constructively), the holder may lose such basis
entirely. Under the "extraordinary dividend" provision of Section 1059 of the
Code, a corporate holder may, under certain circumstances, be required to reduce
its basis in its remaining shares of stock of the Company (and possibly
recognize gain upon a disposition of such shares) to the extent the holder
claims the 70% dividends received deduction with respect to the dividend. See
the discussion above under "-- Distributions on New Preferred Stock."
Depending upon a holder's particular circumstances, the tax consequences of
holding Exchange Debentures may be less advantageous than the tax consequences
of holding New Preferred Stock because, for example, payments of interest on the
Exchange Debentures will not be eligible for any dividends received deduction
that may be available to corporate holders.
ORIGINAL ISSUE DISCOUNT
In the event that the New Preferred Stock is exchanged for Exchange
Debentures and the "stated redemption price at maturity" of the Exchange
Debentures exceeds their "issue price" by more than a de minimis amount, the
Exchange Debentures will be treated as having original issue discount ("OID")
equal to the entire amount of such excess.
If the Exchange Debentures are traded on an established securities market
within the sixty-day period ending thirty days after the exchange date, the
issue price of the Exchange Debentures will be their fair market value as of
their issue date. Subject to certain limitations described in the Treasury
Regulations, the Exchange Debentures will be deemed to be traded on an
established securities market if, among other things, price quotations will be
readily available from dealers, brokers, or traders. If the New Preferred Stock,
but not the Exchange Debentures issued and exchanged therefor, is traded on an
established securities market within the sixty-day period ending thirty days
after the exchange, then the issue price of each Exchange Debenture should be
the fair market value of the New Preferred Stock exchanged therefor at the time
of the exchange. The New Preferred Stock generally will be deemed to be traded
on an established securities market if it
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appears on a system of general circulation that provides a reasonable basis to
determine fair market value based either on recent price quotations or recent
sales transactions. In the event that neither the New Preferred Stock nor the
Exchange Debentures are traded on an established securities market within the
applicable period, the issue price of the Exchange Debentures will be their
stated principal amount -- namely, their face value -- unless either (i) the
Exchange Debentures do not bear "adequate stated interest" within the meaning of
section 1274 of the Code, which is unlikely, or (ii) the Exchange Debentures are
issued in a so-called "potentially abusive situation" as defined in the Treasury
Regulations under section 1274 of the Code (including a situation involving a
recent sales transaction), in which case the issue price of such Exchange
Debentures generally will be the fair market value of the New Preferred Stock
surrendered in exchange therefor.
The "stated redemption price at maturity" of the Exchange Debentures should
equal the total of all payments under the Exchange Debentures, other than
payments of "qualified stated interest." "Qualified stated interest" generally
is stated interest that is unconditionally payable in cash or other property
(other than Exchange Debentures) at least annually at a single fixed rate.
Exchange Debentures that are issued when the Company has the option to pay
interest for certain periods in additional Exchange Debentures should be treated
as having been issued without any qualified stated interest. Accordingly, the
sum of all interest payable pursuant to the stated interest rate on such
Exchange Debentures over the entire term should be included (along with stated
principal) in the stated redemption price at maturity of such Exchange
Debentures. On the other hand, if the Exchange Debentures are issued after the
period for paying interest in additional Exchange Debentures has passed, then
stated interest would appear to qualify as qualified stated interest and none of
such stated interest would be included in the stated redemption price at
maturity of the Exchange Debentures.
TAXATION OF STATED INTEREST AND ORIGINAL ISSUE DISCOUNT ON EXCHANGE DEBENTURES
Each holder of an Exchange Debenture with OID will be required to include
in gross income an amount equal to the sum of the "daily portions" of the OID
for all days during the taxable year in which such holder holds the Exchange
Debenture. The daily portions of OID required to be included in a holder's gross
income in a taxable year will be determined under a constant yield method by
allocating to each day during the taxable year in which the holder holds the
Exchange Debenture a pro rata portion of the OID thereon which is attributable
to the "accrual period" in which such day is included. The amount of the OID
attributable to each accrual period will be the product of the "adjusted issue
price" of the Exchange Debenture at the beginning of such accrual period
multiplied by the "yield to maturity" of the Exchange Debenture (properly
adjusted for the length of the accrual period). The adjusted issue price of an
Exchange Debenture at the beginning of an accrual period is the original issue
price of the Exchange Debenture plus the aggregate amount of OID that accrued in
all prior accrual periods, and less any cash payments -- other than qualified
stated interest payments (which only would apply if the Exchange Debentures were
issued after October 31, 2002) on the Exchange Debenture. The "yield to
maturity" is the discount rate that, when used in computing the present value of
all principal and interest payments to be made under the Exchange Debenture,
produces an amount equal to the issue price of the Exchange Debenture. An
"accrual period" may be of any length and may vary in length over the term of
the debt instrument, provided that each accrual period is no longer than one
year and each scheduled payment of principal or interest occurs either on the
final day or the first day of an accrual period.
An additional Exchange Debenture (a "Secondary Debenture") issued in
payment of interest with respect to an initially issued Exchange Debenture (an
"Initial Debenture") will not be considered as a payment made on the Initial
Debenture and will be aggregated with the Initial Debenture for purposes of
computing and accruing OID on the Initial Debenture. As between the Initial
Debenture and the Secondary Debenture, the adjusted issue price of the Initial
Debenture would be allocated between the Initial Debenture and the Secondary
Debenture in proportion to their respective principal amounts. That is, upon the
issuance of a Secondary Debenture with respect to an Initial Debenture, the
Initial Debenture and the Secondary Debenture derived from the Initial Debenture
are treated as initially having the same adjusted issue price and inherent
amount of OID per dollar of principal amount. The Initial Debenture and the
Secondary Debenture
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derived therefrom would be treated as having the same yield to maturity. Similar
treatment would be applied when additional Exchange Debentures are issued on
Secondary Debentures.
In the event that the Exchange Debentures are not issued with OID, because
they are issued after October 30, 2002, when the Company does not have the
option to pay interest thereon in additional Exchange Debentures and the
redemption price of the Exchange Debentures does not exceed their issue price by
more than a de minimis amount, stated interest would be included in income by a
holder in accordance with such holder's usual method of accounting. In all other
cases, all stated interest will be treated as payments on the Exchange
Debentures under the rules discussed above.
BOND PREMIUM ON EXCHANGE DEBENTURES
If New Preferred Stock is exchanged for Exchange Debentures that are not
treated as having OID, and the issue price of such Exchange Debentures exceeds
the amount payable at the maturity date (or earlier call date, if appropriate),
such excess will be deductible by the holder of the Exchange Debentures as
amortizable bond premium over the term of the Exchange Debentures (taking into
account earlier call dates, as appropriate), under a yield-to-maturity formula,
if an election by the holder under section 171 of the Code is made or is already
in effect. An election under section 171 of the Code is available only if the
Exchange Debentures are held as capital assets. This election is revocable only
with the consent of the IRS and applies to all obligations owned or acquired by
the holder on or after the first day of the taxable year to which the election
applies. To the extent the excess is deducted as amortizable bond premium, the
holder's adjusted tax basis in the Exchange Debentures will be reduced. Except
as may otherwise be provided in future Treasury Regulations, the amortizable
bond premium will be treated as an offset to interest income on the Exchange
Debentures rather than as a separate deduction item.
ACQUISITION PREMIUM ON EXCHANGE DEBENTURES
A holder of an Exchange Debenture issued with OID who purchases such
Exchange Debenture for an amount that is greater than its then adjusted issue
price but equal to or less than the sum of all amounts payable on the Exchange
Debenture after the purchase date (other than payments, if any, of qualified
stated interest) will be considered to have purchased such Exchange Debenture at
an "acquisition premium." Under the acquisition premium rules, the amount of OID
which such holder must include in income with respect to such Exchange Debenture
for any taxable year will be reduced by the portion of such acquisition premium
properly allocable to such year.
MARKET DISCOUNT ON EXCHANGE DEBENTURES
Purchasers of New Preferred Stock should be aware that the disposition of
Exchange Debentures may be affected by the market discount provisions of the
Code. The market discount rules generally provide, if a holder of a debt
instrument purchases it at a "market discount" and thereafter realizes gain upon
a disposition or a retirement of the debt instrument, the lesser of such gain or
the portion of the market discount that has accrued on a straight-line basis (or
on a constant interest rate basis, if such alternative rate of accrual has been
elected by the holder under section 1276(b) of the Code) while the debt
instrument was held by such holder will be taxed as ordinary income at the time
of such disposition. "Market discount" with respect to the Exchange Debentures
will be the amount,if any, by which the "revised issue price" of an Exchange
Debenture (or its stated redemption price at maturity of the exchange Debenture
has no OID) exceeds the holders basis in the Exchange Debenture immediately
after such holder's acquisition, subject to a de minimis exception. The "revised
issue price" of an Exchange Debenture is its issue price increased by the
portion of OID previously includible in the gross income of prior holders for
periods prior to the acquisition of the Exchange Debenture by the holder
(without regard to any acquisition premium exclusion) and reduced by prior
payments other than payments of qualified stated interest.
A holder who acquires an Exchange Debenture at a market discount also may
be required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry such
Exchange Debenture until the holder disposes of the Exchange Debenture in a
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taxable transaction. Moreover, to the extent of any accrued market discount on
such Exchange Debentures, any partial principal payment with respect to Exchange
Debentures will be includible as ordinary income upon receipt, as will the
Exchange Debenture's fair market value on certain otherwise non-taxable
transfers (such as gifts).
A holder of Exchange Debentures acquired at a market discount may elect for
federal income tax purposes to include market discount in a gross income as the
discount accrues, either on a straight-line basis or on a constant interest rate
basis. This current inclusion election, once made, applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies, and may not be revoked without the consent
of the IRS. If a holder of Exchange Debentures makes such an election, the
foregoing rules with respect to the recognition of ordinary income on sales and
other dispositions of such debt instruments, and with respect to the deferral of
interest deductions on indebtedness incurred or maintained to purchase or carry
such debt instruments, would not apply.
The Company will furnish annually to the IRS and to record holders of the
Exchange Debentures information relating to the OID, if any, accruing during the
calendar year. Such information will be based on the amount of OID that would
have accrued to a holder who acquired the Exchange Debenture on original issue.
Accordingly, other holders will be required to determine for themselves whether
they are eligible to report a reduced amount of OID for federal income tax
purposes.
REDEMPTION OR SALE OF EXCHANGE DEBENTURES
Generally, any redemption or sale of Exchange Debentures by a holder would
result in taxable gain or loss equal to the difference between the sum of amount
of cash and the fair market value of other property received (except to the
extent that cash received is attributable to accrued, but previously untaxed,
qualified stated interest, which portion of the consideration would be taxed as
ordinary income) and the holder's adjusted tax basis in the Exchange Debentures.
The adjusted tax basis of a holder who receives an Exchange Debenture in
exchange for New Preferred Stock will generally be equal to the issue price of
the Exchange Debenture increased by any OID with respect to the Exchange
Debenture included in the holder's income prior to sale or redemption of the
Exchange Debenture, reduced by any amortizable bond premium applied against the
holder's income prior to sale or redemption of the Exchange Debenture, reduced
by any amortizable bond premium applied against the holder's income prior to
sale or redemption of the Exchange Debenture and by payments other than payments
of qualified stated interest. Except to the extent that an intention to call the
Exchange Debentures prior to their maturity existed at the time of their
original issue as an agreement or understanding between the Company and the
original holders of a substantial amount of the Exchange Debentures (which is
unlikely), and subject to the above discussion of market discount, such gain or
loss would be long-term capital gain or loss if the holder's holding period for
the Exchange Debentures exceeded one year.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO CORPORATE HOLDERS
Pursuant to section 163 of the Code and in the event that the Exchange
Debentures are "applicable high yield discount obligations" ("AHYDOs"), a
portion of the OID (if any) accruing on the Exchange Debentures may be treated
as a dividend generally eligible for the dividends-received deduction in the
case of corporate holders, and the company would not be entitled to deduct the
"disqualified portion of the OID accruing on the Exchange Debentures and would
be allowed to deduct the remainder of the OID only when paid in cash.
The Exchange Debentures will constitute AHYDOs if they (i) have a term of
more than five years, (ii) have a yield to maturity equal to or greater than the
sum of the applicable federal rate at the time of issuance of the Exchange
Debentures (the "AFR") plus five percentage points, and (iii) have "significant"
OID. A debt instrument is treated as having "significant" OID if the aggregate
amount that would be includible in gross income with respect to such debt
instrument for periods before the close of any accrual period ending after the
date five years after the date of issue exceeds the sum of (i) the aggregate
amount of interest to be paid in cash under the debt instrument before the close
of such accrual period and (ii) the
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product of the initial issue price of such debt instrument and its yield to
maturity. Because the amount of OID, if any, attributable to the Exchange
Debentures will be determined at the time such Exchange Debentures are issued
and the AFR at that point in time is not predictable, it is impossible currently
to determine whether Exchange Debentures will be treated as AHYDOs.
If an Exchange Debenture is treated as an AHYDO, a holder would be treated
as receiving dividend income to the extent of the lesser of (i) the Company's
current and accumulated earnings and profits, and (ii) the "disqualified
portion" of the OID of such AHYDO. The "disqualified portion" of the OID is
equal to the lesser of (i) the amount of OID or (ii) the portion of the "total
return" (i.e., the excess of all payments to be made with respect to the
Exchange Debenture over its issue price) in excess of the AFR plus six
percentage points.
BACKUP WITHHOLDING
A holder of a Security may be subject to back withholding at the rate of 31
percent with respect to dividends on the New Preferred Stock, interest on the
Exchange Debentures or sales proceeds thereof, unless such Holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates to exemption or (b) provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules.
A holder of a Security who does not provide the holder's correct taxpayer
identification number upon request may be subject to penalties imposed by the
IRS. Any amount paid as backup withholding would be creditable against the
holder's federal income tax liability.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS DOES
NOT CONSIDER THE FACTS AND CIRCUMSTANCES OF ANY PARTICULAR PROSPECTIVE
PURCHASER'S SITUATION OR STATUS. ACCORDINGLY, EACH PURCHASER OF NEW PREFERRED
STOCK SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO
IT, INCLUDING THOSE UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
120
<PAGE> 125
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among the Company and BT Securities Corporation and
Goldman, Sachs & Co. (collectively, the "Underwriters"), the Underwriters have
agreed to purchase, and the Company has agreed to sell to the Underwriters, all
of the shares of New Preferred Stock offered hereby.
The Underwriting Agreement provides that the obligation of the Underwriters
to pay for and accept delivery of the New Preferred Stock is subject to the
approval of certain legal matters by counsel and to various other conditions.
The nature of each Underwriter's obligation is such that each is severally
committed to purchase the number of shares of New Preferred Stock set forth
opposite its name if it purchases any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
BT Securities Corporation......................................................... 120,000
Goldman, Sachs & Co............................................................... 30,000
---------
Total................................................................... 150,000
=========
</TABLE>
The Underwriters propose to offer the shares of New Preferred Stock
directly to the public at the public offering price set forth on the cover page
hereof, and to certain dealers at such price less a concession not in excess of
$2.50 per share. After the initial public offering of the New Preferred Stock,
the public offering price and other selling terms may be changed. In addition,
First Union Capital Markets Corp. will be paid a fee of $150,000 for services
rendered in connection with the sale of the New Preferred Stock, which will be
paid from the underwriting discounts set forth on the cover page of this
Prospectus. First Union Capital Markets Corp. is not an Underwriter with respect
to any of the New Preferred Stock offered hereby.
The Company does not intend to apply for listing of the New Preferred Stock
on a national securities exchange, but has been advised by each of the
Underwriters that it presently intends to make a market in the New Preferred
Stock, as permitted by applicable laws and regulations. The Underwriters are not
obligated, however, to make a market in the New Preferred Stock, and any such
market making may be discontinued at any time by one or all of the Underwriters
at the sole discretion of such Underwriters. There can be no assurance that an
active public market for the New Preferred Stock will develop.
The Company and the Guarantors have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the Underwriters may be required to make in respect
thereof.
The Company has been informed by the Underwriters that they will not
confirm sales to any account over which they exercise discretionary authority
without prior specific written consent.
Under the Conduct Rules of the National Association of Securities Dealers,
Inc. (the "NASD"), no member of the NASD or an affiliate of such member may
participate in the distribution of a public offering of equity securities issued
by a company if the member and/or its affiliates have a conflict of interest (as
defined) unless the price at which such equity securities are to be distributed
to the public is no higher than that recommended by a "qualified independent
underwriter" meeting certain standards. As defined by the NASD, a "conflict of
interest" exists when, among other things, a member and/or its affiliates in the
aggregate beneficially own 10% or more of the preferred equity of a company. BT
Investment Partners, Inc., an affiliate of BT Securities Corporation, is the
holder of in excess of 10% of the Company's Existing Preferred Stock, as well as
the holder of warrants to purchase shares of the Company's Class C Common Stock.
First Union Capital Partners, Inc., an affiliate of First Union Capital Markets
Corp., holds warrants to purchase shares of the Company's Class C Common Stock.
Goldman, Sachs & Co. has agreed to act as a qualified independent
underwriter in connection with the Offering. The price at which the New
Preferred Stock will be distributed to the public will be no more than that
recommended by Goldman, Sachs & Co. Goldman, Sachs & Co., acting as qualified
independent underwriter, has participated in the preparation of this Prospectus
and the Registration Statement of which
121
<PAGE> 126
this Prospectus is a part and has exercised the usual standards of due diligence
with respect thereto and will receive a fee of $10,000 in connection with its
services as qualified independent underwriter which will be paid from the
underwriting discounts set forth on the cover page of this Prospectus. The
Company and the Guarantors have agreed to indemnify Goldman, Sachs & Co. as
qualified independent underwriter against certain liabilities, including
liabilities under the Securities Act.
Bankers Trust Company, an affiliate of BT Securities Corporation and BT
Investment Partners, Inc., has in the past provided commercial banking services
for an affiliate of the Company, for which Bankers Trust Company has received
customary compensation. BT Securities Corporation and its affiliates have
provided and may provide other financial, advisory or commercial or investment
banking services to the Company or its affiliates in the future, for which they
have received and will receive customary compensation.
LEGAL MATTERS
Certain legal matters with respect to the issuance of New Preferred 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 (a professional limited liability company).
EXPERTS
The financial statements included herein and incorporated in this
Prospectus by reference to Paxson Communications Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995, the financial statements of
WHUB, Inc., WTKS-FM (a division of Press Broadcasting Company), Todd
Communications, Inc. (WFSJ-FM) and Southern Broadcasting Companies, Inc. each as
of and for the year ended December 31, 1995 and the financial statements of
Ponce Nicasio Broadcasting Ltd. (KCMY-TV) as of and for the year ended April 30,
1996, included in this Prospectus, have been so incorporated and included in
reliance on the reports of Price Waterhouse LLP, independent certified public
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of the Fort Lauderdale Radio Stations (a division
of T.K. Communications, L.C.) for the year ended December 31, 1995 included in
this Prospectus have been so included in reliance on the report of Mathieson
Aitken Jemison, LLP, independent certified public accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Radio Station WDIZ-FM (a division of Shamrock
Communications, Inc.) as of and for the year ended December 31, 1995 included in
this Prospectus have been so included in reliance on the report of Robert Rossi
& Co., independent certified public accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of KXLI (a division of KX Acquisition Limited
Partnership) as of and for the year ended December 31, 1995 included in this
Prospectus have been so included in reliance on the report of Schweitzer Rubin
Karon & Bremer, independent certified public accountants, given on the authority
of said firm as experts in auditing and accounting.
The special purpose financial statements of WIOD-AM (a division of WIOD,
Inc.) as of and for the year ended December 31, 1995 included in this Prospectus
have been so included in reliance on the report of Deloitte & Touche LLP,
independent auditors, given upon the authority of said firm as experts in
auditing and accounting.
122
<PAGE> 127
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996
and June 30, 1996, and the Company's Proxy Statement, dated April 26, 1996, for
the Company's 1996 Annual Meeting of Shareholders as heretofore filed by the
Company with the Commission pursuant to the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this Offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents.
The information relating to the Company contained in this Prospectus does
not purport to be comprehensive and must be read together with the information
contained in the documents listed above, which have been incorporated by
reference. Any information contained in a document incorporated by reference or
deemed to be incorporated by reference herein shall be modified or superseded,
for purposes of this Prospectus, to the extent that a statement contained herein
or in any subsequently filed document that is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any document incorporated by reference in this Prospectus, other than exhibits
to any such document not specifically described above. Requests for such
documents should be directed to Paxson Communications Corporation, 601
Clearwater Park Road, West Palm Beach, Florida 33401, Attention: Director of
Finance (telephone number (561) 659-4122).
123
<PAGE> 128
INDEX TO PRO FORMA FINANCIAL INFORMATION
<TABLE>
<S> <C>
Pro Forma Financial Information....................................................... P-2
Unaudited Pro Forma Consolidated Balance Sheet:
At June 30, 1996.................................................................... P-3
Notes to Unaudited Pro Forma Consolidated Balance Sheet............................. P-4
Unaudited Pro Forma Consolidated Statements of Operations:
For the Six Months Ended June 30, 1996.............................................. P-5
For the Year Ended December 31, 1995................................................ P-6
Notes to Unaudited Pro Forma Consolidated Statements of Operations For the Year
Ended December 31, 1995 and the Six Months Ended June 30, 1996................... P-7
For the Twelve Months Ended June 30, 1996........................................... P-9
Notes to Unaudited Pro Forma Consolidated Statement of Operations For the Twelve
Months Ended June 30, 1996....................................................... P-10
</TABLE>
P-1
<PAGE> 129
PRO FORMA FINANCIAL INFORMATION
The following unaudited summary pro forma statement of operations data and
other data give effect to (i) the consummation of the Offering; (ii) the
significant business acquisitions of KZKI-TV, WGOT-TV and WTVX-TV during 1995;
(iii) the proposed significant business acquisition of the Fort Lauderdale Radio
Stations (WPLL-FM and WSRF-AM); (iv) the business acquisitions of Todd
Communications, Inc. (WFSJ-FM), WHUB Inc. (WHUB-FM and WHUB-AM) and Southern
Broadcasting Companies, Inc. (WSNI-FM, WPAP-FM, and WPBH-FM) and the proposed
business acquisitions of WDIZ-FM, WTKS-FM, WIOD-AM, KXLI-TV and Ponce Nicasio
Broadcasting Ltd. (KCMY-TV) (the Other Acquisitions); (v) the Equity Offering;
(vi) the termination of the put rights of the holders of the Class A and B
Common Stock Warrants; and (vii) the issuance of the Notes, as if such events
had occurred on January 1, 1995. Other Proposed Acquisitions are asset
acquisitions or are immaterial both individually and in the aggregate and
therefore are not included in the pro forma financial information. Where
necessary, prior operators' fiscal years have been conformed to the Company's
December 31 year end. In addition, depreciation and amortization expense as well
as interest has been increased for each of the periods presented to reflect the
purchase of all stations included in the Proposed Acquisitions and acquisitions
which have closed subsequent to June 30, 1996. The following unaudited summary
pro forma balance sheet data gives effect to (i) the consummation of the
Offering; (ii) the Proposed Acquisitions and related capital expenditures; (iii)
capital expenditures on existing properties; and (iv) acquisitions which have
closed subsequent to June 30, 1996, as if such events had occurred on June 30,
1996.
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 and the
financial statements and notes thereto related to the Other Acquisitions
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 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> 130
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-----------------------------------------------------------
TRANSACTIONS
SUBSEQUENT TO PRO FORMA
COMPANY JUNE 30, 1996(B) ADJUSTMENTS PRO FORMA(A)
-------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............... $115,577 $(47,595) $ (27,421)(f) $ 434
(255,452)(d)
143,750(c)
(28,425)(e)
100,000(h)
Accounts receivable, net................ 19,354 19,354
Prepaid expenses and other current
assets............................... 2,488 2,488
Current program rights.................. 665 665
-------- -------- --------- --------
Total current assets............ 138,084 (47,595) (67,548) 22,941
Property and equipment, net............... 110,430 24,130 24,440(f) 205,666
46,666(d)
Intangible assets, net.................... 121,301 37,130 240,289(d) 401,701
2,981(f)
Other assets, net......................... 28,480 (2,180) (11,195)(d) 15,105
Investments in broadcast properties....... 38,887 (14,985) (9,308)(d) 18,094
3,500
Program rights, net....................... 267 267
-------- -------- --------- --------
Total assets......................... $437,449 $ -- $ 226,325 $663,774
======== ======== ========= ========
LIABILITIES, REDEEMABLE SECURITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable other and accrued
liabilities.......................... $ 6,948 $ 6,948
Accrued interest........................ 6,730 6,730
Current portion of program rights
payable.............................. 642 642
Current portion of long-term debt....... 570 570
-------- -------- --------- --------
Total current liabilities....... 14,890 -- -- 14,890
Program rights payable.................... 277 277
Long-term debt............................ 3,765 $ 100,000(h) 103,765
Senior subordinated notes, net (g)........ 227,508 227,508
Redeemable Senior preferred stock......... 18,393 (18,393)(e) --
Redeemable Series B preferred stock....... 2,990 (2,990)(e) --
Redeemable Junior preferred stock......... 34,090 34,090
Redeemable Exchangeable preferred stock... -- 150,000(c) 143,750
(6,250)(c)
Class A Common Stock...................... 39 1(d) 40
Class B Common Stock...................... 8 8
Class C Common Stock...................... -- --
Class A and B common stock warrants....... 6,863 6,863
Class C common stock warrants............. 4,282 4,282
Stock subscription notes receivable....... (17) (17)
Additional paid-in capital................ 197,425 10,999(d) 208,424
Deferred option plan compensation......... (1,950) (1,950)
Accumulated deficit....................... (71,114) (7,042)(e) (78,156)
-------- -------- --------- --------
Total liabilities, redeemable
securities and common
stockholders' equity.......... $437,449 $ -- $ 226,325 $663,774
======== ======== ========= ========
</TABLE>
P-3
<PAGE> 131
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(a) The pro forma balance sheet at June 30, 1996 gives effect to: (i) the
consummation of the Offering; (ii) the Proposed Acquisitions and related capital
expenditures; (iii) capital expenditures on existing properties; and (iv)
acquisitions which have closed subsequent to June 30, 1996.
(b) To reflect the use of cash for acquisitions subsequent to June 30,
1996, including the exercise of options to purchase WTJC-TV, KUBD-TV, WCEE-TV,
KWBF-TV and other acquisitions as well as the financing of $3,500 in connection
with CNI's acquisition of WHKE-TV, preliminary purchase accounting allocations
for such acquisitions and related capital expenditures. Use of cash is net of
$2,180 of funds escrowed at June 30, 1996 and notes receivable of $14,985
previously recorded as investments in broadcast properties. Use of cash for
acquisitions closed subsequent to June 30, 1996 is detailed as follows:
<TABLE>
<S> <C>
Property and equipment.................................................... $ 24,130
Intangible assets......................................................... 37,130
Other assets.............................................................. (2,180)
Investments in broadcast properties....................................... 3,500
Application of previous investments in broadcast properties............... (14,985)
--------
Cash used for acquisitions.............................................. $ 47,595
========
</TABLE>
(c) To reflect the proceeds from the Offering of $150,000, net of
underwriting discounts and commissions and estimated offering expenses of
$6,250.
(d) To reflect the use of proceeds for the Proposed Acquisitions and
related capital expenditures, preliminary purchase accounting allocations for
such acquisitions and related capital expenditures. Use of proceeds is net of
$11,195 of funds escrowed and advanced which are included in other assets, notes
receivable of $9,308 previously recorded as investments in broadcast properties
and the issuance of $11,000 of the Company's Class A Common Stock in connection
with the proposed acquisition of WSHE-FM and WSRF-AM and the options to acquire
WOAC-TV, WNGM-TV and WTVX-TV. Use of proceeds for Proposed Acquisitions and
related capital expenditures are detailed as follows:
<TABLE>
<S> <C>
Property and equipment.................................................... $ 46,666
Intangible assets......................................................... 240,289
Other assets.............................................................. (11,195)
Application of previous investments in broadcast properties............... (9,308)
Common Stock and additional paid-in capital............................... (11,000)
--------
Proceeds used for Proposed Acquisitions and related capital
expenditures......................................................... $255,452
========
</TABLE>
(e) To reflect the redemption of the Senior Preferred Stock including $950
of redemption premiums and approximately $6,527 of accretion and accrued
dividends from June 30, 1996 through December 15, 1996, the initial date at
which the Senior Preferred Stock can be redeemed by the Company. The redemption
value and accrued dividends of the Senior Preferred Stock at December 15, 1996
has been discounted by $435 at 7.3% to reflect the Company's anticipated
redemption date of October 1, 1996, in accordance with the revised terms of the
Senior Preferred Stock.
(f) To reflect the use of proceeds for capital expenditures on existing
properties.
(g) $230,000 Senior Subordinated Notes issued on September 28, 1995, net of
$2,700 original issue discount, due 2002.
(h) To reflect the Pro Forma borrowings under the Company's $100 million
Credit Facility in order to complete the Proposed Acquisitions and related
capital expenditures.
For additional information with respect to specific prices and capital
expenditures for each Proposed Acquisition, see "The Proposed Acquisitions and
Capital Expenditures."
P-4
<PAGE> 132
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------------------------------------------
WSHE-FM OTHER PRO FORMA
COMPANY(A) WSRF-AM ACQUISITIONS(B) ADJUSTMENTS PRO FORMA(C)
---------- ------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues................. $ 69,370 $1,826 $10,367 $ 645(n) $ 82,208
Operating expenses, excluding
depreciation, amortization
and option plan
compensation................. 51,724 1,953 8,448 (789)(e) 61,728
392(n)
Option plan compensation(f).... 2,292 2,292
Depreciation and
amortization................. 11,737 66 677 12,801(g) 25,281
-------- ------ ------ -------- --------
Income (loss) from
operations................... 3,617 (193 ) 1,242 (11,759) (7,093)
Interest expense............... (15,098) (457 ) (123) (3,805)(h) (19,483)
Interest income................ 4,035 4 (1,302)(i) 2,737
Other income (expense), net.... (559) 2 (224) 61(j) (720)
-------- ------ ------ -------- --------
Net income (loss).............. (8,005) $ (648 ) $ 899 (16,805) (24,559)
====== ======
Dividends and accretion on
preferred stock and common
stock warrants(k)............ (7,414) (4,831)(l) (12,245)
-------- -------- --------
Net loss attributable to common
stock(n)..................... $(15,419) $ (21,636) $(36,804)
======== ======== ========
Loss per share data:
Net loss..................... $ (0.20) $ (0.51)
Net loss attributable to
common stock.............. $ (0.38) $ (0.77)
Weighted average shares
outstanding.................. 40,567 7,236(m) 47,803
======== ======== ========
</TABLE>
P-5
<PAGE> 133
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------------------------------------------------
LOS
ANGELES BOSTON WEST PALM WSHE-FM
(KZKI- (WGOT- BEACH WSRF- OTHER PRO FORMA PRO
COMPANY(A) TV)(B) TV)(B) (WTVX-TV)(B) AM(B) ACQUISITIONS(B) ADJUSTMENTS FORMA(C)
-------- --------- --------- ------------ --------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues....... $103,074 $ 1,019 $ 600 $3,124 $ 7,684 $22,699 $ 289(d) $ 138,296
(193)(n)
Operating expenses,
excluding
depreciation,
amortization and
option plan
compensation........ 82,103 351 583 2,682 5,329 22,438 (3,477)(e) 110,228
155(d)
64(n)
Option plan
compensation(f)..... 10,803 10,803
Depreciation and
amortization........ 18,719 279 128 294 527 1,461 25,066(g) 46,474
-------- ------ ----- ------ ------- ------- -------- --------
Income (loss) from
operations.......... (8,551) 389 (111) 148 1,828 (1,200) (21,712) (29,209)
Interest expense..... (16,303) (271) (174) (532) (1,116) (293) (20,277)(h) (38,966)
Interest income...... 1,709 6 (14)(i) 1,701
Other income
(expense), net...... (982) (10) (88) 5 72 (174)(j) (1,177)
Benefit for income
taxes............... 1,280 1,280
Extraordinary item... (10,626) (10,626)
-------- ------ ----- ------ ------- ------- -------- --------
Net income (loss).... (33,473) $ 118 $(295) $ (472) $ 717 $(1,415) (42,177) (76,997)
====== ===== ====== ======= =======
Dividends and
accretion on
preferred stock and
common stock
warrants(k)......... (13,297) (10,804)(l) (24,101)
-------- -------- --------
Net loss attributable
to common
stock(n)............ $(46,770) $ (52,981) $(101,098)
======== ======== ========
Loss per share data:
Net loss............ $ (0.97) $ (1.62)
Net loss
attributable to
common
stock............. $ (1.36) $ (2.12)
Weighted average
shares
outstanding....... 34,430 13,181(m) 47,611
======== ======== ========
</TABLE>
P-6
<PAGE> 134
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(a) Reflect the results of operations during the year ended December 31,
1995 and the six months ended June 30, 1996 for (i) significant business
acquisitions of KZKI-TV, WGOT-TV and WTVX-TV since their respective dates of
acquisition in 1995; (ii) asset acquisitions and insignificant business
acquisitions since their dates of acquisition; (iii) operations pursuant to time
brokerage agreements ("TBAs") since their respective dates of commencement; and
(iv) insignificant terminated operations until such time of termination.
(b) Reflects prior operator results.
(c) Pro forma statements of operations for the year ended December 31, 1995
and the six months ended June 30, 1996, give effect to (i) the consummation of
the Offering; (ii) the significant business acquisitions of KZKI-TV, WGOT-TV and
WTVX-TV in 1995; (iii) the proposed significant business acquisition of the Fort
Lauderdale Radio Stations (WPLL-FM and WSRF-AM); (iv) the Other Acquisitions;
(v) the Equity Offering; (vi) the termination of the put rights of the holders
of the Class A and B Common Stock Warrants; and (vii) the issuance of the Notes,
on September 28, 1995, as if such events had occurred on January 1, 1995. Other
Proposed Acquisitions are asset acquisitions or are immaterial both individually
and in the aggregate and are therefore not included in the pro forma financial
information. Where necessary, prior operators' fiscal years have been conformed
to the Company's December 31 year end. In addition, depreciation and
amortization expense and interest expense have been increased for each of the
periods presented to reflect the purchase of all stations and other capital
expenditures included in the Proposed Acquisitions and acquisitions which have
closed subsequent to June 30, 1996.
(d) Reflects KZKI's operations from January 1, 1995 to January 31, 1995.
(e) To reflect for the year ended December 31, 1995 (i) the elimination of
$372 of general and administrative costs which represent redundant facilities
and staff for WTVX-TV; (ii) the elimination of $495 which represents TBA fees
paid by the Company to prior licensees of stations acquired; (iii) the
elimination of stockholder salaries of $300 incurred by WHUB, Inc.; (iv) the
elimination of redundant operating expenses of $375 incurred by Todd
Communications, Inc.; (v) the elimination of $736 of redundant corporate
overhead of WPLL-FM and WSRF-AM; (vi) the increase in time brokerage expense of
$104 for TBA fees for WTVX-TV, to reflect amounts payable had the TBA been
entered into on January 1, 1995; (vii) the elimination of $214 of general and
administrative costs which represent redundant operating expenses for WIOD-AM;
and (viii) the elimination of $1,089 of legal settlement costs for KCMY-TV.
To reflect for the six months ended June 30, 1996 (i) the elimination of
stockholder salaries of $144 incurred by WHUB, Inc.; (ii) the elimination of
redundant operating expenses of $77 incurred by Todd Communications, Inc.; (iii)
the elimination of $499 of redundant corporate overhead of WPLL-FM and WSRF-AM
and (iv) the elimination of $69 of general and administrative costs which
represent redundant operating expenses for WIOD-AM.
(f) 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-7
<PAGE> 135
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(g) To reflect the increase in depreciation and amortization expense for
purchase accounting allocations made for the acquisitions which have closed
since January 1, 1995, the Proposed Acquisitions and acquisitions closed
subsequent to June 30, 1996 as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------------
<S> <C> <C>
Pro forma depreciation................................... $ 26,292 $ 14,540
Pro forma amortization................................... 20,182 10,741
-------- --------
Total pro forma depreciation and
amortization................................. 46,474 25,281
Less: amounts as reported................................ (21,408) (12,480)
-------- --------
Total.......................................... $ 25,066 $ 12,801
======== ========
</TABLE>
(h) Adjustment necessary to reflect interest expense associated with the
$230,000 Senior Subordinated Notes issued on September 28, 1995 and other debt
outstanding at June 30, 1996, as if such debt had been outstanding since January
1, 1995, and the effect of the reduction in outstanding short term borrowings as
a result of the Equity Offering, as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE
DECEMBER 31, SIX MONTHS ENDED
1995 JUNE 30, 1996
------------ ----------------
<S> <C> <C>
11% Senior Subordinated Notes due 2002................... $ 26,999 $ 13,499
Other debt............................................... 10,434 5,217
Amortization of loan costs............................... 1,533 767
-------- --------
Total pro forma interest expense............... 38,966 19,483
Less: amounts as reported................................ (18,689) (15,678)
-------- --------
Total.......................................... $ 20,277 $ 3,805
======== ========
</TABLE>
(i) To reflect the elimination of interest income earned on investments in
broadcast properties of $1,302 for the six months ended June 30, 1996 and $14
for the year ended December 31, 1995 as such investments are assumed to have
been applied towards the purchase price of certain acquisitions and proposed
acquisitions as of January 1, 1995.
(j) To reflect (i) the elimination of $272 of marketing fees from
affiliates earned by Southern Broadcasting Companies, Inc. during 1995 ($37 of
marketing expenses to affiliates for the six months ended June 30, 1996); (ii)
the elimination of $24 for the six months ended June 30, 1996 in non-recurring
expenses incurred by KXLI relating to a joint operations agreement; and (iii)
the elimination of $98 of non-recurring expenses for the year ended December 31,
1995 relating to the bankruptcy reorganization of WTVX-TV.
(k) 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."
(l) To reflect the redemption of the Senior Preferred Stock and the
issuance of the Redeemable Cumulative Exchangeable Preferred Stock and the net
pro forma effect on dividends and accretion on preferred stock, using a dividend
rate of 12.5% on the Redeemable Cumulative Exchangeable preferred stock.
(m) To reflect an increase in the weighted average shares outstanding as a
result of the Equity Offering, 139 shares in connection with the acquisition of
Todd Communications, Inc. (WFSJ-FM) and 888 shares of Class A Common Stock in
connection with certain Proposed Acquisitions as if such events had taken place
on January 1, 1995.
(n) To conform KCMY-TV's April 30 fiscal year end to the Company's December
31 year end.
P-8
<PAGE> 136
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------------------------------
WEST PALM
BEACH WSHE-FM OTHER PRO FORMA
COMPANY(A) (WTVX-TV)(B) WSRF-AM(B) ACQUISITIONS(B) ADJUSTMENTS PRO FORMA(C)
---------- ------------ ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues....... $128,088 $ 482 $ 5,369 $ 23,117 $157,056
Operating expenses,
excluding
depreciation,
amortization and
option plan
compensation....... 96,182 491 4,600 21,596 $ (3,119)(d) 119,750
Option plan
compensation(e).... 3,691 3,691
Depreciation and
amortization....... 22,402 42 330 1,414 25,303(f) 49,491
-------- ----- ----- ------- ------- --------
Income (loss) from
operations......... 5,813 (51) 439 107 (22,184) (15,876)
Interest expense..... (26,514) (85) (1,181) (317) (10,869)(g) (38,966)
Interest income...... 5,166 10 (1,309)(h) 3,867
Other income
(expense), net..... (1,527) (22) 10 (411) (26)(i) (1,976)
Benefit for income
taxes.............. 640 640
Extraordinary item... (10,626) (10,626)
-------- ----- ----- ------- ------- --------
Net income (loss).... (27,048) $ (158) $ (732) $ (611) (34,388) (62,937)
===== ===== =======
Dividends and
accretion on
preferred stock and
common stock
warrants(j)........ (14,847) (9,453)(k) (24,300)
------- --------
Net loss attributable
to common stock.... $(41,895) $ (43,841) $(87,237)
======== ======= ========
Loss per share data:
Net loss........... $ (0.67) $ (1.32)
Net loss
attributable to
common stock..... $ (1.03) $ (1.83)
Weighted average
shares
outstanding...... 40,567 7,155(l) 47,722
======== ======= ========
</TABLE>
P-9
<PAGE> 137
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(a) Reflects the results of operations for the twelve months ended June 30,
1996 for the Company, as previously reported.
(b) Reflects prior operator results, during the twelve months ended June
30, 1996.
(c) Pro forma statement of operations data for the twelve months ended June
30, 1996, give effect to (i) the consummation of the Offering; (ii) the
significant business acquisition of WTVX-TV in 1995; (iii) the proposed
significant business acquisition of the Fort Lauderdale Radio Stations (WPLL-FM
and WSRF-AM); (iv) the Other Acquisitions; (v) the Equity Offering; (vi) the
termination of the put rights of the holders of the Class A and B Common Stock
Warrants; and (vii) the issuance of the Notes, as if such events had occurred on
July 1, 1995. Other Proposed Acquisitions are asset acquisitions or are
immaterial both individually and in the aggregate and are therefore not included
in the pro forma financial information. In addition, depreciation and
amortization expense and interest expense have been increased for the period
presented to reflect the purchase of all stations and other capital expenditures
included in the Proposed Acquisitions and acquisitions which have closed
subsequent to June 30, 1996.
(d) To reflect for the twelve months ended June 30, 1996 (i) the
elimination of $186 of general and administrative costs which represent
redundant facilities and staff for WTVX-TV; (ii) the elimination of $247 which
represents TBA fees paid by the Company to prior licensees of stations acquired;
(iii) the elimination of stockholder salaries of $294 incurred by WHUB, Inc.;
(iv) the elimination of redundant operating expenses of $265 incurred by Todd
Communications, Inc.; (v) the elimination of $867 of redundant corporate
overhead of WPLL-FM and WSRF-AM; and (vi) the increase in time brokerage expense
of $52 for TBA fees for WTVX-TV, to reflect amounts payable had the TBA been
entered into on January 1, 1995; (vii) the elimination of $223 of general and
administrative costs which represent redundant expenses for WIOD-AM; and (viii)
the elimination of $1,089 of legal settlement costs for KCMY-TV.
(e) 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."
(f) To reflect the increase in depreciation and amortization expense for
purchase accounting allocations made for the acquisitions which have closed
since July 1, 1995, the Proposed Acquisitions and acquisitions closed subsequent
to June 30, 1996 as follows:
<TABLE>
<CAPTION>
FOR THE
TWELVE MONTHS
ENDED
JUNE 30, 1996
-------------
<S> <C>
Pro forma depreciation................................................. $ 27,968
Pro forma amortization................................................. 21,523
--------
Total pro forma depreciation and amortization.......................... 49,491
Less: amounts as reported.............................................. (24,188)
--------
Total........................................................ $ 25,303
========
</TABLE>
P-10
<PAGE> 138
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(g) Adjustment necessary to reflect interest expense associated with the
$230,000 Senior Subordinated Notes issued on September 28, 1995 and other debt,
actual and pro forma, outstanding at June 30, 1996, as if such debt had been
outstanding since July 1, 1995, and the effect of the reduction in outstanding
short term borrowings as a result of the Equity Offering, as follows:
<TABLE>
<CAPTION>
FOR THE
TWELVE MONTHS
ENDED
JUNE 30, 1996
-------------
<S> <C>
11% Senior Subordinated Notes due 2002................................. $ 26,999
Other debt............................................................. 10,434
Amortization of loan costs............................................. 1,533
--------
Total pro forma interest expense............................. 38,966
Less: amounts as reported.............................................. (28,097)
--------
Total........................................................ $ 10,869
========
</TABLE>
(h) To reflect the elimination of interest income earned on investments in
broadcast properties of $1,309 for the twelve months ended June 30, 1996 as such
investments are assumed to have been applied towards the purchase price of
certain acquisitions and proposed acquisitions as of July 1, 1995.
(i) To reflect for the twelve months ended June 30, 1996 (i) the
elimination of $49 of non-recurring expenses relating to the bankruptcy
reorganization of WTVX-TV; (ii) the elimination of $99 of net marketing fees
from affiliates earned by Southern Broadcasting Companies, Inc.; and (iii) the
elimination of $24 in non-recurring expenses incurred by KXLI relating to a
joint operations agreement.
(j) 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."
(k) To reflect the redemption of the Senior Preferred Stock and the
issuance of the Redeemable Cumulative Exchangeable Preferred Stock and the net
pro forma effect on dividends and accretion on preferred stock, using a dividend
rate of 12.5% on the Redeemable Cumulative Exchangeable preferred stock.
(l) To reflect an increase in the weighted average shares outstanding as a
result of the Equity Offering, 139 shares in connection with the acquisition of
Todd Communications, Inc. (WFSJ-FM) and 888 shares of Class A Common Stock in
connection with certain Proposed Acquisitions as if such events had taken place
on July 1, 1995.
P-11
<PAGE> 139
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 140
PAXSON COMMUNICATIONS CORPORATION
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PAXSON COMMUNICATIONS CORPORATION
Consolidated Financial Statements -- December 31, 1995, 1994, and 1993
Report of Independent Certified Public Accountants.......................................................... F-3
Consolidated Balance Sheets................................................................................. F-4
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-8
PAXSON COMMUNICATIONS CORPORATION
Unaudited Interim Consolidated Financial Statements -- June 30, 1996 and 1995
Consolidated Balance Sheets June 30, 1996 and December 31, 1995............................................. F-35
Consolidated Statements of Operations for the Six Months Ended.............................................. F-36
Consolidated Statements of Operations for the Three Months Ended............................................ F-37
Consolidated Statements of Changes in Common Stockholders' Equity........................................... F-38
Consolidated Statements of Cash Flows....................................................................... F-39
Notes to Consolidated Financial Statements.................................................................. F-40
WTKS-FM (A DIVISION OF PRESS BROADCASTING COMPANY)
Financial Statements -- December 31, 1995
Report of Independent Certified Public Accountants.......................................................... F-41
Balance Sheet............................................................................................... F-42
Statement of Operations and Divisional Deficit.............................................................. F-43
Statement of Cash Flows..................................................................................... F-44
Notes to Financial Statements............................................................................... F-45
WHUB, INC.
Financial Statements -- December 31, 1995
Report of Independent Certified Public Accountants.......................................................... F-49
Balance Sheet............................................................................................... F-50
Statement of Operations..................................................................................... F-51
Statement of Changes in Stockholders' Equity................................................................ F-52
Statement of Cash Flows..................................................................................... F-53
Notes to Financial Statements............................................................................... F-54
TODD COMMUNICATIONS, INC. (WFSJ-FM)
Financial Statements -- December 31, 1995
Report of Independent Certified Public Accountants.......................................................... F-56
Balance Sheet............................................................................................... F-57
Statement of Operations..................................................................................... F-58
Statement of Changes in Stockholders' Deficit............................................................... F-59
Statement of Cash Flows..................................................................................... F-60
Notes to Financial Statements............................................................................... F-61
</TABLE>
F-1
<PAGE> 141
PAXSON COMMUNICATIONS CORPORATION
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
SOUTHERN BROADCASTING COMPANIES, INC.
Combined Financial Statements -- December 31, 1995
Report of Independent Certified Public Accountants.......................................................... F-64
Balance Sheet............................................................................................... F-65
Statement of Operations..................................................................................... F-66
Statement of Changes in Shareholders' Equity................................................................ F-67
Statement of Cash Flows..................................................................................... F-68
Notes to Financial Statements............................................................................... F-69
FORT LAUDERDALE RADIO STATIONS (A DIVISION OF T.K. COMMUNICATIONS, L.C.)
Financial Statements -- December 31, 1995
Independent Auditors' Report................................................................................ F-72
Balance Sheets.............................................................................................. F-73
Statements of Income........................................................................................ F-74
Statements of Divisional Equity (Deficit)................................................................... F-75
Statements of Cash Flows.................................................................................... F-76
Notes to Financial Statements............................................................................... F-77
RADIO STATION WDIZ-FM (A DIVISION OF SHAMROCK COMMUNICATIONS, INC.)
Financial Statements -- December 31, 1995
Independent Auditor's Report................................................................................ F-83
Balance Sheet............................................................................................... F-84
Statement of Income and Expenses............................................................................ F-85
Statement of Divisional Equity.............................................................................. F-86
Statement of Cash Flows..................................................................................... F-87
Notes to Financial Statements............................................................................... F-88
KXLI (A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
Financial Statements -- December 31, 1995
Independent Auditors' Report................................................................................ F-91
Balance Sheet............................................................................................... F-92
Statement of Income......................................................................................... F-93
Statement of Partners' Capital.............................................................................. F-94
Statement of Cash Flows..................................................................................... F-95
Notes to Financial Statements............................................................................... F-96
RADIO STATION WIOD-AM (A DIVISION OF WIOD, INC.)
Financial Statements -- December 31, 1995
Independent Auditors' Report................................................................................ F-103
Special-Purpose Statements of Net Assets.................................................................... F-104
Special-Purpose Statements of Operations.................................................................... F-105
Notes to Special-Purpose Financial Statements............................................................... F-106
PONCE NICASIO BROADCASTING
Financial Statements -- April 30, 1996
Report of Independent Certified Public Accountants.......................................................... F-109
Balance Sheet............................................................................................... F-110
Statement of Operations..................................................................................... F-111
Statement of Changes in Partners' Deficit................................................................... F-112
Statement of Cash Flows..................................................................................... F-113
Notes to Financial Statements............................................................................... F-114
</TABLE>
F-2
<PAGE> 142
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
of Paxson Communications Corporation
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 Corporation and its subsidiaries
(the "Company") at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, 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.
/s/ Price Waterhouse LLP
- ---------------------------------------------------------
PRICE WATERHOUSE LLP
Fort Lauderdale, Florida
February 28, 1996
F-3
<PAGE> 143
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 68,070,990 $ 21,571,658
Accounts receivable, less allowance for doubtful accounts of $909,713 and $556,950,
respectively........................................................................ 17,726,415 13,569,198
Prepaid expenses and other current assets............................................. 971,363 1,579,954
Current deferred income taxes......................................................... -- 194,940
Current program rights................................................................ 1,412,544 1,980,000
------------ ------------
Total current assets............................................................ 88,181,312 38,895,750
Property and equipment, net............................................................. 79,859,080 45,350,430
Intangible assets, net.................................................................. 84,318,147 53,350,967
Other assets, net....................................................................... 19,896,694 13,078,346
Investments in broadcast properties..................................................... 21,192,030 1,750,000
Program rights, net..................................................................... 384,814 244,888
------------ ------------
Total assets.................................................................... $293,832,077 $152,670,381
=========== ===========
LIABILITIES, REDEEMABLE SECURITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities........................................ $ 5,030,692 $ 4,899,163
Accrued interest...................................................................... 6,932,342 224,528
Current portion of program rights payable............................................. 1,449,602 986,562
Current portion of long-term debt..................................................... 430,590 6,393,415
------------ ------------
Total current liabilities....................................................... 13,843,226 12,503,668
Program rights payable.................................................................. 432,750 562,770
Deferred income taxes................................................................... -- 1,474,940
Long-term debt.......................................................................... 12,484,024 76,013,542
Senior subordinated notes, net.......................................................... 227,374,911 --
Minority interest....................................................................... -- 1,217,314
Redeemable Cumulative Compounding Senior preferred stock, $0.001 par value; 15% dividend
rate per annum, 2,000 shares authorized, issued and outstanding....................... 16,824,082 14,060,054
Redeemable Class A & B common stock warrants............................................ 6,465,317 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............ 2,352,654 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...................... 31,533,910 26,808,053
Class A common stock, $0.001 par value; one vote per share; 150,000,000 shares
authorized, 26,226,826 and 26,042,561 shares issued and outstanding in 1995 and 1994,
respectively.......................................................................... 26,227 26,042
Class B common stock, $0.001 par value; ten votes per share; 35,000,000 shares
authorized and 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; no
shares issued and outstanding......................................................... -- --
Class C common stock warrants........................................................... 5,338,952 5,338,952
Stock subscription notes receivable..................................................... (115,714) (77,666)
Additional paid-in capital.............................................................. 34,342,086 20,647,647
Deferred option plan compensation....................................................... (1,384,267) --
Accumulated deficit..................................................................... (55,694,393) (8,923,897)
Commitments and contingencies (Note 17)
------------ ------------
Total liabilities, redeemable securities and common stockholders' equity........ $293,832,077 $152,670,381
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-4
<PAGE> 144
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
<S> <C> <C> <C>
Revenues:
Local and national advertising............................................ $ 94,653,514 $56,668,983 $ 29,405,559
Retail and other.......................................................... 5,352,044 2,779,215 1,655,155
Trade and barter.......................................................... 3,068,354 2,619,245 1,001,317
------------ ----------- ------------
Total revenues...................................................... 103,073,912 62,067,443 32,062,031
------------ ----------- ------------
Operating expenses:
Direct.................................................................... 24,921,653 16,789,757 9,479,408
Programming............................................................... 12,822,813 8,750,624 5,291,237
Sales and promotion....................................................... 9,093,769 5,753,025 3,507,480
Technical................................................................. 4,955,588 2,113,117 1,543,583
General and administrative................................................ 22,138,236 11,689,343 7,323,352
Trade and barter.......................................................... 2,604,950 2,426,118 1,029,105
Time brokerage agreement fees............................................. 993,893 503,698 698,463
Sports rights fees........................................................ 2,806,121 2,379,516 --
Option plan compensation.................................................. 10,803,241 -- --
Program rights amortization............................................... 1,765,942 820,754 --
Depreciation and amortization............................................. 18,719,109 12,403,528 9,350,633
------------ ----------- ------------
Total operating expenses............................................ 111,625,315 63,629,480 38,223,261
------------ ----------- ------------
Loss from operations........................................................ (8,551,403) (1,562,037) (6,161,230)
Other income (expense):
Interest expense.......................................................... (16,302,641) (5,210,148) (2,052,406)
Interest income........................................................... 1,708,942 335,438 112,719
Gain on sale of radio broadcasting station................................ -- 28,105 427,397
Other income (expense), net............................................... (982,461) (33,432) (318,333)
------------ ----------- ------------
Loss before benefit (provision) for income taxes and extraordinary item..... (24,127,563) (6,442,074) (7,991,853)
Benefit (provision) for income taxes........................................ 1,280,000 1,680,000 (2,960,000)
------------ ----------- ------------
Loss before extraordinary item.............................................. (22,847,563) (4,762,074) (10,951,853)
Extraordinary item.......................................................... (10,625,727) -- (457,147)
------------ ----------- ------------
Net loss.................................................................... (33,473,290) (4,762,074) (11,409,000)
Dividends and accretion on preferred stock and common stock warrants........ (13,297,206) (3,385,456) (151,367)
------------ ----------- ------------
Net loss attributable to common stock....................................... $(46,770,496) $(8,147,530) $(11,560,367)
=========== ========== ===========
Per share data (Note 1):
Loss before extraordinary item............................................ $ (0.66) $ (0.14) $ (0.35)
Extraordinary item........................................................ (0.31) -- (0.01)
------------ ----------- ------------
Net loss.................................................................. (0.97) (0.14) (0.36)
Dividends and accretion on preferred stock and common stock warrants...... (0.39) (0.10) (0.01)
------------ ----------- ------------
Net loss attributable to common stock....................................... $ (1.36) $ (0.24) $ (0.37)
=========== ========== ===========
Weighted average shares outstanding -- primary & fully diluted.............. 34,429,517 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> 145
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS C STOCK
COMMON STOCK COMMON SUBSCRIPTION ADDITIONAL DEFERRED
--------------------------- COMMON STOCK NOTES PAID-IN OPTION 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,
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 redeemable
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 -- -- 5,338,952 (77,666) 20,647,647 -- (8,923,897 )
Stock issued for
Cookeville
acquisition...... 95 1,199,905
Deferred option
plan
compensation..... 12,187,508 $(12,187,508)
Option plan
compensation..... 10,803,241
Stock options
exercised........ 90 307,026
Increase in stock
subscription
receivable....... (48,029)
Repayments of
stock
subscription
receivable....... 9,981
Dividends on
redeemable
preferred
stock............ (7,275,516 )
Accretion on
Senior redeemable
preferred
stock............ (332,156 )
Accretion on
Series B
preferred
stock............ (325,208 )
Accretion on
Junior preferred
stock............ (634,988 )
Accretion on Class
A & B common
stock warrants... (4,729,338 )
Net loss.......... (33,473,290 )
------- ------- -------- --------- ---------- ------------ ----------- ------------- ------------
Balance at
December 31,
1995............. $26,227 $8,312 $-- $-- $5,338,952 $ (115,714) $34,342,086 $ (1,384,267 ) $(55,694,393)
======= ======== ======== ========= =========== ============= ============ ============== =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-6
<PAGE> 146
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................ $ (33,473,290) $ (4,762,074) $(11,409,000)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization......................................... 18,719,109 12,403,528 9,350,633
Option plan compensation.............................................. 10,803,241 -- --
Program rights amortization........................................... 1,765,942 820,754 --
Provision for doubtful accounts....................................... 1,098,181 344,706 89,681
Deferred income taxes................................................. (1,280,000) (1,680,000) 2,960,000
(Gain) loss on sale of assets......................................... 145,857 (28,105) (427,397)
Loss on extinguishment of long-term debt.............................. 10,625,727 -- 457,147
Decrease (increase) in accounts receivable............................ (5,255,398) (1,683,664) 470,942
Decrease in prepaid expenses and other current assets................. 608,591 234,301 1,308,404
Decrease (increase) in intangible assets.............................. (1,200,000) -- 175,452
Decrease (increase) in other assets................................... 1,564,822 (392,504) (20,731)
(Decrease) increase in accounts payable and other accrued
liabilities......................................................... 131,529 (313,225) (138,259)
Increase in accrued interest.......................................... 6,707,814 135,683 28,768
------------- ------------ ------------
Net cash provided by operating activities......................... 10,962,125 5,079,400 2,845,640
------------- ------------ ------------
Cash flows from investing activities:
Acquisitions of broadcasting properties................................. (58,510,509) (56,143,061) (32,145,000)
Increase in investments in broadcast properties......................... (19,442,030) -- (1,750,000)
Deposits on broadcasting properties..................................... (2,381,619) (4,291,241) --
Purchases of property and equipment..................................... (25,016,816) (5,916,512) (1,962,553)
Deposits on buildings and equipment..................................... (735,074) (642,890) --
Proceeds from sale of radio broadcasting station........................ -- 200,000 5,010,000
Proceeds from sale of fixed assets...................................... 466,820 -- --
------------- ------------ ------------
Net cash used in investing activities............................. (105,619,228) (66,793,704) (30,847,553)
------------- ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt, net....................................... 327,539,000 50,000,000 38,100,000
Payments of long-term debt.............................................. (169,722,340) (401,500) (27,001,362)
Accretion of discount on senior subordinated notes...................... 65,911 -- --
Payments of loan origination costs...................................... (15,896,473) (5,030,352) (3,730,836)
Payments for program rights............................................. (1,098,731) (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
Proceeds from exercise of common stock options.......................... 307,116 -- --
Increase in stock subscription notes receivable......................... (48,029) -- --
Repayments of stock subscription notes receivable....................... 9,981 -- --
------------- ------------ ------------
Net cash provided by financing activities......................... 141,156,435 76,266,215 34,366,643
------------- ------------ ------------
Increase in cash and cash equivalents..................................... 46,499,332 14,551,911 6,364,730
Cash and cash equivalents at beginning of year............................ 21,571,658 7,019,747 655,017
------------- ------------ ------------
Cash and cash equivalents at end of year.................................. $ 68,070,990 $ 21,571,658 $ 7,019,747
============ =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest.................................................. $ 8,292,274 $ 4,765,800 $ 2,321,400
============ =========== ===========
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 $ --
============ =========== ===========
Issuance of common stock for Cookeville acquisition..................... $ 1,200,000 $ -- $ --
============ =========== ===========
Dividends accreted on redeemable preferred stock........................ $ 7,275,516 $ 2,216,137 $ 97,808
============ =========== ===========
Accretion on redeemable securities...................................... $ 6,021,690 $ 1,169,319 $ 53,559
============ =========== ===========
Issuance of Series B preferred stock.................................... $ -- $ 1,248,209 $ --
============ =========== ===========
Trade and barter revenue................................................ $ 3,068,354 $ 2,619,245 $ 1,001,317
============ =========== ===========
Trade and barter expense................................................ $ 2,604,950 $ 2,426,118 $ 1,029,105
============ =========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-7
<PAGE> 147
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Paxson Communications Corporation (the "Company"), a Delaware corporation,
was organized in December 1993 for the purpose of owning and operating radio and
television broadcasting stations and networks. In January 1995, the Company
began operating its Infomall Television Network (the "Infomall TV Network" or
"inTV"). The radio broadcasting activities were previously operated by
businesses under common control of Mr. Lowell W. Paxson which were reorganized
into the Company on December 15, 1993, in exchange for Company common stock. The
reorganization was accounted for in a manner similar to the pooling of interests
accounting method which included the operating results prior to December 15,
1993 because the transactions took place among entities under common control.
On April 14, 1994, the Company acquired 68.1% of the common voting stock of
The American Network Group, Inc. ("ANG"), a Nasdaq Small-Cap Market traded
company. The Company has consolidated the financial results of ANG since that
time. On November 4, 1994, ANG stockholders approved the merger of ANG into the
Company through an exchange of common stock, which resulted in the Company's
Class A common stock becoming publicly-held. 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. The per share pro
forma effect of the merger and recapitalization has been presented on the
Company's statement of operations for the two years ended December 31, 1994
based on the weighted average common shares outstanding (Note 15).
Operations
The Company operates three business segments: (1) the Infomall TV Network
is a nationwide network of owned, operated and affiliated television stations
dedicated to the airing of long form paid programming, consisting primarily of
infomercials; (2) Paxson Radio consists of radio broadcasting stations, radio
news and sports networks and billboard operations; and (3) Paxson
Network-Affiliated Television includes network-affiliated television
broadcasting stations in West Palm Beach, Florida. See Note 18 for a listing of
stations which the Company began operating subsequent to year end. At December
31, 1995, operations were comprised of the following stations:
<TABLE>
<CAPTION>
INFOMALL TV NETWORK
COMMENCEMENT
OF
TV MARKET SERVED(1) STATION OPERATIONS OWNERSHIP
------------------------- -------- ------------ ---------------
<S> <C> <C> <C>
Owned or TBA Operated:
Los Angeles, CA........ KZKI-TV 1995 Owned
Philadelphia, PA....... WTGI-TV 1995 Owned
San Francisco, CA...... KLXV-TV 1995 Owned
Boston, MA............. WGOT-TV 1995 Owned
Washington, D.C........ WYVN-TV 1996 Owned
Atlanta, GA............ WTLK-TV 1994 Owned
Houston, TX............ KTFH-TV 1995 Owned
Cleveland, OH.......... WOAC-TV 1995 Time Brokerage
Tampa, FL.............. WFCT-TV 1994 Time Brokerage
Miami, FL.............. WCTD-TV 1994 Time Brokerage
Denver, CO............. KUBD-TV 1995 Time Brokerage
</TABLE>
F-8
<PAGE> 148
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
INFOMALL TV NETWORK
<S> <C> <C> <C> <C>
COMMENCEMENT
OF
TV MARKET SERVED(1) STATION OPERATIONS OWNERSHIP
------------------------- -------- ------------ ---------------
Orlando, FL............ WIRB-TV 1994 Time Brokerage
Hartford, CT........... WTWS-TV 1995 Owned
Dayton, OH............. WTJC-TV 1995 Time Brokerage
Affiliated:
Sacramento, CA......... KCMY-TV 1995 Affiliate
Norfolk, VA............ WJCB-TV 1995 Affiliate
<CAPTION>
PAXSON RADIO
RADIO MARKET SERVED(1) FORMAT
------------------- ------
<S> <C> <C> <C> <C>
Miami, FL................ WLVE-FM Smooth Jazz 1993 Owned
WZTA-FM Modern Rock 1992 Owned
WINZ-AM News/Sports 1992 Owned
WFTL-AM Talk/Sports 1995 Owned
Tampa, FL................ WHPT-FM Rock AC 1991 Owned
WSJT-FM Smooth Jazz 1995 Owned
WHNZ-AM News/Sports 1991 Owned
WNZE-AM Sports 1994 Owned
Orlando, FL.............. WMGF-FM Soft AC 1992 Owned
WJRR-FM Modern Rock 1992 Owned
WWNZ-AM News 1992 Owned
WWZN-AM Sports 1994 Owned
Jacksonville, FL......... WROO-FM Young Country 1991 Owned
WPLA-FM Alternative Rock 1992 Owned
WNZS-AM Sports 1993 Owned
WZNZ-AM News 1992 Owned
Cookeville, TN........... WGSQ-FM Country 1994 Owned
WPTN-AM Talk 1994 Owned
RADIO NETWORK
-------------
Alabama Radio Network.... News 1995 Owned
Florida Radio Network.... News 1993 Owned
South Carolina Radio
Network(2)............. News 1994 Owned
Tennessee Radio
Network................ News 1994 Owned
University of Florida
Sports Network......... Sports 1994 Owned
Miami Sports Network..... Sports 1995 Owned
Penn State Sports
Network................ Sports 1994 Owned
Virginia Tech Sports
Network(2)............. Sports 1994 Owned
</TABLE>
F-9
<PAGE> 149
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAXSON NETWORK-AFFILIATED
TELEVISION
TV MARKET SERVED(1) AFFILIATION
------------------------- -----------------
<S> <C> <C> <C> <C>
Owned or TBA Operated:
West Palm Beach, FL...... WPBF-TV ABC 1994 Owned
West Palm Beach, FL...... WTVX-TV Warner/UPN 1995 Time Brokerage
</TABLE>
- ---------------
(1) Each station is licensed by the Federal Communications Commission to serve a
specific community, which is included in the listed market.
(2) The Company sold the South Carolina Radio Network in January 1996 and will
not renew the rights to Virginia Tech Sports Network which will expire in
March 1996.
Principles of Consolidation
The consolidated financial statements include accounts of the Company and
its wholly-owned 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.
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", the effect of which was immaterial. At December 31, 1995,
approximately $58 million of debt securities, all classified as held to maturity
and consisting of money market accounts, commercial paper and overnight
repurchase agreements, were included in cash and cash equivalents because they
had 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.
Intangible Assets
The excess of cost over the fair value of acquired net assets has been
capitalized as goodwill. Intangible assets are being amortized using the
straight-line method over their estimated useful lives as follows (Note 5):
<TABLE>
<S> <C>
FCC licenses.......................................................... 25 years
Covenants not to compete.............................................. Contract term
Favorable lease and other contracts................................... Contract term
Goodwill.............................................................. 25 years
</TABLE>
F-10
<PAGE> 150
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments in Broadcast Properties
Investments in broadcast properties represent the Company's financing of
television and radio station acquisitions by third parties. The Company has
entered into time brokerage agreements ("TBAs") with such third parties for the
television station operations and has written options to purchase certain of the
related station assets and Federal Communications Commission ("FCC") licenses at
various amounts and terms (Notes 7 and 18).
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 when available to air. 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 next year under
contractual arrangements (Note 8).
Other Assets
Loan origination costs are stated at cost and are amortized to interest
expense over the life of the loan or agreement using the effective interest
method. Escrow funds represent funds held in escrow on acquisitions pending FCC
approval. Other assets are stated at cost (Note 6).
SFAS 121 Impairment of Long-Lived Assets and Identifiable Intangibles
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of", the effect of which was immaterial. The
Company reviews long-lived assets, identifiable intangibles and goodwill and
will reserve for impairment whenever events or changes in circumstances indicate
the carrying amount of the assets may not be fully recoverable.
Minority Interest
Minority interest at December 31, 1994 represented the third party's
limited partner's interest in the radio broadcasting stations located in
Cookeville, Tennessee. The Company purchased this minority interest in 1995
(Note 2).
Stock Subscription Notes Receivable
Stock subscription notes receivable were assumed in conjunction with the
merger with ANG. Stock subscription notes receivable also include employee
receivables issued upon exercise of stock options in conjunction with the
Company's stock incentive plan (Note 12).
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.
F-11
<PAGE> 151
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. At times, the Company
trades air time for property and equipment.
Time Brokerage Agreements
The Company operates certain stations under a time brokerage agreement
("TBA") whereby the Company has agreed to purchase from the broadcast station
licensee certain broadcast time on the station and to provide programming to and
sell advertising on the station during the purchased time. Accordingly, the
Company receives all the revenue derived from the advertising sold during the
purchased time, pays certain expenses of the station and performs other
functions. The broadcast station licensee retains responsibility for ultimate
control of the station in accordance with FCC policies. At December 31, 1995,
the Company operated seven stations under TBAs which expire from April 1999
through October 2005.
Stock Based Compensation
The Company will adopt Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") during 1996. Upon
adoption of SFAS 123, the Company intends to retain the intrinsic value method
of accounting for stock based compensation and disclose pro forma net loss and
loss per share amounts.
Income Taxes
Provisions are made to record deferred income taxes for items reported in
different periods 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".
Extraordinary Item
The extraordinary item for the years ended December 31, 1995 and 1993
relates to the write-off of loan origination costs associated with the
extinguishment of certain debt agreements. See a description of the tax effect
in Note 11.
Per Share Data
Per share data for the years ended December 31, 1994 and 1993 give a pro
forma effect to the Company's amended capital structure related to the merger
with ANG and the stock dividend on common shares outstanding on January 1, 1995
(Note 15). Due to net losses, the effect of stock options and warrants is anti-
dilutive and therefore these common stock equivalents are not included in the
calculation of weighted average shares outstanding.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-12
<PAGE> 152
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform with the 1995 presentation.
2. ACQUISITIONS, INVESTMENTS AND DISPOSITIONS:
Acquisitions and investments:
During 1995 and 1994, the Company acquired the assets of certain broadcast
properties. Purchases were accounted for using the purchase method of accounting
and the financial results of TBA operated stations have been included in the
Company's statement of operations since the commencement of the TBA.
Acquisitions and investments closed subsequent to December 31, 1995 are outlined
in Note 18. Acquisitions, investments and dispositions during 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>
ACQUISITION PRICE/
STATION/ INVESTMENT
ACQUISITION/TBA DATE NETWORK MARKET (1) AMOUNT(2)
- -------------------- ------------------------------------ -------------------- ------------------
<S> <C> <C> <C>
Owned:
October 1995 WYVN-TV(3) Washington, D.C. $ 1,900,000
June 1995 KLXV-TV San Francisco, CA 5,000,000
June 1995 WFTL-AM Miami, FL 2,000,000
May 1995 KZKI-TV Los Angeles, CA 18,000,000
May 1995 WGOT-TV Boston, MA 3,050,000
July/March 1995 KTFH-TV Houston, TX 7,900,000
March 1995 WTWS-TV Hartford, CT 2,700,000
March/February 1995 WSJT-FM Tampa, FL 4,675,000
February 1995 WTGI-TV Philadelphia, PA 10,200,000
January 1995 Alabama Radio Network Alabama 750,000
August 1994 WNZE-AM Tampa, FL 1,100,000
December 1994 WWZN-AM Orlando, FL 1,550,000
July 1994 WPBF-TV West Palm Beach, FL 32,500,000
July/April 1994 WTLK-TV Atlanta, GA 9,500,000
April 1994 WGSQ-FM(4) Cookeville, TN --
April 1994 WPTN-AM(4) Cookeville, TN --
April 1994 Florida Sports Network(5) Florida --
April 1994 Tennessee Radio Network(5) Tennessee --
April 1994 South Carolina Radio Network(5)(6) South Carolina --
April 1994 Penn State Sports Network(5) Pennsylvania --
April 1994 Virginia Tech Sports Network(5)(6) Virginia --
April 1994 Georgia Sports Network(5) Georgia --
TBA Operated:
October 1995 WOAC-TV(7) Cleveland, OH --
October 1995 WTJC-TV(7) Dayton, OH 3,500,000
August 1995 KUBD-TV(7) Denver, CO 6,500,000
</TABLE>
F-13
<PAGE> 153
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
ACQUISITION PRICE/
STATION/ INVESTMENT
ACQUISITION/TBA DATE NETWORK MARKET (1) AMOUNT(2)
- -------------------- ------------------------------------ -------------------- ------------------
<S> <C> <C> <C>
August 1995 WTVX-TV(7) West Palm Beach, FL --
December 1994 WIRB-TV Orlando, FL 3,800,000
August 1994 WFCT-TV(7) Tampa, FL 1,120,000
April 1994 WCTD-TV(7)(8) Miami, FL 3,300,000
</TABLE>
- ---------------
(1) Each station is licensed by the FCC to serve a specific community, which is
included in the listed market.
(2) Represents the purchase price paid by the Company for owned stations or the
initial amount of financing provided to the broadcast station licensee for
TBA operated stations with outstanding financings at December 31, 1995. The
outstanding financings at December 31, 1995 are reflected in investments in
broadcast properties (Note 7).
(3) Station is not currently on the air.
(4) A minority interest was acquired in connection with the merger with ANG
(Note 1). The remaining interest was purchased during 1995 for
approximately $3.4 million which consisted of cash paid, stock issued and
the forgiveness of outstanding debt.
(5) Acquired in conjunction with the merger with ANG (Note 1).
(6) The Company sold the South Carolina Radio Network in January 1996 and will
not renew the rights to Virginia Tech Sports Network which will expire in
March 1996. (Note 3)
(7) The Company currently holds an option to purchase the station from the
licensee (Note 7).
(8) Investment amount reflects the price paid by the Company for fixed assets
acquired.
Dispositions:
During 1995, the Company abandoned certain ancillary operations and did not
renew the rights to the Georgia Sports Network. The Company included the results
of operations of an aggregate net loss of $799,000 in the consolidated statement
of operations for such abandoned operations. During 1994, the Company disposed
of the assets of WWZN-AM for $300,000, resulting in a gain on disposition of
approximately $28,000. During 1993, the Company disposed of the assets of
WWNZ-FM for $5,010,000, resulting in a gain on disposition of approximately
$427,000.
Pro Forma (unaudited):
The Company's results of operations for the years ended December 31, 1995
and 1994 include the results of operations for acquisitions and investments in
broadcast properties from their respective dates of commencement. The following
unaudited pro forma statement of operations data give effect to significant
business acquisitions, investments or dispositions since January 1, 1994 as if
they had occurred on January 1, 1994. In addition, depreciation and amortization
has been increased each period to reflect initial purchase
F-14
<PAGE> 154
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price allocation on all acquisitions and investments (whether businesses or
assets), and interest expense on associated debt financing as if such
transactions and debt had occurred on January 1, 1994.
<TABLE>
<CAPTION>
PRO FORMA
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues.......................................................... $108,106,000 $ 79,595,000
=========== ===========
Loss from operations.............................................. $ (7,612,000) $ (6,054,000)
=========== ===========
Loss before extraordinary item.................................... $(35,289,000) $(34,052,000)
=========== ===========
Net loss attributable to common stock............................. $(59,212,000) $(57,143,000)
=========== ===========
Net loss per share attributable to common stock................... $ (1.72) $ (1.71)
=========== ===========
Pro forma weighted average shares outstanding..................... 34,429,517 33,430,116
=========== ===========
</TABLE>
3. CERTAIN TRANSACTIONS:
The Company enters into and maintains certain operating and financing
transactions with related parties as described below.
Christian Network, Inc.
The Company has entered into several agreements with The Christian Network,
Inc. and certain of its for profit subsidiaries (individually and collectively
referred to herein as "CNI"). The Christian Network, Inc. is a section 501(c)(3)
not-for-profit corporation to which Mr. Paxson was a substantial contributor and
was a director.
Investment in Broadcast Properties. At December 31, 1995, the Company had
investments in broadcast properties of $16,481,345 related to the Company's
financing of certain broadcasting acquisitions for CNI. In conjunction with
these financings, the Company has obtained TBAs with these stations and has
obtained options to purchase certain of these stations (Note 7).
KLDT-TV. During 1995, 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 TBA, Mr. Paxson initially loaned
CNI $1,000,000 to make a deposit in respect to such acquisition and guaranteed
the obligations of CNI under the purchase agreement and the TBA. On January 9,
1996, the Company purchased such note from Mr. Paxson at its face value.
CNI Agreement. 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 actions 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.
F-15
<PAGE> 155
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WFCT-TV Transactions. On December 17, 1993, Bradenton Broadcast
Television, Ltd. ("BBTC") entered into an agreement whereby CNI 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 license 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 ten year period beginning on the
first anniversary of the completion of construction of WFCT-TV. The price
payable to BBTC upon exercise of the option is $91,000 in cash and the
forgiveness of all outstanding indebtedness under the loan of $1,120,000.
WFCT-TV commenced broadcasting operations on August 1, 1994. The Company leases
certain broadcasting assets to BBTC for fees of $60,000 per annum. Additionally,
the Company entered into a partial TBA 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. 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 the Company. Mr. Paxson assigned his
rights and interests in the CNI loan to the Company 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 assigned to the Company 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
the Company its rights and interests under the TBA to provide up to twelve 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 the Company, 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 the Company CNI's
production assets in consideration for the cancellation of CNI's $2,500,000
promissory note held by the Company. CNI and the Company have also contracted,
effective as of August 1, 1994, for Paxson-66 to lease CNI's television
production and distribution facility to the Company for the purpose of producing
television programming for the Infomall TV Network.
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 they would have been if obtained in an
arm's length transaction with an unaffiliated third party.
Whitehead Media, Inc.
The Company initially financed the acquisition by Whitehead Media, Inc.
("Whitehead Media") of WTVX-TV and WOAC-TV. Whitehead Media subsequently
obtained financing from Banque Paribas, an affiliate of a holder of the
Company's Junior preferred stock, 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
F-16
<PAGE> 156
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
portion of Second Crystal's Class A common stock. The Company is permitted to
operate stations WTVX-TV and WOAC-TV pursuant to TBAs 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.
Home Shopping Network, Inc.
In connection with the departure in 1990 of Mr. Paxson from Home Shopping
Network, Inc. ("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. 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 in control (as defined with respect thereto)
of the Company. An intangible asset has been recorded for $1,200,000 which will
be amortized through maturity of the agreement.
Todd Communications, Inc.
In 1993, Mr. Paxson contributed to the Company, a demand note receivable in
the amount of $1,750,000 from Todd Communications, Inc. ("Todd Communications"),
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 recognized related to the note aggregated approximately $110,000, $70,900
and $6,560 for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company also performs limited sales support and administrative functions for
Todd Communications under a joint sales agreement. Todd Communications is billed
for efforts expended on terms comparable to those generally available from
unaffiliated third parties (Note 18).
World Travelers Network
On January 1, 1996, Mr. Paxson purchased the assets of the World Travelers
Network from the Company at their net book value of approximately $70,000.
South Carolina Radio Network
Effective January 1, 1996, Mr. Paxson purchased the assets of the South
Carolina Radio Network from the Company at their net book value of approximately
$45,000. Mr. Paxson subsequently sold such assets to a third party for $150,000,
with the excess over $45,000 being paid to the Company in accordance with the
parties' agreement.
Board of Directors
The Company has entered into transactions with certain members of its Board
of Directors.
F-17
<PAGE> 157
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Communications Equity Associates, Inc. ("CEA"). The Chairman of the Board
and Chief Executive Officer of CEA has been a director of the Company since
February 1995. The Company engaged CEA as a financial advisor in connection with
certain private placements and various other lending relationships. Fees paid to
CEA for these services totaled approximately $1,300,000, $1,855,000 and
$1,060,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Stockholder Agreements. Certain redeemable preferred stock and common
stock warrants are held by entities controlled by Mr. Paxson and entities which
are affiliates of two directors of the Company (Notes 13 and 14).
S. William Scott. S. William Scott, a director of the Company since
February 1995, has an arrangement with the Company to provide 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.
Mr. Scott was paid approximately $80,000, $84,000 and $84,000 for such services
during the years ended December 31, 1995, 1994 and 1993, respectively.
Additionally, Mr. Scott received benefits under the Company's health and
benefits plan and was granted options to purchase 10,000 shares of stock under
the Company's stock incentive plan.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Broadcasting towers and equipment......................... $ 70,179,364 $ 39,445,071
Office furniture and equipment............................ 8,370,232 5,075,412
Buildings and leasehold improvements...................... 9,447,395 4,302,476
Land and land improvements................................ 7,418,039 3,142,532
Vehicles and other........................................ 4,851,576 3,877,851
------------ ------------
100,266,606 55,843,342
Accumulated depreciation.................................. (20,407,526) (10,492,912)
------------ ------------
Property and equipment, net............................... $ 79,859,080 $ 45,350,430
=========== ===========
</TABLE>
Depreciation expense aggregated $10,083,135, $5,433,038 and $2,804,157 for
the years ended December 31, 1995, 1994 and 1993, respectively.
5. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
FCC licenses.............................................. $ 76,313,074 $ 42,332,125
Covenants not to compete.................................. 14,502,375 11,811,375
Favorable lease and other contracts....................... 6,801,433 6,514,507
Goodwill.................................................. 9,444,500 7,819,778
------------ ------------
107,061,382 68,477,785
Accumulated amortization.................................. (22,743,235) (15,126,818)
------------ ------------
Intangible assets, net.................................... $ 84,318,147 $ 53,350,967
=========== ===========
</TABLE>
F-18
<PAGE> 158
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization expense related to intangible assets aggregated $7,621,848,
$5,940,575 and $5,927,744 for the years ended December 31, 1995, 1994 and 1993,
respectively.
6. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Loan origination costs...................................... $10,722,939 $ 7,739,288
Escrow funds for station acquisitions....................... 6,672,860 4,291,241
Deposits on building and equipment.......................... 1,377,964 642,890
Organization costs.......................................... 768,307 407,672
Other assets................................................ 917,361 1,708,638
----------- -----------
20,459,431 14,789,729
Accumulated amortization.................................... (562,737) (1,711,383)
----------- -----------
Other assets, net........................................... $19,896,694 $13,078,346
========== ==========
</TABLE>
Amortization expense related to other assets aggregated $1,014,126,
$1,029,915 and $618,732 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Loan origination costs of $10,625,727 associated with debt extinguished
through proceeds from the senior subordinated notes are reflected in the 1995
statement of operations as an extraordinary item.
7. INVESTMENTS IN BROADCAST PROPERTIES:
Investments in broadcast properties represent the Company's financing of
broadcasting asset acquisitions by third party licensees, including CNI and Todd
Communications (Note 3). In conjunction with the financings, the Company has
obtained the right to provide programming for the related stations pursuant to
TBAs and has obtained options to purchase certain stations. Interest rates range
from LIBOR plus 1/2% (6.18% at December 31, 1995) to 12 1/8% with loans
maturing in five to seven years. Unpaid principal balances will be applied
toward the acquisition cost upon exercise of purchase options. The Company
records interest on certain investments as received. Investments in broadcast
properties at December 31, 1995 consist of:
<TABLE>
<CAPTION>
INVESTMENT OPTION OPTION
INVESTMENT TO/STATION AMOUNT EXPIRATION PRICE
----------------------------------------------- ----------- ------------- --------
<S> <C> <C> <C>
CNI: $16,481,345
WTJC-TV(1)*.................................. October 2005 $100,000
WFCT-TV(1)*.................................. December 2003 191,000
WCTD-TV(1)(2)*............................... April 1999 100,000
KUBD-TV(1)*.................................. August 2005 100,000
WCEE-TV(1)(3)*............................... January 2006 100,000
WIRB-TV...................................... -- --
WHITEHEAD MEDIA:
WOAC-TV(4)................................... December 2000 1,000
WTVX-TV(4)................................... December 2000 1,000
TODD COMMUNICATIONS: 1,750,000
WFSJ-FM...................................... -- --
</TABLE>
F-19
<PAGE> 159
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
INVESTMENT OPTION OPTION
INVESTMENT TO/STATION AMOUNT EXPIRATION PRICE
----------------------------------------------- ----------- ------------- --------
<S> <C> <C> <C>
OTHER: 2,960,685
WRMY-TV(5)................................... -- --
WHBI-TV(6)................................... -- --
WACC-AM(7)................................... -- --
-----------
$21,192,030
==========
</TABLE>
- ---------------
(1) Upon exercise of the option, the Company will apply the unpaid principal
balance towards the acquisition price.
(2) Upon exercise of the option, the Company will repay the remaining principal
balance on a third party note payable (Note 3).
(3) Purchase transaction consummated in 1996. Investment at December 31, 1995
represents initial advances.
(4) The Company initially financed the acquisition which was subsequently repaid
(Note 3). In addition to the option price, the Company will pay Whitehead
Media $500,000 for each station, plus the value of the station based upon
certain calculations.
(5) Investment represents financings for the construction of the station in
1996. Upon consummation of the transaction, the Company will have acquired a
40% interest in the station for $1,500,000.
(6) The station is not currently on the air. The investment relates to financed
expenditures for the build-out of the station.
(7) The Company has an option to purchase a 49% interest in exchange for its
initial advance to this station.
* The Company intends to exercise these options which became permissible with
the recent enactment of the Telecommunications Act of 1996.
8. PROGRAM RIGHTS:
Program rights relate to the broadcast operations of Paxson
Network-Affiliated Television stations as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Program rights.............................................. $ 4,290,715 $ 3,045,642
Accumulated amortization.................................... (2,493,357) (820,754)
----------- -----------
1,797,358 2,224,888
Less current program rights................................. (1,412,544) (1,980,000)
----------- -----------
Program Rights, net......................................... $ 384,814 $ 244,888
========== ==========
</TABLE>
Program rights amortization expense aggregated $1,765,942, $820,754 and $0
for the years ended December 31, 1995, 1994 and 1993, respectively.
Program rights payable represent the obligation incurred to secure the
right to broadcast program material in accordance with related contractual
agreements. Future minimum annual payments under these contractual agreements as
of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
BROADCAST RIGHTS BARTER RIGHTS TOTAL
PAYMENTS EXPIRATION RIGHTS
---------------- ------------- ----------
<S> <C> <C> <C>
1996............................................ $1,139,402 $ 310,200 $1,449,602
1997............................................ 235,853 -- 235,853
1998............................................ 196,897 -- 196,897
---------------- ------------- ----------
$1,572,152 $ 310,200 $1,882,352
============ ========== =========
</TABLE>
F-20
<PAGE> 160
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revolving credit loans, total commitment of $150,000,000,
interest at LIBOR plus 2.75%, extinguished in September
1995...................................................... $ -- $82,000,000
Revolving credit facility, total commitment of $100,000,000,
interest at LIBOR plus 3.25% (8.93% at December 31,
1995)..................................................... 10,000,000 --
Mortgage note payable, $200,055 principal, interest at 10%,
principal and interest payment of $3,000 due monthly
through April 1999, remaining balance due April 1999...... 184,705 200,055
Mortgage note payable, $825,000 principal, interest at
8.83%, principal and interest payment of $8,284 due
monthly from June 1995 to May 2010........................ 812,083 --
Notes payable, $2,155,000 aggregate principal, interest at
8% to 9.325%, aggregate principal and interest payments of
$41,646 due monthly, maturing at varying dates through
April 2001, secured by purchased assets................... $ 1,917,826 --
Mortgage note payable, $211,000 principal, interest at
9.75%, extinguished in August 1995........................ -- $ 206,902
----------- -----------
12,914,614 82,406,957
Less current portion........................................ (430,590) (6,393,415)
----------- -----------
$12,484,024 $76,013,542
========== ==========
</TABLE>
In September 1995, the Company extinguished its $150,000,000 revolving
credit agreement utilizing proceeds from the issuance of senior subordinated
notes. Additionally during 1995, the Company executed and subsequently
extinguished a $75,000,000 revolving credit agreement utilizing proceeds from
the issuance of senior subordinated notes (Note 10).
On December 19, 1995, the Company executed a $100,000,000 senior secured
revolving credit facility. The aggregate revolving commitment under the credit
facility will decrease by $10 million on December 31, 1997 and by $3.75 million
to $7.5 million each subsequent quarter thereafter until the termination of the
credit facility on June 30, 2002. Borrowings under the revolving credit facility
will bear interest at a rate equal to, at the option of the Company, either (i)
the base rate (which is defined as the higher of 1/2% plus the Federal Funds
rate or the prime rate most recently announced by the agent under the credit
facility) or (ii) LIBOR, in each case plus an applicable margin determined by
reference to the ratio of total debt to cash flow of the Company. Interest on
the current amounts drawn under the facility accrues at an initial rate of LIBOR
plus 3.25%. This revolving credit facility is secured by substantially all of
the Company's assets (as well as a negative pledge on all real property
interests) and subsidiary guarantees.
The reducing revolving credit facility contains a number of covenants that
restrict, among other things, the Company's ability to incur additional
indebtedness, incur liens, make investments, pay dividends or make other
restricted payments, consummate certain asset sales, consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company. Prior to making any advance
under the new credit facility, the Company will be required to be in compliance
with all financial and operating covenants. Certain acquisitions to be funded
under the new credit facility are expected to require approval by 66 2/3% of the
lenders thereunder. The lenders under the new credit facility will be paid a
commitment fee at the rate of 0.5% per year on unused commitments, payable
quarterly.
F-21
<PAGE> 161
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996........................................................ $ 430,590
1997........................................................ 482,952
1998........................................................ 503,993
1999........................................................ 636,785
2000........................................................ 220,372
Thereafter.................................................. 10,639,922
-----------
$12,914,614
==========
</TABLE>
10. SENIOR SUBORDINATED NOTES:
On September 28, 1995, the Company issued $230,000,000 of senior
subordinated notes (the "Notes") at a discount, netting proceeds of $227,309,000
to the Company. The Company accretes the original issue discount over the term
of the Notes using the effective interest method. At December 31, 1995, the
discount was $2,625,089. Interest on the Notes accrues at 11.625% to yield an
effective rate of 11.875%. Interest payments are payable semiannually on each
April 1 and October 1, commencing on April 1, 1996. The principal balance is due
at maturity on October 1, 2002. As part of the Note agreement, the Company filed
a registration statement relating to the Notes with the Securities and Exchange
Commission (the "SEC"), and commenced an offer to exchange the registered notes
for the Notes beginning January 24, 1996.
The Notes contain certain covenants which, among other things, restrict
additional indebtedness, payment of dividends, stock issuance of subsidiaries,
certain investments and transfers or sales of assets, and provide for the
repurchase of the Notes in the event of a change in control of the Company. The
Notes are general unsecured obligations of the Company subordinate in right of
payment to all existing and future senior indebtedness of the Company and senior
in right to all future subordinated indebtedness of the Company.
The Notes become redeemable at the option of the Company on October 1,
1999, 2000 and 2001 at a redemption price of 104%, 102% and 100%, respectively,
of the outstanding principal amount, plus accrued interest. Additionally, the
Company may redeem up to 25% of the original principal amount of the Notes with
proceeds from certain sales of Company stock or assets at any time prior to
October 1, 1998 at a redemption price of 110% of the outstanding principal
amount, plus accrued interest. There are no mandatory redemption requirements.
11. INCOME TAXES:
Prior to the reorganization and consolidation on December 15, 1993, the
Company's businesses operated in the form of partnerships and S corporations for
federal and state income tax purposes. Therefore, all income and losses prior to
that date were taxed at the partner and stockholder level and no provision for
income taxes was recorded.
As a result of the reorganization and consolidation on December 15, 1993,
the tax status of the Company changed to a taxable entity. Reflected in the 1993
tax provision for continuing operations is the cumulative
F-22
<PAGE> 162
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
difference between the tax bases and book bases of assets and liabilities
arising prior to this date. Significant components of the (benefit) provision
for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Current tax expense
Federal.................................... $ -- $ -- $ --
State...................................... -- -- --
----------- ----------- ----------
Total current...................... -- -- --
----------- ----------- ----------
Deferred tax (benefit) expense
Federal.................................... (1,152,000) (1,503,200) 2,674,000
State...................................... (128,000) (176,800) 286,000
----------- ----------- ----------
Total deferred..................... (1,280,000) (1,680,000) 2,960,000
----------- ----------- ----------
Total (benefit) provision.......... $(1,280,000) $(1,680,000) $2,960,000
========== ========== =========
</TABLE>
Deferred tax assets and deferred tax liabilities reflect the tax effect of
the following differences between financial statement carrying amounts and tax
bases of assets and liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------ -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................ $ 385,000 $ 194,940
Net operating loss carryforwards....................... 13,599,000 4,126,507
Deferred compensation.................................. 3,725,000 --
------------ -----------
17,709,000 4,321,447
Deferred tax asset valuation allowance for net
operating loss carryforwards and deferred
compensation........................................ (15,009,000) (4,126,507)
------------ -----------
Deferred tax assets, net............................... 2,700,000 194,940
Deferred tax liabilities:
Tax over book depreciation and amortization............ (2,700,000) (1,474,940)
------------ -----------
Total.......................................... $ -- $(1,280,000)
=========== ==========
</TABLE>
A valuation allowance has been provided when management believes it is more
likely than not that a portion of the deferred tax asset will not be realized. A
portion of the net operating losses were acquired in the acquisition of ANG.
Future recognition of the benefit from these acquired 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 Company and its subsidiaries have filed consolidated tax returns for
all periods subsequent to December 15, 1993.
A pro forma provision for income taxes to reflect the effect on the
statement of operations for the year ended December 31, 1993 had the Company's
business operations filed a consolidated income tax return for 1993, prior to
December 15, 1993, would result in a tax benefit of approximately $3,159,000 for
net operating losses and a corresponding valuation allowance resulting in no pro
forma provision for income taxes.
F-23
<PAGE> 163
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income tax benefit attributable to continuing
operations, computed at U.S. Federal Statutory tax rates, to the provision for
income taxes is:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Tax benefit at U.S. Federal Statutory tax
rates........................................ $(11,417,000) $(2,190,305) $(2,717,230)
State income tax benefit, net of federal tax... (1,343,000) (257,682) (290,104)
Tax benefits attributable to losses recognized
for book purposes in periods that the Company
operated as non-taxable entities............. -- -- 3,397,783
Deferred taxes attributable to income
recognized on accrual basis for book
purposes, in period that the Company operated
as non-taxable entities, but recognized for
tax purposes after reorganization............ -- -- 2,334,364
Non-deductible items........................... 597,000 83,000 --
Valuation allowance............................ 10,883,000 684,987 235,187
------------ ----------- -----------
(Benefit) provision for income taxes........... $ (1,280,000) $(1,680,000) $ 2,960,000
=========== ========== ==========
</TABLE>
The extraordinary items relate to debt retirements. The 1993 retirements
occurred in the period before the Company reorganized on December 15, 1993, were
taxable at the stockholder level and, accordingly, are not tax affected. No tax
effect has been included related to the 1995 debt retirement as the
extraordinary item is included in the Company's net operating loss carryforward
for which a valuation allowance has been provided.
The Company has net operating loss carryforwards for income tax purposes
subject to certain carryforward limitations of approximately $35,700,000 at
December 31, 1995 expiring through 2010. A portion of the net operating losses
relate to ANG and are limited to annual utilization as a result of the change in
ownership.
12. EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS:
Savings and Profit Sharing Plan
The Company has 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, 1995. 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
In November 1994, the Company established the Stock Incentive Plan (the
"Plan") to provide incentives to officers and other employees through the
issuance of options and restricted stock. The number of options, exercise prices
and exercise dates granted under the Plan are at the discretion of the Company's
Compensation Committee and may be in the form of either incentive or
non-qualified stock options or awards of restricted stock. At December 31, 1995,
301,370 shares of Class A common stock were available for issuance under the
Plan. When options are granted, a non-cash charge representing the difference
between the exercise price and the fair market value of the vested options on
the date of grant is recorded as option plan compensation expense. For the year
ended December 31, 1995, the Company recognized approximately $10,800,000 of
option plan compensation expense and expects to recognize approximately an
additional $1,400,000 of expense over the next five years as such options vest.
F-24
<PAGE> 164
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, 49 employees had been granted options under the Plan
pursuant to a five-year vesting cycle commencing retroactively to the employee's
date of employment or exercisable in full at the date of grant. At December 31,
1995, approximately 1,100,000 shares were vested and fully exercisable. In
January 1996, 10,000 options were granted at $3.42 per option and 8,928 were
granted at $0.01 per option. All options granted expire over a ten year period.
Transactions under the Plan are as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER
OPTIONS OPTION
--------- ---------
<S> <C> <C>
Outstanding, December 31, 1994........................................... -- --
Granted.................................................................. 1,847,005 $3.42
Forfeited................................................................ (4,800) 3.42
Exercised................................................................ (89,800) 3.42
---------
Outstanding, December 31, 1995........................................... 1,752,405
========
</TABLE>
Employment Agreements
Mr. Paxson is employed under an employment agreement providing for him to
be employed through December 31, 1999, unless sooner terminated. The agreement
provides that 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 his 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.
The Company has other employment agreements with individuals under which
the individuals are paid a base salary and may receive annual incentives based
on revenue amounts and stock options based on the cash flow of the stations they
manage.
13. REDEEMABLE PREFERRED STOCK:
Redeemable Senior Preferred Stock
Redeemable Senior preferred stock was originally issued with 225 detachable
redeemable common stock purchase warrants 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% of the liquidation price, per annum,
payable quarterly commencing on December 31, 1993. On January 1 of each year,
accrued and unpaid dividends are added to the liquidation price of the stock.
The holders of the Senior preferred stock, voting as a class, are entitled to
elect 25% of the Company's Board of Directors.
The Senior preferred stock is 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 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 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 the issue date
(December 15, 1998).
Cumulative preferred dividends in arrears aggregated $4,644,352 and
$2,197,808 at December 31, 1995 and 1994, respectively.
Redeemable Series B Preferred Stock
Redeemable Series B preferred stock was issued on December 22, 1994 as a
result of the exercise 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
per annum rate of 15% per
F-25
<PAGE> 165
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
share, payable quarterly commencing on December 31, 1994. On January 1 of each
year, accrued and unpaid dividends are added to the liquidation price of the
stock. Series B preferred stock ranks prior to all classes of Junior 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 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 accrued and unpaid
dividends to date.
Cumulative Series B preferred dividends in arrears aggregated $771,269 and
$18,493 at December 31, 1995 and 1994, respectively.
Redeemable Junior Preferred Stock
Redeemable Junior preferred stock was issued with 4,853,628 detachable
Class C common stock warrants (after giving effect to the stock dividend during
January 1995) 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 of the issue date
(December 22, 2002), and 14% per annum after the eighth anniversary of the issue
date. Semi-annual dividend payments are required commencing 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 of the issue date (December 22, 1997), $1,020 plus unpaid, deferred,
and accrued dividends after the third and prior to the fourth anniversary of the
issue date (December 22, 1998), and $1,000 plus unpaid, deferred, and accrued
dividends per share on or after the fourth anniversary of the issue date. A
mandatory redemption is scheduled on the ninth anniversary of the issue date
(December 22, 2003).
Cumulative Junior preferred dividends in arrears aggregated $4,188,512 and
$97,644 at December 31, 1995 and 1994, respectively.
Redemption Features of Preferred Stock
The following table presents the redemption value of the three classes of
preferred stock should each be redeemed in the indicated year, assuming no
dividends are paid prior to redemption, unless required:
<TABLE>
<CAPTION>
SENIOR SERIES B JUNIOR
PREFERRED(1) PREFERRED(1) PREFERRED(2)
------------ ------------ ------------
<S> <C> <C> <C>
1996............................................ $ 42,775,013
1997............................................ $ 24,657,155 $ 7,632,502 47,939,640
1998............................................ 28,355,728 8,777,377 53,412,616
1999............................................ 32,609,087 10,093,984 59,102,420
2000............................................ 37,500,450 11,608,082 59,102,420
</TABLE>
- ---------------
(1) Redeemable at the option of the Company on or after December 15, 1997 and at
the option of the holder on or after December 15, 2000.
(2) Mandatorily redeemable on the ninth anniversary (December 22, 2003),
redeemable by the Company prior to that date.
F-26
<PAGE> 166
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. 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. On December 22, 1994, 94.6223 of the warrants were
exercised for 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
903,043 Class B common shares (after giving effect to the stock dividend).
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). At December 31, 1995, using the fair value of the underlying stock, the
stock purchase warrants would accrete to approximately $49,600,000 at their
mandatory redemption date of December 15, 2000. The holders of the warrants are
entitled to demand registration rights and piggyback registration rights
following certain offerings of shares to the public.
Class C Common Stock Warrants
In connection with the Redeemable Junior preferred stock issuance on
December 22, 1994, the Company issued 4,853,628 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. Certain holders of these purchase warrants are entitled to
demand registration rights subsequent to the third anniversary of the issuance
date and piggyback registration rights six months following certain offerings of
shares to the public.
15. 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 (45,000,000 shares authorized) and Class B common stock
(7,000,000 shares authorized). 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 Class
A common stock in exchange for ANG common stock outstanding and such shares of
Class A common stock which where exchanged for the ANG common stock were listed
on the Nasdaq Small-Cap Market.
On December 22, 1994, the Company further amended its capital structure to
increase authorized shares of Class A common stock to 150,000,000 shares and
Class B common stock to 35,000,000 shares, and to designate a third class of
non-voting common stock, Class C common stock, 12,500,000 shares authorized.
On January 1, 1995, 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. Weighted average shares outstanding for
the years ended December 31, 1994 and 1993 give effect to the Company's amended
capital structure related to the merger with ANG, and the stock dividend on
common shares outstanding on January 1, 1995.
F-27
<PAGE> 167
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 10, 1995, the Company's Class A common stock was listed on the
American Stock Exchange under the symbol of PXN. These publicly traded shares
represent approximately 5% of Class A common shares outstanding at December 31,
1995 and less than 2% of the Company's voting power.
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; Class C
common stock is nonvoting. 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,
and under certain circumstances, Class C common stock may be converted, at the
option of the holder, into Class A common stock.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The fair value estimates presented herein
are based on pertinent information available to management as of December 31,
1995. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date and current estimates of fair value may differ significantly from the
amounts presented herein. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments:
Cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses. The fair values approximate the carrying values due to
their short term nature.
Investments in broadcast properties. The fair value of investments in
broadcast properties is estimated based on the net present value of the
future cash flows using a discount rate approximating current market rates.
The fair value approximates the carrying value.
Interest rate caps. The Company's interest rate cap agreements were
originally entered into to meet covenants under variable rate revolving
credit loan agreements outstanding in prior periods, which were
extinguished during the year ended December 31, 1995, and currently do not
serve as a hedging vehicle. As a result, interest rate cap agreements
previously amortized to interest expense have been marked to market and net
losses of approximately $800,000 were recognized during the year ended
December 31, 1995 which are reflected in the consolidated statement of
operations as other income (expense). The Company has interest rate cap
agreements outstanding at December 31, 1995 with notional amounts totaling
$75 million. Variable rate debt outstanding at December 31, 1995 totaled
approximately $10 million. The interest rate cap agreements have
termination dates of March 1996 through December 1997 and result in the
Company receiving payments when the LIBOR rate exceeds between 5% and
7 1/4%.
Program rights payable. The fair value of program rights payable is
estimated based on the net present value of the future cash flows using a
discount rate approximating current market rates. The fair value
approximates the carrying value.
Long-term debt and Senior subordinated notes. The fair values of
long-term debt and senior subordinated notes are estimated based on current
market rates and instruments with the same risk and maturities. The fair
values approximate the carrying value.
F-28
<PAGE> 168
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mandatorily redeemable securities. Redeemable preferred stock
(Senior, Series B and Junior) is being accreted to its respective
redemption values and redeemable common stock warrants (Class A and B) are
accreted to the estimated fair value of the underlying common stock upon
redemption. Estimated fair value at redemption is reviewed on a quarterly
basis to reflect changes in the underlying stock value.
17. COMMITMENTS AND CONTINGENCIES:
The Company incurred total expenses of approximately $5,334,000, $2,406,000
and $1,218,000 for the years ended December 31, 1995, 1994 and 1993,
respectively, under operating leases for broadcasting facilities and equipment
and for employment agreements. Future minimum annual payments under these non-
cancelable operating leases and agreements, as of December 31, 1995, are as
follows:
<TABLE>
<S> <C>
1996........................................................ $ 5,151,000
1997........................................................ 3,941,000
1998........................................................ 3,234,000
1999........................................................ 2,189,000
2000........................................................ 1,127,000
Thereafter.................................................. 7,150,000
-----------
$22,792,000
==========
</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
rights expenses of approximately $2,806,000 for the year ended December 31, 1995
and had total commitments of approximately $3,503,000 as of December 31, 1995.
As of December 31, 1995, the Company had entered into TBAs with seven FCC
licensees which require monthly TBA payments ranging from $3,500 to $35,000 and
have termination dates ranging from seven to ten years.
As of December 31, 1995, the Company has agreements to purchase significant
assets of, provide financing for, or enter into time brokerage arrangements with
the following television stations, all of which are subject to various
conditions, including the receipt of regulatory approvals:
<TABLE>
<CAPTION>
PURCHASE PRICE/
STATION MARKET SERVED(1) INVESTMENT AMOUNT
--------------------------------------------- -------------------- -----------------
<S> <C> <C>
Channel 68................................... Dallas, TX $ 3,000,000
WNGM-TV(2)................................... Atlanta, GA --
WHKE-TV(2)................................... Milwaukee, WI 4,000,000
WJUE-TV(3)................................... Grand Rapids, MI 1,000,000
WHBI-TV(4)................................... West Palm Beach, FL 6,300,000
WOCD-TV...................................... Albany, NY 2,500,000
WSJN-TV(5)................................... San Juan, PR 4,000,000
</TABLE>
- ---------------
(1) Each station is licensed by the FCC to serve a specific community which is
included in the listed market.
(2) To be operated pursuant to a TBA.
(3) 70% ownership interest to be acquired.
(4) The Company financed certain build-out costs of the station prior to
December 31, 1995 (Note 7). The Company expects to enter into an
affiliation agreement after the construction of the station.
(5) 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. This station is currently
being operated pursuant to a TBA.
F-29
<PAGE> 169
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Affiliation Agreements
During 1995, the Company entered into inTV affiliation agreements with two
television licensees. Under the agreements, the licensees agree to broadcast
programming provided by inTV during certain times of the day and are compensated
based on the monthly advertising collected and the number of cable homes covered
by the licensees. inTV may terminate these agreements with a ninety day written
notice. The minimum amounts due under these agreements at December 31, 1995
totals approximately $531,000.
Legal Proceedings
The Company is involved in litigation from time to time in the ordinary
course of its business. In the opinion of management, the ultimate resolution of
these matters will not have a material effect on the Company's consolidated
financial position or results of operations and cash flows.
18. SUBSEQUENT EVENTS:
Investments in Broadcast Properties:
Subsequent to year end, the Company made the following investments in
broadcast properties through the financing of third party purchases of
television broadcasting stations. Concurrent with these transactions, the
Company executed TBAs and option purchase agreements (Note 7).
<TABLE>
<CAPTION>
STATION MARKET SERVED(1) INVESTMENT AMOUNT
- -------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
WRMY-TV(3).............................................. Raleigh, NC $ 5,500,000
KWBF-TV(2).............................................. Phoenix, AZ 1,400,000
WCEE-TV(2).............................................. St. Louis, MO 3,200,000
</TABLE>
- ---------------
(1) Each station is licensed by the FCC to serve a specific community, which is
included in the listed market.
(2) The Company currently holds an option to purchase the station from the
licensee.
(3) Investment amount consists of a $1,500,000 option to purchase a 40% interest
in the station and construction financing, of which approximately $600,000
was outstanding at December 31, 1995.
Purchases:
Subsequent to December 31, 1995, the Company entered into agreements to
purchase significant assets of or acquire ownership in the following television
and radio stations, all of which are subject to various conditions, including
receipt of regulatory approvals:
<TABLE>
<CAPTION>
PURCHASE
PRICE/
INVESTMENT
STATION MARKET SERVED(1) AMOUNT
-------------------------------------------------- -------------------- --------------
<S> <C> <C>
WOST-TV(2)........................................ Providence, RI $ 1,000,000
KZAR-TV(2)........................................ Salt Lake City, UT 850,000
WHUB-FM,WHUB-AM(3)................................ Cookeville, TN 3,800,000
WFSJ-FM(4)........................................ Jacksonville, FL 5,000,000
WRMA-FM,WXDJ-FM(5)................................ Miami, FL 115,000,000
Channel 23(6)..................................... New York, NY 2,000,000
Channel-38(6)..................................... New York, NY 1,500,000
</TABLE>
- ---------------
(1) Each station is licensed by the FCC to serve a specific community, which is
included in the listed market.
(2) The Company will acquire 50% ownership interest pursuant to a management
agreement. The station is currently under construction.
F-30
<PAGE> 170
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) The Company will acquire both the FM and AM stations.
(4) The Company will issue stock valued at approximately $1.70 million, apply
the note receivable from Todd Communications and assume the Todd
Communications note payable to Mr. Paxson of approximately $1.55 million to
acquire the station.
(5) The Company will acquire these stations simultaneously for either a cash
payment of $107,500,000 or cash of $92 million and approximately 1.3 million
shares of Company common stock at the option of the seller.
(6) The Company will acquire these "low power" stations, the signals of which
will be augmented by simulcasting the signal of WHAI-TV, a station currently
owned by the Company.
Subsequent to year end the Company purchased substantially all of the
assets of WHAI-TV, New York, NY and WAKC-TV, Cleveland, OH for approximately $22
million and $18 million, respectively.
Public Offering:
The Company intends to file a registration statement with the SEC for the
proposed sale of 11.5 million shares of its Class A common stock, 10.3 million
of which will be sold by the Company. The Company intends to use the net
proceeds to acquire or enter into TBAs with television and radio stations, make
capital expenditures and for other general corporate purposes.
Telecommunications Reform:
On February 8, 1996, new telecommunications regulations were enacted into
law, allowing, among other things, an expanded number of radio and television
stations under common ownership. As a result, the Company has exercised options
to acquire television stations WTJC-TV, KUBD-TV, WCEE-TV and KWBF-TV from CNI
(Note 7).
Other Transactions
On January 9, 1996, the Company purchased from Mr. Paxson, at its face
value, a $1 million note related to CNI's acquisition of KLDT-TV.
Subsequent to December 31, 1995, the Company entered into a joint venture
agreement with L.L. Knickerbocker Company, Inc. for the purpose of identifying
products and services for long-form advertising and developing marketing
strategies and infomercials for such products and services.
Subsequent to year end, the Company entered into two inTV affiliation
agreements with station licensees. inTV may terminate these agreements with a
ninety day written notice. The minimum amounts due under these agreements at
December 31, 1995 totals approximately $380,000.
Subsequent to December 31, 1995, the Company entered into a limited
partnership agreement as a general partner for the Bobcats, an Arena football
franchise in South Florida. Additionally, Mr. Paxson acquired a portion of the
Company's limited partnership interest in the same partnership.
19. SEGMENT DATA:
The Company operates three business segments: (1) the Infomall TV Network
is a nationwide network of owned, operated and affiliated television stations
dedicated to the airing of long form paid programming consisting primarily of
infomercials; (2) Paxson Radio consists of radio broadcasting stations, radio
news and sports networks and billboard operations; and (3) Paxson
Network-Affiliated Television includes network-affiliated television
broadcasting stations in West Palm Beach, Florida. In January 1995, four
stations which had previously aired long form paid programming were reclassified
as inTV stations. The financial information related to these four stations prior
to January 1, 1995 has been reclassified to conform with the 1995
F-31
<PAGE> 171
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
presentation. Corporate and other operations represent revenue earned through
commissions, non-broadcast activities, expenses incurred for such activities,
and corporate overhead expenses, including management expenses which are not
allocated to the individual segments.
Selected financial information for these segments follows:
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
INFOMALL TV NETWORK
Total revenue......................................... $ 29,653,278 $ 3,287,285 $ --
Operating expenses, less depreciation, amortization
and option plan compensation........................ 16,266,563 3,401,328 --
Depreciation and amortization......................... 4,545,683 1,344,986 --
Option plan compensation.............................. 37,506 -- --
------------ ------------ -----------
Income (loss) from operations......................... $ 8,803,526 $ (1,459,029) $ --
=========== =========== ==========
Total identifiable assets............................. $104,106,341 $ 16,212,828 $ --
=========== =========== ==========
Capital expenditures.................................. $ 7,703,973 $ 2,527,903 $ --
=========== =========== ==========
PAXSON RADIO
Total revenue......................................... $ 54,752,191 $ 50,363,294 $31,058,472
Operating expenses, less depreciation, amortization
and option plan compensation........................ 44,227,935 39,002,002 25,012,435
Depreciation and amortization......................... 10,357,042 9,124,969 9,128,847
Option plan compensation.............................. 1,751,238 -- --
------------ ------------ -----------
Income (loss) from operations......................... $ (1,584,024) $ 2,236,323 $(3,082,810)
=========== =========== ==========
Total identifiable assets............................. $ 68,886,153 $ 67,201,401 $61,686,096
=========== =========== ==========
Capital expenditures.................................. $ 9,610,186 $ 2,491,959 $ 1,962,553
=========== =========== ==========
PAXSON NETWORK-AFFILIATED TELEVISION
Total revenue......................................... $ 16,537,406 $ 7,477,508 $ --
Operating expenses, less depreciation and
amortization........................................ 11,793,824 5,003,272 --
Depreciation and amortization......................... 3,102,665 1,542,286 --
------------ ------------ -----------
Income from operations................................ $ 1,640,917 $ 931,950 $ --
=========== =========== ==========
Total identifiable assets............................. $ 37,421,642 $ 39,409,693 $ --
=========== =========== ==========
Capital expenditures.................................. $ 2,825,249 $ 657,375 $ --
=========== =========== ==========
CORPORATE AND OTHER
Total revenue......................................... $ 2,131,037 $ 939,356 $ 1,003,559
Operating expenses, less depreciation, amortization
and option plan compensation........................ 9,814,643 3,819,350 3,860,193
Depreciation and amortization......................... 713,719 391,287 221,786
Option plan compensation.............................. 9,014,497 -- --
------------ ------------ -----------
Loss from operations.................................. $(17,411,822) $ (3,271,281) $(3,078,420)
=========== =========== ==========
Total identifiable assets............................. $ 83,417,941 $ 29,846,459 $ 4,888,512
=========== =========== ==========
Capital expenditures.................................. $ 4,877,408 $ 239,275 $ --
=========== =========== ==========
</TABLE>
F-32
<PAGE> 172
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
CONSOLIDATED
Total revenue......................................... $103,073,912 $ 62,067,443 $32,062,031
Operating expenses, less depreciation, amortization
and option plan compensation........................ 82,102,965 51,225,952 28,872,628
Depreciation and amortization......................... 18,719,109 12,403,528 9,350,633
Option plan compensation.............................. 10,803,241 -- --
------------ ------------ -----------
Loss from operations.................................. $ (8,551,403) $ (1,562,037) $(6,161,230)
=========== =========== ==========
Total identifiable assets............................. $293,832,077 $152,670,381 $66,574,608
=========== =========== ==========
Capital expenditures.................................. $ 25,016,816 $ 5,916,512 $ 1,962,553
=========== =========== ==========
</TABLE>
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 1995 QUARTERS ENDED
---------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Total revenue............................. $ 31,550,195 $ 27,167,369 $ 23,736,645 $20,619,703
Operating expenses, less depreciation,
amortization and option plan
compensation............................ 23,124,962 21,332,736 18,963,733 18,681,534
Depreciation and amortization............. 5,640,068 5,024,785 4,269,627 3,784,629
Option plan compensation.................. 994,136 404,976 9,404,129 --
------------ ------------- ------------ -----------
Income (loss) from operations............. $ 1,791,029 $ 404,872 $ (8,900,844) $(1,846,460)
========== =========== =========== ==========
Loss before extraordinary item............ $ (5,566,169) $ (2,851,681) $(11,176,729) $(3,252,984)
Extraordinary item(1)..................... -- (10,625,727) -- --
------------ ------------- ------------ -----------
Net loss.................................. $ (5,566,169) $ (13,477,408) $(11,176,729) $(3,252,984)
========== =========== =========== ==========
Net loss attributable to common stock..... $ (9,741,895) $ (16,734,727) $(14,849,938) $(5,443,936)
========== =========== =========== ==========
Per share data:
Loss before extraordinary item.......... $ (0.16) $ (0.08) $ (0.32) $ (0.09)
Net loss................................ $ (0.16) $ (0.39) $ (0.32) $ (0.09)
Net loss attributable to common stock... $ (0.28) $ (0.49) $ (0.43) $ (0.16)
Weighted average common shares
outstanding............................. 34,503,666 34,458,766 34,448,665 34,354,201
========== =========== =========== ==========
Stock price(2):
High.................................... $ 16 3/8 $ 15 3/4 $ 14 $ 12 5/8
Low..................................... $ 11 1/2 $ 12 $ 8 $ 9
</TABLE>
- ---------------
(1) Extraordinary item relates to the write-off of loan origination costs
associated with the extinguishment of certain debt agreements during the
third quarter (Note 9).
(2) The Company's Class A common stock is listed on the American Stock Exchange
under the symbol PXN. Prior to July 10, 1995, the Company's Class A common
stock was listed on the NASDAQ Small-Cap Market.
F-33
<PAGE> 173
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE 1994 QUARTERS ENDED
---------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Total revenue............................. $ 22,226,226 $ 18,327,456 $ 12,148,603 $ 9,365,158
Operating expenses, less depreciation and
amortization............................ 18,413,022 14,219,712 10,268,884 8,324,334
Depreciation and amortization............. 3,845,370 3,292,245 2,855,767 2,410,146
------------ ------------- ------------ -----------
Income (loss) from operations............. $ (32,166) $ 815,499 $ (976,048) $(1,369,322)
========== =========== =========== ==========
Loss before extraordinary item............ $ (1,972,628) $ (672,445) $ (318,376) $(1,798,625)
========== =========== =========== ==========
Net loss.................................. $ (1,972,628) $ (672,445) $ (318,376) $(1,798,625)
========== =========== =========== ==========
Net loss attributable to common stock..... $ (2,950,626) $ (1,492,845) $ (1,121,630) $(2,582,429)
========== =========== =========== ==========
Pro forma per share data (Note 1):
Pro forma loss before extraordinary
item................................. $ (0.06) $ (0.02) $ (0.01) $ (0.06)
Pro forma net loss...................... $ (0.06) $ (0.02) $ (0.01) $ (0.06)
Pro forma net loss attributable to
common stock......................... $ (0.09) $ (0.04) $ (0.03) $ (0.08)
Pro forma weighted average common shares
outstanding............................. 33,430,116 33,430,116 32,506,032 31,581,948
========== =========== =========== ==========
Stock price (1):
High(2)................................. $ 16 $ -- $ -- $ --
Low(2).................................. $ 10 5/8 $ -- $ -- $ --
</TABLE>
- ---------------
(1) The Company's Class A common stock is listed on the American Stock Exchange
under the symbol PXN. Prior to July 10, 1995, the Company's Class A common
stock was listed on the NASDAQ Small-Cap Market.
(2) Stock price after giving effect to the January 1, 1995 stock dividend (Note
15).
F-34
<PAGE> 174
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................ $115,577,129 $ 68,070,990
Accounts receivable, less allowance for doubtful accounts of $1,037,349
and $909,713 respectively............................................. 19,354,203 17,726,415
Prepaid expenses and other current assets................................ 2,487,528 971,363
Current program rights................................................... 664,830 1,412,544
------------ ------------
Total current assets............................................. 138,083,690 88,181,312
Property and equipment, net................................................ 110,429,710 79,859,080
Intangible assets, net..................................................... 121,300,867 84,318,147
Other assets, net.......................................................... 28,480,440 19,896,694
Investments in broadcast properties........................................ 38,887,393 21,192,030
Program rights, net........................................................ 266,551 384,814
------------ ------------
Total assets..................................................... $437,448,651 $293,832,077
=========== ===========
LIABILITIES, REDEEMABLE SECURITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................................. $ 6,948,343 $ 5,030,692
Accrued interest......................................................... 6,730,050 6,932,342
Current portion of program rights payable................................ 642,229 1,449,602
Current portion of long-term debt........................................ 569,766 430,590
------------ ------------
Total current liabilities........................................ 14,890,388 13,843,226
Program rights payable..................................................... 277,242 432,750
Long-term debt............................................................. 3,764,578 12,484,024
Senior subordinated notes, net............................................. 227,507,455 227,374,911
Redeemable Cumulative Compounding Senior preferred stock, $0.001 par value;
15% dividend rate per annum, 2,000 shares authorized, issued and
outstanding.............................................................. 18,393,136 16,824,082
Redeemable Class A & B common stock warrants............................... -- 6,465,317
Redeemable Cumulative Compounding Series B preferred stock, $0.001 par
value;
15% dividend rate per annum, 714.286 shares authorized, issued and
outstanding.............................................................. 2,990,200 2,352,654
Redeemable Cumulative Compounding Junior preferred stock, $0.001 par value;
12% dividend rate per annum, 33,000 shares authorized, issued and
outstanding.............................................................. 34,090,262 31,533,910
Class A common stock, $0.001 par value; one vote per share; 150,000,000
shares authorized, 38,665,509 shares issued and outstanding.............. 38,665 26,227
Class B common stock, $0.001 par value; ten votes per share, 35,000,000
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, no shares issued and outstanding............................. -- --
Class A & B common stock warrants.......................................... 6,862,647 --
Class C common stock warrants.............................................. 4,281,852 5,338,952
Stock subscription notes receivable........................................ (17,500) (115,714)
Additional paid-in capital................................................. 197,424,842 34,342,086
Deferred option plan compensation.......................................... (1,949,672) (1,384,267)
Accumulated deficit........................................................ (71,113,756) (55,694,393)
Commitments and contingencies
------------ ------------
Total liabilities, redeemable securities and common stockholders'
equity.......................................................... $437,448,651 $293,832,077
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-35
<PAGE> 175
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue:
Local and national advertising...................................................... $ 65,004,033 $ 40,454,900
Other............................................................................... 2,598,240 2,497,723
Trade and barter.................................................................... 1,767,993 1,403,725
------------ ------------
Total revenue................................................................. 69,370,266 44,356,348
Operating expenses:
Direct.............................................................................. 15,438,517 11,554,850
Programming......................................................................... 7,498,374 5,940,066
Sales and promotion................................................................. 5,497,070 4,473,186
Technical........................................................................... 3,321,787 2,147,289
General and administrative.......................................................... 14,083,120 9,989,674
Trade and barter.................................................................... 1,357,018 1,193,843
Time brokerage agreement fees....................................................... 3,040,383 549,947
Sports rights fees.................................................................. 766,160 1,019,355
Option plan compensation............................................................ 2,291,917 9,404,129
Program rights amortization......................................................... 721,802 777,057
Depreciation and amortization....................................................... 11,736,929 8,054,256
------------ ------------
Total operating expenses...................................................... 65,753,077 55,103,652
------------ ------------
Income (loss) from operations......................................................... 3,617,189 (10,747,304)
Other income (expense):
Interest expense.................................................................... (15,098,141) (4,887,226)
Interest income..................................................................... 4,034,676 578,580
Other expense, net.................................................................. (559,053) (13,763)
----------- ------------
Loss before income tax benefit........................................................ (8,005,329) (15,069,713)
Income tax benefit.................................................................... -- 640,000
------------ ------------
Net loss.............................................................................. (8,005,329) (14,429,713)
Dividends and accretion on preferred stock and common stock warrants.................. (7,414,034) (5,864,161)
------------ -----------
Net loss attributable to common stock and common stock equivalents.................... $(15,419,363) $(20,293,874)
============ ============
Net loss per share.................................................................... (.20) (.42)
Dividends and accretion on preferred stock and common stock warrants per share........ (.18) (.17)
------------ ------------
Net loss attributable to common stock and common stock equivalents per share.......... $ (.38) $ (.59)
============ ============
Weighted average shares outstanding primary and fully diluted......................... 40,566,865 34,401,282
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-36
<PAGE> 176
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
--------------------------
1996 1995
---------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue:
Local and national advertising........................................... $34,890,219 $ 21,971,676
Other.................................................................... 1,418,749 1,006,757
Trade and barter......................................................... 932,531 758,212
----------- ------------
Total revenue..................................................... 37,241,499 23,736,645
Operating expenses:
Direct................................................................... 8,380,789 5,920,695
Programming.............................................................. 3,592,045 2,813,262
Sales and promotion...................................................... 2,915,404 2,293,673
Technical................................................................ 1,796,175 1,168,083
General and administrative............................................... 7,469,972 5,331,824
Trade and barter......................................................... 712,039 722,302
Time brokerage agreement fees............................................ 2,048,680 310,899
Sports rights fees....................................................... 7,199 (22,227)
Option plan compensation................................................. 533,549 9,404,129
Program rights amortization.............................................. 335,131 425,222
Depreciation and amortization............................................ 6,065,187 4,269,627
----------- ------------
Total operating expenses.......................................... 33,856,170 32,637,489
----------- ------------
Income (loss) from operations.............................................. 3,385,329 (8,900,844)
Other income (expense):
Interest expense......................................................... (7,373,363) (2,794,867)
Interest income.......................................................... 3,203,604 280,380
Other expense, net....................................................... (602,239) (81,398)
----------- ------------
Loss before income tax benefit............................................. (1,386,669) (11,496,729)
Income tax benefit......................................................... -- 320,000
----------- ------------
Net loss................................................................... (1,386,669) (11,176,729)
Dividends and accretion on preferred stock and common stock warrants....... (2,466,085) (3,673,209)
----------- ------------
Net loss attributable to common stock and common stock equivalents......... $(3,852,754) $(14,849,938)
=========== ============
Net loss per share......................................................... $ (.03) $ (.32)
Dividends and accretion on preferred stock and common stock warrants per
share.................................................................... (.05) (.11)
----------- ------------
Net loss attributable to common stock and common stock equivalents per
share.................................................................... $ (.08) $ (.43)
=========== ============
Weighted average shares outstanding primary and fully diluted.............. 46,570,794 34,448,665
=========== ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-37
<PAGE> 177
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS CLASS
COMMON STOCK A & B C STOCK DEFERRED
------------------------ COMMON COMMON SUBSCRIPTION ADDITIONAL OPTION
CLASS CLASS CLASS STOCK STOCK NOTES PAID-IN PLAN ACCUMULATED
A B C WARRANTS WARRANTS RECEIVABLE CAPITAL COMPENSATION DEFICIT
------- ------ ----- --------- --------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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........ 95 1,199,905
Deferred option plan
compensation....... 12,187,508 (12,187,508 )
Option plan
compensation....... 10,803,241
Stock options
exercised.......... 90 307,026
Increase in stock
subscription
receivable......... (48,029)
Note repayments...... 9,981
Dividends on
redeemable
preferred stock.... (7,275,516)
Accretion on Senior
redeemable
preferred stock.... (332,156)
Accretion on Series B
preferred stock.... (325,208)
Accretion on Junior
preferred stock.... (634,988)
Accretion on Class A
& B common stock
warrants........... (4,729,338)
Net loss............. (33,473,290)
------- ------ ----- ---------- ---------- ------------ ------------ ------------ ------------
Balance at December
31, 1995........... 26,227 8,312 -- -- 5,338,952 (115,714) 34,342,086 (1,384,267 ) (55,694,393)
Release of Put on
Class A & B common
stock warrants
(unaudited)........ 9,116,399
Issuance of common
stock, net of
issuance costs of
$10,000,000
(unaudited)........ 10,300 154,789,700
Exercise of Class A,
B & C common stock
warrants
(unaudited)........ 1,854 (2,253,752) (1,057,100) 3,308,999
Stock issued for Todd
Communications
acquisition
(unaudited)........ 139 1,534,967
Deferred option plan
compensation
(unaudited)........ 2,857,322 (2,857,322 )
Option plan
compensation(unaudited)... 2,291,917
Stock options
exercised
(unaudited)........ 145 591,768
Note repayments
(unaudited)........ 98,214
Dividends on
redeemable
preferred stock
(unaudited)........ (4,062,482)
Accretion on Senior
redeemable
preferred stock
(unaudited)........ (170,728)
Accretion on Series B
preferred stock
(unaudited)........ (204,700)
Accretion on Junior
preferred stock
(unaudited)........ (325,042)
Accretion on Class A
& B common stock
warrants
(unaudited)........ (2,651,082)
Net loss
(unaudited)........ (8,005,329)
------- ------ ----- ---------- --------- ------------ ------------ ------------ ------------
Balance at June 30,
1996 (unaudited)... $38,665 $8,312 $ 0 $6,862,647 $4,281,852 $(17,500) $197,424,842 $(1,949,672 ) $(71,113,756)
======= ====== ===== ========== ========= =========== ============ ============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-38
<PAGE> 178
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE
30,
------------------------------
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................................... $ (8,005,329) $(14,429,713)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization.................................................. 11,736,929 8,054,256
Option plan compensation....................................................... 2,291,917 9,404,129
Program rights amortization.................................................... 721,802 777,057
Provision for doubtful accounts................................................ 427,256 325,294
Deferred income taxes.......................................................... -- (640,000)
Loss on sale of assets......................................................... 13,651 --
(Increase) decrease in accounts receivable..................................... (2,055,044) 232,653
Decrease (increase) in prepaid expenses and other current assets............... (1,516,165) 187,121
Increase in other assets....................................................... (1,863,879) (2,454,459)
Increase (decrease) in accounts payable and accrued liabilities................ 1,806,130 (2,247,724)
(Decrease) increase in accrued interest........................................ (202,292) 582,194
------------ ------------
Net cash provided by (used in) operating activities....................... 3,354,976 (209,192)
------------ ------------
Cash flows from investing activities:
Acquisitions of broadcast properties............................................. (61,965,301) (45,110,012)
Increase in deposits on broadcast properties..................................... (6,907,000) (2,392,000)
Proceeds from sale of fixed assets............................................... 228,279 --
Increase in investments in broadcast properties.................................. (17,695,363) (500,000)
Purchase of property and equipment............................................... (13,936,104) (9,589,477)
------------ ------------
Net cash used in investing activities..................................... (100,275,489) (57,591,489)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock........................................... 164,800,000 --
Issuance expenses of common stock sale........................................... (9,888,479) --
Proceeds from long-term debt..................................................... 17,700,000 49,980,000
Payments of long-term debt....................................................... (27,930,270) (109,129)
Payments of loan origination costs............................................... -- (5,002,634)
Proceeds from exercise of common stock options................................... 465,893 --
Repayments of stock subscription notes receivable................................ 98,214 --
Payments for program rights...................................................... (818,706) (230,027)
------------ ------------
Net cash provided by financing activities................................. 144,426,652 44,638,210
------------ ------------
Increase (decrease) in cash and cash equivalents................................... 47,506,139 (13,162,471)
------------ ------------
Cash and cash equivalents at beginning of period................................... 68,070,990 21,571,658
Cash and cash equivalents at end of period......................................... $ 115,577,129 $ 8,409,187
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest........................................................... $ 14,478,551 $ 4,249,482
============ ============
Cash paid for income taxes....................................................... $ -- $ --
============ ============
Non-cash operating and financing activities:
Accretion of discount on senior subordinated notes............................... $ 132,544 $ --
============ ============
Issuance of common stock for Cookeville partner buyout........................... $ -- $ 1,200,000
============ ============
Issuance of common stock for Todd Communications acquisition..................... $ 1,535,106 $ --
============ ============
Note payable incurred for WOCD acquisition....................................... $ 1,650,000 $ --
============ ============
Dividends accreted on redeemable preferred stock................................. $ 4,062,482 $ 3,465,829
============ ============
Accretion on redeemable securities............................................... $ 3,351,552 $ 2,398,332
============ ============
Trade and barter revenue......................................................... $ 1,767,993 $ 1,403,725
============ ============
Trade and barter expense......................................................... $ 1,357,018 $ 1,193,843
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the consolidated financial statements.
F-39
<PAGE> 179
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 June 30, 1996 and
for the six and three month periods ended June 30, 1996 and 1995, 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, 1995. The composition of accounts
has changed to reflect the sale of Class A common stock and the operations of
certain acquisitions.
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, 1995 financial
statements and related footnotes and discussions contained in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, and the
definitive proxy statement for the annual meeting of stockholders held May 16,
1996, all of which were filed with the United States Securities and Exchange
Commission. Also, in connection with the April 3, 1996 sale of 13.5 million
shares of Class A common stock by the Company and others, the Company filed a
Registration Statement on Form S-1 with the Securities and Exchange Commission
on January 26, 1996 which, as amended, was declared effective March 28, 1996.
The Company has engaged the services of an investment banking firm to
advise it on strategic alternatives with regard to its network-affiliated
television operations in the West Palm Beach, Florida market. Such alternatives
may include the possible sale or exchange of these assets.
F-40
<PAGE> 180
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Press Broadcasting Company
In our opinion, the accompanying balance sheet and the related statements
of operations and divisional deficit and of cash flows present fairly, in all
material respects, the financial position of WTKS-FM (a division of Press
Broadcasting Company) (the "Station") at December 31, 1995 and the results of
its operations and its cash flows for the year 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 Station is a member of a group of affiliated companies and, as
disclosed in the financial statements, has extensive transactions and
relationships with members of the group. Because of these relationships, it is
possible that the terms of these transactions are not the same as those that
would result from transactions among wholly unrelated parties.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Fort Lauderdale, Florida
July 26, 1996
F-41
<PAGE> 181
WTKS-FM
(A DIVISION OF PRESS BROADCASTING COMPANY)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER
JUNE 16, 31,
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 209,808 $ 153,295
Accounts receivable (net of allowance for doubtful accounts of
$20,000 (unaudited) and $20,000, respectively)............... 906,307 798,964
Due from affiliates, net........................................ 401,583 324,140
Prepaid expenses and other assets............................... 3,226 3,259
Current program rights.......................................... 343,750 --
----------- -----------
Total current assets.................................... 1,864,674 1,279,658
Property and equipment, net....................................... 509,604 628,196
Deferred tax asset................................................ 340,404 340,404
Intangible assets, net............................................ 2,508,656 2,614,658
Program rights, net............................................... 2,360,417 --
----------- -----------
Total assets............................................ $ 7,583,755 $ 4,862,916
========== ==========
LIABILITIES AND DIVISIONAL DEFICIT
Current liabilities:
Accounts payable and accrued liabilities........................ $ 119,034 $ 397,988
Current portion of program rights payable....................... 312,500 --
----------- -----------
Total current liabilities............................... 431,534 397,988
Program rights payable............................................ 2,395,833 --
Due to affiliates, long term...................................... 7,254,181 7,151,848
----------- -----------
Total liabilities....................................... 10,081,548 7,549,836
Divisional deficit................................................ (2,497,793) (2,686,920)
----------- -----------
Commitments and contingencies (see Note 7)........................ -- --
----------- -----------
Total liabilities and divisional deficit................ $ 7,583,755 $ 4,862,916
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE> 182
WTKS-FM
(A DIVISION OF PRESS BROADCASTING COMPANY)
STATEMENT OF OPERATIONS AND DIVISIONAL DEFICIT
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD YEAR ENDED
ENDED DECEMBER
JUNE 16, 31,
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue:
Local and national advertising.................................. $ 2,156,365 $ 3,501,082
Trade........................................................... 71,116 287,036
Other........................................................... 119,113 160,311
----------- -----------
Total revenue........................................... 2,346,594 3,948,429
----------- -----------
Operating expenses:
Technical....................................................... 75,223 180,399
Direct.......................................................... 550,975 883,299
Sales and promotions............................................ 367,743 863,686
Programming..................................................... 581,166 1,572,783
General and administrative...................................... 214,458 555,043
Depreciation and amortization................................... 270,427 446,507
----------- -----------
Total operating expenses................................ 2,059,992 4,501,717
----------- -----------
Income (loss) from operations..................................... 286,602 (553,288)
Provision for income taxes -- affiliate........................... 97,475 42,278
----------- -----------
Net income (loss)................................................. 189,127 (595,566)
Divisional deficit at beginning of period......................... (2,686,920) (2,091,354)
----------- -----------
Divisional deficit at end of period............................... $(2,497,793) $(2,686,920)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE> 183
WTKS-FM
(A DIVISION OF PRESS BROADCASTING COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
JUNE 16, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $189,127 $ (595,566)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.................................... 270,427 446,507
Increase in accounts receivable.................................. (107,343) (222,624)
Increase in amounts due from affiliates.......................... (77,443) (267,053)
Decrease in prepaid expenses and other assets.................... 33 33,415
(Decrease) increase in accounts payable and accrued
liabilities................................................... (278,954) 73,617
--------- ---------
Net cash (used in) operating activities....................... (4,153) (531,704)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment.............................. -- (80,614)
--------- ---------
Cash flows from financing activities:
Advances from affiliates, long term.............................. 302,333 876,225
Payments to affiliates, long term................................ (200,000) (175,860)
Payments for program rights...................................... (41,667) --
--------- ---------
Net cash received for financing activities.................... 60,666 700,365
--------- ---------
Increase in cash and cash equivalents.............................. 56,513 88,047
Cash and cash equivalents at beginning of period................... 153,295 65,248
--------- ---------
Cash and cash equivalents at end of period......................... $209,808 $ 153,295
========= =========
Noncash operating activities:
Trade revenue.................................................... $ 71,116 $ 287,036
========= =========
Trade expense.................................................... $ 32,939 $ 305,061
========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY:
On May 6, 1996, the Station entered into a Program License Agreement
expiring May 15, 2001. Total payments under this agreement through 2001 are
$2,750,000.
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE> 184
WTKS-FM
(A DIVISION OF PRESS BROADCASTING COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION, PRINCIPAL BUSINESS ACTIVITIES AND BASIS OF PRESENTATION:
Organization and Principal Business Activities
WTKS-FM (the "Station"), a division of Press Broadcasting Company (a
wholly-owned subsidiary of New Jersey Press, Inc.), is an FM radio station
operating on frequency 104.1, in Cocoa Beach, Florida pursuant to licenses
issued by the Federal Communications Commission ("FCC"). Revenues are earned
from the sale of commercial time.
Basis of Presentation
The accompanying financial statements have been prepared as if the Station
had operated as an independent stand alone entity for all periods presented,
except there has been no allocation of New Jersey Press, Inc.'s consolidated
borrowings and interest expense. Certain costs and expenses totaling
approximately $139,000 for 1995 represent allocations of the Stations' share of
the total cost of Press Broadcasting Company for management, accounting and
other support services. Accordingly, the financial information included herein
is not necessarily indicative of the financial position, results of operations
and cash flows of the Station in the future or indicative of the results that
would have been reported if the Station had operated as an unaffiliated
enterprise. Management believes the statement of operations and divisional
deficit includes a reasonable allocation of costs incurred by Press Broadcasting
Company which benefit the Station.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 equipment..................................... 5 years
Leasehold improvements -- Building......................... 14 years
Leasehold improvements -- Tower............................ 3 years
Office furniture and equipment............................. 5 years
Transmission package....................................... 5 years
</TABLE>
Maintenance, repairs, and minor replacements of the items above 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 15 years.
Revenue recognition
Revenue is recognized as advertising air time is broadcast.
Fair value of financial instruments
The fair values of cash and cash equivalents, accounts receivable, due from
affiliates, accounts payable and accrued liabilities approximate the carrying
values due to their short term nature.
F-45
<PAGE> 185
WTKS-FM
(A DIVISION OF PRESS BROADCASTING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
SFAS 121 Impairment of Long-Lived Assets and Identifiable Intangibles
On January 1, 1995, the Station adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," the effect of which was immaterial. The
Station reviews long-lived assets, identifiable intangibles and goodwill and
will reserve for impairment whenever events or changes in circumstances indicate
the carrying amount of the assets may not be fully recoverable.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income taxes
The Station's operating results have been included in the tax return filed
by New Jersey Press, Inc. A provision for intercompany income taxes, which
approximates the income tax provision calculated for the Station on a standalone
basis was calculated to be $42,278 for the year ended December 31, 1995. The
provision for income taxes on the net loss incurred in 1995 is due to
Alternative Minimum Tax calculation consequences.
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 statement of results of the interim periods. The results of operations for
the period ended June 16, 1996 are not necessarily indicative of the results
that could be expected for the entire fiscal year ending December 31, 1996.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Broadcasting equipment........................................ $ 488,407
Leasehold improvements........................................ 122,224
Office furniture and equipment................................ 83,325
Transmission package.......................................... 541,695
Accumulated depreciation...................................... (607,455)
---------
Property and equipment, net................................... $ 628,196
=========
Depreciation expense for the year............................. $ 234,503
=========
</TABLE>
F-46
<PAGE> 186
WTKS-FM
(A DIVISION OF PRESS BROADCASTING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31,
1995
----------
<S> <C>
FCC licenses and other intangible assets......................... $3,180,000
Accumulated amortization......................................... (565,342)
----------
Intangible assets, net........................................... $2,614,658
=========
Amortization expense for the year................................ $ 212,004
=========
</TABLE>
5. INCOME TAXES:
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Intangible assets............................................... $353,555
Deferred tax liabilities:
Fixed assets.................................................... (13,151)
--------
Net deferred tax asset.................................. $340,404
========
</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. Due to the fact that the
deferred tax asset is expected to be realized, a valuation allowance was not
provided for the deferred tax asset.
6. RELATED PARTY TRANSACTIONS:
Press Broadcasting Company purchased the assets of the Station in 1993
utilizing funds borrowed by an affiliate, Asbury Park Press, Inc. The cost of
the assets purchased was recorded by the Station as an intercompany liability in
the amount of $5,010,000. Additionally, in the normal course of business,
affiliates fund expenses incurred by the Station, the majority of which are
payroll related. At December 31, 1995 the Station's total long term liability to
such affiliates was $7,254,181. The Station does not accrue interest on this
liability. Interest was charged to other affiliates during 1995 at the effective
rate of 7.1%. Had interest been accrued by the Station for 1995, the net loss
would have been approximately ($1,100,000).
The Station also shares resources and office space with 18WKCF, an
affiliated television station. As a result, certain shared expenses are funded
by the television station and reimbursed on a current basis. All such expenses
have been appropriately reflected in the Station's financial statements. At
December 31, 1995, the Station reported a liability in the amount of $66,630 due
to the television station for such types of expenses.
The Station is included in the tax return filed by New Jersey Press, Inc.
At December 31, 1995, the Station had a $390,770 income tax receivable from New
Jersey Press, Inc.
The Station enters into trade agreements with 18WKCF. Rates and terms for
these spots are similar to those offered to other customers. For the year ended
December 31, 1995, these spots amounted to $82,305 of trade revenue.
F-47
<PAGE> 187
WTKS-FM
(A DIVISION OF PRESS BROADCASTING COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
7. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of $583,938 for the year ended December 31,
1995 under non-cancelable operating leases and other agreements for office
equipment, office space, sales surveys and on-air talent. Future minimum annual
payments under these non-cancelable operating leases as of December 31, 1995 are
as follows:
<TABLE>
<S> <C>
1996............................................................. $ 194,956
1997............................................................. 159,442
1998............................................................. 104,494
1999............................................................. 62,019
2000............................................................. 73,060
Subsequent to 2000............................................... 836,938
----------
$1,430,909
=========
</TABLE>
In May 1996, the Station entered into a Program License Agreement which
will expire in May 2001. Total contractual payments under this agreement through
2001 total $2,750,000.
8. SUBSEQUENT EVENTS:
On June 17, 1996, the Station's assets were sold to Paxson Communications
Corporation (Purchaser) for $25,000,000. Concurrently, the Station entered into
a Time Brokerage Agreement with the Purchaser effective June 17, 1996, whereby
the Station has agreed to lease the broadcast time of the Station until the
above-mentioned sale is finalized. The sale and the assignment of the FCC
license, in conjunction with the sale, is subject to approval by the FCC.
F-48
<PAGE> 188
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
of WHUB, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of WHUB, Inc. at
December 31, 1995 and the results of its operations and its cash flows for the
year 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
Fort Lauderdale, Florida
July 22, 1996
F-49
<PAGE> 189
WHUB, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 520,729 $492,051
Accounts receivable, net of allowance for doubtful accounts
of $8,134 (unaudited) and $5,506, respectively............ 123,248 224,137
Prepaid expenses and other assets............................ 458 3,208
----------- ------------
Total current assets................................. 644,435 719,396
Property and equipment, net.................................... 91,551 101,524
----------- ------------
Total assets......................................... $ 735,986 $820,920
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities................. $ 3,697 $ 16,073
----------- ------------
Total current liabilities............................ 3,697 16,073
----------- ------------
Common stock, $100 par value, 100 shares authorized,
issued and outstanding....................................... 10,000 10,000
Retained earnings.............................................. 722,289 794,847
----------- ------------
Total stockholders' equity........................... 732,289 804,847
----------- ------------
Total liabilities and stockholders' equity........... $ 735,986 $820,920
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE> 190
WHUB, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Local advertising........................................... $475,412 $1,211,951
------------ ------------
Total revenue....................................... 475,412 1,211,951
------------ ------------
Operating expenses:
Direct...................................................... 36,521 183,488
Programming................................................. 54,935 138,091
Sales and Promotions........................................ 53,864 105,525
News department............................................. 19,042 43,932
Engineering department...................................... 22,497 39,169
General and administrative.................................. 102,243 195,077
Corporate management fee.................................... 221,950 462,329
Depreciation and amortization............................... 13,979 29,700
------------ ------------
Total operating expenses............................ 525,031 1,197,311
------------ ------------
(Loss) income from operations................................. (49,619) 14,640
Interest income............................................... 3,506 5,957
------------ ------------
Net (loss) income................................... $(46,113) $ 20,597
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE> 191
WHUB, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
---------------------------------
COMMON RETAINED
STOCK EARNINGS TOTAL
------- -------- --------
<S> <C> <C> <C>
Balance at December 31, 1994................................ $10,000 $823,354 $833,354
Net income.................................................. 20,597 20,597
Dividends................................................... (49,104) (49,104)
------- -------- --------
Balance at December 31, 1995................................ 10,000 794,847 804,847
Net loss through June 30, 1996 (unaudited).................. (46,113) (46,113)
Dividends (unaudited)....................................... (26,445) (26,445)
------- -------- --------
Balance at June 30, 1996 (unaudited)........................ $10,000 $722,289 $732,289
======= ======== ========
</TABLE>
The accompanying rates are an integral part of these financial statements.
F-52
<PAGE> 192
WHUB, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income................................................ $(46,113) $ 20,597
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization.................................... 13,979 29,700
Decrease (increase) in accounts receivable....................... 100,889 (5,929)
Decrease (increase) in prepaid expenses and other assets......... 2,750 (3,208)
(Decrease) increase in accounts payable and accrued
liabilities................................................... (12,376) 12,623
-------- --------
Net cash provided by operating activities................ 59,129 53,783
-------- --------
Cash flows from investing activities:
Purchases of property and equipment.............................. (4,006) (10,245)
-------- --------
Net cash used in investing activities.................... (4,006) (10,245)
-------- --------
Cash flows from financing activities:
Payment of dividends............................................. (26,445) (49,104)
-------- --------
Net cash used in financing activities.................... (26,445) (49,104)
-------- --------
Increase (decrease) in cash and cash equivalents................... 28,678 (5,566)
Cash and cash equivalents, beginning of period..................... 492,051 497,617
-------- --------
Cash and cash equivalents, end of period........................... $520,729 $492,051
======== ========
</TABLE>
The accompanying rates are an integral part of these financial statements.
F-53
<PAGE> 193
WHUB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
WHUB, Inc. (the "Company"), is engaged in the operation of radio stations,
WHUB-FM and WHUB-AM in the Cookeville, Tennessee market. The Company operates
the radio stations under licenses granted by the Federal Communications
Commission.
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 using the straight-line method over their estimated useful lives
as follows:
<TABLE>
<S> <C>
Broadcasting tower and equipment......................... 5-10 years
Office furniture and equipment........................... 5 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
Revenue recognition
Revenue is recognized as advertising air time is broadcast.
Trade agreements
The Company enters into trade agreements which give rise to 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.
Income taxes
The stockholders of the Company have elected to have the Company treated as
an S corporation for federal income tax purposes. Accordingly, no provision for
income taxes is reflected in the Company's financial statements since the
stockholders, not the Company, are liable for such taxes on corporate income.
Tax credits, if available, are passed through to the stockholders.
Interim financial data
The interim financial data of the Company is unaudited; however, in the
opinion of the Company's management, the interim financial 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 six month period ended June 30, 1996 are not necessarily indicative of the
results that could be expected for the entire fiscal year ending December 31,
1996.
Accounting Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, disclosure of contingent liabilities at financial
statement date and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-54
<PAGE> 194
WHUB, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Broadcasting tower and equipment................................ $ 128,059
Office furniture and equipment.................................. 257,202
Automobile...................................................... 12,000
Land............................................................ 4,510
Accumulated depreciation........................................ (300,247)
---------
Property and equipment, net..................................... $ 101,524
=========
Depreciation expense for the year............................... $ 29,700
=========
</TABLE>
3. TRADE TRANSACTIONS:
For the year ended December 31, 1995, trade revenue and expense
approximated $14,300 and $8,572, respectively. Included in accounts receivable
at December 31, 1995 are trade accounts receivable (services due to the Station)
of approximately $4,900.
4. RELATED PARTY TRANSACTIONS:
The Company leases the building which houses its station operations and
corporate offices in Cookeville, Tennessee from a related party. Rental expense
for this facility incurred during the year ended December 31, 1995 totaled
$5,000.
5. COMMITMENTS AND CONTINGENCIES:
The Company has entered into two broadcast agreements for the broadcast of
university sports programs. One agreement represents a continuing five-year
contract of which three years remain as of December 31, 1995. The second
agreement will commence in July of 1996 and end June 30, 1997. These commitments
total approximately $20,996 of which $9,905 will be incurred during the 1996-97
sports season.
6. SUBSEQUENT EVENT:
On March 29, 1996, the Company signed an asset purchase agreement with
Paxson Communications Corporation (Paxson) pursuant to which all of the Company
assets will be sold to Paxson for approximately $3,800,000. The Company is
currently awaiting FCC approval of this sale.
F-55
<PAGE> 195
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Todd Communications, Inc. (WFSJ-FM)
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 Todd Communications,
Inc. (operating as station WFSJ-FM) at December 31, 1995, and the results of its
operations and its cash flows for the year 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
Fort Lauderdale, Florida
July 26, 1996
F-56
<PAGE> 196
TODD COMMUNICATIONS, INC. (WFSJ-FM)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 66,623 $ 31,906
Accounts receivable, less allowance for doubtful accounts of 114,705 130,261
$19,005 (unaudited) and $20,828, respectively................
Prepaid expenses and other assets................................. 21,879 23,112
----------- -----------
Total current assets.................................... 203,207 185,279
Property and equipment, net....................................... 464,075 512,320
Intangible assets, net............................................ 1,123,739 1,150,239
----------- -----------
Total assets............................................ $ 1,791,021 $ 1,847,838
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities........................ $ 26,857 $ 55,740
Due to affiliates............................................... 616,535 457,000
Notes payable to related parties................................ 3,154,661 3,154,661
----------- -----------
Total current liabilities............................... 3,798,053 3,667,401
----------- -----------
Stockholders' Deficit:
Common stock, $1.00 par, 1,000 shares authorized, issued and 1,000 1,000
outstanding..................................................
Additional paid-in capital...................................... 299,980 299,980
Accumulated deficit............................................. (2,308,012) (2,120,543)
----------- -----------
Total stockholders' deficit.................................. (2,007,032) (1,819,563)
----------- -----------
Commitments and contingencies..................................... -- --
Total liabilities and stockholders' deficit............. $ 1,791,021 $ 1,847,838
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-57
<PAGE> 197
TODD COMMUNICATIONS, INC. (WFSJ-FM)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Local and national advertising.............................. $ 428,772 $ 553,562
Trade....................................................... 76,914 100,219
Other....................................................... 27,793 41,758
------------ ------------
Total revenue....................................... 533,479 695,539
------------ ------------
Operating expenses:
Direct...................................................... 182,622 210,724
Technical................................................... 21,251 41,424
Sales and promotions........................................ 38,354 161,194
Programming................................................. 122,707 156,957
General and administrative.................................. 112,305 195,026
Depreciation and amortization............................... 74,744 138,433
Trade expense............................................... 76,914 163,949
------------ ------------
Total operating expenses............................ 628,897 1,067,707
------------ ------------
Loss from operations.......................................... (95,418) (372,168)
Interest expense.............................................. (92,051) (166,886)
------------ ------------
Net loss...................................................... $ (187,469) $ (539,054)
============ ============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of to these
financial statements.
F-58
<PAGE> 198
TODD COMMUNICATIONS, INC. (WFSJ-FM)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1994................... 1,000 $1,000 $299,980 $(1,581,489) $(1,280,509)
Net loss............................ (539,054) (539,054)
----- ------ -------- ----------- -----------
December 31, 1995................... 1,000 1,000 299,980 (2,120,543) (1,819,563)
Net loss (unaudited)................ (187,469) (187,469)
----- ------ -------- ----------- -----------
June 28, 1996 (unaudited)........... 1,000 $1,000 $299,980 $(2,308,012) $(2,007,032)
===== ====== ======== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of to these
financial statements.
F-59
<PAGE> 199
TODD COMMUNICATIONS, INC. (WFSJ-FM)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
JUNE 28, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $ (187,469) $ (539,054)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization................................. 74,744 138,433
Decrease (increase) in accounts receivable.................... 15,556 (2,756)
Decrease in prepaid expenses and other assets................. 1,233 1,201
Decrease in accounts payable and accrued liabilities.......... (28,882) (45,610)
Increase in due to affiliates................................. 159,535 409,755
--------- ---------
Net cash provided by (used in) operating activities...... 34,717 (38,031)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment.............................. -- (17,664)
--------- ---------
Cash flows from financing activities:
Proceeds from related party note payable......................... -- 65,000
Payments of related party note payable........................... -- (180,000)
--------- ---------
Net cash used in financing activities.................... -- (115,000)
--------- ---------
Increase (decrease) in cash and cash equivalents................... 34,717 (170,695)
Cash and cash equivalents at beginning of year..................... 31,906 202,601
--------- ---------
Cash and cash equivalents at end of period......................... $ 66,623 $ 31,906
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest........................................... $ 44,256 $ 63,865
========= =========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-60
<PAGE> 200
TODD COMMUNICATIONS, INC. (WFSJ-FM)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Todd Communications, Inc. (the Company) owns and operates WFSJ, an FM radio
station broadcasting to the Jacksonville, Florida market with transmitting
facilities located in St. Augustine, Florida.
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>
Land improvements, building and improvements............... 15 - 31.5 years
Office furniture and equipment............................. 1 - 7 years
Broadcasting tower and equipment........................... 5 - 15 years
</TABLE>
Maintenance, repairs, and minor replacements of the above 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
30 years.
Trade agreements
The Company enters into trade agreements which give rise to 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.
Revenue recognition
Revenue is recognized as advertising air time is broadcast.
Fair value of financial instruments
Cash and cash equivalents, accounts receivable, accounts payable, and
accrued liabilities. The fair values approximate the carrying values due to
their short term nature.
SFAS 121 Impairment of Long-Lived Assets and Identifiable Intangibles
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of", the effect of which was immaterial. The
Company reviews long-lived assets, identifiable intangibles and goodwill and
will reserve for impairment whenever events or changes in circumstances indicate
the carrying amount of the assets may not to be fully recoverable.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-61
<PAGE> 201
TODD COMMUNICATIONS, INC. (WFSJ-FM)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
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". Due to the cumulative net losses
experienced by the Company, no provision for income taxes has been provided for
the year ended December 31, 1995 and a full valuation allowance has been
established for the Company's deferred tax asset which consists principally of
net operating losses at December 31, 1995.
Interim financial data
The interim financial data of the Company 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 statement of results of the interim periods. The results of operations for
the period ended June 28, 1996 are not necessarily indicative of the results
that could be expected for the entire fiscal year ending December 31, 1996.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER
31,
1995
---------
<S> <C>
Land, building and improvements.................................. $ 361,234
Office furniture and equipment................................... 75,435
Broadcasting tower and equipment................................. 379,533
---------
816,202
Accumulated depreciation......................................... (303,882)
---------
Property and equipment, net...................................... $ 512,320
=========
Depreciation expense for the year................................ $ 94,271
=========
</TABLE>
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31,
1995
----------
<S> <C>
FCC license...................................................... $1,325,000
Accumulated amortization......................................... (174,761)
----------
Intangible assets, net........................................... $1,150,239
=========
Amortization expense for the year................................ $ 44,162
=========
</TABLE>
F-62
<PAGE> 202
TODD COMMUNICATIONS, INC. (WFSJ-FM)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
4. RELATED PARTY NOTES PAYABLE:
Related party notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31,
1995
----------
<S> <C>
Note payable to related party; interest at 4.00%; interest
payable monthly and principal due on demand.................... $1,404,661
Note payable to related party; interest accrues at the short-term
annual applicable federal rate prescribed by the Internal
Revenue Service with the balance of principal and interest due
upon demand.................................................... 1,750,000
----------
$3,154,661
=========
</TABLE>
At December 31, 1995, accrued interest payable was $161,300.
5. RELATED PARTY TRANSACTIONS:
In the normal course of business, various related stations fund the
day-to-day operations of the Company and the Company shares resources and office
space with Paxson Communications Corporation (Paxson) stations. Management
believes the accompanying financial statements include a reasonable allocation
of costs incurred by Paxson which benefit the Company of approximately $211,300.
At December 31, 1995, the Company's liability to these related stations was
$295,700.
6. SUBSEQUENT EVENTS:
On June 28, 1996, the Company was merged with Paxson in exchange for Paxson
stock valued at $1,535,000, cancellation of Paxson's note receivable and accrued
interest of $1,822,000 and satisfaction of the Company's note payable and
accrued interest to Lowell "Bud" Paxson of $1,643,000.
F-63
<PAGE> 203
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Southern Broadcasting Companies, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in shareholders' equity and of cash flows present
fairly, in all material respects, the financial position of Southern
Broadcasting Companies, Inc. at December 31, 1995 and the results of its
operations and its cash flows for the year 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
Fort Lauderdale, Florida
August 2, 1996
F-64
<PAGE> 204
SOUTHERN BROADCASTING COMPANIES, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................ $ 228,393 $ 251,263
Accounts receivable, less allowance for doubtful accounts of 270,384 274,950
$68,470 (unaudited) and $64,703, respectively.................
Accounts receivable, other....................................... 24,871 52,642
Other assets..................................................... 5,108 5,108
----------- -----------
Total current assets..................................... 528,756 583,963
Property and equipment, net........................................ 725,060 774,068
Intangible assets, net............................................. 22,353 23,550
----------- -----------
Total assets............................................. $ 1,276,169 $1,381,581
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities......................... $ 159,125 $ 154,892
Due to affiliated companies...................................... 88,374 25,000
Advances from shareholders....................................... 643,268 842,937
----------- -----------
Total current liabilities................................ 890,767 1,022,829
----------- -----------
Capital stock, $1 par value, 10,000 shares authorized, issued and 10,000 10,000
outstanding......................................................
Retained earnings.................................................. 375,402 348,752
----------- -----------
Total shareholders' equity............................... 385,402 358,752
----------- -----------
Commitments and contingencies (see Note 5)......................... -- --
Total liabilities and shareholders' equity............... $ 1,276,169 $1,381,581
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
F-65
<PAGE> 205
SOUTHERN BROADCASTING COMPANIES, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Local and national advertising............................... $ 942,482 $2,635,586
Trade........................................................ 40,506 87,166
Other........................................................ 47,898 117,432
---------------- ------------
Total revenue........................................ 1,030,886 2,840,184
---------------- ------------
Operating expenses:
Direct....................................................... 49,411 170,238
News......................................................... 9,092 19,332
Programming.................................................. 277,043 536,231
Sales........................................................ 249,766 561,322
Technical.................................................... 38,900 78,688
General and administrative................................... 175,036 507,581
Trade........................................................ 49,801 72,272
Depreciation and amortization................................ 56,171 228,076
---------------- ------------
Total operating expenses............................. 905,220 2,173,740
---------------- ------------
Income from operations......................................... 125,666 666,444
Other income (expense):
Interest income (expense), net............................... 499 (10,029)
Loss on sale of assets....................................... -- (75,551)
Marketing fees received from affiliate....................... -- 271,500
Marketing fees paid to affiliate............................. (37,200) --
Other expense, net........................................... (62,315) (82,674)
---------------- ------------
Net income..................................................... $ 26,650 $ 769,690
============= ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
F-66
<PAGE> 206
SOUTHERN BROADCASTING COMPANIES, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
-------------------------------
CAPITAL RETAINED
STOCK EARNINGS TOTAL
------- -------- --------
<S> <C> <C> <C>
Balance at December 31, 1994.................................. $10,000 $ 70,115 $ 80,115
Net income.................................................... 769,690 769,690
Distributions to shareholders................................. (491,053) (491,053)
------- -------- --------
Balance at December 31, 1995.................................. 10,000 348,752 358,752
Net income through June 30, 1996 (unaudited).................. 26,650 26,650
------- -------- --------
Balance at June 30, 1996 (unaudited).......................... $10,000 $375,402 $385,402
======= ======== ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
F-67
<PAGE> 207
SOUTHERN BROADCASTING COMPANIES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 26,650 $ 769,690
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 56,171 228,076
Decrease in receivables................................... 32,337 25,155
Increase (decrease) in accounts payable and accrued 4,233 (8,347)
liabilities.............................................
Increase in due to affiliated companies................... 63,374 761,500
Loss on sale of fixed assets.............................. -- 75,551
---------- ----------
Net cash provided by operating activities............ 182,765 1,851,625
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment.......................... (5,966) (1,656)
Proceeds from sale of property and equipment................. -- 131,500
Repayments of advances from shareholders..................... (199,669) (1,226,985)
---------- ----------
Net cash used in investing activities................ (205,635) (1,097,141)
Cash flows from financing activities:
Payments on note payable..................................... -- (105,136)
Distributions to shareholders................................ -- (491,053)
---------- ----------
Net cash used for financing activities............... -- (596,189)
---------- ----------
(Decrease) increase in cash and cash equivalents............... (22,870) 158,295
Cash and cash equivalents at beginning of period............... 251,263 92,968
---------- ----------
Cash and cash equivalents at end of period..................... $ 228,393 $ 251,263
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest....................................... $ 468 $ 15,692
========== ==========
Non-cash operating activities:
Trade revenue................................................ $ 40,506 $ 87,166
========== ==========
Trade expense................................................ $ 49,801 $ 72,272
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
F-68
<PAGE> 208
SOUTHERN BROADCASTING COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Southern Broadcasting Companies, Inc. (the "Company"), owns and operates
the following radio stations: WSNI-FM in Tallahassee, Florida; and WPAP-FM and
WPBH-FM in Panama City, Florida. The Company operates the radio stations
pursuant to licenses issued by the Federal Communications Commission ("FCC").
Revenues are earned from the sale of commercial time.
Cash and Cash Equivalents
At December 31, 1995, cash and cash equivalents consist solely of money
market investments.
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 - 7 years
Buildings.............................................. 31.5 years
Leasehold improvements................................. 7 - 15 years
Office furniture and equipment......................... 5 - 7 years
Vehicles............................................... 5 years
</TABLE>
Maintenance, repairs, and minor replacements of the items above are charged
to expense as incurred.
Intangible assets
Intangible assets consist of the FCC license for WPAP which is stated at
cost and is being amortized using the straight-line method over the estimated
useful life of 15 years.
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 the related advertising air time is broadcast. Products and services
received are expensed when used in the broadcast operations. If the Company uses
trade products or services before advertising air time is provided, a trade
liability is recognized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, accounts payable, and
accrued liabilities. The fair values approximate the carrying values due to
their short term nature.
SFAS 121 Impairment of Long-Lived Assets and Identifiable Intangibles
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," the effect of which was immaterial. The
Company reviews long-lived assets, identifiable intangibles and goodwill and
will reserve for impairment.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-69
<PAGE> 209
SOUTHERN BROADCASTING COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Income taxes
The shareholders of the Company have elected to have the Company treated as
an S Corporation for federal income tax purposes. Accordingly, no provision for
income taxes is reflected in the Company's financial statements since the
shareholders, not the Company, are liable for such taxes on corporate income.
Tax credits, if available, are passed through to the shareholders.
Interim financial data
The interim financial data of the Company is unaudited; however, in the
opinion of Company management, the interim financial 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 June 30, 1996 are not necessarily indicative of the results
that could be expected for the entire fiscal year ending December 31, 1996.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Land............................................................ $ 40,000
Broadcasting tower and equipment................................ 980,606
Building and leasehold improvements -- building................. 352,145
Office furniture and equipment.................................. 62,932
Vehicles........................................................ 36,468
------------
1,472,151
Accumulated depreciation........................................ (698,083)
------------
Property and equipment, net..................................... $ 774,068
==========
Depreciation expense for the year............................... $ 225,681
==========
</TABLE>
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
FCC license..................................................... $ 35,924
Accumulated amortization........................................ (12,374)
------------
Intangible assets, net.......................................... $ 23,550
==========
Amortization expense for the year............................... $ 2,395
==========
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Station WSNI-FM leases a portion of the office space which houses its
station operations in Tallahassee, Florida to a related party. The related party
paid its portion of the rent expense (which totaled $10,860 in 1995) directly to
the lessor.
F-70
<PAGE> 210
SOUTHERN BROADCASTING COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
The Company charges marketing fees to related parties for marketing and
related services provided to these companies. The marketing fee income
recognized in 1995 is $271,500.
At December 31, 1995, the amount due to affiliated companies represents
cash funded to the Company.
5. COMMITMENTS AND CONTINGENCIES:
In December 1994, the Company and a related party, as co-borrowers, entered
into a loan agreement to borrow $4 million to finance the broadcasting assets of
a television station in Tallahassee, Florida. The assets of the Company serve as
security for the payment of the loan. At December 31, 1995, the Company and the
co-borrower are not in compliance with the financial requirements per the loan
agreement.
The Company incurred expenses of $80,932 for the year ended December 31,
1995, under non-cancelable operating leases for office space and towers. Future
minimum annual payments under these non-cancelable leases as of December 31,
1995 are as follows:
<TABLE>
<S> <C>
1996...................................................... $ 94,001
1997...................................................... 106,651
1998...................................................... 108,699
1999...................................................... 42,123
2000...................................................... 40,389
Subsequent to 2000........................................ 417,086
--------
$808,949
========
</TABLE>
6. SUBSEQUENT EVENTS:
In 1996, the Company entered into an agreement with a related party to pay
marketing fees in exchange for marketing and related services provided to the
Company.
On April 19, 1996, the Company entered into an asset purchase agreement to
sell the Company's assets, as specified in the related asset purchase agreement,
to Paxson Communications Corporation. This sale is pending FCC approval.
On May 1, 1996, the Company entered into a lease agreement to renew the
lease of the office space which houses the Company's operations for station
WSNI-FM in Tallahassee, Florida. The term of the lease is May 1, 1996 through
December 31, 1998.
In June 1996, the shareholders of the Company entered into a loan agreement
to borrow $2,250,000. The loan is personally guaranteed by the shareholders, as
well as by the Company.
F-71
<PAGE> 211
INDEPENDENT AUDITORS' REPORT
To the Members and Board of Directors
Fort Lauderdale Radio Stations
(A Division of T. K. Communications, L. C.)
Ft. Lauderdale, Florida
We have audited the accompanying balance sheet of FORT LAUDERDALE RADIO
STATIONS (A DIVISION OF T. K. COMMUNICATIONS, L. C.) as of December 31, 1995,
and related statements of income and divisional equity (deficit) and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Fort Lauderdale Radio
Stations (a division of T. K. Communications, L. C.) as of December 31, 1995,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Our audit was for the purpose of forming an opinion on the basic 1995
financial statements taken as a whole. The financial statements for the four
months ended April 30, 1996 is presented for the purposes of additional analysis
and is not required part of the basic financial statements. Such information has
not been subjected to the auditing procedures applied in the audit of the basic
financial statements, and accordingly, we express no opinion on it.
/s/ Mathieson Aitken Jemison, LLP
- ---------------------------------------------------------
MATHIESON AITKEN JEMISON, LLP
Blue Bell, Pennsylvania
February 9, 1996, except for Notes 2 and 7
as to which the date is July 22, 1996
F-72
<PAGE> 212
FORT LAUDERDALE RADIO STATIONS
(A DIVISION OF T. K. COMMUNICATIONS, L. C.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents....................................... $ 89,594 $ 306,172
Accounts receivable............................................. 960,348 1,065,376
Allowance for doubtful accounts................................. (133,786) (106,118)
Note receivable -- noncompete agreement......................... 100,000 100,000
Prepaid expenses................................................ 13,948 8,590
----------- -----------
TOTAL CURRENT ASSETS.................................... 1,030,104 1,374,020
PROPERTY AND EQUIPMENT............................................ 3,024,211 2,930,372
Less, accumulated depreciation.................................. 2,505,420 2,470,353
----------- -----------
PROPERTY AND EQUIPMENT, NET............................. 518,791 460,019
OTHER ASSETS, NET................................................. 1,735,677 1,618,416
NOTES RECEIVABLE -- NONCOMPETE AGREEMENT.......................... 300,000 300,000
----------- -----------
$ 3,584,572 $ 3,752,455
=========== ===========
LIABILITIES AND DIVISIONAL EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable, bank............................................. $15,950,000 --
Treasury stock redemption notes................................. 1,829,430 $ 1,829,430
Accounts payable................................................ 13,753 77,986
Accrued commissions and management incentives................... 144,051 149,241
Accrued expenses................................................ 148,191 122,064
----------- -----------
TOTAL CURRENT LIABILITIES............................... 18,085,425 2,178,721
LONG-TERM DEBT
Notes payable, bank............................................. -- 13,300,000
Treasury stock redemption notes................................. 240,000 240,000
Stockholder loan................................................ 1,453,755 3,580,000
----------- -----------
TOTAL LONG-TERM DEBT.................................... 1,693,755 17,120,000
----------- -----------
TOTAL LIABILITIES....................................... 19,779,180 19,298,721
DIVISIONAL EQUITY (DEFICIT)....................................... (16,194,608) (15,546,266)
----------- -----------
$ 3,584,572 $ 3,752,455
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-73
<PAGE> 213
FORT LAUDERDALE RADIO STATIONS
(A DIVISION OF T. K. COMMUNICATIONS, L. C.)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOUR
MONTHS YEAR ENDED DECEMBER 31, 1995
ENDED --------------------------------------
APRIL 30, WSHE WSRF
1996 (FM) (AM) TOTAL
---------- ----------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales....................................... $1,825,621 $ 7,381,190 $ 303,174 $ 7,684,364
Less
Commissions............................ 229,352 1,107,357 2,765 1,110,122
Trade sales............................ 226,940 449,792 449,792
--------- ----------- ----------- -----------
Net Sales......................... 1,369,329 5,824,041 300,409 6,124,450
OPERATING EXPENSES
Programming............................... 328,308 787,763 9,084 796,847
General and administrative................ 892,703 1,671,319 110,726 1,782,045
Sales..................................... 231,760 1,055,429 16,989 1,072,418
Technical................................. 42,609 118,415 118,415
Depreciation.............................. 35,067 108,647 915 109,562
Amortization.............................. 31,436 400,552 16,452 417,004
--------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES.......... 1,561,883 4,142,125 154,166 4,296,291
--------- ----------- ----------- -----------
OPERATING INCOME (LOSS)........... (192,554) 1,681,916 146,243 1,828,159
--------- ----------- ----------- -----------
OTHER INCOME................................ 1,654 5,413 5,413
INTEREST EXPENSE............................ (457,442) (1,072,585) (44,055) (1,116,640)
--------- ----------- ----------- -----------
NET INCOME (LOSS)................. $ (648,342) $ 614,744 $ 102,188 $ 716,932
========= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-74
<PAGE> 214
FORT LAUDERDALE RADIO STATIONS
(A DIVISION OF T. K. COMMUNICATIONS, L. C.)
STATEMENTS OF DIVISIONAL EQUITY (DEFICIT)
<TABLE>
<S> <C>
DIVISIONAL EQUITY (DEFICIT), JANUARY 1, 1995.................................. $ (23,564,722)
NET INCOME FOR THE YEAR ENDED DECEMBER 31, 1995............................... 716,932
TRANSFER OF EQUITY FROM DIVISIONAL SALE....................................... 58,923,984
DISTRIBUTIONS TO STOCKHOLDERS................................................. (31,953,030)
REDEMPTION OF TREASURY STOCK.................................................. (19,669,430)
------------
BALANCE, DECEMBER 31, 1995.................................................... (15,546,266)
NET LOSS FOR THE FOUR MONTHS ENDED APRIL 30, 1996 (UNAUDITED)................. (648,342)
------------
DIVISIONAL EQUITY (DEFICIT), APRIL 30, 1996 (UNAUDITED)....................... $ (16,194,608)
============
</TABLE>
See accompanying notes to financial statements.
F-75
<PAGE> 215
FORT LAUDERDALE RADIO STATIONS
(A DIVISION OF T. K. COMMUNICATIONS, L. C.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS YEAR ENDED
ENDED DECEMBER 31,
APRIL 30, 1996 1995
-------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................................ $ (648,342) $ 716,932
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities
Depreciation and amortization......................................... 66,503 526,566
(Increase) decrease in Accounts receivable............................ 132,696 227,320
Prepaid expenses...................................................... (5,358) 144,389
Increase (decrease) in Accounts payable............................... (64,233) (34,093)
Accrued commissions and management incentives......................... (5,190) 79,959
Accrued interest and expenses......................................... 26,127 (877,794)
--------- ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES................. (497,797) 783,279
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment....................................... (93,839) (160,378)
Acquisition of other assets.............................................. (148,697) (234,305)
Net transfers from divisions............................................. -- 58,599,361
--------- ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES................. (242,536) 58,204,678
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term borrowings, bank......................... -- (9,041,666)
Principal payments of stockholders' notes................................ -- (1,115,000)
Principal payments of subordinated debentures, stockholders'............. -- (1,500,000)
Principal payments on subordinated notes, stockholders'.................. -- (1,000,000)
Proceeds from notes payable, bank........................................ 2,650,000 --
Proceeds from stockholder loan........................................... -- 3,580,000
Purchase of treasury stock............................................... -- (17,600,000)
Distribution to shareholders............................................. -- (31,953,030)
Principal payments of stockholder loan................................... (2,126,245) --
--------- ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES................. 523,755 (58,629,696)
--------- ------------
NET INCREASE (DECREASE) IN CASH.................................. (216,578) 358,261
CASH AND CASH EQUIVALENTS (OVERDRAFT), BEGINNING OF YEAR................... 306,172 (52,089)
--------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 89,594 $ 306,172
========= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for Interest -- all divisions (see Note 1)....... $ 448,590 $ 2,539,321
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES
Notes issued in treasury stock redemption.................................. $ -- $ 2,069,430
========= ============
</TABLE>
See accompanying notes to financial statements.
F-76
<PAGE> 216
FORT LAUDERDALE RADIO STATIONS
(A DIVISION OF T. K. COMMUNICATIONS, L. C.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Effective December 29, 1995, the remaining shareholder of T. K.
Communication, Inc. liquidated and reorganized as a limited liability company,
T. K. Communications, L.C.
Method of Presentation
The financial statements present the financial position and related results
of operations and cash flows of the Fort Lauderdale Radio Stations (a division
of T. K. Communication, L. C.). Historically, the Fort Lauderdale Radio Stations
Division's balance sheet has reflected all long-term debt and the accumulation
of all stockholders transactions of the entity.
In 1995, T. K. Communications, Inc. closed on the sales of the divisions of
the Dallas radio station and the Orlando radio stations, and the divisional
equity of these divisions were transferred to the Fort Lauderdale Radio Stations
Division. As of December 31, 1995, the Fort Lauderdale Radio Stations Division
was the only remaining division of T. K. Communications, L. C. and represents
the financial position in its entirety of T. K. Communications, L. C.
Allocation of Corporate Expense
T. K. Communications, Inc. allocated eighty-six percent (86%) of corporate
expenses (included in general and administrative expenses) and sixty-six percent
(66%) of interest expense to the Fort Lauderdale Radio Stations Division for the
year ended December 31, 1995. In the opinion of the Company's management, the
methods of the allocations used are reasonable. Interest paid by the Fort
Lauderdale Radio Stations Division was one hundred percent (100%) of the
interest paid by T. K. Communications, Inc. for the year ended December 31,
1995.
Allocation of Operating Expenses -- WSHE (FM) and WSRF (AM)
The Fort Lauderdale division income has been presented reflecting the
component stations WSHE (FM) and WSRF (AM). Operating expenses are allocated on
a percentage of radio station square footage and other analyses. Certain other
expenses are presented on an allocation basis as a percentage of gross sales.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
Income Taxes
Both entities, T. K. Communications L. C. (a Florida limited liability
company) and T. K. Communications, Inc. (an S Corporation) are not tax-paying
entities for purposes of Federal and Florida income taxes, and thus, no income
taxes for Federal and Florida have been recorded in the statements. In lieu
F-77
<PAGE> 217
FORT LAUDERDALE RADIO STATIONS
(A DIVISION OF T. K. COMMUNICATIONS, L. C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of these corporate taxes the members of the limited liability company and the
stockholders of the S Corporation are taxed on their proportionate share of the
entities' taxable income.
Property and Equipment and Depreciation
Property and equipment are recorded at cost. For financial statement
purposes, depreciation is provided on the straight-line method over the
estimated useful lives of the assets.
The estimated useful lives used in computing depreciation are as follows:
<TABLE>
<S> <C>
Towers, antennas, and ground systems.......................... 5 - 10 years
Transmitting equipment........................................ 5 - 10 years
Studio, supporting and office equipment....................... 5 - 10 years
Building and improvements..................................... 10 - 40 years
</TABLE>
Maintenance and repairs are charged to expense as incurred; major renewals
and betterments are capitalized. When items of property or equipment are sold or
retired, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in income.
Trade -- Sales
All trade sales and related expenses are recorded at the value of the
merchandise received. All capital equipment received via trade is capitalized
and depreciated over its estimated useful life.
Other Assets and Amortization
The costs of other assets are amortized over their respective useful lives
or benefit periods. The methods and period of amortization by the type of asset
are disclosed in Note 6.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 107, Disclosures about Fair Value of Financial
Instruments, which requires the Company to disclose the fair value of financial
instruments, both assets and liabilities recognized and not recognized in the
balance sheet. The value of cash and cash equivalents, accounts receivable,
accounts payable and debt recorded on the balance sheet approximates fair value.
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 period. The results of operations for the four months
ended April 30, 1996 are not necessarily indicative of the results that can be
expected for the entire fiscal year ending December 31, 1996.
NOTE 2. LONG-TERM DEBT
On December 27, 1995, to facilitate the reorganization to T.K.
Communications, L.C., the company amended and restated the Credit Agreement
dated July 18, 1995 with Bank One. The loan commitment totaled $16,250,000 which
included a non-conversion portion of the revolving loan of $1,000,000, a
conversion portion of the revolving loan of $3,000,000, a term loan of
$8,750,000 and a term loan of $3,500,000. Interest was payable monthly, at the
bank's prime rate plus an increment ranging to one and a quarter percent
determined by the ratio of funded debt to operating cash flow.
F-78
<PAGE> 218
FORT LAUDERDALE RADIO STATIONS
(A DIVISION OF T. K. COMMUNICATIONS, L. C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As discussed in Note 7, subsequent events, T.K. Communications, L.C.
entered into the First Amendment to the Amended and Restated Credit Agreement
dated December 27, 1995 with Bank One, Indianapolis, National Association. This
First Amendment dated July 22, 1996 was agreed upon to enact certain
modifications in conjunction with the anticipated closing on the sale of the
Fort Lauderdale, Radio Stations (the "Paxson Acquisition") scheduled to occur on
January 17, 1997.
Under the First Amendment the term loans available are in place as follows:
<TABLE>
<CAPTION>
TERM LOAN I TERM LOAN II TERM LOAN III
----------- ------------ -------------
<S> <C> <C> <C>
Amount:................................................. $12,750,000 $3,500,000 $ 3,000,000
Interest Rate: (Payable Monthly)........................ Prime Prime Prime
Rate plus Rate plus Rate plus
1- 1/4% 2.0% 3.0%
</TABLE>
Repayment Date: For all three terms loans the entire principal balance
shall be repayable together with all accrued but unpaid interest on January 17,
1997.
All the Bank One loans are collateralized by a security interest in all
present and future assets of the Company, a pledge of the outstanding stock of
the Company, an assignment of an insurance policy on the life of John F.
Tenaglia for $5,000,000 and collateral assignment of the escrow agreement under
which Paxson has deposited $2,000,000. All indebtedness of the Company to the
stockholders and former stockholders of the Company is subordinated to the
indebtedness of Bank One under the credit agreements.
Under the credit agreements with Bank One, the Company is required to
adhere to certain restrictive covenants.
NOTE 3. REDEMPTION AGREEMENT AND RELATED PARTY DEBT
On March 1, 1995, subsequent to entering into sales agreements to sell the
operating assets of the Dallas Station and the Orlando Stations eighty percent
of the stockholders agreed to have their stock redeemed by the Company.
Under the redemption agreement the net proceeds from the sale of the Dallas
and Orlando radio stations were deposited into an escrow account. The Company,
from the escrow account, repaid all subordinated stockholder debt and accrued
interest on the debt totalling $4,436,936 and paid down the Bank One debt from
$23,000,000 to $13,500,000. On May 1, 1995, settlement was made on the
redemption agreement. Under the redemption agreement, the redeeming stockholders
surrendered their Company's stock and in return received distributions for their
pro rata share of the sum of the escrow account, after estimated expenses, and
$22,000,000 for the Fort Lauderdale radio stations. In accordance with the
agreement, the redeeming stockholders received subordinated notes representing
eighty percent of the Fort Lauderdale radio stations calculated working capital
totalling $1,749,430 and subordinated notes for eighty percent of the
outstanding monies due on the Orlando radio stations noncompete agreement
totalling $320,000. The revised due date for the working capital notes is the
earlier of the closing date of the sale of the Fort Lauderdale Radio Stations or
April 30, 1997. The working capital notes were non-interest bearing through
April 30, 1996, and thereafter interest is payable at nine percent per annum and
due at the repayment of the principal. After the annual receipt by the Company
of the noncompete payments, the Company shall immediately pay the former
stockholders their pro rata share.
On May 19, 1994, the stockholders loaned the Company $1,000,000 from the
escrow account which was established under credit agreements dated June 30, 1992
with FUNB and MONY. The notes were payable on or before June 30, 2001 as
permitted by the Bank One credit agreement dated May 19, 1994. Interest was
payable quarterly at a fixed rate of 7% per year.
F-79
<PAGE> 219
FORT LAUDERDALE RADIO STATIONS
(A DIVISION OF T. K. COMMUNICATIONS, L. C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company converted $115,000 of accrued interest on subordinated
debentures to notes payable. The notes were non-interest bearing.
In December 1988, a stockholder of the Company loaned the Company
$1,000,000. The note was originally payable on demand with interest payable
monthly at prime rate.
Subordinated debenture notes represent subordinated notes to common
stockholders due June 16, 1998, with interest at 8%. No payment of principal was
allowed unless senior indebtedness had been retired.
In May 1995, proceeds from the escrow account were used to repay all
outstanding debt to redeeming stockholders and former stockholder including the
stockholders' notes, subordinated debentures and notes, stockholder advance and
the accrued interest to date totalling $821,936.
As of December 31, 1995, the outstanding balance on a non-interest bearing
subordinated loan to the nonredeeming stockholder amounted to $3,580,000.
NOTE 4. OPERATING LEASE COMMITMENTS
Effective January 1992, the Company agreed to a ten year lease for the
radio station office with a monthly base rent of $7,030 with annual consumer
price index adjustment. The Company leases tower space for an antenna under a
15-year lease agreement through December 31, 2000. The agreement calls for an
annual lease amount of $60,000 for the first five years, $75,000 for the next
five years, and $93,750 for the final five years. The Company leases tower space
for an auxiliary FM antenna at an annual amount of $11,544 plus an annual
adjustment for Consumer Price Index increases. The contract extends to February
28, 2023.
The Company made a buy out settlement for its lease term for its corporate
office space through August 31, 1996 in the amount of $68,158.
The total rent expense for 1995 for the Fort Lauderdale Radio Stations was
$247,539.
The aggregate minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
1996............................................................. $ 172,463
1997............................................................. 189,651
1998............................................................. 189,651
1999............................................................. 189,651
2000 and thereafter.............................................. 424,606
----------
$1,166,022
==========
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Major classifications of property, equipment and depreciation are
summarized as follows:
<TABLE>
<CAPTION>
ACCUMULATED BOOK
ASSETS DEPRECIATION VALUE
---------- ---------- --------
<S> <C> <C> <C>
Towers, antennas, and ground systems............ $ 518,587 $ 516,976 $ 1,611
Transmitting equipment.......................... 311,744 295,785 15,959
Studio, supporting and office equipment......... 1,071,430 870,571 200,859
Building and improvements....................... 1,028,611 787,021 241,590
---------- ---------- --------
$2,930,372 $2,470,353 $460,019
========== ========== ========
</TABLE>
F-80
<PAGE> 220
FORT LAUDERDALE RADIO STATIONS
(A DIVISION OF T. K. COMMUNICATIONS, L. C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
RECONCILIATION
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION
---------- ----------
<S> <C> <C>
BALANCE, DECEMBER 31, 1994.......................... $2,769,994 $2,360,791
ADDITIONS
Towers, antennas and ground systems............... -- 1,239
Transmitting equipment............................ 2,640 16,212
Studio, supporting and office equipment........... 56,873 79,566
Building and improvements......................... 100,865 12,545
---------- ----------
160,378 109,562
---------- ----------
BALANCE, DECEMBER 31, 1995.......................... $2,930,372 $2,470,353
========== ==========
</TABLE>
NOTE 6. OTHER ASSETS
As of December 31, 1995 other assets and accumulated amortization are as
follows:
<TABLE>
<CAPTION>
ACCUMULATED
COST AMORTIZATION NET
---------- -------- ----------
<S> <C> <C> <C>
Goodwill and licenses................... $2,299,760 $919,906 $1,379,854
Patents and trademarks.................. 14,029 13,840 189
Loan procurement costs.................. 161,747 14,464 147,283
Organization expense.................... 68,346 9,113 59,233
Deposits................................ 31,857 -- 31,857
---------- -------- ----------
$2,575,739 $957,323 $1,618,416
========== ======== ==========
</TABLE>
Organization Expense
The costs to reorganize to a limited liability company have been
capitalized and are being amortized over 60 months.
Transmitter Site Leasehold Interest
The cost of the lease is being amortized over the life of the lease.
Goodwill and Licenses
Goodwill and licenses represent the excess of acquisition cost over the
fair value of net tangible assets at the date of purchase. Management has
elected to amortize these costs over forty years.
Patents and Trademarks
These costs are amortized over 17 years.
Loan Procurement Costs
These costs are amortized over the term of the financing. In 1995,
amortization expense of $322,291 of the total $417,004 resulted from a write-off
of unamortized prior loans' procurement costs.
F-81
<PAGE> 221
FORT LAUDERDALE RADIO STATIONS
(A DIVISION OF T. K. COMMUNICATIONS, L. C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. SUBSEQUENT EVENTS
In March 1996, Paxson Broadcasting of Miami, Limited Partnership agreed to
purchase all assets used in the operation of the Company's Fort Lauderdale Radio
Stations WSHE (FM) and WSRF (AM) for $57,500,000. At settlement, the Company
will receive $47,500,000 in cash and $10,000,000 in unregistered stock valued at
the registration price of the future public offering of Paxson Communications
Corporation. If the registration price is less than the average of the closing
market price of the following thirty days after settlement, additional
unregistered shares will be issued to the Company for the difference.
After FCC consent is received, the Company has the election to postpone the
settlement until January 12, 1997. In conjunction with the purchase agreement,
the parties agreed to a time brokerage agreement whereby the parties defined the
operations and management of the stations to the eventual closing date.
On July 22, 1996, T. K. Communications, L. C. entered into the First
Amendment to the Amended and Restated Credit Agreement dated December 27, 1995
with Bank One, Indianapolis, National Association, See Note 2 for additional
details.
F-82
<PAGE> 222
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders'
of Shamrock Communications, Inc.
(An "S" Corporation)
We have audited the accompanying balance sheet of Radio Station WDIZ, FM, a
division of Shamrock Communications, Inc., (An "S" Corporation), as of December
31, 1995 and the related statements of income and expenses, divisional equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance that the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairy,
in all material respects, the financial position of Radio Station -- WDIZ, FM, a
division of Shamrock Communications, Inc., (An "S" Corporation), as of December
31, 1995 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
As explained in Note 3 to the financial statements, Shamrock
Communications, Inc., (An "S" Corporation) is part of an affiliated group of
companies and has entered into transactions with the group members.
/s/ Robert Rossi & Co.
- ---------------------------------------------------------
ROBERT ROSSI & CO.
Olyphant, Pennsylvania
July 24, 1996
F-83
<PAGE> 223
RADIO STATION WDIZ -- FM
A DIVISION OF
SHAMROCK COMMUNICATIONS, INC.
(AN "S" CORPORATION)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER
MAY 31, 31,
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash............................................................... $ 85,158 $ 101,574
Accounts Receivable less allowance for doubtful accounts of $66,932
and $47,179, respectively....................................... 414,489 434,237
Other Current Assets............................................... 19,127 396
--------- ---------
TOTAL CURRENT ASSETS....................................... 518,774 536,207
PROPERTY AND EQUIPMENT
Leasehold Improvements............................................. 67,412 67,412
Furniture and Fixtures............................................. 89,240 89,240
Radio Equipment.................................................... 353,008 353,008
Tower and Antenna Equipment........................................ 350,943 346,268
--------- ---------
Total...................................................... 860,603 855,928
Less: Accumulated Depreciation....................................... (802,048) (790,798)
--------- ---------
NET PROPERTY & EQUIPMENT............................................. 58,555 65,130
OTHER ASSETS
FCC Licenses, Net (Note 2)......................................... 25,290 26,186
--------- ---------
TOTAL ASSETS............................................... $ 602,619 $ 627,523
========= =========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES
Accounts Payable................................................... $ 37,189 $ 14,956
Accrued Expenses................................................... 83,901 63,217
Due to Affiliated Companies (Note 3)............................... 40,093 22,237
--------- ---------
TOTAL CURRENT LIABILITIES.................................. 161,183 100,410
COMMITMENTS AND CONTINGENCIES (Note 4)
DIVISIONAL EQUITY.................................................... 441,436 527,113
--------- ---------
TOTAL LIABILITIES AND DIVISIONAL EQUITY.................... $ 602,619 $ 627,523
========= =========
</TABLE>
See accompanying notes and independent auditor's report.
F-84
<PAGE> 224
RADIO STATION WDIZ -- FM
A DIVISION OF
SHAMROCK COMMUNICATIONS, INC.
(AN "S" CORPORATION)
STATEMENT OF INCOME AND EXPENSES
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
REVENUES........................................................... $1,190,259 $2,935,860
------------ ------------
EXPENSES
Direct........................................................... 414,546 1,073,691
Technical........................................................ 44,381 81,449
Program.......................................................... 127,087 286,746
Selling.......................................................... 87,756 234,221
Administrative and General....................................... 250,707 582,225
Depreciation and Amortization.................................... 12,146 35,496
------------ ------------
TOTAL EXPENSES........................................... 936,623 2,293,828
------------ ------------
NET INCOME (Note 6)................................................ $ 253,636 $ 642,032
========== ==========
</TABLE>
See accompanying notes and independent auditor's report.
F-85
<PAGE> 225
RADIO STATION WDIZ -- FM
A DIVISION OF
SHAMROCK COMMUNICATIONS, INC.
(AN "S" CORPORATION)
STATEMENT OF DIVISIONAL EQUITY
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD ENDED DECEMBER
MAY 31, 31,
1996 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
Divisional Equity, Beginning of Year.............................. $ 527,113 $ 1,172,425
Add:
Net Income...................................................... 253,636 642,032
Less:
Corporate Expenses Paid by WDIZ (Note 1)........................ (339,313) (1,287,344)
------------ -----------
Divisional Equity, End of Year/Period............................. $ 441,436 $ 527,113
========== ==========
</TABLE>
See accompanying notes and independent auditor's report.
F-86
<PAGE> 226
RADIO STATION WDIZ -- FM
A DIVISION OF
SHAMROCK COMMUNICATIONS, INC.
(AN "S" CORPORATION)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD ENDED DECEMBER
MAY 31, 31,
1996 1995
------------ -----------
(UNAUDITED)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income........................................................ $ 253,636 $ 642,032
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization................................... 12,146 35,496
Decrease in Accounts Receivable................................. 19,748 77,149
(Increase) Decrease in Other Current Assets..................... (18,731) 38,190
Increase in Due to Affiliated Corporation....................... 17,857 22,237
Increase (Decrease) in Accounts Payable......................... 22,233 (13,012)
Increase (Decrease) in Accrued Expenses......................... 20,684 (4,809)
-------- ----------
NET CASH PROVIDED FROM OPERATING ACTIVITIES............. 327,573 797,283
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment.............................. (4,676) (31,385)
-------- ----------
NET CASH USED IN INVESTING ACTIVITIES................... (4,676) (31,385)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Corporate Expenses Paid......................................... (339,313) (1,287,344)
-------- ----------
NET CASH USED IN FINANCING ACTIVITIES................... (339,313) (1,287,344)
-------- ----------
Net Decrease in Cash.............................................. (16,416) (521,446)
Cash at Beginning of Year......................................... 101,574 623,020
-------- ----------
CASH AT END OF YEAR............................................... $ 85,158 $ 101,574
======== ==========
Supplemental Cash Flow Disclosures Cash Paid During the Year for:
Interest (Corporate)............................................ $ 164,829 $ 447,775
Income Taxes.................................................... $ -- $ --
Non-Cash Operating Activities
Trade Revenue................................................... $ 117,244 $ 195,356
Trade Expenses.................................................. $ 117,244 $ 195,356
</TABLE>
See accompanying notes and independent auditor's report.
F-87
<PAGE> 227
RADIO STATION WDIZ -- FM
A DIVISION OF
SHAMROCK COMMUNICATIONS, INC.
(AN "S" CORPORATION)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: WDIZ FM is a commercial class C -- FM radio station
licensed by the FCC to Orlando, Florida with its studio and business office
located in Longwood, Florida, serving the metropolitan area of Orlando, Florida.
Presented below is a Summary of Significant Accounting Policies followed in
the preparation of the accompanying financial statements:
Cash and Cash Equivalents: Cash and cash equivalents are highly liquid
investments with original maturities of three months or less.
Property and Equipment: Property and Equipment are carried at cost.
Deprecation is provided using straight line and accelerated methods over their
estimated useful lives as follows:
<TABLE>
<CAPTION>
TERM OF
LEASEHOLD IMPROVEMENTS LEASE
--------------------------------------------------------------- ------------
<S> <C>
Furniture and Fixtures......................................... 5 - 7 years
Radio Equipment................................................ 5 - 7 years
Tower and Antenna Equipment.................................... 5 - 15 years
</TABLE>
Income Taxes: Income Taxes are provided for according to the Internal
Revenue Code and Regulations relative to "S" Corporations as discussed in Note
6.
Intangible Assets: FCC Licenses are amortized using the straight line
method over the estimated useful life of 40 years.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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 statement of results of the interim periods. The income and
expenses for the period ended May 31, 1996 are not necessarily indicative of the
results that could be expected for the entire year ending December 31, 1996. All
information presented in the notes to financial statements as of and for the
period ended May 31, 1996 is unaudited.
Divisional Equity: Radio Station WDIZ -- FM is responsible for paying any
corporate expenses that arise for Shamrock Communications, Inc. Therefore,
divisional equity contains WDIZ's equity less any corporate expenses that were
paid by the Station. Such expenses are not reflected in WDIZ's statement of
income and expenses.
NOTE 2. FCC LICENSES
FCC Licenses are carried at original cost less accumulated amortization.
FCC Licenses represent the cost in excess of fair value of the net assets of
companies acquired in purchase transactions and is being amortized under the
straight line method over a term of 40 years. Amortization expense charged to
expense for the year ended December 31, 1995 and the period ended May 31, 1996
was $2,149 and $896 respectively.
F-88
<PAGE> 228
RADIO STATION WDIZ -- FM
A DIVISION OF
SHAMROCK COMMUNICATIONS, INC.
(AN "S" CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. RELATED PARTIES
Shamrock Communications, Inc.'s shareholders also control other companies
in the radio broadcasting and newspaper publishing business. The Station was
charged $60,710 in management and accounting fees from such companies and also
is billed by these companies for any expense that arises in the ordinary course
of business that they may share. There is no interest assessed on such charges
from affiliated companies and the balance due to affiliates are paid as funds
become available. The balance due to affiliated companies is as follows:
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
1996 1995
------- ------------
<S> <C> <C>
Due to Scranton Times, L.P. .......................... $40,093 $ 22,237
======= ==========
</TABLE>
NOTE 4. COMMITMENTS AND CONTINGENCIES
Leases: The Station is obligated under an office operating lease and a
tower operating lease. The leases, which contain options to renew, expire for
the office in 2001 and for the tower in 1997. Certain of these leases require
the Station to pay a pro-rata share of various costs relating to the specific
properties. Total rent expense for the year ended December 31, 1995 and the
period ended May 31, 1996 amounted to $116,901 and $24,582 respectively.
The Station is also obligated under various vehicle leases with terms less
than one year. The total lease expense for the year ended December 31, 1995 and
the period ended May 31, 1996 amounted to $45,250 and $72,506 respectively.
Minimum future lease payments under operating leases for each of the next
five years and in the aggregate are:
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
-------- ------------
<S> <C> <C>
1996................................................. $ 0 $106,141
1997................................................. 108,687 107,923
1998................................................. 65,001 66,124
1999................................................. 66,950 68,107
2000................................................. 68,959 70,151
2001................................................. 71,027 72,255
</TABLE>
Concentration of Credit Risk: At December 31, 1995 a concentration of
credit risk existed due to deposits in a financial institution in excess of the
Federal Deposit Insurance Corporation (FDIC) insured limit of $100,000.
The Station encounters, in the normal course of business, exposure to
concentrations of credit risk with respect to accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited
due to the Station's customer base and its geographic dispersion. Ongoing credit
evaluation of customers' financial condition are performed and, generally, no
collateral is required.
NOTE 5. EXCHANGE OF GOODS AND SERVICES
In the normal course of operations, and in accordance with industry custom,
the Station trades its advertising air time with some of its customers for goods
and services used in everyday operations. These
F-89
<PAGE> 229
RADIO STATION WDIZ -- FM
A DIVISION OF
SHAMROCK COMMUNICATIONS, INC.
(AN "S" CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
transactions are recorded at their estimated fair values when the goods and
services are received. Amounts included in sales and expenses for the year ended
December 31, 1995 and the period ended May 31, 1996 resulting from bartered
transactions are $195,356 and $117,244, respectively.
NOTE 6. INCOME TAXES
Shamrock Communications, Inc. has elected to be subject to the Internal
Revenue Code and Regulations pertaining to "S" Corporations for federal and
state tax purposes, and, as such, the income is passed through and reported on
the stockholders' federal and state income tax returns together with other
taxable income or deductions of the stockholders'; therefore, there is no
current provision for federal and state income taxes.
If the corporation does not comply with certain provisions of the Internal
Revenue Code with regard to "S" Corporations, there exists a possibility that
Shamrock Communications, Inc.'s election would be revoked involuntarily and
Shamrock Communications, Inc.'s earnings for the year would be subject to
federal and state income tax at the corporate level. Such requirements appear to
be complied with; therefore, a provision for federal or state income tax is not
considered necessary.
NOTE 7. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash: Cash includes cash on hand, demand deposits and money market
accounts. The carrying amount is a reasonable estimate of fair value.
The Estimated Fair Value of the Company's Financial Instruments are as
follows:
<TABLE>
<CAPTION>
MAY, 31, 1996 DECEMBER 31, 1995
--------------------------- ---------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash.......................................... $ 85,158 $ 85,158 $101,574 $ 101,574
</TABLE>
NOTE 8. SUBSEQUENT EVENT
On April 26, 1996, Shamrock Communications, Inc. entered into an agreement
for the sale of the Property and Equipment and FCC License and rights of radio
station WDIZ for a purchase price of $22,000,000. The sale is pending, however,
the FCC has approved the assignment of the FCC license to radio station
WDIZ -- FM to Paxson Broadcasting of Orlando, a limited partnership, the
purchaser under the aforementioned asset purchase agreement. The closing date of
the sale has not yet been set.
Also, a Time Brokerage Agreement was entered into with the purchaser of
such station, whereby, the Station has agreed to lease the broadcast time of
WDIZ until the above mentioned sale is finalized. The lessee is entitled to all
advertising revenues of WDIZ and is responsible for all costs incurred in
broadcasting programming and other operating costs of the facility. Such lease
payments which will commence June 1, 1996 amount to $123,000 per month plus
reimbursement of all expenses paid by Shamrock Communications, Inc. for the
benefit of station WDIZ.
F-90
<PAGE> 230
INDEPENDENT AUDITOR'S REPORT
To the Partners
KXLI, A Division of KX Acquisition Limited Partnership
Big Lake, MN
We have audited the accompanying balance sheet of KXLI, A Division of KX
Acquisition Limited Partnership, as of December 31, 1995, and the related
statements of income, partners' capital and cash flows for the year then ended.
These financial statements are the responsibility of KXLI's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KXLI, A Division of KX
Acquisition Limited Partnership, as of December 31, 1995, and the results of its
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ Schweitzer Rubin Karon & Bremer
- ---------------------------------------------------------
SCHWEITZER RUBIN KARON & BREMER
Certified Public Accountants
Minneapolis, Minnesota
March 25, 1996 except for Notes 7 and 12,
as to which the date is May 17, 1996
F-91
<PAGE> 231
KXLI
(A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
BALANCE SHEET
SEE ACCOUNTANT'S REPORT
<TABLE>
<CAPTION>
JUNE 30, DECEMBER
1996 31,
(UNAUDITED) 1995
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 511,602 $ 52,515
Trade receivables, less allowance for doubtful accounts, $50,000
and $25,000, respectively...................................... 223,924 268,759
Other current assets.............................................. 16,219 8,543
Due from related party............................................ 17,155 0
---------- ----------
Total current assets...................................... 768,900 329,817
Property and Equipment (Note 2)..................................... 1,949,527 1,992,816
Intangibles and Other Assets (Note 3)............................... 1,121,249 1,146,461
---------- ----------
Total assets.............................................. $3,839,676 $3,469,094
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Current maturities of long-term debt (Note 6)..................... $ 60,000 $ 56,705
Programming obligations, current (Note 10)........................ 37,000 37,000
Accounts payable (Note 9)......................................... 60,567 96,012
Accrued expenses.................................................. 16,904 19,835
Deferred income................................................... 11,549 16,306
Earnest deposits received (Note 12)............................... 350,000 0
Due to limited partner (Note 4)................................... 450,961 450,961
Due to related party (Note 8)..................................... 0 67,268
---------- ----------
Total current liabilities................................. 986,981 744,087
Programming Obligations, Long-Term (Note 10)........................ 63,970 71,831
Long-Term Debt, less current maturities (Note 6).................... 158,090 192,496
Commitments and Contingencies (Notes 7, 10 and 12)
Partners' Capital................................................... 2,630,635 2,460,680
---------- ----------
Total liabilities and partners' capital................... $3,839,676 $3,469,094
========== ==========
</TABLE>
See Notes to Financial Statements.
F-92
<PAGE> 232
KXLI
(A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
STATEMENT OF INCOME
SEE ACCOUNTANT'S REPORT
<TABLE>
<CAPTION>
YEAR
SIX-MONTH PERIOD ENDED,
ENDED DECEMBER
JUNE 30, 1996 31,
(UNAUDITED) 1995
---------------- ----------
<S> <C> <C>
Revenue:
Entertainment hours........................................... $ 886,972 $1,208,191
Sponsor spots................................................. 105,608 185,874
Trade revenue................................................. 78,239 82,381
Tower space rental............................................ 15,240 28,546
Other revenues................................................ 1,550 6,601
---------- ----------
Total revenue......................................... 1,087,609 1,511,593
Operating and general and administrative expenses............... 861,127 1,326,472
---------- ----------
Operating income (loss)......................................... 226,482 185,121
Nonoperating income (expense):
Interest expense.............................................. (12,807) (32,741)
Gain (loss) on disposal of property and equipment............. (4,177) 0
Income (expense) under joint operations agreement with KVBM
Television, Inc. (Note 12)................................. (23,969) 0
---------- ----------
Net income (loss)............................................... $ 185,529 $ 152,380
========== ==========
</TABLE>
See Notes to Financial Statements.
F-93
<PAGE> 233
KXLI
(A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
SEE ACCOUNTANT'S REPORT
<TABLE>
<CAPTION>
GENERAL LIMITED TOTAL
PARTNER PARTNER CAPITAL
------- ---------- ----------
<S> <C> <C> <C>
Balance, January 1, 1995................................. $(9,434) $2,355,332 $2,345,898
Net income (loss)...................................... 1,524 150,856 152,380
Distributions.......................................... (376) (37,222) (37,598)
------- ---------- ----------
Balance, December 31, 1995............................... (8,286) 2,468,966 2,460,680
Net income (loss)...................................... 1,855 183,674 185,529
Distributions.......................................... (156) (15,418) (15,574)
------- ---------- ----------
Balance, June 30, 1996 (unaudited)....................... $(6,587) $2,637,222 $2,630,635
======= ========= =========
</TABLE>
See Notes to Financial Statements.
F-94
<PAGE> 234
KXLI
(A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
SEE ACCOUNTANT'S REPORT
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers.............................. $1,119,826 $ 1,385,137
Cash paid to suppliers and employees...................... (795,820) (1,108,874)
Interest paid............................................. (12,807) (32,741)
---------------- -----------------
Net cash provided by (used in) operating activities......... 311,199 243,522
---------------- -----------------
Cash Flows from Investing Activities:
Purchases of property and equipment....................... (23,135) (47,336)
Payments for intangible and other assets.................. (23,900) (1,637)
Deposits received......................................... 350,000 0
---------------- -----------------
Net cash provided by (used in) investing activities......... 302,965 (48,973)
---------------- -----------------
Cash Flows from Financing Activities:
Net advances (to) from related party...................... (108,392) (22,087)
Net borrowings (payments) on revolving credit
agreements............................................. 0 (50,000)
Principal payments on long-term borrowings................ (31,111) (37,799)
Distributions to partners................................. (15,574) (37,598)
---------------- -----------------
Net cash provided by (used in) financing activities......... (155,077) (147,484)
---------------- -----------------
Net increase (decrease) in cash............................. 459,087 47,065
Cash:
Beginning................................................. 52,515 5,450
---------------- -----------------
Ending.................................................... $ 511,602 $ 52,515
---------------- -----------------
Reconciliation of Net (Income) Loss to Net Cash Provided by
Operating Activities:
Net income (loss)......................................... $ 185,529 $ 152,380
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 111,359 239,530
(Gain) Loss on disposal of property and equipment...... 4,177 0
(Increase) decrease in:
Trade receivables.................................... 44,835 (121,921)
Other current assets................................. (7,676) (1,324)
(Decrease) increase in:
Accounts payable..................................... (35,445) (22,427)
Accrued expenses and other current liabilities....... (2,931) 1,819
Deferred income...................................... (4,757) (3,366)
Programming obligations.............................. (7,861) (1,169)
Due to related party................................. 23,969 0
---------------- -----------------
Net cash provided by (used in) operating activities......... $ 311,199 $ 243,522
============= =============
</TABLE>
See Notes to Financial Statements.
F-95
<PAGE> 235
KXLI
(A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEE ACCOUNTANT'S REPORT
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
KXLI is a division of KX Acquisition Limited Partnership. KX Acquisition
Limited Partnership was formed in May 1990 to own and operate two television
broadcasting stations: KXLI, Channel 41 in Big Lake, MN and KXLT, Channel 47 in
Rochester, MN. All assets and expenses directly attributable to KXLT are not
reflected in these KXLI divisional financial statements. All indirect and shared
assets and expenses are reflected therein.
KXLI's customers are primarily located within the Channel 41 viewing area.
KXLI constructed new office and broadcasting facilities during 1994 and,
beginning in June 1994, changed the programming format of KXLI, Channel 41, from
a home shopping channel to a "TV Heaven" concept. This concept entails the
broadcasting of children's programming, programs with an outdoor theme, and
other similar shows, with an emphasis on classic TV programs. The HSN
affiliation arrangement previously held by KXLI was transferred to KVBM
Television, Inc. (KVBM), see Note 7.
KXLI also leases space on its television tower at Big Lake to several other
communications companies.
KXLI has entered into a Development Loan and Option Agreement and a Joint
Operations Agreement with KVBM. See Notes 7, 8 and 12 for additional information
about these agreements.
SIGNIFICANT ACCOUNTING POLICIES OF KXLI ARE SUMMARIZED BELOW:
Basis of accounting:
Broadcasting revenue is recognized as air time is utilized by the customer.
Rental income is recognized according to the terms outlined in the lease
agreements.
Personal assets and liabilities and partners' salaries:
In accordance with the generally accepted method of presenting partnership
financial statements, the financial statements do not include the personal
assets and liabilities of the partners, their rights to refunds on its net loss,
nor any provision for an income tax refund.
Cash and cash equivalents:
KXLI maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. KXLI has not experienced any losses on such
accounts. KXLI believes it is not exposed to any significant credit risk on
cash.
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Property and equipment:
Property and equipment contributed by the limited partner to KXLI has been
recorded at estimated fair market value. Property and equipment purchased by
KXLI is recorded at cost. Expenditures for renewals and betterment's are
capitalized. Repairs and maintenance costs are charged to expense. When items
are disposed
F-96
<PAGE> 236
KXLI
(A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANT'S REPORT
of, the cost and accumulated depreciation are eliminated from the accounts, and
any gain or loss is reflected in the results of operations.
Depreciation and amortization:
Property and equipment is depreciated on the straight-line method over the
following periods:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements............................31.5
Television broadcast towers.............................25
Microwave, transmitters and other equipment...........5-15
Furniture...............................................10
</TABLE>
Intangibles are amortized on the straight-line method over the following
periods:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
FCC licenses............................................25
Organization and start-up costs..........................5
Loan cost......................................Life of the
related loan
Development option.......................................5
Films and tapes..........................................5
</TABLE>
The cost and related amortization on intangible assets are eliminated when
the asset has been fully amortized.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair value of financial instruments:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
DUE TO LIMITED PARTNER:
The estimated fair value of amounts due to limited partner is
estimated based on the market for similar instruments. Fair value is
estimated to be $305,000 at December 31, 1995 and $322,000 at June 30,
1996; carrying amount at both dates is $450,961.
LONG-TERM DEBT:
The fair value of the KXLI's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to KXLI for debt of the same remaining maturities with similar
collateral requirements. At December 31, 1995 and June 30, 1996 the
principal balance on the long-term debt approximates the fair value of the
debt.
F-97
<PAGE> 237
KXLI
(A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANT'S REPORT
Interim financial information:
The accompanying financial statements as of June 30, 1996 and for the
six-month period ended June 30, 1996 are unaudited. In the opinion of the
management of KXLI, these financial statements reflect all adjustments,
consisting only of normal and recurring adjustments necessary for a fair
presentation of the financial statements. The results of operations for the
six-month period ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the full year ending December 31, 1996.
The June 30, 1996 information included in the Notes is unaudited.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31,
1996 1995
---------- ----------
<S> <C> <C>
Towers.............................................. $1,364,736 $1,364,736
Transmitters........................................ 158,913 158,913
Buildings........................................... 288,997 288,170
Equipment........................................... 397,626 382,918
Furniture........................................... 48,647 42,658
Land................................................ 265,594 265,594
Vehicles............................................ 0 6,963
Leasehold improvements.............................. 27,965 26,354
---------- ----------
2,552,478 2,536,306
Less accumulated depreciation....................... 602,951 543,490
---------- ----------
Net property and equipment.......................... $1,949,527 $1,992,816
========== ==========
</TABLE>
Depreciation expense for 1995 and the six-month period ending June 30, 1996
was $145,046 and $62,247, respectively.
NOTE 3. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31,
1996 1995
---------- ----------
<S> <C> <C>
FCC licenses........................................ $1,283,782 $1,283,782
Organization and start-up costs..................... 40,000 40,000
Loan fees........................................... 47,872 47,872
Development option.................................. 110,000 110,000
Films and tapes..................................... 64,134 40,234
---------- ----------
1,545,788 1,521,888
Less accumulated amortization....................... 424,539 375,427
---------- ----------
Net intangibles and other assets.................... $1,121,249 $1,146,461
========== ==========
</TABLE>
Amortization expense for 1995, and the six-month period ending June 30,
1996 was $94,483 and $49,112, respectively.
F-98
<PAGE> 238
KXLI
(A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANT'S REPORT
NOTE 4. DUE TO LIMITED PARTNER
Amount due to limited partner consists of cash advances from the limited
partner. Interest is not accrued or paid on the advances. The amount due to the
limited partner is subordinated to the January 1994 loan from Richfield Bank and
Trust. See Note 6.
NOTE 5. NOTE PAYABLE, BANK
KXLI, jointly with KVBM, has a line of credit under which up to $150,000
may be borrowed. No amounts were outstanding under the line of credit at
December 31, 1995.
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31,
1996 1995
-------- -----------
<S> <C> <C>
Note payable to the bank, maturing August 1999, with
interest payable monthly at 2.5% over the prime
rate (effective rate of 11% at December 31, 1995),
secured by substantially all of KXLI's and KVBM's
assets and assignment of all rents and leases, and
the personal guarantee of the limited partner...... $218,090 $ 249,201
Less current maturities.............................. 60,000 56,705
-------- --------
Total long-term maturities........................... $158,090 $ 192,496
======== ========
</TABLE>
In connection with the note payable, KXLI and KVBM have agreed to comply
with various financial and non-financial covenants, including but not limited to
minimum debt service coverages and net worth.
The total outstanding note payable at December 31, 1995, including the
portion allocated to KVBM for which KXLI is jointly and severally liable, was
$1,425,008.
The estimated future maturities of long-term debt at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
YEAR KXLI KVBM TOTAL
- ----------------------------------- -------- ---------- ----------
<S> <C> <C> <C>
1996............................... $ 56,705 $ 267,508 $ 324,213
1997............................... 65,701 309,949 375,650
1998............................... 73,304 345,816 419,120
1999............................... 53,491 252,534 306,025
-------- ---------- ----------
Total.............................. $249,201 $1,175,807 $1,425,008
======== ========== ==========
</TABLE>
NOTE 7. DEVELOPMENT LOAN AND OPTION AGREEMENT WITH KVBM
KXLI entered into an agreement with KVBM during 1993 to facilitate securing
financing for the benefit of both parties. KXLI also granted the shareholder of
KVBM an option to purchase a limited partnership interest equal to 50% of the
net capital of KXLI, exercisable if and when KXLI enters into a contract to sell
all, or substantially all, of its assets. The purchase price for the option is
$500. KVBM granted an option to purchase 50% of its stock to KXLI. Under the
terms and conditions specified in an amendment to this agreement dated May 17,
1996, the option may be transferred to KXLI's limited partner. The amendment
also specified certain rights upon exercise of this option.
F-99
<PAGE> 239
KXLI
(A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANT'S REPORT
In the event of a sale of all or substantially all of the assets of KXLI,
the limited partner has been granted the right to receive a payment of
$2,000,000, provided sufficient funds are available after payment of KXLI's
creditors. KVBM and its shareholder have granted a similar right to the limited
partner upon the sale of all or substantially all of the assets of KVBM, or upon
the sale of KVBM stock by the shareholder. Any remaining proceeds will be
distributed to all partners and the shareholders of KVBM.
If KXLI has not entered into a legally binding contract to sell its assets
by the sixth anniversary of the development loan and option agreement, KXLI has
agreed to sell its assets for the highest bona fide offer which is equal to or
greater than the average of two appraised values.
The agreement also stipulates that, for as long as the limited partner is
personally liable as the guarantor of the bank loan (Note 6), he will have an
option to exchange the FCC Licenses of KXLI and KXLT for the FCC License of
KVBM. In the event this option is exercised, all the operating assets of KXLI
and KXLT would be exchanged for the operating assets of KVBM, and other
provisions as described in the agreement would take effect.
NOTE 8. JOINT OPERATIONS AGREEMENT WITH KVBM
Joint administrative, personnel and overhead costs:
In connection with, but not directly related to the agreement described in
Note 7, KLXI entered into an agreement with KVBM to share certain joint
administrative, personnel, and overhead costs. Beginning July 1, 1994, these
costs were allocated two-thirds to KVBM and one-third to KXLI. See Note 12
regarding the amendment to this agreement which was effective April 1, 1996.
The most significant of the joint costs allocated for the year ending
December 31, 1995 and the six-month period ending June 30, 1996, are as follows:
<TABLE>
<CAPTION>
KXLI KVBM TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Year Ending December 31, 1995:
Salaries............................... $ 222,000 $ 439,000 $ 661,000
Payroll taxes.......................... 18,000 37,000 55,000
Employee benefits...................... 22,000 39,000 61,000
Six-Month Period Ending June 30, 1996:
Salaries............................... $ 32,000 $ 126,000 $ 158,000
Payroll taxes.......................... 3,000 11,000 14,000
Employee benefits...................... 5,000 18,000 23,000
</TABLE>
Interest expense and loan costs were allocated to the two entities based
upon loan proceeds received. For the year ending December 31, 1995 and the
six-month period ending June 30, 1996, these costs were allocated as follows:
<TABLE>
<CAPTION>
KXLI KVBM TOTAL
-------- --------- ---------
<S> <C> <C> <C>
Year Ending December 31, 1995:
Interest expense.......................... $ 32,741 $ 154,306 $ 187,047
Six-Month Period Ending June 30, 1996:
Interest expense.......................... $ 12,807 $ 60,794 $ 73,601
</TABLE>
At December 31, 1995, the total amount due to KVBM by KXLI was $67,268. At
June 30, 1996, KXLI assets include $17,155 in amounts due from KVBM.
F-100
<PAGE> 240
KXLI
(A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANT'S REPORT
Joint Operations Charge:
Under the terms of the Joint Operations Agreement KVBM and KXLI were to
each pay 50% of their net operating income to the other party.
The Joint Operations Agreement was amended subsequent to December 31, 1995
(see Note 12).
NOTE 9. RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
Amounts due to related parties included in accounts
payable $ 0 $9,263
</TABLE>
NOTE 10. PROGRAMMING OBLIGATIONS
KVBM entered into an agreement in 1993 to repurchase all of its issued and
outstanding non-voting common shares, and other direct and indirect interests in
KVBM. In conjunction with that agreement KVBM agreed to air a pre-determined
number of commercial spots during the first five years of KVBM's on-air
operations, or until the number of spots specified in the agreement has been
attained. In exchange for an option to acquire shares of KVBM, KXLI has agreed
to air 60% of the spots on Channel 41 (KXLI); the remaining 40% will be aired on
Channel 45 (KVBM). KXLI recorded an obligation in the amount of $110,000 in
conjunction with this matter. This amount is the present value of the estimated
fair value of KXLI's programming obligation. KXLI also recorded a corresponding
asset for $110,000 and has classified this amount as a development option.
Programming obligations consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
Programming obligations................................ $100,970 $108,831
Less estimated current maturities...................... 37,000 37,000
-------- --------
Total long-term maturities............................. $ 63,970 $ 71,831
======== ========
</TABLE>
NOTE 11. TOWER SPACE LEASES
KXLI leases space on the towers in Big Lake and Hader to various
communications companies with remaining terms ranging from 3 to 50 years.
Several of the leases are cancelable by either party with six months notice.
Minimum lease payments to be received as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---------------------------------------------------------- --------
<S> <C>
1996...................................................... $ 28,500
1997...................................................... 29,000
1998...................................................... 29,500
1999...................................................... 22,500
2000...................................................... 23,000
-------
Total minimum lease payments to be received............... $132,500
=======
</TABLE>
F-101
<PAGE> 241
KXLI
(A DIVISION OF KX ACQUISITION LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANT'S REPORT
NOTE 12. SUBSEQUENT EVENTS
Amendment to Joint Operations Agreement with KVBM:
On May 17, 1996, KXLI and KVBM agreed to an amendment to the original Joint
Operations Agreement. The amendment redefines the calculation of the
compensation that each party is obligated to pay to the other. Each party agrees
to pay to the other 50% of its 'tax adjusted cash flow' on a quarterly basis
which is defined as operating income minus the sum of i) payments of principal
and interest on the bank loans, ii) cash expenditures for capital equipment
purchases and iii) assumed income tax payments calculated using an effective
rate of 46%, divided by 1 minus the effective rate. The amendment also provides
for the allocation of joint administrative, personnel and overhead to each party
on a fifty-fifty basis.
The provisions of the amendment which redefine compensation between the
parties are effective April 1, 1996. In addition, KXLI and KVBM each agreed to
release any and all claims arising on or before March 31, 1996 under the
Development Agreement and Option Agreement and the Joint Operations Agreement
and accordingly, the December 31, 1995 financial statements do not reflect the
joint operations charge as contemplated in the original agreement. The June 30,
1996 financial statements reflect a net expense of $23,967 as calculated
according to the provisions of the amended agreement for the period April 1
through June 30, 1996.
On May 17, 1996, KLXI entered into a letter of agreement in conjunction
with the Amendment to Development Agreement and Option Agreement which provides
for a distribution of $132,000 to KLXI's limited partner. This distribution
remains unpaid at June 30, 1996.
KLXI has agreed to maintain a cash reserve of $75,000 to be held in common
for the benefit of KLXI and KVBM to maintain adequate operations for both
parties. Cash in excess of $75,000 is available for distribution to KLXI's
limited partner.
Sale of Assets:
On June 11, 1996, KX Acquisition Limited Partnership entered into an
agreement to sell substantially all the assets of KXLI to Paxson Communications
of Minneapolis-41, Inc. for $12,000,000. An earnest money deposit of $350,000
was received prior to June 30, 1996. This sale, and the assignment of the FCC
license in conjunction with the sale, is subject to approval by the FCC.
The Joint Operations Agreement referred to above is between KX Acquisition
Limited Partnership and KVBM Television, Inc. Paxson Communications is not a
party to this agreement.
F-102
<PAGE> 242
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Cox Enterprises, Inc.:
We have audited the accompanying special-purpose statement of net assets of
WIOD-AM (a division of WIOD, Inc.) as of December 31, 1995, and the related
special-purpose statement of operations for the year then ended. These
special-purpose financial statements are the responsibility of WIOD-AM's
management. Our responsibility is to express an opinion on these special-purpose
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the special-purpose financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the special-purpose financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying special-purpose financial statements were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Registration Statement on Form S-3 of
Paxson Communications Corporation and, as described in Note 1 to the special-
purpose financial statements, do not and are not intended to present the
financial position and results of operations of a separate, independent
operating entity.
In our opinion, the special-purpose financial statements referred to above
present fairly, in all material respects, the net assets of WIOD-AM at December
31, 1995 and its operations for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- ---------------------------------------------------------
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
August 8, 1996
F-103
<PAGE> 243
WIOD-AM
(A DIVISION OF WIOD, INC.)
SPECIAL-PURPOSE STATEMENTS OF NET ASSETS
DECEMBER 31, 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Accounts receivable, less an allowance for doubtful accounts of
$46,284 and $45,736, respectively............................ $ 2,674,090 $ 1,510,365
Prepaid expenses and other current assets....................... 2,131,442 2,495,125
----------- -----------
Total current assets.................................... 4,805,532 4,005,490
Net plant and equipment......................................... 2,135,296 2,108,375
Broadcast rights, net........................................... 5,951,250 5,847,500
Other assets.................................................... 56,698 57,799
----------- -----------
Total assets............................................ $12,948,776 $12,019,164
=========== ===========
LIABILITIES
Current Liabilities:
Accounts payable................................................ $ 2,385,993 $ 386,174
Accrued expenses................................................ 190,017 148,888
----------- -----------
Total current liabilities............................... 2,576,010 535,062
----------- -----------
Net Assets.............................................. $10,372,766 $11,484,102
=========== ===========
</TABLE>
See accompanying notes to special-purpose financial statements.
F-104
<PAGE> 244
WIOD-AM
(A DIVISION OF WIOD, INC.)
SPECIAL-PURPOSE STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 AND SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS
DECEMBER 31, ENDED
1995 JUNE 30, 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Local............................................................. $ 5,519,809 $ 2,477,455
National.......................................................... 2,139,012 907,835
Other............................................................. 63,864 229
----------- ----------
Total revenues............................................ $ 7,722,685 $ 3,385,519
----------- ----------
EXPENSES:
Operating......................................................... 5,435,231 1,419,625
Selling, general, and administrative.............................. 3,268,585 1,348,830
Depreciation and amortization..................................... 284,659 128,476
Other -- net...................................................... 31,281 --
----------- ----------
Total expenses............................................ 9,019,756 2,896,931
----------- ----------
OPERATING INCOME (LOSS)............................................. $ (1,297,071) $ 488,588
=========== ==========
</TABLE>
See accompanying notes to special-purpose financial statements.
F-105
<PAGE> 245
WIOD-AM
(A DIVISION OF WIOD, INC.)
NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
WIOD-AM is one of three affiliated radio stations which are operating
divisions of WIOD, Inc., a wholly-owned subsidiary of Cox Radio, Inc., which is
a wholly-owned subsidiary of Cox Enterprises, Inc. ("Cox"). WIOD-AM and its two
affiliated radio stations are located in and broadcast from the South Florida
area.
The three affiliated radio stations operate from the same broadcast site
and facilities and share certain common equipment. Consequently, certain
operating costs are shared between the three affiliated radio stations. In
addition, certain other costs and expenses are negotiated and provided for by
Cox, for which Cox allocates related charges to WIOD-AM and its two affiliated
stations.
Pursuant to an Asset Purchase Agreement dated as of April 26, 1996 by and
between Paxson Broadcasting of Miami Limited Partnership ("Paxson LP") and WIOD,
Inc., Paxson LP agreed to purchase WIOD-AM's broadcast site, certain equipment,
licenses and certain contracts.
The accompanying special-purpose statements of net assets present the
separately identifiable assets and liabilities relating to the operations of
WIOD-AM, together with the historical carrying amounts of the net plant and
equipment to be acquired by Paxson LP in accordance with the Asset Purchase
Agreement described above. The accompanying special-purpose statements of
operations reflect the revenues and separately identifiable operating costs of
WIOD-AM, together with the allocations of certain shared costs incurred with its
two affiliated radio stations and certain charges for other costs incurred by
Cox on behalf of WIOD-AM and its two affiliated stations. As a consequence of
the integral operating relationships between WIOD-AM, its affiliate radio
stations and Cox, the accompanying special-purpose financial statements do not
include a statement of cash flows and are not intended to present the financial
position and results of operations of a separate, independent operating entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition -- Revenue is recognized as advertising air time is
broadcast.
Plant and Equipment -- Plant and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method at rates based upon estimated useful lives of 10 to 25 years for
building, tower, and antennas, 5 to 15 years for broadcast equipment, and 3 to
10 years for furniture, fixtures and other assets.
Broadcast Rights -- Broadcast rights are stated at cost less accumulated
amortization. Amortization is computed using the straight-line method based on a
30-year amortization period.
Recently Issued Accounting Pronouncements -- In March 1995, Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-lived Assets and Long-lived Assets to be Disposed Of, was issued. SFAS
No. 121 requires that long-lived assets and certain intangibles be reviewed for
impairment when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, with any impairment losses being
reported in the period in which the recognition criteria are
F-106
<PAGE> 246
WIOD-AM
(A DIVISION OF WIOD, INC.)
NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
first applied based on the fair value of the asset. Long-lived assets and
certain intangibles to be disposed of are required to be reported at the lower
of carrying amount or fair value less cost to sell. The adoption of SFAS No. 121
did not have a material impact on WIOD-AM's special-purpose financial
statements.
Unaudited Interim Special-Purpose Financial Statements -- The unaudited
special-purpose financial statements as of and for the six months ended June 30,
1996 include all adjustments, consisting of only normal recurring adjustments,
which in the opinion of management are necessary for a fair presentation.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may by expected for the entire year.
3. CASH MANAGEMENT SYSTEM
WIOD-AM participates in Cox's cash management system, whereby the bank
sends daily notification of WIOD-AM's checks presented for payment. Cox
transfers funds from other sources to cover WIOD-AM's checks presented for
payment. A book overdraft of $2.2 million existed at December 31, 1995, as a
result of WIOD-AM's checks outstanding. This book overdraft was reclassified as
accounts payable on WIOD-AM's special-purpose financial statements.
4. PLANT AND EQUIPMENT
Plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Land..................................................... $ 1,825,000 $ 1,825,000
Buildings and building improvements...................... 808,658 808,658
Broadcast equipment...................................... 338,223 338,223
Furniture, fixtures, and other equipment................. 24,104 24,104
---------- ----------
2,995,985 2,995,985
Less: accumulated depreciation........................... (860,689) (887,610)
---------- ----------
Net plant and equipment.................................. $ 2,135,296 $ 2,108,375
========== ==========
</TABLE>
5. RETIREMENT PLAN
WIOD-AM sponsors a defined contribution 401(k) savings plan for its
full-time employees through Cox. Neither WIOD-AM nor Cox match employees'
contributions. WIOD-AM's employees also participate in the funded,
non-contributory defined benefit plan of Cox for which a cost is allocated to
WIOD-AM.
6. UNIT APPRECIATION PLANS
Certain of the executives of WIOD-AM participate in certain Cox Unit
Appreciation Plans ("UAP") that provide for payment of benefits in the form of
shares of Cox common stock, cash, or both, generally five years after the date
of award. Unit benefits are based on the excess, if any, over a base amount
(value of award), of the fair value of a share of Cox common stock five years
after the effective date of award. Fair values are determined by independent
appraisal. The plans provide for a maximum unit benefit of 150% of the base
amount and benefits vest over the five year period following the date of award.
The cost of awards made under the plans are allocated to WIOD-AM by Cox over the
applicable vesting periods and are charged to general and administrative
expenses. Amounts charged to expense for WIOD-AM employees for the year ended
December 31, 1995 was $54,614.
F-107
<PAGE> 247
WIOD-AM
(A DIVISION OF WIOD, INC.)
NOTES TO SPECIAL-PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
7. TRANSACTIONS WITH AFFILIATED COMPANIES
WIOD-AM and its two affiliated radio stations operate from the same
broadcast site and facilities and share certain common equipment. Certain
operating costs are shared between the three affiliated radio stations, which
costs are generally allocated on a pro rata basis. In addition, Cox incurs
various costs (such as insurance, certain employee benefits, and general and
administrative expenses) on behalf of WIOD-AM and its two affiliated radio
stations, which costs are generally allocated to the three affiliated radio
stations on a pro rata basis. Cox also charges WIOD-AM a general and
administrative expense allocation equal to 2.5% of WIOD-AM's total expenses. The
amounts included in the accompanying special-purpose financial statements
relating to these allocated costs are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Operating expenses............................................ $369,696 $ 196,223
======== ========
General and administrative expenses........................... $866,508 $ 586,646
======== ========
</TABLE>
These amounts allocated to WIOD-AM are not necessarily indicative of the
amounts that WIOD-AM would have incurred as a separate, independent entity.
8. COMMITMENTS AND CONTINGENCIES
WIOD-AM leases towers and other equipment under noncancellable operating
leases. Rental expense under operating leases amounted to $12,000 in 1995. In
addition, WIOD-AM has future commitments relating to employment contracts with
certain radio personalities and broadcasting contracts. Future minimum
commitments as of December 31, 1995 for all noncancellable contracts and
operating leases are as follows:
<TABLE>
<CAPTION>
LEASES CONTRACTS TOTAL
------- ---------- ----------
<S> <C> <C> <C>
1996................................................. $17,700 $3,606,563 $3,624,263
1997................................................. 12,525 1,833,030 1,845,555
1998................................................. 4,900 562,709 567,609
1999................................................. 466,667 466,667
</TABLE>
9. LEGAL MATTERS
WIOD-AM is the defendant in two legal actions resulting from comments made
during certain radio broadcasts, each of which seek damages for slander and
other claims. The radio station's insurance provides coverage for 80% of any
potential liability resulting from these claims.
WIOD-AM is also the defendant in a claim alleging age discrimination by a
former talk show host.
Management believes that the ultimate outcome of these matters will not
result in any material liabilities to WIOD-AM.
F-108
<PAGE> 248
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners of Ponce Nicasio
Broadcasting Ltd. (KCMY-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 Ponce Nicasio Broadcasting
Ltd. (KCMY-TV) (the "Station") at April 30, 1996 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.
As disclosed in Notes 4 and 5, the Station has extensive transactions with
individuals related to or affiliated with partners of the Partnership. Because
of these relationships, it is possible that the terms of these transactions are
not the same as those that would result from transactions among wholly unrelated
parties.
/s/ Price Waterhouse LLP
- ---------------------------------------------------------
PRICE WATERHOUSE LLP
Ft. Lauderdale, Florida
September 12, 1996
F-109
<PAGE> 249
PONCE NICASIO BROADCASTING LTD. (KCMY-TV)
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, APRIL 30,
1996 1996
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 73,090 $ 125,650
Accounts receivable............................................. 63,367 50,024
Prepaid expenses and other assets............................... 46,330 41,715
---------- ----------
Total current assets.................................... 182,787 217,389
Property and equipment, net....................................... 306,526 316,914
Intangible assets, net............................................ 51,446 52,114
---------- ----------
Total assets............................................ $ 540,759 $ 586,417
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities........................ $ 32,019 $ 37,930
Capital lease obligation........................................ 82,863 91,651
Related party payables:
Accrued interest............................................. 181,139 170,033
Demand notes payable -- affiliates........................... 787,054 787,054
Current portion of term note payable......................... 125,000 125,000
---------- ----------
Total current liabilities............................... 1,208,075 1,211,668
---------- ----------
Non-current liabilities:
Capital lease obligation........................................ 58,975 66,908
Related party term note payable................................. 62,500 83,333
---------- ----------
121,475 150,241
---------- ----------
Partners' deficit................................................. (788,791) (775,492)
---------- ----------
Commitments and contingencies
---------- ----------
Total liabilities and partners' deficit................. $ 540,759 $ 586,417
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-110
<PAGE> 250
PONCE NICASIO BROADCASTING LTD. (KCMY-TV)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE TWO FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, APRIL 30,
1996 1996
------------ ----------
(UNAUDITED)
<S> <C> <C>
Revenue:
Network programming $312,833 $1,728,070
Paid programming and other 3,890 103,508
-------- ----------
Total revenue......................................... 316,723 1,831,578
-------- ----------
Operating expenses:
Technical..................................................... 66,959 357,355
Sales and promotion........................................... 30,956 160,080
Programming................................................... 27,825 132,212
General and administrative.................................... 175,115 522,565
Depreciation and amortization................................. 11,056 57,163
Legal settlement.............................................. -- 1,088,805
-------- ----------
Total operating expenses.............................. 311,911 2,318,180
-------- ----------
Income (loss) from operations................................... 4,812 (486,602)
Interest expense................................................ (18,111) (82,598)
-------- ----------
Net loss.............................................. $(13,299) $ (569,200)
======== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-111
<PAGE> 251
PONCE NICASIO BROADCASTING LTD. (KCMY-TV)
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<S> <C>
Balance at May 1, 1995........................................................... $(206,292)
Net loss......................................................................... (569,200)
---------
Balance at April 30, 1996........................................................ (775,492)
Net loss -- May 1, 1996 through June 30, 1996 (unaudited)........................ (13,299)
---------
Balance at June 30, 1996 (unaudited)............................................. $(788,791)
=========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-112
<PAGE> 252
PONCE NICASIO BROADCASTING LTD. (KCMY-TV)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
TWO MONTHS ENDED YEAR ENDED
JUNE 30, APRIL 30,
1996 1996
---------------- ----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $(13,299) $ (569,200)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization............................... 11,056 57,163
Decrease (increase) in accounts receivable.................. (13,343) 47,626
Decrease (increase) in prepaid expenses and other assets.... (4,615) 759
Decrease in accounts payable and accrued liabilities........ (5,911) (7,755)
Increase in related party accrued interest.................. 11,106 46,544
-------- ---------
Net cash used in operating activities.................. (15,006) (424,863)
-------- ---------
Cash flows from investing activities:
Purchases of property and equipment............................ -- (15,112)
-------- ---------
Cash flows from financing activities:
Proceeds from related party notes payable...................... -- 740,000
Payments on related party notes payable........................ (20,833) (231,667)
Payments on capital lease obligation........................... (16,721) (80,625)
-------- ---------
Net cash provided by (used in) financing activities.... (37,554) 427,708
-------- ---------
Decrease in cash and cash equivalents............................ (52,560) (12,267)
Cash and cash equivalents at beginning of year................... 125,650 137,917
-------- ---------
Cash and cash equivalents at end of period....................... $ 73,090 $ 125,650
======== =========
Supplemental disclosure of cash flow information:
Cash paid for interest......................................... $ 8,436 $ 44,134
======== =========
Supplemental disclosure of non-cash investing and financing
activities -- Capital lease obligation issued for property and
equipment...................................................... $ -- $ 153,177
======== =========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-113
<PAGE> 253
PONCE NICASIO BROADCASTING LTD. (KCMY-TV)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ponce Nicasio Broadcasting Ltd. (KCMY-TV) (the "Partnership"), is engaged
in the operation of a television broadcasting station in the Sacramento,
California market. The Partnership operates the television station under a
license granted by the Federal Communications Commission. The Partnership
derives substantially all of its revenues from a broadcasting affiliation
agreement with Paxson Communications Corporation ("Paxson"). Under the
agreement, Paxson secures advertisements and the Partnership broadcasts the ads
for a fee.
On September 6, 1996, the Partnership entered into a time brokerage
agreement commencing October 1, 1996 and an asset purchase option agreement with
Paxson (see Note 8).
Financial statement presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 equipment......................................... 5-7 years
Office furniture and equipment................................. 5-7 years
</TABLE>
Assets under capital leases are amortized over the shorter of the estimated
useful lives or the lease term. 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
25 years.
Revenue recognition
Revenue is recognized as advertising air time is broadcast.
Income taxes
The Partnership is not directly subject to income taxes. Taxable income or
loss from the Partnership's operations is recognized in the tax returns of its
partners. Accordingly, income taxes are not provided for in the accompanying
financial statements.
F-114
<PAGE> 254
PONCE NICASIO BROADCASTING LTD. (KCMY-TV)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interim financial data
The interim financial data of the Partnership is unaudited; however, in the
opinion of Partnership management, the interim financial data includes all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair statement of results of the interim period. The results of operations for
the two months ended June 30, 1996 are not necessarily indicative of the results
that could be expected for the entire fiscal year ending April 30, 1997.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
1996
---------
<S> <C>
Broadcasting equipment.................................................... $ 108,305
Equipment under capital leases............................................ 299,310
Office furniture and equipment............................................ 5,081
--------
412,696
Accumulated depreciation and amortization................................. (95,782)
--------
Property and equipment, net............................................... $ 316,914
========
</TABLE>
Depreciation expense totaled $20,444 for the year ended April 30, 1996.
Amortization expense for equipment under capital leases totaled $32,719 for the
year ended April 30, 1996.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
1996
---------
<S> <C>
FCC Licenses.............................................................. $ 100,000
Accumulated amortization.................................................. (47,886)
--------
Property and equipment, net............................................... $ 52,114
========
</TABLE>
Amortization expense totaled $4,000 for the year ended April 30, 1996.
4. RELATED PARTY NOTES PAYABLE
Demand notes payable to affiliates consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
1996
---------
<S> <C>
Note payable, 7% interest compounded annually, interest and principal due
on demand............................................................... $ 490,000
Non-interest bearing demand note payable -- limited partner............... 177,000
Note payable, 10% interest compounded annually, interest and principal due
on demand............................................................... 70,579
Note payable, 10% interest compounded annually, interest and principal due
on demand............................................................... 49,475
--------
$ 787,054
========
</TABLE>
F-115
<PAGE> 255
PONCE NICASIO BROADCASTING LTD. (KCMY-TV)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In September 1990, the Partnership entered into several related party note
payable agreements in order to begin operations. The Partnership borrowed
$261,865 from a family member of a partner ("Affiliate"). The note accrues
interest at 10% and is due on demand. The Partnership also borrowed $70,777 from
a consulting firm owned by Affiliate. The note accrues interest at 10% and is
due on demand. At April 30, 1996, principal repayments on these notes totaled
$212,588 and accrued interest payable totaled $152,883. Additionally, the
Partnership borrowed $300,000 from a limited partner. The note is non-interest
bearing and is due on demand. At April 30, 1996, principal repayments on note
totaled $123,000.
In October 1995, the Partnership borrowed $490,000 from Affiliate in the
form of a demand note payable in order to pay a legal judgment resulting from a
suit filed by an equipment vendor (see Note 7). The note accrues interest at 7%
and is due on demand. At April 30, 1996, accrued interest payable on the note
was $17,150; no interest or principal repayments have been made to date.
In addition to the demand note, the Partnership borrowed $250,000 under a
term note issued to Affiliate for payment of the judgment. The note bears
interest at the Union Bank reference rate plus 1.75%( 10% at April 30, 1996) and
is payable in monthly principal instalments of $10,417 plus accrued interest.
The note is due in December 1997. In order to advance funds to the Partnership,
Affiliate obtained a $250,000 note payable from a bank which is guaranteed by
certain equipment of the Partnership.
Based on the borrowing rates currently available to the Partnership for
notes payable with similar terms and maturities, the carrying value of the note
payable to Affiliate at April 30, 1996 is considered to approximate fair value.
Based on the lack of definitive terms, it is not practical to determine the fair
value of related party demand notes payable at April 30, 1996.
5. RELATED PARTY TRANSACTIONS
The Partnership has entered into several agreements with Affiliate. As
discussed in Note 4, the Partnership also has significant outstanding notes and
accrued interest payable to Affiliate. Additionally, The Partnership leases
equipment from Affiliate under capital and operating leases ranging from three
to five years (see Note 6). Affiliate also provides consulting services to the
Partnership for a monthly fee, a portion of which is based on the operating
results of the Partnership. Consulting fees paid to Affiliate during the year
ended April 30, 1996 totaled $166,937.
6. COMMITMENTS AND CONTINGENCIES
Future minimum payments at April 30, 1996 under capital and operating
leases for equipment and office space, substantially all of which are payable to
affiliates, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
APRIL 30, LEASES LEASES
----------------------------------------------------------------- -------- ---------
<S> <C> <C>
1997........................................................... $ 95,628 $ 72,102
1998........................................................... 58,452 72,887
1999........................................................... 19,484 66,607
2000........................................................... -- 11,514
-------- --------
Total minimum payments........................................... 173,564 $ 223,110
========
Less imputed interest............................................ (15,005)
--------
Present value of payments under capital leases................... 158,559
Less current portion............................................. (91,651)
--------
Long-term lease commitments...................................... $ 66,908
========
</TABLE>
F-116
<PAGE> 256
PONCE NICASIO BROADCASTING LTD. (KCMY-TV)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense under operating leases for the year ended April 30, 1996
totaled $98,753, of which $60,124 was paid to Affiliate.
7. LITIGATION
In 1990, the Partnership leased a transmitter from Affiliate. The
Partnership was not satisfied with the performance of the transmitter. Affiliate
withheld a portion of the payment for the transmitter and filed a Declaratory
Relief action against the vendor to determine the amount owed. The vendor
subsequently filed a countersuit against Affiliate for nonpayment. The
Partnership had previously entered into an indemnification agreement with
Affiliate whereby the Partnership agreed to pay all legal costs associated with
the litigation and any judgment made against Affiliate related to this matter.
On December 10, 1993, Affiliate lost the suit and was ordered to pay
approximately $383,000 to the vendor for the purchase of the transmitter and
legal costs incurred. Affiliate subsequently filed an appeal. At the time of the
original judgment, management of the Partnership and Affiliate were of the
opinion that any loss ultimately resulting from this matter would not be
material and, therefore, no accrual was recorded. On November 8, 1995, Affiliate
lost the appeal and a final judgment of $1,088,805( which represented the
original judgment plus interest and additional legal fees) was entered against
Affiliate. Pursuant to the indemnification agreement, the Partnership paid the
judgment.
8. SUBSEQUENT EVENT
The Partnership has entered into a time brokerage agreement with Paxson
dated as of September 6, 1996. Under the terms of the agreement, which becomes
effective October 1, 1996, the affiliation agreement under which the Partnership
currently operates (see Note 1) will be terminated and Paxson will program
substantially all air time broadcast by the Partnership's station.
In addition to the time brokerage agreement, the Partnership also entered
into an Option Agreement dated as of September 6, 1996 providing for a sale of
the assets, including the FCC licenses, of the Partnership to Paxson for
approximately $17,000,000. Under the terms of the Option Agreement, the
Partnership has the option to sell its assets to Paxson at any time prior to May
31, 1998. Paxson has the option to purchase the Partnership's assets during the
period of June 1, 1998 through June 30, 1998.
F-117
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NEW PREFERRED STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NEW
PREFERRED STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information................. ii
Certain Definitions and Market and
Industry Data....................... iii
Prospectus Summary.................... 1
Risk Factors.......................... 15
The Proposed Acquisitions and Capital
Expenditures........................ 24
Use of Proceeds....................... 25
Capitalization........................ 26
The Company........................... 27
Selected Historical and Pro Forma
Financial Data...................... 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 31
Business.............................. 38
Management............................ 69
Certain Transactions.................. 74
Description of New Preferred Stock and
Exchange Debentures................. 77
Book-Entry; Delivery and Form......... 106
Description of Indebtedness........... 108
Description of Capital Stock.......... 110
Certain Federal Income Tax
Considerations...................... 113
Underwriting.......................... 121
Legal Matters......................... 122
Experts............................... 122
Incorporation of Certain Documents by
Reference........................... 123
Index to Pro Forma Financial
Information......................... P-1
Index of Financial Statements......... F-1
</TABLE>
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PROSPECTUS
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[PAXSON LOGO]
PAXSON
COMMUNICATIONS
CORPORATION
150,000 SHARES
12 1/2% CUMULATIVE EXCHANGEABLE
PREFERRED STOCK
BT SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
FIRST UNION
CAPITAL MARKETS CORP.
AS ADVISOR
OCTOBER 1, 1996
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