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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 1-13452
PAXSON COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 59-3212788
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 CLEARWATER PARK ROAD, WEST PALM BEACH, FLORIDA 33401
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (561) 659-4122
Securities Registered Pursuant to Section 12(b) of the Act.
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NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Common Stock, $0.001 par value American Stock Exchange
11 5/8% Senior Subordinated Notes American Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates as of
February 26, 1999 is $236,359,000, computed by reference to the closing price
for such shares on the American Stock Exchange.
The number of shares outstanding of each of the registrant's classes of
common stock, as of February 26, 1999 was: 52,633,015 shares of Class A Common
Stock, $.001 par value, and 8,311,639 shares of Class B Common Stock, $.001 par
value.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the definitive Proxy Statement for the Registrant's Annual Meeting
of Stockholders to be held on April 30, 1999.
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TABLE OF CONTENTS
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Item 1. Business.................................................... 1
Item 2. Properties.................................................. 17
Item 3. Legal Proceedings........................................... 17
Item 4. Submission of Matters to Vote of Security Holders........... 17
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 18
Item 6. Selected Financial Data..................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 20
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 27
Item 8. Financial Statements and Supplementary Financial Data....... 27
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 27
Item 10. Directors and Executive Officers of the Registrant.......... 28
Item 11. Executive Compensation...................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 28
Item 13. Certain Relationships and Related Transactions.............. 28
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 28
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ITEM 1. BUSINESS
GENERAL
Paxson Communications Corporation (the "Company") is a network television
broadcasting company whose principal business is the ownership and operation of
the largest broadcast television station group in the United States through
which it broadcasts PAX TV, the Company's family friendly programming. The
Company commenced its television operations in early 1994 in anticipation of
deregulation of the broadcast industry. In response to federal regulatory
changes increasing limits on broadcast television station ownership and
mandating cable carriage of local television stations, the Company has expanded
rapidly, through acquisitions and construction of television stations, to
establish the largest owned and operated broadcast television station group in
the United States. The PAX TV Network reaches US television households through a
distribution system comprised of broadcast television stations, cable television
systems in markets not served by a PAX TV station and nationwide through
satellite television providers. According to Nielsen Television Index ("NTI"),
as of February 1999, the PAX TV Network reached 74% of US television households
through such broadcast, cable and satellite distribution. Upon completion of
pending transactions, the PAX TV Network will include 114 broadcast television
stations, consisting of 72 stations which are owned and operated by the Company,
or in which the Company has an economic interest, and 42 non-owned or operated
PAX TV affiliates. The stations and PAX TV affiliates which the Company will
own, operate or have an economic interest in will reach 19 of the top 20 markets
and 40 of the top 50 markets.
The Company launched its PAX TV programming on August 3l, 1998. PAX TV is
the brand name for the programming that the Company provides seven days per week
through its owned, operated and affiliated television stations, cable systems
and satellite television providers, comprising the Company's television
programming distribution system. PAX TV programming consists primarily of
family-friendly, traditional entertainment programs including syndicated
programs that have had, or are having, successful first runs on television in
terms of audience ratings. Management believes that the value of the Company's
extensive broadcast properties has been enhanced by converting primarily to PAX
TV programming from their former long-form paid programming inTV Network format.
The Company's strategy for PAX TV and its station group is to combine many of
the favorable attributes of traditional television networks and
network-affiliated television stations under one operation.
Similar to traditional television networks, the Company provides
advertisers with nationwide reach through its extensive television distribution
system. Since the Company owns and operates most of its television distribution
system, it receives advertising revenue from the entire broadcast day, unlike a
traditional network, which receives advertising revenue only from commercials
aired during limited network programming hours. To maximize revenues, the
Company intends to allocate its advertising inventory among local, national and
network advertisers purely according to demand, rather than allocating air time
to network advertisers as mandated by a network affiliation agreement. Further,
the Company's station group achieves various economies of scale due to its size
and centralized operations, resulting in programming, promotional, research,
engineering, accounting and administrative expenses that are substantially lower
per station than those of a typical network-affiliated station.
BUSINESS STRATEGY
The Company's strategy is to maximize its cash flow by operating
efficiently and centralizing many functions that traditionally are managed at
the local station level, optimizing the mix of network, national and local
advertising sales to achieve the highest possible rates and providing viewers
with a schedule of high-quality destination programming. The principal
components of the Company's business strategy are as follows:
- Maintain a Centralized, Low-Cost Operating Structure. The Company
centralizes many station functions, including programming, promotions,
advertising, research, engineering, accounting and sales traffic control.
The Company's stations average only 18 employees, compared to an average
of 100
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employees at network-affiliated stations, and an average of 60 employees
at independent stations in markets of similar size to the Company's.
Unlike other stations, the Company's stations do not purchase programming
individually since they broadcast PAX TV programming or long form paid
programming 24 hours per day received via the Network's satellite feed.
As part of its low-cost operating strategy, the Company promotes the PAX
TV brand and each of its local television stations by utilizing a
centralized advertising and promotional program. All print and radio
promotional advertisements are produced at the Company's headquarters,
which avoids duplicating such operations at the local stations and the
associated local promotional personnel expenses. All advertisements and
other promotional material share the same basic content but are
customized to identify and highlight each local market. Management
believes that the Company is able to obtain volume discounts on the
procurement of print and other media advertising used to promote PAX TV
programming and the Company's television stations.
- Achieve Programming Economies of Scale and Original Programming
Efficiencies. The Company achieves economies of scale as it purchases
syndicated PAX TV programming for all of its stations. The Company
purchases programming centrally and is able to deliver its programming by
satellite to its stations 24 hours per day, seven days per week. Each
station offers substantially the same programming schedule. Generally,
the Company has negotiated license agreements entitling it to exclusive
nationwide distribution rights for a fixed cost, independent of the
number of households which will receive such programming. These
programming rights allow the Company to supply PAX TV programming to its
owned and operated television stations, as well as to independently owned
PAX TV affiliated television stations, satellite providers and cable
television systems. By utilizing a centralized programming acquisition
strategy, the Company has incurred programming costs per station
significantly lower than those of comparable television stations in
similar markets.
The Company also seeks to achieve cost efficiencies in the development of
original programming for PAX TV. The Company believes it can develop
successful original entertainment programming for PAX TV at substantially
lower costs than those typically incurred by other broadcast networks for
original entertainment programming and at costs comparable to those of
syndicated programming currently aired on PAX TV. The Company believes it
can reduce original entertainment program production costs by employing
innovative development and production techniques, such as the development
of program concepts without the use of pilots, and by entering into
production arrangements with foreign production companies with which the
Company can share production costs, gain access to lower cost production
labor and participate in tax incentives intended to reduce program
production costs. In addition, the Company believes it can sell foreign
and other distribution rights to its original PAX TV programming for up
to 50% of the program's production costs, while retaining all of the
domestic exploitation rights to such programming.
- Maximize Advertising Sell-Through and Revenue. With the launch of PAX
TV, the Company now has access to multiple sources of advertising
revenue: network spot, national spot, local spot and long-form paid
programming. Industry data has shown that an advertiser seeking to target
viewers within specific markets typically purchases air time at rates 50%
to 100% higher per viewer than those for a single commercial aired across
an entire network. Since networks and station affiliates are usually
owned by different entities, the allocation of spots between local,
national and network advertisers is relatively fixed by an affiliation
agreement. The Company, however, retains the flexibility to allocate air
time among various categories of advertisers and seeks to maximize
revenue by optimizing the mix of advertising time it sells among local,
national and network advertisers as well as its current base of long-form
paid programming advertisers. To better allocate its available
advertising air time, the Company is implementing a proprietary sales
traffic system designed to deliver to the Company's sales force accurate
and timely data on its available advertising inventory and the demand for
its inventory.
- Provide Quality, Proven Family-Friendly Programming. The Company is
building the brand recognition of, and attracting viewers to, PAX TV by
offering syndicated family-oriented programming which is free of
excessive violence, explicit sex and foul language, and which achieved
successful audience
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ratings during its original network run. Certain of the programs
purchased by the Company (Touched By An Angel, Diagnosis Murder, Seventh
Heaven) are still in production, and their new episodes continue to
attract significant viewership. The Company has generally sought to
purchase one-hour dramas since management believes that such programming
is more cost efficient than programs of shorter duration. Consistent with
its family-friendly programming strategy, the Company airs children's
programming produced by a subsidiary of The Walt Disney Company. As the
brand recognition of PAX TV continues to grow, management believes that
PAX TV will reach viewers as a "destination channel" to which viewers
turn regularly for family-friendly programming, and that PAX TV will
continue to attract advertisers who want to reach the broad and desirable
viewer demographics attracted by such programming.
- Continue Airing Profitable Long-Form Paid Programming. The Company
continues to carry a reduced but still significant schedule of long-form
paid programming, including religious programming, traditional
entertainment programming needing distribution and infomercials,
primarily during the day on weekends and during certain hours of weekday
mornings. Since the Company has reduced its inventory of air time
available to long-form paid programming with the launch of PAX TV and as
the ratings for PAX TV's programming have steadily increased, the Company
has been able to sell such air time at significantly higher rates than
under its previous inTV programming format. As a result, long-form paid
programming still provides a significant and stable base of revenue for
the Company as it further develops the entertainment component of its PAX
TV strategy.
- Expand and Improve PAX TV Distribution. According to NTI data as of
February 1999, PAX TV reaches approximately 73% of all US television
households. The Company intends to continue expanding the distribution of
its PAX TV programming service through the addition of newly acquired and
constructed owned or operated television stations, as well as affiliated
broadcast television stations, cable systems and satellite television
providers. The Company intends to expand its distribution to reach as
many U.S. television households as possible in an economically beneficial
manner. The Company has entered into agreements with many of the
country's leading cable television multiple system operators or MSOs,
including Tele-Communications, Inc., Time Warner, Cox Communications,
Comcast Corp., Charter Communications, TCA, Century Communications and
Intermedia Partners, as well as satellite television providers including
Echostar and DSI Systems, whereby the Company receives carriage of its
PAX TV programming on each of these entities' television distribution
systems in certain markets or television households not currently served
by the Company's broadcast television station group. The Company also
continues to seek to improve the carriage and channel positioning of its
broadcast television stations on local cable systems across the country
through negotiation and enforcement of the rules and regulations of the
Federal Communications Commission pertaining to the mandatory carriage of
broadcast television stations. See "Federal Regulation of
Broadcasting -- "Must Carry/Retransmission Consent".
- Develop the Company's Broadcast Station Group's Digital Television
Platform. The Company currently owns and operates the largest broadcast
television station group in the United States and intends to explore the
most effective use of digital broadcast technology for each of its
stations. Upon completion of the construction of the Company's digital
broadcast service technology, the Company believes that it will be able
to provide viewers multiple channels of entertainment programming and
home shopping services, as well as data transmission on each of its
existing standard channels. The Company cannot predict, however, what
future actions the FCC or Congress may take with respect to the
imposition of fees or other regulation of these services. Additionally,
there can be no assurance that the Company's efforts to take advantage of
digital technology will be commercially successful.
- Develop the Company's Television and Internet Commerce
Opportunities. The Company will continue to leverage its ability to
reach a mass television audience through its broadcast television
properties by developing new programs which will not only generate
audience ratings but also offer products and services specifically
tailored to meet the needs and desires of PAX TV's target audience. These
programs may incorporate both a shopping format and an auction format and
will, among other things, attempt to migrate viewers to, and otherwise
promote, www.paxtv.com, the Company web-site,
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where on-line visitors can participate in on-line "e-commerce" and other
activities involving the Company's proprietary products and services.
Development of this strategic initiative will be headed by Lowell "Bud"
Paxson, the Company's Chairman, principal shareholder, and founder of the
Home Shopping Network, and Gregory Lerman who joined the Company in
January 1999 as President of the Company's E-Commerce Division. The
Company is currently developing its on-line strategy to promote the PAX
TV network and brand by offering proprietary content, products and
services that will cater to the needs of its core audience. Such content
will focus on the PAX TV audience's lifestyle categories including
education, health, family relationships, home improvement, personal
finance, and career. The Company believes that such a strategy will serve
to promote PAX TV's programming and provide a valuable service to its
core audience.
PAX TV RATINGS AND DISTRIBUTION
Since the August 1998 launch of PAX TV, the Network's NTI audience ratings
have steadily increased and its viewer demographics have improved. During its
first full week, PAX TV received a 0.6 NTI rating (a 1.0 rating equals 1.0% of
the 99.4 million total US television households) in weekday primetime
(8pm-11pm). By the final full week of 1998, PAX TV's ratings increased 33% to a
0.8 NTI rating in primetime. During the week of February 1, 1999, PAX TV's
ratings reached its highest point to date, achieving a 1.0 NTI rating in
primetime. Similarly, the number of viewers in the PAX TV 18-49 year old
demographic increased 52% during weekday primetime from the network's first week
of operation to the week of February 1, 1999.
The following table lists the owned, operated or affiliated stations airing
PAX TV programming as well as those markets in which PAX TV has a cable
affiliate. Below is also a list of other Company properties and pending
acquisitions.
PAXSON COMMUNICATIONS CORPORATION BROADCAST PROPERTY SUMMARY
PAX TV DISTRIBUTION STATION
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MARKET STATION
MARKET NAME RANK CALL LETTERS OWNERSHIP INTEREST AFFILIATION TYPE
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New York 1 WPXN Owned & Operated
Los Angeles 2 KPXN Owned & Operated
Chicago 3 WCPX Owned & Operated
Philadelphia 4 WPPX Owned & Operated
San Francisco-Oakland 5 KKPX Owned & Operated
Boston 6 WBPX Broadcast
Boston 6 WPXB Owned & Operated
Dallas-Ft. Worth 7 KPXD Owned & Operated
Washington, D.C 8 WPXW Owned & Operated
Washington, D.C 8 WWPX Broadcast
Detroit 9 WPXD Owned & Operated
Atlanta 10 WPXA Owned & Operated
Houston 11 KPXB Owned & Operated
Seattle-Tacoma 12 KWPX Owned & Operated
Cleveland 13 WVPX Owned & Operated
Tampa-St. Petersburg 14 WXPX Owned & Operated
Minneapolis-St. Paul 15 KPXM Owned & Operated
Miami-Ft. Lauderdale 16 WPXM Owned & Operated
Phoenix 17 KBPX Owned & Operated
Phoenix 17 KPPX TBA -- Pending Acquisition
Denver 18 KPXC Owned & Operated
Sacramento-Stockton-Modesto 20 KSPX TBA -- Pending Acquisition
St. Louis 21 WPXS Broadcast
Orlando-Daytona Beach 22 WOPX Owned & Operated
Portland, OR 23 KPXG Owned & Operated
Baltimore 24 Cable
Indianapolis 25 WIPX Broadcast
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MARKET STATION
MARKET NAME RANK CALL LETTERS OWNERSHIP INTEREST AFFILIATION TYPE
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San Diego 26 Cable
Hartford & New Haven 27 WHPX Broadcast
Charlotte 28 Cable
Charlotte 28 WAXN Secondary Broadcast
Raleigh-Durham 29 WRPX Broadcast
Raleigh-Durham 29 WFPX Owned & Operated
Nashville 30 WNPX Owned & Operated
Milwaukee 31 WPXE Broadcast
Cincinnati 32 Cable
Kansas City 33 KPXE Owned & Operated
Columbus, OH 34 WSFJ Secondary Broadcast
Greenville-Spartanburg 35 WHNS Secondary Broadcast
Salt Lake City 36 KUPX TBA -- Pending Acquisition
Salt Lake City (Cedar City) 36 KCSG-LP Broadcast
Salt Lake City (Logan) 36 KUTN-LP Broadcast
Grand Rapids-Kalamazoo 37 WZPX Broadcast
San Antonio 38 KPXL TBA -- Pending Acquisition
Birmingham-Tuscaloosa 39 WPXH Owned & Operated
Birmingham-Tuscaloosa 39 WJRD-LP Broadcast
Norfolk-Portsmouth 40 WPXV Owned & Operated
New Orleans 41 WPXL TBA -- Pending Acquisition
Buffalo 42 Cable
Buffalo 42 WNGS Secondary Broadcast
Memphis 43 WPXX TBA -- Pending Acquisition
West Palm Beach-Ft. Pierce 44 WPXP Owned & Operated
Oklahoma City 45 KOPX Owned & Operated
Harrisburg-Lancaster 46 Cable
Harrisburg-Lancaster 46 WHP-TV Secondary Broadcast
Greensboro-H. Point 47 WGPX Owned & Operated
Louisville 48 Cable
Albuquerque-Santa Fe 49 KAPX Owned & Operated
Providence-New Bedford 50 WPXQ Owned & Operated
Wilkes-Barre-Scranton 51 WQPX Owned & Operated
Jacksonville-Brunswick 52 WTEV/WAWS Secondary Broadcast
Albany-Schenectady-Troy 53 WYPX Owned & Operated
Dayton 54 WDPX Owned & Operated
Fresno-Visalia 55 KPXF Owned & Operated
Las Vegas 56 KFBT Secondary Broadcast
Little Rock-Pine Bluff 57 KYPX TBA -- Pending Acquisition
Charleston-Huntington 58 WLPX Owned & Operated
Tulsa 59 KTPX Owned & Operated
Austin 60 Cable
Richmond-Petersburg 61 Cable
Richmond-Petersburg 61 WUPV Secondary Broadcast
Mobile-Pensacola 62 Cable
Knoxville 63 WPXK Owned & Operated
Flint-Saginaw-Bay City 64 Cable
Wichita-Hutchinson Plus 65 Cable
Toledo 66 WLMB Broadcast
Lexington 67 Cable
Roanoke-Lynchburg 68 WPXR Owned & Operated
Green Bay-Appleton 69 WPXG Owned & Operated
Des Moines-Ames 70 KFPX Owned & Operated
Honolulu 71 KPXO Owned & Operated
Spokane 72 Cable
Omaha 73 Cable
Omaha 73 KXVO/KPTM Secondary Broadcast
Syracuse 74 WSPX TBA -- Pending Acquisition
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MARKET STATION
MARKET NAME RANK CALL LETTERS OWNERSHIP INTEREST AFFILIATION TYPE
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Shreveport 75 KPXJ Owned & Operated
Shreveport 75 KTSS-LP Broadcast
Paducah-C. Gird-Harbg 76 Cable
Rochester, NY 77 Cable
Tucson (Nogales) 78 Cable
Tucson (Nogales) 78 KTTU Secondary Broadcast
Springfield, MO 79 Cable
Portland-Auburn 80 Cable
Huntsville-Decatur 81 Cable
Champaign & Springfield 82 WPXU Owned & Operated
Ft. Myers-Naples 83 WXPX-LP Owned & Operated
South Bend-Elkhart 85 Cable
Columbia, SC 86 Cable
Columbia, SC 86 WQHB Secondary Broadcast
Chattanooga 87 WPXA-LP Owned & Operated
Cedar Rapids-Waterloo 88 KPXR Owned & Operated
Jackson, MS 89 Cable
Davenport-R. Island-Moline 90 Cable
Burlington-Plattsburgh 91 Cable
Burlington-Plattsburgh 91 WBVT/WBBI Secondary Broadcast
Tri-Cities, TN-VA 92 Cable
Tri-Cities, TN-VA 92 WAPK/WKPT Secondary Broadcast
Johnstown-Altoona 93 Cable
Colorado Springs-Pueblo 94 Cable
Waco-Temple-Bryan 95 Cable
Evansville 96 WTSN Broadcast
Youngstown 97 Cable
Baton Rouge 98 Cable
El Paso 99 Cable
Savannah 100 Cable
Lincoln & Hastings 101 Cable
Ft. Wayne 103 Cable
Greenville-N. Bern-Washington 105 WEPX TBA -- Pending Acquisition
Tyler-Longview 107 Cable
Reno 108 Cable
Reno 108 KREN Secondary Broadcast
Sioux Falls (Mitchell) 109 Cable
Peoria-Bloomington 110 Cable
Augusta 111 Cable
Florence-Myrtle Beach 112 Cable
Montgomery 113 Cable
Tallahassee-Thomasville 114 Cable
Fargo-Valley City 115 Cable
Fargo-Valley City 115 KCSI-LP Broadcast
Santa Barbara 116 KTSB Broadcast
Ft. Smith-Fay-Springdale-Rgrs 117 Cable
Traverse City-Cadillac 118 Cable
Charleston, SC 120 Cable
Eugene 121 KCTV Broadcast
Macon 122 Cable
Lafayette, LA 123 Cable
Lafayette, LA 123 KDCG-LP Broadcast
Yakima-Pasco-Richland 124 Cable
Boise 125 Cable
Boise 125 KNIN Secondary Broadcast
Number of Affiliates/
Secondary Broadcast
Affiliates 126-210 16
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MARKET STATION
MARKET NAME RANK CALL LETTERS OWNERSHIP INTEREST AFFILIATION TYPE
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Number of Cable Affiliates 126-210 65
DSI C-Band Households 1-210 1,963,000
Dish-Ecostar Households 1-210 1,900,000
OTHER BROADCAST INTERESTS
New York 1 WBPT Owned & Operated
Salt Lake City 36 KUWB Owned & Operated
San Juan/Ponce/San Sebastian, NR WJPX Owned & Operated
Puerto Rico
PENDING ACQUISITIONS OR BUILD-OUTS
Buffalo 42 WPXJ Owned & Operated
Lexington 67 WAOM Pending Acquisition
Spokane 72 KGPX Owned & Operated
Portland, ME 80 WMPX Owned & Operated
Jackson, MS 89 Ch.51 Pending Acquisition
Davenport 90 Ch.67 Pending Acquisition
Odessa 151 Ch.34 Owned & Operated
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TBA -- Time Brokerage Agreement
Secondary Broadcast -- Those affiliates airing no less than three hours of PAX
TV programming.
COMPETITION
The Company's PAX TV network and its television stations compete with the
other broadcast television networks and the other television broadcasting
stations in their respective market areas. In addition, PAX TV and the Company's
broadcast television stations compete with other traditional advertising media,
including cable television networks, newspapers, radio, magazines, outdoor
advertising, transit advertising, and direct mail marketing, as well as newly
developing on-line internet based advertising. Competition in the broadcast
television network industry occurs on a national basis and not with respect to
any specific market. Competition within the television broadcast station
industry occurs primarily in individual market areas, so a station in one market
does not generally compete with stations in other market areas. In addition,
both PAX TV and the Company's television stations face competition from,
respectively, other broadcast networks and other stations in each of the
Company's station markets with substantial financial resources, including, in
certain instances, networks and stations whose programming is directed to the
same demographic groups as PAX TV programming. In addition to management
experience, factors that are material to competitive positions include a
station's rank in its market, authorized power, assigned frequency, audience
characteristics, local program acceptance and the programming characteristics of
other stations in the market area.
Although the television broadcasting industry is highly competitive, some
barriers to entry exist. The operation of a television broadcasting station
requires a license from the FCC, and the number of television stations that can
operate in a given market is limited by the availability of stations that the
FCC will license in that market. The television broadcasting industry
historically has grown in terms of total revenue, despite the introduction of
new technologies for the delivery of entertainment and information, such as
cable and direct satellite. There is no assurance that market fragmentation
resulting from the application of new media technologies will not have an
adverse effect on the television broadcasting industry.
The Company's successful development of PAX TV is subject to obtaining
sufficient audience ratings for its programming and converting such ratings into
advertising revenue sufficiently greater than the related programming and other
operating costs. PAX TV's family-friendly programming is subject to competition
from several sources including certain programming of major broadcasting and
cable networks targeted to family viewers.
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TIME BROKERAGE AGREEMENTS AND OTHER INTERESTS IN BROADCAST STATIONS
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 television station while not owning or
controlling the FCC license. The Company is currently operating, or will operate
upon completion of construction, pursuant to time brokerage agreements the
following stations: KPPX, Phoenix, Arizona; KSPX, Sacramento, California; KUPX,
Salt Lake City, Utah; KPXL, San Antonio, Texas; WPXL New Orleans, Louisiana;
WPXX, Memphis, Tennessee; KYPX, Little Rock, Arkansas; WSPX, Syracuse, New York;
WEPX, Greenville, North Carolina; and Channel 15, Christiansted, U.S. Virgin
Islands. The Company also has an option to acquire each of these stations. 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 television stations that it might not be able to own itself under
current FCC multiple station ownership restrictions.
Affiliation Agreements and Other Investments in Television Properties. The
Company has several affiliation agreements with certain parties, including DP
Media, Inc. ("DP Media"), CAP Communications, Inc. ("CAP Communications") and
RDP Communications of Indianapolis, Inc. ("RDP Communications" and together with
DP Media and CAP Communications, the "DP Companies"), each of which are entities
owned and controlled by members of Mr. Paxson's family, but whose ownership
interests are not attributable to the Company under federal ownership
regulations. The affiliation agreements with the DP Companies include the
following television stations: WWPX Martinsburg, West Virginia; WPXS St. Louis,
Missouri; WRPX Raleigh-Durham, North Carolina; WZPX Grand Rapids, Michigan; WPXE
Milwaukee, Wisconsin; WBPX Boston, Massachusetts, WHPX Hartford, Connecticut,
and WIPX Indianapolis, Indiana. The Company has a right of first refusal upon
any proposed sale of each of the DP Companies' stations other than WIPX, WBPX
and WHPX. In connection with its acquisition of WHPX and WBPX, CAP
Communications assumed $15 million and $15.5 million of acquisition indebtedness
owed to the Company by, respectively, The Christian Network, Inc., the prior
owner of WBPX, and entities owned or controlled by Steven Roberts and Michael
Roberts jointly ("Roberts Broadcasting"), the prior owners of WHPX. The Company
extended the loans to each of The Christian Network, Inc. and Roberts
Broadcasting in connection with their acquisition of, respectively, WBPX and
WHPX, and operated each of the stations pursuant to time brokerage agreements
prior to CAP Communications' acquisition of such station.
The Company has purchased the stock of Cocola Media Corporation of San
Francisco, which constructed KWOK, San Francisco, California, with the proceeds
of loans made to it by the Company, and held an option to acquire the station
from the licensee. The Company acquired KWOK in February 1999, and immediately
transferred the station as partial consideration for the Company's acquisition
of WCPX, Chicago, Illinois.
FEDERAL REGULATION OF BROADCASTING
The FCC regulates television broadcast stations pursuant to the
Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act permits the operation of television broadcast stations only
according to a license issued by the FCC upon a finding that the grant of the
license would serve the public interest, convenience and necessity and 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; and to impose penalties for violations
of the Communications Act or FCC regulations. The FCC may revoke licenses for,
among other things, false statements made to the FCC or willful or repeated
violations of the Communications Act or of FCC rules. Legislation has been
introduced from time to time to amend the Communications Act in various respects
and the FCC from time to time considers new regulations or amendments to its
existing regulations. The Telecommunications Act of 1996
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(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 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.
Television broadcasting licenses are generally granted and renewed for a
period of eight years, but may be renewed for a shorter period upon a finding by
the FCC that the "public interest, convenience and necessity" would be served
thereby. At the time the application is made for renewal of a television
license, parties in interest, as well as members of the public may apprise the
FCC of the service the station has provided during the preceding license term
and urge the grant or denial of the application. Under the 1996 Act, as
implemented in the FCC's rules, a competing application for authority to operate
a station and replace the incumbent licensee may not be filed against a renewal
application and considered by the FCC in deciding whether to grant a renewal
application. The statute modified the license renewal process to provide for the
grant of a renewal application upon a finding by the FCC that the licensee (1)
has served the public interest, convenience and necessity; (2) has committed no
serious violations of the Communications Act or the FCC's rules; and (3) has
committed no other violations of the Communications Act or the FCC's rules which
would constitute a pattern of abuse. If the FCC cannot make such a finding, it
may deny a renewal application, and only then may the FCC accept other
applications to operate the station of the former licensee. In the vast majority
of cases, broadcast licenses are renewed by the FCC even when petitions to deny
are filed against broadcast license renewal applications. All of the Company's
existing licenses that have come up for renewal have been renewed or are pending
and are in effect. Such licenses are subject to renewal at various times during
1999 and 2005. Although there can be no assurance that the Company's licenses
will be renewed, the Company is not aware of any facts or circumstances that
would prevent renewal.
Ownership Matters. The Communications Act requires the prior approval of
the FCC for the assignment of a broadcast license or the transfer of control of
a corporation or other entity holding a license. In determining whether to
approve an assignment of a broadcast license or a transfer of control of a
broadcast licensee, the FCC considers, among other things, the financial and
legal qualifications of the prospective assignee or transferee, including
compliance with FCC restrictions on alien ownership and control, compliance with
rules limiting the common ownership of certain attributable interests in
broadcast, cable and newspaper properties, and the character qualifications of
the transferee or assignee and the individuals or entities holding attributable
interests in them.
The FCC generally applies its ownership limits to attributable interests
held by an individual, corporation, partnership, or other association or entity.
In the case of corporations holding broadcast licenses, the interests of
officers, directors, and those who, directly or indirectly, have the right to
vote five percent or more of the corporation's stock are generally attributable,
as are positions of an officer or director of a corporate parent of a broadcast
licensee. The FCC treats all partnership interests as attributable, except for
those limited partnership interests that are insulated under FCC policies. For
insurance companies, certain regulated investment companies and bank trust
departments, that hold stock for investment purposes only, such interests become
attributable with the ownership of ten percent or more of the stock of the
corporation holding broadcast licenses.
The Communications Act permits an entity to hold an attributable interest
in television stations reaching up to 35% of the United States television
households. The FCC utilizes a UHF discount in determining the reach of UHF
television stations by considering them to reach only fifty percent (50%) of the
households within their markets. The FCC also has rules that limit the number of
co-located television broadcast stations in which a single entity may own an
attributable interest. No single entity may hold an attributable interest in
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television stations with overlapping Grade B service contours. The 1996 Act
directs the FCC to conduct a rule making proceeding to determine whether these
rules should be retained.
The FCC's cross-ownership rules prohibit the common ownership of
attributable interests in certain combinations of media outlets serving the same
geographic area. Under these rules, a single entity may not have an attributable
interest in: (i) both a radio station and a television station that serve
specified overlapping areas; (ii) a daily newspaper and either a radio station
or a television station that serve specified overlapping areas; or (iii) a
television station and a cable television system that serve specified
overlapping areas. The FCC has initiated proceedings to inquire whether it
should change or eliminate its cross interest policy, covering non-attributable
equity interests, joint ventures and common key employees. The policy does not
necessarily prohibit these interests, but may require that the FCC consider
whether they could have a significant adverse affect on programming diversity
and competition in the market.
In cases where one person or entity (such as Mr. Paxson in the case of the
Company) holds more than 50% of the combined voting power of the common stock of
a broadcasting corporation, a minority shareholder of the corporation generally
would not acquire an attributable interest in the corporation. 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.
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 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 controlled by any other
corporation of which more than one-fourth of its capital stock is owned of
record or voted by Aliens if the FCC should find that the public interest would
be served by the refusal of such license. Restrictions on alien ownership also
apply, in modified form, to other types of business organizations, including
partnerships.
Programming and Operation. The Communications Act requires broadcasters to
present programming that responds to community problems, needs and interests and
to maintain certain records demonstrating such responsiveness.
Broadcast of obscene or indecent material is regulated by the FCC as well
as by state and federal law. Stations also must follow various rules promulgated
under the Communications Act that regulate, among other things, political
advertising, sponsorship identifications, the advertising of contests and
lotteries, and technical operations, including limits on radio frequency
radiation.
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. Pursuant to those rules, television stations are required to
broadcast a minimum of three hours per week of "core" children's educational
programming, which the FCC defines as programming that (i) has serving the
educational and informational needs of children 16 years of age and under as a
significant purpose; (ii) is regularly scheduled, weekly and at least 30 minutes
in duration; and (iii) is aired between the hours of 7:00 a.m. and 10:00 p.m.
Furthermore, "core" children's educational programs, in order to qualify as
such, are required to be identified as educational and informational programs
over the air at the time they are broadcast, and are required to be identified
in the children's programming reports required to be placed in the stations'
public inspection files. Additionally, television stations are required to
identify and provide information concerning "core" children's programming to
publishers of program guides and listings.
The Communications Act and FCC rules also impose regulations regarding the
broadcasting of political advertisements by legally qualified candidates for
elective office. Among other things, (i) stations must provide "reasonable
access" for the purchase of time by legally qualified candidates for federal
office;
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(ii) stations must provide "equal opportunities" for the purchase of equivalent
amounts of comparable broadcast time by opposing candidates for the same
elective office; and (iii) during the 45 days preceding a primary or primary
run-off election and during the 60 days preceding a general or special election,
legally qualified candidates for elective office may be charged no more than the
station's "lowest unit charge" for the same class of advertisement, length of
advertisement and daypart.
Time Brokerage Agreements. Over the past several years a significant
number of broadcast licensees, including the Company, have entered into time
brokerage agreements. These arrangements are subject under FCC rules and
regulations to maintenance by the licensee of each station of independent
control over its programming, finances and personnel.
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.
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 has
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.
The FCC has no present rules on the attribution of television time
brokerage agreements as it does with radio time brokerage agreements. The 1996
Act grandfathered time brokerage agreements existing at the time of its passage
and included a provision that the broadcast ownership section of the Act is not
to be construed to prohibit the origination, continuation or renewal of any
television time brokerage agreement that complies with FCC regulations.
"Must Carry"/Retransmission Consent. The Communications Act contains
broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years to require a cable system to
carry the station 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. Additionally, cable
systems are required to obtain retransmission consent for all distant commercial
television stations (except for commercial satellite-delivered independent super
stations such as WTBS), commercial radio stations and certain low power
television stations carried by such systems after October 6, 1993. The Company's
stations must elect by October 1, 1999 between must carry and retransmission
consent for the three year period commencing on January 1, 2000.
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
the FCC will determine a broadcast station's market by using commercial
publications that delineate television markets based on viewing patterns. This
modification has resulted in the FCC ruling that for the election period
commencing January 1, 2000 a station's market will be defined by the DMA to
which it has been designated. 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.
Equal Employment Opportunity Requirements. The FCC's existing equal
employment opportunity ("EEO") regulations consist of non-discrimination in
hiring rules. The FCC has released a notice proposing the ad-option of new EEO
rules and policies.
Syndicated Exclusivity/Territorial Exclusivity. The FCC has imposed on
cable operators syndicated exclusivity rules and expanded existing network
non-duplication rules. These syndicated exclusivity rules allow local broadcast
stations to require that cable operators black out certain syndicated
non-network programming carried on distant signals (that is, signals of
broadcast stations, including so-called super stations, which serve
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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.
Television stations also may be subject to a number of other federal, state
and local regulation, including regulations of the Federal Aviation
Administration affecting tower height and marking, and federal, state and local
environmental and land use restrictions and general business regulation, and a
variety of local regulatory concerns.
Proposed Changes. The Congress and the FCC have under consideration, and
in the future may consider and adopt, new laws, regulations and policies
involving a wide variety of matters that could affect, directly or indirectly,
the operation, ownership and profitability of the Company's broadcast stations,
result in the loss of audience and advertising revenue for the Company's
broadcast stations and affect the ability of the Company to acquire additional
broadcast stations or finance such acquisitions.
FCC Proceedings to Revise Broadcast Ownership Rules. The FCC has issued a
series of notices 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 and by permitting certain UHF/UHF or UHF/VHF overlaps; (iii)
relaxing the rules prohibiting cross-ownership of radio and television stations
in the same market; and (iv) treating television time brokerage agreements the
same as radio time brokerage agreements which would presently preclude certain
television time brokerage agreements where the programmer owns or has an
attributable interest in another television station in the same market. In June
1995, the FCC announced an interim policy for processing television transfer and
assignment 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 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).
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 Television System. The FCC has adopted rules for implementing
digital television ("DTV") in the United States. Implementation of DTV service
should improve the technical quality of television broadcasts. In anticipation
of the implementation of DTV operations, the FCC has adopted DTV technical
standards and other rules necessary to protect the public interest. The FCC has
conditioned DTV licenses on recapture of either the new DTV spectrum or
television licensees' initial spectrum. Ten years after it first issues DTV
licenses, the FCC must evaluate its regulation and public acceptance of DTV,
including possible alternative uses of and reduction in DTV spectrum.
The FCC has adopted rules permitting DTV licensees to offer "ancillary or
supplementary services" on newly-available DTV spectrum, so long as such
services are consistent with the FCC's DTV standards; do not derogate required
DTV services, including high definition television; and are regulated in the
same manner as similar non-DTV services. The FCC has decided that it will set
aside specific new channel allotments for DTV service. Initial eligibility for
these channels will be limited to existing television licensees.
Local broadcasters will be initiating DTV service at different times. A
station may begin DTV service as soon as it has received its FCC permit and is
ready with equipment and other necessary preparations. The FCC has established a
schedule by which broadcasters must begin DTV service absent extenuating
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circumstances that may affect individual stations. The Company's stations must
file for their DTV permits by November 1, 1999 and must initiate some DTV
service by May 1, 2002.
The FCC has proposed other rules to implement DTV service. The FCC proposes
to impose certain fees on DTV licensees for the transmission of non-broadcast
services (e.g., paid subscription services) over their DTV spectrum. The FCC
also has announced its intention to initiate rulemaking proceedings to examine:
(1) whether, and the extent to which, "must carry" obligations should be applied
to DTV service; (2) the extent to which additional public interest obligations
should be imposed on DTV licensees; and (3) various DTV tower siting issues.
EMPLOYEES
As of December 31, 1998, the Company had approximately 1,100 full-time
employees and 170 part-time employees. The substantial majority of the Company's
employees are not represented by labor unions. The Company considers its
relations with its employees to be good.
SEASONALITY
Seasonal revenue fluctuations are common within the television broadcasting
industry and result primarily from fluctuations in advertising expenditures.
Because of the short operating history of PAX TV, the Company's ability to
assess the effects of seasonality on PAX TV is limited. Generally, the Company
believes that television advertisers spend relatively more for commercial
advertising time in the fourth and second calendar quarters and spend relatively
less during the first calendar quarter of each year.
TRADEMARKS AND SERVICE MARKS
The Company has two federally registered trademarks and service marks with
another 33 applications pending. It does not own any patents or patent
applications.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED CONSIDERATIONS
This Report contains forward-looking statements that reflect the Company's
current views with respect to future events and financial performance. These
forward-looking statements are made pursuant to the "safe harbor" provisions of
the Securities Litigation Reform Act of 1995 and involve risks and
uncertainties, including those identified below, which could cause actual
results to differ materially from historical results or those anticipated.
Statements as to what the Company "believes", "intends", "expects", or
"anticipates", and other similarly anticipatory expressions are generally
forward-looking statements and are made only as of the date of this Report. All
statements herein, other than those consisting solely of historical facts, that
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as business
strategy, measures to implement strategy, competitive strengths, goals,
projected revenues, costs and other financial results, references to future
success and other events may be forward-looking statements. Statements herein
are based on certain assumptions and analysis made by the Company in light of
its experience and its perception of historical trends, current conditions and
potential future developments, as well as other factors it believes are
appropriate in the circumstances. Whether actual results, events and
developments will conform with the Company's expectations is subject to a number
of risks and uncertainties and important factors that could cause actual
results, events and developments to differ materially from those referenced in,
contemplated by or underlying any forward-looking statements herein, many of
which are beyond the control of the Company. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise. Readers are
cautioned not to place undue reliance on these forward-looking statements.
Factors to consider in evaluating any forward-looking statements and the other
information contained herein and which
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could cause actual results to differ from those anticipated in the
forward-looking statements or otherwise adversely affect the Company's business
include those set forth below:
High Level of Indebtedness; Restrictions Imposed by Terms of Indebtedness and
Preferred Stock
The Company is highly leveraged. At December 31, 1998, the Company had $374
million of total debt as well as $521.4 million of redeemable securities. In
addition, the Company may incur additional indebtedness and will likely issue
additional shares of preferred stock to finance acquisitions, capital
expenditures and for other corporate purposes. The Company's ability to do so is
subject to restrictions in the terms of the Company's Senior Secured Revolving
Credit Facility (the "Credit Facility"), the Company's Equipment Purchase Credit
Facility (the "Equipment Facility"), and the indenture (the "Indenture")
governing the Company's 11 5/8% Senior Subordinated Notes (the "Notes"), as well
as the terms of the Company's Junior Cumulative Compounding Redeemable Preferred
Stock (the "Junior Redeemable Preferred Stock"), the Company's redeemable
12 1/2% Cumulative Exchangeable Preferred Stock (the "Exchangeable Preferred
Stock"), the Company's redeemable 13 1/4% Cumulative Junior Exchangeable
Preferred Stock (the "Junior Exchangeable Preferred Stock") and the Company's
Series A Convertible Preferred Stock (the "Convertible Preferred Stock" and
collectively with the Junior Redeemable Preferred Stock, the Exchangeable
Preferred Stock, and the Junior Exchangeable Preferred Stock, the "Preferred
Stock").
The level of the Company's indebtedness could have important consequences
to the Company, including: (i) a significant amount 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 Credit Facility, the Equipment Facility and the
Indenture (or any replacements thereof) could limit its ability to expand and
make capital improvements and acquisitions; and (iv) 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. Many 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 Credit Facility, the Equipment Facility, the Indenture and the
Preferred Stock 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. Currently, such covenants prevent the Company from
incurring additional indebtedness other than limited amounts of certain types of
permitted indebtedness (e.g., purchase money indebtedness), although refinancing
of existing debt is not prohibited. In addition, the Credit Facility and the
Equipment Facility require the Company to comply with certain financial ratios
and tests, under which the Company is required to achieve certain financial and
operating results commencing in March 2000. If the Company defaults under the
Credit Facility or the Equipment Facility, the lenders may terminate their
lending commitments and declare the indebtedness under the Credit Facility or
Equipment Facility immediately due and payable. If this were to happen there is
no assurance that the Company would have sufficient assets to pay indebtedness
then outstanding under the Credit Facility, the Equipment Facility and the
Notes. If the Company is unable to service its indebtedness or satisfy its
dividend or redemption obligations 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 is no
assurance that any of these strategies could be effected on satisfactory terms,
if at all.
Risks Associated with Operating PAX TV
The Company's PAX TV Network is a new business in the early stages of its
development. The success of the Company's PAX TV operations is largely dependent
upon the Company's ability to provide popular programming and to sell
advertising. The Company seeks to provide programming which attracts viewers in
targeted demographic groups in sufficient numbers to generate audience ratings
that advertisers will find
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attractive, and to convert those audience ratings and viewer demographics into
advertising revenues sufficient to achieve profitable operations. While PAX TV
audience ratings and the Company's advertising revenues have generally been
increasing since the launch of PAX TV on August 31, 1998, there can be no
assurance that the Company's programming will attract sufficient targeted
viewership or that the Company will be able to generate sufficient advertising
revenue for its PAX TV operations to achieve profitability. Since the Company
owns and operates most of the stations carrying its PAX TV programming,
including nearly all of those operating in the nation's largest television
markets, the Company's business model is different from those of traditional
television and cable networks and television station groups and cannot be
measured against traditional methods of operation. The success of the Company's
business plan for PAX TV will depend, among other things, upon the Company's
ability to sell advertising at targeted rates, sell a significant amount of its
time on a local basis at higher rates, continue to attract advertising clients,
improve the visibility and distribution of PAX TV and continue to sell time for
infomercials and other long-form paid programming during weekday mornings and
weekends. There can be no assurances that the Company's costs will not prove
excessive in relation to its advertising revenues or that the Company's
operational strategy for PAX TV will prove successful.
Reliance on Television Programming
One of the Company's most significant operating cost components is
television programming. Acquisitions of program rights may be made several years
in advance and may require multi-year commitments, making it difficult to
accurately predict how a program will perform in relation to its cost. In some
instances, programs must be replaced before their costs have been fully
amortized, resulting in write-offs that increase station operating costs. There
can be no assurance that the Company will not be exposed in the future to
increased programming costs which may materially adversely affect the Company's
operating results. Additionally, the Company intends to provide original
programming for airing on PAX TV, which will involve incurring production,
talent and other ancillary costs. There is no assurance that the Company's
original programming will be commercially successful.
"Must Carry" Regulations
The Company believes that the growth and success of its television station
group depends materially upon access to households served by cable television
systems. Pursuant to 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 DMA, 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,
1999. The Company intends for its television stations to elect "must carry" on
local cable systems again for that election period commencing January 1, 2000.
If the law were changed to eliminate or materially alter "must carry" rights,
the Company could suffer adverse effects.
Government Regulation
Each of the Company's television stations operates pursuant to one or more
licenses issued by the FCC that expire at different times, some of which are
currently up for renewal. The Company may apply to renew those licenses, and
third parties may challenge those applications. The license term for broadcast
television stations is eight years. Although the Company has no reason to
believe that its licenses will not be renewed in
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the ordinary course, there can be no assurance that the licenses will be
renewed. The television broadcasting industry is subject to extensive and
changing regulation. See "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 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 television duopoly rule currently prevents 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 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
interest 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 renewal of any television time brokerage agreement
that is in compliance with the regulations of the FCC. 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 "Federal Regulation of
Broadcasting."
Dependence on Key Personnel
The Company's business depends upon the efforts, abilities and expertise of
its executive officers and other key employees, including Mr. Paxson and Mr.
Jeffrey Sagansky. 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 Preferred Stock. There is 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.
Ability to Manage Growth
Since inception, the Company has experienced rapid growth, primarily
through acquisitions. Rapidly growing businesses frequently encounter unforeseen
expenses and delays in completing acquisitions, as well as difficulties and
complications in integrating acquired operations without disruption to overall
operations. In addition, such rapid growth may adversely affect the Company's
operating results because of many factors, including capital requirements,
transitional management and operating adjustments, and interest costs associated
with acquisition debt. There can be no assurance that the Company will
successfully integrate acquired operations or successfully manage the costs
often associated with rapid growth.
Competition
The Company's television stations are located in highly competitive
markets. The financial success of each of the Company's television stations
depends, to a significant degree, upon its audience ratings, its share
16
<PAGE> 19
of the overall television sales within its geographic market, the economic
health of the market and the popularity of its programming. The audience ratings
and advertising of such individual stations are subject to change and any
adverse change in a particular market could have a material adverse effect on
the revenue and cash flow of the Company. The Company's television stations
compete for audience share and advertising revenue directly with other
television stations and with other media within their respective markets. In
addition, to the extent that many 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 obtain or maintain significant
audience ratings and advertising revenue. See "Competition."
Industry and Economic Conditions
The profitability of the Company's television stations is subject to
various factors that influence the television broadcasting industry as a whole,
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 television station
acquisitions and operations. 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 or regional economic downturns.
ITEM 2. PROPERTIES
The Company's corporate headquarters is in West Palm Beach, Florida. The
types of properties required to support PAX TV and each of the Company's
existing or to be acquired television stations include a satellite up-link
facility, offices, studios and transmitter sites. The Company's satellite
up-link facility is located on leased property in Clearwater, Florida. A
station's studio is generally housed with its office in a downtown or business
district. A station's transmitter site generally is located in a manner that
provides the maximum market coverage the station can enjoy subject to its
license. The studios and offices of the Company's stations and its corporate
headquarters are located in leased or owned facilities. The Company's studio and
office leases have expiration dates that range from one to ten years. The
Company either owns or leases its transmitter and antenna sites. In several
cases, the Company leases the land on which it has constructed its own tower and
transmitter building allowing the Company to lease tower space to third parties.
The Company's transmitter and antenna site leases have expiration dates that
range generally from two to twenty years. The Company does not anticipate any
difficulties in renewing those leases that expire within the next several years
or in leasing other space, if required. No one property is material to the
Company's overall operations. The Company believes that its properties are in
good condition and suitable for its operations. The Company owns substantially
all of the equipment used in its television broadcasting business.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the period covered by this report.
17
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock is listed on the American Stock Exchange
under the symbol PAX. The following table sets forth, for the periods indicated,
the high and low last sales price per share for the Class A Common Stock.
<TABLE>
<CAPTION>
1998 1997
------------- -------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter........................................... 11 3/16 7 9/16 10 1/4 7 15/16
Second Quarter.......................................... 13 7/16 9 15/16 13 1/8 9 3/4
Third Quarter........................................... 12 3/4 9 3/16 14 3/8 10 15/16
Fourth Quarter.......................................... 9 1/4 6 1/8 12 1/16 7 3/16
</TABLE>
On February 26, 1999, the closing sale price of the Class A Common Stock on
the American Stock Exchange was $8.25 per share. As of that date, there were
approximately 502 holders of record of the Class A Common Stock.
The Company has not paid cash dividends and does not intend for the
foreseeable future to declare or pay any cash dividends on any of the Common
Stocks and intends to retain earnings, if any, for the future operation and
expansion of the Company's business. Any determination to declare or pay
dividends will be at the discretion of the Company's board of directors and will
depend upon the Company's future earnings, results of operations, financial
condition, capital requirements, contractual restrictions under the Company's
debt instruments, considerations imposed by applicable law and other factors
deemed relevant by the board of directors. In addition, the terms of the Credit
Facility, the Equipment Facility, the Indenture and the Preferred Stock contain
restrictions on the declaration of dividends with respect to the Common Stock.
18
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data as of
and for each of the years in the five year period ended December 31, 1998. This
information is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements and the notes thereto which are
included elsewhere in this report. The following data insofar as it relates to
each of the years presented has been derived from annual financial statements,
including the consolidated balance sheets at December 31, 1998 and 1997, and the
related consolidated statements of operations and of cash flows for the three
years ended December 31, 1998, and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues....................... $ 134,196 $ 88,421 $ 62,333 $ 31,784 $ 4,227
Operating loss....................... (135,531) (21,935) (3,895) (7,997) (4,647)
Loss from continuing operations
before extraordinary item.......... (89,470) (36,504) (30,436) (22,705) (8,741)
Income (loss) from discontinued
operations(a)...................... 1,182 251,193 4,217 (142) 3,979
Extraordinary item................... -- -- -- 10,626 --
Net income (loss).................... (88,288) 214,689 (26,219) (33,473) (4,762)
Net income (loss) attributable to
common stock(b).................... $ (137,955) $ 188,412 $ (48,127) $ (46,770) $ (8,418)
BASIC AND DILUTED PER SHARE DATA:(C)
Loss from continuing operations
before extraordinary item.......... $ (2.31) $ (1.17) $ (1.20) $ (1.05) $ (0.36)
Discontinued operations.............. 0.02 4.67 0.10 -- 0.12
Extraordinary item................... -- -- -- (0.31) --
Net income (loss).................... $ (2.29) $ 3.50 $ (1.10) $ (1.36) $ (0.24)
Cash dividends declared.............. -- -- -- -- --
Weighted average shares
outstanding -- basic and fully
diluted(d)......................... 60,360,384 53,808,472 43,836,526 34,429,517 33,430,116
BALANCE SHEET DATA:
Working capital...................... $ 1,807 $ 86,944 $ 76,201 $ 74,388 $ 26,392
Total assets......................... 1,542,786 1,057,113 543,182 293,832 152,670
Current portion of long-term debt.... 529 496 645 431 6,393
Long-term debt and notes............. 373,469 350,258 231,063 239,859 76,014
Total redeemable securities.......... 521,401 210,987 184,710 57,176 43,879
Total common stockholders' equity.... $ 247,673 $ 367,744 $ 106,775 $ (17,479) $ 17,019
</TABLE>
- ---------------
(a) Includes a gain on disposal of discontinued operations of $1.2 million and
$254.7 million in 1998 and 1997, respectively, net of applicable income
taxes. See Note 2 to the Consolidated Financial Statements for additional
discussion on the disposition of the Network-Affiliated Television and
Paxson Radio segments during 1997.
(b) Includes dividends and accretion on redeemable preferred stock and
redeemable common stock warrants, as applicable.
(c) The Company computes per share data in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share". Due to losses
from continuing operations, the effect of stock options and warrants is
antidilutive. Accordingly, the Company's presentation of diluted earnings
per share is the same as that of basic earnings per share.
(d) Loss per share data and weighted average shares outstanding for the year
ended December 31, 1994 gives retroactive effect to (i) the Company's
recapitalization related to the merger with The American Network Group, Inc.
on November 7, 1994; and (ii) a stock dividend on common shares outstanding
on January 1, 1995.
19
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
On August 31, 1998, the Company launched PAX TV. PAX TV is the brand name
for the programming that the Company provides to its owned, operated and
affiliated television stations, as well as to certain cable system affiliates
and satellite providers. PAX TV programming consists of family-friendly
traditional entertainment television programs that have had or are having
successful first runs on television, as well as original programs. Prior to the
launch of PAX TV, the Company aired long form paid programming, consisting
primarily of infomercials on its television distribution system. The Company
will continue to carry infomercials on PAX TV at significantly reduced inventory
levels. Certain of the Company's PAX TV stations were and continue to be
operated pursuant to time brokerage and affiliation agreements. The Company's
consolidated operating revenues and expenses include the operating results of
time brokered stations and the advertising revenue, related sales costs and
affiliation fees of certain affiliated stations. At December 31, 1998, the
Company also owned a 30% interest in the Travel Channel, L.L.C., a cable
television network joint venture with Discovery Communications, Inc. ("DCI").
The Company's interest in the operating results of the Travel Channel, L.L.C.
has been included in the consolidated financial statements using the equity
method of accounting. See Note 3 to the Consolidated Financial Statements for a
discussion on the Company's sale of its 30% interest in the Travel Channel in
February, 1999.
The Company's operating data throughout the periods discussed have been
affected significantly by the timing and mix of television station acquisitions
throughout such periods and the costs incurred to launch and support PAX TV. The
Company expects its costs to remain significantly higher than prior to the
launch of PAX TV. The Company's primary operating costs include commissions on
revenues, employee salaries, administrative expenses, and payments in respect of
syndicated program rights, cable distribution, ratings services and promotional
advertising.
The Company's business is subject to various risks and uncertainties which
may significantly reduce revenues and increase operating expenses. For example,
a reduction in expenditures by television advertisers in the Company's markets
may result in lower revenues. The Company may be unable to reduce expenses,
including syndicated program rights fees and certain variable expenses, in an
amount sufficient in the short term to offset lost revenues caused by poor
market conditions. 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
habits may affect the continued attractiveness of the Company's broadcasting
stations to advertisers, upon whom the Company is dependent for its revenue.
The Company believes that its group of television stations comprises a
valuable national broadcasting distribution infrastructure. The PAX TV Network
reaches US television households through a distribution system comprised of
broadcast television stations, cable television systems in markets not served by
a PAX TV station and nationwide through satellite television providers.
According to Nielsen Television Index ("NTI"), as of February 1999, the PAX TV
network reached 74% of US television households through such broadcast, cable
and satellite distribution. Upon completion of pending transactions, the PAX TV
Network will include 114 broadcast television stations, consisting of 72
stations which are owned and operated by the Company, or in which the Company
has an economic interest, and 42 non-owned or operated PAX TV affiliates. The
stations and PAX TV affiliates which the Company will own, operate or have an
economic interest in will reach 19 of the top 20 markets and 40 of the top 50
markets. Additionally, the Company has entered into agreements with multiple
cable system operators ("MSOs"), whereby the Company will receive carriage of
its PAX TV programming in markets not currently served by the Company's
broadcast television station group. The Company will pay certain fees based on
the number of cable television subscribers actually reached and in certain
instances, will provide the MSOs certain amounts of local advertising airtime
during PAX TV programming. Similarly, the Company has entered into nationwide
distribution agreements with two satellite television providers who will carry
PAX TV to their subscribers. The Company anticipates that this additional cable
and satellite distribution will provide PAX TV with incremental coverage to
achieve a presence in every one of the top 100 U.S. television markets.
20
<PAGE> 23
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.
See "Business -- Forward-Looking Statements and Associated Considerations"
for a discussion of certain factors which could influence the Company's future
performance and prospects.
DISCONTINUED OPERATIONS
During 1997, the Company sold two business segments, Paxson Radio and
Paxson Network-Affiliated Television. Losses from operations of these segments
in 1997, net of tax, were $3.6 million compared to income of $4.2 million in
1996. The losses in 1997 primarily reflect the sale of Paxson Network-Affiliated
Television on July 31, 1997 and Paxson Radio on October 1, 1997 compared to full
year results of operations for 1996. Paxson Network-Affiliated Television and
Paxson Radio generally experienced their lowest revenue in the first quarter of
the year, whereas the highest revenue for the year generally occurred in the
fourth quarter. Paxson Network-Affiliated Television net losses were $937,000 in
1997 compared to net income of $354,000 in 1996. Paxson Radio net losses were
$2.7 million in 1997 compared to net income of $3.9 million in 1996.
In connection with the disposal of its Network Affiliated Television and
Paxson Radio segments in 1997, the Company recorded gains of $68.7 million and
$186.1 million, respectively, net of applicable income taxes. Net proceeds from
the sale of these segments were approximately $722.0 million.
During 1998, the Company recognized an additional gain of $1.2 million on
the sale of its Paxson Radio segment, net of applicable income taxes of $2.2
million. This gain reflects an adjustment of $2.7 million of estimated costs
attributable to the segment disposal and the recovery of a $3 million loan
related to the billboard operations of Paxson Radio which was charged off
against the gain in 1997. An additional $2.3 million of income taxes were
recorded within discontinued operations in 1998, as a result of certain
adjustments by the Internal Revenue Service reducing the Company's net operating
loss carry-forwards relating to the historical results of the Paxson Radio
segment.
21
<PAGE> 24
RESULTS OF CONTINUING OPERATIONS
The following table sets forth, for the periods indicated, selected
financial information as a percentage of revenues.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------
DECEMBER 31,
------------------------
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Total revenue............................................... 100.0% 100.0% 100.0%
------ ----- -----
Expenses:
Operating................................................... 43.3 15.8 12.2
Selling, general and administrative......................... 100.9 50.1 56.4
Time brokerage and affiliation fees......................... 11.7 19.2 5.7
Stock-based compensation.................................... 7.8 3.8 11.2
Compensation associated with Paxson Radio asset sales....... -- 11.0 --
Depreciation and amortization............................... 37.3 24.9 20.7
------ ----- -----
Total operating expenses.................................... 201.0 124.8 106.2
------ ----- -----
Operating loss.............................................. (101.0) (24.8) (6.2)
Other Income (expense):
Interest expense............................................ (31.2) (42.7) (50.6)
Interest income............................................. 11.2 10.7 10.8
Other expenses, net......................................... (2.0) (6.4) (2.8)
Gain on sale of television stations......................... 38.4 -- --
Equity in loss of unconsolidated investment................. (9.9) (2.8) --
------ ----- -----
Loss from continuing operations before income tax benefit... (94.5) (66.0) (48.8)
Income tax benefit.......................................... 27.8 24.7 --
------ ----- -----
Loss from continuing operations............................. (66.7) (41.3) (48.8)
====== ===== =====
</TABLE>
Years Ended December 31, 1998 and 1997
Consolidated revenues for 1998 increased 52% (or $45.8 million) to $134.2
million from $88.4 million for 1997. This increase was primarily due to
television station acquisitions, new time brokerage operations and the launch of
the PAX TV network. The PAX TV network revenues accounted for $22.8 million of
the increase. WPXN in New York, which has been operated by the Company since
June 30, 1997 (acquired in February 1998), accounted for $7.6 million of the
increase.
Expenses for 1998 increased 144% (or $159.3 million) to $269.7 million. The
increase was due to higher operating expenses, such as programming and technical
costs of $12.7 million and program rights amortization of $31.4 million,
incurred in connection with the launch of PAX TV, increased selling, general and
administrative costs, such as commissions and bad debt provisions which rise in
proportion to revenues of $11.5 million, increased promotion costs of $28.8
million to advertise the launch of PAX TV, other selling, general and
administrative costs of $50.9 million, which were higher primarily due to
additional employees hired and regional sales offices added, the majority of
which were incurred in connection with the launch of PAX TV and costs associated
with operating new television stations, increased stock based compensation of
$7.0 million, and higher depreciation and amortization, primarily related to
assets acquired, of $28.0 million. The Company expects its operating expenses to
decrease somewhat from present levels but to remain significantly higher than
prior to the launch of PAX TV. Included in 1997 operating expenses was $9.7
million of compensation associated with Paxson Radio asset sales.
The Company has issued options to purchase shares of Class A Common Stock
to certain members of management and employees during 1998, 1997 and 1996 under
its stock compensation plans. There are currently 9,341,662 options outstanding
under these plans. Further, the Company recognized total stock based
22
<PAGE> 25
compensation expense, including amounts recorded in income (loss) from
discontinued operations, of approximately $10.4 million, $6.5 million and $7.9
million in 1998, 1997 and 1996, respectively, and expects that approximately
$16.7 million of compensation expense will be recognized over the remaining
vesting period of the outstanding options.
Interest expense for 1998 increased to $41.9 million or 11%, primarily due
to a greater level of senior debt throughout the period. At December 31, 1998,
total debt and senior subordinated notes were $374 million, compared with $350.8
million in the prior year.
Interest income for 1998 increased to $15.0 million or 58%, primarily due
to higher levels of cash and cash equivalents and cash held by qualified
intermediary resulting from segment asset sales and the June 1998 preferred
stock sales.
Gain on sale of television stations reflects the Company's sale of its
interests in stations WPXE, WNGM and WOAC during 1998 for aggregate
consideration of $79.5 million. The Company realized a gain of approximately
$51.6 million on these station sales. Of the proceeds received, approximately
$17.6 million was used to exercise the Company's options to acquire WOAC and
WNGM.
Years Ended December 31, 1997 and 1996
Consolidated revenues for 1997 increased 42% (or $26.1 million) to $88.4
million from $62.3 million for 1996. This increase was primarily due to
television station acquisitions and new time brokerage operations, with WPXN in
New York which has been operated by the Company since June 30, 1997 accounting
for $13.3 million of the increase.
Expenses for 1997 increased 67% (or $44.2 million) to $110.4 million from
$66.2 million for 1996. The increase was due to higher operating expenses such
as programming and technical costs of $6.4 million, increased selling, general
and administrative costs such as commissions and bad debt provisions which rise
in proportion to revenues of $4.0 million, increased promotion costs of $1.7
million, and other selling, general and administrative costs of $3.4 million,
which are primarily due to operating new television stations, compensation
associated with Paxson Radio asset sales of $9.7 million, higher depreciation
and amortization primarily related to assets acquired of $9.2 million, and
increased time brokerage agreement fees, primarily related to new time brokerage
operations of $13.4 million, of which increase $10.3 million is attributable to
WPXN, all of which were partially offset by lower option plan compensation costs
of $3.6 million.
Interest expense for 1997 increased to $37.7 million from $31.5 million for
1996, an increase of 20% primarily due to a greater level of senior debt
throughout the period. As a result of acquisitions, at December 31, 1997, total
debt and senior subordinated notes were $350.8 million, compared with $231.7
million in the prior year.
Interest income for 1997 increased to $9.5 million from $6.7 million,
primarily due to greater levels of cash and cash equivalents and cash held by
qualified intermediary invested during the second half of the period primarily
as a result of the receipt of the proceeds from the Network-Affiliated
Television and Radio segments sales during 1997.
At December 31, 1996 the Company had accumulated approximately $70 million
of net operating losses available to offset future taxable income, $7.9 million
of which were limited as to use. The gain realized upon the disposal of Paxson
Radio was substantially deferred for tax purposes. The remaining gain on the
disposal of the Paxson Radio and Network-Affiliated Television segments was
offset through the use of net operating losses available at December 31, 1996 as
well as tax losses generated from operations during 1997.
The deferral of approximately $119 million of taxes on the approximately
$305 million gain upon the sale of Paxson Radio could be contested by the
Internal Revenue Service ("IRS"). Based on the advice of counsel, management
believes that, in the event of a challenge by the IRS of these tax positions, it
is more likely than not that the Company would prevail. Should the IRS
successfully challenge the Company on these matters, the Company could be
subject to a material current tax liability.
23
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at December 31, 1998 and December 31, 1997
was $1.8 million and $86.9 million, respectively, and the ratio of current
assets to current liabilities was 1.01:1 and 5.29:1 on such dates, respectively.
Working capital decreased primarily due to payments for cable distribution and
programming rights made in connection with the launch of PAX TV and the
completion of broadcast property acquisitions.
Cash used in operating activities was $150.6, $76.0 and $2.6 million for
1998, 1997 and 1996, respectively. The increase in cash used primarily reflects
the increase in operating costs incurred in connection with the launch of PAX TV
and the related cable distribution rights and programming rights payments. Cash
used for investing activities of $168.5, $21.8 and $258.5 million for 1998, 1997
and 1996, respectively, primarily reflects acquisitions of and investments in
broadcast properties and purchases of equipment for acquired and existing
properties net of the use of cash held by qualified intermediary and proceeds
from sales of broadcast properties. Cash provided by financing activities of
$285.9, $118.7 and $254.8 million in 1998, 1997 and 1996, respectively,
primarily reflects the proceeds from preferred stock sales and borrowings under
the Company's senior credit facility, net of repayments and loan origination
costs incurred. Non-cash activity relates to stock based compensation, stock
issued for the Travel Channel, KPXR, WPXW and WFSJ(FM) acquisitions, a note
payable incurred with the WYPX acquisition and accretion of discount on the
Notes, as well as dividends on the Company's redeemable preferred stock and
common stock warrants.
In May 1998, the Company amended and restated its $122 million senior
Credit Facility which matures June 2002. In connection therewith, the Company
had placed approximately $22.4 million in an interest bearing escrow in order to
pre-fund interest payments under this facility. The Company had approximately
$18.1 million remaining in escrow as of December 31, 1998.
In August 1998, the Company entered into the $50 million Equipment Facility
which matures the first business day of October 2003. The draw-down period of
the Equipment Facility expires in August 1999. All borrowings under this
facility are secured by the equipment purchased with the proceeds drawn and bear
interest at the Index Rate plus 2.0% per annum, the LIBOR Rate plus 3.0% per
annum or the Commercial Paper Rate plus 3.0% per annum, at the Company's option.
Interest on outstanding borrowings is payable monthly in arrears. At December
31, 1998, the Company had borrowings of approximately $21.4 million outstanding
under the Equipment Facility bearing interest at a rate of 8.5%. Subsequent to
December 31, 1998, the Company has borrowed an additional $6.3 million. The
Equipment Facility requires the Company to maintain compliance with certain
financial ratios and make equal quarterly principal payments of one-sixteenth of
the aggregate unpaid principal balance commencing on the first business day of
January 2000 and continuing on the first business day of each succeeding
calendar quarter thereafter up to and through the maturity date, except that the
final payment due shall be in an amount equal to the entire remaining unpaid
balance. The Company intends to use the Equipment Facility to fund the majority
of its capital expenditure needs through August 1999.
In February 1999, the Company sold its 30% interest in the Travel Channel
for aggregate consideration of approximately $55 million and realized a gain of
approximately $15 million. Of the consideration received, approximately $20.1
million was utilized to pay current obligations for cable distribution rights.
The ratings for the Company's programming since the launch of PAX TV on
August 31, 1998, have generally equaled or exceeded the Company's preliminary
estimates. The Company's initial advertising revenues have been lower than
operating expenses and as a result, the Company has experienced an operating
deficit for this period. The Company believes that demand for television
advertising was generally weak for this period and adversely affected revenues.
The Company has implemented improvements to its sales and marketing strategies
and procedures in order to address what management believes to be initial
reluctance of certain advertisers to purchasing advertising time on PAX TV,
which the Company believes is attributable in part to unfamiliarity with PAX TV
and a lack of historical ratings and demographic data for PAX TV programming
which many advertisers utilize in making their advertising purchases.
Furthermore, a significant number of advertisers make commitments for their
advertising expenditures on quarterly and calendar year cycles, and the Company
believes that due to the recent launch of PAX TV and the other factors described
24
<PAGE> 27
above, many advertisers have not yet included PAX TV in making their advertising
commitments. The Company believes reluctance by advertisers to purchase
advertising in PAX TV will further decrease over time as more historical ratings
data for PAX TV becomes available, advertisers become more familiar with PAX TV
and PAX TV more fully participates in quarterly and annual cyclical advertising
expenditure cycles. The Company has also implemented improvements to its newly
developed proprietary sales and billing software system to address certain
initial software system difficulties experienced since the launch of PAX TV
which should improve the Company's ability to assess and respond to the
marketplace and PAX TV's operations and to more effectively manage its
advertising sales efforts. The Company believes that these measures should
improve the effectiveness of its advertising sales efforts and should allow the
Company to generate higher revenues over time that are more reflective of PAX
TV's ratings performance to date.
The Company's primary capital requirements are for the funds required to
complete announced acquisitions of broadcasting properties, capital expenditures
on existing and acquired properties, syndicated programming rights payments,
cable carriage and promotion payments, interest and debt service payments on
indebtedness and the Company's working capital requirements. The Notes require
semi-annual interest payments at a fixed rate.
As of December 31, 1998, the Company's programming contracts require
collective payments by the Company of approximately $345.4 million as follows
(in thousands):
<TABLE>
<CAPTION>
OBLIGATIONS
FOR PROGRAM
PROGRAM RIGHTS
RIGHTS COMMITMENTS TOTAL
----------- ----------- --------
<S> <C> <C> <C>
1999................................................. $ 84,820 $ 14,363 $ 99,183
2000................................................. 69,393 21,210 90,603
2001................................................. 58,107 17,410 75,517
2002................................................. 25,428 13,322 38,750
2003................................................. 1,872 17,347 19,219
Thereafter through 2005.............................. -- 22,147 22,147
-------- -------- --------
$239,620 $105,799 $345,419
======== ======== ========
</TABLE>
The Company has also committed to purchase at similar terms additional
future series episodes of its licensed programs should they be made available.
The Company continues to evaluate additional programming purchases. The Company
has taken steps to defer obligations on programming which it does not anticipate
airing in the near term and is in discussion with certain programming
distributors regarding measures which will reduce the Company's current
programming obligations.
As of December 31, 1998, obligations for cable distribution rights require
collective payments by the Company of approximately $71.3 million over such
periods as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $50,914
2000........................................................ 11,785
2001........................................................ 6,169
2002........................................................ 1,886
2003........................................................ 180
Thereafter.................................................. 358
-------
$71,292
Less: Amount representing interest.......................... (4,978)
-------
Present value of cable rights payable....................... $66,314
=======
</TABLE>
During February the 1999 cable distribution rights commitments were reduced
to $30.8 million after application of $20.1 million of the $55 million of total
consideration received by the Company in connection with the February 1999 sale
of its 30% interest in the Travel Channel. The Company is in discussions with
25
<PAGE> 28
certain cable MSO's regarding the reduction of its cash obligations for 1999
cable distribution rights in exchange for the Company's stock at a negotiated
strike price.
As of December 31, 1998, the Company had agreements to purchase significant
assets of, or to enter into time brokerage and financing arrangements with
respect to, broadcast properties:
<TABLE>
<S> <C>
Anticipated to close in 1999................................ $ 47,449
Anticipated to close in 2000 and thereafter................. 61,641
--------
$109,090
========
</TABLE>
The completion of such acquisitions or investments in broadcast properties
is subject to a variety of factors and the satisfaction of various conditions,
including the receipt of regulatory approvals and there can be no assurance that
any of such investments will be completed. The Company has additional purchase
commitments for two stations in the aggregate amount of approximately $36.4
million (net of advances and escrow deposits of approximately $5.4 million) for
which management cannot estimate the closing date primarily as a result of
delays in the receipt of FCC approval of the license transfer. These commitments
relate to Channel 40 in Pittsburgh, Pennsylvania ($35 million), and Channel 61
in Mobile, Alabama ($6.8 million).
In addition to operating performance, the Company's liquidity position is
affected by its commitments to increase distribution through television station
acquisitions and cable carriage agreements as well as the Company's ability to
liquidate certain investments in broadcast properties and dispose of certain
non-core assets. The Company is pursuing measures to improve its liquidity
position during the next twelve months in order to continue to pursue its
business strategy and to fund its operations and debt service. The measures the
Company is pursuing include the sale of non-core assets (including several
broadcasting stations), deferring or abandoning non-essential capital
expenditures for improvements of existing properties, deferring or restructuring
payments under cable carriage agreements, and continuing its efforts to reduce
operating expenses. The Company also believes it will liquidate certain
investments in broadcast properties in 1999. The Company believes that by
implementing a combination of the foregoing measures, it should be able to
preserve sufficient liquidity to address its working capital needs during the
next twelve months. Should the Company's revenues during such period fall short
of its current expectations, or should the Company fail to successfully
implement one or more of the measures discussed above, the Company would likely
be required to take other measures to address its liquidity position, including
additional asset sales and operating expense reductions. In addition, the
Company continually evaluates opportunities for raising additional capital
through offerings of debt, equity and preferred stock. The Company cannot be
sure that it will be able to successfully implement any such measures or that it
will have sufficient liquidity to meet its needs during the next twelve months
in the event its advertising revenues fall significantly short of its current
expectations.
The Company will likely require additional financing to pursue its business
strategy and fund its capital requirements in the year 2000 and thereafter. The
amount of additional financing needed could be increased to the extent that the
Company pursues additional acquisitions or requires additional working capital
as a result of higher than expected operating costs, lower than expected
advertising revenues, additional programming rights obligations and payments
under additional cable carriage agreements. The Company cannot be sure that it
will be able to obtain additional financing on terms acceptable to it. If the
Company fails to maintain sufficient liquidity to finance its future cash
requirements, the Company's ability to pursue its business strategy during the
year 2000 and thereafter could be adversely affected.
YEAR 2000 CONSIDERATIONS
The "Year 2000 issue" is the result of computer programs that were written
using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the year 1900 rather than the
Year 2000. This could result in a system failure or miscalculations causing
disruptions to operation.
26
<PAGE> 29
State of Readiness
The Company has identified four major categories of Year 2000 risk:
(1) Software systems -- these include the Company's revenue system
("Traffic System"), financial system (e.g. general ledger,
accounts payable, fixed assets, etc.), digital cable transmission
and automation systems (for video servers);
(2) Equipment with embedded chip technology -- these include "on-air"
equipment (e.g., video servers, compression gear, transmitters,
etc.), computer hardware and generators;
(3) External vendors and suppliers -- these include satellite
transmission operators, cable television operators, and other
third parties whose system failures potentially could have a
significant impact on the Company's operations; and
(4) Facilities -- these include fire alarm systems, phone systems and
access control systems.
The Company has substantially completed its inventory of software systems
and equipment and has identified external vendors and suppliers whose system
failures could have a significant impact on the Company's operations. The
Company has substantially completed its assessment and is in the process of
completing the remediation of all mission-critical systems and equipment.
In 1998, the Company replaced its Traffic System with a system that is Year
2000 compliant. The Company is currently replacing its financial system with a
Year 2000 compliant system which is expected to be operational by June 30, 1999.
The implementation of these new systems minimizes the possibility of Year 2000
issues significantly interrupting normal operations.
The Company has already received assurances as to Year 2000 compliance from
identified external vendors and suppliers and is currently evaluating their
compliance programs.
The objective of the Company is complete assessment, remediation, testing
and certification of third party software for all mission-critical systems and
components by June 30, 1999. Over the next few months as the Company receives
more information on the extent of Year 2000 compliance by external vendors and
third party suppliers, the nature of any contingency plans that may be needed
will evolve.
The Company is currently preparing contingency plans to identify and handle
its worst case scenarios. It expects to complete these plans by June 30, 1999 in
conjunction with the completion of its assessment, remediation, testing and
certification phases.
Risks and costs
Based on its current efforts, the Company does not believe that Year 2000
issues will have a material adverse effect on the results of its operations,
liquidity, or financial condition. However, this assessment is dependent on the
ability of third-party suppliers and others whose systems failures potentially
could have an impact on the Company's operations to be Year 2000 compliant.
Although the Company cannot control the conduct of external vendors and
suppliers, the Company expects to reduce the Company's level of uncertainty and
the adverse effect that any such failures may have.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The response to this item is submitted in a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27
<PAGE> 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item regarding directors and officers is
incorporated by reference from the definitive Proxy Statement being filed by the
Company for the Annual Meeting of Stockholders to be held on April 30, 1999.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held on April 30, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held on April 30, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held on April 30, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of the report:
1. The financial statements filed as part of this report are listed
separately in the Index to Consolidated Financial Statements and Financial
Statement Schedule on page F-1 of this report.
2. The Financial Statement Schedule filed as part of this report is
listed separately in the Index to Consolidated Financial Statements and
Financial Statement Schedule on page F-1 of this report.
3. For Exhibits see Item 14(c), below. Each management contract or
compensatory plan or arrangement required to be filed as an exhibit hereto
is listed in Exhibits Nos. 10.26, 10.27, 10.28, 10.157, 10.197, 10.198,
10.199, 10.200, 10.201 and 10.202 of Item 14(c) below.
(b) Reports on Form 8-K.
None
(c) List of Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
3.1.1 -- Certificate of Incorporation of the Company(2)
3.1.2 -- Certificate of Designations of the Company's Junior
Cumulative Compounding Redeemable Preferred Stock(2)
3.1.4 -- Certificate of Designations of the Company's 12 1/2%
Cumulative Exchangeable Preferred Stock(5)
3.1.6 -- Certificate of Designation of the Company's 9 3/4% Series A
Convertible Preferred Stock(15)
3.1.7 -- Certificate of Designation of the Company's new 13 1/4%
Cumulative Junior Exchangeable Preferred Stock(15)
3.2 -- Bylaws of the Company(4)
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
4.1 -- Indenture dated as of September 28, 1995, by and between the
Company, the guarantors named therein and The Bank of New
York, as Trustee, with respect to the Senior Subordinated
Notes(3)
4.2 -- Indenture dated as of October 4, 1996, by and between the
Company, the Guarantors named therein and the Bank of New
York, as Trustee, with respect to the Exchange Debentures(5)
4.3 -- Credit Agreement, dated as of December 19, 1995, among PCC,
the Lenders named therein, and Union Bank, as Agent(3)
4.3.1 -- Amended and Restated Credit Agreement, dated November 19,
1996, among Paxson Communications Corporation, the Lenders
named therein and Union Bank of California, N.A., as the
Agent(8)
4.3.2 -- Second amendment, dated May 2, 1997, with respect to the
Amended and Restated Credit Agreement, dated as of November
19, 1996, among Paxson Communications Corporation, the
Lenders named therein and Union Bank of California, N.A., as
Agent(10)
4.3.3 -- Third amendment, dated May 30, 1997, with respect to the
Amended and Restated Credit Agreement, dated as of November
19, 1996, among Paxson Communications Corporation, the
Lenders named therein and Union Bank of California, N.A., as
Agent(11)
4.3.4 -- Fourth amendment, dated September 25, 1997, with respect to
the Amended and Restated Credit Agreement, dated as of
November 19, 1996, among Paxson Communications Corporation,
the Lenders named therein and Union Bank of California,
N.A., as Agent(12)
4.3.5 -- Credit agreement, dated July 11, 1997, among Travel Channel
Acquisition Corporation, the several Lenders from Time to
Time Parties Hereto and Union Bank of California, N.A., as
the Agent(12)
4.3.6 -- Fifth Amendment, dated as of October 31, 1997, to the
Amended and Restated Credit Agreement, dated as of November
19, 1996, among Paxson Communications Corporation, the
lenders from time to time party thereto and Union Bank of
California, N.A., as agent(13)
4.3.7 -- Sixth Amendment, dated March 11, 1998, with respect to the
Amended and Restated Credit Agreement, dated as of November
19, 1996, among Paxson Communications Corporation, the
Lenders from time to time party thereto and Union Bank of
California, N.A., as Agent(13)
9.1 -- Amended and Restated Stockholders Agreement, dated as of
December 22, 1994, by and among the Company and certain
stockholders thereof(2)
9.2 -- Agreement, dated March 26, 1996, amending the Amended and
Restated Stockholders Agreement, dated as of December 22,
1994, by and among the Company and certain stockholders
thereof and certain related agreements(4)
10.1 -- Securities Purchase Agreement, dated as of September 22,
1995, by and among the Company, the Guarantors named therein
and the Initial Purchasers named therein(3)
10.2 -- Stock Purchase Agreement, dated as of December 15, 1993, by
and among the Company and certain purchasers of the Company
securities(2)
10.3 -- Stock Purchase Agreement, dated as of December 22, 1994, by
and among the Company and certain purchasers of the Company
securities(2)
10.4 -- Amended and Restated Stockholders Agreement, dated as of
December 22, 1994, by and among the Company and certain
stockholders thereof (incorporated by reference to Exhibit
9.1)(2)
10.4.1 -- Agreement, dated March 26, 1996, amending the Amended and
Restated Stockholders Agreement, by and among the Company
and certain stockholders thereof and certain related
agreements (incorporated by reference to Exhibit 9.2)(4)
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.5 -- Exchange and Consent Agreement, dated as of December 22,
1994, by and among the Company and certain stockholders
thereof(2)
10.26 -- Employment Agreement, dated as of June 30, 1994, by and
between the Company and Lowell W. Paxson(1)
10.27 -- Paxson Communications Corp. Profit Sharing Plan(1)
10.28 -- Paxson Communications Corp. Stock Incentive Plan(1)
10.46 -- Non-compete Agreement, dated August 18, 1995, between the
Company and Lowell W. Paxson(3)
10.54 -- Indenture, dated as of September 28, 1995, among the
Company, the Guarantors named therein and The Bank of New
York, as Trustee with respect to the Senior Subordinated
Notes(3)
10.55 -- Original Note No. 1 for $115,000,000 CUSIP No. 704231-AA-7,
with Guarantee of Guarantors listed therein(3)
10.56 -- Original Note No. 2 for $115,000,000, CUSIP No. 704231-AA-7,
with Guarantee of Guarantors listed therein(3)
10.57 -- Form of New Note with Form of New Guarantee(3)
10.58 -- Registration Rights Agreement, dated as of September 28,
1995, by and among the Company, the Guarantors named therein
and each of the Purchasers referred to therein(3)
10.63 -- Loan Agreement, dated October 6, 1995, by and among Paxson
Communications of Dayton-26, Inc. and Channel 26 of Dayton,
Inc.(3)
10.64 -- Option Agreement, dated October 6, 1995, by and between
Paxson Communications of Dayton-26, Inc. and Channel 26 of
Dayton, Inc.(3)
10.74 -- Time Brokerage Agreement, dated January 31, 1996, by and
between S&E Network, Inc. and Paxson Communications of San
Juan, Inc. for television station WSJN-TV(4)
10.74.1 -- Stock Purchase Agreement, by and between S&E Network, Inc.
and Paxson Communications of San Juan, Inc. for television
station WSJN-TV(4)
10.83 -- Lease Agreement, dated June 14, 1994, between Paxson
Communications of Tampa-66, Inc. and The Christian Network,
Inc. for lease of production and distribution facilities at
WFCT-TV(4)
10.128 -- Purchase Agreement, dated July 31, 1996, by and among
America 51, L.P., Paxson Communications of Phoenix-51.,
Inc., and Hector Garcia Salvatierra for Television Station
Channel 51, Tolleson, Arizona(6)
10.130 -- Stock Purchase and Related Transactions, dated August 21,
1996, between Paxson Communications of Little Rock-42, Inc.,
Leininger-Geddes Partnership and Channel 42 of Little Rock,
Inc. for Television Station KVUT(TV), Little Rock,
Arkansas(6)
10.134 -- Loan Agreement, dated September 6, 1996, by and between
Ponce-Nicasio Broadcasting, A Limited Partnership and Paxson
Communications of Sacramento-29, Inc. for Television Station
KCMY-TV, Sacramento, California(6)
10.135 -- Option Agreement, dated September 6, 1996, by and between
Ponce-Nicasio Broadcasting, A Limited Partnership and Paxson
Communications of Sacramento for Television Station KCMY-TV,
Sacramento, California(6)
10.145 -- Stock Purchase Agreement, dated December 11, 1996, by and
among Channel 64 of Scranton, Inc., Paxson Communication of
Scranton-64, Inc. and Ted Ehrhardt D/B/A Ehrhardt
Broadcasting(8)
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.146 -- Asset Purchase Agreement, dated February 19, 1997, by and
between Paxson Communications of Ft. Pierce-34, Inc., and
Paramount Stations Group, Inc. for Television Station
WTVX(TV), Ft. Pierce, Florida(8)
10.147 -- Promissory Note, dated February 12, 1997, by and between
Roberts Broadcasting of Hartford, L.L.C. and Paxson
Communications of New London-26, Inc. for Television Station
WTWS (TV), New London, Connecticut(8)
10.147.1 -- Time Brokerage Agreement, dated February 12, 1997, by and
between Roberts Broadcasting of Hartford, L. L. C. and
Paxson Communications of New London-26, Inc. for Television
Station WTWS(TV), New London, Connecticut(8)
10.147.2 -- Amendment to Asset Purchase Agreement, dated December 16,
1996, by and among Roberts Broadcasting of Hartford, L.L.P.,
Paxson Communications of New London-26, Inc., and Paxson New
London License, Inc.(8)
10.148 -- Amended and Restated Promissory Note, dated April 16, 1996,
by and between Ocean State Television, L. L. C. and Paxson
Communications of Providence-69, Inc.(8)
10.150 -- Partnership Interest Purchase Agreement, dated February 14,
1997, by and among DP Media, Inc., Roberts Broadcasting,
L.L.C., and Roberts Broadcasting company of Raleigh-Durham,
L.P.(8)
10.151 -- Option Purchase Agreement, dated February 14, 1997, by and
between Paxson Communications of Raleigh-Durham-47, Inc.,
and D P. Media, Inc.(8)
10.153 -- Asset Purchase Agreement, dated March 13, 1997, by and among
Paxson Communications of Detroit-31, Inc. and Blackstar
Communications, Inc. for Television Stations WBSX(TV) and
W48AV(8)
10.154 -- Asset Purchase Agreement, dated March 25, 1997, by and
between Paxson Communications of West Palm Beach-25, Inc.
and The Hearst Corporation, for Television Station WPBF(TV),
West Palm Beach, Florida(8)
10.155 -- Purchase and Sale of Option, dated March 26, 1997, by and
between Paxson Communications of Cleveland-7, Inc., and
Global Broadcasting Systems, Inc. for Television Station
WOAC(TV), Cleveland, Ohio(8)
10.155.1 -- Purchase and Sale of Option, dated March 26, 1997, by and
between Paxson Communications of Atlanta-14, Inc., and
Global Broadcasting Systems, Inc. for Television Station
WNGM(TV), Atlanta, Georgia(8)
10.156 -- Asset purchase agreement, dated March 21, 1997, by and
between Whitehead Media of Florida, Inc., Whitehead
Broadcasting of Florida, Inc. and Paxson Communications of
Ft. Pierce-34, Inc. for Television Station WTVX(TV), Ft.
Pierce, Florida(8)
10.157 -- Paxson Communications Corporation 1996 Stock Incentive
Plan(7)
10.158 -- Loan agreement, dated March 26, 1996, by and between Paxson
Communications Corporation and Cocola Media Corporation of
San Francisco for television station KWOK-TV, Novato,
California(10)
10.159 -- Asset purchase agreement, dated April 1, 1997, by and
between Paxson Communications Corporation and The Kralowec
Children's Family Trust and KKAK-TV, Inc. for television
station KKAG(TV), Porterville, California(10)
10.160 -- Asset purchase agreement, dated May 5, 1997, by and among
Paxson Communications of Cedar Rapids-48, Inc., Fant
Broadcasting Company of Iowa, Inc. and Paxson Communications
Corporation for television station KTVC-TV, Cedar Rapids,
Iowa(10)
10.161 -- Asset purchase agreement, dated April 15, 1997, by and among
Paxson Communications of Buffalo-51, Inc., Fant Broadcasting
of New York, L.L.C., Anthony Fant and Paxson Communications
Corporation for television station WAQF-TV(10)
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.162 -- Assignment and acceptance agreement, dated April 18, 1997,
among WQED Pittsburgh and Paxson Communications of
Pittsburgh-40, Inc.(10)
10.163 -- Merger agreement, dated April 29, 1997, among WPBF Merger,
Inc. and WPBF License, Inc. and Paxson Communications of
West Palm Beach-25, Inc. and Paxson West Palm Beach License,
Inc.(9)
10.163.1 -- Paxson Communications of West Palm Beach-25, Inc. and Paxson
West Palm Beach License, Inc. Subordinated Promissory Note,
dated April 29, 1997(9)
10.163.2 -- Time brokerage agreement, dated April 29, 1997, by and
between Paxson Communications of West Palm Beach-25, Inc.,
and Paxson West Palm Beach License, Inc., and Paxson
Communications of Florida, Inc.(9)
10.164 -- Asset purchase agreement, dated April 22, 1997, by and
between Paxson Communications of Miami-35, Inc. and Channel
35 of Miami, Inc.(10)
10.165 -- Asset purchase agreement, dated April 22, 1997, by and
between Paxson Communications of Tampa-66, Inc. and Channel
66 of Tampa, Inc.(10)
10.166 -- Asset purchase agreement, dated April 30, 1997, by and
between Paxson Communications of Green Bay-14, Inc. and VCY
America, Inc. for television station WSCO(TV), Green Bay,
Wisconsin(10)
10.167 -- Asset purchase agreement, dated May 12, 1997, by and between
the Company, Paxson Communications of New York City, ITT-Dow
Jones Television, ITT Corporation and Dow Jones & Company
for Television Station WBIS(TV), New York City, New York(10)
10.167.1 -- Time brokerage agreement, dated May 1997, by and between
ITT-Dow Jones Television and Paxson Communications of New
York-31, Inc. for Television Station WBIS(TV), New York
City, New York(10)
10.168 -- Construction Agreement, dated December 23, 1996, between
WHCT Broadcasting, Inc., and Paxson Communications of
Hartford-18, Inc. for WHCT(TV), Channel 18, Hartford,
Connecticut(11)
10.169 -- Asset Purchase Agreement, dated April 11, 1997, by and
between Roberts Broadcasting of Cookeville, L.L.C. and
Paxson Communications of Nashville-28, Inc.(11)
10.170 -- Amended and Restated Asset Purchase Agreement, dated April
15, 1997, by and among Paxson Communications of Buffalo-51,
Inc., Fant Broadcasting Company of New York, L.L.C., Anthony
Fant and Paxson Communications Corporation(11)
10.171 -- Asset Purchase Agreement, dated May 14, 1997, by and between
Paxson Communications of West Palm Beach, Inc. and American
Radio Systems Corporation(11)
10.172 -- Option Agreement, dated May 20, 1997, by and between Paxson
Communications of Honolulu-66, Inc. and Dove Broadcasting
Company of Hawaii, Inc. for television station KAPA(TV),
Kaneohe, Hawaii(11)
10.172.1 -- Loan Agreement, dated May 20, 1997, by and among Paxson
Communications of Honolulu-66, Inc., and Dove Broadcasting
Company of Hawaii(11)
10.173 -- Asset Purchase Agreement, dated May 28, 1997, by and among
Paxson Communications of Roanoke-38, Inc., Vine and Branch,
Inc. and Evangel Foursquare Church for television station
WEFC, Roanoke, Virginia(11)
10.174 -- Loan Agreement, dated June 10, 1997, by and between Paxson
Communications of Boston-46, Inc. and Channel 46 of Boston,
Inc. for television station WHRC(TV), Norwell,
Massachusetts(11)
10.175 -- Asset Acquisition Agreement, dated June 13, 1997, by and
among Landmark Communications, Inc., The Travel Channel,
Inc., and Paxson Communications(11)
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.176 -- Asset Purchase Agreement, dated June 23, 1997, by and
between Paxson Communications of Orlando-56, Inc. and
Channel 56 of Orlando, Inc.(11)
10.177 -- Loan Agreement, dated June 30, 1997, by and between Roberts
Broadcasting Company of Albuquerque and Paxson
Communications of Albuqurque-14, Inc. relating to television
station (Channel 14), Albuquerque, New Mexico(11)
10.178 -- Asset Purchase Agreement, dated June 25, 1997, by and
between John W. Hyde, as Chapter 11 Trustee of the Chapter
11 Debtor Estate of Riklis Broadcasting Corporation, AKA
KADY-TV, AKA Pacific Rim Video and Paxson Communications of
Los Angeles-63, Inc.(11)
10.179 -- Asset Purchase Agreement, dated August 25, 1997, by and
among Paxson Communications Corporation, Clear Channel
Metroplex, Inc., Clear Channel Metroplex Licenses, Inc. and
Clear Channel Communications, Inc. (filed as exhibit 2.1
with the Company's Form 8-K, dated October 1, 1997 and
incorporated herein by reference)
10.180 -- Asset Purchase Agreement, dated August 25, 1997, by and
among Paxson Communications Corporation, L. Paxson, Inc.,
Clear Channel Metroplex, Inc., Clear Channel Metroplex
Licenses, Inc. and Clear Channel Communications, Inc. (filed
as exhibit 2.2 with the Company's Form 8-K, dated October 1,
1997, and incorporated herein by reference)
10.181 -- Asset Purchase Agreement, dated August 29, 1997, by and
among Paxson Communications of Fayetteville-62, Inc.,
Fayetteville-Cumberland Telecasters, Inc.,
Fayetteville-Cumberland Telecasters Inc.,
Debtor-in-Possession, and Poplar Apartments Limited
Partnership for Television station WFAY, Fayetteville, North
Carolina(12)
10.182 -- Stock Purchase Agreement, dated September 2, 1997, by and
among Channel 29 of Charleston, Inc., Paxson Communications
of Charleston-29, Inc. and Mountaineer Broadcasting
Corporation and William L. Kepper(12)
10.183 -- Stock Purchase Agreement, dated September 9, 1997, by and
among Channel 46 of Tucson, Inc., Paxson Communications of
Tucson-46, Inc. and Sungilt Corporation, Inc.(12)
10.184 -- Asset Purchase Agreement, dated October 16, 1997, by and
between Paxson Communications Corporation and Channel 49
Acquisition Corporation for television station WJCB-TV,
Norfolk, Virginia(12)
10.185 -- Asset Purchase Agreement, dated October 24, 1997, between
Universal Outdoor, Inc. and Paxson Communications
Corporation(12)
10.186 -- Option Agreement, dated November 14, 1997, by and between
Paxson Communications Corporation and Flinn Broadcasting
Corporation for Television station WCCL-TV, New Orleans,
Louisiana(13)
10.187 -- Option Agreement, dated November 14, 1997, by and between
Paxson Communications Corporation and Flinn Broadcasting
Corporation for Television station WFBI-TV, Memphis,
Tennessee(13)
10.188 -- Asset Purchase Agreement, dated January 26, 1998, by and
among DP Media of Milwaukee, Inc., Paxson Communications of
Milwaukee-55, Inc. and Paxson Milwaukee License, Inc. for
Television station WPXE(TV), Kenosha, Wisconsin(13)
10.189 -- Asset and Stock Purchase and Option Grant Agreement, dated
as of November 14, 1997, by and among ValueVision
International, Inc., VVI Seattle, Inc., VVI LPTV, Inc., VVI
Spokane, Inc., VVI Tallahassee, Inc. and Paxson
Communications Corporation(13)
10.190 -- Limited Liability Company Agreement of The Travel Channel,
L.L.C. dated as of November 24, 1997(13)
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.191 -- Asset Purchase Agreement, dated as of November 24, 1997, by
and among Travel Channel Acquisition Corporation, Project
Discovery, Inc., Paxson Communications Corporation and
Discovery Communications, Inc.(13)
10.192 -- Guaranty Agreement, dated as of November 24, 1997, made by
Discovery Communications, Inc., in favor of Travel Channel
Acquisition Corporation(13)
10.193 -- Asset Exchange Agreement, dated January 26, 1998, by and
among Paxson Communications of Chicago-38, Inc., Christian
Communications of Chicagoland, Inc., and Paxson
Communications Corporation(13)
10.193.1 -- Programming Agreement by and between Paxson Communications
of Chicago-38, Inc. and Christian Communications of
Chicagoland Inc.(13)
10.194 -- Asset Purchase Agreement, dated March 19, 1998, by and
between Paxson Communications of Atlanta-14, Inc. and SKMD
Broadcasting Partnership and USA Station Group of Maryland,
Inc.(14)
10.196 -- Membership Purchase Agreement, dated January 14, 1998, by
and among Dr. Joseph A. Zavaletta, South Texas Vision,
L.L.C., Paxson Communications of San Antonio-26, Inc., and
Paxson Communications Corporation for television station
Channel 26, Uvalde, Texas(14)
10.197 -- Employment Agreement, dated as of June 11, 1998, by and
between the Company and Jeffrey Sagansky(16)
10.198 -- Employment Agreement, dated as of June 11, 1998, by and
between the Company and James B. Bocock(16)
10.199 -- Employment Agreement, dated as of June 11, 1998, by and
between the Company and Dean M. Goodman(16)
10.200 -- Employment Agreement, dated as of June 11, 1998, by and
between the Company and J. Jay Hoker(16)
10.201 -- Employment Agreement, dated as of June 11, 1998, by and
between the Company and Arthur D. Tek(16)
10.202 -- Paxson Communications Corporation 1998 Stock Incentive
Plan(15)
10.203 -- Interest Transfer Agreement, dated February 4, 1999, between
Discovery Communications, Inc., Project Discovery, Inc., The
Travel Channel, LLC, Discovery Ventures, LLC, Paxson
Communications Corporation and Travel Channel Acquisition
Corporation
10.204 -- Asset Purchase Agreement by and among Paxson Communications
of New York-43, Inc. and Paxson New York License, Inc. and
Shop at Home, Inc. dated as of February 26, 1999
21 -- Subsidiaries of the Company
23 -- Consent of PricewaterhouseCoopers LLP
27 -- Financial Data Schedule (for SEC use only)
99.1 -- Tax Exemption Savings Agreement between the Company and The
Christian Network, Inc., dated May 15, 1994(4)
</TABLE>
- ---------------
(1) Filed with the Company's Registration Statement on Form S-4, filed
September 26, 1994, Registration No. 33-84416 and incorporated herein by
reference.
(2) Filed with the Company's Annual Report on Form 10-K, dated March 31, 1995,
and incorporated herein by reference.
(3) Filed with the Company's Registration Statement on Form S-4, as amended,
filed January 23, 1996, Registration No. 33-63765 and incorporated herein
by reference.
(4) Filed with the Company's Registration Statement on Form S-1, as amended,
filed January 26, 1996, Registration No. 333-473 and incorporated herein by
reference.
34
<PAGE> 37
(5) Filed with the Company's Registration Statement on Form S-3, as amended,
filed August 15, 1996, Registration No. 333-10267 and incorporated herein
by reference.
(6) Filed with the Company's Quarterly Report on Form 10-Q, dated September 30,
1996, and incorporated herein by reference.
(7) Filed with the Company's Registration Statement on Form S-8, filed January
22, 1997, Registration No. 333-20163 and incorporated herein by reference.
(8) Filed with the Company's Annual Report on Form 10-K, dated December 31,
1996, and incorporated herein by reference.
(9) Filed with the Company's Report on Form 8-K dated April 29, 1997, under
Item 7. Financial Statements and Exhibits and incorporated herein by
reference.
(10) Filed with the Company's Quarterly Report on Form 10-Q, dated March 31,
1997, and incorporated herein by reference.
(11) Filed with the Company's Quarterly Report on Form 10-Q, dated June 30,
1997, and incorporated herein by reference.
(12) Filed with the Company's Quarterly Report on Form 10-Q, dated September 30,
1997, and incorporated herein by reference.
(13) Filed with the Company's Annual Report on Form 10-K, dated December 31,
1997, and incorporated herein by reference.
(14) Filed with the Company's Quarterly Report on Form 10-Q, dated March 31,
1998 and incorporated herein by reference.
(15) Filed with the Company's Registration Statement on Form S-4, as amended,
filed July 23, 1998, Registration No. 333-59641 and incorporated herein by
reference.
(16) Filed with the Company's Quarterly Report on Form 10-Q, dated June 30,
1998, and incorporated herein by reference.
(d) The financial statement schedule filed as part of this report is listed
separately in the Index to Financial statements beginning on page F-1 of this
report.
35
<PAGE> 38
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of West Palm
Beach, State of Florida, on .
PAXSON COMMUNICATIONS
CORPORATION
By: /s/ LOWELL W. PAXSON
------------------------------------
Lowell W. Paxson
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JEFFREY SAGANSKY Chief Executive Officer, March 9, 1999
- ----------------------------------------------------- President and Director
Jeffrey Sagansky (Principal Executive Officer)
/s/ ARTHUR D. TEK Vice President, Chief Financial March 9, 1999
- ----------------------------------------------------- Officer and Director
Arthur D. Tek (Principal Financial Officer)
/s/ KENNETH M. GAMACHE Vice President and Controller March 9, 1999
- ----------------------------------------------------- (Principal Accounting
Kenneth M. Gamache Officer)
/s/ LOWELL W. PAXSON Chairman of the Board, Director March 9, 1999
- -----------------------------------------------------
Lowell W. Paxson
/s/ WILLIAM E. SIMON, JR. Vice Chairman, Director March 9, 1999
- -----------------------------------------------------
William E. Simon, Jr.
/s/ JAMES B. BOCOCK Co-President, Director March 9, 1999
- -----------------------------------------------------
James B. Bocock
/s/ BRUCE L. BURNHAM Director March 9, 1999
- -----------------------------------------------------
Bruce L. Burnham
/s/ JAMES L. GREENWALD Director March 9, 1999
- -----------------------------------------------------
James L. Greenwald
</TABLE>
36
<PAGE> 39
PAXSON COMMUNICATIONS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statement of Changes in Common Stockholders'
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6 -- F-7
Notes to Consolidated Financial Statements.................. F-8 -- F-33
Financial Statement Schedule -- Schedule II-Valuation and
Qualifying Accounts....................................... F-34
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Paxson Communications Corporation
In our opinion, the consolidated financial statements referred to under
Items 14(a)(1) and (2) on page 28 and listed in the accompanying index on page
F-1 present fairly, in all material respects, the financial position of Paxson
Communications Corporation and its subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
Fort Lauderdale, Florida
February 26, 1999
F-2
<PAGE> 41
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 49,440 $ 82,641
Restricted cash and short-term investments................ 18,096 17,000
Accounts receivable, less allowance for doubtful accounts
of $3,953 and $912, respectively........................ 21,391 4,814
Program rights............................................ 81,867 --
Prepaid expenses and other current assets................. 2,947 2,766
---------- ----------
Total current assets............................... 173,741 107,221
Cash held by qualified intermediary......................... -- 418,950
Property and equipment, net................................. 178,975 105,897
Intangible assets, net...................................... 827,973 205,400
Program rights, net......................................... 214,331 --
Investments in broadcast properties......................... 74,683 72,762
Investment in cable network................................. 42,531 58,974
Other assets, net........................................... 30,552 87,909
---------- ----------
Total assets....................................... $1,542,786 $1,057,113
========== ==========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 25,738 $ 11,305
Accrued interest.......................................... 8,391 8,476
Obligations for cable distribution rights................. 50,914 --
Obligations for program rights............................ 84,820 --
Income taxes payable...................................... 1,542 --
Current portion of long-term debt......................... 529 496
---------- ----------
Total current liabilities.......................... 171,934 20,277
Deferred income taxes....................................... 58,109 95,747
Deferred gain............................................... -- 12,100
Obligations for program rights, net of current portion...... 154,800 --
Obligations for cable distribution rights, net of current
portion................................................... 15,400 --
Long-term debt.............................................. 145,164 122,299
Senior subordinated notes, net.............................. 228,305 227,959
Mandatorily redeemable preferred stock...................... 521,401 210,987
Commitments and contingencies (Note 19)..................... -- --
Class A common stock, $0.001 par value; one vote per share;
150,000,000 shares authorized, 52,608,765 and 50,701,600
shares issued and outstanding............................. 53 51
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 8
Class A and B common stock warrants......................... 1,582 2,316
Stock subscription notes receivable......................... (2,813) (2,813)
Additional paid-in capital.................................. 318,935 285,796
Deferred option plan compensation........................... (16,728) (2,205)
(Accumulated deficit) retained earnings..................... (53,364) 84,591
---------- ----------
Total liabilities, mandatorily redeemable preferred
stock and common stockholders' equity............. $1,542,786 $1,057,113
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 42
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Advertising revenues.................................... $ 134,196 $ 88,421 $ 62,333
----------- ----------- -----------
Expenses:
Operating............................................. 58,139 13,993 7,619
Selling, general and administrative................... 135,467 44,288 35,177
Time brokerage and affiliation fees................... 15,699 16,961 3,568
Stock-based compensation.............................. 10,413 3,370 6,976
Compensation associated with Paxson Radio asset
sales.............................................. -- 9,700 --
Depreciation and amortization......................... 50,009 22,044 12,888
----------- ----------- -----------
269,727 110,356 66,228
----------- ----------- -----------
Operating loss.......................................... (135,531) (21,935) (3,895)
Other income (expense):
Interest expense...................................... (41,906) (37,728) (31,526)
Interest income....................................... 14,992 9,495 6,742
Other expenses, net................................... (2,744) (5,722) (1,757)
Gain on sale of television stations................... 51,603 -- --
Equity in loss of unconsolidated investment........... (13,273) (2,493) --
----------- ----------- -----------
Loss from continuing operations before income tax
benefit............................................... (126,859) (58,383) (30,436)
Income tax benefit...................................... 37,389 21,879 --
----------- ----------- -----------
Loss from continuing operations......................... (89,470) (36,504) (30,436)
----------- ----------- -----------
Discontinued operations:
(Loss) income from discontinued operations, net of
applicable income taxes............................ -- (3,555) 4,217
Gain on disposal of discontinued operations, net of
applicable income taxes............................ 1,182 254,748 --
----------- ----------- -----------
1,182 251,193 4,217
----------- ----------- -----------
Net (loss) income....................................... (88,288) 214,689 (26,219)
Dividends and accretion on redeemable preferred stock
and common stock warrants............................. (49,667) (26,277) (21,908)
----------- ----------- -----------
Net (loss) income attributable to common stock.......... $ (137,955) $ 188,412 $ (48,127)
=========== =========== ===========
Basic and diluted (loss) earnings per share:
Loss from continuing operations......................... $ (2.31) $ (1.17) $ (1.20)
Discontinued operations................................. 0.02 4.67 0.10
----------- ----------- -----------
Net (loss) income....................................... $ (2.29) $ 3.50 $ (1.10)
=========== =========== ===========
Weighted average shares outstanding..................... 60,360,384 53,808,472 43,836,526
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 43
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS
A AND B CLASS C STOCK DEFERRED RETAINED
COMMON STOCK COMMON COMMON SUBSCRIPTION ADDITIONAL OPTION EARNINGS
----------------- STOCK STOCK NOTES PAID-IN PLAN (ACCUMULATED
CLASS A CLASS B WARRANTS WARRANTS RECEIVABLE CAPITAL COMPENSATION DEFICIT)
------- ------- -------- -------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995........................ $26 $ 8 $ 5,339 $ (116) $ 34,342 $ (1,384) $ (55,694)
Release of put option on Class
A and B common stock
warrants.................... $ 9,116
Issuance of common stock, net
of issuance costs of
$10,000..................... 10 154,790
Exercise of Class A, B and C
common stock warrants....... 4 (2,254) (3,003) 5,254
Stock issued for Todd
Communications
acquisition................. 1,535
Deferred option plan
compensation................ 12,933 (12,933)
Stock-based compensation...... 7,919
Stock options exercised....... 768
Increase in stock subscription
receivable.................. (1,873)
Repayment of stock
subscription notes
receivable.................. 116
Dividends on redeemable
preferred stock............. (13,223)
Accretion on redeemable
preferred stock............. (6,034)
Accretion on Class A and B
common stock warrants....... (2,651)
Net loss...................... (26,219)
--- --- ------- ------- ------- -------- -------- ---------
Balance at December 31,
1996........................ 40 8 6,862 2,336 (1,873) 209,622 (6,398) (103,821)
Stock issued for
acquisitions................ 6 66,119
Exercise of Class A, B and C
common stock warrants....... 4 (4,546) (2,336) 6,878
Deferred option plan
compensation................ 2,263 (2,263)
Stock-based compensation...... 6,456
Stock options exercised....... 1 914
Increase in stock subscription
notes receivable............ (940)
Dividends on redeemable
preferred stock............. (24,943)
Accretion on redeemable
preferred stock............. (1,334)
Net income.................... 214,689
--- --- ------- ------- ------- -------- -------- ---------
Balance at December 31,
1997........................ 51 8 2,316 -- (2,813) 285,796 (2,205) 84,591
Stock issued for
acquisitions................ 1 5,249
Issuance of common stock
warrants.................... 1,582
Exercise of Class A, B and C
common stock warrants....... 1 (2,316) 2,315
Deferred option plan
compensation................ 24,314 (24,314)
Stock-based compensation...... 9,791
Stock options exercised....... 1,261
Dividends on redeemable and
convertible preferred
stock....................... (47,399)
Accretion on redeemable
preferred stock............. (2,268)
Net loss...................... (88,288)
--- --- ------- ------- ------- -------- -------- ---------
Balance at December 31,
1998........................ $53 $ 8 $ 1,582 $ -- $(2,813) $318,935 $(16,728) $ (53,364)
=== === ======= ======= ======= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 44
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income......................................... $(88,288) $214,689 $ (26,219)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization........................... 50,009 35,511 25,975
Stock-based compensation................................ 10,413 6,456 7,919
Program rights amortization............................. 31,422 704 1,382
Payments for cable distribution rights.................. (19,905) -- --
Program rights payments and deposits.................... (62,076) (37,485) (1,425)
Provision for doubtful accounts......................... 4,214 2,011 1,288
Deferred income tax benefit............................. (42,143) (21,879) --
Loss on sale or disposal of assets...................... 3,852 3,794 182
Gain on sale of television stations..................... (51,603) -- --
Equity in loss of unconsolidated investment............. 13,273 2,493 --
Gain on disposal of discontinued operations, net........ (1,182) (254,748) --
Changes in assets and liabilities:
Increase in restricted cash and short-term
investments........................................ (1,096) (17,000) --
(Increase) decrease in accounts receivable............ (20,791) 5,173 (13,422)
Increase in prepaid expenses and other current
assets............................................. (188) (1,632) (1,742)
Decrease (increase) in other assets................... 2,050 (5,353) (1,887)
Increase (decrease) in accounts payable and accrued
liabilities........................................ 20,002 (10,591) 5,646
(Decrease) increase in accrued interest............... (85) 1,816 (248)
Increase in current income taxes payable.............. 1,542 -- --
-------- -------- ---------
Net cash used in operating activities.............. (150,580) (76,041) (2,551)
-------- -------- ---------
Cash flows from investing activities:
Acquisitions of broadcasting properties................... (591,368) (253,805) (186,662)
Increase in investments in broadcast properties........... (15,659) (8,026) (32,105)
Decrease (increase) in deposits on broadcast properties... 29,399 (26,917) (3,282)
Decrease (increase) in cash held by qualified
intermediary............................................ 418,950 (418,950) --
Purchases of property and equipment....................... (82,922) (44,474) (36,709)
Distribution received from (made to) unconsolidated
investment.............................................. 3,170 (5,342) --
Proceeds from sales of discontinued operations............ 1,000 721,978 --
Proceeds from sales of broadcast properties............... 68,944 13,764 228
-------- -------- ---------
Net cash used in investing activities.............. (168,486) (21,772) (258,530)
-------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of redeemable preferred stock,
net..................................................... 261,706 -- 143,197
Proceeds from issuance of common stock, net............... -- -- 154,800
Proceeds from issuance of long-term debt.................. 23,411 120,000 17,700
Repayments of long-term debt.............................. (513) (1,270) (28,230)
Payment of loan origination costs......................... -- -- (2,986)
Redemption of Senior and Series B preferred stock......... -- -- (28,456)
Proceeds from exercise of common stock options, net....... 1,261 915 493
Increase in stock subscription notes receivable........... -- (940) (1,873)
Repayment of stock subscription notes receivable.......... -- -- 116
-------- -------- ---------
Net cash provided by financing activities.......... 285,865 118,705 254,761
-------- -------- ---------
(Decrease) increase in cash and cash equivalents............ (33,201) 20,892 (6,320)
Cash and cash equivalents, beginning of year................ 82,641 61,749 68,069
-------- -------- ---------
Cash and cash equivalents, end of year...................... $ 49,440 $ 82,641 $ 61,749
======== ======== =========
</TABLE>
F-6
<PAGE> 45
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid for interest.................................... $ 38,849 $ 33,896 $ 28,342
======== ======== =========
Cash paid for income taxes................................ $ 2,239 $ 975 $ --
======== ======== =========
Non-cash operating, investing and financing activities:
Accretion of discount on senior subordinated notes........ $ 346 $ 304 $ 280
======== ======== =========
Issuance of common stock in connection with
acquisitions............................................ $ 5,250 $ 66,125 $ 1,535
======== ======== =========
Note payable incurred for WYPX acquisition................ $ -- $ -- $ 1,650
======== ======== =========
Dividends accrued on redeemable preferred stock........... $ 47,399 $ 24,943 $ 12,273
======== ======== =========
Discount accretion on redeemable securities............... $ 2,268 $ 1,334 $ 9,635
======== ======== =========
Sale of broadcast property for note receivable............ $ -- $ 15,000 $ --
======== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 46
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Paxson Communications Corporation (the "Company"), a Delaware corporation,
was organized in December 1993. The Company owns and operates television
stations nationwide, and on August 31, 1998, launched PAX TV. PAX TV is the
brand name for the programming that the Company broadcasts through its owned,
operated and affiliated television stations, as well as certain cable system
affiliates. The Company also broadcasts long form paid programming in the form
of infomercials.
During 1998, the Company acquired the assets of twenty six television
stations (including construction permits), for total consideration of
approximately $591.4 million. During 1997, the Company acquired the assets of
seventeen television stations, for total consideration of approximately $120.3
million. The Company broadcasts PAX TV via a total of 104 owned, operated or
affiliated stations. The Company also owned a 30% interest in The Travel
Channel, L.L.C. ("The Travel Channel"), a cable television network joint venture
with Discovery Communications, Inc. In February 1999, the Company sold its 30%
interest in The Travel Channel (see Note 3).
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. The Company accounts for its investment in
The Travel Channel under the equity method of accounting. All intercompany
balances and transactions have been eliminated.
Two former business segments, Paxson Radio and Paxson Network-Affiliated
Television, have been classified as discontinued operations in the accompanying
consolidated statements of operations for all periods presented as a result of
the Company's sale of these operations during 1997 (see Note 2).
During 1998, the Company sold its interests in stations WPXE, WNGM and WOAC
for aggregate consideration of approximately $79.5 million and realized a gain
of approximately $51.6 million. Of the proceeds received, approximately $17.6
million was used to exercise the Company's options to acquire WOAC and WNGM.
Certain reclassifications have been made to prior year's financial
statements to conform with the 1998 presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less. At December 31, 1998 and 1997, approximately
$33 million and $79 million, respectively, of securities were included in cash
and cash equivalents. All such securities were classified as trading and
consisted of money market accounts, commercial paper and overnight repurchase
agreements.
RESTRICTED CASH AND SHORT-TERM INVESTMENTS
Restricted cash and short-term investments consist of cash and other liquid
securities held in an escrow account to be applied to the payment of interest
due in connection with the Company's senior credit facility (see Note 11).
CASH HELD BY QUALIFIED INTERMEDIARY
At December 31, 1997, the Company had placed a portion of the proceeds
received from the Paxson Radio segment sale with a qualified intermediary in
order to reinvest such proceeds and, to the extent reinvested, qualify for tax
deferred exchange treatment in connection with such sale. All but approximately
$66 million of these funds were reinvested in broadcast property acquisitions
during the first quarter of 1998. At December 31, 1997 all cash held by
qualified intermediary was recorded as long-term.
F-8
<PAGE> 47
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (see Note 5):
<TABLE>
<S> <C>
Broadcasting towers and equipment........................... 6-13 years
Office furniture and equipment.............................. 5-10 years
Buildings and building improvements......................... 15-40 years
Leasehold improvements...................................... Term of lease
Aircraft, vehicles and other................................ 5 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets are capitalized at cost and amortized using the straight
line method over their estimated useful lives as follows (see Note 6):
<TABLE>
<S> <C>
FCC licenses and goodwill................................... 25 years
Cable distribution rights................................... Generally 7 years
Covenants not to compete.................................... Generally 3 years
Favorable lease and other contracts......................... Contract term
</TABLE>
INVESTMENTS IN BROADCAST PROPERTIES
Investments in broadcast properties represent the Company's financing of
television station acquisitions by third party licensees, purchase options or
other investments in entities owning television broadcasting stations or
construction permits. In connection with a number of these agreements, the
Company has obtained the right to provide programming for the related stations
pursuant to time brokerage agreements ("TBAs") and has options to purchase
certain of the related station assets and Federal Communications Commission
("FCC") licenses at various amounts and terms (see Notes 8 and 19).
PROGRAM RIGHTS
Program rights are carried at the lower of unamortized cost or estimated
net realizable value. Program rights and the related liabilities are recorded at
the contractual amounts when the programming is available to air, and are
amortized over the licensing agreement term using the straight line per run
method. The estimated costs of programming which will be amortized during the
next year are included in current assets; program rights obligations which will
be paid within the next year are included in current liabilities.
CABLE DISTRIBUTION RIGHTS
The Company has agreements under which it receives cable carriage of its
PAX TV programming on certain cable systems in markets not currently served by
the Company's broadcast television station group. The Company pays fees based on
the number of cable television subscribers reached and in certain instances
provides local advertising airtime during PAX TV programming. Cable distribution
rights are recorded at the present value of the Company's future obligation when
the Company receives affidavits of subscribers delivered. Cable distribution
rights are amortized over seven years using the straight line method.
Obligations for cable distribution rights which will be paid within the next
year are included in current liabilities.
F-9
<PAGE> 48
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-LIVED ASSETS
The Company reviews long-lived assets, identifiable intangibles and
goodwill and reserves for impairment whenever events or changes in circumstances
indicate that, based on estimated undiscounted future cash flows, the carrying
amount of the assets may not be fully recoverable.
REVENUE RECOGNITION
Revenue is recognized as commercial spots are aired and air time is
provided.
TIME BROKERAGE AGREEMENTS
The Company operates certain stations under TBAs whereby the Company has
agreed to provide the station with programming and sells and retains all
advertising revenue during such programming. The broadcast station licensee
retains responsibility for ultimate control of the station in accordance with
FCC policies. The Company pays a fixed fee to the station owner as well as
certain expenses of the station and performs other functions. The Company
currently operates nine stations under TBAs which expire from 2000 through 2006.
The financial results of TBA operated stations are included in the Company's
statements of operations from the date of commencement of the TBA.
STOCK-BASED COMPENSATION
The Company's employee stock option plans are accounted for using the
intrinsic value method. Stock-based compensation to non-employees is accounted
for using the fair market value method. The Company also provides disclosure of
certain pro forma information as if the Company's employee stock option plans
were accounted for using the fair market value method (see Note 14).
INCOME TAXES
The Company records deferred income taxes using the liability method. Under
the liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement and income tax bases of the Company's assets and liabilities. An
allowance is recorded, based upon currently available information, when it is
more likely than not that any or all of a deferred tax asset will not be
realized. The provision for income taxes includes taxes currently payable, if
any, plus the net change during the year in deferred tax assets and liabilities
recorded by the Company.
PER SHARE DATA
Basic and diluted loss per share from continuing operations was computed by
dividing the loss from continuing operations before extraordinary item less
dividends and accretion on redeemable preferred stock and redeemable common
stock warrants by the weighted average number of common shares outstanding
during the period. Because of losses from continuing operations, the effect of
stock options and warrants is antidilutive. Accordingly, the Company's
presentation of diluted earnings per share is the same as that of basic earnings
per share.
At December 31, 1998, 1997 and 1996, respectively, there were outstanding
9,341,662, 3,605,461 and 3,590,693 stock options, 395,500, 917,749 and 4,842,415
Class A and B common stock warrants, and at December 31, 1998, 4,945,625 shares
of Class A common stock were reserved for possible future issuance in connection
with the Series A Convertible Preferred Stock issued in June 1998. These
securities, which could potentially dilute earnings per share in the future,
were not included in the computation of diluted earnings per share, because to
do so would have been antidilutive for the periods presented.
F-10
<PAGE> 49
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements 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.
2. DISCONTINUED OPERATIONS
During 1997, the Company sold the Paxson Network-Affiliated Television
segment for $119 million. The Company realized a gain of approximately $69
million from these sales which is net of brokerage fees and other estimated
costs. The Paxson Network Affiliated Television operations generated revenues of
approximately $12.3 million and $20.5 million for the years ended December 31,
1997 and 1996, respectively.
During 1997, the Company also sold substantially all of its Paxson Radio
segment assets for approximately $602 million, and realized a gain of
approximately $186 million, net of applicable income taxes, closing costs and
other estimated costs. Included in operating expenses are approximately $9.7
million of cash bonuses paid to certain members of the Company's management in
connection with their efforts in assimilating, operating and arranging for the
sale of the radio stations and related properties. The Paxson Radio operations
generated revenues of approximately $78.2 million and $82.2 million for the
years ended December 31, 1997 and 1996, respectively.
The sale of certain Paxson Radio assets was structured as a tax deferred
exchange, permitting the Company to defer a substantial portion of the gain for
tax purposes to the extent the sales proceeds were reinvested in like kind
broadcasting properties before the end of the first quarter of 1998.
In order to accelerate the payment of the proceeds from the sales of the
Network Affiliated Television segment and the Paxson Radio segment, the Company
entered into certain bridge agreements with its principal shareholder under
similar terms and conditions to those with the ultimate buyers. As of December
31, 1997, all Network Affiliated Television and Paxson Radio properties under
these bridge agreements had been sold to the ultimate third party.
The results of operations for the Paxson Radio and Paxson
Network-Affiliated Television segments, net of applicable income taxes, have
been presented as discontinued operations in the accompanying Consolidated
Statements of Operations for all periods presented.
During 1998, the Company recognized an additional gain of $1.2 million on
the sale of its Paxson Radio segment, net of applicable income taxes of $2.2
million. This gain reflects a reduction of $2.7 million of estimated costs
attributable to the segment disposal and the recovery of a $3 million loan by
the billboard operations of Paxson Radio, which was charged off against the gain
in 1997. An additional $2.3 million of income taxes were recorded within
discontinued operations in 1998 as a result of certain adjustments by the
Internal Revenue Service reducing the Company's net operating loss carryforwards
relating to the historical results of the Paxson Radio segment.
The net assets of discontinued operations totaled approximately $2 million
and $3 million at December 31, 1998 and 1997, respectively, and were included in
noncurrent assets as of those dates.
3. INVESTMENT IN CABLE NETWORK
The Company's 30% interest in the results of operations of The Travel
Channel have been included in the Company's December 31, 1998 and 1997
consolidated statement of operations using the equity method of accounting. The
Company's proportionate share of losses of The Travel Channel totaled $13.3
million and $2.5 million in 1998 and 1997, respectively.
F-11
<PAGE> 50
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1999, the Company sold its 30% interest in The Travel Channel
for aggregate consideration of approximately $55 million and a gain of
approximately $15 million. Of the consideration received, approximately $20.1
million was utilized to pay current obligations for cable distribution rights.
4. CERTAIN TRANSACTIONS WITH RELATED PARTIES
The Company has entered into certain operating and financing transactions
with related parties as described below.
DP MEDIA, INC., CAP COMMUNICATIONS, INC. AND RDP COMMUNICATIONS OF INDIANAPOLIS,
INC.
During August 1998, RDP Communications of Indianapolis, Inc. (RDP), a
company beneficially owned by family members of the Company's principal
shareholder Mr. Lowell W. Paxson, ("Mr. Paxson"), entered into an asset purchase
agreement to acquire certain assets relating to the business and operations of
WIPX in Bloomington, Indiana. The Company joined in the execution of the asset
purchase agreement for the purpose of guaranteeing RDP's performance under such
agreement. The Company has advanced $1.75 million to RDP in connection with this
acquisition and expects to be repaid these amounts at the closing of the
acquisition transaction. RDP is currently operating WIPX pursuant to a time
brokerage agreement airing PAX TV programming under an affiliation agreement
with the Company.
In connection with RDP's acquisition of WIPX, and the Company's guarantee
of RDP's performance under the related asset purchase agreement, the seller is
alleging that RDP is in material breach of certain obligations under the
agreement. RDP is currently negotiating with the seller in connection with the
financing of such acquisition by the seller. The Company believes that the
ultimate resolution of this matter will not have a material adverse effect on
the Company's financial position or results of operations.
During May 1998, the Company sold WPXE for $6 million to DP Media, Inc. (DP
Media), a company owned by the shareholders of RDP. Upon its acquisition by DP
Media, WPXE became a PAX TV affiliate. No significant gain or loss was recorded
in connection with this transaction.
During December 1997 and January 1998, the Company sold its interest in
television stations WPXS and WZPX, serving the St. Louis, Missouri and Grand
Rapids, Michigan markets for $4.8 million and $7 million, respectively, to DP
Media. During June 1997, the Company financed DP Media's purchase of WRPX from
Roberts Broadcasting through a loan of approximately $10 million which was
subsequently repaid. During May 1997, the Company sold WWPX to DP Media for $2.5
million. Upon their acquisition by DP Media, the previously described stations
became PAX TV affiliates. No significant gain or loss was recorded in connection
with these transactions.
As described below under The Christian Network, Inc. and in Note 8, in
February 1999, CAP Communications, Inc. ("CAP Communications") an entity owned
by the shareholders of RDP and DP Media, acquired WHPX and WBPX, PAX TV
affiliates.
Under the affiliation agreements with DP Media, CAP Communications and RDP,
which are for a term of ten years, the Company provides the DP Media, CAP
Communications and RDP affiliates with programming from 6:00 am to 1:00 am,
Monday through Sunday, and pays a fixed monthly affiliation fee. These
affiliates retain a portion of the advertising airtime during the Company's
network programming. At December 31, 1998, the Company's minimum commitments
under its affiliation agreements with DP Media, CAP Communications and RDP
aggregated approximately $95.1 million. At December 31, 1998, the Company had
advanced DP Media approximately $250,000 under the affiliation agreements. See
The Christian Network, Inc. below, Note 8 and Note 19.
The Company also provides DP Media and RDP with certain accounting, sales
and technical services. Under the services agreements, the DP Media, CAP
Communications and RDP affiliates are required to deposit all advertising
revenues generated during the network programming as well as the monthly
affiliation fee into an account from which it pays its operating costs and
interest. The Company is entitled to receive 90%
F-12
<PAGE> 51
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the excess of revenues deposited into such account over the costs and
expenses paid from such account. During 1998, the Company recorded no revenues
under its service agreements with DP Media, CAP Communications and RDP.
The Company also has commercial representation agreements with the DP
Media, CAP Communications and RDP affiliates, which are for terms of ten years.
Under these agreements, the Company serves as the network, national and regional
sales representative for the DP Media, CAP Communications and RDP affiliates and
receives a commission of 15% for such sales. The Company has an assignable right
of first refusal to acquire the DP Media and CAP Communications affiliates at
their fair market value, in the event that DP Media or CAP Communications wish
to sell such affiliates and has received a formal written offer from a third
party.
In connection with the acquisition by DP Media of WEBZ-FM, during September
1996, the Company agreed to loan up to $750,000 to DP Media, which was
subsequently repaid.
During 1997, the Company granted 33,000 fully vested non-qualified stock
options with a fair value of approximately $299,000 to the President and Vice
President of DP Media, members of Mr. Paxson's family, as consideration for past
services as former employees of the Company.
At December 31, 1998, Mr. Paxson served as a guarantor on approximately
$31.4 million of bank loans made to DP Media.
During 1998 and 1997, the Company recorded time brokerage and affiliation
fees expense related to stations owned by DP Media and RDP of approximately $5.7
million and $1.6 million, respectively.
THE 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, the majority stockholder of the
Company, has been a substantial contributor and of which he was a member of the
Board of Stewards through 1993.
Investments in Broadcast Properties. At December 31, 1998 and 1997,
respectively, the Company had approximately $15.5 million and $15.4 million of
advances to CNI relating to CNI's acquisition of WBPX in Boston, a PAX TV
affiliate. These amounts were recorded as investments in broadcast properties in
the accompanying consolidated balance sheets. In April 1998 DP Media contracted
to acquire WBPX for $18 million, including the assumption of CNI's obligations
to the Company. In February 1999, DP Media assigned its rights under the
contract to acquire WBPX to CAP Communications which completed the acquisition
of WBPX.
During 1997, the Company acquired television stations from CNI, in Miami,
Orlando and Tampa, for total consideration of approximately $14 million.
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 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 as favorable to CNI as it would obtain in
arm's length transactions. The Company intends any future agreements with CNI to
be 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-13
<PAGE> 52
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Worship Channel Studio. CNI and the Company have contracted for the
Company to lease CNI's television production and distribution facility, the
Worship Channel Studio, for the purpose of producing television programming for
the Company's television network. During the years ended December 31, 1998, 1997
and 1996, the Company incurred rental charges in connection with this agreement
of $252,000, $231,000 and $193,000, respectively.
AIRCRAFT LEASE
During 1997, the Company entered into a three year aircraft lease with a
company which is owned by Mr. Paxson. The lease is for a Boeing 727 aircraft
with monthly payments of approximately $64,000. In connection with such lease,
the Company incurred rental costs of approximately $763,000 and $382,000 during
the years ended December 31, 1998 and 1997, respectively. Additionally, the
Company has recorded leasehold improvements of approximately $347,000 at
December 31, 1998 in connection with the lease.
SPORTS VENTURES
During 1996, the Company included in other expenses the write-off of
approximately $1.2 million relating to its investments in two Arena Football
League teams and a proposed sports arena. During 1997, in conjunction with its
decision to dispose of the Paxson Radio segment, the Company wrote off its
investments in certain remaining sports ventures. The write-off resulted in a
1997 charge to other expenses of approximately $2.9 million, which was net of
anticipated proceeds on the sale of the hockey franchise which the Company sold
during 1998 for $2 million.
CONSULTING AGREEMENT
During 1996, the Company entered into a one year consulting arrangement
with a former member of the Company's Board of Directors to provide review,
implementation and development consulting services to the Company with respect
to its general and medical insurance programs and policies and executive
insurance, deferred compensation and benefit planning as well as general
financial consulting services. Consulting expense in 1997 and 1996 related to
this agreement totaled $600,000 for each year. This agreement expired in June
1997. The consultant was also granted 75,000 nonqualified stock options with a
fair value of $930,000 during February 1996. The consultant exercised the 75,000
nonqualified stock options in December 1998, resulting in proceeds of
approximately $256,500 to the Company.
BOARD OF DIRECTORS
The Company has entered into transactions with certain current and former
members of its Board of Directors.
Vice Chairman of the Board of Directors. In May 1998, the Board of
Directors of the Company elected a Vice Chairman of the Board. In connection
with this appointment, the Vice Chairman received fully vested warrants to
acquire 155,500 shares of Class A common stock at an exercise price of $16 per
share. The warrants were valued at approximately $622,000, which was recorded as
stock-based compensation at the time the warrants were issued.
In June 1998, an affiliate of the Vice Chairman purchased $10 million of
the Company's mandatorily redeemable convertible preferred stock and warrants to
purchase 32,000 shares of Class A common stock at an exercise price of $16 per
share. In connection with the Company's offering of such stock, the affiliate of
the Vice Chairman received a consulting fee of $500,000 and an underwriting fee
of $550,000 for the placement of additional shares of mandatorily redeemable
convertible preferred stock. The Company recorded such fees as issuance costs in
connection with the sale of the preferred stock.
F-14
<PAGE> 53
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 was a director of the Company from February
1995 through August 1997. The Company engaged CEA as a financial advisor in
connection with private debt and equity placements and various other lending,
acquisition and divestiture services. Fees paid to CEA for these services
totaled approximately $1.9 million, $2.4 million and $250,000 for the years
ended December 31, 1998, 1997 and 1996, respectively, including $1,125,000 of
the Company's Class A common stock during 1997 in conjunction with The Travel
Channel acquisition.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Broadcasting towers and equipment........................... $184,482 $105,585
Office furniture and equipment.............................. 14,436 6,620
Buildings and leasehold improvements........................ 13,395 7,595
Land and land improvements.................................. 6,084 5,841
Aircraft, vehicles and other................................ 3,674 6,910
-------- --------
222,071 132,551
Accumulated depreciation.................................... (43,096) (26,654)
-------- --------
Property and equipment, net................................. $178,975 $105,897
======== ========
</TABLE>
Depreciation expense aggregated approximately $20.7 million, $19.1 million
and $15.2 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
6. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
FCC licenses and goodwill................................... $777,960 $214,628
Cable distribution rights................................... 86,218 --
Covenants not to compete.................................... 5,924 3,778
Favorable lease and other contracts......................... 496 437
-------- --------
870,598 218,843
Accumulated amortization.................................... (42,625) (13,443)
-------- --------
Intangible assets, net...................................... $827,973 $205,400
======== ========
</TABLE>
Amortization expense related to intangible assets aggregated $29.3 million,
$15.2 million and $10.7 million for the years ended December 31, 1998, 1997 and
1996, respectively.
F-15
<PAGE> 54
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Escrow funds for station acquisitions....................... $ 6,775 $37,107
Programming deposits........................................ 10,759 36,683
Loan origination costs...................................... 14,951 12,334
Other....................................................... 3,731 5,303
------- -------
36,216 91,427
Accumulated amortization.................................... (5,664) (3,518)
------- -------
$30,552 $87,909
======= =======
</TABLE>
Amortization expense related to organization costs and other assets
aggregated approximately $52,000, $1.2 million and $108,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. Additionally, during the years
ended December 31, 1998, 1997 and 1996, the Company recorded amortization of
loan origination costs of $2.1 million, $1.8 million and $1.6 million,
respectively, and classified such amortization as interest expense.
8. INVESTMENTS IN BROADCAST PROPERTIES
Investments in broadcast properties consist of (in thousands):
<TABLE>
<CAPTION>
ENTITY STATIONS MARKETS 1998 1997
- ------ -------- ------- ------- -------
<S> <C> <C> <C> <C>
Flinn Investments....................... WPXL, WPXX New Orleans, LA; $16,075 $ 4,025
Memphis, TN
CNI/DP Media............................ WBPX Boston, MA 15,573 15,483
Ponce-Nicasio Broadcasting.............. KSPX Sacramento, CA 8,834 8,631
America 51, L.P......................... KPPX Phoenix, AZ 5,510 5,481
South Texas Vision, L.L.C............... KPXL San Antonio, TX 5,474 400
Cocola Broadcasting..................... KWOK (and San Francisco, CA 4,526 12,241
WPXP in 1997) (and West Palm
Beach, FL in 1997)
Roberts Broadcasting/DP Media........... WHPX Hartford, CT 5,083 17,260
Others.................................. 13,608 9,241
------- -------
$74,683 $72,762
======= =======
</TABLE>
During February 1997, the Company sold WHPX to Roberts Broadcasting in
exchange for a $15 million note receivable and entered into a five year time
brokerage agreement to operate the station. The Company deferred the gain on the
sale of $12.1 million. In April 1998, DP Media entered into a contract to
acquire WHPX from Roberts Broadcasting for $250,000 plus the assumption of the
note payable to the Company for $15 million. In the fourth quarter of 1998 the
Company reversed its sale accounting and netted the deferred gain with the note
receivable. Accordingly, at December 31, 1998, the Company's interest in WHPX
was reflected at its original cost within investments in broadcast properties.
In February 1999, DP Media assigned its rights under the contract to
acquire WHPX in Hartford, a PAX TV affiliate, to CAP Communications, which
completed the acquisition. The Company will continue to account for its interest
in WHPX at its original cost until such time as it receives a significant
portion of the sales proceeds for such station.
F-16
<PAGE> 55
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1998, the Company paid approximately $10 million to buy out the
affiliation agreements of WPXL and WPXX, two stations which the Company has
contracted to purchase from Flinn Investments. These amounts, as well as an
escrow deposit and other acquisition costs in connection with the purchase of
WPXL and WPXX, have been included in investments in broadcast properties as of
December 31, 1998.
During February 1999, in conjunction with its acquisition of WCPX in
Chicago, the Company exercised its option to acquire KWOK in San Francisco, and
transferred its interest in such station to the previous owners of WCPX (see
Note 19). At December 31, 1998, the Company, had made advances relating to the
construction of KWOK and incurred additional acquisition costs aggregating
approximately $4.5 million through Cocola Broadcasting, which was acquired by
the Company in 1997.
9. PROGRAM RIGHTS
Program rights at December 31, 1998 consist of the following (in
thousands):
<TABLE>
<S> <C>
Program rights.............................................. $327,620
Accumulated amortization.................................... (31,422)
--------
296,198
Less current portion........................................ (81,867)
--------
Program rights, net......................................... $214,331
========
</TABLE>
Program rights amortization expense aggregated $31.4 million for the year
ended December 31, 1998.
In connection with the launch of PAX TV and in addition to the $239.6
million of obligations for program rights included in the consolidated financial
statements, the Company has entered into programming contracts to air syndicated
television series as well as theatrical and made-for-television movies from 1999
to 2005 that are not currently available for broadcast and therefore are not
included in the consolidated financial statements. As of December 31, 1998, the
Company's programming contracts require collective payments by the Company of
approximately $345.4 million as follows (in thousands):
<TABLE>
<CAPTION>
PROGRAM
OBLIGATIONS FOR RIGHTS
PROGRAM RIGHTS COMMITMENTS TOTAL
--------------- -------------- --------
<S> <C> <C> <C>
1999............................................ $ 84,820 $ 14,363 $ 99,183
2000............................................ 69,393 21,210 90,603
2001............................................ 58,107 17,410 75,517
2002............................................ 25,428 13,322 38,750
2003............................................ 1,872 17,347 19,219
Thereafter through 2005......................... -- 22,147 22,147
-------- -------- --------
$239,620 $105,799 $345,419
======== ======== ========
</TABLE>
The Company has also committed to purchase at similar terms additional
future series episodes of its licensed programs should they be made available.
The Company continues to evaluate additional programming purchases.
F-17
<PAGE> 56
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. OBLIGATIONS FOR CABLE DISTRIBUTION RIGHTS
As of December 31, 1998, obligations for cable distribution rights require
collective payments by the Company of approximately $71.3 million as follows (in
thousands):
<TABLE>
<S> <C>
1999........................................................ $50,914
2000........................................................ 11,785
2001........................................................ 6,169
2002........................................................ 1,886
2003........................................................ 180
Thereafter.................................................. 358
-------
71,292
Less: Amount representing interest.......................... (4,978)
-------
Present value of obligations for cable distribution
rights.................................................... $66,314
=======
</TABLE>
In February 1999, the Company sold its 30% interest in The Travel Channel
and utilized approximately $20.1 million of the consideration received to pay
current obligations for cable distribution rights.
11. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Senior credit facility, maturing June 30, 2002, interest at
LIBOR plus 2.75% or base rate plus 1.75%, at the Company's
option (8.015% at December 31, 1998), quarterly principal
payments commencing December 2000......................... $122,000 $120,000
Equipment facility, maturing October 1, 2003, interest at
the Index Rate, as defined, plus 2.0% per annum, LIBOR
plus 3.0% per annum or the commercial paper rate plus 3.0%
per annum, at the Company's option (8.5% at December 31,
1998), quarterly principal payments commencing January
2000, secured by purchased assets......................... 21,411 --
Other....................................................... 2,282 2,795
-------- --------
145,693 122,795
Less current portion........................................ (529) (496)
-------- --------
$145,164 $122,299
======== ========
</TABLE>
In May 1998, the Company and its lenders modified certain terms of its
senior credit facility to reduce the aggregate facility amount to $122 million
and the margin to 1.75% over base rate, or 2.75% over LIBOR. Further, the
Company's obligation to maintain certain financial ratios required under the
senior credit facility was deferred until March 2000.
In conjunction with the amendment of the Company's senior credit facility,
the Company placed approximately $22.4 million in an interest bearing escrow
account to pre-fund interest payments under this facility. As of December 31,
1998, approximately $18.1 million remains in escrow.
In August 1998, the Company entered into a $50 million equipment credit
facility. The drawdown period of the equipment facility expires in August 1999.
Interest on outstanding borrowings is payable monthly in arrears. Under the
equipment facility, the Company pays a commitment fee of 0.5% on the unused
portion of the credit line. Subsequent to December 31, 1998, the Company has
borrowed an additional $6.3 million under the equipment facility.
F-18
<PAGE> 57
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the senior credit facility and the equipment facility, the Company is
required to maintain certain financial ratios commencing in year 2000. In
addition, these credit facilities contain 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.
Aggregate maturities of long-term debt at December 31, 1998 are as follows
(in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 529
2000........................................................ 24,066
2001........................................................ 57,513
2002........................................................ 57,540
2003........................................................ 5,544
Thereafter.................................................. 501
--------
$145,693
========
</TABLE>
12. SENIOR SUBORDINATED NOTES
On September 28, 1995, the Company issued $230 million of senior
subordinated notes (the "Notes") at a discount, netting proceeds of
approximately $227.3 million to the Company. At December 31, 1998, the
unamortized discount was approximately $1.7 million ($2 million in 1997).
Interest on the Notes accrues at 11.625% to yield an effective rate per annum of
11.875%. Interest payments are payable semiannually on each April 1 and October
1. The principal balance is due at maturity on October 1, 2002.
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 are 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.
13. INCOME TAXES
Income tax (expense) benefit included in the consolidated statements of
operations follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- --------- -------
<S> <C> <C> <C>
Continuing operations................................... $37,389 $ 21,879 $ --
Discontinued operations................................. -- 1,337 --
From disposal of discontinued operations................ (4,505) (118,963) --
------- --------- -------
$32,884 $ (95,747) $ --
======= ========= =======
</TABLE>
F-19
<PAGE> 58
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The benefit (provision) for federal and state income taxes for the three
years ended December 31, 1998, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
CURRENT
Federal................................................ $ -- $ -- $ --
State.................................................. (4,754) -- --
------- -------- -------
$(4,754) $ -- $ --
======= ======== =======
DEFERRED
Federal................................................ $33,676 $(85,669) $ --
State.................................................. 3,962 (10,078) --
------- -------- -------
$37,638 $(95,747) $ --
======= ======== =======
</TABLE>
Deferred tax assets and deferred tax liabilities reflect the tax effect of
differences between financial statement carrying amounts and tax bases of assets
and liabilities as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 56,033 $ 17,505
Deferred compensation..................................... 10,645 7,232
Other..................................................... 4,241 1,322
--------- ---------
70,919 26,059
Deferred tax asset valuation allowance.................... (3,071) (3,071)
--------- ---------
67,848 22,988
Deferred tax liabilities:
Basis difference on fixed and intangible assets........... (125,957) (118,735)
--------- ---------
Net deferred tax liabilities...................... $ (58,109) $ (95,747)
========= =========
</TABLE>
The reconciliation of income tax benefit attributable to continuing
operations, computed at the U.S. federal statutory tax rate, to the provision
for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Tax benefit at U.S. federal statutory tax rate.......... $(43,132) $(19,850) $(8,914)
State income tax benefit, net of federal tax............ (320) (2,335) (1,038)
Non deductible items.................................... 2,364 306 1,346
Valuation allowance..................................... -- -- 8,606
Other................................................... 3,699 -- --
-------- -------- -------
Benefit for income taxes................................ $(37,389) $(21,879) $ --
======== ======== =======
</TABLE>
As a result of the deferred tax liability created by the tax deferred
treatment of the gain on the sale of the Paxson Radio assets during the fourth
quarter of 1997, management reversed its valuation allowance on certain of the
existing deferred tax assets as it became more likely than not that such
deferred tax assets would be realized. Accordingly, the Company recognized a
deferred tax benefit from continuing operations in the amount of approximately
$21.9 million during the fourth quarter of 1997.
The tax deferral of the gain upon the sale of Paxson Radio could be
contested by the Internal Revenue Service ("IRS"). Based on the advise of
counsel, management believes that, in the event of a challenge by the IRS of
these tax positions, it is more likely than not that the Company would prevail.
Should the IRS
F-20
<PAGE> 59
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
successfully challenge the Company on these matters, the Company could be
subject to a material current tax liability.
The Company has net operating loss carryforwards for income tax purposes
subject to certain carryforward limitations of approximately $147.4 million at
December 31, 1998 expiring through 2018. A portion of the net operating losses,
amounting to approximately $7.9 million, are limited to annual utilization as a
result of a change in ownership occurring when the Company acquired the
subsidiary. The Company has recorded a valuation allowance in connection with
the deferred tax asset relating to the net operating losses subject to
limitation. Additionally, further limitations on the utilization of the
Company's net operating tax loss carryforwards could result in the event of
certain changes in the Company's ownership.
14. 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. For the plan years ended December 31, 1998, 1997 and 1996, the
Company made retirement savings contributions of approximately $100,000, $68,000
and $175,000, respectively. Under the cafeteria plan, employees may elect to
participate in health, dental, life and disability insurance benefit plans
funded through employee payroll deductions.
DEFERRED COMPENSATION PLAN
During 1996, the Company established a supplemental deferred compensation
plan for certain key executives. Under this program, participants may defer
certain amounts of their base compensation and receive a corresponding match by
the Company. Participants vest 100% in the company match after five years of
service. Upon retirement, participants shall be eligible to receive from the
Company certain amounts based on the initial deferral and the Company match.
Certain amounts are also due if a participant terminates employment (other than
by his voluntary action or discharge for cause) before attaining retirement age.
The participants in this plan are general creditors of the Company with respect
to the benefits under the plan. The expense associated with this program was
approximately $140,000, $131,000 and $66,000 for 1998, 1997 and 1996,
respectively. The cash surrender value of the insurance policies under this
program at December 31, 1998 is approximately $518,000 and the total liability
under this program at December 31, 1998 is approximately $651,000.
LIFE INSURANCE
The Company maintains a life insurance agreement for the benefit of Mr.
Paxson and his spouse (the "Insureds") whereby the Company contributes to the
payment of premiums on the policy. Upon the death of the survivor of the
Insureds, the Company will be repaid its premium advance. The policy owner will
retain all remaining proceeds. Premiums paid with respect to this policy were
approximately $176,000 in 1998 and 1997, and $220,000 in 1996.
STOCK INCENTIVE PLANS
The Company has established various stock incentive plans to provide
incentives to officers, employees and others who perform services for the
Company through awards of options and shares of restricted stock. Awards granted
under the plans are at the discretion of the Company's Compensation Committee
and may be in the form of either incentive or nonqualified stock options or
awards of restricted stock. Options granted under the plans generally vest over
a five year period and expire ten years after the date of grant. At
F-21
<PAGE> 60
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998, 1,176,436 shares of Class A common stock were available for
additional awards under the plans.
When options are granted, a non-cash charge representing the difference
between the exercise price and the fair market value of the common stock
underlying the vested options on the date of grant is recorded as option plan
compensation expense with the balance deferred and amortized over the remaining
vesting period. For the years ended December 31, 1998, 1997 and 1996, the
Company recognized approximately $9.8 million, $6.5 million and $7.9 million,
respectively, of option plan compensation expense and expects to recognize an
additional expense of approximately $16.7 million over the next five years as
such outstanding options vest. In 1997 and 1996, the Company classified $3.1
million and $943,000, respectively, of option plan compensation within
discontinued operations.
A summary of the Company's 1994, 1996 and 1998 stock option plans as of
December 31, 1998 and 1997 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year.......... 3,605,461 $3.28 3,590,693 $3.41 1,752,405 $3.42
Granted................................. 6,279,500 7.23 348,018 2.07 2,030,216 3.38
Forfeited............................... (228,000) 6.36 (65,800) 3.42 (39,000) 3.42
Exercised............................... (315,299) 3.22 (267,450) 3.42 (152,928) 3.22
--------- ----- --------- ----- --------- -----
Outstanding, end of year................ 9,341,662 $5.86 3,605,461 $3.28 3,590,693 $3.41
========= ===== ========= ===== ========= =====
Weighted average fair value of options
granted during the year............... $9.14 $8.39 $8.23
===== ===== =====
</TABLE>
The majority of the Company's option grants have been at exercise prices of
$7.25 and $3.42, prices which have historically been below the fair market value
of the underlying common stock at the date of grant.
The following table summarizes information about employee and director
stock options outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE NUMBER
OUTSTANDING AT REMAINING EXERCISABLE AT
DECEMBER 31, CONTRACTUAL DECEMBER 31,
EXERCISE PRICES 1998 LIFE 1998
- --------------- -------------- ----------- --------------
<S> <C> <C> <C>
$0.01............................................. 132,421 1 132,421
$3.42............................................. 3,141,741 5 2,556,841
$7.25............................................. 6,067,500 9 --
--------- ---------
9,341,662 2,689,262
========= =========
</TABLE>
F-22
<PAGE> 61
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE DISCLOSURES
Had compensation expense for the Company's option plans been determined
using the fair value method the Company's net income (loss) and net income
(loss) per share would have been as follows (in thousands except per share
data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net income (loss):
As reported......................................... $(137,955) $188,413 $(48,127)
Pro forma........................................... (144,743) 187,298 (50,444)
Basic and diluted net income (loss) per share:
Net income (loss) per share
As reported...................................... $ (2.29) $ 3.50 $ (1.10)
Pro forma........................................ (2.40) 3.48 (1.15)
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model assuming a dividend yield of 0.0%,
expected volatility range of 54% to 73%, and risk free interest rates of 6% to
6.9% and weighted average expected option terms of 7.5 years.
EMPLOYMENT AGREEMENTS
Mr. Paxson is employed under an employment agreement for a term expiring
December 31, 1999, unless sooner terminated. The agreement provides that Mr.
Paxson's base salary will be $500,000 in 1999. In addition to his base salary,
Mr. Paxson may receive an annual bonus at the discretion of, and in an amount
set by, those members of the Compensation Committee who are not employees of the
Company.
NOTES RECEIVABLE FROM THE SALE OF STOCK
During December 1996, the Company approved a program under which it would
extend loans to certain members of management for the purchase, in the open
market, of Company common stock by those individuals. The notes are full
recourse promissory notes bearing interest at 5.75% per annum and are
collateralized by 325,000 shares of stock purchased with the loan proceeds.
Principal and interest is payable at maturity, March 31, 1999. The outstanding
balance on such loans was approximately $2.8 million at December 31, 1998 and
1997, respectively, and the principal is reflected as stock subscription notes
receivable in the accompanying balance sheet.
F-23
<PAGE> 62
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. REDEEMABLE PREFERRED STOCK
The following represents a summary of the changes in the Company's
mandatorily redeemable preferred stock during the three years ended December 31,
1998 (in thousands):
<TABLE>
<CAPTION>
JUNIOR
EXCHANGEABLE EXCHANGEABLE CONVERTIBLE
JUNIOR PREFERRED PREFERRED PREFERRED SENIOR SERIES B
PREFERRED STOCK STOCK STOCK PREFERRED PREFERRED
STOCK 12% 12 1/2% 13 1/4% 9 3/4% STOCK STOCK TOTAL
---------- ------------ ------------ ----------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................... $31,534 $ -- $ -- $ -- $ 16,826 $ 2,353 $ 50,713
Issuances................. -- 143,197 -- -- -- -- 143,197
Accretion................. 650 160 -- -- 1,805 3,419 6,034
Accrual of cumulative
dividends............... 4,597 4,572 -- -- 2,374 730 12,273
Redemption premium........ -- -- -- -- 700 250 950
Redemptions............... -- -- -- -- (21,705) (6,752) (28,457)
------- -------- -------- ------- -------- ------- --------
Balance at December 31,
1996.................... 36,781 147,929 -- -- -- -- 184,710
Accretion................. 666 668 -- -- -- -- 1,334
Accrual of cumulative
dividends............... 5,165 19,778 -- -- -- -- 24,943
------- -------- -------- ------- -------- ------- --------
Balance at December 31,
1997.................... 42,612 168,375 -- -- -- -- 210,987
Issuances................. -- -- 190,000 70,747 -- -- 260,747
Accretion................. 681 670 646 271 -- -- 2,268
Accrual of cumulative
dividends............... 5,803 22,472 14,986 4,138 -- -- 47,399
------- -------- -------- ------- -------- ------- --------
Balance at December 31,
1998.................... $49,096 $191,517 $205,632 $75,156 $ -- $ -- $521,401
======= ======== ======== ======= ======== ======= ========
</TABLE>
JUNIOR PREFERRED STOCK 12%
At December 31, 1998 and 1997, the Company had 33,000 shares of $0.001 par
value Junior Preferred Stock authorized, issued and outstanding. Holders of the
Junior Preferred Stock are entitled to cumulative dividends at an annual rate of
12% prior to December 22, 2001, 13% from December 23, 2001 to December 22, 2002,
and 14% per annum thereafter. Semi-annual dividend payments are required
commencing December 31, 1999.
The Junior Preferred Stock is currently redeemable, at the option of the
Company, at par plus unpaid, deferred, and accrued dividends. The shares are
subject to mandatory redemption on December 22, 2003. Junior Preferred Stock
dividends in arrears aggregated $19.8 million and $13.9 million at December 31,
1998 and 1997, respectively.
CUMULATIVE EXCHANGEABLE PREFERRED STOCK 12 1/2%
At December 31, 1998, the Company has authorized 440,000 shares of $0.001
par value Cumulative Exchangeable Preferred Stock (the "Exchangeable Preferred
Stock") of which 192,797 and 170,782 shares were issued and outstanding as of
December 31, 1998 and 1997, respectively. Holders of Exchangeable Preferred
Stock are entitled to cumulative dividends at an annual rate of 12.5% of the
liquidation price, payable semi-annually in cash or additional shares beginning
April 30, 1997.
F-24
<PAGE> 63
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is required to redeem all of the then outstanding Exchangeable
Preferred Stock on October 31, 2006 at a price equal to the aggregate
liquidation preference thereof plus accumulated and unpaid dividends to the date
of redemption. Additionally, the Exchangeable Preferred Stock is redeemable at
the option of the Company on or after October 31, 2001 at the redemption prices
set forth below (expressed as a percentage of liquidation preference):
<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
BEGINNING OCTOBER 31,
- ---------------------
<S> <C>
2001........................................................ 106.250%
2002........................................................ 104.167%
2003........................................................ 102.083%
2004 and thereafter......................................... 100.000%
</TABLE>
Prior to October 31, 1999, the Company may use the net proceeds of certain
public stock offerings or major asset sales to redeem up to an aggregate of 35%
of the shares of Exchangeable Preferred Stock at a redemption price of 112.500%
of the liquidation preference of such shares, plus accumulated and unpaid
dividends. Upon a change of control, the Company is required to offer to
purchase the Exchangeable Preferred Stock at a price equal to 101% of the
liquidation preference thereof plus accumulated and unpaid dividends.
The Company may, provided it is not contractually prohibited from doing so,
exchange the outstanding Exchangeable Preferred Stock for 12.5% Exchange
Debentures due 2006. Additionally, the Company has agreed to exchange all
outstanding Exchangeable Preferred Stock for 12.5% Exchange Debentures within 60
days from the date on which the Company is no longer contractually prohibited
from effecting such exchange. The Exchange Debentures have redemption features
similar to those of the Exchangeable Preferred Stock.
During 1998 and 1997, the Company paid dividends of approximately $22.0
million and $20.8 million, respectively, by the issuance of additional shares of
Exchangeable Preferred Stock. Accrued Exchangeable Preferred Stock dividends
since the last dividend payment date aggregated approximately $4.0 million and
$3.6 million at December 31, 1998 and 1997, respectively.
JUNIOR EXCHANGEABLE PREFERRED STOCK 13 1/4%
On June 10, 1998, the Company issued 20,000 shares of Cumulative Junior
Exchangeable Preferred Stock (the "Junior Preferred Stock") with an aggregate
$200 million liquidation preference for gross proceeds of an equivalent amount.
At December 31, 1998, the Company has authorized 72,000 shares of $0.001 par
value Junior Preferred Stock of which 21,170 shares were issued and outstanding.
Holders of the Junior Preferred Stock are entitled to cumulative dividends at an
annual rate of 13 1/4%, payable semi-annually in cash or additional shares
beginning November 15, 1998 and accumulating from the issue date. If dividends
for any period ending after May 15, 2003 are paid in additional shares of Junior
Preferred Stock, the dividend rate will increase by 1% per annum for such
dividend payment period.
The Company is required to redeem all of the then outstanding Junior
Preferred Stock on November 15, 2006, at a price equal to the aggregate
liquidation preference thereof plus accumulated and unpaid dividends to the date
of redemption. The Junior Preferred Stock is redeemable at the Company's option
at any time on or after May 15, 2003, at the redemption prices set forth below
(expressed as a percentage of liquidation preference) plus accumulated and
unpaid dividends to the date of redemption:
<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
BEGINNING MAY 15,
- -------------------
<S> <C>
2003........................................................ 106.625%
2004........................................................ 103.313%
2005 and thereafter......................................... 100.000%
</TABLE>
F-25
<PAGE> 64
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to May 15, 2001, the Company may use the proceeds of certain public
stock offerings or major asset sales to redeem up to an aggregate of 35% of the
shares of Junior Preferred Stock outstanding at 113.25% of the aggregate
liquidation preference of such shares, plus accumulated and unpaid dividends.
Upon a change of control, the Company is required to offer to purchase the
Junior Preferred Stock at a price equal to 101% of the liquidation preference
thereof plus accumulated and unpaid dividends.
The Company may, provided it is not contractually prohibited from doing so,
exchange the outstanding Junior Preferred Stock on any dividend payment date for
13 1/4% Exchange Debentures due 2006. The Exchange Debentures have redemption
features similar to those of the Junior Preferred Stock.
During 1998, the Company paid dividends of approximately $11.7 million by
the issuance of additional shares of Junior Preferred Stock. Accrued Cumulative
Junior Preferred Stock dividends since the last dividend payment date aggregated
approximately $3.3 million at December 31, 1998.
CONVERTIBLE PREFERRED STOCK 9 3/4%
On June 10, 1998, the Company issued 7,500 shares of Series A Convertible
Preferred Stock ("Convertible Preferred Stock") with an aggregate liquidation
preference of $75 million, and warrants to purchase 240,000 shares of Class A
common stock. At December 31, 1998, the Company had authorized 17,500 shares of
$0.001 par value Convertible Preferred Stock of which 7,913 shares were issued
and outstanding. Of the gross proceeds of $75 million, approximately $960,000
was allocated to the value of the warrants, which are exercisable at a price of
$16 per share through June 2003. Holders of the Convertible Preferred Stock are
entitled to receive cumulative dividends at an annual rate of 9 3/4%, payable
quarterly beginning September 30, 1998 and accumulating from the issue date. The
Company may pay dividends either in cash, in additional shares of Convertible
Preferred Stock, or (subject to an increased dividend rate) by the issuance of
shares of Class A common stock equal in value to the amount of such dividends.
During 1998, the Company paid dividends of approximately $4.1 million by
the issuance of additional shares of Convertible Preferred Stock. At December
31, 1998, there were no accrued dividends on the Convertible Preferred Stock.
The Company is required to redeem the Convertible Preferred Stock on
December 31, 2006, at a price equal to the aggregate liquidation preference
thereof plus accumulated and unpaid dividends to the date of redemption. The
Convertible Preferred Stock is redeemable by the Company at any time on or after
June 30, 2003, at the redemption prices set forth below (expressed as a
percentage of liquidation value) plus accumulated and unpaid dividends to the
date of redemption:
<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
BEGINNING JUNE 30,
- -------------------
<S> <C>
2003........................................................ 104.00%
2004........................................................ 102.00%
2005 and thereafter......................................... 100.00%
</TABLE>
Upon a change of control, the Company is required to offer to purchase the
Convertible Preferred Stock at a price equal to the liquidation preference
thereof plus accumulated and unpaid dividends. The Convertible Preferred Stock
ranks junior to all other existing classes of preferred stock (including the
Junior Preferred Stock). The Convertible Preferred Stock contains restrictions,
primarily based on the trading price of the common stock, on the issuance of
additional preferred stock ranking senior to the Convertible Preferred Stock.
Each share of Convertible Preferred Stock is convertible into shares of
Class A common stock at an initial conversion price of $16 per share, at any
time on or after June 30, 1999, or immediately in the event of a change in
control or major asset sale or at any time after the date as of which the
average of the common stock trading price for five consecutive trading days
equals or exceeds $25.00. If the Convertible Preferred Stock is
F-26
<PAGE> 65
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
called for redemption, the conversion right will terminate at the close of
business on the date fixed for redemption.
Holders of the Convertible Preferred Stock will have voting rights on all
matters submitted for a vote to the Company's common stockholders and will be
entitled to one vote for each share of Class A common stock into which their
Convertible Preferred Stock is convertible.
SENIOR AND SERIES B PREFERRED STOCK
On October 4, 1996, the Company redeemed all of the outstanding shares of
Senior and Series B preferred stock for an aggregate of $28.5 million. Of this
amount, $950,000 was considered a redemption premium over book value and
accounted for as a preferred stock dividend.
REDEMPTION FEATURES OF PREFERRED STOCK
The following table presents the redemption value of the four classes of
preferred stock outstanding at December 31, 1998 should the Company elect to
redeem the preferred stock in the indicated year, assuming no dividends are paid
prior to redemption, unless required (in thousands):
<TABLE>
<CAPTION>
JUNIOR
EXCHANGEABLE EXCHANGEABLE CONVERTIBLE
JUNIOR PREFERRED PREFERRED PREFERRED
PREFERRED STOCK STOCK STOCK
STOCK 12%(1) 12 1/2%(2) 13 1/4%(3) 9 3/4%(4)
------------ ------------ --------------- -----------
<S> <C> <C> <C> <C>
1999................................. $59,102 $ -- $ -- $ --
2000................................. 59,102 -- -- --
2001................................. 59,102 300,495 -- --
2002................................. 59,102 332,708 -- --
2003................................. 59,102 326,182 407,907 133,228
</TABLE>
- ---------------
(1) Mandatorily redeemable on December 22, 2003; redeemable by the Company prior
to that date.
(2) Mandatorily redeemable on October 31, 2006; redeemable by the Company on or
after October 31, 2001. See previous discussion for earlier redemption
features on up to 35% of the shares.
(3) Mandatorily redeemable on November 15, 2006; redeemable by the Company on or
after May 15, 2003. See previous discussion for earlier redemption features
on up to 35% of the shares.
(4) Mandatorily redeemable on December 31, 2006; redeemable by the Company on or
after June 30, 2003.
COVENANTS UNDER PREFERRED STOCK AGREEMENTS
The preferred stock contains certain covenants which, among other things,
restrict additional indebtedness, payment of dividends, transactions with
related parties, certain investments and transfers or sales of assets.
16. COMMON STOCK WARRANTS
CLASS A AND B COMMON STOCK WARRANTS
In connection with the Series A Convertible Preferred Stock sale in June
1998, the Company issued warrants to purchase 240,000 shares of Class A common
stock at an exercise price of $16. The warrants were valued at $960,000.
On June 10, 1998, the Company issued to a newly appointed member of its
Board of Directors five year warrants entitling the holder to purchase 155,500
shares of Class A common stock at an exercise price of $16.00 per share. The
Company recorded $622,000 of stock-based compensation expense in connection with
this issuance.
F-27
<PAGE> 66
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During April 1996, the holders of the then outstanding Class A and B
redeemable common stock purchase warrants surrendered their put provision
requiring the Company to repurchase the warrants. At December 31, 1998, all such
warrants had been exercised for 3,609,861 shares of Class A common stock.
CLASS C COMMON STOCK WARRANTS
During 1996 and 1997, subsequent to a modification of their original terms,
4,853,628 Class C common stock purchase warrants were exercised for 4,853,220
shares of Class A common stock.
17. COMMON STOCK
The Company has authorized 12,500,000 shares of Class C common stock with a
par value of $0.001 per share. No shares of the Company's Class C common stock
were issued or outstanding at December 31, 1998 or 1997.
On April 3, 1996, the Company issued and sold 10,300,000 shares of its
Class A common stock for net proceeds of approximately $154.8 million.
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, 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 non-voting. 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. Under certain circumstances, Class C common
stock may be converted, at the option of the holder, into Class A common stock.
18. 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,
1998. 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 for which it is
practicable to estimate such value:
Cash and cash equivalents, accounts receivable, cash held by qualified
intermediary, 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 recent market sale prices for
comparable stations and/or markets. The fair value approximates the carrying
value.
Long-term debt and senior subordinated notes. The fair value of the
Company's long-term debt is estimated based on current market rates and
instruments with the same risk and maturities. The fair value of the Company's
long-term debt approximates its carrying value. The fair market value of the
Company's senior subordinated notes is estimated based on year end quoted market
prices for such securities. At December 31, 1998, the estimated fair market
value of the Company's senior subordinated notes was approximately $232.3
million.
F-28
<PAGE> 67
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mandatorily redeemable securities. The fair market value of the Company's
mandatorily redeemable preferred stock, excluding accrued dividends, is
estimated based on quoted market prices, except for the Junior Preferred Stock
12% which is estimated at the Company's carrying value as no fair market value
is available for these securities. The estimated fair market value of the
Company's mandatorily redeemable preferred stock at December 31, 1998, is as
follows (in thousands):
<TABLE>
<S> <C>
Junior Preferred Stock 12%.................................. $ 49,096
Exchangeable Preferred Stock 12 1/2%........................ 177,373
Junior Exchangeable Preferred Stock 13 1/4%................. 179,945
Convertible Preferred Stock 9 3/4%.......................... 75,965
--------
$482,379
========
</TABLE>
19. COMMITMENTS AND CONTINGENCIES
The Company incurred total operating expenses of approximately $10.8
million, $4.7 million and $2.9 million for the years ended December 31, 1998,
1997 and 1996, respectively, under operating leases for broadcasting facilities
and equipment. Future minimum annual payments under these non-cancelable
operating leases and employment agreements, as of December 31, 1998, are as
follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $16,688
2000........................................................ 13,898
2001........................................................ 13,960
2002........................................................ 12,945
2003........................................................ 8,814
Thereafter.................................................. 24,753
-------
$91,058
=======
</TABLE>
At December 31, 1998, the Company had entered into certain affiliation and
time brokerage agreements which required certain minimum payments as follows (in
thousands):
<TABLE>
<S> <C>
1999........................................................ $ 14,817
2000........................................................ 12,081
2001........................................................ 9,513
2002........................................................ 9,513
2003........................................................ 9,513
Thereafter.................................................. 47,565
--------
$103,002
========
</TABLE>
F-29
<PAGE> 68
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENT COMMITMENTS
The Company has agreements to purchase significant assets of, or to enter
into time brokerage and financing arrangements with respect to, the following
properties, which are subject to various conditions, including the receipt of
regulatory approvals. The completion of each of the investments discussed below
is subject to a variety of factors and to the satisfaction of various
conditions, and there can be no assurance that any of such investments will be
completed.
<TABLE>
<CAPTION>
PURCHASE PRICE
STATION MARKET SERVED (IN THOUSANDS)
- ------- ------------- --------------
<S> <C> <C>
WCPX................................... Chicago, IL(1) $15,000
KPXL................................... San Antonio, TX 13,500
KWPX................................... Seattle, WA(6) 10,000
WKRP................................... Charleston, WV(2)(5) 8,970
WSPX................................... Syracuse, NY(2) 6,750
Channel 14............................. Albuquerque, NM(7) 4,650
KYPX................................... Little Rock, AR(2) 2,500
KWOK................................... San Francisco(1)(7) 500
Less: advances and escrow deposits..... (14,421)
-------
Investment commitments anticipated to
close in 1999........................ $47,449
=======
WPXX/WPXL.............................. Memphis, TN/New Orleans, LA(4) $40,000
KSPX................................... Sacramento, CA(3) 17,000
KPPX................................... Phoenix, AZ(2) 12,111
WAOM................................... Lexington, KY 8,000
Channel 67............................. Davenport, IA 3,900
WEPX................................... Greenville, NC 3,550
Channel 51............................. Jackson, MS 2,250
Less: advances and escrow deposits..... (25,170)
-------
Investment commitments anticipated to
close in 2000 and thereafter......... $61,641
=======
</TABLE>
The Company has additional purchase commitments for two stations in the
aggregate amount of approximately $36.4 million (net of advances and escrow
deposits of approximately $5.4 million) for which management cannot estimate the
closing date primarily as a result of delays in the receipt of FCC approval of
the license transfer. These commitments relate to Channel 40 in Pittsburgh, PA
($35 million) and Channel 61 in Mobile, AL ($6.8 million).
- ---------------
(1) The Company has acquired WCPX for $120 million, the Company's interests in
KWOK and up to $15 million of contingent payments to be determined based
upon the seller's ability to deliver its programming to the Chicago market
via cable carriage post closing. As of December 31, 1998, the Company has
funded approximately $5.3 million of this cable carriage commitment. The
Company transferred its interest in KWOK during February 1999.
(2) The Company had acquired a 49% interest in this station as of December 31,
1998.
(3) The Company has loaned an aggregate of $8.5 million to the station owner and
began operating the station pursuant to a time brokerage agreement on
October 1, 1996, pending completion of the acquisition of the station. The
loan will be applied to the purchase price at the date of closing.
(4) The Company has a $4 million escrow deposit on these stations. The remaining
$36 million of the purchase price will be paid no sooner than the year 2000.
(5) The Company acquired the remaining 51% interest in this station in January
1999.
F-30
<PAGE> 69
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) In connection with the purchase of KWPX, Seattle, Washington, a portion of
the cash consideration was to be paid subsequent to closing. The sum of $10
million will be payable within 30 days of activating the station's new
transmission facilities. It is anticipated that the station will broadcast
from these new facilities in early March 1999.
(7) The acquisition of this station was completed in February 1999.
SATELLITE DISTRIBUTION RIGHTS
During January 1999, the Company entered into a ten year agreement with a
satellite television provider for carriage on its system in exchange for
advertising credits on PAX TV equalling $15 million. The advertising credit is
on an available time basis not to exceed $7.5 million per year.
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.
OTHER
See also Notes 4, 9 and 13.
F-31
<PAGE> 70
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 1998 QUARTERS ENDED
----------------------------------------------------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
----------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Total revenue.................................. $ 42,753 $ 29,402 $ 30,376 $ 31,665
Expenses, excluding depreciation, amortization
and stock based compensation................. 84,557 63,182 33,888 27,678
Depreciation and amortization.................. 21,553 10,098 10,408 7,950
Stock based compensation....................... 2,424 2,902 4,780 307
----------- ---------- ---------- ----------
Operating loss................................. $ (65,781) $ (46,780) $ (18,700) $ (4,270)
=========== ========== ========== ==========
Income (loss) from continuing operations....... $ (60,766) $ (36,571) $ 5,225 $ 2,642
Discontinued operations........................ 1,182 -- -- --
=========== ========== ========== ==========
Net income (loss).............................. $ (59,584) $ (36,571) $ 5,225 $ 2,642
=========== ========== ========== ==========
Net loss attributable to common stock.......... $ (76,383) $ (53,011) $ (4,121) $ (4,440)
=========== ========== ========== ==========
Basic and diluted earnings per share:
Income (loss) from continuing operations..... $ (1.28) $ (0.87) $ (0.07) $ (0.07)
Discontinued operations...................... $ 0.02 $ -- $ -- $ --
Net loss..................................... $ (1.26) $ (0.87) $ (0.07) $ (0.07)
Weighted average common shares outstanding..... 60,844,515 60,740,230 59,921,236 59,588,768
=========== ========== ========== ==========
Stock price(1)
High...................................... $ 9 1/4 $ 12 3/4 $ 13 7/16 $ 11 3/16
Low....................................... $ 6 1/8 $ 9 3/16 $ 9 15/16 $ 7 9/16
</TABLE>
- ---------------
(1) The Company's Class A common stock is listed on the American Stock Exchange
under the symbol PAX.
F-32
<PAGE> 71
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE 1997 QUARTERS ENDED
----------------------------------------------------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
----------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Total revenue.................................. $ 27,168 $ 23,779 $ 18,537 $ 18,937
Expenses, excluding depreciation, amortization,
compensation associated with Paxson Radio
asset sales and stock based compensation..... 26,114 20,365 14,170 14,593
Compensation associated with Paxson Radio asset
sales........................................ 9,700 -- -- --
Depreciation and amortization.................. 7,256 5,854 4,854 4,080
Stock based compensation....................... 1,216 722 718 714
---------- ---------- ---------- ----------
Operating loss................................. $ (17,118) $ (3,162) $ (1,205) $ (450)
========== ========== ========== ==========
Loss from continuing operations................ $ (4,180) $ (14,810) $ (9,791) $ (7,723)
Discontinued operations........................ 185,067 14,553 52,309 (736)
---------- ---------- ---------- ----------
Net income (loss).............................. $ 180,887 $ (257) $ 42,518 $ (8,459)
========== ========== ========== ==========
Net income (loss) attributable to common
stock........................................ $ 174,033 $ (6,983) $ 36,093 $ (14,731)
========== ========== ========== ==========
Basic and diluted earnings per share:
Loss from continuing operations.............. $ (0.19) $ (0.38) $ (0.33) $ (0.28)
Discontinued operations...................... $ 3.14 $ 0.26 $ 1.04 $ (0.02)
Net income (loss)............................ $ 2.95 $ (0.12) $ 0.71 $ (0.30)
Weighted average common shares outstanding..... 58,980,015 56,835,119 50,495,490 48,777,893
========== ========== ========== ==========
Stock price(1)
High...................................... $ 12 1/16 $ 14 3/8 $ 13 1/8 $ 10 1/4
Low....................................... $ 7 3/16 $ 10 15/16 $ 9 3/4 $ 7 15/16
</TABLE>
- ---------------
(1) The Company's Class A common stock is listed on the American Stock Exchange
under the symbol PAX.
F-33
<PAGE> 72
SCHEDULE II
PAXSON COMMUNICATIONS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
-------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF YEAR EXPENSES OTHER DEDUCTIONS YEAR
---------- ---------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1998
Allowance for doubtful accounts....... $ 912 $4,214 $ -- $ (1,173)(3) $ 3,953
======= ====== ====== ======== =======
Deferred tax assets valuation
allowance........................... $ 3,071 $ -- $ -- $ -- $ 3,071
======= ====== ====== ======== =======
For the year ended December 31, 1997
Allowance for doubtful accounts....... $ 1,577 $2,011 $ -- $ (2,676)(1) $ 912
======= ====== ====== ======== =======
Deferred tax assets valuation
allowance........................... $23,615 $ -- $ -- $(20,544)(2) $ 3,071
======= ====== ====== ======== =======
For the year ended December 31, 1996
Allowance for doubtful accounts....... $ 910 $1,288 $ -- $ (621)(3) $ 1,577
======= ====== ====== ======== =======
Deferred tax assets valuation
allowance........................... $15,009 $ -- $8,606(4) $ -- $23,615
======= ====== ====== ======== =======
</TABLE>
- ---------------
(1) Reflects the impact of the sale of Network-Affiliated Television and Paxson
Radio receivables in connection with the sales of these segments during 1997
of approximately $1.5 million as well as the write off of uncollectible
receivables of $1.2 million.
(2) Reflects utilization of deferred tax assets generated by net operating loss
carryforwards to offset non-tax deferred gains on the sale of
Network-Affiliated Television and Paxson Radio segments during 1997.
(3) Write off of uncollectible receivables.
(4) A valuation allowance related to deferred tax assets.
F-34
<PAGE> 1
EXHIBIT 10.203
CONFORMED COPY
INTEREST TRANSFER AGREEMENT
RELATING TO
THE TRAVEL CHANNEL, L.L.C.
INTEREST TRANSFER AGREEMENT, dated as of February 4, 1999
(this "AGREEMENT"), between DISCOVERY COMMUNICATIONS, INC., a Delaware
corporation ("DCI"), PROJECT DISCOVERY, INC., a Delaware corporation and a
wholly owned subsidiary of DCI, ("PDI"), THE TRAVEL CHANNEL, L.L.C., a Delaware
limited liability company (the "COMPANY"), DISCOVERY VENTURES, LLC , a Delaware
limited liability company and an affiliate of PDI ("VENTURES" and together with
DCI, PDI and the Company, the "DISCOVERY PARTIES"), PAXSON COMMUNICATIONS
CORPORATION, a Delaware corporation ("PAXSON") and TRAVEL CHANNEL ACQUISITION
CORPORATION, a Delaware corporation and a wholly owned subsidiary of Paxson
("TCAC" and together with Paxson, the "PAXSON PARTIES").
RECITALS
WHEREAS, TCAC and PDI established the Company under the
Delaware Limited Liability Company Act pursuant to that certain Limited
Liability Company Agreement, dated as of November 24, 1997 (the "FORMATION
AGREEMENT");
WHEREAS, as a result of certain disputes between TCAC and PDI,
in their capacities as Members (as defined in the Formation Agreement) of the
Company, as to the operation of the Company (the "DISPUTE"), TCAC desires to
sell and Ventures desires to acquire, TCAC's Interest (as defined in the
Formation Agreement) in the Company in accordance with the terms set forth
below, including the delivery of mutual releases arising out of the Dispute; and
WHEREAS, upon the sale of TCAC's Interest to Ventures, the
Paxson Parties and the Discovery Parties mutually desire to release each other
from the Formation Agreement and the Related Documents (as defined below) to
which they are a party, and to mutually release each other from all other claims
and liabilities arising therefrom or relating thereto.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements set forth herein, the parties hereto hereby
agrees as follows:
<PAGE> 2
SECTION 1
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used in this Agreement, shall
have the meanings set forth in this Section; provided, however, any capitalized
terms used in this Agreement which are not defined in this Section shall have
the same meaning given them in the Formation Agreement:
"CLOSING" means the consummation of the purchase and sale of
the Interest and the other transactions contemplated pursuant to this
Agreement in accordance with the provisions of Section 5.
"CLOSING DATE" means February 10, 1999 or if the waiting
period under the HSR Act applicable to the consummation of the
transactions contemplated hereby shall have terminated prior to
February 5, 1999, then on the third business day following such
termination date.
"CONSULTING AGREEMENT" means that certain Consulting Agreement
dated as of November 24, 1997 between Paxson and the Company.
"CONSULTING FEE" means the accrued and unpaid consulting fees
owed to Paxson by the Company under and pursuant to the terms of the
Consulting Agreement.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"INITIAL PURCHASE SETTLEMENT AMOUNT" means (a) $1,549,930,
representing the net amount owed to TCAC by the Company pursuant to the
settlement of prorated amounts under Section 3.8 of the Formation
Agreement, including amounts owed to TCAC in respect of revenues
collected by the Company from the sale of advertising time on The
Travel Channel network in respect of the period prior to the Effective
Date (as defined in the Formation Agreement), and (b) approximately
$333,833 pursuant to the terms of a letter agreement among the parties
hereto dated even dated herewith (the "Closing Letter Agreement").
"INTEREST" means all of TCAC's right, title and interest in
and to its Interest (as such term is defined in the Formation
Agreement) in the Company together with any and all other rights
relating thereto and interest therein.
"NET PURCHASE PRICE" means the Purchase Price less the "MSO
Payment Amounts," as defined herein; PROVIDED, HOWEVER, that in the
event any of the SSI Receipt, Cox Receipt or TW Receipt are not
delivered at the Closing, the Net Purchase Price shall be adjusted as
contemplated under Section 2.3(e).
2
<PAGE> 3
"RELATED AGREEMENTS" means each of (i) the Consulting
Agreement; (ii) that certain Guaranty Agreement dated as of November
24, 1997 by DCI in favor of TCAC; and (iii) that certain Software
License Agreement dated as of November 24, 1997 by and between TCAC and
the Company.
SECTION 2
TRANSFER OF INTEREST
2.1 ASSIGNMENT. Subject to the terms and conditions set forth in this
Agreement, on the Closing Date, TCAC hereby sells, transfers, and delivers to
Ventures, and Ventures hereby purchases, TCAC's Interest in the Company.
2.2 PURCHASE PRICE AND ACCRUED PAYMENT OBLIGATIONS. The Purchase Price
for the Interest shall be Fifty-Five Million Dollars ($55,000,000). Concurrent
with the payment of the Purchase Price, Ventures, on behalf of PDI and the
Company, shall also make a payment to TCAC of $2,233,763 (the "ACCRUED PAYMENT
OBLIGATIONS") which amount represents the sum of $350,000 in respect of
Consulting Fees and $1,883,763 in respect of the Initial Purchase Settlement
Amount. The Purchase Price and the Accrued Payment Obligations shall be paid by
Ventures to TCAC by wire transfer of same day funds to an account as directed by
TCAC and Paxson. TCAC and Paxson shall deliver to Ventures the wire transfer
instructions at least three business days prior to the Closing Date.
2.3 MSO PAYMENT AMOUNTS.
(a) Pursuant to the terms of that Cable Affiliation Agreement, dated as
of April 27, 1998, as amended, (the "SSI MSO AGREEMENT") between Pax Net, Inc.
and Satellite Services, Inc. ("SSI"), an affiliate of Ventures, Paxson owes SSI
certain payments in respect of cable carriage for Paxson's national network
programming service on SSI owned or controlled cable systems. At the direction
of TCAC and Paxson, in lieu of a direct payment to TCAC of a portion of the
Purchase Price, Ventures has agreed to make a payment to SSI on behalf of Paxson
and TCAC in the amount of $12,150,000, or make other arrangements with SSI for
the satisfaction of such payment obligation owed by Paxson to SSI (the amount to
be paid or otherwise satisfied by Ventures under the terms hereof being referred
to as the "SSI PAYMENT AMOUNT") to be credited against the amount owed by Paxson
to SSI under the SSI MSO Agreement. At the Closing, Ventures shall deliver, or
cause to be delivered, to TCAC, a receipt in the form of EXHIBIT A-1 annexed
hereto (the "SSI RECEIPT"), executed by SSI and acknowledging the payment and
satisfaction of the SSI Payment Amount against amounts owing by Paxson to SSI
under the SSI MSO Agreement.
(b) Pursuant to the terms of a cable affiliation term sheet dated as of
September 28, 1998 (the "COX MSO AGREEMENT") between Paxson and Cox
Communications, Inc. ("COX"), an
3
<PAGE> 4
affiliate of Ventures, Paxson owes Cox certain payments in respect of cable
carriage for Paxson's national network programming service on Cox owned or
controlled cable systems. At the direction of TCAC and Paxson, in lieu of a
direct payment to TCAC of a portion of the Purchase Price, Ventures has agreed
to make a payment in the amount of $6,000,000, or make other arrangements with
Cox for the satisfaction of such payment obligation owed by Paxson to Cox (the
amount to be paid or otherwise satisfied by Ventures under the terms hereof
being referred to as the "COX PAYMENT AMOUNT") to be credited against the amount
owed by Paxson to Cox under the Cox MSO Agreement. At the Closing, Ventures
shall deliver, or cause to be delivered, to TCAC, a receipt in the form of
EXHIBIT A-2 annexed hereto (the "COX Receipt"), executed by Cox and
acknowledging the payment and satisfaction of the Cox Payment Amount against
amounts owing by Paxson to Cox under the Cox MSO Agreement.
(c) Pursuant to the terms of a Cable Affiliation Agreement dated as of
August 26, 1998 (the "TW MSO AGREEMENT" and together with the SSI MSO Agreement
and the Cox MSO Agreement, the "CABLE MSO AGREEMENTS") between PCC and Time
Warner Entertainment Company, L.P. ("TW"), Paxson owes TW certain payments in
respect of cable carriage for Paxson's national network programming service on
TW owned or controlled cable systems. At the direction of TCAC and Paxson, in
lieu of a direct payment to TCAC of a portion of the Purchase Price, Ventures
has agreed to make a payment in the amount of $2,000,000 or make other
arrangements with TW for the satisfaction of such payment obligation owed by
Paxson to TW (the amount to be paid or otherwise satisfied by Ventures under the
terms hereof being referred to as the "TW PAYMENT AMOUNT" and together with the
SSI Payment Amount and the Cox Payment Amount, collectively the "MSO PAYMENT
AMOUNTS") to be credited against the amount owed by Paxson to TW under the TW
MSO Agreement. At the Closing, Ventures shall deliver, or cause to be delivered,
to TCAC, a receipt in the form of EXHIBIT A-3 annexed hereto (the "TW RECEIPT"),
executed by TW and acknowledging the payment and satisfaction of the TW Payment
Amount against amounts owing by Paxson to TW under the TW MSO Agreement.
(d) Each of the Paxson Parties and the Discovery Parties acknowledges
and agrees that (i) the making of the MSO Payment Amounts by Ventures to SSI ,
Cox and TW shall be consummated by Ventures and SSI, Cox and TW, as the case may
be, pursuant to agreements and arrangements entered into in the sole discretion
of Ventures and SSI, Cox and TW, as the case may be, and neither Paxson nor TCAC
shall have any obligation or liability to Ventures or SSI, Cox and TW, as the
case may be, in respect of any such agreement or arrangement; (ii) none of the
Discovery Parties shall, express or implied, be deemed to have assumed or be the
beneficiary of any rights or obligations under the Cable MSO Agreements by
virtue of Ventures making or satisfying any of the MSO Payment Amounts on behalf
of Paxson or for any other reason, and Paxson and SSI, Cox or TW, as the case
may be, may amend, modify or supplement any of the Cable MSO Agreements for any
reason, including the settlement of any dispute or adjustment of any amounts
owed thereunder in their sole discretion; and (iii) the parties intend for the
payment or satisfaction of the MSO Payment Amounts to SSI, Cox and TW,
respectively, to have the same effect for all purposes between TCAC and Ventures
as if Ventures had paid a portion of the Purchase Price in cash directly to TCAC
and TCAC forwarded such amounts to SSI, Cox or TW. Without limiting the
foregoing,
4
<PAGE> 5
the Discovery Parties hereby indemnify and hold harmless TCAC and Paxson for any
and all liabilities, losses or claims of or against Paxson or TCAC arising out
of the agreement or arrangement between Ventures and SSI, Cox or TW, as the case
may be, for the payment or satisfaction of the related MSO Payment Amounts to
SSI, Cox and TW, respectively, including any liabilities, losses or claims
arising out of any failure to make, or recision of amounts paid or other
consideration provided in respect of, the payment or satisfaction by Ventures to
SSI, Cox or TW, as the case may be, of the related MSO Payment Amounts. Not
withstanding anything to the contrary contained herein, none of SSI, Cox or TW
shall, express or implied, be a third party beneficiary of this Agreement.
(e) At the request of the Discovery Parties, the Paxson Parties have
agreed that the Purchase Price shall be constituted by the Net Purchase Price,
the SSI Receipt, the Cox Receipt and the TW Receipt. The Net Purchase Price
shall be increased in the event Ventures shall fail to deliver, on or before the
Closing Date, (i) the SSI Receipt, by the SSI Payment Amount, (ii) the Cox
Receipt, by the Cox Payment Amount, or (iii) the TW Receipt, by the TW Payment
Amount.
2.4 ASSUMPTION OF LIABILITIES AND OBLIGATIONS. As of the Closing Date,
(i) TCAC hereby assigns and Ventures hereby assumes and undertakes any and all
obligations and liabilities of TCAC under the Formation Agreement; (ii) the
Interest is hereby sold, assigned and transferred to Ventures; (iii) all rights,
remedies, obligations and liabilities of TCAC and Paxson of any kind or nature
under the Formation Agreement are terminated, released and discharged; (iv) the
Consulting Agreement and each of the other Related Agreements are terminated and
deemed to be of no further force or effect; (v) DCI is deemed to be released
from its obligations under the Guaranty Agreement, dated as of November 24,
1997, made by DCI in favor of TCAC; and (vi) all obligations and liabilities of
the Paxson Parties under any other documents or agreement entered into with any
of the Discovery Parties, other than the Formation Agreement and the Related
Agreements, shall be terminated, released and discharged.
2.5 MUTUAL RELEASE OF PARTIES. (a) As of the Closing Date, the Paxson
Parties, on the one hand, and the Discovery Parties on the other hand, hereby
release each other from any and all obligations imposed upon either party, or
their affiliated entities, by the terms and conditions of the Formation
Agreement and the Related Agreements and such parties hereby release each other
from any and all claims and liabilities which may arise from the Formation
Agreement and Related Agreements or which may arise from that relationship
between the parties governed by the Formation Agreement and Related Agreements.
(b) As of the Closing Date, any provisions of the Formation
Agreement that can be construed as imposing an obligation or restriction upon
any of the Paxson Parties, or upon any affiliated entity of any Paxson Party,
shall be deemed terminated and null and void as against any such Paxson Party,
or any affiliated entity, and shall thereafter not be enforceable against any
Paxson Party, or any affiliated entity. Specifically, but in no case limiting
the effect of this Section, as of the Closing Date, Sections 3, 5, 6, 7, 8, 10,
11, 12, 13 and 14 shall be terminated and of no force or effect against any
Paxson Party or any entity affiliated with any Paxson Party.
(c) As of the Closing Date, any provisions of the Formation
Agreement that can be construed as imposing an obligation or restriction upon
any Discovery Party, or upon any
5
<PAGE> 6
affiliated entity of any Discovery Party, shall be deemed terminated an null and
void as against any Discovery Party, or any affiliated entity, and shall
thereafter not be enforceable against any Discovery Party, or any affiliated
entity of any Discovery Party; provided however that after the Closing Date the
Company shall be obligated to supply TCAC, upon TCAC's reasonable request, with
information relevant to the preparation of tax returns relating to any periods
in which TCAC was a Member of the Company. Specifically, but in no case limiting
the effect of this Section, as of the Closing Date, Sections 3, 5, 6, 7, 8
(except with respect to the proviso set forth in the preceding sentence), 10,
11, 12, 13 and 14 shall be terminated and of no force or effect against any
Discovery Party, or any entity affiliated with any Discovery Party.
(d) Nothing herein shall be deemed to limit any rights,
remedies, liabilities or obligations between any Paxson Parties, on the one
hand, or any Discovery Parties, on the other hand, under any agreement between
any such parties or their affiliates not entered into in connection with the
formation of the Company under the Formation Agreement or any of the
transactions contemplated thereunder, including, without limitation, any of the
MSO Agreements.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF PARTIES
3.1 REPRESENTATIONS AND WARRANTIES. Each of the parties hereto
represents and warrants to the other that: (i) it has all requisite power and
authority to enter into this Agreement and perform its obligations hereunder;
(ii) the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of such party; the execution, delivery and
performance of this Agreement will not conflict with or result in a breach or
violation of any provision of corporate charter or the bylaws thereof, or of any
order, writ, injunction, judgment, decree, law, statute, rule or regulation of
any governmental authority applicable to such party; (iii) the execution,
delivery and performance of this Agreement and the documents contemplated hereby
by each such party (with or without the giving of notice, the lapse of time, or
both), (a) do not require the consent of any third party (including any
governmental or regulatory authority) other than those which have already been
obtained; (b) will not conflict with any provision of the Certificate of
Incorporation, By-Laws or other organizational documents of any such party; and
(iv) assuming due authorization, execution and delivery by the other parties
hereto (other than its affiliates party hereto), this Agreement is a legal,
valid and binding obligation of such party enforceable against such party in
accordance with its terms. TCAC further represents and warrants to Ventures and
PDI that (i) it is the sole owner of the Interest and that it has not tendered
the Interest or any portion thereof to any party; (ii) the Interest shall be
delivered on the Closing Date to Ventures free and clear of any liens or
encumbrances of any kind; and (iii) the transactions contemplated hereby will
not create any claim, liability, mortgage, lien, pledge, condition, charge,
encumbrance, or other security interest upon the Interest, arising by, through
or under TCAC or any of the other Paxson Parties or any affiliates thereof.
Except for the foregoing, the Interest transferred to Ventures by TCAC is sold
"as is" and without any representation or warranty of any kind, express or
implied, with respect thereto.
6
<PAGE> 7
3.2 SURVIVAL OF REPRESENTATIVES AND WARRANTIES. Without prejudice to
representations and warranties in other agreements delivered hereunder, all
representations and warranties contained in this Agreement shall be deemed
continuing representations and warranties and shall survive the Closing Date for
a period of twelve months. Any investigations by or on behalf of any party
hereto shall not constitute a waiver as to enforcement of any representation,
warranty, or covenant contained in this Agreement. No notice or information
delivered by any party shall affect any other party"s right to rely on any
representation, warranty, or covenant made by such party or relieve such party
of any obligations under this Agreement as the result of a breach of any of its
representations and warranties.
3.3 INDEMNIFICATION AND REMEDIES. Each of the Paxson Parties, on the
one hand, and the Discovery Parties, on the other, hereby agrees to indemnify
and hold harmless the other party, its affiliates, officers, directors and
employees, from and against, and to reimburse such party for, any and all
losses, liabilities, and damages, costs and expenses (including reasonable fees
and disbursements of counsel and expenses of investigation and defense), claims,
or other obligations of any nature (collectively, "Losses") that result from any
inaccuracy in or breach of any representation and warranty, or any breach or
nonfulfillment of any covenant or agreement of such party contained in this
Agreement or in any certificate, document, or instrument delivered by such party
in connection with this Agreement. The remedy of indemnification under this
Section is in addition to any action either party may have in equity, and as
such remedies may be exercised singly or concurrently. In the event that a party
is unable to obtain indemnification pursuant to this Section, such party shall
have the right to pursue any rights and remedies at law or in equity.
SECTION 4
COVENANTS
4.1 HSR ACT FILING. TCAC acknowledges that DCI has filed a notification
and report form and related information pursuant to the HSR Act in connection
with the transactions contemplated by this Agreement. Additionally, PDI shall
promptly file or cause to be filed all further notifications, reports and
information, if any, required to be filed or supplied pursuant to the HSR Act in
connection with the transactions contemplated by this Agreement and shall
request from the proper governmental authority early termination of the waiting
period under the HSR Act.
4.2 COOPERATION. (a) Each of the Paxson Parties, on the one hand, and
the Discovery Parties, on the other, shall cooperate fully with each other and
their respective counsel and accountants in connection with any actions required
to be taken as part of their respective obligations under this Agreement, and
each of the parties shall use commercially reasonable efforts to take or cause
to be taken all actions necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including making such filings with governmental and regulatory
authorities, providing information, using commercially reasonable efforts to
obtain all necessary or appropriate waivers, consents, and approvals, and
executing such other documents as may be necessary and desirable
<PAGE> 8
to the implementation and consummation of this Agreement, and otherwise use
commercially reasonable efforts to consummate the transaction contemplated
hereby and to fulfill their obligations under this Agreement.
(b) TCAC hereby agrees and acknowledges that the
Company has certain outstanding claims and rights against Landmark
Communications, Inc. ("LCI") arising out of and in respect of the Company's
assumption of certain liabilities relating to cable carriage agreement payments
in an aggregate amount equal to approximately $574,406 related to the business
operations and assets of the Network prior to the date of the Formation
Agreement (such claims and rights being referred to herein as the "LCI Assumed
Liabilities"). TCAC has apprised the Company that it has certain claims and
rights against LCI in respect of advertising commissions collected and retained
by LCI from monies otherwise owed by LCI to TCAC in an aggregate amount equal to
approximately $659,974.91 less the amount paid pursuant to the Closing Letter
Agreement on the Closing Date and any other amounts paid pursuant to the terms
of the Closing Letter Agreement after the Closing Date (such claims and rights
being referred to herein as the "LCI Commission Liabilities"). In respect of the
foregoing, (a) TCAC hereby (i) sells, assigns and transfers any interest it may
have in and to the LCI Assumed Liabilities, if any, to the Company and (ii)
agrees to take any and all actions reasonably requested by and at the expense of
the Company in connection with the Company's pursuit of the LCI Assumed
Liabilities against LCI, and (b) the Company hereby (i) sells, assigns and
transfers any interest it may have in and to the LCI Commission Liabilities, if
any, to TCAC and (ii) agrees to take any and all actions reasonably requested by
and at the expense of TCAC in connection with TCAC's pursuit of the LCI
Commission Liabilities against LCI. Each of the Discovery Parties and the Paxson
Parties agree and acknowledge that none of the Discovery Parties and the Paxson
Parties shall be required to take any action which, in the reasonable opinion of
counsel thereto, would be contrary to law or otherwise expose such Discovery
Party or Paxson Party to civil or criminal penalties, actions, causes, or
liabilities of any kind. Each of the Discovery Parties and the Paxson Parties
further represents, warrants and agrees the none of them has waived, settled or
compromised any of its claims and/or rights against LCI with respect to the LCI
Assumed Liabilities and the LCI Commission Liabilities, and that none of them
shall take any action which would waive, settle or compromise the claims and/or
rights such entity may have against LCI.
4.3 NO INCONSISTENT ACTION. No party to this Agreement shall take any
action that is inconsistent with its obligations under this Agreement or that
could reasonably be expected to hinder or delay the consummation of the
transactions contemplated by this Agreement.
SECTION 5
CLOSING CONDITIONS
5.1 CONDITIONS TO OBLIGATIONS OF PDI. The obligations of the Discovery
Parties to consummate the Closing are subject to the fulfillment on or before
the Closing Date of each of the following conditions:
8
<PAGE> 9
(a) REPRESENTATIONS AND WARRANTIES. All representations and
warranties of the Paxson Parties contained in this Agreement shall be true and
correct in all material respects at and as of the Closing Date as though made at
and as of that time.
(b) DELIVERY OF LIEN RELEASES. The Paxson Parties shall have
delivered or caused to be delivered to Ventures a UCC-3 termination statement
and release letter executed by Union Bank of California, evidencing the release
of such lender"s security interest in the Interest.
(c) AMENDMENT TO FORMATION AGREEMENT. TCAC shall have executed
and delivered the First Amendment to Formation Agreement, substantially in the
form of EXHIBIT B annexed hereto.
(d) HSR APPROVAL. Any waiting period under the HSR Act
applicable to the consummation of the transactions contemplated hereby shall
have expired or shall have been earlier terminated.
5.2 CONDITIONS TO OBLIGATIONS OF THE PAXSON PARTIES. The obligations of
the Paxson Parties to consummate the Closing are subject to the fulfillment on
or before the Closing Date of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. All representations and
warranties of the Discovery Parties contained in this Agreement shall be true
and correct in all material respects at and as of the Closing Date as though
made at and as of that time.
(b) DELIVERIES. Ventures shall have made all of the
following deliveries:
(1) SSI Receipt;
(2) Cox Receipt;
(3) TW Receipt;
(4) Payment of the Net Purchase Price to TCAC; and
(5) Payment of the Accrued Payment Obligations to
TCAC and Paxson.
Notwithstanding the foregoing, in the event that Ventures is unable or unwilling
to deliver any of the SSI Receipt, Cox Receipt or TW Receipt, then the Net
Purchase Price shall be adjusted for each such undelivered receipt, as
contemplated under Section 2.3(e), and Ventures shall be released from the
obligation to deliver the applicable receipt hereunder.
(c) HSR APPROVAL. Any waiting period under the HSR Act
applicable to the consummation of the transactions contemplated hereby shall
have expired or shall have been earlier terminated.
5.3 CLOSING DATE. The Closing shall take place at 11:00 a.m. on the
Closing Date which shall be no later than the Upset Date set forth in Sections
6.1(c) and 6.2(c) hereof, at the New York City offices of Holland & Knight LLP,
counsel to the Paxson Parties.
9
<PAGE> 10
SECTION 6
TERMINATION
6.1 TERMINATION BY THE PAXSON PARTIES. This Agreement may be terminated
by Paxson, on behalf of the Paxson Parties, and the transactions contemplated
hereunder abandoned, if the Paxson Parties are not then in material default,
upon written notice to DCI, on behalf of the Discovery Parties, upon the
occurrence of any of the following:
(a) CONDITIONS. If on the date that would otherwise be the
Closing Date any of the conditions precedent to the obligations of the Paxson
Parties set forth in this Agreement have not been satisfied or waived in writing
by the Paxson Parties.
(b) JUDGMENTS. If there shall be in effect on the date that
would otherwise be the Closing Date any judgment, decree, or order that would
prevent or make unlawful the Closing.
(c) UPSET DATE. If the Closing shall not have occurred by
February 11, 1999 or, if the waiting period under the HSR Act applicable to the
consummation of the transactions contemplated hereby shall have expired prior to
February 8, 1999, on the third business day following such expiration, and the
Paxson Parties are not in material breach of this Agreement.
(d) BREACH. Without limiting any of the rights under this
Agreement of the Paxson Parties, if the Discovery Parties have failed to cure
any material breach of any of their representations, warranties or covenants
under this Agreement within fifteen days after the Discovery Parties have
received written notice of such breach from the Paxson Parties.
6.2 TERMINATION BY THE DISCOVERY PARTIES. This Agreement may be
terminated by the Discovery Parties and transactions abandoned, if Discovery
Parties are not then in material default, upon written notice to Paxson Parties,
upon the occurrence of any of the following:
(a) CONDITIONS. If on the date that would otherwise be the
Closing Date any of the conditions precedent to the obligations of Discovery
Parties set forth in this Agreement have not been satisfied or waived in writing
by Discovery Parties.
(b) JUDGMENTS. If there shall be in effect on the date that
would otherwise be the Closing Date any judgment, decree, or order that would
prevent or make unlawful the Closing.
(c) UPSET DATE. If the Closing shall not have occurred by
February 11, 1999 or, if the waiting period under the HSR Act applicable to the
consummation of the transactions contemplated hereby shall have expired prior to
February 8, 1998, on the third business day following such expiration, and the
Discovery Parties are not in material breach of this Agreement.
(e) BREACH. Without limiting the rights under this Agreement
of the Discovery Parties, if the Paxson Parties have failed to cure any material
breach of any of their representations,
10
<PAGE> 11
warranties or covenants under this Agreement within fifteen days after the
Paxson Parties received written notice of such breach from the Discovery
Parties.
6.3 RIGHTS ON TERMINATION. If this Agreement is terminated pursuant to
Section 6.1 or Section 6.2 and neither party is in material breach of this
Agreement, the parties hereto shall not have any further liability to each other
with respect to the transaction contemplated hereunder. If this Agreement is
terminated by the Discovery Parties due to the Paxson Parties' material breach
of this Agreement, the Discovery Parties shall have all rights and remedies
available at law or equity. If this Agreement is terminated by the Paxson
Parties due to the Discovery Parties' material breach of this Agreement, Paxson
Parties shall have all rights and remedies available at law or equity. Each of
the Paxson Parties, on the one hand, and the Discovery Parties, on the other
hand, recognize that if either party breaches this Agreement and refuses to
perform under the provisions of this Agreement, monetary damages alone would not
be adequate to compensate the non-breaching party for its injury. The
non-breaching party shall therefore be entitled, in addition to any other
remedies that may be available, including money damages, to obtain specific
performance of the terms of this Agreement. If any action is brought by the
non-breaching party to enforce this Agreement, the party in breach against whom
specific performance is sought shall waive the defense that there is an adequate
remedy at law.
SECTION 7
MISCELLANEOUS
7.1 ENTIRE AGREEMENT. This Agreement embodies the entire understanding
and agreement among the parties concerning the matters addressed herein and
supersedes all prior and contemporaneous negotiations, understandings or
agreements in regard thereto.
7.2 EFFECT OF AGREEMENT. The terms of this Agreement supersede the
terms and conditions of the Formation Agreement.
7.2 AMENDMENTS. This Agreement may not be modified or amended except by
an instrument in writing signed by all of the Parties hereto.
7.3 PRESS RELEASES AND DISCLOSURES. The parties agree that neither the
Paxson Parties, on the one hand, nor the Discovery Parties, on the other, nor
their respective affiliates, will issue or cause publication of any press
release or other announcement or public communication with respect to this
Agreement or the transactions contemplated hereby or otherwise disclose this
Agreement or the transactions contemplated hereby to any third party (other than
their respective attorneys, advisors, financing sources and accountants) without
the written consent of the other party hereto, which consent will not be
unreasonably withheld; provided that nothing herein will prohibit any party from
issuing or causing publication of any press release, announcement or public
communication solely to the extent that such party deems such action to be
required by law or
11
<PAGE> 12
pursuant to the applicable rules of a stock exchange; provided further that,
except with respect to filings with the Securities and Exchange Commission, such
party will, whenever practicable, consult with the other party concerning the
timing and content of such press release, announcement or communication before
the same is issued or published; provided further that, for informational
purposes only, the parties will use reasonable best efforts to provide to the
other party prior to such filing the first disclosure to be filed with the
Securities and Exchange Commission regarding the transactions contemplated
hereby, and will use reasonable efforts to file this Agreement on a confidential
basis.
7.4 VALIDITY AND SEVERABILITY. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under pertinent present or future
laws effective during the term of this Agreement, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part of this Agreement
and the remaining provisions of this Agreement shall remain in full force and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.
7.5 HEADINGS AND USAGE. Paragraph and subparagraph headings have been
inserted herein for convenience only and shall not be construed to be a part
hereof or thereof. Unless the context otherwise requires, words in the singular
include the plural, and words in the plural include the singular.
7.6 COUNTERPARTS. This Agreement may be executed in any one or more
counterparts, each of which shall be an original and all of which shall
constitute one and the same agreement.
7.7 SUCCESSORS AND ASSIGNS.. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that except as specifically provided herein, no
party may assign or otherwise dispose of any of its rights or obligations
hereunder.
7.8 VENUE. Any judicial proceeding brought against any party with
respect to this Agreement may be brought in any court of competent jurisdiction
located in the State of New York. By execution and delivery of this Agreement,
the parties hereto accept, generally and unconditionally, the exclusive
jurisdiction of such courts and any related appellate court, and irrevocably
agrees to be bound by any judgment rendered thereby in connection therewith,
subject to any right of appeal thereof.
7.9 FURTHER ASSURANCES. Each party hereto hereby agrees to do such
other acts and things as the other parties may reasonably request in order fully
to effect the purposes of this Agreement.
7.10 NOTICES. All notices, requests, consents, demands and other
communications hereunder shall be in writing delivered by any of the following:
personal delivery; first class certified or registered mail; return receipt
requested; U.S. Express mail, or an express overnight service (such as Federal
Express), addressed to the respective parties to the Agreement at the addresses
set forth under the signature line of such party or to such other person or
address as a party hereto shall designate to the other party hereto from time to
time in writing forwarded in like
12
<PAGE> 13
manner. Any notice, request, consent, demand or communication given in
accordance with the provisions of this paragraph shall be deemed to have been
given and effective when actually received.
7.11 GOVERNING LAW. The validity, interpretation and enforcement of
this Agreement shall be governed by the laws of the State of New York without
giving effect to the conflict of law principles thereof.
[End of Page]
13
<PAGE> 14
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned
as of the date first written above.
PAXSON PARTIES:
TRAVEL CHANNEL ACQUISITION CORPORATION
By: /s/ Anthony L. Morrison
--------------------------------
Its: Vice President
c/o Paxson Communications Corporation
601 Clearwater Park Road
West Palm Beach, Florida 33401-6233
Attention: General Counsel
PAXSON COMMUNICATIONS CORPORATION
By: /s/ Anthony L. Morrison
--------------------------------
Its: Vice President
601 Clearwater Park Road
West Palm Beach, Florida 33401-6233
Attention: General Counsel
DISCOVERY PARTIES:
DISCOVERY COMMUNICATIONS, INC
By: /s/ Mark Hollinger
--------------------------------
Its: Senior Vice President
7700 Wisconsin Avenue
Bethesda, Maryland 20814
Attention: General Counsel
14
<PAGE> 15
PROJECT DISCOVERY, INC.
By: /s/ Mark Hollinger
--------------------------------
Its: Senior Vice President
c/o Discovery Communications, Inc.
7700 Wisconsin Avenue
Bethesda, Maryland 20814
Attention: General Counsel
DISCOVERY VENTURES, L.L.C.
By: /s/ Mark Hollinger
--------------------------------
Its: Senior Vice President
c/o Discovery Communications, Inc.
7700 Wisconsin Avenue
Bethesda, Maryland 20814
Attention: General Counsel
THE TRAVEL CHANNEL, L.L.C.
By: /s/ Mark Hollinger
--------------------------------
Its: Senior Vice President
c/o Discovery Communications, Inc.
7700 Wisconsin Avenue
Bethesda, Maryland 20814
Attention: General Counsel
15
<PAGE> 1
EXHIBIT 10.204
================================================================================
ASSET PURCHASE AGREEMENT
BY AND AMONG
PAXSON COMMUNICATIONS OF NEW YORK-43, INC.,
PAXSON NEW YORK LICENSE, INC.,
AND
SHOP AT HOME, INC.
* * *
FEBRUARY 26, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. DEFINITIONS...........................................................................................1
"Accounts Receivable"...........................................................................1
"Assets"........................................................................................2
"Assumed Contracts".............................................................................2
"Closing".......................................................................................2
"Closing Date"..................................................................................2
"Code"..........................................................................................2
"Consents"......................................................................................2
"Contracts".....................................................................................2
"Escrow Agent"..................................................................................2
"Escrow Agreement"..............................................................................2
"Excluded Assets"...............................................................................2
"FCC"...........................................................................................2
"FCC Consent"...................................................................................2
"FCC Licenses"..................................................................................3
"Final Order"...................................................................................3
"GAAP"..........................................................................................3
"Intangibles"...................................................................................3
"Intermediary"..................................................................................3
"Licenses"......................................................................................3
"Material Adverse Effect".......................................................................3
"Permitted Liens"...............................................................................3
"Purchase Price"................................................................................4
"Real Property".................................................................................4
"Services Agreement"............................................................................4
"Tangible Personal Property"....................................................................4
"Time Brokerage Agreement"......................................................................4
SECTION 2. PURCHASE AND SALE OF ASSETS...........................................................................4
2.1 Agreement to Sell and Buy..............................................................4
2.2 Excluded Assets........................................................................5
2.3 Purchase Price.........................................................................6
2.4 Payment of Purchase Price.............................................................11
2.5 Assumption of Liabilities and Obligations.............................................11
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS............................................................12
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
3.1 Organization, Standing, and Authority.................................................12
3.2 Authorization and Binding Obligation..................................................12
3.3 Absence of Conflicting Agreements.....................................................12
3.4 Governmental Licenses.................................................................13
3.5 Title to and Condition of Real Property...............................................13
3.6 Title to and Condition of Tangible Personal Property..................................13
3.7 Assumed Contracts.....................................................................13
3.8 Broker................................................................................14
3.9 Intangibles...........................................................................14
3.10 Insurance.............................................................................14
3.11 Reports...............................................................................14
3.12 Personnel.............................................................................14
3.13 Taxes.................................................................................15
3.14 Claims and Legal Actions..............................................................15
3.15 Environmental Matters.................................................................15
3.16 Compliance with Laws..................................................................16
3.17 Conduct of Business in Ordinary Course................................................16
3.18 Insolvency. ..........................................................................17
3.19 Cable Carriage. ......................................................................17
3.20 Disclaimer............................................................................17
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER..............................................................17
4.1 Organization, Standing, and Authority.................................................17
4.2 Authorization and Binding Obligation..................................................17
4.3 Absence of Conflicting Agreements.....................................................18
4.4 Broker................................................................................18
4.5 Buyer Qualifications..................................................................18
4.6 Financing.............................................................................18
4.7 Insolvency. .........................................................................18
SECTION 5. OPERATION OF THE STATION PRIOR TO CLOSING............................................................19
5.1 Generally.............................................................................19
5.2 Compensation..........................................................................19
5.3 Contracts.............................................................................19
5.4 Disposition of Assets.................................................................19
5.5 Encumbrances..........................................................................19
5.6 FCC Licenses..........................................................................19
5.7 Access to Information.................................................................19
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.8 Maintenance of Assets.................................................................20
5.9 Insurance.............................................................................20
5.10 Consents..............................................................................20
5.11 Cable Carriage........................................................................20
5.12 Notice of Proceedings.................................................................20
5.13 Confidential Information..............................................................21
5.14 Performance under Assumed Contracts...................................................21
5.15 Books and Records.....................................................................21
5.16 Notification..........................................................................21
5.17 Compliance with Laws..................................................................21
5.18 Cure..................................................................................21
SECTION 6. SPECIAL COVENANTS AND AGREEMENTS.....................................................................21
6.1 FCC Consent...........................................................................21
6.2 HSR Act...............................................................................22
6.3 Control of the Station................................................................22
6.4 Risk of Loss..........................................................................23
6.5 Confidentiality.......................................................................23
6.6 Cooperation...........................................................................23
6.7 Access to Books and Records...........................................................23
6.8 Appraisal.............................................................................23
6.9 Buyer Conduct.........................................................................23
6.10 Employment Matters....................................................................24
6.11 Time Brokerage Agreement..............................................................24
6.12 Services Agreement....................................................................25
SECTION 7. CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS
AT CLOSING ...........................................................................25
7.1 Conditions to Obligations of Buyer....................................................25
7.2 Conditions to Obligations of Sellers..................................................26
SECTION 8. CLOSING AND CLOSING DELIVERIES.......................................................................27
8.1 Closing...............................................................................27
8.2 Deliveries by Sellers.................................................................27
8.3 Deliveries by Buyer...................................................................28
SECTION 9. TERMINATION..........................................................................................28
9.1 Termination by Sellers................................................................28
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
9.2 Termination by Buyer..................................................................29
9.3 Rights on Termination.................................................................30
9.4 Escrow Deposit........................................................................30
SECTION 10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION; CERTAIN REMEDIES.................................................................31
10.1 Representations, Warranties and Covenants.............................................31
10.2 Indemnification by Sellers............................................................31
10.3 Indemnification by Buyer..............................................................32
10.4 Limitations...........................................................................32
10.5 Procedure for Indemnification.........................................................32
10.6 Specific Performance..................................................................33
10.7 Attorneys' Fees.......................................................................34
SECTION 11. MISCELLANEOUS.......................................................................................34
11.1 Fees and Expenses.....................................................................34
11.2 Notices...............................................................................34
11.3 Benefit and Binding Effect............................................................35
11.4 Further Assurances....................................................................35
11.5 Governing Law.........................................................................35
11.6 Headings..............................................................................35
11.7 Gender and Number.....................................................................35
11.8 Entire Agreement......................................................................35
11.9 Waiver of Compliance; Consents........................................................36
11.10 Press Release.........................................................................36
11.11 Like-Kind Exchange....................................................................36
11.12 Consent to Jurisdiction...............................................................36
11.13 Bulk Transfer Laws....................................................................37
11.14 Guaranty..............................................................................37
11.15 Counterparts..........................................................................38
</TABLE>
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<PAGE> 6
LIST OF SCHEDULES
-----------------
Schedule 2.2 --- Excluded Assets
Schedule 3.3 --- Consents
Schedule 3.4 --- Licenses
Schedule 3.5 --- Real Property
Schedule 3.6 --- Tangible Personal Property
Schedule 3.7 --- Contracts
Schedule 3.9 --- Intangibles
Schedule 3.10 --- Insurance
Schedule 3.12 --- Employee Matters
Schedule 3.14 --- Litigation
Schedule 3.19 --- Cable Carriage
Schedule 4.3 --- Buyer Consents
LIST OF EXHIBITS
----------------
Exhibit A --- Time Brokerage Agreement
Exhibit B --- Services Agreement
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<PAGE> 7
DC03/201910-4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is dated as of the 26th day of February,
1999, by and among Paxson Communications of New York-43, Inc., a Florida
corporation ("Paxson-43"), Paxson New York License, Inc., a Florida corporation
("Paxson License"), (Paxson License and Paxson-43 are referred to herein
individually as a "Seller" and collectively as the "Sellers"), Shop at Home,
Inc., a Tennessee corporation ("Buyer"), and Paxson Communications Corporation,
a Delaware corporation ("PCC"), as guarantor.
R E C I T A L S
A. Paxson-43 and Paxson License, indirect, wholly-owned subsidiaries of
PCC, own and operate Television Station WBPT(TV), Bridgeport, Connecticut (the
"Station"), pursuant to authorizations issued by the Federal Communications
Commission (the "FCC") to Paxson License.
B. Sellers desire to sell, and Buyer desires to buy, certain assets
that are used or useful in the business or operations of the Station for the
price and on the terms and conditions set forth in this Agreement.
C. If so elected by Sellers, subject to the terms and conditions of
this Agreement, Sellers may enter into an exchange agreement with an
Intermediary (as defined below) providing that the sale and purchase of some or
all of the assets described herein be effected in a transaction that will
qualify, to the extent permissible, as a "like-kind exchange" under Section 1031
of the Code (as defined below).
A G R E E M E N T S
In consideration of the above recitals and of the mutual agreements and
covenants contained in this Agreement, Buyer and Sellers, intending to be bound
legally, agree as follows:
SECTION 1. DEFINITIONS
The following terms, as used in this Agreement, shall have the meanings
set forth in this Section:
"Accounts Receivable" means the rights of Sellers, as of the Closing
Date, to payment for the sale of advertising or programming time on the Station
by Sellers prior to the Closing Date, it
<PAGE> 8
being understood that "Accounts Receivable" shall not include any amounts
payable to Sellers by Buyer pursuant to the Time Brokerage Agreement.
"Assets" means the assets to be sold, transferred, or otherwise
conveyed to Buyer under this Agreement, as specified in Section 2.1.
"Assumed Contracts" means (i) all Contracts listed in SCHEDULE 3.7 and
(ii) all Contracts entered into by Seller between the date of this Agreement and
the Closing Date that Buyer agrees in writing to assume.
"Closing" means the consummation of the purchase and sale of the Assets
pursuant to this Agreement in accordance with the provisions of Section 8.
"Closing Date" means the date on which the Closing occurs, as
determined pursuant to Section 8.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consents" means the consents, permits, or approvals of government
authorities and other third parties necessary to transfer the Assets to Buyer or
otherwise to consummate the transactions contemplated by this Agreement.
"Contracts" means all agreements (including any amendments and other
modifications thereto) to which either Seller is a party and which relate to or
affect the business or operations of the Station, other than the Time Brokerage
Agreement, and (i) which are in effect on the date of this Agreement or (ii)
which are entered into by either Seller between the date of this Agreement and
the Closing Date, but excluding any of the foregoing that are included in the
Excluded Assets.
"Escrow Agent" means First Union National Bank.
"Escrow Agreement" means the Escrow Agreement dated as of February 5,
1999, among Buyer, Sellers and the Escrow Agent.
"Excluded Assets" has the meaning set forth in Section 2.2.
"FCC" means the Federal Communications Commission.
"FCC Consent" means one or more actions of the FCC granting its
consents to the assignments of the FCC Licenses to Buyer as contemplated by this
Agreement.
-2-
<PAGE> 9
"FCC Licenses" means all Licenses issued by the FCC to Paxson License
in connection with the business or operations of the Station.
"Final Order" means an action by the FCC that has not been reversed,
stayed, enjoined, set aside, annulled, or suspended, and with respect to which
no requests are pending for administrative or judicial review, reconsideration,
appeal, or stay, and the time for filing any such requests and the time for the
FCC to set aside the action on its own motion have expired.
"GAAP" means generally accepted accounting principles, as in effect
from time to time, applied on a consistent basis.
"Intangibles" means all copyrights, trademarks, trade names, service
marks, service names, licenses, patents, permits, jingles, proprietary
information, technical information and data, machinery and equipment warranties,
and other similar intangible property rights and interests (and any goodwill
associated with any of the foregoing) applied for, issued to, or owned by either
Seller or under which either Seller is licensed or franchised and which are used
or useful in the business and operations of the Station, together with any
additions thereto between the date of this Agreement and the Closing Date, but
excluding any of the foregoing that are included in the Excluded Assets.
"Intermediary" means an escrow agent or other person or entity serving
as a "qualified intermediary" under United States Treasury Regulations
promulgated pursuant to Section 1031 of the Code.
"Licenses" means all licenses, permits, and other authorizations issued
to either Seller by the FCC, the Federal Aviation Administration (the "FAA"), if
any, or any other federal, state, or local governmental authorities in
connection with the conduct of the business or operations of the Station,
together with, (i) any additions thereto between the date of this Agreement and
the Closing Date and (ii) any and all applications for modification or renewal
thereof.
"Material Adverse Effect" means a material adverse effect on the Assets
taken as a whole or the business of the Station taken as a whole, as currently
conducted; provided that the foregoing shall not include any material adverse
effect arising out of (i) factors affecting the television broadcasting industry
generally, (ii) general national, regional or local economic conditions, (iii)
governmental or legislative laws, rules or regulations, or (iv) actions or
omissions of Buyer or its agents.
"Permitted Liens" means liens for taxes and assessments not yet due and
payable, mechanics' and other statutory liens created in the ordinary course of
business that secure obligations not delinquent, restrictions or rights of
governmental authorities under applicable law
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and liens, restrictions, easements and other encumbrances on the Real Property
that do not materially affect the use or value of the Real Property.
"Purchase Price" means the purchase price specified in Section 2.3.
"Real Property" means Sellers' interests in real property that are set
forth on SCHEDULE 3.5 hereto.
"Services Agreement" means the Services Agreement attached hereto as
EXHIBIT B to be entered into by Paxson-43 and Buyer in accordance with Section
6.12 hereof.
"Tangible Personal Property" means the equipment, tools, leasehold
improvements, office equipment, inventory, spare parts, and other tangible
personal property set forth on SCHEDULE 3.6 hereto, less any retirements or
depositions thereof made in the ordinary course of business or in connection
with the acquisition of equivalent replacement property.
"Time Brokerage Agreement" means the Time Brokerage Agreement attached
hereto as EXHIBIT A to be entered into by Buyer and Sellers in accordance with
Section 6.11 hereof and pursuant to which, among other things, Buyer shall
provide programming for broadcast on the Station.
SECTION 2. PURCHASE AND SALE OF ASSETS
2.1 AGREEMENT TO SELL AND BUY. Subject to the terms and conditions set
forth in this Agreement, Sellers hereby agree to sell, transfer, and deliver to
Buyer on the Closing Date, and Buyer agrees to purchase on the Closing Date, all
of Sellers' rights, title and interest in and to the following tangible and
intangible assets used or useful in connection with the conduct of the business
or operations of the Station, but excluding the assets described in Section 2.2,
free and clear of any claims, liabilities, security interests, mortgages, liens,
pledges, conditions, charges, or encumbrances of any nature whatsoever (except
for Permitted Liens), including the following:
(a) The Tangible Personal Property;
(b) The Real Property;
(c) The Licenses;
(d) The Assumed Contracts;
(e) The Intangibles and the goodwill of the Station, if any;
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(f) The Accounts Receivable;
(g) All of Sellers' proprietary information, technical information and
data, machinery and equipment warranties, maps, computer discs and tapes, plans,
diagrams, blueprints, and schematics, relating to the business and operation of
the Station; and
(h) All of Sellers' books and records relating to the business or
operations of the Station, other than those described in Section 2.2(b),
including all records required by the FCC to be kept by the Station.
2.2 EXCLUDED ASSETS. The Assets shall exclude the following assets (the
"Excluded Assets"):
(a) Sellers' cash on hand as of the Closing and all other cash in any
of Sellers' bank or savings accounts; any insurance policies, letters of credit,
or other similar items and cash surrender value in regard thereto; and any
stocks, bonds, certificates of deposit and similar investments;
(b) All books and records that either Seller is required by law to
retain, that pertain to either Seller's organization or other internal matters
and all tax records;
(c) Any pension, profit-sharing, or employee benefit plans, and any
collective bargaining agreements;
(d) Claims of either Seller with respect to matters occurring prior to
the Closing Date;
(e) Rights to the name "Paxson," "PAX" or any logo, variation or
derivation thereof, and the call sign "BPT";
(f) Prepaid expenses for which Sellers do not receive a credit under
Section 2.3(b) hereof and deposits to the extent not reflected in the
adjustments made pursuant to Section 2.3(b) hereof;
(g) All of the equipment and other tangible personal property and
leasehold and other real property interests relating to the Station which are
not located at the Station's transmitter site;
(h) All assets or property of Sellers not related to the Station; and
(i) All other property listed on SCHEDULE 2.2 hereto.
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2.3 PURCHASE PRICE.
(a) PURCHASE PRICE. The Purchase Price for the Assets shall be
Twenty-One Million Dollars ($21,000,000), adjusted as provided in Sections
2.3(b) and (d) below.
(b) PRORATIONS. The Purchase Price shall be increased or
decreased as required to effectuate the proration of the revenues and expenses
of the Station, other than expenses for which Buyer is obligated to reimburse
Sellers under the Time Brokerage Agreement. All revenues and all expenses
arising from the operation of the Station, including business and license fees,
utility charges, real and personal property taxes and assessments levied against
the Assets, property and equipment rentals, applicable copyright or other fees,
sales and service charges, taxes (except for taxes arising from the transfer of
the Assets under this Agreement), programming fees and expenses, employee
compensation, including wages and accrued vacation and sick leave for all
employees of Sellers who become employees of Buyer, annual regulatory fees
imposed by the FCC and similar prepaid and deferred items, shall be prorated
between Buyer and Sellers in accordance with GAAP and the principle that Sellers
shall be entitled to all revenues and shall be responsible for all expenses,
costs, and liabilities allocable to the period prior to the Closing Date
(subject to reimbursement by Buyer pursuant to the Time Brokerage Agreement) and
Buyer shall be entitled to all revenues and shall be responsible for all
expenses, costs, and obligations allocable to the period on and after the
Closing Date. Notwithstanding the preceding sentence, there shall be no
adjustment for, and Sellers shall remain solely liable with respect to, any
Contracts not included in the Assumed Contracts and any other obligation or
liability not being assumed by Buyer in accordance with Section 2.5.
(c) MANNER OF DETERMINING PRORATIONS ADJUSTMENTS.
(i) Any adjustments pursuant to Section 2.3(b) will,
insofar as feasible, be determined and paid on the Closing Date, with final
settlement and payment by the appropriate party occurring as set forth below.
Sellers shall prepare and deliver to Buyer not later than five (5) days before
the Closing Date a preliminary settlement statement which shall set forth
Sellers' good faith estimate of the prorations under Section 2.3(b). The
preliminary settlement statement shall contain all information reasonably
necessary to determine the prorations under Section 2.3(b), including
appropriate supporting documentation and such other information as may be
reasonably requested by Buyer, to the extent such prorations can be determined
or estimated as of the date of the preliminary settlement statement and shall be
certified by an officer (but without personal liability of such officer) on
behalf of Sellers to be true and complete to Sellers' knowledge.
(ii) Not later than ninety days after the Closing
Date, Buyer shall deliver to Sellers a statement setting forth Buyer's
determination of any changes to the prorations
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made at the Closing pursuant to Section 2.3(b). Buyer's statement (A) shall
contain all information reasonably necessary to determine the prorations to the
Purchase Price under Section 2.3(b), including appropriate supporting
documentation, and such other information as may be reasonably requested by
Sellers, and (B) shall be certified by an officer (but without personal
liability to such officer) on behalf of Buyer to be true and complete to Buyer's
knowledge. Sellers (and their authorized representatives) shall have the right
to visit the Station during normal business hours to verify and review such
documentation upon providing reasonable notice to Buyer (such access not to
unreasonably interfere with the business or operations of the Station). If
Sellers dispute the prorations determined by Buyer pursuant to Section 2.3(b),
they shall deliver to Buyer within fifteen days after their receipt of Buyer's
statement a statement setting forth their determination of such prorations. If
Sellers notify Buyer of their acceptance of Buyer's statement, or if Sellers
fail to deliver their statement within the fifteen-day period specified in the
preceding sentence, Buyer's determination of such adjustments and prorations
shall be conclusive and binding on the parties as of the last day of such
fifteen-day period.
(iii) Buyer and Sellers shall use good faith efforts
to resolve any dispute involving the determination of the prorations pursuant to
Section 2.3(b) in connection with the Closing. If the parties are unable to
resolve any dispute within fifteen days following the delivery to Buyer of the
statement described in the penultimate sentence of Section 2.3(c)(ii), Buyer and
Sellers shall jointly designate an independent certified public accountant, who
shall be knowledgeable and experienced in the operation of television
broadcasting stations, to resolve such dispute. If the parties are unable to
agree on the designation of an independent certified public accountant, the
selection of the accountant to resolve the dispute shall be submitted to
arbitration in accordance with the commercial arbitration rules of the American
Arbitration Association. The accountant's resolution of the dispute shall be
final and binding on the parties, and a judgment may be entered thereon in any
court referred to in Section 11.12 hereof. Any fees of the accountant, and, if
necessary, for arbitration to select such accountant, shall be split equally
between the parties.
(d) CABLE HOMES ADJUSTMENT. If the Station's programming is provided to
less than 900,000 cable television system or other multichannel video
programming service provider customers ("Cable Homes") as of the Closing Date,
as determined pursuant to Section 2.3(e)(i) below, the Purchase Price payable to
Sellers at Closing shall be reduced by an amount equal to the product of (x) the
difference between 900,000 and the number of Cable Homes to which the Station's
programming is provided as of the Closing Date and (y) Twenty-Two Dollars
($22.00) (such product is the "Cable Homes Closing Holdback"). If the Station's
programming is provided to less than 900,000 Cable Homes as of the Closing Date,
as determined pursuant to Section 2.3(e)(i) below, Buyer shall, on the Closing
Date, pay to Sellers in accordance with Section 2.4 the Purchase Price less the
amount of the Cable Homes Closing Holdback and deposit with the Escrow Agent by
federal wire transfer of same-day funds the
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<PAGE> 14
amount of the Cable Homes Closing Holdback. All such funds deposited with the
Escrow Agent and all interest and other proceeds earned thereon (the "Closing
Escrow Fund") shall be held and disbursed in accordance with the terms of the
Escrow Agreement and the following provisions:
(i) If the Station's programming is provided to 900,000 or
more Cable Homes, as determined pursuant to Section 2.3(e)(ii) below, as of any
date (the "Interim Disbursement Date") during the period commencing on the
Closing Date , Buyer and Sellers shall jointly instruct the Escrow Agent no
later than two (2) business days following the Interim Disbursement Date to
disburse to Sellers all amounts held by the Escrow Agent, including the entire
amount of the Cable Homes Closing Holdback and all interest or other proceeds
earned thereon.
(ii) Subject to subsection (iii) below, if the total number of
Cable Homes to which the Station's programming is provided as of the date that
is 180 days after the Closing Date (the "Holdback Deadline") is more than the
number of Cable Homes to which the Station's programming was provided on the
Closing Date but less than 900,000 (such total is the "Holdback Deadline
Total"), as determined pursuant to Section 2.3(e)(iii) below, Buyer and Sellers
shall jointly instruct the Escrow Agent no later than two (2) business days
following the Holdback Deadline to:
(A) disburse to Sellers from the Closing Escrow Fund
an amount equal to the sum of (1) the product of (x) the difference
between the Holdback Deadline Total and the number of Cable Homes to
which the Station's programming was provided as of the Closing Date and
(y) Twenty-Two Dollars ($22.00) and (2) the portion of the interest
earned on the Closing Escrow Fund as of the Holdback Deadline that is
allocable to the amount to be disbursed to Sellers pursuant to this
clause (A); and
(B) disburse to Buyer the balance of the Closing
Escrow Fund after the disbursement described in clause (A) immediately
above.
(iii) Notwithstanding the requirements of Section 2.3(d)(ii)
above, if on the Holdback Deadline the sum of (x) the number of Cable Homes to
which the Station's programming is provided as of the Holdback Deadline and (y)
the number of Cable Homes covered by a decision issued by the FCC on or before
the Holdback Deadline that modifies the Station's broadcast market for purposes
of the mandatory signal carriage provisions of the Cable Television Consumer
Protection and Competition Act of 1992 to include additional communities within
such broadcast market (a "Favorable Market Modification Decision") equals or
exceeds 900,000, as determined pursuant to Section 2.3(e)(iii) below, regardless
of whether the Station's programming is provided as of the Holdback Deadline to
the Cable Homes covered by the Favorable Market Modification Decision, the
amount of the Cable Homes Closing Holdback and
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<PAGE> 15
all interest or other proceeds earned thereon shall be retained by the Escrow
Agent and shall be disbursed as follows:
(A) If the Station's programming is not provided to
900,000 or more Cable Homes, as determined pursuant to Section
2.3(e)(iv), as of the date that is 180 days after the Holdback Deadline
(the "Final Disbursement Date"), but is provided to more Cable Homes
than the number of Cable Homes to which the Station's programming was
provided on the Closing Date, the funds held by the Escrow Agent shall
be disbursed in accordance with the procedure set out in Section 2.3
(d)(ii) (except that, for the purpose of this Section 2.3(d)(iii)(A),
each reference in Section 2.3(d)(iii) to the "Holdback Deadline" shall
be deemed to be a reference to the "Final Disbursement Date"); and
(B) If, during the period between the Holdback
Deadline and the Final Disbursement Date, the FCC issues a decision
that reverses the Favorable Market Modification Decision and such
decision becomes a Final Order, the date such decision becomes a Final
Order shall be considered the Final Disbursement Date and the funds
held by the Escrow Agent shall be disbursed to the parties in
accordance with the procedures established in Section 2.3(d)(ii) above
(except that, for the purpose of this Section 2.3(d)(iii)(B), each
reference in Section 2.3(d)(iii) to the "Holdback Deadline" shall be
deemed to be a reference to the "Final Disbursement Date").
(iv) If the FCC issues the Favorable Market Modification
Decision prior to the Holdback Deadline and the provisions of Section
2.3(d)(iii) above become applicable, Buyer will use its best efforts to exercise
its carriage rights on the cable systems in the communities covered by the
Favorable Market Modification Decision.
(v) Neither Buyer nor any affiliate, employee or agent of
Buyer shall enter into any agreement or arrangement, written or oral, or
initiate or entertain any discussions regarding any such agreement or
arrangement, that prevents, limits or delays Buyer's ability to increase the
number of Cable Homes to which the Station's programming is provided during the
period commencing on the date of this Agreement and ending on the Final
Disbursement Date.
Notwithstanding any provision of this Agreement to the
contrary, Sellers' shall be permitted to negotiate and enter one or more into
contracts regarding carriage of the Station's programming by cable television
systems and other multichannel video service providers, so long as Buyer is not
obligated under the terms of such contracts to make any payments to such systems
or providers to obtain or maintain such carriage (collectively, the "Carriage
Agreements"). If Sellers shall have entered into one or more Carriage Agreements
prior to the Closing Date, Buyer shall assume, effective as of the Closing Date,
Sellers' obligations thereunder, to the extent such obligations are to be
performed on or after the Closing Date. At Sellers' request, Buyer shall enter
into any Carriage Agreement that Sellers have
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<PAGE> 16
negotiated during the period commencing on the Closing Date and ending on the
Final Disbursement Date.
Upon any reasonable request of Sellers, Buyer shall, on a
timely basis, (i) oppose any request for administrative or judicial
reconsideration, review, appeal or stay of any Favorable Market Modification
Decision, (ii) file and prosecute all requests for administrative or judicial
reconsideration, review, appeal or stay of any decision by the FCC to refuse to
modify the Station's broadcast market for purposes of the mandatory signal
carriage provisions of the Cable Television Consumer Protection Competition Act
of 1992 and (iii) file and prosecute any Complaint or other pleading permitted
to be filed with the FCC for the purpose of requiring cable television systems
or other multichannel video service program providers to carry the Station's
programming (a "Complaint") and any request for administrative or judicial
reconsideration, review, appeal or stay of any action taken by the FCC with
respect to any Complaint. Sellers' shall be permitted to participate in and
control, at Sellers' sole expense, to the fullest extent permitted by the Act
and the rules, regulations and policies of the FCC, the proceedings described in
clauses (i), (ii) and (iii) above.
(e) MANNER OF DETERMINING CABLE HOMES ADJUSTMENT.
(i) Sellers shall prepare and deliver to Buyer not later than
five (5) days before the Closing Date a statement which shall set forth Sellers'
good faith estimate of the number of Cable Homes to which the Station's
programming is provided as of the Closing Date. The statement shall contain
appropriate supporting documentation and such other information as may be
reasonably requested by Buyer and shall be certified by an officer (but without
personal liability of such officer) on behalf of Sellers to be true and complete
to Sellers' knowledge.
(ii) Sellers shall prepare and deliver to Buyer not later than
five (5) days before the Interim Disbursement Date a statement which shall set
forth Sellers' good faith estimate of the number of Cable Homes to which the
Station's programming is provided as of the Interim Disbursement Date. The
statement shall contain appropriate supporting documentation and such other
information as may be reasonably requested by Buyer and shall be certified by an
officer (but without personal liability of such officer) on behalf of Sellers to
be true and complete to Sellers' knowledge.
(iii) Sellers shall prepare and deliver to Buyer not later
than five (5) days before the Holdback Deadline a statement which shall set
forth Sellers' good faith estimate of the number of Cable Homes to which the
Station's programming is provided as of the Holdback Deadline and which are
covered by a Favorable Market Modification Decision. The statement shall contain
appropriate supporting documentation and such other information as may be
reasonably requested by Buyer and shall be certified by an officer (but without
personal liability of such officer) on behalf of Sellers to be true and complete
to Sellers' knowledge.
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(iv) Sellers shall prepare and deliver to Buyer not later than
five (5) days before the Final Disbursement Date a statement which shall set
forth Sellers' good faith estimate of the number of Cable Homes to which the
Station's programming is provided as of the Final Disbursement Date. The
statement shall contain appropriate supporting documentation and such other
information as may be reasonably requested by Buyer and shall be certified by an
officer (but without personal liability of such officer) on behalf of Sellers to
be true and complete to Sellers' knowledge.
(v) Buyer and Sellers shall use good faith efforts to resolve
any dispute involving the determination of the adjustment pursuant to Section
2.3(d). If the parties are unable to resolve any dispute within fifteen (15)
days following the delivery to Buyer of the statements described in Sections
2.3(e)(i), (ii), (iii) and (iv), Buyer and Sellers shall jointly designate an
independent certified public accountant, who should be knowledgeable and
experienced in the operation of television broadcasting stations and cable
television systems, to resolve such dispute. If the parties are unable to agree
on the designation of an independent certified public accountant, the selection
of the accountant to resolve the dispute shall be submitted to arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. The accountant's resolution of the dispute shall be final and
binding on the parties, and a judgment may be entered thereon in any court
referred to in Section 11.12 hereof. Any fees of the accountant, and, if
necessary for arbitration to select such accountant, shall be split equally
between the parties.
2.4 PAYMENT OF PURCHASE PRICE. The Purchase Price, as adjusted under
Sections 2.3(b) and (d), shall be paid by Buyer to Sellers at Closing by federal
wire transfer of same-day funds pursuant to wire instructions delivered by
Sellers to Buyer at least two business (2) days prior to the Closing Date.
2.5 ASSUMPTION OF LIABILITIES AND OBLIGATIONS. As of the Closing Date,
Buyer shall assume and undertake to pay, discharge, and perform all obligations
and liabilities (a) under the Licenses and the Assumed Contracts insofar as they
relate to the period on and after the Closing Date, (b) with respect to which an
adjustment to the Purchase Price is made in favor of Buyer pursuant to Section
2.3(b), (c) to any former employee of Sellers who is hired by Buyer insofar as
such obligations and liabilities relate to the period on and after the Closing
Date, and (d) arising out of the business or operations of the Station on and
after the Closing Date. Buyer shall not assume any other obligations or
liabilities of Sellers, including (i) any obligations or liabilities under any
Contract not included in the Assumed Contracts, (ii) any obligations or
liabilities under the Licenses or Assumed Contracts relating to the period prior
to the Closing Date, (iii) any claims, litigation or proceedings relating to
Sellers' operation of the Station prior to the Closing, (iv) any obligations or
liabilities arising under capitalized leases or other financing agreements not
assumed by Buyer, and (v) any obligations or liabilities of Sellers
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<PAGE> 18
under any employee pension or retirement plan or collective bargaining agreement
(all of the foregoing are referred to hereinafter collectively as the "Seller
Retained Liabilities"). All Seller Retained Liabilities shall remain and be the
obligations and liabilities solely of Sellers.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as set forth below.
3.1 ORGANIZATION, STANDING, AND AUTHORITY. Sellers are corporations
duly organized, validly existing, and in good standing under the laws of the
State of Florida. Paxson-31 is duly qualified as a foreign corporation and is in
good standing in the States of Connecticut, New York and New Jersey. Each Seller
has all requisite corporate power and authority (i) to own, lease, and use those
Assets that are owned, leased and used by it, as now owned, leased, and used,
(ii) to conduct the business and operations of the Station as now conducted, and
(iii) to execute and deliver this Agreement and the documents contemplated
hereby, and to perform and comply with all of the terms, covenants, and
conditions to be performed and complied with by such Seller hereunder.
3.2 AUTHORIZATION AND BINDING OBLIGATION. The execution, delivery, and
performance by Sellers of this Agreement and the documents contemplated hereby
have been duly authorized by all necessary corporate actions on the part of
Sellers. This Agreement has been duly executed and delivered by Sellers and
constitutes the legal, valid, and binding obligation of Sellers, enforceable
against them in accordance with its terms, except as the enforceability of this
Agreement may be affected by bankruptcy, insolvency, or similar laws affecting
creditors' rights generally, and by judicial discretion in the enforcement of
equitable remedies.
3.3 ABSENCE OF CONFLICTING AGREEMENTS. Subject to obtaining the FCC
Consent, the Consents listed on SCHEDULE 3.3 and applicable requirements under
the HSR Act (as defined below), the execution, delivery, and performance by
Sellers of this Agreement and the documents contemplated hereby (with or without
the giving of notice, the lapse of time, or both): (i) do not require the
consent of any third party, except for such consents the failure of which to
obtain could not reasonably be expected to have a Material Adverse Effect; (ii)
will not conflict with any provision of the organizational documents of Sellers;
(iii) will not conflict with, result in a breach of, or constitute a default
under, any law, judgment, order, ordinance, injunction, decree, rule,
regulation, or ruling of any court or governmental instrumentality; and (iv)
will not conflict with, constitute grounds for termination of, result in a
breach of, or constitute a default under, any material agreement, instrument,
license, or permit to which either Seller is a party or by which either Seller
may be bound, including, without limitation, any agreement to sell the Assets to
Cuchifritos Communications, L.L.C.
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<PAGE> 19
3.4 GOVERNMENTAL LICENSES. SCHEDULE 3.4 includes true and complete
copies of all material Licenses, including FCC Licenses and those issued by the
FAA, if any. All FCC Licenses have been validly issued, and Paxson License is
the authorized legal holder thereof. The FCC Licenses included in SCHEDULE 3.4
comprise all of the material licenses, permits, and other authorizations
required from any governmental or regulatory authority for the lawful conduct of
the business and operations of the Station in the manner and to the extent they
are now conducted. The FCC Licenses are in full force and effect, and the
conduct of the business and operations of the Station is in compliance therewith
except for such noncompliance that could not reasonably be expected to have a
Material Adverse Effect. Notwithstanding any provision in this Agreement to the
contrary, Sellers make no representation or warranty regarding the fitness or
suitability of the Station's existing facilities, including the existing
transmitter site, for the Station's DTV operations.
3.5 TITLE TO AND CONDITION OF REAL PROPERTY. SCHEDULE 3.5 contains an
accurate description of the Real Property. With respect to the leasehold
interest included in the Real Property, so long as Sellers fulfill their
obligations under the lease therefor, Sellers have enforceable rights to
nondisturbance and quiet enjoyment. All towers, guy anchors, and buildings and
other improvements included in the Assets are located entirely on the Real
Property listed in SCHEDULE 3.5. Sellers have delivered to Buyer true and
complete copies of all leases pertaining to the Real Property. All Real Property
(including the improvements thereon) (i) is in good condition and repair in all
material respects consistent with its present use (wear and tear excepted), (ii)
is available for immediate use in the conduct of the business and operations of
the Station as currently conducted, and (iii) complies with all applicable
building or zoning codes and the regulations of any governmental authority
having jurisdiction except for any noncompliance that could not reasonably be
expected to have a Material Adverse Effect.
3.6 TITLE TO AND CONDITION OF TANGIBLE PERSONAL PROPERTY. Except as
described in SCHEDULE 3.6, Sellers own and have good title to each item of
Tangible Personal Property, and none of the Tangible Personal Property owned by
Sellers is subject to any security interest, mortgage, pledge, conditional sales
agreement, or other lien or encumbrance, except for Permitted Liens and liens
set forth on SCHEDULE 3.6 hereto. Each item of Tangible Personal Property is
available for immediate use in the business and operations of the Station as
currently conducted. All items of transmitting equipment included in the
Tangible Personal Property (i) have been maintained in all material respects in
a manner consistent with generally accepted standards of good engineering
practice, and (ii) will permit the Station to operate in material compliance
with the terms of the FCC Licenses, the Communications Act of 1934, as amended
(the "Act") as well as the rules, regulations and published policies of the FCC,
and with all other applicable federal, state, and local statutes, ordinances,
rules, and regulations.
3.7 ASSUMED CONTRACTS. Sellers have delivered to Buyer true and
complete copies of all Contracts listed on SCHEDULE 3.7. All of the Assumed
Contracts are in full force and effect.
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Sellers are in material compliance with the Assumed Contracts, and, to Sellers'
knowledge, there is not under any Assumed Contract any material default by any
other party thereto or any event that, after notice or lapse of time or both,
could constitute a material default. Except for the need to obtain the Consents
listed in SCHEDULE 3.3, Sellers have full legal power and authority to assign
their rights under the Assumed Contracts to Buyer in accordance with this
Agreement.
3.8 BROKER. Neither Sellers nor any person acting on Sellers' behalf
has incurred any liability for any finders' or brokers' fees or commissions in
connection with the transactions contemplated by this Agreement, except for fees
payable to Communications Equity Associates and Media Ventures Partners, which
shall be the sole responsibility of Sellers.
3.9 INTANGIBLES. SCHEDULE 3.9 is a true and complete list of all
material Intangibles (exclusive of those listed in SCHEDULE 3.4), all of which
are valid and in good standing and uncontested. Sellers have delivered to Buyer
copies of all documents establishing or evidencing all material Intangibles. To
Sellers' knowledge, neither Seller is infringing upon or otherwise acting
adversely to any trademarks, trade names, service marks, service names,
copyrights, patents, patent applications, know-how, methods, or processes owned
by any other person or persons.
3.10 INSURANCE. SCHEDULE 3.10 sets forth all policies of insurance
covering the Assets and such policies are in full force and effect.
3.11 REPORTS. All material returns, reports, and statements required to
be filed by Sellers with respect to the Station with the FCC or with any other
governmental agency have been filed, and all reporting requirements of the FCC
and other governmental authorities having jurisdiction over Sellers and the
Station have been complied with by Sellers in all material respects. All of such
returns, reports, and statements are complete and correct as filed in all
material respects. Sellers have paid to the FCC all annual regulatory fees
required to be paid by Sellers with respect to the FCC Licenses. The local
public inspection file required to be maintained by the Station has been
maintained in all material respects with the requirements of Section 73.3526 of
the FCC's Rules.
3.12 PERSONNEL.
(a) EMPLOYEES AND COMPENSATION. SCHEDULE 3.12 contains a true and
complete list in all material respects of all employees of Sellers who are
employed at the Station, their job titles, date of hire and current salary.
SCHEDULE 3.12 also contains a description as of the date of this Agreement of
all employee benefit plans or arrangements applicable to Sellers' employees at
the Station. All employee benefits and welfare plans or arrangements listed in
SCHEDULE 3.12 were established and have been executed, managed and administered
in all material respects in accordance with the Internal Revenue Code of 1986,
as amended, the
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Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Sellers
are not aware of the existence of any governmental audit or examination of any
of such plans or arrangements.
(b) LABOR RELATIONS. Neither Seller is a party to or subject to any
collective bargaining agreements with respect to the Station. Sellers have no
written contracts of employment with any employee of the Station. Sellers have
complied in all material respects with all laws, rules, and regulations relating
to the employment of labor, including those related to wages, hours, collective
bargaining, occupational safety, discrimination, and the payment of social
security and other payroll related taxes. No labor union or other collective
bargaining unit represents or to Sellers' knowledge, claims to represent any of
Sellers' employees at the Station. To Sellers' knowledge, there is no union
campaign being conducted to solicit cards from employees to authorize a union to
request a National Labor Relations Board certification election with respect to
Sellers' employees at the Station.
3.13 TAXES. Sellers have filed or caused to be filed all federal, state and
local income tax returns required to be filed by Sellers and have paid or
accrued all taxes shown on those returns to the extent such taxes have become
due, except where the failure to file such returns or pay or accrue such taxes
does not result in a lien on the Assets or in the imposition of transferee
liability on Buyer for the payment of such taxes. There are no proceedings
pending pursuant to which Sellers are or could be made liable for any taxes,
penalties, interest, or other charges, the liability for which could extend to
Buyer as transferee of the Assets or as operator of the Station following the
Closing, and, to Sellers' knowledge, no event has occurred that could impose on
Buyer any transferee liability for any taxes, penalties, or interest due or to
become due from Sellers.
3.14 CLAIMS AND LEGAL ACTIONS. Except for any FCC rulemaking proceedings
generally affecting the broadcasting industry, including, without limitation,
the FCC rulemaking identified as In the Matter of Advanced Television Systems,
MM Docket No. 87-268 and any related or subsequent FCC or court proceeding, or
as listed on SCHEDULE 3.14 attached hereto, there is no material claim, legal
action, counterclaim, suit, arbitration, governmental investigation or other
legal, administrative, or tax proceeding, nor any material order, decree or
judgment pending or, to Sellers' knowledge, threatened, against Sellers with
respect to their ownership or operation of the Station or otherwise relating to
the Assets.
3.15 ENVIRONMENTAL MATTERS.
(a) With respect to their operation of the Station, Sellers are in
compliance in all material respects with all laws, rules, and regulations of all
federal, state, and local governments (and all agencies thereof) concerning the
environment, and Sellers have received no written notice of a charge, complaint,
action, suit, proceeding, hearing, investigation, claim,
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demand, or notice having been filed or commenced against Sellers in connection
with their operation of the Station alleging any failure to comply with any such
law, rule, or regulation.
(b) To Sellers' knowledge, Sellers have no material liability relating
to their operation of the Station under any law, rule or regulation of any
federal, state, or local government (or agency thereof) concerning the release
or threatened release of hazardous substances, pollution or protection of the
environment.
(c) To Sellers' knowledge, in connection with Sellers' operation of the
Station, Sellers hold and are in compliance in all material respects with all of
the terms and conditions of all permits, licenses, and other authorizations
which are required under, and are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in, all federal, state, and local
laws, rules, and regulations relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
3.16 COMPLIANCE WITH LAWS. Sellers are in material compliance with the
Licenses and all federal, state, and local laws, rules, regulations, and
ordinances applicable or relating to the ownership or operation by Sellers of
the Station. Neither the ownership or operation of the Assets by Sellers
conflicts in any material respect with the rights of any other person or entity.
3.17 CONDUCT OF BUSINESS IN ORDINARY COURSE. Sellers have conducted the
business and operations of the Station in the ordinary course of business
consistent with past practices in all material respects and have not:
(a) Made any sale, assignment, lease, or other transfer of the
Station's properties other than obsolete assets no longer used in the operation
of the Station or other assets sold or disposed of in the normal and usual
course of business with suitable replacements being obtained therefor;
(b) Canceled any debts owed to or claims held by Sellers with respect
to the Station, except in the normal and usual course of business; or
(c) Suffered any material write-down of the value of any Assets or any
material write-off as uncollectible of any accounts receivable of the Station,
except in the normal and usual course of business.
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3.18 INSOLVENCY. No insolvency proceedings of any character, including,
without limitation, bankruptcy, receivership, reorganization, composition or
arrangement with creditors, voluntary or involuntary, affecting either Sellers
or any of the Assets is pending or, to Sellers' knowledge, threatened, and
Sellers have not made any assignment for the benefit of creditors, nor taken any
actions with a view to, or which would constitute the basis for, the institution
of any such insolvency proceedings.
3.19 CABLE CARRIAGE. SCHEDULE 3.19 annexed hereto sets forth, to Sellers'
knowledge, a correct and complete list in all material respects of all cable
television systems that carry the Station's signal on the date hereof under the
FCC's "must carry" rules or under agreements implementing such rules.
3.20 DISCLAIMER. Except for the foregoing representations and warranties
specifically set forth in Sections 3.1 through 3.19, and the representations and
warranties in the Certificate to be delivered by Sellers pursuant to Section
8.2(c), the Assets are being transferred by Sellers to Buyer without any
representation or warranty, all other representations and warranties of any
kind, either express or implied, including warranties of fitness, being hereby
expressly disclaimed. Without limiting the generality of the foregoing, Buyer
acknowledges that neither Sellers nor any director, officer, employee or agent
of Sellers has made any warranty or representation, express or implied, as to
the revenue or income to be derived from the Station or the expenses to be
incurred with respect thereto.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION, STANDING, AND AUTHORITY. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Tennessee and, as of the Closing Date, will be duly qualified as a foreign
corporation and in good standing in the State of Connecticut and each other
jurisdiction in which such qualification is necessary for Buyer to own the
Assets and operate the Station. Buyer has all requisite power and authority to
execute and deliver this Agreement and the documents contemplated hereby, and to
perform and comply with all of the terms, covenants, and conditions to be
performed and complied with by Buyer hereunder.
4.2 AUTHORIZATION AND BINDING OBLIGATION. The execution, delivery, and
performance by Buyer of this Agreement and the documents contemplated hereby
have been duly authorized by all necessary actions on the part of Buyer. This
Agreement has been duly executed and delivered by Buyer and constitutes the
legal, valid, and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except as the enforceability of this Agreement may
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<PAGE> 24
be affected by bankruptcy, insolvency, or similar laws affecting creditors'
rights generally and by judicial discretion in the enforcement of equitable
remedies.
4.3 ABSENCE OF CONFLICTING AGREEMENTS. Subject to obtaining the FCC
Consent, the Consents listed on SCHEDULE 4.3 and applicable requirements under
the HSR Act, the execution, delivery, and performance by Buyer of this Agreement
and the documents contemplated hereby (with or without the giving of notice, the
lapse of time, or both): (i) do not require the consent of any third party
except for such consents the failure of which to obtain could not reasonably be
expected to have a material adverse effect on the performance by Buyer of its
obligations hereunder; (ii) will not conflict with the organizational documents
of Buyer; (iii) will not conflict with, result in a breach of, or constitute a
default under, any law, judgment, order, injunction, decree, rule, regulation,
or ruling of any court or governmental instrumentality; or (iv) will not
conflict with, constitute grounds for termination of, result in a breach of, or
constitute a default under, any material agreement, instrument, license, or
permit to which Buyer is a party or by which Buyer may be bound, such that Buyer
could not acquire or operate the Assets.
4.4 BROKER. Neither Buyer nor any person acting on Buyer's behalf has
incurred any liability for any finders' or brokers' fees or commissions in
connection with the transactions contemplated by this Agreement.
4.5 BUYER QUALIFICATIONS. Buyer is, and as of the Closing will be, legally,
financially and otherwise qualified to perform its obligations hereunder and to
be the licensee of and to acquire, own and operate the Station under the
Communications Act of 1934, as amended, and the rules, regulations and policies
of the FCC. Buyer knows of no fact that would disqualify Buyer as assignee of
the FCC Licenses or as the owner and operator of the Station. To Buyer's
knowledge, no waiver of any FCC rule or policy is required for the grant of the
FCC Consent.
4.6 FINANCING. Buyer currently has and will have on the Closing Date
sufficient funds to enable it to consummate the transactions contemplated
hereby. Buyer acknowledges that the availability of any financing shall not be a
condition to its obligation to consummate the transactions contemplated hereby
at the Closing, or to any of its other obligations hereunder.
4.7 INSOLVENCY. No insolvency proceedings of any character, including,
without limitation, bankruptcy, receivership, reorganization, composition or
arrangement with creditors, voluntary or involuntary, affecting Buyer is pending
or, to Buyer's knowledge, threatened, and Buyer has not made any assignment for
the benefit of creditors, nor taken any actions with a view to, or which would
constitute the basis for, the institution of any such insolvency proceedings.
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SECTION 5. OPERATION OF THE STATION PRIOR TO CLOSING
5.1 GENERALLY. Subject to the provisions of the Time Brokerage Agreement,
Sellers agree that, between the date of this Agreement and the Closing Date,
Sellers shall operate the Station in all material respects in the ordinary
course of business in accordance with their past practices (except where such
conduct would conflict with the following covenants or with Sellers' other
obligations under this Agreement or the Time Brokerage Agreement), and in
accordance with the other covenants in this Section 5; it being expressly
understood by Buyer that any action taken or failed to be taken by Sellers
pursuant to the Time Brokerage Agreement shall not constitute a breach or
default by Sellers of their obligations hereunder, notwithstanding any provision
hereof to the contrary.
5.2 COMPENSATION. Sellers shall not increase in any material respect the
compensation, bonuses, or other benefits payable or to be payable to any person
employed by Sellers in connection with the conduct of the business or operations
of the Station, except in accordance with past practices.
5.3 CONTRACTS. Sellers will not, without the prior written consent of
Buyer, which consent shall not be unreasonably withheld, amend any Assumed
Contract or enter into any contract or commitment relating to the Station that
will be binding on Buyer after Closing.
5.4 DISPOSITION OF ASSETS. Sellers shall not sell, assign, lease, or
otherwise transfer or dispose of any of the Assets, except where no longer used
or useful in the business or operations of the Station or in connection with the
acquisition of replacement property of equivalent kind and value.
Notwithstanding the foregoing, the expiration by their terms of Contracts prior
to Closing shall not be deemed a violation of this Agreement.
5.5 ENCUMBRANCES. Sellers shall not create or assume any claim, liability,
mortgage, lien, pledge, condition, charge, or encumbrance of any nature
whatsoever upon the Assets, except for (i) liens disclosed on SCHEDULE 3.5 or
SCHEDULE 3.6, which liens shall be removed on or prior to the Closing Date and
(ii) Permitted Liens.
5.6 FCC LICENSES. Sellers shall not cause or permit, by any act or failure
to act, any material FCC License to expire or to be revoked, suspended, or
modified in any materially adverse respect, or take any action that could
reasonably be expected to cause the FCC or any other governmental authority to
institute proceedings for the suspension, revocation, or materially adverse
modification of any material FCC License. Sellers shall prosecute the Station's
pending renewal application with all reasonable diligence.
5.7 ACCESS TO INFORMATION. Sellers shall give Buyer and its authorized
representatives access, during normal business hours and with reasonable prior
notice, to the Assets and to all
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other books, records, Contracts, and documents relating to the Station for the
purpose of audit and inspection, so long as such audit and inspection do not
unreasonably interfere with the business and operations of the Station.
5.8 MAINTENANCE OF ASSETS. Sellers shall use commercially reasonable
efforts to maintain the Assets in good condition (ordinary wear and tear
excepted). Sellers shall maintain inventories of spare parts and expendable
supplies at levels consistent with past practices. If any loss, damage,
impairment, confiscation, or condemnation of or to any of the Assets occurs,
Sellers shall repair, replace, or restore the Assets to their prior condition as
represented in this Agreement as soon thereafter as possible, and Sellers shall
use the proceeds of any claim under any insurance policy solely to repair,
replace, or restore any of the Assets that are lost, damaged, impaired, or
destroyed.
5.9 INSURANCE. Sellers shall maintain the existing insurance policies on
the Station and the Assets through the Closing Date.
5.10 CONSENTS. Sellers shall use commercially reasonable efforts to obtain
the Consents without any change in the terms or conditions of any Assumed
Contract or License that could be materially less advantageous to the Station
than those pertaining under the Assumed Contract or License as in effect on the
date of this Agreement; PROVIDED, HOWEVER, that Sellers' failure to obtain any
Consent shall not constitute a breach of this Agreement so long as Sellers shall
have used commercially reasonable efforts to obtain such Consent. Sellers shall
promptly advise Buyer of any difficulties experienced in obtaining any of the
Consents and of any conditions proposed, considered, or requested for any of the
Consents. Buyer shall use commercially reasonable efforts to assist Sellers in
obtaining the Consents, including, without limitation, executing such assumption
instruments and other documents as may be reasonably required in connection with
obtaining the Consents.
5.11 CABLE CARRIAGE. Sellers shall take any and all commercially reasonable
actions, and not fail to take any commercially reasonable actions, to preserve
the Station's carriage on the cable television systems identified in SCHEDULE
3.19. Paxson License shall prosecute with all reasonable diligence the Petition
for Special Relief filed by Paxson License with the FCC on January 5, 1999,
concerning the proposed modification of the Station's television market
(identified as item 2 on SCHEDULE 3.14).
5.12 NOTICE OF PROCEEDINGS. Sellers will promptly notify Buyer (and in any
event within five (5) business days) upon receipt of notice of any actual or
threatened material claim, dispute, arbitration, litigation, complaint,
judgment, order, decree, action or proceeding relating to Sellers, the Station,
the Assets, or the consummation of this Agreement, other than FCC rulemaking
proceedings generally affecting the broadcasting industry.
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5.13 CONFIDENTIAL INFORMATION. If the transactions contemplated in this
Agreement are not consummated for any reason, neither Sellers nor Buyer shall
disclose to third parties (except to their respective agents and
representatives, who will be bound by this section) any information designated
as confidential and received from the other or its agents in the course of
investigating, negotiating, and consummating the transactions contemplated by
this Agreement: provided, that no information shall be deemed to be confidential
that (a) becomes publicly known or available other than through disclosure by
the disclosing party; (b) is rightfully received by the disclosing party from a
third party; or (c) is independently developed by the disclosing party. All
originals of all material designated as confidential provided by either party or
its agents shall be returned and all copies thereof shall be destroyed.
5.14 PERFORMANCE UNDER ASSUMED CONTRACTS. Sellers will perform in all
material respects their obligations under, and keep in effect, the Assumed
Contracts.
5.15 BOOKS AND RECORDS. Sellers shall maintain their books and records
relating to the Station in all material respects in accordance with past
practices.
5.16 NOTIFICATION. Sellers shall promptly notify Buyer in writing of any
material breach of Sellers' representations and warranties contained in Section
3 of this Agreement.
5.17 COMPLIANCE WITH LAWS. Sellers shall comply in all material respects
with all laws, published policies, rules, and regulations applicable or relating
to the ownership or operation by Sellers of the Station.
5.18 CURE. For all purposes under this Agreement, except in connection with
a failure by Buyer to pay the Purchase Price on the Closing Date, the existence
or occurrence of any events or circumstances that constitute or cause a breach
of a representation or warranty of Sellers or Buyer under this Agreement
(including, without limitation, in the case of Sellers, under the information
disclosed in the Schedules hereto) on the date such representation or warranty
is made shall be deemed not to constitute a breach of such representation or
warranty if such event or circumstance is cured in all material respects on or
before 10 days after the receipt by such party of written notice thereof from
the other party.
SECTION 6. SPECIAL COVENANTS AND AGREEMENTS
6.1 FCC CONSENT.
(a) The assignment of the FCC Licenses in connection with the purchase
and sale of the Assets pursuant to this Agreement shall be subject to the prior
consent and approval of the FCC.
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(b) Sellers and Buyer shall file an appropriate application for the FCC
Consent within five (5) business days from the date hereof (the "Application").
The parties shall prosecute the Application with all reasonable diligence and
otherwise use their commercially reasonable efforts to obtain a grant of the
Application as expeditiously as practicable. Each party will promptly provide
the other party with copies of any pleadings or other documents received by such
party (that are not also separately provided to or served upon such other party)
with respect to the Application. Each party agrees to comply with any condition
imposed on it by the FCC Consent, except that no party shall be required to
comply with a condition if (1) the condition was imposed on it as the result of
a circumstance the existence of which does not constitute a breach by the party
of any of its representations, warranties, or covenants under this Agreement,
and (2) compliance with the condition would have a material adverse effect upon
it. Buyer and Sellers shall cooperate with each other and otherwise employ
commercially reasonable efforts to oppose any requests for reconsideration or
judicial review of the FCC Consent. If the Closing shall not have occurred for
any reason within the original effective period of the FCC Consent, and neither
party shall have terminated this Agreement under Section 9, the parties shall
jointly request an extension of the effective period of the FCC Consent. No
extension of the FCC Consent shall limit the exercise by any party of its rights
under Section 9.
6.2 HSR ACT. As soon as practicable after the execution hereof but in no
event later than ten business days after the execution hereof, each of Buyer and
Sellers shall make, to the extent required, all filings required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Buyer and Sellers agree to (i) cooperate with each other in connection
with all such HSR Act filings, which cooperation shall include furnishing the
other with any information or documents that may be reasonably required in
connection with such filings; (ii) promptly file, after any request by the
Federal Trade Commission ("FTC") or Department of Justice ("DOJ") and after
appropriate negotiation with the FTC or DOJ of the scope of such request, any
information or documents requested by the FTC or DOJ; and (iii) furnish each
other with any correspondence from or to, and notify each other of any other
communications with, the FTC or DOJ that relates to the transactions
contemplated hereunder, and to the extent practicable, to permit each other to
participate in any conferences with the FTC or DOJ. The transfer of the Assets
hereunder is expressly conditioned upon the waiting period relating to any such
filings having duly expired or been terminated by the appropriate government
agencies without the enforcement of any action by any such agencies to restrain
or postpone the transactions contemplated hereby.
6.3 CONTROL OF THE STATION. Prior to Closing, Buyer shall not, directly or
indirectly, control, supervise, direct, or attempt to control, supervise, or
direct, the operations of the Station; such operations, including complete
control and supervision of all of the programs, employees, and policies of the
Station, shall be the sole responsibility of Sellers until the Closing.
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6.4 RISK OF LOSS. The risk of any loss, damage, impairment, confiscation,
or condemnation of any of the Assets from any cause, other than as a result of
any action or omission of Buyer or any of its agents, shall be borne by Sellers
at all times prior to the Closing.
6.5 CONFIDENTIALITY. Except as necessary for the consummation of the
transaction contemplated by this Agreement, and except as and to the extent
required by law or any securities exchange, each party will keep confidential
any information obtained from the other party in connection with the
transactions contemplated by this Agreement. If this Agreement is terminated,
each party will return to the other party all information obtained by such party
from the other party in connection with the transactions contemplated by this
Agreement.
6.6 COOPERATION. Buyer and Sellers shall cooperate fully with each other
and their respective counsel and accountants in connection with any actions
required to be taken as part of their respective obligations under this
Agreement, and Buyer and Sellers shall execute such other documents as may be
necessary and desirable to the implementation and consummation of this
Agreement, and otherwise use their commercially reasonable efforts to consummate
the transaction contemplated hereby and to fulfill their obligations under this
Agreement. Notwithstanding the foregoing, Buyer shall have no obligation to
agree to any material adverse change in any License or Assumed Contract to
obtain a Consent required with respect thereto.
6.7 ACCESS TO BOOKS AND RECORDS. Sellers shall provide Buyer reasonable
access and the right to copy for a period of three years from the Closing Date
any books and records relating to the assets that are not included in the
Assets. Buyer shall provide Sellers reasonable access and the right to copy for
a period of three years from the Closing Date any books and records relating to
the Assets.
6.8 APPRAISAL. Unless they can otherwise agree, Buyer and Sellers agree to
allocate the Purchase Price for tax and recording purposes in accordance with an
appraisal to be completed as soon as practicable but in no event later than 90
days following Closing. The appraisal shall be conducted by an appraisal firm
with experience in the valuation of television station assets selected by
Sellers and Buyer. The appraisal shall be reasonably satisfactory to Sellers and
Buyer. Buyer and Sellers shall each pay one-half the cost of such appraisal.
6.9 BUYER CONDUCT. Buyer shall take no action or fail to take any action
that would (a) disqualify Buyer from being the licensee of the Station under the
Communications Act of 1934, as amended, and the rules, regulations and policies
of the FCC or (b) prevent Buyer from otherwise fulfilling its obligations to pay
the entire Purchase Price on the Closing Date.
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6.10 EMPLOYMENT MATTERS.
(a) Buyer shall not be obligated to employ any of Sellers' employees
and any such employment by Buyer shall be at its sole discretion and subject to
the terms of this Section 6.10, shall be on terms, conditions and policies of
employment established by Buyer; PROVIDED, HOWEVER, that Buyer shall not have
the right to employ any person designated on SCHEDULE 3.12 as an employee to be
retained by Sellers.
(b) Within a reasonable period of time after the Closing Date, Sellers
shall transfer from the Paxson Communications Corporation 401(k) Retirement Plan
(the "Sellers 401(k) Plan") to any 401(k) plan established by Buyer an amount,
in cash, equal to the aggregate account balances held in the Sellers 401(k) Plan
as of the date of transfer with respect to all employees of Sellers hired by
Buyer (each a "Hired Employee"). Prior to the date of any such transfer, and as
preconditions thereto: (i) Buyer shall use commercially reasonable efforts to
deliver to Sellers a copy of the most recently issued Internal Revenue Service
("IRS") determination letter (or other proof satisfactory to counsel for
Sellers) that the Buyer's 401(k) Plan is qualified under the Internal Revenue
Code (the "Code"), and (ii) Sellers shall use commercially reasonable efforts to
deliver to Buyer a copy of the most recently issued IRS determination letter (or
other proof satisfactory to counsel for the Buyer) that the Sellers 401(k) Plan
is qualified under the Code. Subsequent to the transfer of assets to the Buyer's
401(k) Plan, neither Sellers nor the Sellers 401(k) Plan shall retain any
liability with respect to such Hired Employees to provide them with benefits in
accordance with the terms of the Sellers 401(k) Plan. Sellers and Buyer agree to
cooperate with respect to any government filing, including, but not limited to,
the filing of IRS Forms 5310-A, if necessary, to effect the transfer of assets
contemplated by this Section 6.10(d).
(c) This Section 6.10 shall operate exclusively for the benefit of the
parties to this Agreement and is not intended for the benefit of any other
person, including, without limitation, any current or former employee of any
party hereto.
6.11 TIME BROKERAGE AGREEMENT. Subject to the expiration or termination of
the waiting period under the HSR Act, if applicable, without any unresolved
action by the DOJ or FTC to prevent the commencement of the Time Brokerage
Agreement, Buyer and Sellers shall enter into the Time Brokerage Agreement upon
no less than 10 business days notice from Buyer to Sellers. Buyer shall be
solely responsible for all costs and expenses relating to or arising from the
commencement of Buyer's programming on the Station and the performance by Buyer
of its other obligations under the Time Brokerage Agreement. No act or omission
of Buyer or its agents during the effective period of the Time Brokerage
Agreement shall constitute or result in a breach or default by Sellers of any
representation, warranty or covenant of Sellers contained in this Agreement.
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6.12 SERVICES AGREEMENT. At the Closing, Buyer and Paxson-40 shall enter
into the Services Agreement.
SECTION 7. CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS AT CLOSING
7.1 CONDITIONS TO OBLIGATIONS OF BUYER. All obligations of Buyer at the
Closing are subject at Buyer's option to the fulfillment prior to or at the
Closing Date of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. All representations and warranties
of Sellers contained in this Agreement shall be true and complete at and as of
the Closing Date as though made at and as of that time except for (i) any
inaccuracy that could not reasonably be expected to have a Material Adverse
Effect, (ii) any representation or warranty that is expressly stated only as of
a specified earlier date, in which case such representation or warranty shall be
true as of such earlier date, (iii) changes in any representation or warranty
that are contemplated by this Agreement or (iv) changes in any representation or
warranty as a result of any act or omission of Buyer or its agents.
(b) COVENANTS AND CONDITIONS. Sellers shall have performed and complied
with all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by them prior to or on the Closing Date, except to
the extent such noncompliance would not have a Material Adverse Effect or
results from any act or omission of Buyer or its agents.
(c) CONSENTS. All Consents designated as "material" on SCHEDULE 3.3
(the "Material Consents") shall have been obtained and delivered to Buyer
without any material adverse change in the terms or conditions of any agreement
or any governmental license, permit, or other authorization.
(d) FCC CONSENT. The FCC Consent shall have been granted without the
imposition on Buyer of any conditions that need not be complied with by Buyer
under Section 6.1 hereof and Sellers shall have complied with any conditions
imposed on them by the FCC Consent; PROVIDED, HOWEVER, if a Petition or Appeal
(as defined in Section 8.1(a)) shall have been filed that contains one or more
allegations that could reasonably be expected to result in the denial or
dismissal of the Application based on the Act or the FCC's rules, regulations,
decisions or published policies then in effect, the FCC Consent shall have
become a Final Order.
(e) HSR ACT. The waiting period under the HSR Act shall have expired or
been terminated without any unresolved action by the DOJ or the FTC to prevent
the Closing.
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(f) TIME BROKERAGE AGREEMENT. The Time Brokerage Agreement shall be in
full force and effect and Sellers shall not be in material breach of their
obligations thereunder.
(g) RENEWAL OF FCC LICENSE. The FCC shall have granted the pending
renewal application for the FCC License for a term ending on April 1, 2007
without imposition of any materially adverse conditions that are applicable to
the operation of the Station following the Closing Date (except those generally
applied to television stations of the same class and character).
(h) DELIVERIES. Sellers shall have made or stand willing to make all
the deliveries to Buyer set forth in Section 8.2.
7.2 CONDITIONS TO OBLIGATIONS OF SELLERS. All obligations of Sellers at the
Closing are subject at Sellers' option to the fulfillment prior to or at the
Closing Date of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. All representations and warranties
of Buyer contained in this Agreement shall be true and complete at and as of the
Closing Date as though made at and as of that time, except for (i) any
inaccuracy that could not reasonably be expected to have a material adverse
effect on Buyer's ability to perform its obligations hereunder, (ii) any
representation or warranty that is expressly stated only as of a specified
earlier date, in which case such representation or warranty shall be true as of
such earlier date and (iii) changes in any representation or warranty that are
contemplated by this Agreement.
(b) COVENANTS AND CONDITIONS. Buyer shall have performed and complied
with in all material respects all covenants, agreements, and conditions required
by this Agreement to be performed or complied with by it prior to or on the
Closing Date.
(c) DELIVERIES. Buyer shall have made or stand willing to make all the
deliveries set forth in Section 8.3.
(d) FCC CONSENT. The FCC Consent shall have been granted without the
imposition on Sellers of any conditions that need not be complied with by
Sellers under Section 6.1 hereof and Buyer shall have complied with any
conditions imposed on it by the FCC Consent.
(e) HSR ACT. The waiting period under the HSR Act shall have expired or
been terminated without any unresolved action by the DOJ or the FTC to prevent
the Closing.
(f) TIME BROKERAGE AGREEMENT. The Time Brokerage Agreement shall be in
full force and effect and Buyer shall not be in material breach of its
obligations thereunder.
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SECTION 8. CLOSING AND CLOSING DELIVERIES
8.1 CLOSING.
(a) CLOSING DATE. Subject to the satisfaction or, to the extent
permissible by law, waiver (by the party for whose benefit the Closing condition
is imposed) on the date scheduled for Closing, of the conditions precedent set
forth in Sections 7.1 and 7.2, as appropriate, the Closing shall take place at
10:00 a.m. on the third business day after the expiration of thirty (30) days
following the date the public notice of the grant of the FCC Consent is released
by the FCC; PROVIDED, HOWEVER, if any Petition to Deny is filed against the
Application in accordance with Section 73.3584 of the FCC's Rules or if any
informal objection is filed against the Application in accordance with Section
73.3587 of the FCC's Rules (collectively, a "Petition") and the Petition
contains one or more allegations that could reasonably be expected to result in
the denial or dismissal of the Application based on the Act or the FCC's rules,
regulations, decisions or published policies then in effect, or if any Petition
for Reconsideration or Application for Review is filed with respect to a grant
of the Application in accordance with Sections 1.101 ET SEQ. of the FCC's Rules
(collectively, an "Appeal") and the Appeal contains one or more allegations that
could reasonably be expected to result in the denial or dismissal of the
Application based on the Act or the FCC's rules, regulations, decisions or
published policies then in effect, the Closing shall take place at 10:00 a.m. on
a date, to be set by Sellers on at least five (5) business days' written notice
to Buyer, that is within ten (10) business days following the date the FCC
Consent shall have become a Final Order. Time is of the essence with respect to
this Agreement.
(b) CLOSING PLACE. The Closing shall be held at the offices of Dow,
Lohnes & Albertson, 1200 New Hampshire Avenue, N.W., Suite 800, Washington, D.C.
20036, or any other place that is agreed upon by Buyer and Sellers.
8.2 DELIVERIES BY SELLERS. Prior to or on the Closing Date, Sellers shall
deliver to Buyer the following, in form and substance reasonably satisfactory to
Buyer and its counsel:
(a) TRANSFER DOCUMENTS. Duly executed bills of sale, assignments, and
other transfer documents which shall be sufficient to vest good and marketable
title to the Assets in the name of Buyer, free and clear of all mortgages,
liens, restrictions, encumbrances, claims, and obligations, except for Permitted
Liens;
(b) CONSENTS. An executed copy of any instrument evidencing receipt of
any Material Consents and to the extent obtained, any other Consents;
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(c) OFFICER'S CERTIFICATE. A certificate, dated as of the Closing Date,
executed by Sellers, certifying compliance by Sellers with the conditions set
forth in Sections 7.1(a) and (b);
(d) RESOLUTIONS. Copies of appropriate resolutions of Sellers' boards
of directors authorizing this Agreement and the consummation of the transactions
contemplated hereby; and
(e) SERVICES AGREEMENT. The Services Agreement, duly executed by
Paxson-40.
8.3 DELIVERIES BY BUYER. Prior to or on the Closing Date, Buyer shall
deliver to Sellers the following, in form and substance reasonably satisfactory
to Sellers and their counsel:
(a) PURCHASE PRICE. The Purchase Price, as adjusted pursuant to Section
2.3(b) and (d);
(b) ASSUMPTION AGREEMENTS. Appropriate assumption agreements pursuant
to which Buyer shall assume and undertake to perform Sellers' obligations under
the Licenses and Assumed Contracts as provided in Section 2.5;
(c) OFFICER'S CERTIFICATE. A certificate, dated as of the Closing Date,
executed by Buyer, certifying compliance by Buyer with the conditions set forth
in Sections 7.2(a) and (b);
(d) RESOLUTIONS. Copies of appropriate resolutions of Buyer's board of
directors authorizing this Agreement and the consummation of the transactions
contemplated hereby; and
(e) SERVICES AGREEMENT. The Services Agreement, duly executed by Buyer.
SECTION 9. TERMINATION
9.1 TERMINATION BY SELLERS. This Agreement may be terminated by Sellers, if
Sellers are not then in material default, upon written notice to Buyer, upon the
occurrence of any of the following:
(a) CONDITIONS. If, on the date that would otherwise be the Closing
Date, Sellers shall have notified Buyer in writing that one or more of the
conditions precedent to the obligations of Sellers set forth in Section 7.2 of
this Agreement have not been satisfied by Buyer or waived in writing by Sellers
and such condition or conditions shall not have been satisfied by Buyer or
waived in writing by Sellers within twenty days following such notice.
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(b) JUDGMENTS. If, on the date that would otherwise be the Closing
Date, there is in effect any judgment, decree, or order that would prevent or
make unlawful the Closing.
(c) UPSET DATE. If the Closing shall not have occurred by February 19,
2000.
(d) BREACH. If Buyer has failed to cure any material breach of any of
its representations, warranties or covenants under this Agreement within ten
(10) days after Buyer received written notice of such breach from Sellers.
(e) TIME BROKERAGE AGREEMENT. If Buyer fails to make any payment when
due pursuant to (and subject to the terms of) the Time Brokerage Agreement,
Buyer commits any act or omission that could reasonably be expected to have a
Material Adverse Effect or the Time Brokerage Agreement is terminated by Sellers
in accordance with Section 6.1(a)(ii) thereof.
9.2 TERMINATION BY BUYER. This Agreement may be terminated by Buyer, if
Buyer is not then in material default, upon written notice to Sellers, upon the
occurrence of any of the following:
(a) CONDITIONS. If, on the date that would otherwise be the Closing
Date, Buyer shall have notified Sellers in writing that one or more of the
conditions precedent to the obligations of Buyer set forth in Section 7.1 of
this Agreement have not been satisfied by Sellers or waived in writing by Buyer
and such condition or conditions shall not have been satisfied by Sellers or
waived in writing by Buyer within twenty days following such notice.
(b) JUDGMENTS. If, on the date that would otherwise be the Closing
Date, there is in effect any judgment, decree, or order that would prevent or
make unlawful the Closing.
(c) UPSET DATE. If the Closing shall not have occurred by February 19,
2000.
(d) BREACH. If Sellers have failed to cure any material breach of any
of their representations, warranties or covenants under this Agreement within
ten (10) days after Sellers received written notice of such breach from Buyer.
(e) TIME BROKERAGE AGREEMENT. If the Time Brokerage Agreement is
terminated by Buyer in accordance with Section 6.1(a)(ii) thereof.
(f) DUE DILIGENCE. If, on or prior to February 26, 1999, Buyer (i)
discovers any information regarding the ownership, condition or use of the
Assets that Buyer determines, in good faith and the exercise of commercially
reasonable business judgment, could have a Materially Adverse Effect and (ii)
provides written notice of termination pursuant to this Section
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9.2(f) to Sellers no later than 5:00 p.m., Eastern Time, on February 26, 1999,
which notice shall specify in reasonable detail the basis for such termination.
9.3 RIGHTS ON TERMINATION. If this Agreement is terminated pursuant to
Section 9.1 or Section 9.2 and neither party is in material breach of this
Agreement, the parties hereto shall not have any further liability to each other
with respect to the purchase and sale of the Assets. If this Agreement is
terminated by Sellers due to Buyer's material breach of this Agreement, Sellers
shall have all rights and remedies available at law or equity and the Deposit
(as defined below) and all interest and other proceeds earned thereon shall be
retained by the Escrow Agent and applied to pay such damages that are awarded to
Sellers by reason of Buyer's material breach of this Agreement. If this
Agreement is terminated by Buyer due to Sellers' material breach of this
Agreement, Buyer shall have all rights and remedies available at law or equity.
9.4 ESCROW DEPOSIT. Buyer has deposited with the Escrow Agent the sum of
One Million Dollars ($1,000,000) (the "Deposit"). All such funds deposited with
the Escrow Agent shall be held and disbursed in accordance with the terms of the
Escrow Agreement and the following provisions:
(a) At the Closing, all amounts held by the Escrow Agent pursuant to
the Escrow Agreement, including any interest or other proceeds from the
investment of funds held by the Escrow Agent, shall be disbursed to or at the
direction of Buyer.
(b) If this Agreement is terminated pursuant to Section 9.1 or 9.2 and
Buyer is not in material breach of this Agreement, all amounts held by the
Escrow Agent pursuant to the Escrow Agreement, including any interest or other
proceeds from the investment of funds held by the Escrow Agent, shall be
disbursed to or at the direction of Buyer.
(c) If this Agreement is terminated by Sellers pursuant to (i) Section
9.1(a), under such circumstances that any action taken or omitted by Buyer has
prevented any of the conditions set forth in Section 7.2 from being satisfied
and any such action taken or omitted by Buyer constitutes a material breach by
Buyer of its representations, warranties or covenants hereunder, (ii) 9.1(b),
under such circumstances that the judgment, decree or order set forth therein
results from any action taken or omitted by Buyer and any such action taken or
omitted by Buyer constitutes a material breach by Buyer of its representations,
warranties or covenants hereunder, (iii) Section 9.1(d) or (iv) Section 9.1(e),
then the Deposit and all interest and other proceeds earned thereon shall be
retained by the Escrow Agent and applied to pay such damages that are awarded to
Sellers by reason of Buyer's material breach of this Agreement.
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SECTION 10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; CERTAIN
REMEDIES
10.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties contained in this Agreement shall be deemed continuing
representations and warranties and shall survive the Closing for a period of one
(1) year and any claim for a breach of a representation or warranty must be
brought prior to the expiration of such one-year period. Any claim for
indemnification in respect of a covenant or agreement of Buyer or Sellers
hereunder to be performed before the Closing shall be made prior to the date
which is one year from the Closing Date. The covenants and agreements in this
Agreement to be performed after the Closing shall survive the Closing until
fully performed.
10.2 INDEMNIFICATION BY SELLERS. Subject to Sections 10.1 and 10.4, Sellers
hereby agree to indemnify and hold Buyer harmless against and with respect to,
and shall reimburse Buyer for:
(a) Any and all losses, liabilities, or damages resulting from any
untrue representation, breach of warranty, or nonfulfillment of any covenant by
Sellers contained in this Agreement or in any certificate, document, or
instrument delivered to Buyer under this Agreement, except to the extent that
any untrue representation, breach of warranty or nonfulfillment of any covenant
results from any act or omission of Buyer or its agents.
(b) Any and all obligations of Sellers not assumed by Buyer pursuant to
this Agreement, including any liabilities arising at any time under any Contract
not included in the Assumed Contracts.
(c) Any and all losses, liabilities, or damages resulting from the
operation or ownership of the Station prior to the Closing, including any
liabilities arising under the Licenses or the Assumed Contracts which relate to
events occurring prior the Closing Date, except to the extent that any such
loss, liability or damage results from any act or omission of Buyer or its
agents.
(d) Any and all losses, liabilities or damages resulting from any claim
by Cuchifritos Communications, L.L.C. relating to Buyer's execution, delivery or
performance of this Agreement.
(e) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, and expenses, including reasonable legal fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
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10.3 INDEMNIFICATION BY BUYER. Subject to Sections 10.1 and 10.4, Buyer
hereby agrees to indemnify and hold Sellers harmless against and with respect
to, and shall reimburse Sellers for:
(a) Any and all losses, liabilities, or damages resulting from any
untrue representation, breach of warranty, or nonfulfillment of any covenant by
Buyer contained in this Agreement or in any certificate, document, or instrument
delivered to Sellers under this Agreement.
(b) Any and all obligations of Sellers assumed by Buyer pursuant to
this Agreement.
(c) Any and all losses, liabilities or damages resulting from or act or
omission of Buyer or its agent prior to the Closing or the operation or
ownership of the Station on and after the Closing.
(d) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
10.4 LIMITATIONS. No indemnification shall be required to be made by any
party hereto until the aggregate amount of all indemnification claims against
such indemnifying party exceeds One Hundred Thousand Dollars ($100,000);
PROVIDED that once such claims exceed One Hundred Thousand Dollars ($100,000),
such indemnifying party shall be required to indemnify the other party with
respect to all indemnifiable claims, including indemnifiable claims for the
initial One Hundred Thousand Dollars ($100,000). The previous limitation shall
not apply to the adjustments to the Purchase Price under Sections 2.3(b) and
(d). Notwithstanding anything to the contrary contained herein, in no event
shall Sellers' obligations for indemnification under this Agreement exceed in
the aggregate Five Million Dollars ($5,000,000), and Buyer hereby waives and
releases any recourse against Sellers for indemnification above Five Million
Dollars ($5,000,000). The indemnification provisions in this Section 10 sets
forth the exclusive remedies of the parties hereto following the Closing for a
breach of a representation, warranty or covenant under this Agreement or any
other claims relating to this Agreement.
10.5 PROCEDURE FOR INDEMNIFICATION. The procedure for indemnification shall
be as follows:
(a) The party claiming indemnification (the "Claimant") shall promptly
give notice to the party from which indemnification is claimed (the
"Indemnifying Party") of any claim, whether between the parties or brought by a
third party, specifying in reasonable detail the
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factual basis for the claim. If the claim relates to an action, suit, or
proceeding filed by a third party against Claimant, such notice shall be given
by Claimant within five days after written notice of such action, suit, or
proceeding was given to Claimant.
(b) With respect to claims solely between the parties, following
receipt of notice from the Claimant of a claim, the Indemnifying Party shall
have thirty days to make such investigation of the claim as the Indemnifying
Party deems necessary or desirable. For the purposes of such investigation, the
Claimant agrees to make available to the Indemnifying Party and/or its
authorized representatives the information relied upon by the Claimant to
substantiate the claim. If the Claimant and the Indemnifying Party agree at or
prior to the expiration of the thirty-day period (or any mutually agreed upon
extension thereof) to the validity and amount of such claim, the Indemnifying
Party shall immediately pay to the Claimant the full amount of the claim. If the
Claimant and the Indemnifying Party do not agree within the thirty-day period
(or any mutually agreed upon extension thereof), the Claimant may seek
appropriate remedy at law or equity.
(c) With respect to any claim by a third party as to which the Claimant
is entitled to indemnification under this Agreement, the Indemnifying Party
shall have the right at its own expense, to participate in or assume control of
the defense of such claim, and the Claimant shall cooperate fully with the
Indemnifying Party, subject to reimbursement for actual out-of-pocket expenses
incurred by the Claimant as the result of a request by the Indemnifying Party.
If the Indemnifying Party elects to assume control of the defense of any
third-party claim, the Claimant shall have the right to participate in the
defense of such claim at its own expense. If the Indemnifying Party does not
elect to assume control or otherwise participate in the defense of any third
party claim, it shall be bound by the results obtained by the Claimant with
respect to such claim.
(d) If a claim, whether between the parties or by a third party,
requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
(e) The indemnification rights provided in Sections 10.2 and 10.3 shall
extend to the shareholders, directors, officers, members, employees, and
representatives of any Claimant although for the purpose of the procedures set
forth in this Section 10.5, any indemnification claims by such parties shall be
made by and through the Claimant.
10.6 SPECIFIC PERFORMANCE. The parties recognize that if Sellers or Buyer
breach this Agreement and refuse to perform under the provisions of this
Agreement, monetary damages alone would not be adequate to compensate the
non-breaching party for its injury. Sellers and Buyer shall therefore be
entitled to obtain specific performance of the terms of this Agreement.
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If any action is brought by Sellers or Buyer to enforce this Agreement, the
other party shall waive the defense that there is an adequate remedy at law.
10.7 ATTORNEYS' FEES. In the event of a default by either party which
results in a lawsuit or other proceeding for any remedy available under this
Agreement, the prevailing party shall be entitled to reimbursement from the
other party of its reasonable legal fees and expenses hereof.
SECTION 11. MISCELLANEOUS
11.1 FEES AND EXPENSES. Buyer and Sellers shall each pay one-half of all
filing fees required by the FCC and required under the HSR Act. Except as
otherwise provided in this Agreement, each party shall pay its own expenses
incurred in connection with the authorization, preparation, execution, and
performance of this Agreement, including all fees and expenses of counsel,
accountants, agents, and representatives. Each party shall be responsible for
all fees or commissions payable to any finder, broker, advisor, or similar
person retained by or on behalf of such party.
11.2 NOTICES. All notices, demands, and requests required or permitted to
be given under the provisions of this Agreement shall be (a) in writing, (b)
delivered by personal delivery, or sent by commercial delivery service or
registered or certified mail, return receipt requested, (c) deemed to have been
given on the date of personal delivery or the date set forth in the records of
the delivery service or on the return receipt, and (d) addressed as follows:
If to Sellers: Paxson New York License, Inc.
Paxson Communications of New York-43, Inc.
601 Clearwater Park Road
West Palm Beach, FL 33401-6233
Attention: Mr. Lowell W. Paxson
With a copy to: John R. Feore, Jr., Esq.
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, DC 20036-6802
If to Buyer: Shop at Home, Inc.
5388 Hickory Hollow Parkway
Antioch, TN 37013
Attention: Mr. Kent E. Lillie
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With a copy to: George Phillips, Esq.
Shop at Home, Inc.
5388 Hickory Hollow Parkway
Antioch, TN 37013
or to any other or additional persons and addresses as the parties may from time
to time designate in a writing delivered in accordance with this Section 11.2.
11.3 BENEFIT AND BINDING EFFECT. Neither party hereto may assign this
Agreement without the prior written consent of the other party hereto; PROVIDED,
HOWEVER, that Sellers may assign some or all of their rights hereunder (but not
their obligations) to an escrow agent or other person or entity serving as an
Intermediary under the Code; Buyer may assign its rights and interests hereunder
to a wholly-owned subsidiary of Buyer so long as any such assignment or sale of
ownership interests shall not constitute a change in control under applicable
rules and decisions of the FCC and shall not otherwise delay the grant of the
Application. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
11.4 FURTHER ASSURANCES. The parties shall take any actions and execute any
other documents that may be necessary or desirable to the implementation and
consummation of this Agreement, including, in the case of Sellers, any
additional bills of sale, deeds, or other transfer documents that, in the
reasonable opinion of Buyer, may be necessary to ensure, complete, and evidence
the full and effective transfer of the Assets to Buyer pursuant to this
Agreement.
11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
THE CHOICE OF LAW PROVISIONS THEREOF).
11.6 HEADINGS. The headings in this Agreement are included for ease of
reference only and shall not control or affect the meaning or construction of
the provisions of this Agreement.
11.7 GENDER AND NUMBER. Words used in this Agreement, regardless of the
gender and number specifically used, shall be deemed and construed to include
any other gender, masculine, feminine, or neuter, and any other number, singular
or plural, as the context requires.
11.8 ENTIRE AGREEMENT. This Agreement, the schedules, hereto, and all
documents, certificates, and other documents to be delivered by the parties
pursuant hereto, collectively represent the entire understanding and agreement
between Buyer and Sellers with respect to the subject matter hereof. This
Agreement supersedes all prior negotiations between the parties including,
without limitation, the letter of intent dated January 22, 1999, and cannot be
amended,
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supplemented, or changed except by an agreement in writing that makes specific
reference to this Agreement and which is signed by the party against which
enforcement of any such amendment, supplement, or modification is sought.
11.9 WAIVER OF COMPLIANCE; CONSENTS. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
representation, warranty, covenant, agreement, or condition herein may be waived
by the party entitled to the benefits thereof only by a written instrument
signed by the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, representation, warranty, covenant,
agreement, or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be given
in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 11.9.
11.10 PRESS RELEASE. Prior to the Closing, neither party shall publish any
press release, make any other public announcement or otherwise communicate with
any news media concerning this Agreement or the transactions contemplated hereby
without the prior written consent of the other party; PROVIDED, HOWEVER, that
nothing contained herein shall prevent either party from promptly making all
filings with governmental authorities or securities exchanges as may, in its
judgement be required or advisable in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby or
by law or the rules and regulations of any securities exchange.
11.11 LIKE-KIND EXCHANGE. Sellers may assign some or all of their rights
(but not their obligations) under this Agreement to an escrow agent or other
person or entity serving as an Intermediary under United States Treasury
Regulations promulgated under Section 1031 of the Code; provided that (i) such
assignment shall not deprive Buyer of its rights or benefits, or relieve Sellers
of any obligations or liabilities, under this Agreement, (ii) Buyer shall not be
obligated to incur any expense or other obligations or liabilities in connection
therewith, and (iii) such assignment shall not delay the Closing. Sellers intend
for such exchange to constitute a like-kind exchange pursuant to Section 1031 of
the Code. However, nothing in this Agreement shall be construed as a
representation or warranty of any party to any other party as to the tax
characterization of the transaction.
11.12 CONSENT TO JURISDICTION. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the United States District Court for
the District of Connecticut and the Superior Court of the State of Connecticut,
Fairfield Judicial District, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby.
Each of the parties hereto agrees, to the extent permitted under applicable
rules of procedure, to commence any action, suit or proceeding relating hereto
either in the United States District Court for the District of Connecticut, or
if such suit, action or other proceeding may not
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be brought in such court for jurisdictional reasons, in the Superior Court of
the State of Connecticut, Fairfield Judicial District. Each of the parties
hereto further agrees that service of any process, summons, notice or document
by U.S. registered mail to such party's respective address set forth above shall
be effective service of process for any action, suit or proceeding in
Connecticut with respect to any matters to which it has submitted to
jurisdiction in this Section 11.12. Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Superior Court of the State of Connecticut, Fairfield Judicial
District, or (ii) the United States District Court for the District of
Connecticut, and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient form.
11.13 BULK TRANSFER LAWS. Notwithstanding any other provision of this
Agreement, Buyer hereby waives compliance by Sellers with the provisions of any
so-called Bulk Transfer Law of any jurisdiction in connection with the
transactions contemplated hereby. Sellers shall indemnify and hold harmless
Buyer against any and all liabilities which may be asserted by third parties
against Buyer as a result of noncompliance with any such Bulk Transfer Law,
other than liabilities which Buyer shall have expressly assumed pursuant to this
Agreement.
11.14 GUARANTY.
(a) PCC irrevocably guarantees (the "Guaranty"), as principal and not
as surety, to Buyer, the full and prompt performance by Sellers of all of their
obligations under Section 10.2 of this Agreement, subject, however, to the
limitations and requirements set forth in Section 10.1, 10.4 and 10.5 hereof.
Subject to such limitations and requirements, the Guaranty shall apply and
survive until all obligations of Seller(s) under Section 10.2 of this Agreement
are performed and satisfied in accordance with the terms hereof and thereof.
(b) PCC hereby represents and warrants to Buyer as follows: (i) PCC is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to execute, deliver and perform this Guaranty according to its terms;
(ii) the execution, delivery and performance of this Guaranty and the
consummation of the transactions contemplated hereby by PCC have been duly
authorized by all necessary corporate action on the part of PCC; (iii) this
Guaranty has been duly executed and delivered by PCC and constitutes the legal,
valid and binding obligation of PCC enforceable against PCC in accordance with
its terms, except as the enforceability of this Guaranty may be affected by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
by judicial discretion in the enforcement of equitable remedies; and (iv) the
execution, delivery and performance of this Guaranty: (1) do not require the
consent of any third party, (2) do not conflict with the Certificate of
Incorporation or bylaws of PCC, and (3) do not
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conflict in any material respect with, result in a material breach of, or
constitute a material default under any law, judgment, order, ordinance,
injunction, decree, rule, regulation or ruling of any court or governmental
authority applicable to PCC or any material contract or agreement to which PCC
is a party or by which PCC may be bound.
11.15 COUNTERPARTS. This Agreement may be signed in counterparts with
the same effect as if the signature on each counterpart were upon the same
instrument.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Asset
Purchase Agreement as of the day and year first above written.
PAXSON COMMUNICATIONS OF
NEW YORK-43, INC.
By: /s/ Lowell W. Paxson
------------------------------
Name: Lowell W. Paxson
Title: Chairman
PAXSON NEW YORK LICENSE, INC.
By: /s/ Lowell W. Paxson
------------------------------
Name: Lowell W. Paxson
Title: Chairman
SHOP AT HOME, INC.
By: /s/ Kent E. Lillie
------------------------------
Name: Kent E. Lillie
Title: President & Chief Executive Officer
PAXSON COMMUNICATIONS CORPORATION JOINS IN
THE EXECUTION OF THIS ASSET PURCHASE
AGREEMENT SOLELY FOR THE PURPOSE OF ITS
AGREEMENT SET FORTH IN SECTION 11.14.
PAXSON COMMUNICATIONS CORPORATION
By: /s/ Lowell W. Paxson
------------------------------
Name: Lowell W. Paxson
Title: Chairman
-39-
<PAGE> 1
EXHIBIT 21
PAXSON COMMUNICATIONS CORPORATION
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION/
NAME ORGANIZATION
- ----------------------- ----------------
FLORIDA
(EXCEPT AS NOTED)
<S> <C>
Bud Songs, Inc.
Channel 29 of Charleston, Inc. Delaware
Channel 56 of Orlando, Inc.
Channel 64 of Scranton, Inc. Delaware
Clearlake Productions, Inc.
Cocola Media Corporation of Florida Delaware
Cocola Media Corporation of San Francisco California
Hispanic Broadcasting, Inc.
Infomall Cable Network, Inc. Delaware
Infomall Los Angeles, Inc.
Jetstar Development, Inc.
PAX Internet, Inc. (f/k/a Excel Marketing Enterprises, Inc.)
Pax Net, Inc. Delaware
Pax Net Television Productions, Inc.
Paxson Akron License, Inc.
Paxson Albany License, Inc.
Paxson Albuquerque License, Inc.
Paxson Atlanta License, Inc.
Paxson Birmingham License, Inc.
Paxson Boston License, Inc.
Paxson Buffalo License, Inc.
Paxson Cedar Rapids License, Inc.
Paxson Charleston License, Inc.
Paxson Chicago License, Inc.
Paxson Communications L.P.T.V., Inc.
Paxson Communications Management Company
Paxson Communications of Akron-23, Inc.
Paxson Communications of Albany-55, Inc.
Paxson Communications of Albuquerque-14, Inc.
Paxson Communications of Atlanta-14, Inc.
Paxson Communications of Battle Creek-43, Inc.
Paxson Communications of Birmingham-44, Inc.
Paxson Communications of Boston-46, Inc.
Paxson Communications of Boston-60, Inc.
Paxson Communications of Buffalo-51, Inc.
Paxson Communications of Cedar Rapids-48, Inc.
Paxson Communications of Charleston-29, Inc.
Paxson Communications of Chicago-38, Inc.
Paxson Communications of Cleveland-67, Inc.
Paxson Communications of Dallas-68, Inc.
Paxson Communications of Davenport-67, Inc.
Paxson Communications of Dayton-26, Inc.
Paxson Communications of Decatur-23, Inc.
Paxson Communications of Denver-59, Inc.
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION/
NAME ORGANIZATION
- ----------------------- ----------------
FLORIDA
(EXCEPT AS NOTED)
<S> <C>
Paxson Communications of Des Moines-39, Inc.
Paxson Communications of Detroit-31, Inc.
Paxson Communications of Fayetteville-62, Inc.
Paxson Communications of Fresno-61, Inc.
Paxson Communications of Green Bay-14, Inc.
Paxson Communications of Greensboro-16, Inc.
Paxson Communications of Greenville-38, Inc.
Paxson Communications of Hartford-18, Inc.
Paxson Communications of Honolulu-66, Inc. (f/k/a Paxson Communications of
Hawaii-66, Inc.)
Paxson Communications of Houston-49, Inc.
Paxson Communications of Indianapolis-63, Inc.
Paxson Communications of Jackson-51, Inc.
Paxson Communications of Jacksonville-35, Inc.
Paxson Communications of Kansas City-50, Inc.
Paxson Communications of Knoxville-54, Inc.
Paxson Communications of Lexington-67, Inc.
Paxson Communications of Little Rock-42, Inc.
Paxson Communications of Los Angeles-30, Inc.
Paxson Communications of Los Angeles-63, Inc.
Paxson Communications of Memphis-50, Inc.
Paxson Communications of Miami-35, Inc.
Paxson Communications of Milwaukee-55, Inc.
Paxson Communications of Minneapolis-41, Inc.
Paxson Communications of Mobile-61, Inc.
Paxson Communications of Nashville-28, Inc. (f/k/a Paxson Communications of
Cookeville-28, Inc.)
Paxson Communications of New London-26, Inc.
Paxson Communications of New Orleans-49, Inc.
Paxson Communications of New York-31, Inc.
Paxson Communications of New York-43, Inc.
Paxson Communications of Norfolk-49, Inc.
Paxson Communications of Odessa-30, Inc.
Paxson Communications of Oklahoma City-62, Inc.
Paxson Communications of Orlando-56, Inc.
Paxson Communications of Philadelphia-61, Inc.
Paxson Communications of Phoenix-13, Inc.
Paxson Communications of Phoenix-51, Inc.
Paxson Communications of Pittsburgh-40, Inc.
Paxson Communications of Portland-22, Inc.
Paxson Communications of Portland-23, Inc.
Paxson Communications of Providence-69, Inc.
Paxson Communications of Raleigh Durham-47, Inc.
Paxson Communications of Roanoke-38, Inc.
Paxson Communications of Sacramento-29, Inc.
Paxson Communications of Salt Lake City-30, Inc.
Paxson Communications of San Antonio-26, Inc.
Paxson Communications of San Jose-65, Inc.
Paxson Communications of San Juan, Inc.
Paxson Communications of Scranton-64, Inc.
Paxson Communications of Seattle-33, Inc. (f/k/a Paxson Communications of
Seattle-24, Inc.)
Paxson Communications of Shreveport-21, Inc.
Paxson Communications of Spokane-34, Inc.
Paxson Communications of Springfield-34, Inc.
Paxson Communications of St. Croix-15, Inc.
Paxson Communications of St. Louis-13, Inc. (f/k/a Paxson Communications of
Minneapolis-45, Inc.)
Paxson Communications of Syracuse-56, Inc.
Paxson Communications of Tampa-66, Inc.
Paxson Communications of Tucson-46, Inc.
Paxson Communications of Tulsa-44, Inc.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION/
NAME ORGANIZATION
- ----------------------- ----------------
FLORIDA
(EXCEPT AS NOTED)
<S> <C>
Paxson Communications of Washington-60, Inc.
Paxson Communications of Washington-66, Inc.
Paxson Communications of Wausau-46, Inc.
Paxson Communications of West Palm Beach-67, Inc.
Paxson Communications Television, Inc.
Paxson Communications Unrestricted Holdings, Inc. Delaware
Paxson Dallas License, Inc.
Paxson Davenport License, Inc.
Paxson Dayton License, Inc.
Paxson Decatur License, Inc.
Paxson Denver License, Inc.
Paxson Des Moines License, Inc.
Paxson Detroit License, Inc.
Paxson Development, Inc.
Paxson Fayetteville License, Inc.
Paxson Fresno License, Inc.
Paxson Green Bay License, Inc.
Paxson Greensboro License, Inc.
Paxson Greenville License, Inc.
Paxson Hawaii License, Inc.
Paxson Houston License, Inc.
Paxson Jackson License, Inc.
Paxson Kansas City License, Inc.
Paxson Knoxville License, Inc.
Paxson Lexington License, Inc.
Paxson Little Rock License, Inc.
Paxson Los Angeles License, Inc.
Paxson Miami-35 License, Inc.
Paxson Minneapolis License, Inc.
Paxson Mobile License, Inc.
Paxson New York License, Inc.
Paxson Odessa License, Inc.
Paxson Oklahoma City License, Inc.
Paxson Orlando License, Inc.
Paxson Philadelphia License, Inc.
Paxson Phoenix License, Inc.
Paxson Pittsburgh License, Inc.
Paxson Portland License, Inc.
Paxson Productions, Inc.
Paxson Roanoke License, Inc.
Paxson Sacramento License, Inc.
Paxson Salem License, Inc.
Paxson Salt Lake City License, Inc.
Paxson San Jose License, Inc.
Paxson Scranton License, Inc.
Paxson Seattle License, Inc.
Paxson Shreveport License, Inc.
Paxson Spokane License, Inc.
Paxson Sports of Miami, Inc.
Paxson Sports Ventures Company
Paxson Springfield License, Inc.
Paxson St. Croix License, Inc.
Paxson Syracuse License, Inc.
Paxson Tampa-66 License, Inc.
Paxson Television Productions, Inc. (f/k/a Paxson Live Link Productions, Inc.)
Paxson Tennessee License, Inc.
Paxson Tucson License, Inc.
Paxson Tulsa License, Inc.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION/
NAME ORGANIZATION
- ----------------------- ----------------
FLORIDA
(EXCEPT AS NOTED)
<S> <C>
Paxson Washington License, Inc.
Pax Tunes, Inc.
PCC Direct, Inc. (f/k/a Paxson Merchandising Ventures, Inc.)
Roberts Broadcasting Company of Albuquerque Delaware
S&E Network, Inc. Puerto Rico
The Infomall TV Network, Inc. Delaware
Travel Channel Acquisition Corporation Delaware
America 51, L.P. 1 Delaware
Channel 42 of Little Rock, Inc. 1 Delaware
Ocean State Television, LLC 2 Delaware
Syracuse Minority Television, Inc. 1 Delaware
United Broadcast Group II, Inc. 3 Texas
Winstar Odessa, Inc. Delaware
Winstar Waterville, Inc. Delaware
</TABLE>
- --------
1 49% interest
2 50% interest
3 80% interest
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-60819), the Registration on Form S-8 (No.
333-20163), and the Registration Statement on Form S-8 (No. 333-72623) of Paxson
Communications Corporation of our report dated February 26, 1999, appearing in
this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Fort Lauderdale, Florida
March 8, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 67,536
<SECURITIES> 0
<RECEIVABLES> 25,344
<ALLOWANCES> 3,953
<INVENTORY> 0
<CURRENT-ASSETS> 173,741
<PP&E> 222,071
<DEPRECIATION> 43,096
<TOTAL-ASSETS> 1,542,786
<CURRENT-LIABILITIES> 171,934
<BONDS> 228,305
521,401
0
<COMMON> 61
<OTHER-SE> 247,612
<TOTAL-LIABILITY-AND-EQUITY> 1,542,786
<SALES> 134,196
<TOTAL-REVENUES> 134,196
<CGS> 0
<TOTAL-COSTS> 269,727
<OTHER-EXPENSES> 50,578
<LOSS-PROVISION> 4,214
<INTEREST-EXPENSE> 41,906
<INCOME-PRETAX> (126,859)
<INCOME-TAX> 37,389
<INCOME-CONTINUING> (89,470)
<DISCONTINUED> 1,182
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (137,955)
<EPS-PRIMARY> (2.29)
<EPS-DILUTED> (2.29)
</TABLE>
