[PAXSON LOGO OMITTED]
PAXSON COMMUNICATIONS
CORPORATION
April 16, 2004
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Paxson Communications Corporation (the "Company"), which will be held at the
Hilton Hotel -- Palm Beach Airport, 150 Australian Avenue, West Palm Beach,
Florida 33406, on May 21, 2004, at 11:00 a.m., local time.
Please note that attendance at the Annual Meeting will be limited to
stockholders as of the record date (or their authorized representatives) and to
our invited guests. If your shares are registered in your name and you plan to
attend the Annual Meeting, please mark the appropriate box on the enclosed
proxy card and you will be pre-registered for the meeting (if your shares are
held of record by a broker, bank or other nominee and you plan to attend the
meeting, you must also pre-register by returning the registration card
forwarded to you by your bank or broker). Stockholders who are not
pre-registered will only be admitted to the Annual Meeting upon verification of
stock ownership.
The notice of the meeting and proxy statement on the following pages
contain information concerning the business to be considered at the meeting.
Please give these proxy materials your careful attention. It is important that
your shares be represented and voted at the Annual Meeting regardless of the
size of your holdings. Accordingly, whether or not you plan to attend the
Annual Meeting, please complete, sign, and return the accompanying proxy card
in the enclosed envelope in order to make sure your shares will be represented
at the Annual Meeting. Stockholders who attend the Annual Meeting will have the
opportunity to vote in person.
Sincerely,
/s/ LOWELL W. PAXSON
-----------------------------------------
LOWELL W. PAXSON
Chairman of the Board and Chief Executive Officer
PAXSON COMMUNICATIONS CORPORATION
601 CLEARWATER PARK ROAD
WEST PALM BEACH, FLORIDA 33401-6233
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 2004
The Annual Meeting of Stockholders of Paxson Communications Corporation
will be held at the Hilton Hotel - Palm Beach Airport, 150 Australian Avenue,
West Palm Beach, Florida 33406, on May 21, 2004, at 11:00 a.m., local time, for
the following purposes:
1. To elect three Class I directors to serve for a term of three years,
and until their successors have been duly elected and qualified;
2. To ratify the appointment of Ernst & Young LLP as our independent
certified public accountants for 2004; and
3. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on March 31, 2004,
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting.
Stockholders are requested to vote, date, sign and promptly return the
enclosed proxy in the envelope provided for that purpose, WHETHER OR NOT THEY
INTEND TO BE PRESENT AT THE MEETING.
By Order of the Board of Directors
/s/ Anthony L. Morrison
--------------------------
Anthony L. Morrison, Secretary
West Palm Beach, Florida
April 16, 2004
PAXSON COMMUNICATIONS CORPORATION
601 CLEARWATER PARK ROAD
WEST PALM BEACH, FLORIDA 33401-6233
PROXY STATEMENT
We are providing this proxy statement and the accompanying proxy card to
our stockholders beginning on or about April 16, 2004, in connection with the
solicitation of proxies by the Board of Directors of Paxson Communications
Corporation (the "Company"), to be voted at the Annual Meeting of Stockholders
to be held on May 21, 2004, and at any adjournment thereof (the "Meeting"). The
Board of Directors has fixed the close of business on March 31, 2004, as the
record date for the determination of stockholders entitled to notice of and to
vote at the Meeting. At the close of business on the record date, we had
outstanding (i) 63,482,088 shares of $0.001 par value Class A Common Stock
("Class A Common Stock"), entitled to one vote per share, (ii) 8,311,639 shares
of $0.001 par value Class B Common Stock ("Class B Common Stock," and with the
Class A Common Stock, collectively, the "Common Stock"), entitled to ten votes
per share, and (iii) 13,122 shares of 9 3/4% Series A Convertible Preferred
Stock ("Series A Convertible Preferred Stock"), entitled to 625 votes per
share.
VOTING
Shares represented by duly executed proxies in the accompanying form
received by us prior to the Meeting will be voted at the Meeting in accordance
with the directions given. If a proxy card is signed and returned without
specifying a vote or an abstention on any proposal, it will be voted according
to the recommendation of the Board of Directors on that proposal. The Board of
Directors recommends a vote FOR the election of the nominees for election as
Class I directors and the ratification of the appointment of Ernst & Young LLP
as our independent certified public accountants for 2004. The Board of
Directors knows of no business to be transacted at the Meeting other than the
proposals set forth in this Proxy Statement. If other matters are properly
presented for action, it is the intention of the persons named as proxies to
vote on such matters according to their best judgment.
If you hold your shares through an intermediary you must provide
instructions on voting as requested by your bank or broker. If you sign and
return a proxy, you may revoke it at any time before it is voted by taking one
of the following three actions: (i) giving written notice of the revocation to
the Secretary of the Company; (ii) executing and delivering a proxy with a
later date; or (iii) voting in person at the Meeting. Attendance at the Meeting
will not in itself constitute revocation of a proxy.
The presence in person or by proxy of the holders of shares of stock
possessing the power to cast a majority of the votes which could be cast by all
outstanding shares of stock entitled to vote at the Meeting constitutes a
quorum for the transaction of business at the Meeting. The election of
directors will require the affirmative vote of a plurality of the votes cast at
the Meeting, if a quorum is present. The affirmative vote of at least a
majority of the votes cast in person or by properly executed proxy is required
to approve each of the other proposals to be considered at the Meeting. Votes
cast by proxy or in person at the Meeting will be tabulated by one or more
inspectors of election appointed at the Meeting, who will also determine
whether a quorum is present for the transaction of business. Abstentions and
broker non-votes will be counted as shares present at the Meeting for purposes
of determining whether a quorum is present. As to matters to be considered at
the Meeting, abstentions will be treated as votes AGAINST, and broker non-votes
will not be counted as shares voting for the purpose of determining whether a
proposal has been approved. Lowell W. Paxson, our Chairman and Chief Executive
Officer and the beneficial owner of a majority of the voting power of our
outstanding stock, has advised us that he intends to vote all shares which he
is entitled to vote in favor of the proposals being submitted at the Meeting,
therefore approval of the proposals by our stockholders is assured.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to our equity securities
beneficially owned on April 1, 2004 by (i) each director and nominee for
director, (ii) each person identified as a "Named Executive Officer" below
under "Executive Compensation", (iii) all of our directors, nominees and
executive officers as a group, and (iv) any person who we know to be the
beneficial owner of more than five percent of any class of our voting
securities. Beneficial ownership means sole or shared voting power or
investment power with respect to a security. We have been informed that all
shares shown are held of record with sole voting and investment power, except
as otherwise indicated.
AMOUNT AND
NATURE OF AGGREGATE
BENEFICIAL VOTING
CLASS OF STOCK NAME OF BENEFICIAL OWNER(1) OWNERSHIP % OF CLASS POWER(%)
---------------------- ------------------------------------------- ------------ ------------ ----------
Class A Common Stock National Broadcasting Company,
Inc. (2) .................................. 63,928,159 50.2% 29.2%
Mario J. Gabelli (3) ...................... 7,602,248 12.0% 4.9%
Merrill Lynch & Co., Inc. (4) ............. 7,351,003 11.6% 4.7%
Master Small Cap Value Trust (5) .......... 4,982,800 7.8% 3.2%
Directors and Nominees:
Lowell W. Paxson (6) ...................... 15,455,062 24.3% 10.0%
Bruce L. Burnham (7)(8)(9) ................ 155,058 * *
James L. Greenwald (7)(8)(9) .............. 128,599 * *
John E. Oxendine (7)(9) ................... 102,312 * *
Henry J. Brandon (7) ...................... 80,000 * *
Elizabeth J. Hudson ....................... -- * *
Certain Executive Officers:
Dean M. Goodman (8)(9) .................... 890,128 1.4% *
Anthony L. Morrison (8)(9) ................ 588,528 * *
Seth A. Grossman (8)(9) ................... 369,821 * *
Thomas E. Severson, Jr. (9) ............... 308,391 * *
All directors, nominees and
executive officers as a group
(11 persons) (10) ......................... 18,187,899 28.5% 11.8%
Class B Common Stock Lowell W. Paxson .......................... 8,311,639 100% 53.7%
All directors and executive officers
as a group ................................ 8,311,639 100% 53.7%
----------------
* Less than 1%
(1) Unless otherwise specified in the footnotes to this table, the address of
each person in this table is c/o Paxson Communications Corporation, 601
Clearwater Park Road, West Palm Beach, Florida 33401-6233.
(2) Consists of 31,896,032 shares of Class A Common Stock issuable upon
conversion of shares of 8% Series B Convertible Exchangeable Preferred
Stock held by NBC Palm Beach Investment I, Inc., and 32,032,127 shares of
Class A Common Stock issuable upon exercise of outstanding warrants held by
NBC Palm Beach Investment II, Inc. The holders' rights to acquire shares of
Class A Common Stock upon conversion and exercise, respectively, of those
securities, although currently exercisable, are subject to material
conditions, including compliance with the rules of the Federal
Communications Commission. This amount does not include shares of Class B
Common Stock beneficially owned by Mr. Paxson that NBC Palm Beach
Investment II, Inc. has the right to acquire. According to information
contained in an amendment to Schedule 13D filed with the Securities and
Exchange Commission (the "Commission"), dated February 15, 2002, each of
such holders is a subsidiary of National Broadcasting Company, Inc.
("NBC"), whose address is 30 Rockefeller Plaza, New York, New York 10112,
and NBC and its parent entity, General Electric Company, Inc., each
disclaims beneficial ownership of such securities.
(3) According to information contained in an amendment to Schedule 13D filed
with the Commission, dated April 5, 2004, various investment funds and
other entities controlled by or affiliated with Mario J. Gabelli and Marc
J. Gabelli, each of whose address is c/o Gabelli Asset Management, Inc.,
One Corporate Center, Rye, New York 10580, acquired such shares for
investment for one or more accounts over which they have shared or sole
investment and voting power or for their own account. Further, based on
information contained in such amendment to Schedule 13D, the number of
shares reported includes 135,625 shares of Class A Common Stock issuable
upon the conversion of our 9 3/4% Series A Convertible Preferred Stock.
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(4) The address of Merrill Lynch & Co., Inc., is World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10381.
(5) The address of Master Small Cap Value Trust is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
(6) Does not include 8,311,639 shares of Class B Common Stock, each share of
which is convertible into one share of Class A Common Stock. Mr. Paxson is
the beneficial owner of all reported shares, other than 100 shares of Class
A Common Stock, through his control of Second Crystal Diamond, Limited
Partnership and Paxson Enterprises, Inc.
(7) Includes, with respect to each of Messrs. Brandon, Burnham, Greenwald and
Oxendine, 80,000 shares subject to vesting in equal annual installments of
16,000 shares over the five year period commencing on October 2, 2003. The
holders possess voting power with respect to these shares. These shares
will vest immediately upon the occurrence of certain events, including a
change of control of our company.
(8) Includes shares which may be acquired within 60 days through the exercise
of stock options granted under our Stock Incentive Plans as follows: Dean
M. Goodman -- 127,661; Anthony L. Morrison -- 150,000; Seth A. Grossman --
40,800; Bruce L. Burnham -- 13,750; James L. Greenwald -- 9,500.
(9) Includes, in addition to the shares referred to in note 7 above, shares
subject to vesting as follows: Mr. Goodman -- includes an aggregate of
477,500 shares vesting at various dates through October 2, 2008, 360,000 of
which shares will vest on October 2, 2008; Mr. Morrison -- includes an
aggregate of 250,000 shares vesting at various dates through October 2,
2008, 200,000 of which shares will vest on October 2, 2008; Mr. Grossman --
includes an aggregate of 251,250 shares vesting at various dates through
October 2, 2008, 180,000 of which shares will vest on October 2, 2008; Mr.
Severson - includes an aggregate of 306,250 shares vesting at various dates
through October 2, 2008, 200,000 of which shares will vest on October 2,
2008; Mr. Burnham -- includes an aggregate of 18,750 shares vesting on May
10, 2004; Mr. Greenwald -- includes an aggregate of 18,750 shares vesting
on May 10, 2004; Mr. Oxendine -- includes an aggregate of 15,000 shares
vesting on May 10, 2004. The holders possess voting power with respect to
these shares. These shares will vest immediately upon the occurrence of
certain events, including a change of control of our company.
(10) Includes the shares described in notes 7, 8 and 9 above.
POTENTIAL CHANGE IN CONTROL
On September 15, 1999, NBC, through subsidiaries, purchased $415 million
aggregate liquidation preference of shares of our 8% Series B Convertible
Exchangeable Preferred Stock, which are convertible into 31,896,032 shares of
Class A Common Stock, and acquired warrants to purchase an additional
32,032,127 shares of Class A Common Stock. Concurrently, NBC entered into an
agreement with Mr. Paxson, our Chairman and controlling stockholder, and
certain of his affiliates, pursuant to which NBC was granted the right to
purchase all (but not less than all) 8,311,639 shares of our outstanding Class
B Common Stock beneficially owned by Mr. Paxson, which shares are entitled to
ten votes per share on all matters submitted to a vote of our stockholders.
Pursuant to these agreements and the related agreements entered into in
connection with the transaction, NBC has the right to acquire voting and
operational control of our company, subject to various conditions including
approval of the Federal Communications Commission, or FCC. Exercise of these
rights by NBC would result in a change in control of our company.
In December 2001, we commenced a binding arbitration proceeding against
NBC in which we asserted that NBC breached its agreements with us and breached
its fiduciary duty to us and to our stockholders. We asserted that NBC's
proposed acquisition of Telemundo Communications Group, Inc. ("Telemundo
Group") (which was completed in April 2002) violates the terms of the
agreements governing the investment and partnership between us and NBC. In
September 2002, the arbitrator ruled against us on all of our claims, denying
us any of the relief we had sought with respect to what we believed to be NBC's
wrongful actions. Accordingly, the provisions of our agreements with NBC remain
in effect without change.
As NBC has consummated the acquisition of the Telemundo Group, it is
highly unlikely that NBC would be able to acquire control of our company under
the terms of our existing agreements. At the same time, NBC retains its
investment in us and its ability to exercise a significant influence over our
operations.
On November 13, 2003, NBC notified us that it was exercising its right
under its investment agreement with us to demand that we redeem or arrange for
a third party to acquire (the "Redemption"), by payment in cash, all 41,500
outstanding shares of our Series B preferred stock held by NBC. The
3
aggregate redemption price payable in respect of the 41,500 preferred shares,
including accrued dividends thereon, was approximately $557.5 million as of
December 31, 2003. We will have up to one year after November 13, 2003 to
consummate the Redemption. If at any time during the one year redemption
period, the terms of our outstanding debt and preferred stock do not prohibit
the Redemption and we have sufficient funds on hand to consummate the
Redemption, we must consummate the Redemption at that time. NBC may not
exercise its Warrant A and Warrant B (which represent the right to purchase an
aggregate of 32,032,127 shares of our Class A common stock) or its right to
purchase shares of Class B common stock beneficially owned by Mr. Paxson during
the one year redemption period.
If we do not effect the Redemption within one year after November 13,
2003, NBC will again be permitted to exercise its Warrant A and Warrant B and
its right to acquire Mr. Paxson's Class B common stock, and generally will be
permitted to transfer, without restriction, any of our securities acquired by
it, its right to acquire Mr. Paxson's Class B common stock, the contractual
rights described with respect to the NBC investment agreement under
"Business--NBC Relationship," in our Annual Report on Form 10-K for the year
ended December 31, 2003 and its other rights under the related transaction
agreements, provided that Warrant A, Warrant B and the right to acquire Mr.
Paxson's Class B common stock will expire, to the extent unexercised, 30 days
after any such transfer.
Our ability to effect any redemption is restricted by the terms of our
outstanding debt and preferred stock. To effect the Redemption, we would need
to raise sufficient cash to fund payment of the Redemption price and either
obtain the consents of the holders of our outstanding debt and preferred stock
or repay, redeem or refinance these securities in a manner that obviated the
need to obtain the consents of the holders. Alternatively, we would need to
identify a third party willing to purchase NBC's Series B preferred stock
directly from NBC or willing to enter into a merger, acquisition or other
transaction with us as a result of which NBC's Series B preferred stock would
be redeemed or acquired.
PROPOSAL 1 -- ELECTION OF CLASS I DIRECTORS
Our Board of Directors is divided into three classes. A class of directors
is elected each year to serve for a three year term and until their successors
are elected and qualified. Any director appointed by the Board of Directors to
fill a vacancy on the Board serves the balance of the unexpired term of the
class of directors in which the vacancy occurred. The terms of the Class I
directors (Messrs. Paxson and Brandon) expire at the Meeting. The terms of the
Class II directors (Messrs. Burnham, Greenwald and Oxendine) expire upon the
election and qualification of directors at the Annual Meeting of Stockholders
to be held in 2005. Our former Class III directors, all of whom were employees
of NBC, resigned during November and December, 2001, and we currently have no
Class III directors. The terms of any Class III directors who may be appointed
by the Board of Directors will expire upon the election and qualification of
directors at the Annual Meeting of Stockholders to be held in 2006. We
currently do not intend to fill these vacancies on our Board of Directors.
The Board of Directors has nominated Lowell W. Paxson, Henry J. Brandon
and Elizabeth J. Hudson for election as Class I directors. The Class I
directors elected at the Meeting will serve for a term of three years expiring
upon the election and qualification of their successors at our Annual Meeting
of Stockholders to be held in 2007 or until their earlier resignation or
removal.
Each of the nominees has indicated their willingness to serve, if elected.
Should any nominee become unable or unwilling to accept nomination or election
for any reason, the persons named as proxies may cast votes for a substitute
nominee designated by the Board of Directors, which has no reason to believe
the nominees named will be unable or unwilling to serve if elected.
4
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
NOMINEES LISTED BELOW.
Biographical and other information concerning our directors and the
nominees for election at the Meeting is set forth below.
NOMINEES FOR ELECTION AS CLASS I DIRECTORS (TERM TO EXPIRE AT THE ANNUAL
MEETING IN 2007)
DIRECTOR
AGE POSITION, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE AND DIRECTORSHIPS SINCE
----- ----------------------------------------------------------------------- ---------
Lowell W. Paxson ............ 68 Chairman of the Board since 1991 and Chief Executive 1991
Officer of the Company since December 2002 and from
1991 to 1998. President, Home Shopping Network, Inc.
from 1985 to 1990.
Henry J. Brandon ............ 46 Senior Vice President and Chief Financial Officer since 2001
August 2002 of Leeward Islands Lottery Holding
Company, Inc., a lottery management and production
company. Principal, William E. Simon & Sons, LLC, a
private investment firm and merchant bank, from 1995 to
2002.
Elizabeth J. Hudson ......... 54 Senior Vice President of Communications of National --
Geographic Society, a non-profit educational and
publishing organization, since September 2000. Senior
Vice President of Corporate Communications of iVillage,
Inc., a media company, from 1999 to 2000. Director of the
global communications and media practice of Spencer
Stuart, an executive search firm, from 1998 to 1999.
Director of AFLAC, Inc.
CLASS II DIRECTORS CONTINUING IN OFFICE (TERM TO EXPIRE AT THE ANNUAL MEETING
IN 2005)
DIRECTOR
AGE POSITION, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE AND DIRECTORSHIPS SINCE
----- ----------------------------------------------------------------------- ---------
Bruce L. Burnham ........... 70 President since 1983 of The Burnham Group, a firm 1996
providing consulting and marketing services to the retail
industry.
James L. Greenwald ......... 77 Chairman and Chief Executive Officer from 1975 to 1994 of 1996
Katz Communications, Inc., a broadcast advertising
representative sales firm; Chairman Emeritus since 1994.
Director, Granite Broadcasting Company.
John E. Oxendine ........... 61 President and Chief Executive Officer since 1998 of 2000
Blackstar, Inc.; Chairman and Chief Executive Officer
since 1999 of Broadcast Capital, Inc.; Chairman from 1994
to 1998 of Blackstar LLC; Chairman and Chief Executive
Officer from 1987 to 1998 of Blackstar Communications,
Inc. All of such entities are owners and operators of, or
investors in, broadcast television stations.
CLASS III DIRECTORS CONTINUING IN OFFICE (TERM TO EXPIRE AT THE ANNUAL MEETING
IN 2006)
None; seats are currently vacant.
5
OTHER EXECUTIVE OFFICERS
Dean M. Goodman, 56, has been our President since December 2002, and our
Chief Operating Officer since September 2001. Mr. Goodman also served as our
Executive Vice President from September 2001 to December 2002, and as the
President of our PAX TV network television operations from February 1998 to
December 2002. Mr. Goodman was president of our inTV and Network-Affiliated
Television divisions from 1995 to 1997. From 1993 to 1995, Mr. Goodman was
general manager of our Miami, Florida radio station group.
Anthony L. Morrison, 42, has served as our Executive Vice President,
Secretary and Chief Legal Officer since 1995. Prior to that time he was an
attorney in private practice with the law firm of O'Melveny & Myers LLP,
concentrating his practice on commercial financings.
Seth A. Grossman, 39, has served as our Executive Vice President and Chief
Strategic Officer since 2000. Mr. Grossman also served as our Senior Vice
President and Chief Financial Officer from December 1999 until August 2000.
From 1997 to December 1999, he was our Senior Vice President, Corporate
Development and from 1995 to 1997, he was our Director of Finance.
Richard Garcia, 41, has been our Chief Financial Officer since April 6,
2004 and has served as our Vice President, Controller and Chief Accounting
Officer since September 2003. From May 2002 to September 2003, Mr. Garcia was
employed by DirectTV Latin America, LLC as Controller. From August 1998 to May
2002, Mr. Garcia was Controller and Chief Accounting Officer of Claxson
Interactive Group, an owner of television and radio broadcasting assets.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Each of the members of the Board of Directors other than Mr. Paxson is
"independent," as that term is defined under the rules of the American Stock
Exchange. During 2003, the Board of Directors held five meetings. Each
incumbent director attended at least 75% of the total number of Board meetings
and meetings of committees of which he is a member. In addition, the Board of
Directors took action five times during 2003 by unanimous written consent in
lieu of a meeting, as permitted by applicable state law.
The Compensation Committee consists of James L. Greenwald, Bruce L.
Burnham and John E. Oxendine. Mr. Greenwald is the chairman of the Compensation
Committee. The Compensation Committee reviews and makes recommendations to the
Board regarding both base salary levels and bonuses for the Chief Executive
Officer and our other officers. See "Compensation Committee Report on Executive
Compensation." The Compensation Committee also reviews and makes
recommendations with respect to our existing and proposed compensation plans,
and serves as the committee responsible for administering our Stock Incentive
Plans. During 2003, the Compensation Committee met informally in conjunction
with each of the meetings of the Board of Directors and held ten separate
Committee meetings.
The Audit Committee consists of Bruce L. Burnham, James L. Greenwald, John
E. Oxendine and Henry J. Brandon. Mr. Burnham is the chairman of the Audit
Committee. The Audit Committee operates under a written charter adopted by the
Board of Directors which is attached as Appendix A to this proxy statement.
Each of the members of the Audit Committee is an independent director as
defined under the rules of the American Stock Exchange and is "independent," as
that term is defined in Section 10A of the Securities Exchange Act of 1934, as
amended. The Board of Directors has determined that Henry J. Brandon is an
"audit committee financial expert" (as defined in the rules of the Securities
and Exchange Commission). Each of the current members of the Audit Committee is
able to read and understand fundamental financial statements and is
"financially sophisticated" as that term is defined under applicable American
Stock Exchange rules. This committee is primarily concerned with the accuracy
and effectiveness of the audits of our financial statements by our independent
certified public accountants. The duties of the Audit Committee are to select,
retain, oversee and evaluate our independent certified public accountants, to
meet with our independent certified public accountants to review the scope and
results of the audit, to approve non-audit services provided to us by our
independent certified public accountants, and to consider various accounting
and auditing matters related to our system of internal controls, financial
management practices and other matters. During 2003, the Audit Committee met
eleven times.
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We do not have a nominating committee or a nominating committee charter at
this time. Nominations of directors are made by our full Board of Directors.
Elizabeth J. Hudson, a nominee for election as a Class I director at the
Meeting, was recommended for election by Mr. Greenwald. While the Board will
consider nominees recommended by stockholders, it has not actively solicited
recommendations from stockholders. Nominations by stockholders should be
submitted to our Secretary and must comply with certain procedural and
informational requirements set forth in our Bylaws. Please see "Stockholder
Proposals for 2005 Annual Meeting" below.
COMMUNICATION WITH THE BOARD OF DIRECTORS AND DIRECTOR ATTENDANCE AT ANNUAL
MEETINGS
Our Board of Directors believes that it is important for us to have a
process whereby our stockholders may send communications to the Board.
Accordingly, stockholders who wish to communicate with the Board of Directors
or a particular director may do so by sending a letter to our Secretary at 601
Clearwater Park Road, West Palm Beach, Florida 33401. The mailing envelope must
contain a clear notation indicating that the enclosed letter is a
"Stockholder-Board Communication" or "Stockholder-Director Communication." All
such letters must identify the author as a stockholder and clearly state
whether the intended recipients are all members of the Board of Directors or
certain specified individual directors. The Secretary will make copies of all
such letters and circulate them to the appropriate director or directors.
Although we do not have a policy with respect to attendance by the
directors at the Annual Meeting of Stockholders, directors are encouraged to
attend. Four of the five current members of the Board of Directors attended the
2003 Annual Meeting of Stockholders.
COMPENSATION OF DIRECTORS
Directors who are not our employees receive an annual retainer of $24,000
and are paid fees of $1,500 for each board meeting attended, $1,000 for each
committee meeting attended and $500 for each meeting chaired. All directors
receive reimbursement of reasonable out-of-pocket expenses incurred in
connection with attending meetings of the Board of Directors and of committees
of the Board of Directors.
In October 2003, Messrs. Burnham, Greenwald, Oxendine and Brandon each
received and exercised options to purchase 80,000 shares of Class A Common
Stock. The shares acquired upon exercise of the options vest ratably over a
five year period commencing on October 2, 2003.
In January 2003, Messrs. Burnham, Greenwald and Oxendine participated in
our stock option exchange offer, under which they exchanged 100,000, 100,000
and 50,000 of their outstanding options, respectively, for options to purchase
20,458, 20,349 and 7,312 fully vested shares, respectively, of our Class A
Common Stock, and options to purchase an additional 18,750, 18,750 and 15,000
unvested shares, respectively, of our Class A Common Stock which will vest on
May 10, 2004.
CERTAIN TRANSACTIONS INVOLVING DIRECTORS AND OFFICERS
NBC Transactions. On September 15, 1999, our company, NBC and Mr. Paxson,
our Chairman and controlling stockholder, entered into a series of agreements
which created a significant strategic and financial relationship between the
two companies and under which, subject to various conditions including FCC
approval, NBC has the ability to acquire voting and operational control of our
company. We also entered into an agreement with NBC pursuant to which NBC
serves as our exclusive sales representative to sell our PAX TV Network
advertising time for agreed compensation. We have also entered into joint sales
agreements with NBC with respect to 14 of our stations serving 12 markets also
served by an NBC owned and operated station, and with 28 independently owned
NBC affiliated stations serving our markets. Prior to their resignation in
November and December 2001, we had three Class III directors who were employees
of NBC.
DP Media. In June 2000, we completed the acquisition of DP Media, Inc. and
certain related corporations (collectively, "DP Media"), which were then
beneficially owned by family members of Mr. Paxson, for aggregate consideration
of $113.5 million. DP Media's assets included a 32% equity interest
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in a limited liability company controlled by the former stockholders of DP
Media, which owned television station WWDP in Norwell, Massachusetts. In April
2003, we and the former stockholders of DP Media sold our limited liability
company interests in the entity which owned WWDP to Valuevision Media
Acquisition, Inc. for an aggregate purchase price of $32.5 million, of which we
received net proceeds of approximately $13.8 million.
The Christian Network, Inc. We have entered into several agreements with
The Christian Network, Inc. (referred to herein as "CNI"). CNI is a section
501(c)(3) not-for-profit corporation to which Mr. Paxson has been a substantial
contributor and of which he was a member of the Board of Stewards through 1993.
We entered into an agreement with CNI in May 1994 (the "CNI Tax
Agreement") under which we agreed that, if the tax exempt status of CNI were
jeopardized by virtue of its relationship with us, we would take certain
actions to ensure that CNI's tax exempt status would no longer be so
jeopardized. These steps could include rescission of one or more transactions
or additional payments by us. We believe that our agreements with CNI have been
on terms as favorable to CNI as it would obtain in arm's length transactions,
and we intend any future agreements with CNI to be as favorable to CNI as CNI
would obtain in arm's length transactions. Accordingly, if our activities with
CNI are consistent with the terms governing our relationship, we should not be
required to take any actions under the CNI Tax Agreement. We cannot be sure,
however, that we will not be required to take any actions under the CNI Tax
Agreement which might have a material cost to us.
We have contracted with CNI to lease CNI's television production and
distribution facility. We utilize this facility primarily as our network
operations center and originate our PAX TV network signal from this location.
The current lease term expires on June 30, 2008 and will automatically be
renewed for an additional term of five years unless either party provides
notice of non-renewal on or before June 30, 2007. The current rent under the
lease is $16,700 per month, increasing on an annual basis based on increases in
the Consumer Price Index. During the year ended December 31, 2002, we incurred
rental charges of $209,000 in connection with the prior lease related to this
facility. During the year ended December 31, 2003, we incurred rental charges
of $212,000 in the aggregate under the prior lease and the current lease.
In March 1999, we entered into an agreement with CNI to license CNI's
programming, which agreement expired on May 31, 2002 without being renewed.
During the year ended December 31, 2002 we paid license fees in connection with
this agreement of $93,000.
On September 10, 1999, we entered into a Master Agreement with CNI for
overnight programming and use of a portion of the digital broadcasting capacity
of our television stations in exchange for CNI's providing public interest
programming. The Master Agreement has a term of 50 years and is automatically
renewable for successive ten year periods unless CNI ceases to exist, commences
action to liquidate, ceases family values programming or the FCC revokes the
licenses of a majority of our stations. Pursuant to the Master Agreement, we
broadcast CNI overnight programming on each of our stations seven days a week
from 1:00 a.m. to 6:00 a.m. When our stations begin digital programming in
multiple channels, we are obligated to make a digital channel available for
CNI's use. CNI will have the right to use the digital channel for 24 hour CNI
digital programming.
We are exploring strategic alternatives, which may include the sale of all
or part of our assets to a third party, finding a strategic partner, or finding
a third party to purchase the equity of our company. Our ability to pursue
strategic alternatives will be dependent upon the attractiveness of our assets
and business plan to potential strategic partners or buyers. Among other
things, potential strategic partners or buyers may find unattractive the
overnight programming provided by CNI which we currently carry or the terms of
our agreements with CNI. We may be prevented from consummating a strategic
transaction because of these and other factors, or we may incur significant
costs to terminate obligations and commitments with respect to CNI, or receive
less consideration in a strategic transaction as a result of these and other
factors.
Officer Loans. During December 1996, we approved a program to extend loans
to members of our senior management to finance their purchase of shares of
Class A Common Stock in the open market. The loans are full recourse promissory
notes bearing interest at 5.75% per annum and are collateralized by a pledge of
the shares
8
of Class A Common Stock purchased with the loan proceeds. The largest aggregate
amounts of indebtedness outstanding during 2003 under these loans to our Named
Executive Officers were as follows: Mr. Goodman, $685,006; Mr. Morrison,
$359,767; and Mr. Grossman, $164,574. As of December 31, 2003, the outstanding
balances on these loans were as follows: Mr. Goodman, $352,594; Mr. Morrison,
$73,438; and Mr. Grossman, $131,695. Following the enactment in July 2002 of
the Sarbanes-Oxley Act of 2002, we are not permitted to extend the maturity
date of these loans and are taking actions to collect the outstanding balances
on such loans. During 2003, we received payments of $350,000 from Mr. Goodman,
$290,026 from Mr. Morrison and $39,594 from Mr. Grossman in respect of their
loan balances. To date in 2004, we have received payments of $114,299 from Mr.
Goodman, $73,651 from Mr. Morrison, whose loan has now been repaid in full, and
$46,303 from Mr. Grossman, in respect of their loan balances.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and officers and persons who own more than ten percent of our Common
Stock ("Reporting Persons") to file initial reports of ownership and reports of
changes in ownership of Common Stock and our other equity securities with the
Securities and Exchange Commission and to furnish us with copies of all Section
16(a) reports they file. Based on our review of the copies of such reports
received by us and written representations from certain Reporting Persons, we
believe that during 2003, all required reports were filed on a timely basis,
except that Thomas E. Severson, Jr., our former chief financial officer, failed
to include the transfer of 11,000 shares of Class A Common Stock to his former
spouse pursuant to a domestic relations order in the Form 4 filing which was
made on October 6, 2003, which transfer was subsequently reported in an amended
Form 4 filing on January 16, 2004.
EXECUTIVE COMPENSATION
The following table presents information concerning the compensation
received or accrued for services rendered during the fiscal years ended
December 31, 2003, 2002 and 2001 for our Chief Executive Officer and our four
most highly compensated executive officers, other than the Chief Executive
Officer, who were serving as of December 31, 2003 (collectively, the "Named
Executive Officers").
9
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION (2)
-----------------
ANNUAL COMPENSATION NUMBER OF
------------------------------------------ SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION OPTIONS (3)(4)(5)(6)
--------------------------------- ------ ------------- ------------ --------------- ----------------- -------------------
Lowell W. Paxson ............ 2003 $818,565 $409,283 $ -- 0 $ 24,477 (7)
Chairman of the Board, 2002 744,150 -- -- 0 33,513 (7)
Chief Executive Officer 2001 660,000 -- -- 0 67,781 (7)
Dean M. Goodman ............. 2003 455,333 182,133 789,750 (8) 815,000 18,536
President, Chief Operating 2002 455,333 -- -- 0 48,147
Officer 2001 433,650 130,098 -- 150,000 43,771
Anthony L. Morrison ......... 2003 303,188 106,116 525,330 (8) 474,500 13,058
Executive Vice President, 2002 303.188 -- 214,550 (8) 0 32,360
Secretary, Chief Legal 2001 288,750 87,200 165,584 (8) 150,000 29,477
Officer
Seth A. Grossman ............ 2003 259,875 77,963 215,865 (8) 343,500 3,472
Executive Vice President, 2002 259,875 -- -- 0 1,000
Chief Strategic Officer 2001 247,500 37,128 -- 125,000 1,000
Thomas E. Severson, Jr ...... 2003 264,167 78,338 58,500 (8) 331,250 2,772
Senior Vice President, 2002 245,000 -- 140,651 (8) 0 --
Chief Financial Officer (9) 2001 216,667 51,000 -- 50,000 --
----------------
(1) Includes amounts Named Executive Officers elected to defer under our Profit
Sharing Plan.
(2) The aggregate restricted stock holdings of the Named Executive Officers as
of December 31, 2003 were as follows: Mr. Goodman -- 477,500 shares with a
fair market value of $1,838,375; Mr. Morrison -- 292,500 shares with a fair
market value of $1,126,125; Mr. Grossman -- 251,250 shares with a fair
market value of $967,313; and Mr. Severson -- 306,250 shares with a fair
market value of $1,179,063. Fair market value is based on the closing sale
price of the Class A Common Stock of $3.85 on December 31, 2003.
(3) Includes contributions to supplemental retirement plans as follows: during
2003, Mr. Goodman -- $11,383; Mr. Morrison -- $7,580; during 2002, Mr.
Goodman -- $45,533; Mr. Morrison -- $30,319; during 2001, Mr. Goodman --
$41,300; Mr. Morrison -- $27,500.
(4) Includes $1,000 contributions by us to the Profit Sharing Plan during 2003,
2002 and 2001.
(5) Includes cost of term life insurance equivalent for life insurance policies
as follows: during 2003, Mr. Paxson -- $6,414; Mr. Goodman -- $1,753; Mr.
Morrison -- $1,131; during 2002, Mr. Paxson -- $4,967; Mr. Goodman --
$1,614; Mr. Morrison -- $1,041; during 2001, Mr. Paxson -- $4,913; Mr.
Goodman -- $1,471; Mr. Morrison -- $977.
(6) Includes income from payment of stock option exercise price related to
October 2003 grants as follows: Mr. Goodman -- $4,400; Mr. Morrison --
$2,500; Mr. Grossman -- $2,200; Mr. Severson -- $2,500.
(7) Includes the economic benefits of the premiums we paid under a split dollar
life insurance policy. We are entitled to recover the premiums from any
amounts paid by the insurer on the split dollar life policy and have
retained an interest in the policy to the extent of the premiums paid.
(8) Represents the difference between the price paid by the Named Executive
Officer upon the exercise of stock options and the fair market value of the
underlying common stock at the time of exercise.
(9) Mr. Severson's employment with us has been terminated effective May 5,
2004.
10
OPTION GRANTS IN LAST FISCAL YEAR
The table below presents information regarding each of the Named Executive
Officers who was granted options to purchase shares of our capital stock during
the year ended December 31, 2003.
NUMBER OF SHARES % OF TOTAL MARKET
OF COMMON STOCK OPTIONS GRANTED EXERCISE PRICE AT GRANT DATE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION DATE OF PRESENT
NAME GRANTED FISCAL YEAR SHARE DATE GRANT VALUE (1)
-------------------------------- -------------------- ----------------- ----------- ------------ ---------- ------------
Lowell W. Paxson ............... -- -- $ -- -- $ -- $ --
Dean M. Goodman ................ 375,000 5.6% 0.01 1/24/2003 2.43 907,500
440,000 6.5% 0.01 10/3/2003 5.10 2,239,600
Anthony L. Morrison ............ 224,500 3.3% 0.01 1/24/2003 2.43 543,290
250,000 3.7% 0.01 10/3/2003 5.10 1,272,500
Seth A. Grossman ............... 123,500 1.8% 0.01 1/24/2003 2.43 298,870
220,000 3.3% 0.01 10/3/2003 5.10 1,119,800
Thomas E. Severson, Jr ......... 81,250 1.2% 0.01 1/24/2003 2.43 196,625
250,000 3.7% 0.01 10/3/2003 5.10 1,272,500
----------------
(1) Based on the closing price on the grant date and the option exercise price,
as determined using the Black-Scholes option pricing model assuming a
dividend yield of 0%, expected volatility range of 70% to 79%, risk free
interest rates of 2.8% to 2.9% and a weighted average expected option term
of one day.
2003 AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to stock options
exercised by the Named Executive Officers during the fiscal year ended December
31, 2003 and stock options held as of December 31, 2003 by each Named Executive
Officer.
SHARES MARKET
ACQUIRED PRICE AT EXERCISE
ON DATE OF PRICE VALUE
NAME EXCERCISE EXERCISE PER SHARE REALIZED
--------------------------------- ----------- ---------- ----------- --------------------
Lowell W. Paxson ................ -- $ -- $ -- $ --
Dean M. Goodman ................. 375,000 2.35 0.01 877,500 (2)
440,000 5.41 0.01 2,376,000 (3)
Anthony L. Morrison ............. 224,500 2.35 0.01 525,330 (4)
250,000 5.41 0.01 1,350,000 (3)
Seth A. Grossman ................ 123,500 2.35 0.01 288,990 (2)
220,000 5.41 0.01 1,188,000 (3)
Thomas E. Severson, Jr. ......... 81,250 2.35 0.01 190,125 (5)
250,000 5.41 0.01 1,350,000 (5)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN THE MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 2003 DECEMBER 31, 2003 (1)
----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------------- ------------- --------------- ------------- --------------
Lowell W. Paxson ................ -- -- $ -- $ --
Dean M. Goodman ................. 127,661 -- 54,894 --
-- -- -- --
Anthony L. Morrison ............. 150,000 -- 64,500 --
-- -- -- --
Seth A. Grossman ................ 40,800 -- 17,544 --
-- -- -- --
Thomas E. Severson, Jr. ......... -- -- -- --
-- -- -- --
----------------
(1) Based on the closing sale price of the Class A Common Stock of $3.85 on
December 31, 2003.
(2) A portion of this value realized is attributable to unvested shares which
are scheduled to vest on May 10, 2004, as follows: Mr. Goodman -- $87,750,
and Mr. Grossman -- $73,125.
(3) These amounts are attributable solely to unvested shares which are
scheduled to vest at various dates through October 2, 2008. A substantial
portion of these shares are scheduled to vest on October 2, 2008 as
follows: Mr. Goodman -- 360,000 shares, representing $1,944,000 of the
total value realized; Mr. Morrison -- 200,000 shares, representing
$1,080,000 of the total value realized, and Mr. Grossman -- 180,000 shares,
representing $972,000 of the total value realized. The holders possess
voting power with respect to these shares. These shares will vest
immediately upon the occurrence of certain events, including a change of
control of our company.
11
(4) $99,450 of this amount is attributable to shares which vested on
January 23, 2004.
(5) All of Mr. Severson's unvested shares will vest on May 5, 2004, the
effective date of the termination of his employment with us. Of the
$190,125 value realized, $131,625 is attributable to unvested shares. All
of the $1,350,000 value realized is attributable to unvested shares.
STOCK INCENTIVE PLANS
We established our Stock Incentive Plan, 1996 Stock Incentive Plan and
1998 Stock Incentive Plan (collectively, the "Stock Incentive Plans") to
provide incentives to officers, employees and others who perform services for
us through awards of options and shares of restricted stock. Awards are granted
under the Stock Incentive Plans at the discretion of our Compensation Committee
and may be in the form of either incentive or nonqualified stock options or
awards of restricted stock. As of December 31, 2003, 3,488,774 shares of Class
A Common Stock were available for additional awards under the Stock Incentive
Plans. To date, all options we have granted under our Stock Incentive Plans
have been nonqualified stock options. Substantially all of the options we
granted under the Stock Incentive Plans during the year ended December 31,
2003, including all of the options granted to our Named Executive Officers, had
a one business day exercise period and an exercise price of $0.01 per share and
were exercisable (except for options issued in exchange for outstanding options
which were fully vested at the time of exchange) only for "unvested shares" of
our Class A Common Stock. These unvested shares are subject to restrictions on
transfer and to a risk of forfeiture, including the risk that the participant
will not satisfy vesting conditions that apply to the shares.
The exercise price per share of Class A Common Stock, vesting schedule and
expiration date of each stock option granted under the Stock Incentive Plans is
determined by the Compensation Committee at the date the option is granted and
as provided in the terms of the Plans. The Compensation Committee may, in its
sole discretion, accelerate the time at which any stock option may be
exercised. Holders of more than ten percent (10%) of the combined voting power
of our capital stock may be granted stock options, provided that if any of such
options are intended to be incentive stock options, the exercise price must be
at least 110% of the fair market value of Class A Common Stock as of the date
of the grant and the term of the option may not exceed five years. Options
granted under the Stock Incentive Plans may be exercised by the participant to
whom granted or by his or her legal representative. If a participant's
employment is terminated for cause, each option which has not been exercised
shall terminate, and each unvested share held by that participant shall be
forfeited.
The Compensation Committee also has the discretion to award restricted
stock, consisting of shares of Class A Common Stock which vest over a period
determined by the Committee and are subject to forfeiture in whole or in part
if the recipient's employment is terminated prior to the end of the restricted
period. Prior to vesting, the participant may transfer the restricted stock to
a trust for the benefit of the participant or an immediate family member, but
may not otherwise sell, assign, transfer, give or otherwise dispose of,
mortgage, pledge or encumber such restricted stock. The Compensation Committee
may, in its discretion, provide that a participant shall be vested in whole or
with respect to any portion of the participant's award not previously vested
upon the occurrence of such events or conditions as the Compensation Committee
deems appropriate and are specified in the applicable restricted stock
agreement. To date, we have not awarded any restricted stock under the Stock
Incentive Plans.
EXECUTIVE BONUS PLAN
Under our Executive Bonus Plan, members of our senior management approved
by the Compensation Committee may earn cash bonus compensation on an annual
basis based upon the achievement of operating and financial objectives and
individual performance criteria. The bonus calculation criteria are established
on an annual basis by the Committee, and generally consist of a set of
operating and financial performance objectives which we must meet and
individualized performance criteria and bonus levels for each participant
(generally expressed as a percentage of the participant's base salary). Under
the terms of their employment agreements, each of our Named Executive Officers
is entitled to receive a bonus of 65% of his base salary if we meet the
operating and financial objectives established annually by the Compensation
Committee and 35% of his base salary if, in the opinion of our
12
Chairman and Chief Executive Officer with the concurrence of the Compensation
Committee (or, in Mr. Paxson's case, in the opinion of the non-management
members of our Board of Directors), he satisfactorily performs the tasks
associated with his position. Bonuses awarded with respect to a fiscal year are
paid during the following year.
PROFIT SHARING PLAN
We have a profit sharing plan under Section 401(k) of the Internal Revenue
Code under which our employees must complete six months of service in order to
be eligible to defer salary and, if available, receive matching contributions
under the Section 401(k) portion of the plan. Participants may elect to
contribute a specified percentage of their compensation to the plan on a
pre-tax basis. We may, at our discretion, make matching contributions based on
a percentage of deferred salary contributions at a rate to be determined by
certain of our officers, which matching contributions may be paid in our stock.
In addition, we may make supplemental profit sharing contributions in such
amounts as certain of our officers may determine. Participants earn a vested
right to their profit sharing contribution in increasing amounts over a period
of five years. After five years of service, a participant's right to his or her
profit sharing contribution is fully vested. Thereafter the participant may
receive a distribution of the entire value of his or her account at age 55, 62
or 65 or upon termination of employment, death or disability.
EMPLOYMENT AGREEMENTS
Mr. Paxson is employed as our Chairman and Chief Executive Officer,
pursuant to an employment agreement for a three year term commencing October
16, 1999, and renewing thereafter for successive one year periods so long as
Mr. Paxson remains our "Single Majority Shareholder" as such term is defined
under the rules of the FCC. Mr. Paxson's base salary under the agreement is
$880,000 for calendar year 2004 and thereafter will increase at a rate of 10%
per year. With respect to the fiscal year ending December 31, 2004 and each
fiscal year thereafter, Mr. Paxson may receive an annual bonus equal to 65% of
his base salary if we attain financial targets established by our Compensation
Committee for the award of bonuses to our senior management, and may receive an
additional annual bonus equal to 35% of his base salary if, in the opinion of
the non-management members of our Board of Directors, he satisfactorily
performs the tasks associated with his position as our Chairman and Chief
Executive Officer. Mr. Paxson is eligible to participate in all employee
benefit plans and arrangements that are generally available to our other senior
executives. The Board of Directors may terminate Mr. Paxson's employment
agreement before expiration for good cause, and Mr. Paxson may terminate the
agreement for good reason, each as defined in the agreement. If Mr. Paxson
dies, becomes permanently disabled, terminates his employment for good reason
or is terminated other than for good cause during the term of the agreement, we
will pay Mr. Paxson or his estate, as the case may be, his then existing salary
for the remaining term of the agreement, in the case of disability, termination
for good reason or termination other than for good cause, or 18 months, in the
case of death.
Mr. Goodman is employed as our President and Chief Operating Officer under
an employment agreement that expires on December 31, 2006. With respect to the
fiscal year ending December 31, 2004 and each fiscal year thereafter, Mr.
Goodman may receive an annual bonus equal to 65% of his base salary if we
attain financial targets established by our Compensation Committee for the
award of bonuses to our senior management, and may also receive an additional
annual bonus equal to 35% of his base salary if, in the opinion of our Chairman
and Chief Executive Officer, with the concurrence of our Compensation
Committee, he satisfactorily performs the tasks associated with his position as
our President and Chief Operating Officer. Mr. Goodman is also eligible to
participate in all employee benefit plans and arrangements that are generally
available to our other senior executives and to receive such other cash and
non-cash bonus awards and compensation, including awards under our stock
incentive plans, as we may determine. We may terminate Mr. Goodman's employment
for cause, as defined in the agreement. If Mr. Goodman's employment is
terminated by reason of his death or disability or other than for cause, or if
Mr. Goodman terminates his employment for good reason, as defined in the
agreement, we will continue to pay Mr. Goodman or his estate, as the case may
be, his base salary for the lesser of one year (or two years, in the case of
any such termination occurring within six months before or two years after a
change of control) or the balance of the employment term.
13
Mr. Morrison is employed as our Executive Vice President, Secretary and
Chief Legal Officer under an employment agreement that expires on December 31,
2006. With respect to the fiscal year ending December 31, 2004 and each fiscal
year thereafter, Mr. Morrison may receive an annual bonus equal to 65% of his
base salary if we attain financial targets established by our Compensation
Committee for the award of bonuses to our senior management, and may also
receive an additional annual bonus equal to 35% of his base salary if, in the
opinion of our Chairman and Chief Executive Officer, with the concurrence of
our Compensation Committee, he satisfactorily performs the tasks associated
with his position as our Executive Vice President, Secretary and Chief Legal
Officer. Mr. Morrison is also eligible to participate in all employee benefit
plans and arrangements that are generally available to our other senior
executives and to receive such other cash and non-cash bonus awards and
compensation, including awards under our stock incentive plans, as we may
determine. We may terminate Mr. Morrison's employment for cause, as defined in
the agreement. If Mr. Morrison's employment is terminated by reason of his
death or disability or other than for cause, or if Mr. Morrison terminates his
employment for good reason, as defined in the agreement, we will continue to
pay Mr. Morrison or his estate, as the case may be, his base salary for the
lesser of one year (or two years, in the case of any such termination occurring
within six months before or two years after a change of control) or the balance
of the employment term.
Mr. Grossman is employed as our Executive Vice President and Chief
Strategic Officer under an employment agreement that expires on December 31,
2006. With respect to the fiscal year ending December 31, 2004 and each fiscal
year thereafter, Mr. Grossman may receive an annual bonus equal to 65% of his
base salary if we attain financial targets established by our Compensation
Committee for the award of bonuses to our senior management, and may also
receive an additional annual bonus equal to 35% of his base salary if, in the
opinion of our Chairman and Chief Executive Officer, with the concurrence of
our Compensation Committee, he satisfactorily performs the tasks associated
with his position as our Executive Vice President and Chief Strategic Officer.
Mr. Grossman is also eligible to participate in all employee benefit plans and
arrangements that are generally available to our other senior executives and to
receive such other cash and non-cash bonus awards and compensation (including
awards under our Stock Incentive Plans) as we may determine. We may terminate
Mr. Grossman's employment for cause, as defined in the agreement. If Mr.
Grossman's employment is terminated by reason of his death or disability or
other than for cause, or if Mr. Grossman terminates his employment for good
reason, as defined in the agreement, we will continue to pay Mr. Grossman or
his estate, as the case may be, his base salary for the lesser of one year (or
two years, in the case of any such termination occurring within six months
before or two years after a change of control) or the balance of the employment
term.
The terms of each of the employment agreements described above were
approved by our Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was composed of Messrs. Greenwald, Burnham and
Oxendine during 2003. None of our executive officers served on the compensation
committee of another entity or on any other committee of the board of directors
of another entity performing similar functions during 2003.
REPORT ON REPRICING OF OPTIONS
In connection with the stock option exchange offer described below, we
repriced certain options held by our Named Executive Officers. In the fall of
2002, the Compensation Committee of our Board of Directors determined that
insufficient shares remained available for future awards under the 1998 Stock
Incentive Plan for us to be able to continue to provide meaningful stock-based
incentive compensation to those persons in a position to contribute to our
success. In addition, the Committee determined that many of the options which
had been previously granted had exercise prices that were significantly higher
than the then-current market price of our Class A Common Stock and did not
provide meaningful stock-based incentive compensation to those persons in a
position to contribute to our success. To
14
address these concerns, the Compensation Committee approved an offer to
exchange options with a per share exercise price of at least $7.25 for new
options to purchase one share of Class A Common Stock for each two shares of
Class A Common Stock issuable upon exercise of existing options that were
tendered for exchange, which new options had a one business day exercise period
and a $0.01 per share exercise price. Certain shares of our Class A Common
Stock issued upon the exercise of new options granted in the stock option
exchange offer are subject to restrictions on transfer and to a risk of
forfeiture. We refer to those shares as unvested shares.
We recorded a fixed non-cash compensation expense upon the issuance of
vested shares of Class A Common Stock based on the closing price of the Class A
Common Stock on January 24, 2003, the date the new options were exercised. With
respect to unvested shares, we will record a non-cash compensation expense over
the vesting period of the unvested shares based on the closing price of the
Class A Common Stock on January 24, 2003. The following table sets forth
information regarding options held by our executive officers that have been
repriced, including by an option exchange or tender offer, during the ten year
period ended December 31, 2003.
TEN YEAR OPTION/SAR REPRICING
NUMBER OF
SECURITIES AT
UNDERLYING MARKET PRICE
OPTIONS/SARS AT TIME OF
REPRICED OR REPRICING OR
NAME DATE AMENDED AMENDMENT ($)
----------------------------------------- ----------- --------------- ---------------
Dean M. Goodman ......................... 1/24/2003 300,000 2.35
President, Chief Operating Officer 1/24/2003 75,000 2.35
Anthony L. Morrison ..................... 1/24/2003 100,000 2.35
Executive Vice President, Secretary, 1/24/2003 24,500 2.35
Chief Legal Officer 1/24/2003 25,000 2.35
1/24/2003 75,000 2.35
Seth A. Grossman ........................ 1/24/2003 50,000 2.35
Executive Vice President, 1/24/2003 11,000 2.35
Chief Strategic Officer 1/24/2003 62,500 2.35
LENGTH OF ORIGINAL
EXERCISE PRICE OPTION TERM
AT TIME OF NEW REMAINING AT DATE
REPRICING OR EXERCISE OF REPRICING OR
NAME AMENDMENT ($) PRICE ($) AMENDMENT (YEARS)
----------------------------------------- ---------------- ----------- -------------------
Dean M. Goodman ......................... 7.25 0.01 5.38
President, Chief Operating Officer 7.25 0.01 8.62
Anthony L. Morrison ..................... 7.25 0.01 5.38
Executive Vice President, Secretary, 7.25 0.01 6.11
Chief Legal Officer 7.25 0.01 6.91
7.25 0.01 8.62
Seth A. Grossman ........................ 7.25 0.01 5.38
Executive Vice President, 7.25 0.01 6.91
Chief Strategic Officer 7.25 0.01 8.27
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
Compensation Committee Report on Executive Compensation and the Performance
Graph shall not be incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is submitted by the Compensation Committee of the Board of
Directors, which is currently comprised of Mr. Burnham, Mr. Greenwald and Mr.
Oxendine, each of whom is a non-employee director of the Company. Mr. Greenwald
is the chairman of the Compensation Committee.
The Compensation Committee of the Board of Directors reviews and
recommends the salaries and other compensation of the executive officers of the
Company, including its Chairman and its Chief Executive Officer and other Named
Executive Officers, and is responsible for administering the Company's
Executive Bonus Plan and Stock Incentive Plans, and for reviewing proposed
executive compensation and other compensation plans and making recommendations
to the Board of Directors.
In making its recommendations as to executive compensation, the Committee
seeks to recommend a level of base compensation which is competitive with the
compensation offered to executives performing similar functions by others in
the Company's line of business, and to link a significant portion of an
executive's total potential cash compensation to the achievement of overall
Company operating and financial goals and individual performance criteria. In
administering the Executive Bonus Plan, the
15
Committee establishes, on an annual basis, overall Company operating and
financial goals and individual performance criteria which offer Company
executives the opportunity to earn significant bonus compensation. In
formulating its recommendations as to awards under the stock incentive plans,
the Committee seeks to provide a means for Company executives to realize
substantial additional compensation through the receipt of nominally-priced
stock options to acquire shares which become vested over time as the executive
remains in the Company's employment.
For the 2003 fiscal year, the Committee established target levels of
adjusted earnings before interest, taxes, depreciation and amortization
("EBITDA") as the financial performance goals to be used to determine bonus
compensation under the Executive Bonus Plan. Based upon the Company's actual
adjusted EBITDA for the 2003 fiscal year, the participants in the Executive
Bonus Plan were entitled to receive bonus compensation of between 5% and 50% of
annual base compensation. Bonus compensation earned with respect to the 2003
fiscal year was paid in January 2004.
The chief executive officer's compensation has been established pursuant
to an employment agreement entered into in October 1999, the material terms of
which were established by negotiation with NBC, which made a significant
investment in the Company at that time. Under the agreement, Mr. Paxson, the
chief executive officer, receives a stated annual base salary with annual 10%
increases. Mr. Paxson's base salary in 2003 was $818,565, a 10% increase over
his 2002 base salary. Because Mr. Paxson's base salary was established as a
matter of contract, the Committee did not consider adjustments to Mr. Paxson's
base salary based on Company performance. Under the Executive Bonus Plan, the
Committee established a range of bonus eligibility for Mr. Paxson for the 2003
fiscal year of between 50% and 200% of his base salary. Based on the Company's
actual adjusted EBITDA for the 2003 fiscal year and the Company performance
criteria established by the Committee, as described in the preceding paragraph,
Mr. Paxson was entitled to receive a bonus of $409,283, or 50% of his base
salary, with respect to the 2003 fiscal year, which was paid to him in January
2004.
During 2003 the Compensation Committee approved the grants in October 2003
of stock options to the Named Executive Officers. The options were exercisable
for one business day at an exercise price of $0.01 per share. The shares
acquired upon exercise of the options are subject to vesting restrictions. The
majority of the shares issued to the Named Executive Officers in the October
2003 award will vest in their entirety on the fifth anniversary of the grant
date in 2008. The balance of the shares issued to the Named Executive Officers
in the October 2003 award will vest in equal annual installments over a three
year period. All of the shares will vest immediately upon a change of control
of the Company, and upon the holder's death, disability or termination of
employment by the Company without cause. In granting the awards, the Committee
sought to create significant incentives for the key executives of the Company
to remain in the Company's employment while the Company seeks to consummate a
strategic transaction. The Committee determined that the terms of the October
2003 award would better serve the Company's retention goals than the more
traditional stock options awarded by the Committee in prior fiscal years.
Submitted by the Compensation Committee
James L. Greenwald, Chairman
Bruce L. Burnham
John E. Oxendine
16
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on our
Class A Common Stock from December 31, 1998 through December 31, 2003 with the
cumulative total return of the American Stock Exchange Market Value Index and
an industry peer group index compiled by us that consists of several companies
(the "Peer Group").
[GRAPHIC OMITTED]
COMPANY NAME / INDEX (1) 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Paxson Communications Corp.-Class A $ 100.00 $ 129.93 $ 129.92 $ 113.74 $ 22.42 $ 41.90
American Stock Exchange Index $ 100.00 $ 131.94 $ 122.38 $ 113.91 $ 93.10 $ 126.03
Peer Group Index (2) $ 100.00 $ 191.39 $ 148.36 $ 143.73 $ 109.45 $ 153.66
----------------
(1) The comparison assumes $100 was invested at the per share closing price of
our Class A Common Stock on December 31, 1998. Similar calculations were
made with respect to the American Stock Exchange Market Value Index and the
Peer Group for the relevant periods assuming that all dividends were
reinvested.
(2) The following companies constitute the Peer Group: Granite Broadcasting
Corp., Hearst-Argyle Television Inc., Sinclair Broadcast Group, Inc.,
Univision Communications, Inc. and Young Broadcasting, Inc.
LIN TV Corp., a new corporate entity that owns 100% of LIN Television,
completed its initial public offering in May 2002 and the shares of common
stock of LIN TV Corp. are listed for trading on the New York Stock Exchange
under the symbol TVL. LIN TV Corp. is included in the peer group index only
as of December 31, 2003, and not for prior years, because it did not become
a reporting company until May 2002. If LIN TV Corp. were excluded from the
peer group index, the cumulative total return of the peer group index for
December 31, 2003 would have been $157.11 and the return for other years
would have been unchanged.
Calculations for the Peer Group were weighted on the basis of their
respective market capitalizations.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
Audit Committee Report shall not be incorporated by reference into any such
filings.
AUDIT COMMITTEE REPORT
This report is submitted by the Audit Committee of the Board of Directors,
which is currently comprised of four independent directors and operates under a
written charter adopted by the Board of Directors which is attached as Appendix
A to this Proxy Statement. The members of the Committee are Bruce L. Burnham,
James L. Greenwald, John E. Oxendine and Henry J. Brandon. Mr. Burnham is the
chairman of the Audit Committee. Each of the members of the Audit Committee is
an independent director as defined under the rules of the American Stock
Exchange and is "independent," as that term is defined in Section 10A of the
Securities Exchange Act of 1934, as amended. The Audit Committee is primarily
concerned with the accuracy and effectiveness of the audits of our financial
statements by our independent certified public accountants. The duties of the
Audit Committee are to select, retain, oversee and evaluate our independent
certified public accountants, to meet with our independent certified public
17
accountants to review the scope and results of the audit, to approve non-audit
services provided to us by our independent certified public accountants, and to
consider various accounting and auditing matters related to our system of
internal controls, financial management practices and other matters.
Management is responsible for our internal controls and the financial
reporting process. The independent accountants are responsible for performing
an audit of our consolidated financial statements in accordance with auditing
standards generally accepted in the United States of America and to issue a
report thereon. The Audit Committee's responsibility is to monitor and oversee
these processes.
The Audit Committee has met and discussed the fiscal 2003 audited
financial statements with management and our independent accountants.
Management represented to the Audit Committee that our consolidated financial
statements were prepared in accordance with accounting principles generally
accepted in the United States of America. The Audit Committee discussed with
our independent accountants matters required to be discussed by Statement on
Auditing Standards No. 61, entitled Communications with Audit Committees.
Our independent accountants also provided to the Audit Committee the
written disclosures and the letter required by Independence Standards Board
Standard No. 1, entitled Independence Discussions with Audit Committees, and
the Audit Committee discussed with our independent accountants that firm's
independence.
Based on the Audit Committee's discussion with management and our
independent accountants and the Audit Committee's review of the representation
of management and the report of our independent accountants to the Audit
Committee, the Audit Committee recommended that the Board of Directors include
the audited financial statements for fiscal 2003 in our Annual Report on Form
10-K for the year ended December 31, 2003 filed with the Securities and
Exchange Commission.
Submitted by the Audit Committee
Bruce L. Burnham, Chairman
John E. Oxendine
James L. Greenwald
Henry J. Brandon
18
PROPOSAL 2 -- RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
During March 2003, the Audit Committee of our Board of Directors decided
to request proposals from each of the four largest public accounting firms,
including PricewaterhouseCoopers LLP ("PwC"), for engagement by us to conduct
the independent audit of our financial statements for the year ending December
31, 2003. PwC audited our consolidated financial statements for the year ended
December 31, 2002. On April 4, 2003, PwC informed us that it declined to stand
for reelection as our independent accountants.
The report of PwC on our consolidated financial statements for the fiscal
year ended December 31, 2002 did not contain an adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audit for the fiscal year ended December 31, 2002,
there were no disagreements with PwC on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of PwC, would have
caused them to make reference thereto in their report on the financial
statements for such year. During the fiscal year ended December 31, 2002, there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K
with respect to us.
On April 10, 2003, the Audit Committee of our Board of Directors approved
the engagement of the firm of Ernst & Young LLP ("E&Y") to act as our new
independent accountants to audit our financial statements for the fiscal year
ending December 31, 2003. During the two most recent fiscal years and through
April 16, 2004, we have not consulted with E&Y regarding either (i) the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
our financial statements, and neither a written report was provided to us nor
was oral advice provided that E&Y concluded was an important factor considered
by us in reaching a decision as to the accounting, auditing or financial
reporting issue; or (ii) any matter that was either the subject of a
disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K
and the related instructions to Item 304 of Regulation S-K, or a reportable
event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
Representatives of E&Y are expected to be present at the Annual Meeting to
answer questions from stockholders, and will have an opportunity to make a
statement if they wish to do so.
COMPENSATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
During the year ended December 31, 2003, the Company retained E&Y to
provide services in the following categories and amounts:
Audit Fees. The aggregate fees billed to us by E&Y for its services in
connection with the audit of our annual consolidated financial statements for
the fiscal year ended December 31, 2003, and its review of the quarterly
financial statements included in our reports on Form 10-Q filed during the 2003
fiscal year were $1,620,874. This amount also includes fees for services
provided by E&Y in connection with its audit of our consolidated financial
statements for the nine months ended September 30, 2003 in connection with our
January 2004 offering of senior secured notes.
Audit-Related Fees. Fees for professional services provided by E&Y during
the years ended December 31, 2003 and 2002 were $1,693 and $100,000,
respectively. Audit-related fees related to internal audit services which were
concluded in 2002.
Tax Fees. Fees for professional services provided by E&Y during the years
ended December 31, 2003 and 2002 were $147,000 and $0, respectively. Tax fees
include professional services provided for preparation of federal and state tax
returns, review of tax returns prepared by the Company, assistance in
assembling data to respond to governmental reviews of past tax filings, and tax
advice, exclusive of tax services rendered in connection with the audit.
19
All Other Fees. Fees for professional services provided by E&Y during the
years ended December 31, 2003 and 2002, were $89,334 and $0, respectively.
Other fees consist primarily of consultation on tax matters during 2003.
During the year ended December 31, 2002, the Company retained PwC to
provide services in the following categories and amounts:
Audit Fees. The aggregate fees billed to us by PwC for its services in
connection with the audit of our annual consolidated financial statements for
the fiscal year ended December 31, 2002, and its review of the quarterly
financial statements included in our reports on Form 10-Q filed during the 2002
fiscal year were $570,110.
Audit-Related Fees. The aggregate fees billed to us by PwC for audit
related services during the year ended December 31, 2002 were $9,200.
Audit-related services relate to the audit of our employee benefit plan.
Tax Fees. The aggregate fees billed to us by PwC for income tax compliance
and related services during the year ended December 31, 2002 were $185,020.
The charter of the Audit Committee provides that the Committee is
responsible for the pre-approval of all auditing services and permitted
non-audit services to be performed for the Company by the independent
accountants, subject to the requirements of applicable law. In accordance with
the charter, the Committee has delegated the authority to grant such
pre-approvals to the Committee chair, which approvals are then reviewed by the
full Committee at its next regular meeting. Typically, however, the Committee
itself reviews the matters to be approved. The procedures for pre-approving all
audit and non-audit services provided by the independent accountants include
the Committee reviewing a budget for audit services, audit-related services,
tax services and other services. The budget includes a description of, and a
budgeted amount for, particular categories of non-audit services that are
anticipated at the time the budget is submitted. Committee approval would be
required to exceed the budgeted amount for a particular category of services or
to engage the independent accountants for any services not included in the
budget. The Committee periodically monitors the services rendered by and actual
fees paid to the independent accountants to ensure that such services are
within the parameters approved by the Committee.
During 2003, all of E&Y's services described in "Audit-Related Fees," Tax
Fees" and "All Other Fees," were approved by the Audit Committee in accordance
with the Company's formal policy on auditor independence.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS FOR 2004.
OTHER INFORMATION
STOCKHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
Proposals of stockholders intended for presentation at the 2005 annual
meeting must be received by us on or before December 1, 2004, in order to be
included in our proxy statement and form of proxy for that meeting.
Regardless of whether a proposal is received by us on or before December
1, 2004, any such proposal will be considered untimely for purposes of Exchange
Act Rule 14a-5(e)(2), and any proxy granted with respect to the 2005 annual
meeting will confer discretionary authority to vote with respect to such
proposal, if notice of such proposal is not received by the Company before
March 2, 2005.
20
EXPENSES OF SOLICITATION
We will bear the expense of preparing, printing, and mailing proxy
materials to our stockholders. In addition to solicitations by mail, our
employees may solicit proxies on behalf of the Board of Directors in person or
by telephone. We will also reimburse brokerage houses and other nominees for
their expenses in forwarding proxy material to beneficial owners of our stock.
OTHER MATTERS
The financial statements, financial information and management discussion
and analysis of financial condition and results of operations set forth in our
2003 Annual Report are incorporated by reference. We will provide to any
stockholder upon written request a copy of our Annual Report on Form 10-K,
including the financial statements and the schedules thereto, for our fiscal
year ended December 31, 2003, as filed with the Securities and Exchange
Commission pursuant to Rule 13a-1 under the Securities Exchange Act of 1934. We
will not charge for copies of our annual report, but will assess a reasonable
charge for copies of the exhibits, if requested.
By Order of the Board of Directors
/s/ Anthony L. Morrison
------------------------------------
Anthony L. Morrison, Secretary
West Palm Beach, Florida
April 16, 2004
21
APPENDIX A
PAXSON COMMUNICATIONS CORPORATION
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee of the Board of Directors of
Paxson Communications Corporation (the "Corporation") is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by the Corporation
to the Securities and Exchange Commission (the "Commission") or the public; the
Corporation's systems of internal controls regarding finance, accounting, legal
compliance and ethics that management and the Board have established; and the
Corporation's auditing, accounting and financial reporting processes generally.
Consistent with this function, the Audit Committee should encourage continuous
improvement of, and should foster adherence to, the Corporation's policies,
procedures and practices at all levels. The Audit Committee's primary duties
and responsibilities are to:
o Serve as an independent and objective party to monitor the
Corporation's financial reporting process and system of internal
controls and the integrity of the Corporation's financial
statements.
o Review and evaluate the work of the Corporation's internal
auditors and outside auditors.
o Confirm the qualification and independence of the Corporation's
outside auditors.
o Provide an open avenue of communication among the outside
auditors, financial and senior management, and the Board of
Directors.
o Oversee that management has established and maintained processes
to assure compliance by the Corporation with all applicable laws
and regulations and Corporation policy.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall have at least three members. Each Audit
Committee member shall be "independent," as defined in accordance with the
rules of the principal national securities exchange on which the Corporation's
common stock shall be listed for trading (the "Exchange"), and in the
Sarbanes-Oxley Act of 2002 (the "Act") and the rules of the Commission
promulgated thereunder. Each member shall be free of any relationship that, in
the opinion of the Board, would interfere with the exercise of his or her
independent judgment as a member of the Committee. No person shall be deemed
independent if he or she is an employee or other affiliated person of the
Corporation or one of its subsidiaries, or if he or she accepts any consulting,
advisory or other compensatory fee from the Corporation. The members of the
Audit Committee shall be generally knowledgeable in financial and auditing
matters and shall be able to read and understand financial statements. At least
one member of the Audit Committee shall have past employment experience in
finance or accounting, requisite professional certification in accounting, or
other comparable experience or background which results in such individual's
financial sophistication, including having been a chief executive officer,
chief financial offer or other senior officer with financial oversight
responsibilities. The Board shall seek to recruit at least one director for
appointment as a member of the Audit Committee who shall constitute a
"financial expert" for purposes of the Act and the rules of the Commission
under the Act. Committee members may enhance their familiarity with finance and
accounting by participating in educational programs conducted by the
Corporation or an outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board and shall serve until the next annual
meeting or until their successors shall be duly elected and qualified. Unless a
Chair is elected by the full Board, the members of the Committee may designate
a Chair by majority vote of the full Committee membership.
A-1
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. As part of its responsibility to foster open
communication, the Committee should meet at least annually with management and
the outside auditors in separate executive sessions to discuss any matters that
the Committee or any of these groups believe should be discussed privately. In
addition, the Committee should meet with the outside auditors and management
quarterly to review the Corporation's financial statements. A majority of the
Audit Committee shall constitute a quorum, and the action of a majority of the
members of the Audit Committee present at any meeting at which a quorum is
present, or acts unanimously adopted in writing without the holding of a
meeting, shall be the acts of the Audit Committee. The Chair of the Committee
shall report to the Board of Directors following the meetings of the Audit
Committee.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
o Create an agenda for the ensuing year.
o Review and reassess this Charter at least annually and propose to the
Board any recommended changes.
o Review and comment upon the Corporation's annual financial statements
and any reports or other financial information submitted to the
Commission or the public, including the internal control report to be
included in the Corporation's annual reports in accordance with the Act
and the rules of the Commission under the Act, and further including
any certification, report, opinion, or review rendered by the outside
auditors.
o Review with financial management and the outside auditors the
Corporation's Quarterly Reports on Form 10-Q, and earnings press
releases and earnings guidance provided to analysts and rating
agencies, prior to filing or prior to the release of earnings.
o Conduct or authorize investigations into any matters within the Audit
Committee's scope of responsibilities.
o Retain independent counsel, auditors, or others to assist the Audit
Committee in the conduct of any investigation, or to discuss matters
that may have a significant impact on the Corporation, including those
matters that may affect its financial reporting, auditing procedures or
compliance policies and programs.
o Review and comment upon the Code of Ethics (and any amendments and
supplements thereto) adopted by the Corporation.
o Consider and respond to disclosure to the Audit Committee of fraud or
internal control deficiencies discovered by senior officers of the
Corporation in those officers' evaluation of the Corporation's
disclosure controls and procedures.
o Discuss the Corporation's policies with respect to risk assessment and
risk management with senior management and the Corporation's outside
auditors.
o Review the management representation letter issued to the Corporation's
outside auditors.
o Discuss with the party responsible for investor relations what is being
said or asked about the Corporation (because it may further assist the
Committee in asking probing questions to management).
o Take any action the full Board of Directors might take with respect to
reports from management, the internal auditors and the outside auditors
assessing the impact of significant regulatory changes and accounting
or reporting developments proposed by the Financial Accounting
Standards Board or the Commission or any other significant developments
that may have an effect on matters within the scope of the Board of
Directors' or Audit Committee's authority.
A-2
o Review current and pending litigation or regulatory proceedings bearing
on corporate governance in which the Corporation is a party.
o Review in-house policies and procedures with respect to officers'
expense accounts and perquisites, including their use of corporate
assets, and consider the results of any review of these areas by the
internal auditors or the outside auditors.
o Review internal information and reporting systems to ensure that senior
management and the Board review timely and accurate information that is
sufficient to enable officers and directors to reach informed judgments
concerning the Corporation's business performance and its compliance
with laws, regulations, and corporate ethics policies.
o Consider such other matters in relation to the financial affairs of the
Corporation and its accounts and in relation to the external audit of
the Corporation as the Audit Committee may, in its discretion,
determine to be advisable.
Outside Auditors
o Select and retain, evaluate, and where appropriate, discharge and
replace the Corporation's outside auditors (or nominate the outside
auditors to be proposed for stockholder approval in any proxy
statement), taking into account considerations of independence and
effectiveness, and approve the fees and other compensation to be paid
to the outside auditors.
o Confirm that the outside auditors satisfy the auditing, quality
control, ethics and independence requirements of the Act (and the
accounting board created pursuant to the Act), the rules of the
Commission under the Act and, if applicable, the rules of the Exchange.
o On an annual basis, obtain from the outside auditors a formal written
statement delineating all relationships between the auditors and the
Corporation, and review and discuss with the outside auditors all
significant relationships the outside auditors have with the
Corporation to determine the outside auditors' independence.
o Actively engage in a dialogue with the auditors with respect to any
disclosed relationships or services that may affect the objectivity and
independence of the auditors and take, or recommend that the full Board
take, appropriate action to oversee the independence of the outside
auditors.
o Ensure that the outside auditors do not provide to the Corporation any
non-audit services, the provision or receipt of which is prohibited by
the Act or the rules of the Commission under the Act.
o Approve in writing in advance any provision by the outside auditors to
the Corporation of any non-audit services the provision of which is not
prohibited by the Act or the rules of the Commission under the Act and
ensure that such permitted services are not provided to the Corporation
without the Audit Committee's prior approval except where permitted by
the Act or the rules of the Commission under the Act.
o Advise the outside auditors of their ultimate accountability to the
Board of Directors and the Audit Committee, as representatives of the
stockholders.
o Periodically consult with the outside auditors out of the presence of
management about internal controls and the completeness and accuracy of
the Corporation's financial statements.
o At least annually, obtain and review a report by the outside auditors
describing: (i) their firm's internal quality-control procedures; and
(ii) any material issues raised by the most recent internal
quality-control review, or peer review, of their firm, or by any
inquiry or investigation by governmental or professional authorities,
within the last five years, respecting one or more independent audits
carried out by the firm, and any steps taken to address any such
issues.
A-3
o Meet with the outside auditors and discuss the role of the Audit
Committee, the fact that the outside auditors report to the Audit
Committee, and the form and content of the report to be delivered to
the Audit Committee.
o Set policies for the hiring by the Corporation of employees or
former employees of the outside auditors.
o Review with the outside auditors any audit problems and management's
response.
o Resolve disputes between management and the outside auditors regarding
financial reporting.
o Consider such other matters in relation to the Corporation's external
audit coverage as the Audit Committee may, in its discretion, determine
to be advisable.
Financial Reporting Process
o In consultation with the outside auditors, review the integrity of the
Corporation's financial reporting processes, both internal and
external.
o Consider the outside auditors' judgments about the quality and
appropriateness of the Corporation's accounting principles as applied
in its financial reporting.
Miscellaneous
o Review and approve in advance, and oversee, all related party
transactions.
o Establish procedures for receiving and responding to complaints
received by the Corporation regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous
submission by employees of the Corporation of concerns regarding
questionable accounting or auditing matters.
The Audit Committee shall have unrestricted access to Corporation
personnel and documents and will be given the resources necessary to operate
under this charter.
A-4
FOLD AND DETACH HERE
PROXY
PAXSON COMMUNICATIONS CORPORATION
601 CLEARWATER PARK ROAD
WEST PALM BEACH, FLORIDA 33401-6233
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Anthony L. Morrison and Adam K. Weinstein, or
either of them, as Proxies, each with the power to appoint his or her
substitute, and hereby authorizes them or their substitutes to represent and to
vote, as designated below, all the shares of stock of Paxson Communications
Corporation held of record by the undersigned on March 31, 2004, at the annual
meeting of stockholders to be held on May 21, 2004, or any adjournment thereof.
1. ELECTION OF CLASS I DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary
below)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW)
Lowell W. Paxson, Henry J. Brandon, Elizabeth J. Hudson
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR 2004.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued and to be signed on other side)
FOLD AND DETACH HERE
(Continued from other side)
3. In their discretion the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 AND FOR PROPOSAL 2.
Dated _________ , 2004
-----------------------------------------
Signature
-----------------------------------------
Signature if held jointly
PLEASE SIGN EXACTLY AS NAME APPEARS
BELOW. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. When signing
as attorney, as executor, administrator,
trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by President
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.