<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549-1004

                                   FORM 10-K
(MARK ONE)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
       THE SECURITIES EXCHANGE ACT OF 1934

       FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                          OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
      THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

      FOR THE TRANSITION PERIOD FROM                   TO

                         COMMISSION FILE NUMBER 1-13452

                       PAXSON COMMUNICATIONS CORPORATION
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      59-3212788
(State or other jurisdiction of incorporation       (I.R.S. Employer Identification No.)
               or organization)
</TABLE>

<TABLE>
<S>                                                           <C>
     601 CLEARWATER PARK ROAD, WEST PALM BEACH, FLORIDA             33401
          (Address of principal executive offices)                (Zip Code)
</TABLE>

Registrant's telephone number, including area code: (561) 659-4122

Securities Registered Pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
                                                         NAME OF EXCHANGE
                 TITLE OF EACH CLASS                    ON WHICH REGISTERED
                 -------------------                    -------------------
<S>                                                   <C>
       Class A Common Stock, $0.001 par value         American Stock Exchange
          11 5/8% Senior Subordinated Notes           American Stock Exchange
</TABLE>

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     The aggregate market value of common stock held by non-affiliates of the
registrant as of March 1, 2000 is $324,833,000 computed by reference to the
closing price for such shares on the American Stock Exchange.

     The number of shares outstanding of each of the registrant's classes of
common stock, as of March 1, 2000 was: 54,790,702 shares of Class A Common
Stock, $0.001 par value, and 8,311,639 shares of Class B Common Stock, $0.001
par value.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Parts of the definitive Proxy Statement for the Registrant's Annual Meeting
of Stockholders to be held on May 1, 2000.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
Item 1.   Business....................................................     1
Item 2.   Properties..................................................    21
Item 3.   Legal Proceedings...........................................    22
Item 4.   Submission of Matters to a Vote of Security Holders.........    22
Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................    22
Item 6.   Selected Financial Data.....................................    23
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................    24
Item 7A.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................    30
Item 8.   Financial Statements and Supplementary Data.................    30
Item 9.   Changes in and Disagreements With Accountants on Accounting
          and Financial Disclosure....................................    30
Item 10.  Directors and Executive Officers of the Registrant..........    31
Item 11.  Executive Compensation......................................    31
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................    31
Item 13.  Certain Relationships and Related Transactions..............    31
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
          8-K.........................................................    31
</TABLE>
<PAGE>   3

ITEM 1. BUSINESS

GENERAL

     Paxson Communications Corporation (the "Company") is a network television
broadcasting company whose principal business is the ownership and operation of
the largest broadcast television station group in the United States through
which it broadcasts PAX TV, the Company's family friendly programming. The
Company commenced its television operations in early 1994 in anticipation of
deregulation of the broadcast industry. In response to federal regulatory
changes increasing limits on broadcast television station ownership and
mandating cable carriage of local television stations, the Company has expanded
rapidly, through acquisitions and construction of television stations, to
establish the largest owned and operated broadcast television station group in
the United States. The PAX TV Network reaches US television households through a
distribution system comprised of broadcast television stations, cable television
systems in markets not served by a PAX TV station and nationwide through
satellite television providers. According to Nielsen Television Index ("NTI"),
as of February 2000, the PAX TV Network reached 77% of US primetime television
households through broadcast, cable and satellite distribution. Upon completion
of pending transactions, the PAX TV Network will include 116 broadcast
television stations, consisting of 68 of the 73 stations which are currently
owned and operated by the Company, or in which the Company has an economic
interest, and 48 non-owned or operated PAX TV affiliates. The stations which the
Company will own, operate or have an economic interest in will reach 19 of the
top 20 markets and 42 of the top 50 markets.

     The Company launched its PAX TV programming on August 3l, 1998. PAX TV is
the brand name for the programming that the Company provides seven days per week
through its television programming distribution system. PAX TV programming
consists of original family-friendly traditional entertainment programs as well
as syndicated programs that have had, or are having, successful first runs on
television in terms of audience ratings. The Company's strategy for PAX TV and
its station group is to combine many of the favorable attributes of traditional
television networks and network-affiliated television stations under one
operation.

     Similar to traditional television networks, the Company provides
advertisers with nationwide reach through its extensive television distribution
system. Since the Company owns and operates most of its television distribution
system, it also receives advertising revenue from the entire broadcast day,
unlike a traditional network, which receives advertising revenue only from
commercials aired during limited network programming hours. Further, the
Company's station group achieves various economies of scale due to its size and
centralized operations, resulting in programming, promotional, research,
engineering, accounting and administrative expenses that are substantially lower
per station than those of a typical network-affiliated station.

NBC TRANSACTION

     On September 15, 1999 (the "Issue Date"), the Company and National
Broadcasting Company, Inc. ("NBC") entered into an Investment Agreement (the
"NBC Investment Agreement"), pursuant to which NBC acquired $415 million of a
new series of the Company's convertible exchangeable preferred stock which is
convertible into 31,896,032 shares of the Company's Class A Common Stock. In
addition, NBC acquired warrants to purchase from the Company up to 32,032,127
shares of Class A Common Stock. Concurrently with the NBC Investment Agreement,
NBC entered into an agreement with Lowell W. Paxson, the Company's Chairman and
controlling stockholder ("Mr. Paxson") and certain entities controlled by Mr.
Paxson, pursuant to which NBC was granted the right (the "Call Right") to
purchase all (but not less than all) 8,311,639 shares of Class B Common Stock of
the Company beneficially owned by Mr. Paxson, which shares of Class B Common
Stock are entitled to ten votes per share on all matters submitted to a vote of
the Company's stockholders. Exercise of the warrants and the Call Right is
subject to compliance with applicable provisions of the Communications Act of
1934, as amended (the "Communications Act"), and the rules and regulations of
the Federal Communications Commission (the "FCC"). The Call Right may not be
exercised until the warrants have been exercised in full and, upon exercise of
the Call Right, Mr. Paxson would no longer be the controlling stockholder of the
Company.

                                        1
<PAGE>   4

     The NBC Investment Agreement includes affirmative and negative covenants of
the Company, requires the Company to obtain the consent of NBC with respect to
certain corporate actions, and grants NBC certain rights with respect to the
broadcast television operations of the Company. NBC also has the right to
require the Company to redeem its investment in preferred stock of the Company
under certain circumstances, including at any time that the FCC renders a final
decision not subject to further appeal within the FCC that NBC's investment in
the Company and the acquisition of the other rights provided for in the
transaction agreements is "attributable" to NBC (as such term is defined under
applicable rules of the FCC), or for a period of 60 days beginning with the
third anniversary of the Issue Date and on each anniversary of the Issue Date
thereafter, or in case of certain events of default under the transaction
agreements, subject in each case to certain conditions (including compliance by
the Company with the covenants contained in the terms of its outstanding
indebtedness and preferred stock).

     NBC, the Company, Mr. Paxson and certain entities controlled by Mr. Paxson
also entered into a Stockholder Agreement concurrently with the NBC Investment
Agreement, pursuant to which, so long as not prohibited by the Communications
Act and FCC rules and regulations, the Company may nominate persons named by NBC
for election to the Company's board of directors and Mr. Paxson and his
affiliates will vote their shares of Common Stock in favor of the election of
such persons as directors of the Company. Should no NBC nominee be serving as a
member of the Company's board of directors, then NBC may appoint two observers
to attend all board meetings. During December 1999 and March 2000, the Company's
board of directors elected three NBC nominees to fill newly-created vacancies on
the board. Mr. Paxson and his affiliates have also agreed to vote their shares
of Common Stock in favor of certain proposals expected to be submitted for a
vote of the stockholders of the Company at its next annual stockholders meeting
on May 1, 2000. These proposals will include amendments to the Company's
certificate of incorporation to provide for a classified board of directors
serving three year terms and the authorization of additional shares of
non-voting common stock sufficient to permit the Company to reserve such shares
for issuance to NBC and its assignees should they exercise their rights to
convert shares of Series B Convertible Preferred Stock and exercise the Warrants
for such non-voting shares of common stock in lieu of shares of Class A Common
Stock.

     The NBC Investment Agreement and the related agreements entered into by the
Company and NBC reflect the commencement of a significant strategic and
financial relationship between the two companies pursuant to which NBC is
expected to play an important role in the future of the Company and, subject to
various conditions including FCC approval, has the ability to acquire voting and
operational control of the Company. These agreements contemplate a number of
arrangements between NBC and the Company which are intended to strengthen the
Company's core broadcast group and PAX TV network operations, as well as more
fully develop the Company's other assets and business opportunities. For
example, the Company and NBC entered into an agreement whereby NBC will serve as
the Company's exclusive sales representative to sell the Company's network
advertising time for agreed compensation. The Company's stations in each of the
Providence, Rhode Island and Washington, D.C. markets are operating under joint
services arrangements with the NBC station. In each of the corresponding
markets, the parties are negotiating additional joint services agreements
("JSA") involving their respective stations serving the same markets.

BUSINESS STRATEGY

     The Company's strategy is to maximize its cash flow by centralizing many
functions that traditionally are managed at the local station level, optimizing
the mix of network, national and local advertising sales to achieve the highest
possible rates and providing viewers with a schedule of high-quality destination
programming. The principal components of the Company's business strategy are as
follows:

     - Maintain a Centralized, Low-Cost Operating Structure.  The Company
       centralizes many station functions, including programming, promotions,
       advertising, research, engineering, accounting and sales traffic control
       at the Company's headquarters. The Company's stations average only 12
       employees, compared to an average of 100 employees at network-affiliated
       stations, and an average of 60 employees at independent stations in
       markets of similar size to the Company's. Unlike other stations, the
       Company's stations do not purchase programming individually. As part of
       its low-cost operating strategy, the Company promotes the PAX TV brand
       and each of its local television stations by utilizing
                                        2
<PAGE>   5

       a centralized advertising and promotional program. All advertisements and
       other promotional material share the same basic content but are
       customized to identify and highlight each local market. Management
       believes that the Company is able to obtain volume discounts on the
       procurement of print and other media advertising used to promote PAX TV
       programming and the Company's television stations.

     - Integrate PAX TV Network Operations with NBC.  The Company continues to
       seek opportunities to improve all facets of its operations by integrating
       many of its core network functions with NBC network operations in the
       areas of sales, planning and programming as well as certain aspects of
       marketing and promotions. In addition, the Company is integrating with
       NBC its network research, collections and inventory management functions
       in order to participate in certain efficiencies and advantages enjoyed by
       the larger corresponding areas of NBC's operations. The Company believes
       that these operating relationships with NBC should increase the Company's
       core advertising revenues and streamline its network operations. The
       Company has also commenced operating two stations under joint services
       arrangements with NBC stations in the same markets, and intends to enter
       into additional joint services arrangements and agreements with NBC same
       market stations.

     - Achieve Local Television Station Operating Improvements by Implementing
       Joint Services Agreements. The Company believes it can improve the
       operations of certain of its local stations by entering into JSAs with
       broadcast stations in corresponding markets. The Company has entered into
       JSAs with third parties in Shreveport, Louisiana, Cedar Rapids, Iowa and
       Greenville, North Carolina. In addition, the Company's stations in the
       Providence, Rhode Island and Washington, D.C. television markets have
       commenced operating under joint services arrangements with NBC owned and
       operated stations in those markets, and the Company expects to enter into
       JSAs with respect to such stations and with the NBC owned and operated
       stations in the following additional markets: New York, New York; Los
       Angeles, California; Chicago, Illinois; Philadelphia, Pennsylvania;
       Dallas, Texas; Miami, Florida; Hartford, Connecticut; Raleigh-Durham,
       North Carolina; and Birmingham, Alabama.

       The Company also expects to seek to enter into JSAs with NBC affiliates
       in each of the markets where the Company has an owned and operated
       station. While specific terms of each JSA may vary depending upon market
       considerations and the attributes of the Company station and the
       corresponding NBC owned or network-affiliated station involved in the
       arrangement, the Company expects each JSA to share the following basic
       terms: first, the local NBC owned or network-affiliated station will
       provide local and national spot advertising sales management and
       representation to the PAX TV station, which should allow the Company's
       stations to benefit from the strength of the JSA partner's sales
       organization and existing advertising relationships; second, the local
       NBC owned or network-affiliated station will have the opportunity to
       provide local news and syndicated programming to supplement and enhance
       the PAX TV station's network programming lineup; and third, the JSAs will
       provide for the integration and co-location of the PAX TV station
       operations with the corresponding NBC owned or network-affiliated station
       partner in an effort to reduce costs through operating efficiencies and
       economies of scale. While the Company intends to negotiate and commence
       JSA arrangements for each of its stations as promptly as practical, the
       time required to complete negotiations and commence JSA operations with
       respect to any Company station will vary based upon a number of factors,
       including the complexities arising from the market considerations and the
       attributes of the Company station and the corresponding NBC owned or
       affiliated station to be involved in the JSA.

     - Achieve Programming Economies of Scale and Original Programming
       Efficiencies. The Company achieves economies of scale as it purchases
       syndicated PAX TV programming for all of its stations. The Company
       provides programming centrally and is able to deliver its programming by
       satellite to its stations 24 hours per day, seven days per week. Each
       station offers substantially the same programming schedule. Generally,
       the Company has negotiated license agreements entitling it to exclusive
       nationwide distribution rights for a fixed cost, independent of the
       number of households which will receive such programming. These
       programming rights allow the Company to supply PAX TV programming to its
       owned and operated television stations, as well as to independently owned
       PAX TV affiliated
                                        3
<PAGE>   6

       television stations, satellite providers and cable television systems. By
       utilizing a centralized programming acquisition strategy, the Company has
       incurred programming costs per station significantly lower than those of
       comparable television stations in similar markets.

       The Company also seeks to achieve cost efficiencies in the development of
       original programming for PAX TV. The Company believes it can develop
       successful original entertainment programming for PAX TV at substantially
       lower costs than those typically incurred by other broadcast networks for
       original entertainment programming and at costs comparable to those of
       syndicated programming currently aired on PAX TV. The Company believes it
       can reduce original entertainment program production costs by employing
       innovative development and production techniques, such as the development
       of program concepts without the use of pilots, and by entering into
       production arrangements with foreign production companies with which the
       Company can share production costs, gain access to lower cost production
       labor and participate in tax incentives intended to reduce program
       production costs. In addition, the Company believes it can sell foreign
       and other distribution rights to its original PAX TV programming for up
       to 50% of the program's production costs, while retaining all of the
       domestic exploitation rights to such programming.

     - Provide Quality, Proven Family-Friendly Programming.  The Company is
       building the brand recognition of, and attracting viewers to, PAX TV by
       offering its growing library of original family programming and
       syndicated family-oriented programming which is free of excessive
       violence, explicit sex and foul language, and which achieved successful
       audience ratings during its original network run. Certain of the
       syndicated programs purchased by the Company (Touched By An Angel,
       Diagnosis Murder) are still in production, and their new episodes
       continue to attract significant viewership. The Company has generally
       sought to purchase one-hour dramas since management believes that such
       programming is more cost efficient than programs of shorter duration. As
       the brand recognition of PAX TV continues to grow, management believes
       that PAX TV will reach viewers as a "destination channel" to which
       viewers turn regularly for family-friendly programming, and that PAX TV
       will continue to attract advertisers who want to reach the broad and
       desirable viewer demographics attracted by such programming.

     - Continue Airing Profitable Long-Form Paid Programming.  The Company
       continues to carry a reduced but still significant schedule of long-form
       paid programming, including religious programming, traditional
       entertainment programming needing distribution and infomercials,
       primarily during the day on weekends and during certain hours of weekday
       mornings. Long-form paid programming still provides a significant and
       stable base of revenue for the Company as it further develops the
       entertainment component of its PAX TV strategy.

     - Expand and Improve PAX TV Distribution.  According to NTI data as of
       February 2000, PAX TV reaches approximately 77% of all US primetime
       television households. The Company intends to continue expanding the
       distribution of its PAX TV programming service through the addition of
       newly acquired and constructed owned or operated television stations, as
       well as affiliated broadcast television stations, cable systems and
       satellite television providers. The Company intends to expand its
       distribution to reach as many U.S. television households as possible in
       an economically beneficial manner. The Company has entered into
       agreements with many of the country's leading cable television multiple
       system operators or MSOs, whereby the Company receives carriage of its
       PAX TV programming on each of these entities' television distribution
       systems in certain markets or television households not currently served
       by the Company's broadcast television station group. The Company also
       continues to seek to improve the channel positioning of its broadcast
       television stations on local cable systems across the country through
       negotiation with MSOs and to expand the cable carriage of its stations'
       signals through enforcement of the rules and regulations of the Federal
       Communications Commission pertaining to the mandatory carriage of
       broadcast television stations. See "Federal Regulation of Broadcasting --
       Must Carry/Retransmission Consent".

     - Develop the Company's Broadcast Station Group's Digital Television
       Platform. The Company currently owns and operates the largest broadcast
       television station group in the United States and

                                        4
<PAGE>   7

       intends to explore the most effective use of digital broadcast technology
       for each of its stations. Upon completion of the construction of the
       Company's digital broadcast facilities, the Company believes that it will
       be able to provide a significant broadband platform on which to multicast
       additional television networks and provide data casting and wireless
       services, including data and full motion video. While the Company
       believes that proposed alternative and supplemental uses of the Company's
       analog and digital spectrum will continue to grow in number, the
       viability and success of each such proposed alternative or supplemental
       use of spectrum involves a number of contingencies and uncertainties,
       including, the development of new or enhanced technologies and the
       willingness of consumers to adopt and use such wireless services.
       Furthermore, the Company cannot predict what future actions the FCC or
       Congress may take with respect to regulatory control of these services.
       Accordingly, there can be no assurance that the Company's efforts to take
       advantage of digital technology will be commercially successful.

          PAXSON COMMUNICATIONS CORPORATION BROADCAST PROPERTY SUMMARY

     The Company's PAX TV programming reaches approximately 77% of US prime time
television households through the stations listed below which the Company owns
or operates or in which the Company has an economic interest, as well as
approximately 14.6 million US television households reached through supplemental
cable and satellite carriage.

<TABLE>
<CAPTION>
                             MARKET      STATION       BROADCAST
MARKET NAME                   RANK     CALL LETTERS     CHANNEL      ECONOMIC INTEREST
-----------                  ------    ------------    ---------    --------------------
<S>                          <C>       <C>             <C>          <C>
New York                        1          WPXN           31          Owned & Operated
Los Angeles                     2          KPXN           30          Owned & Operated
Chicago                         3          WCPX           38          Owned & Operated
Philadelphia                    4          WPPX           61          Owned & Operated
San Francisco                   5          KKPX           65          Owned & Operated
Boston(1)                       6          WPXB           60          Owned & Operated
Boston(1)                       6          WWDP           46           45% Owned- PA
Boston(3 stations)              6          WBPX           68           Affiliate - PA
Dallas                          7          KPXD           68          Owned & Operated
Washington D.C.                 8          WPXW           66          Owned & Operated
Washington D.C.                 8          WWPX           60           Affiliate - PA
Detroit                         9          WPXD           31          Owned & Operated
Atlanta                        10          WPXA           14          Owned & Operated
Houston                        11          KPXB           49          Owned & Operated
Seattle                        12          KWPX           33          Owned & Operated
Cleveland                      13          WVPX           23          Owned & Operated
Tampa                          14          WXPX           66          Owned & Operated
Minneapolis                    15          KPXM           41          Owned & Operated
Miami                          16          WPXM           35          Owned & Operated
Phoenix                        17          KPPX           51        49% Owned & TBA - PA
Phoenix                        17          KBPX           13          Owned & Operated
Denver                         18          KPXC           59          Owned & Operated
Sacramento                     20          KSPX           29              TBA - PA
St. Louis                      21          WPXS           13           Affiliate - PA
Orlando                        22          WOPX           56          Owned & Operated
Portland, OR                   23          KPXG           22          Owned & Operated
Indianapolis                   25          WIPX           63           Affiliate - PA
Hartford                       27          WHPX           26           Affiliate - PA
Raleigh-Durham                 29          WFPX           62          Owned & Operated
Raleigh-Durham                 29          WRPX           47           Affiliate - PA
Nashville                      30          WNPX           28          Owned & Operated
Milwaukee                      31          WPXE           55           Affiliate - PA
</TABLE>

                                        5
<PAGE>   8

<TABLE>
<CAPTION>
                             MARKET      STATION       BROADCAST
MARKET NAME                   RANK     CALL LETTERS     CHANNEL      ECONOMIC INTEREST
-----------                  ------    ------------    ---------    --------------------
<S>                          <C>       <C>             <C>          <C>
Kansas City                    33          KPXE           50          Owned & Operated
Salt Lake City                 36          KUPX           16          Owned & Operated
Grand Rapids                   37          WZPX           43           Affiliate - PA
San Antonio                    38          KPXL           44          Owned & Operated
Birmingham                     39          WPXH           44          Owned & Operated
Norfolk                        40          WPXV           49          Owned & Operated
New Orleans                    41          WPXL           49              TBA - PA
Buffalo                        42          WPXJ           51          Owned & Operated
Memphis                        43          WPXX           50              TBA - PA
West Palm Beach                44          WPXP           67        90% Owned & Operated
Oklahoma City                  45          KOPX           62          Owned & Operated
Greensboro                     47          WGPX           16          Owned & Operated
Louisville                     48          WBNA           21             TBA - RFR
Albuquerque                    49          KAPX           14          Owned & Operated
Providence                     50          WPXQ           69        50% Owned & Operated
Wilkes Barre                   51          WQPX           64          Owned & Operated
Albany                         53          WYPX           55          Owned & Operated
Fresno-Visalia                 55          KPXF           61          Owned & Operated
Little Rock                    57          KYPX           42          Owned & Operated
Charleston, WV                 58          WLPX           29          Owned & Operated
Tulsa                          59          KTPX           44          Owned & Operated
Mobile                         62         Ch. 61          61                 PA
Knoxville                      63          WPXK           54          Owned & Operated
Lexington                      67          WAOM           67                 PA
Roanoke                        68          WPXR           35          Owned & Operated
Des Moines                     70          KFPX           39          Owned & Operated
Honolulu                       71          KPXO           66          Owned & Operated
Spokane                        72          KGPX           31          Owned & Operated
Syracuse                       74          WSPX           56          Owned & Operated
Shreveport                     75          KPXJ           21          Owned & Operated
Portland-Auburn, ME            80          WMPX           23          Owned & Operated
Cedar Rapids                   88          KPXR           48          Owned & Operated
Greenville-N.Bern             105          WEPX           38          Owned & Operated
Montgomery                    113          WPMM           22                 PA
Wausau                        136          WTPX           46                 PA
Odessa                        151         Ch. 30          30                 PA
Puerto Rico(3 stations)(1)     NR          WJPX           24          Owned & Operated
</TABLE>

---------------

TBA Time-Brokerage Agreement
PA  Pending Acquisition
RFR Right First Refusal
(1) Presently airing long-form paid programming exclusively

     Acquisition of DP Media.  On November 21, 1999 the Company entered into
agreements to purchase the television station assets (eight stations and a
contractual right to acquire a television station, WBPX, and two full power
satellite stations serving the Boston, Massachusetts market) of DP Media, Inc.,
and its subsidiaries (collectively referred to herein as "DP Media"), which
companies are beneficially owned by family members of the Company's principal
stockholder, Mr. Lowell W. Paxson. As part of that acquisition, the Company will
expend an additional $38 million to consummate the acquisition of WBPX, which
station is currently a PAX TV Network affiliate and is being operated by DP
Media under a time brokerage agreement with the seller of the station. The
television stations to be acquired, eight of which have been airing PAX TV

                                        6
<PAGE>   9

Network programming under affiliation agreements, and all of which the Company
provides services for under various services agreements, are in the Battle
Creek, Michigan, Raleigh, North Carolina, Hartford, Connecticut, Boston,
Massachusetts (two stations), St. Louis, Missouri, Washington, D.C., Milwaukee,
Wisconsin and Indianapolis, Indiana markets. In conjunction with the asset
purchase agreement, on November 22, 1999 the Company advanced approximately $106
million to DP Media pursuant to a secured loan agreement, which was used to
repay DP Media's outstanding indebtedness to third party lenders. Effective
March 1, 2000, the affiliation agreements and services agreements between the
Company and DP Media for each DP Media station other than the second Boston
station ("WWDP") were replaced by time brokerage agreements which will remain in
effect pending the completion of the acquisition of the stations by the Company.
On March 3, 2000, the Company and DP Media agreed in principal to convert their
asset sale transaction into a purchase by the Company of all of the capital
stock of DP Media for a purchase price of $7,500,000. Prior to such purchase, DP
Media shall transfer the assets of WWDP to a newly formed company ("Newco"). The
Company shall hold a non-voting interest in Newco and shall have the right to
require a sale of WWDP, which is not a PAX TV Network affiliate, if the station
is not sold within a specified period. The Company shall receive 45% of the net
proceeds from the sale of WWDP.

COMPETITION

     The Company's PAX TV network and its television stations compete with the
other broadcast television networks and the other television broadcasting
stations in their respective market areas. In addition, PAX TV and the Company's
broadcast television stations compete with other traditional advertising media,
including cable television networks, newspapers, radio, magazines, outdoor
advertising, transit advertising, and direct mail marketing, as well as newly
developing Internet advertising alternatives and digital television programming
services. Competition in the broadcast television network industry occurs on a
national basis and not with respect to any specific market. Competition within
the television broadcast station industry occurs primarily in individual market
areas, so a station in one market does not generally compete with stations in
other market areas. In addition, both PAX TV and the Company's television
stations face competition from, respectively, other broadcast networks and other
stations in each of the Company's station markets with substantial financial
resources, including, in certain instances, networks and stations whose
programming is directed to the same demographic groups as PAX TV programming. In
addition to management experience, factors that are material to competitive
positions include a station's rank in its market, authorized power, assigned
frequency, audience characteristics, local program acceptance and the
programming characteristics of other stations in the market area.

     Although the television broadcasting industry is highly competitive, some
barriers to entry exist. The operation of a television broadcasting station
requires a license from the FCC, and the number of television stations that can
operate in a given market is limited by the availability of stations that the
FCC will license in that market. The television broadcasting industry
historically has grown in terms of total revenue, despite the introduction of
new technologies for the delivery of entertainment and information, such as
cable and direct satellite. There is no assurance that market fragmentation
resulting from the application of new media technologies, such as digital
television, will not have an adverse effect on the television broadcasting
industry.

TELEVISION STATION PROGRAMMING AND OPERATING AGREEMENTS

     In addition to its owned and operated television stations, the Company
provides programming and certain operating services for stations owned by third
parties pursuant to time brokerage agreements (each a "TBA") and affiliation
agreements. In certain circumstances, the Company has entered into TBAs to
program and operate a station that the Company is acquiring or has the right to
acquire. In addition to the TBA or affiliation agreement, the Company may have a
minority interest in such station pending the completion of such acquisition.

     Time Brokerage Agreements.  The Company has entered into TBAs with third
parties pursuant to which the Company enjoys many, but not all, of the benefits
of operating a television station while not owning or controlling the FCC
license. The Company is currently operating, or will operate upon completion of
construction, pursuant to time brokerage agreements the following stations:
KPPX, Phoenix, Arizona; KSPX,
                                        7
<PAGE>   10

Sacramento, California; WPXL New Orleans, Louisiana; WPXX, Memphis, Tennessee;
and WBNA, Louisville, Kentucky. The Company also has an option to acquire each
of these stations. The Company may in the future enter into other time brokerage
agreements to operate stations prior to their acquisition or to enable the
Company to operate additional television stations that it might not be able to
own under current FCC multiple station ownership restrictions.

     Affiliation Agreements.  To further the nationwide distribution of the PAX
TV Network, the Company has entered into affiliation agreements with stations in
markets where the Company does not otherwise own or operate a broadcast station
carrying its programming or have a cable distribution agreement providing for
carriage of PAX TV programming to the cable households in such market. These
affiliation agreements with third parties do not require the Company to pay cash
compensation to the affiliate, but the affiliate is entitled to sell a portion
of the non-network advertising time during the PAX TV Network programming hours.
While the majority of such third party affiliation agreements include the
distribution of the PAX TV Network's prime time programming (i.e., programming
aired on PAX TV between the hours of 8:00 PM and 11:00 PM, Eastern Standard
Time, Monday through Sunday), certain of such affiliates do not carry all of the
PAX TV Network programming and certain affiliates, due to issues related to
their specific markets, do not air PAX TV Network programming in the exact time
patterns during which the Company exhibits its programming.

FEDERAL REGULATION OF BROADCASTING

     The FCC regulates television broadcast stations pursuant to the
Communications Act. The Communications Act permits the operation of television
broadcast stations only according to a license issued by the FCC upon a finding
that the grant of the license would serve the public interest, convenience and
necessity, and directs the FCC to issue licenses to provide a fair, efficient
and equitable distribution of broadcast service throughout the United States.

     The Communications Act empowers the FCC, among other things, to determine
the frequencies, location and power of broadcast stations; to issue, modify,
renew and revoke station licenses; to approve the assignment or transfer of
control of broadcast licenses; to regulate the equipment used by stations; to
impose fees for processing applications; and to impose penalties for violations
of the Communications Act or FCC regulations. The FCC may revoke licenses for,
among other things, false statements made to the FCC or willful or repeated
violations of the Communications Act or of FCC rules. Legislation has been
introduced from time to time to amend the Communications Act in various respects
and the FCC from time to time considers new regulations or amendments to its
existing regulations. The Telecommunications Act of 1996 (the "1996 Act")
changed many provisions of the Communications Act and required the FCC to change
its existing rules and adopt new rules in several areas affecting broadcasting.

     The following is a brief summary of certain provisions of the
Communications Act and the rules of the FCC. Reference should be made to the
Communications Act and the rules, orders, decisions and published policies of
the FCC for further information on FCC regulation of television broadcast
stations.

     License Renewal.  The Communications Act provides that a broadcast station
license may be granted to an applicant if the public interest, convenience and
necessity will be served thereby, subject to certain limitations. In making
licensing determinations, the FCC considers an applicant's legal, technical,
financial and other qualifications.

     Television broadcasting licenses are generally granted and renewed for a
period of eight years, but may be renewed for a shorter period upon a finding by
the FCC that the "public interest, convenience and necessity" would be served
thereby. At the time the application is made for renewal of a television
license, parties in interest, as well as members of the public may apprise the
FCC of the service the station has provided during the preceding license term
and urge the grant or denial of the application. Under the 1996 Act, as
implemented in the FCC's rules, a competing application for authority to operate
a station and replace the incumbent licensee may not be filed against a renewal
application and considered by the FCC in deciding whether to grant a renewal
application. The statute modified the license renewal process to provide for the
grant of a renewal application upon a finding by the FCC that the licensee (1)
has served the public interest, convenience and necessity; (2) has committed no
serious violations of the Communications Act or the FCC's
                                        8
<PAGE>   11

rules; and (3) has committed no other violations of the Communications Act or
the FCC's rules which would constitute a pattern of abuse. If the FCC cannot
make such a finding, it may deny a renewal application, and only then may the
FCC accept other applications to operate the station of the former licensee. In
the vast majority of cases, broadcast licenses are renewed by the FCC even when
petitions to deny are filed against broadcast license renewal applications. All
of the Company's existing licenses that have come up for renewal have been
renewed and are in effect. Such licenses are subject to renewal at various times
during 2004 and 2007. Although there can be no assurance that the Company's
licenses will be renewed, the Company is not aware of any facts or circumstances
that would prevent renewal.

     Ownership Matters.  The Communications Act requires the prior approval of
the FCC for the assignment of a broadcast license or the transfer of control of
a corporation or other entity holding a license. In determining whether to
approve an assignment of a broadcast license or a transfer of control of a
broadcast licensee, the FCC considers, among other things, the financial and
legal qualifications of the prospective assignee or transferee, including
compliance with FCC restrictions on alien ownership and control, compliance with
rules limiting the common ownership of certain attributable interests in
broadcast, cable and newspaper properties, and the character qualifications of
the transferee or assignee and the individuals or entities holding attributable
interests in them.

     As detailed below, in August 1999, the FCC substantially revised its
multiple ownership and attribution rules. These rules became effective on
November 16, 1999, but may be modified or reconsidered in subsequent
proceedings. In three separate orders, the FCC revised its rules regarding
restrictions on television ownership, radio-television cross-ownership and
attribution of broadcast ownership interests. The three orders, which resolve
several rulemaking proceedings launched in the early 1990's, take into
consideration mandates in the 1996 Act which relaxed the radio ownership rules
and directed the FCC to consider similar deregulation for television. The FCC's
multiple ownership rules may limit the permissible acquisitions and investments
that the Company may make or the permissible investments that others may make in
the Company.

     The FCC generally applies its ownership limits to attributable interests
held by an individual, corporation, partnership, or other association or entity.
In the case of corporations holding broadcast licenses, the interests of
officers, directors, and those who, directly or indirectly, have the right to
vote five percent or more of the corporation's stock are generally attributable,
as are positions as an officer or director of a license or a corporate parent of
a broadcast licensee. The FCC treats all partnership and limited liability
company interests as attributable, except for those limited partnership and
limited liability company interests that are insulated under FCC policies. For
insurance companies, certain regulated investment companies, and bank trust
departments, that hold stock for investment purposes only, stock interests
become attributable with the ownership of twenty percent or more of the voting
stock of the corporation holding or controlling broadcast licenses.

     In cases in which one person or entity (such as Mr. Paxson in the case of
the Company) holds more than 50% of the combined voting power of the common
stock of a broadcasting corporation, a minority shareholder of the corporation
generally would not acquire an attributable interest in the corporation. If a
majority shareholder of a company (such as Mr. Paxson in the case of the
Company) were no longer to hold more than 50% of the combined voting power of
the common stock of the Company, the interests of minority shareholders that had
theretofore been considered non-attributable could become attributable, with the
result that any other media interests held by such shareholders would be
combined with the media interests of the Company for purposes of determining the
shareholders' compliance with FCC ownership rules.

     In its recently revised rules, the FCC decided to treat certain
combinations of debt and equity interests as attributable if the interest meets
a two-part test. First, the combined equity and debt interest must exceed 33% of
a station licensee's total assets. Second, the party holding the equity/debt
interest must either (i) supply more than 15% of the station's total weekly
programming or (ii) have an attributable interest in another media entity,
whether TV, radio, cable or newspaper, in the same market. Non-voting equity and
insulated interests count toward the 33% equity/debt threshold. Under these new
rules, all non-conforming interests acquired before November 7, 1996, are
permanently grandfathered and thus do not constitute attributable ownership

                                        9
<PAGE>   12

interests. Any nonconforming interests acquired after that date must be brought
into compliance by August 5, 2000.

     Television National Ownership Rule.  Under the Communications Act, no
individual or entity may have an attributable interest in television stations
reaching more than 35% of the national television viewing audience. The FCC
applies a 50% discount for purposes of calculating a UHF station's audience
reach. Under the new ownership rules, the FCC will count the audience in each
market only once. If a broadcast licensee has an attributable interest in a
second television station in each market -- whether by virtue of ownership, a
local marketing agreement or a parent-satellite operation -- the audience for
that market will not be counted twice for the purposes of determining compliance
with the national cap.

     Television Duopoly Rule.  The FCC's new TV duopoly rule permits parties to
own two TV stations without regard to signal contour overlap provided each of
the stations is located in a separate market referred to as designated market
area ("DMA"). In addition, the new rules permit parties in larger DMAs to own up
to two television stations in the same DMA so long as (a) at least eight
independently owned and operating full-power commercial and non-commercial
television stations remain in the market at the time of acquisition and (b) at
least one of the two stations is not among the four top-ranked stations in the
market based on audience share. In addition, without regard to numbers of
remaining or independently owned TV stations, the FCC will permit television
duopolies within the same DMA so long as the station's Grade A service contours
do not overlap. Satellite stations that the FCC has authorized to rebroadcast
the programming of a "parent" station will continue to be exempt from the
duopoly rule if located in the same DMA as the "parent" station. The FCC may
grant a waiver of the TV duopoly rule if one of the two television stations is a
"failing" station, or the proposed transaction would result in the construction
of a new television station.

     Television Local Marketing and Joint Sales Agreements.  Over the past few
years, a number of television stations, including certain of the Company's
television stations, have entered into agreements commonly referred to as local
marketing agreements (or time brokerage agreements) and joint sales agreements.
These agreements may take varying forms. Pursuant to a typical local marketing
agreement, separately owned and licensed television stations agree to enter into
cooperative arrangements of varying sorts, subject to compliance with the
requirements of antitrust laws and with the FCC's rules and policies. Under
these types of arrangements, separately-owned stations serving a common
geographic area agree to function cooperatively in terms of programming,
advertising sales, and similar functions, subject to the requirement that the
licensee of each station maintains independent control over the programming and
operations of its own station. Under a typical joint sales agreement, two
separately-owned stations agree to function cooperatively in advertising sales
only.

     The FCC's revised attribution and TV duopoly rules apply to same-market
local marketing agreements involving more than 15% of the brokered station's
program time. Local marketing agreements currently in effect are exempt from the
TV duopoly rule for a limited period of time of either two or five years,
depending on the date of the adoption of the local marketing agreement. The new
rules do not apply to joint sales agreements; thus, these types of arrangements
remain non-attributable under the FCC's ownership rules.

     The FCC has determined that issues of joint advertising sales should be
left to antitrust enforcement. Furthermore, the FCC has held that time brokerage
agreements do not constitute a transfer of control, standing alone, and are not
contrary to the Communications Act provided that the licensee of the station
maintains ultimate responsibility for and control over operations of its
broadcast station (including, specifically, control over station finances,
licensee personnel and programming) and complies with applicable FCC rules and
with antitrust laws.

     Alien Ownership.  Under the Communications Act, no FCC broadcast license
may be held by a corporation of which more than one-fifth of its capital stock
is owned or voted by aliens or their representatives or by a foreign government
or representative thereof, or by any corporation organized under the laws of a
foreign country (collectively "Aliens"). Furthermore, the Communications Act
provides that no FCC broadcast license may be granted to any corporation
controlled by any other corporation of which more than one-fourth of its capital
stock is owned of record or voted by Aliens if the FCC should find that the
public

                                       10
<PAGE>   13

interest would be served by the refusal of such license. Restrictions on alien
ownership also apply, in modified form, to other types of business
organizations, including partnerships.

     Radio/Television Cross-Ownership Rule.  The FCC's radio/television
cross-ownership rule (the "one-to-a-market" rule) has until recently prohibited
common ownership or control of a radio station, whether AM, FM or both, and a
television station in the same market, subject to waivers in some circumstances.
The FCC's new radio-television cross-ownership rule permits cross-ownership of
stations in the same market based on the number of independently owned media
voices in the local market. In large markets (that is, markets with at least 20
independently owned media voices), a single entity may own up to one television
station and seven radio stations or, if permissible under the new TV duopoly
rule, two television stations and six radio stations. In a market that includes
at least ten other independently owned media voices, a single entity may own a
television station and up to four radio stations, and if permitted under the TV
duopoly rule, two television stations and up to four radio stations. A singe
entity may own one radio station and one television station in a market or one
radio station and two television stations, if permitted under the TV duopoly
rule, without regard to the number of media voices in the market.

     Waivers of the new radio-television cross-ownership rule will be granted
only in situations where the station to be acquired is a failed station. In
contrast to the TV duopoly rule, the FCC has stated that it will not waive the
radio-television cross-ownership rule in situations of unbuilt stations.

     Local Television/Cable Cross-Ownership Rule.  While the 1996 Act eliminated
the statutory prohibition against the common ownership of a television station
and a cable system that serve the same local market, the FCC's rules still
contain this prohibition, although the FCC has initiated a proceeding to decide
whether to retain it.

     Broadcast/Daily Newspaper Cross-Ownership Rule.  The FCC's rules prohibit
the common ownership of a radio television broadcast station and a daily
newspaper in the same market. In 1993, Congress authorized the FCC to grant
waivers of the radio-newspaper cross-ownership rule to permit cross-ownership of
a radio station and a daily newspaper in a top 25 market with at least 30
independent media voices, provided the FCC finds the transaction in the public
interest. Under current policy, the FCC will grant a permanent waiver of the
radio-newspaper cross-ownership rule only in those circumstances in which the
effects of applying the rule would be "unduly harsh" (that is, the newspaper is
unable to sell the commonly owned station, the sale would be at an artificially
depressed price, or the local community could not support a separately-owned
newspaper and radio station). The FCC previously has granted only two permanent
waivers of this rule. The FCC has pending a notice of inquiry requesting comment
on possible changes to its policy for waiving the rule.

     Biennial Review of Broadcast Ownership Rules.  In March 1998, as required
by the 1996 Act, the FCC initiated a proceeding to review its broadcast
ownership rules. The proceeding did not propose to revise or repeal any existing
rule, but rather to solicit comment on whether any of the rules should be the
subject of a subsequent rulemaking to modify or repeal them. The rules on which
the FCC has requested comment include those on national television ownership and
dual network ownership.

     Expansion of the Company's broadcast operations on both a local and
national level will continue to be subject to the FCC's ownership rules and any
changes that may be adopted. Any relaxation of the ownership rules may increase
the level of competition to the extent that any of the Company's competitors may
have greater resources and thereby may be in a superior position to take
advantage of such changes. Any restriction may also have an adverse effect on
the Company. The Company cannot predict the ultimate outcome of the FCC's
ownership proceedings or its impact on its business operations.

     Programming and Operation.  The Communications Act requires broadcasters to
present programming that responds to community problems, needs and interests and
to maintain certain records demonstrating such responsiveness.

     Broadcast of obscene or indecent material is regulated by the FCC as well
as by state and federal law. Stations also must follow various rules promulgated
under the Communications Act that regulate, among other things, political
advertising, sponsorship identifications, the advertising of contests and
lotteries, and technical operations, including limits on radio frequency
radiation.
                                       11
<PAGE>   14

     Pursuant to the Children's Television Act of 1990, the FCC has adopted
rules limiting advertising in children's television programming and requiring
that television broadcast stations serve the educational and informational needs
of children. Pursuant to those rules, television stations are required to
broadcast a minimum of three hours per week of "core" children's educational
programming, which the FCC defines as programming that (i) is serving the
educational and informational needs of children 16 years of age and under and
has a significant purpose; (ii) is regularly scheduled, weekly and at least 30
minutes in duration; and (iii) is aired between the hours of 7:00 a.m. and 10:00
p.m. Furthermore, "core" children's educational programs, in order to qualify as
such, are required to be identified as educational and informational programs
over the air at the time they are broadcast, and are required to be identified
in the children's programming reports required to be placed in the stations'
public inspection files. Additionally, television stations are required to
identify and provide information concerning "core" children's programming to
publishers of program guides and listings.

     The Communications Act and FCC rules also impose regulations regarding the
broadcasting of political advertisements by legally qualified candidates for
elective office. Among other things, (i) stations must provide "reasonable
access" for the purchase of time by legally qualified candidates for federal
office; (ii) stations must provide "equal opportunities" for the purchase of
equivalent amounts of comparable broadcast time by opposing candidates for the
same elective office; and (iii) during the 45 days preceding a primary or
primary run-off election and during the 60 days preceding a general or special
election, legally qualified candidates for elective office may be charged no
more than the station's "lowest unit charge" for the same class of
advertisement, length of advertisement and daypart.

     Equal Employment Opportunity Requirements.  The FCC's rules formerly
required that broadcast licensees develop and implement programs designed to
promote equal employment opportunities and submit reports on these matters on an
annual basis and at renewal time. In 1998, the United States Court of Appeals
for the District of Columbia Circuit declared these rules unconstitutional.
Subsequently, the FCC initiated a rulemaking to reestablish employment
regulations, and in January 2000, the FCC adopted new equal employment
opportunity rules for broadcasters. The FCC's new rules reaffirm the prior rule
prohibiting discrimination on the basis of race, religion, color, national
origin or gender and require broadcasters to maintain a recruitment outreach
program to ensure that all qualified applicants have the opportunity to apply
for job vacancies. Broadcasters are required to prepare reports concerning equal
employment opportunity outreach programs on an annual basis and to file those
reports with the FCC periodically throughout the license term. The FCC will
review the reports and a station's compliance midway through the license term
and in connection with the station's license renewal. Broadcasters also are
required to complete annual reports regarding their employment profile that will
be used by the FCC to monitor industry trends. The FCC's new rules are not yet
effective and therefore are subject to reconsideration and modification in
subsequent proceedings. At this time, the Company cannot predict the impact of
these new rules on it or its stations.

     "Must Carry"/Retransmission Consent/Regulations. The Company believes that
the growth and success of its television station group depends materially upon
access to households served by cable television systems. The Communications Act
includes broadcast signal carriage requirements that allow local commercial
television broadcast stations to elect once every three years to require a cable
system to carry the station subject to certain exceptions, or to negotiate for
retransmission consent to carry the station. A cable system generally is
required to devote up to one-third of its activated channel capacity for the
mandatory carriage of local commercial television stations. Additionally, cable
systems are required to obtain retransmission consent for all distant commercial
television stations (except for commercial satellite-delivered independent
superstations such as WGN), commercial radio stations and certain low power
television stations. By electing the "must carry" rights, a broadcaster can
demand carriage on a specified channel on cable systems within its DMA, provided
the broadcaster's television signal can be delivered to the cable system
operator's cable head end at a specified strength. These "must carry" rights are
not absolute, and their exercise depends on variables such as the number of
activated channels on a cable system, the location and size of a cable system,
and the amount of duplicative programming on a broadcast station. Therefore,
under certain circumstances, a cable system can decline to carry a given
station. Alternatively, if a broadcaster chooses to exercise retransmission
consent rights, it can prohibit cable systems from carrying its signal or grant
the appropriate cable system the

                                       12
<PAGE>   15

authority to retransmit the broadcast signal for a fee or other consideration.
The Company's television stations have generally elected the "must carry"
alternative. The Company's elections of retransmission or "must carry" status
will continue until the next election period which commences on January 1, 2003.
If the law were changed to eliminate or materially alter "must carry" rights,
the Company could suffer adverse effects.

     The Company's television stations are also carried as distant signals on
cable systems which are located outside of the stations' markets. The stations
are carried pursuant to retransmission consent agreements which the Company has
entered into with the cable systems. Cable systems must remit a compulsory
license royalty fee to the United States Copyright Office ("Copyright Office")
to carry the Company's stations in these distant markets as required by the
Copyright Act of 1976, as amended (the "Copyright Act"). The Company recently
filed a request with the Copyright Office, which administers the compulsory
license, to change the Company's stations' status under the compulsory license
from "independent" to "network" signals, which would reduce the amount of
royalties that a larger cable system would be required to remit in order to
carry a Company station in a distant market. If the Copyright Office grants the
Company's request, such larger cable systems would be permitted to carry the
Company's stations at reduced royalty rates, and additional cable systems may
transmit the Company's stations in distant markets. The Company cannot determine
when the Copyright Office will act on its request, or whether it will receive a
favorable ruling. The Copyright Office recently requested comments from the
public regarding the Company's request.

     Syndicated Exclusivity/Territorial Exclusivity.  The FCC has imposed on
cable operators syndicated exclusivity rules and network non-duplication rules.
These syndicated exclusivity rules allow local broadcast stations to require
that cable operators black out certain syndicated non-network programming
carried on distant signals (that is, signals of broadcast stations, including
so-called super stations, which serve areas substantially removed from the cable
system's local community). The network non-duplication rules allow local
broadcast network affiliates to require that cable operators black out
duplicating network broadcast programming carried on more distant signals that
are not significantly viewed over the air.

     Satellite Carriage of Television Broadcast Signals.  In November 1999,
Congress passed legislation amending the Satellite Home Viewer Act which governs
the delivery of television broadcast signals by satellite companies. The
legislation authorizes for the first time the satellite delivery of local
broadcast signals to customers who reside within a television station's local
market. Satellite carriers may continue to retransmit any local broadcast signal
for the first six months that the legislation is effective but then must obtain
retransmission consent from the television station before continuing carriage.
Television stations must negotiate in good faith with satellite companies
regarding retransmission consent. Congress also has imposed on satellite
carriers "must-carry" obligations with respect to local television stations.
Beginning January 1, 2002, a satellite carrier delivering the signal of any
local television station also would be required to carry all stations licensed
to the carried station's local market. With respect to the delivery of
out-of-market, or distant, television broadcast signals to unserved customers,
the legislation permits satellite carriers to provide the signal of a distant
network affiliate to only those customers who cannot receive a signal of at
least Grade B intensity from the local network affiliate. The legislation
grandfathers for a period of five years from enactment current customers
residing within a station's Grade B contour but outside of its Grade A contour
who would otherwise be ineligible to receive distant network signals. The FCC
has commenced a rulemaking proceeding to consider rules implementing the new
legislation. The Company cannot predict the ultimate outcome of this proceeding
or its impact on its television stations.

     Television stations also may be subject to a number of other federal, state
and local regulations, including regulations of the Federal Aviation
Administration affecting tower height, lighting and marking, and federal, state,
and local environmental and land use restrictions; general business regulation;
and a variety of local regulatory concerns.

     FCC Inquiry on Broadcast of Commercial Matter.  The FCC also has initiated
a notice of inquiry proceeding seeking comment on whether the public interest
would be served by establishing limits on the amount of commercial matter
broadcast by television stations. The Company cannot predict at this time
whether the FCC will propose any limits on commercial advertising at the
conclusion of its deliberation or the

                                       13
<PAGE>   16

effect the imposition of limits on the commercial matter broadcast by television
stations would have upon the Company's operations.

     Digital Television Service.  The FCC has adopted rules for implementing
digital television ("DTV") in the United States. Implementation of DTV service
is intended to improve the technical quality of television broadcasts. In
anticipation of the implementation of DTV operations, the FCC has adopted
technical DTV standards and other rules necessary to protect the public
interest. Each existing television station was allotted a second channel for its
DTV operations. Each station must return one of its two channels at the end of
the DTV transition period currently scheduled to end in 2006. The transition
period could be extended in certain areas depending generally on the level of
DTV market penetration.

     The FCC has adopted rules permitting DTV licensees to offer "ancillary or
supplementary services" on newly-available DTV spectrum, so long as such
services are consistent with the FCC's DTV standards, do not derogate required
DTV services, and are regulated in the same manner as similar non-DTV services.

     Local broadcasters will be initiating DTV service at different times. A
station may begin DTV service as soon as it has received its FCC permit and is
ready with equipment and other necessary preparations. The FCC has established a
schedule by which broadcasters must begin DTV service absent extenuating
circumstances that may affect individual stations. The Company's stations
applied for their DTV permits before November 1, 1999 and must initiate some DTV
service by May 1, 2002.

     The FCC has adopted other rules to implement DTV service. The FCC imposes
certain fees on DTV licensees for the transmission of non-broadcast services
(such as paid subscription services) over their DTV spectrum. The FCC also has
initiated rulemaking proceedings to examine: (1) whether, and the extent to
which, "must carry" obligations should be applied to DTV service; (2) the extent
to which additional public interest obligations should be imposed on DTV
licensees; and (3) various DTV tower siting issues.

     The FCC currently is conducting a rulemaking proceeding to determine
mandatory carriage and retransmission consent requirements for digital broadcast
television stations on cable systems during and following the transition from
analog to digital broadcasting. The Company cannot predict the ultimate outcome
of the FCC's digital cable carriage proceeding or the impact it would have on
the Company's television stations.

     The FCC also has commenced a proceeding to consider additional public
interest obligations for television stations as they transition to digital
broadcast television operation. The FCC is considering various proposals that
would require DTV stations to use digital technology to increase program
diversity, political discourse, access for disabled viewers and emergency
warnings and relief. If these proposals are adopted, the Company's stations may
be required to increase their current level of public interest programming which
generally does not generate as much revenue from commercial advertisers.

     Class A Low Power Television.  In November 1999, Congress passed the
Community Broadcasters Protection Act of 1999, which directs the FCC to offer a
new Class A status to qualifying low power television stations. To qualify, low
power television stations must meet certain programming and operational criteria
and were required to notify the FCC of their eligibility by January 28, 2000.
The FCC must adopt rules regarding the new Class A service by the end of March
2000, after which qualifying stations are required to submit a formal
application. The FCC has commenced a proceeding to consider rules governing the
protection against full power and other low power television stations that could
limit the Company's ability to modify its television facilities in the future
and could affect any pending applications for new or modified facilities. Class
A stations will not be protected from interference from DTV stations proposing
to maximize their DTV service, provided the DTV stations notified the FCC of
their intent to maximize facilities no later than December 31, 1999, and file a
maximization application by May 1, 2000.

     Proposed Changes.  Congress and the FCC have under consideration, and may
in the future adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect the operation, ownership
and profitability of the Company and its television broadcast stations, result
in the loss of audience share and advertising revenue for the Company's
television broadcast stations and affect the ability of the Company to acquire
additional broadcast stations or finance such acquisitions. Such matters include
                                       14
<PAGE>   17

proposals to impose additional or increased spectrum use or other fees upon
licensees; proposals to change rules relating to political broadcasting,
technical and frequency allocation matters, and DTV; proposals to restrict or
prohibit the advertising of alcoholic beverages; changes in the FCC's multiple
ownership, alien ownership, and attribution rules and policies; proposals to
allow telephone companies to deliver audio and video programming through
existing telephone lines; and proposals to limit the tax deductibility of
advertising expenses. The Company cannot predict what other matters may be
considered in the future, nor can it judge in advance what impact, if any, the
implementation of any of these proposals or changes might have on its business.

EMPLOYEES

     As of December 31, 1999, the Company had approximately 870 full-time
employees and 120 part-time employees. The substantial majority of the Company's
employees are not represented by labor unions. The Company considers its
relations with its employees to be good.

SEASONALITY

     Seasonal revenue fluctuations are common within the television broadcasting
industry and result primarily from fluctuations in advertising expenditures.
Generally, the Company believes that television advertisers spend relatively
more for commercial advertising time in the fourth and second calendar quarters
and spend relatively less during the first calendar quarter of each year.

TRADEMARKS AND SERVICE MARKS

     The Company has thirteen federally registered trademarks and service marks
with another eighty-two applications pending. It does not own any patents or
patent applications.

FORWARD-LOOKING STATEMENTS AND ASSOCIATED CONSIDERATIONS

     This Report contains forward-looking statements that reflect the Company's
current views with respect to future events and financial performance. These
forward-looking statements are made pursuant to the "safe harbor" provisions of
the Securities Litigation Reform Act of 1995 and involve risks and
uncertainties, including those identified below, which could cause actual
results to differ materially from historical results or those anticipated.
Statements as to what the Company "believes", "intends", "expects", or
"anticipates", and other similarly anticipatory expressions are generally
forward-looking statements and are made only as of the date of this Report. All
statements herein, other than those consisting solely of historical facts, that
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as business
strategy, measures to implement strategy, competitive strengths, goals,
projected revenues, costs and other financial results, references to future
success and other events may be forward-looking statements. Statements herein
are based on certain assumptions and analysis made by the Company in light of
its experience and its perception of historical trends, current conditions and
potential future developments, as well as other factors it believes are
appropriate in the circumstances. Whether actual results, events and
developments will conform with the Company's expectations is subject to a number
of risks and uncertainties and important factors that could cause actual
results, events and developments to differ materially from those referenced in,
contemplated by or underlying any forward-looking statements herein, many of
which are beyond the control of the Company. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise. Readers are
cautioned not to place undue reliance on these forward-looking statements.
Factors to consider in evaluating any forward-looking statements and the other
information contained herein and which could cause actual results to differ from
those anticipated in the forward-looking statements or otherwise adversely
affect the Company's business include those set forth below.

                                       15
<PAGE>   18

  High Level of Indebtedness; Restrictions Imposed by Terms of Indebtedness and
Preferred Stock

     The Company is highly leveraged. At December 31, 1999, the Company had
$388.4 million of total debt as well as $949.8 million of redeemable securities.
The Company may incur additional indebtedness to finance acquisitions, capital
expenditures and for other corporate purposes. The Company's ability to incur
indebtedness is subject to restrictions in the terms of the Company's Senior
Secured Revolving Credit Facility (the "Credit Facility"), the Company's
Equipment Purchase Credit Facility (the "Equipment Facility"), and the indenture
(the "Indenture") governing the Company's 11 5/8% Senior Subordinated Notes (the
"Notes"), as well as the terms of the Company's Junior Cumulative Compounding
Redeemable Preferred Stock (the "Junior Redeemable Preferred Stock"), the
Company's redeemable 12 1/2% Cumulative Exchangeable Preferred Stock (the
"Exchangeable Preferred Stock"), the Company's redeemable 13 1/4% Cumulative
Junior Exchangeable Preferred Stock (the "Junior Exchangeable Preferred Stock"),
the Company's 9  3/4% Series A Convertible Preferred Stock (the "Series A
Convertible Preferred Stock") and the Company's 8% Series B Convertible
Exchangeable Preferred Stock (the "Series B Convertible Preferred Stock", and
collectively with the Junior Redeemable Preferred Stock, the Exchangeable
Preferred Stock, the Junior Exchangeable Preferred Stock and the Series A
Convertible Preferred Stock, the "Preferred Stock").

     The level of the Company's indebtedness could have important consequences
to the Company, including: (i) a significant amount of the Company's cash flow
from operations must be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing in the
future, if needed, may be limited; (iii) the Company's leveraged position and
covenants contained in the Credit Facility, the Equipment Facility and the
Indenture (or any replacements thereof) could limit its ability to expand and
make capital improvements and acquisitions; and (iv) the Company's level of
indebtedness could make it more vulnerable to economic downturns, limit its
ability to withstand competitive pressures and limit its flexibility in reacting
to changes in its industry and economic conditions generally. Many of the
Company's competitors currently operate on a less leveraged basis and may have
significantly greater operating and financing flexibility than the Company.

     The Credit Facility, the Equipment Facility, the Indenture and the
Preferred Stock contain certain covenants that restrict, among other things, the
Company's ability to incur additional indebtedness, incur liens, make
investments, pay dividends or make certain other restricted payments, consummate
certain asset sales, consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets. Currently, such covenants prevent the Company from incurring additional
indebtedness other than limited amounts of certain types of permitted
indebtedness (e.g., purchase money indebtedness), although refinancing of
existing debt is not prohibited. In addition, the Credit Facility and the
Equipment Facility require the Company to comply with certain financial ratios
and tests, under which the Company is required to achieve certain financial and
operating results commencing March 31, 2001. If the Company defaults under the
Credit Facility or the Equipment Facility, the lenders may terminate their
lending commitments and declare the indebtedness under the Credit Facility or
Equipment Facility immediately due and payable. If this were to happen there is
no assurance that the Company would have sufficient assets to pay indebtedness
then outstanding. If the Company is unable to service its indebtedness or
satisfy its dividend or redemption obligations with respect to its Preferred
Stock, it will be forced to adopt an alternative strategy that may include
actions such as reducing or delaying capital expenditures, selling assets,
restructuring or refinancing its indebtedness or seeking additional equity
capital. There is no assurance that any of these strategies could be effected on
satisfactory terms, if at all.

  Risks Associated with Operating PAX TV

     The success of the Company's PAX TV operations is largely dependent upon
the Company's ability to provide popular programming and to sell advertising.
The Company seeks to provide programming which attracts viewers in targeted
demographic groups in sufficient numbers to generate audience ratings that
advertisers will find attractive, and to convert those audience ratings and
viewer demographics into advertising revenues sufficient to achieve profitable
operations. While PAX TV audience ratings and the Company's advertising revenues
have generally been increasing since the launch of PAX TV on August 31, 1998,
there can be no assurance that the Company's programming will attract sufficient
targeted viewership or that the
                                       16
<PAGE>   19

Company will be able to generate sufficient advertising revenue for its PAX TV
operations to achieve profitability. Since the Company owns and operates most of
the stations carrying its PAX TV programming, including nearly all of those
operating in the nation's largest television markets, the Company's business
model is different from those of traditional television and cable networks and
television station groups and cannot be measured against traditional methods of
operation. The success of the Company's business plan for PAX TV will depend,
among other things, upon the Company's ability to sell advertising at targeted
rates, continue to attract advertising clients, improve the visibility and
distribution of PAX TV and continue to sell time for infomercials and other
long-form paid programming during weekday mornings and weekends. There can be no
assurance that the Company's costs will not prove excessive in relation to its
advertising revenues or that the Company's operational strategy for PAX TV will
prove successful.

  Reliance on Television Programming

     One of the Company's most significant operating cost components is
television programming. Acquisitions of program rights may be made several years
in advance and may require multi-year commitments, making it difficult to
accurately predict how a program will perform in relation to its cost. In some
instances, programs must be replaced before their costs have been fully
amortized, resulting in write-offs that increase station operating costs. There
can be no assurance that the Company will not be exposed in the future to
increased programming costs which may materially adversely affect the Company's
operating results. Additionally, the Company intends to provide original
programming for airing on PAX TV, which will involve incurring production,
talent and other ancillary costs. There is no assurance that the Company's
original programming will be commercially successful.

  Risks Associated with Operating PAX TV Stations under Joint Services
Agreements

     In addition to the three stations the Company operates under JSAs with
third parties in Shreveport, Louisiana, Cedar Rapids, Iowa, and Greenville,
North Carolina, the Company commenced operating two stations under joint
services arrangements with NBC owned and operated stations in the Providence,
Rhode Island, and Washington, D.C., television markets and the Company expects
to enter into JSA's with each of the other NBC owned and operated stations and
NBC affiliates in markets in which the Company has a station. Each JSA will be
individually negotiated depending upon the attributes of the Company station and
the corresponding NBC owned or network-affiliated station involved in the
arrangement. There can be no assurance that the Company will be able to
successfully negotiate and enter into JSAs with the NBC owned and operated
stations and the NBC affiliates or another operator of a broadcast television
station in each of the markets in which the Company owns and operates a
television station. While the Company believes that each of the stations which
enters into a JSA should experience an improvement in overall operating
performance through a combination of improved revenues and operating cost
reductions, there can be no assurance that such operating improvements, if any,
will be realized. In addition, if a JSA proves to be unsuccessful in a
particular market, the Company may incur significant costs to transfer its JSA
to another broadcast television station operator or resume operating
independently.

  "Must Carry" Regulations

     The Company believes that the growth and success of its television station
group depends materially upon access to households served by cable television
systems. Pursuant to the 1992 Cable Act, each broadcaster is required to elect,
every three years, to exercise either certain "must carry" or retransmission
consent rights in connection with carriage of their signals by cable systems in
their local market. By electing the "must carry" rights, a broadcaster can
demand carriage on a specified channel on cable systems within its DMA, provided
the broadcaster's television signal can be delivered to the cable system
operator's cable head end at a specified strength. These "must carry" rights are
not absolute, and their exercise depends on variables such as the number of
activated channels on a cable system, the location and size of a cable system,
and the amount of duplicative programming on a broadcast station. Therefore,
under certain circumstances, a cable system can decline to carry a given
station. Alternatively, if a broadcaster chooses to exercise retransmission
consent rights, it can prohibit cable systems from carrying its signal or grant
the appropriate cable system the authority

                                       17
<PAGE>   20

to retransmit the broadcast signal for a fee or other consideration. The
Company's television stations generally elected "must carry" on local cable
systems for the three year election period which commenced January 1, 2000. The
required election date for the next three year election period commencing
January 1, 2003 will be October 1, 2002. If the law were changed to eliminate or
materially alter "must carry" rights, the Company could suffer adverse effects.

     The Company's television stations are also carried as distant signals on
cable systems which are located outside of the stations' markets. The stations
are carried pursuant to retransmission consent agreements which the Company has
entered into with the cable systems. Cable systems must remit a compulsory
license royalty fee to the United States Copyright Office ("Copyright Office")
to carry the Company's stations in these distant markets as required by the
Copyright Act of 1976, as amended (the "Copyright Act"). The Company recently
filed a request with the Copyright Office, which as administers the compulsory
license, to change the Company's station's status under the compulsory license
from "independent" to "network" signals, which would reduce the amount of
royalties that a larger cable system would be required to remit in order to
carry a Company station in a distant market. If the Copyright Office grants the
Company's request, such larger cable systems would be permitted to carry the
Company's stations at reduced royalty rates, and additional cable systems may
transmit the Company's stations in distant markets. The Company cannot determine
when the Copyright Office will act on its request, or whether it will receive a
favorable ruling. The Copyright Office recently requested comments from the
public regarding the Company's request.

     Satellite Carriage of Television Broadcast Signals.  In November 1999,
Congress passed legislation amending the Satellite Home Viewer Act which governs
the delivery of television broadcast signals by satellite companies. The
legislation authorizes for the first time the satellite delivery of local
broadcast signals to customers who reside within a television station's local
market. Satellite carriers may continue to retransmit any local broadcast signal
for the first six months that the legislation is effective but then must obtain
retransmission consent from the television station before continuing carriage.
Television stations must negotiate in good faith with satellite companies
regarding retransmission consent. Congress also has imposed on satellite
carriers "must-carry" obligations with respect to local television stations.
Beginning January 1, 2002, a satellite carrier delivering the signal of any
local television station also would be required to carry all stations licensed
to the carried station's local market. With respect to the delivery of
out-of-market, or distant, television broadcast signals to unserved customers,
the legislation permits satellite carriers to provide the signal of a distant
network affiliate to only those customers who cannot receive a signal of at
least Grade B intensity from the local network affiliate. The legislation
grandfathers for a period of five years from enactment current customers
residing within a station's Grade B contour but outside of its Grade A contour
who would otherwise be ineligible to receive distant network signals. The FCC
has commenced a rulemaking proceeding to consider rules implementing the new
legislation. The Company cannot predict the ultimate outcome of this proceeding
or its impact on its television stations.

     Proposed Changes.  Congress and the FCC have under consideration, and may
in the future adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect the operation, ownership
and profitability of the Company and its television broadcast stations, result
in the loss of audience share and advertising revenue for the Company's
television broadcast stations and affect the ability of the Company to acquire
additional broadcast stations or finance such acquisitions. Such matters include
proposals to impose additional or increased spectrum use or other fees upon
licensees; proposals to change rules relating to political broadcasting;
technical and frequency allocation matters, and DTV; proposals to restrict or
prohibit the advertising of alcoholic beverages; changes in the FCC's multiple
ownership, alien ownership, and attribution rules and policies; proposals to
allow telephone companies to deliver audio and video programming through
existing phone lines; and proposals to limit the tax deductibility of
advertising expenses. The Company cannot predict what other matters may be
considered in the future, nor can it judge in advance what impact, if any, the
implementation of any of these proposals or changes might have on its business.

                                       18
<PAGE>   21

  Dependence on Key Personnel

     The Company's business depends upon the efforts, abilities and expertise of
its executive officers and other key employees, including Lowell W. Paxson, its
Chairman and Jeffrey Sagansky, its Chief Executive Officer. If certain of these
executive officers were to leave the Company, the Company's operating results
could be adversely affected. In addition, in the event of Mr. Paxson's death,
the Company may be required, in certain circumstances, to make an offer to
repurchase the Notes and to redeem its Preferred Stock. There is no assurance
that if such an event were to occur, the Company would have, or would have
access to, sufficient funds to satisfy such repurchase or redemption
obligations.

  Ability to Manage Growth

     Since inception, the Company has experienced rapid growth, primarily
through acquisitions. Rapidly growing businesses frequently encounter unforeseen
expenses and delays in completing acquisitions, as well as difficulties and
complications in integrating acquired operations without disruption to overall
operations. In addition, such rapid growth may adversely affect the Company's
operating results because of many factors, including capital requirements,
transitional management and operating adjustments, and interest costs associated
with acquisition debt. There can be no assurance that the Company will
successfully integrate acquired operations or successfully manage the costs
often associated with rapid growth.

  Competition

     The Company's television stations are located in highly competitive
markets. The financial success of each of the Company's television stations
depends, to a significant degree, upon its audience ratings, its share of the
overall television sales within its geographic market, the economic health of
the market and the popularity of its programming. The audience ratings and
advertising of such individual stations are subject to change and any adverse
change in a particular market could have a material adverse effect on the
revenue and cash flow of the Company. The Company's television stations compete
for audience share and advertising revenue directly with other television
stations and with other media within their respective markets. In addition, to
the extent that many of the Company's competitors have, or may in the future
obtain, greater resources than the Company, its ability to compete successfully
in its broadcasting markets may be impeded. There can be no assurance that the
Company will be able to obtain or maintain significant audience ratings and
advertising revenue. See "Competition."

  Industry and Economic Conditions

     The profitability of the Company's television stations is subject to
various factors that influence the television broadcasting industry as a whole,
including changes in audience tastes, priorities of advertisers, new laws and
governmental regulations and policies, changes in broadcast technical
requirements, technological changes, proposals to eliminate the tax
deductibility of expenses incurred by advertisers and changes in the willingness
of financial institutions and other lenders to finance television station
acquisitions and operations. The Company's broadcasting revenue is likely to be
adversely affected by a recession or downturn in the United States economy or
other events or circumstances that adversely affect advertising activity. In
addition, the Company's operating results in individual geographic markets could
be adversely affected by local or regional economic downturns.

  SAG/AFTRA Risk

     Approximately 22% of the Company's 1999 revenues relate to network
commercial spot advertisements aired on the PAX TV Network. The Company believes
substantially all of such network spot advertisements were produced by
advertisers or their advertising agencies (the "Advertising Community") using
performers who are members of the Screen Actors Guild ("SAG") and the American
Federation of Television and Radio Artists (collectively, the "Guilds"). When
such network commercials are aired on broadcast and cable television networks,
the performers are entitled to be paid by the Advertising Community certain
royalty payments (referred to within the industry as "residual payments") which
are determined under the collective

                                       19
<PAGE>   22

bargaining agreements (the "Guild Agreements") entered into by the Guilds and
the Advertising Community. Under the Guild Agreements, the residual payments
required to be paid by the Advertising Community in connection with
advertisements aired on cable networks are substantially lower than the
residuals required to be paid in connection with advertising aired on broadcast
networks. To date, the Company believes that a substantial portion, if not most
of the network commercial spot advertising time purchased on the PAX TV Network
by the Advertising Community was purchased under the assumption that the
residual payment obligations the Advertising Community incurred in connection
with airing such advertising spots on PAX TV were to be calculated under the
rates applicable to cable networks, not those applicable to broadcast networks.
The Company believes that commercials aired on the PAX TV Network should give
rise to residuals payments under the residual rates applicable to cable networks
in light of the Company's audience ratings performance to date, the dependence
of the Company's broadcast stations on cable carriage under the FCC's must carry
rules and the fact that approximately 18.5% of the PAX TV networks distribution
is solely on cable households through cable carriage agreements. The advertising
trade association representing the Advertising Community has expressed their
support, both verbally and in writing to the Company and the Guilds, of the
Company's position on this matter. However, notwithstanding the foregoing, the
Guilds have notified the Advertising Community that commercials aired on the PAX
TV Network are subject to the broadcast network residual rates. In response to
this development, the Company has held discussions with the Guilds to
demonstrate that advertising commercials aired on the PAX TV Network should be
subject to residual rates normally applicable to cable networks. In addition,
the Guilds and the Advertising Community have commenced the collective
bargaining process to negotiate and enter into new Guild Agreements covering
this and other commercial advertising industry matters. While the Guilds have in
the past granted residual rate relief to broadcast television programming which
generates relatively low viewer ratings, including relief granted to certain
broadcast television networks for their low rated overnight programming, the
Company has no assurance that the Guilds and the Advertising Community will
reach an agreement which resolves this issue in favor of the Company. The
Company believes that this development with the Guilds should adversely affect
only its network spot advertising business; all of its other network, national
and local advertising revenues should be unaffected. While the Company believes
it can substitute other forms of advertising to mitigate the effect of this
development, the Company is unable to predict or estimate the magnitude of the
effect of this development on its network spot business.

  Risks Associated with NBC Investment

     On September 15, 1999, the Company entered into a series of agreements with
NBC pursuant to which NBC made a significant investment in the Company and
acquired rights to purchase additional Company securities, the exercise of which
would result in NBC owning a majority of the total outstanding voting power of
the Company. See "Business - NBC Transaction" above.

     The NBC Investment Agreement includes affirmative and negative covenants of
the Company and provisions requiring the Company to obtain the consent of NBC or
its permitted transferee with respect to certain corporate actions, including
the approval of annual budgets, expenditures materially in excess of budgeted
amounts, certain programming acquisitions, material amendments to the Company's
certificate of incorporation or bylaws, sale of a Company television station
serving any of the top 20 markets or as a result of which the national household
coverage of the Company's PAX TV network would fall below 70%, material asset
sales or purchases, any business combination where the Company would not be the
surviving corporation or as a result of which there would be a change of control
of the Company, issuance or sale of any capital stock (subject to certain agreed
exceptions) or stock split or recombination, any increase in the size of the
Company's board of directors (other than an increase of up to two directors
resulting from provisions of the Company's outstanding preferred stock),
entering into any joint sales, joint services, time brokerage, local marketing
or similar agreement as a result of which Company stations with national
household coverage of 20% or more would be subject to such agreements, and other
matters. NBC was also granted certain rights with respect to the broadcast
television operations of the Company, including, among other things, the right
to require the conversion of Company television stations to NBC network
affiliates (subject to certain conditions and to the Company's right to decline
such conversion if as a result the national household coverage of the Company's
PAX TV network would fall below 70%), a right of first refusal on a proposed
sale of a Company
                                       20
<PAGE>   23

television station, the right to require Company television stations to carry
NBC network programming which is preempted by NBC network affiliates, and the
right to negotiate on behalf of the Company to acquire interests in new media
companies in exchange for advertising airtime on Company stations. In addition,
three representatives of NBC have been elected to the Company's board of
directors. NBC is therefore in a position to exert significant influence over
the management and policies of the Company and, through the exercise of its
contractual rights, to prevent the Company from taking actions which Company
management may otherwise desire to take.

     Pursuant to the NBC Investment Agreement, NBC has the right, at any time
that the FCC renders a final decision that NBC's investment in the Company is
"attributable" to NBC (as such term is defined under applicable rules of the
FCC), or for a period of 60 days beginning with the third anniversary of the
Issue Date and on each anniversary of the Issue Date thereafter, to require the
Company (or an assignee selected by the Company) to redeem the Series B
Convertible Preferred Stock then held by NBC at a price equal to the aggregate
liquidation preference thereof plus accrued and unpaid dividends thereon to the
date of redemption. The Company will have one year in which to effect such a
redemption, and its redemption obligation will be subject to the covenants
contained in the terms of its outstanding debt and preferred stock limiting its
ability to effect such a redemption. NBC also has the right, in case of certain
events of default, to require the Company or its assignee to redeem the Series B
Convertible Preferred Stock and shares of Class A Common Stock acquired upon
conversion thereof then held by NBC at the higher of (i) the aggregate
liquidation preference thereof plus accrued and unpaid dividends thereon or (ii)
an amount per share of Class A Common Stock equal to the 45 day trailing average
of the closing sale prices of the Class A Common Stock. The Company will have
six months to effect such a redemption, and its redemption obligation will be
subject to the covenants contained in the terms of its outstanding debt and
preferred stock limiting its ability to effect such a redemption.

     Should the Company fail to effect a required redemption within the
applicable period, NBC will generally be permitted to transfer without
restriction all Company securities acquired pursuant to the NBC Investment
Agreement, the Call Right, NBC's contractual rights described above, and NBC's
other rights under the NBC Investment Agreement and the related transaction
agreements (provided that the warrants and the Call Right shall expire, to the
extent not exercised, upon the later of 30 days after such transfer or the date
they would otherwise first become exercisable pursuant to their respective
terms). Should the Company fail to effect a redemption triggered by an event of
default on its part, NBC will also have the right to exercise in full the
warrants and the Call Right without regard to the limitations on exercisability
prior to February 1, 2002 otherwise applicable and, to the extent the minimum
exercise price provisions of such instruments would otherwise be applicable, at
a reduced minimum exercise price. Should NBC not exercise such rights, the
Company shall have another 30 day period in which to effect a redemption,
failing which, NBC may require the Company to effect, at the Company's option, a
public sale or liquidation of the Company, after which time NBC shall not be
permitted to exercise the warrants or the Call Right.

     There is no assurance that, should NBC exercise any of the redemption
rights described above, the Company would have access to sufficient funds to pay
the redemption price for the securities to be redeemed, or that the Company
would be able to identify another party willing to purchase such securities at
the required redemption prices thereof. If NBC were to exercise any of its
redemption rights described above and the Company were unable to complete the
redemption, the Company would be unable to prevent NBC's transfer of a
controlling interest in the Company to a third party selected by NBC in its
discretion or the ultimate public sale or liquidation of the Company. The
occurrence of any of these events could have a material adverse effect upon the
Company and upon the value of the Company's securities held by other persons.

ITEM 2. PROPERTIES

     The Company's corporate headquarters is in West Palm Beach, Florida. The
types of properties required to support PAX TV and each of the Company's
existing or to be acquired television stations include a satellite up-link
facility, offices, studios and transmitter sites. The Company's satellite
up-link facility is located on leased property in Clearwater, Florida. A
station's studio is generally housed with its office in a downtown or business
district. A station's transmitter site generally is located in a manner that
provides the maximum
                                       21
<PAGE>   24

market coverage the station can enjoy subject to its license. The studios and
offices of the Company's stations and its corporate headquarters are located in
leased or owned facilities. The Company's studio and office leases have
expiration dates that range from one to ten years. The Company either owns or
leases its transmitter and antenna sites. In several cases, the Company leases
the land on which it has constructed its own tower and transmitter building
allowing the Company to lease tower space to third parties. The Company's
transmitter and antenna site leases have expiration dates that range generally
from two to twenty years. The Company does not anticipate any difficulties in
renewing those leases that expire within the next several years or in leasing
other space, if required. No one property is material to the Company's overall
operations. The Company believes that its properties are in good condition and
suitable for its operations. The Company owns substantially all of the equipment
used in its television broadcasting business.

ITEM 3. LEGAL PROCEEDINGS

     In October, November, and December 1999, complaints were filed in the 15th
Judicial Circuit Court in Palm Beach County, Florida, in the Court of Chancery
of the State of Delaware and in Superior Court of the State of California
against certain of the Company's officers and directors by alleged stockholders
of the Company alleging breach of fiduciary duty by the directors in approving
the transactions with NBC which occurred in September 1999. The complaints
allege that the directors failed to pursue acquisition negotiations with a party
other than NBC, which transaction would have provided the Company's stockholders
with a substantial premium over the then market price of the Company's common
stock, and instead completed the NBC Investment Agreement and related
transactions. The Company believes the suits to be wholly without merit and
intends to vigorously defend its actions on these matters.

     In May 1998, a complaint was filed against certain of the Company's
officers by a shareholder of the Company alleging breach of fiduciary duty by
the directors in approving payment of certain bonuses to members of the
Company's management in connection with the 1997 sale of the Company's Radio
Segment and seeking damages on behalf of the Company. This suit was settled in
November 1999 by the payment by the Company of $600,000, for which amount the
Company was indemnified by its insurers.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the period covered by this report.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Class A Common Stock is listed on the American Stock Exchange
under the symbol PAX. The following table sets forth, for the periods indicated,
the high and low last sales price per share for the Class A Common Stock.

<TABLE>
<CAPTION>
                                                      1999             1998
                                                  -------------     ------------
                                                  HIGH      LOW     HIGH     LOW
                                                  ----      ---     ----     ---
<S>                                              <C>      <C>      <C>       <C>
First Quarter..................................  10 1/16   7 5/8   11 3/16   7 9/16
Second Quarter.................................  14 1/4    7 7/8   13 7/16   9 15/16
Third Quarter..................................  17 7/16  10 1/2   12 3/4    9 3/16
Fourth Quarter.................................  13 13/16  9 5/8    9 1/4    6 1/8
</TABLE>

     On March 1, 2000, the closing sale price of the Class A Common Stock on the
American Stock Exchange was $10.1875 per share. As of that date, there were
approximately 489 holders of record of the Class A Common Stock.

     The Company has not paid cash dividends and does not intend for the
foreseeable future to declare or pay any cash dividends on any of its classes of
Common Stock and intends to retain earnings, if any, for the future

                                       22
<PAGE>   25

operation and expansion of the Company's business. Any determination to declare
or pay dividends will be at the discretion of the Company's board of directors
and will depend upon the Company's future earnings, results of operations,
financial condition, capital requirements, contractual restrictions under the
Company's debt instruments, considerations imposed by applicable law and other
factors deemed relevant by the board of directors. In addition, the terms of the
Credit Facility, the Equipment Facility, the Indenture and the Preferred Stock
contain restrictions on the declaration of dividends with respect to the Common
Stock.

ITEM 6. SELECTED FINANCIAL DATA

     The following table sets forth selected consolidated financial data as of
and for each of the years in the five year period ended December 31, 1999. This
information is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements and the notes thereto which are
included elsewhere in this report. The following data, insofar as it relates to
each of the years presented, has been derived from annual financial statements,
including the consolidated balance sheets at December 31, 1999 and 1998, and the
related consolidated statements of operations and of cash flows for the three
years ended December 31, 1999, and notes thereto appearing elsewhere herein.

<TABLE>
<CAPTION>
                                                                          FOR THE YEAR ENDED DECEMBER 31,
                                                        -------------------------------------------------------------------
                                                           1999          1998          1997          1996          1995
                                                        -----------   -----------   -----------   -----------   -----------
                                                                  (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                                     <C>           <C>           <C>           <C>           <C>
INCOME STATEMENT DATA:
Revenues..............................................  $   248,362   $   134,196   $    88,421   $    62,333   $    31,784
Operating loss........................................     (225,251)     (135,531)      (21,935)       (3,895)       (7,997)
Loss from continuing operations before extraordinary
  item................................................     (160,372)      (89,470)      (36,504)      (30,436)      (22,705)
Income (loss) from discontinued operations(a).........           --         1,182       251,193         4,217          (142)
Extraordinary item....................................           --            --            --            --        10,626
Net income (loss).....................................     (160,372)      (88,288)      214,689       (26,219)      (33,473)
Net income (loss) attributable to common stock(b).....  $  (314,579)  $  (137,955)  $   188,412   $   (48,127)  $   (46,770)
BASIC AND DILUTED PER SHARE DATA:(C)
Loss from continuing operations before extraordinary
  item................................................  $     (5.10)  $     (2.31)  $     (1.17)  $     (1.20)  $     (1.05)
Discontinued operations...............................           --          0.02          4.67          0.10            --
Extraordinary item....................................           --            --            --            --         (0.31)
Net income (loss).....................................  $     (5.10)  $     (2.29)  $      3.50   $     (1.10)  $     (1.36)
Cash dividends declared...............................           --            --            --            --            --
Weighted average shares outstanding -- basic and fully
  diluted.............................................   61,737,576    60,360,384    53,808,472    43,836,526    34,429,517
BALANCE SHEET DATA:
Working capital.......................................  $   237,855   $     1,807   $    86,944   $    76,201   $    74,388
Total assets..........................................    1,690,087     1,542,786     1,057,113       543,182       293,832
Current portion of long-term debt.....................       18,698           529           496           645           431
Long-term debt and notes..............................      369,723       373,469       350,258       231,063       239,859
Total redeemable securities...........................      949,807       521,401       210,987       184,710        57,176
Total common stockholders' equity.....................  $    96,721   $   247,673   $   367,744   $   106,775   $   (17,479)
</TABLE>

---------------

(a) Includes a gain on disposal of discontinued operations of $1.2 million and
    $254.7 million in 1998 and 1997, respectively, net of applicable income
    taxes. See Note 4 to the Consolidated Financial Statements for additional
    discussion on the disposition of the Network-Affiliated Television and
    Paxson Radio segments during 1997.
(b) Includes dividends and accretion on redeemable preferred stock and
    redeemable common stock warrants, as applicable.
(c) The Company computes per share data in accordance with Statement of
    Financial Accounting Standards No. 128, "Earnings per Share". Due to losses
    from continuing operations, the effect of stock options and warrants is
    antidilutive. Accordingly, the Company's presentation of diluted earnings
    per share is the same as that of basic earnings per share.

                                       23
<PAGE>   26

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

     Paxson Communications Corporation (the "Company") is a network television
broadcasting company whose principal business is the ownership and operation of
the largest broadcast television station group in the United States through
which it broadcasts PAX TV, the Company's family friendly programming. The
Company commenced its television operations in early 1994 in anticipation of
deregulation of the broadcast industry. In response to federal regulatory
changes increasing limits on broadcast television station ownership and
mandating cable carriage of local television stations, the Company has expanded
rapidly, through acquisitions and construction of television stations, to
establish the largest owned and operated broadcast television station group in
the United States. The PAX TV Network reaches US television households through a
distribution system comprised of broadcast television stations, cable television
systems in markets not served by a PAX TV station and nationwide through
satellite television providers. According to Nielsen Television Index ("NTI"),
as of February 2000, the PAX TV Network reached 77% of US primetime television
households through broadcast, cable and satellite distribution. Upon completion
of pending transactions, the PAX TV Network will include 116 broadcast
television stations, consisting of 68 of the 73 stations which are currently
owned and operated by the Company, or in which the Company has an economic
interest, and 48 non-owned or operated PAX TV affiliates. The stations which the
Company will own, operate or have an economic interest in will reach 19 of the
top 20 markets and 42 of the top 50 markets.

     During the third quarter of 1999, the Company advanced funds to a
subsidiary of DP Media, Inc., which, along with CAP Communications, Inc. ("CAP
Communications"), and RDP Communications, Inc. (collectively referred to herein
as "DP Media") are companies beneficially owned by family members of the
Company's principal stockholder, Mr. Lowell W. Paxson. The Company has
significant operating relationships with DP Media. The funds advanced to DP
Media were utilized to fund operating cash flow needs. As a result of the
Company's significant operating relationships with DP Media and its funding of
DP Media's operating cash flow needs, the assets and liabilities of DP Media,
together with their results of operations from the date of the advance, have
been included in the Company's consolidated financial statements for the year
ended December 31, 1999. On November 21, 1999 the Company entered into
agreements to purchase the eight television stations of DP Media as well as DP
Media's contractual right to acquire a television station, WBPX, and two full
power satellite stations, serving the Boston, Massachusetts market. As part of
that acquisition, the Company will expend an additional $38 million to
consummate the acquisition of WBPX, which station is currently a PAX TV Network
affiliate and is being operated by DP Media under a time brokerage agreement
with the seller of the station. The television stations to be acquired, eight of
which have been airing PAX TV Network programming under affiliation agreements,
and all of which the Company provides services for under various services
agreements, are in the Battle Creek, Michigan, Raleigh, North Carolina,
Hartford, Connecticut, Boston, Massachusetts (two stations), St. Louis,
Missouri, Washington, D.C., Milwaukee, Wisconsin and Indianapolis, Indiana
markets. In conjunction with the asset purchase agreement, on November 22, 1999
the Company advanced approximately $106 million to DP Media pursuant to a
secured loan agreement, which was used to repay DP Media's outstanding
indebtedness to third party lenders. Effective March 1, 2000, the affiliation
agreements and services agreements between the Company and DP Media for each DP
Media station other than the second Boston station ("WWDP") were replaced by
time brokerage agreements which will remain in effect pending the completion of
the acquisition of the stations by the Company. On March 3, 2000, the Company
and DP Media agreed in principal to convert their asset sale transaction into a
purchase by the Company of all of the capital stock of DP Media for a purchase
price of $7,500,000. Prior to such purchase, DP Media shall transfer the assets
of WWDP to a newly formed company ("Newco"). The Company shall hold a non-voting
interest in Newco and shall have the right to require a sale of WWDP, which is
not a PAX TV Network affiliate, if the station is not sold within a specified
period. The Company shall receive 45% of the net proceeds from the sale of WWDP.

     In connection with the NBC transaction described in Note 2 to the
accompanying financial statements, the Company and NBC entered into a Network
Sales Agreement whereby NBC will provide network sales, sales marketing and
research services for the PAX TV network. The Company's television stations
serving the Washington, D.C. and Providence, Rhode Island markets are operating
under joint services arrangements with

                                       24
<PAGE>   27

the NBC stations serving the same markets. Under such joint services
arrangements the NBC stations sell all non-network advertising of the Company's
stations and receive commission compensation for such sales, each Company
station agrees to carry one hour per day of NBC syndicated programming (subject
to compliance with the Company's family friendly programming content standards)
and certain Company station operations will be integrated with the corresponding
functions of the related NBC station.

     On September 10, 1999, the Company and The Christian Network, Inc. ("CNI")
entered into a Master Agreement for overnight programming and use of a portion
of the Company's digital capacity in exchange for CNI's providing public
interest programming. The Master Agreement has a 50 year term 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 the Company's stations. Pursuant to
the Master Agreement, the Company broadcasts CNI overnight programming on each
of its stations seven days a week from 1:00AM to 6:00AM. When digital
programming begins, the Company will 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.

     In connection with its anticipated migration to digital broadcast
facilities, the Company is evaluating the remaining useful lives and residual
values of the equipment which would be affected by such migration. The Company
anticipates that its evaluation of useful lives as described above will result
in a decrease in the estimated remaining useful lives of the affected assets
and, as a result, accelerate the depreciation of such assets. The Company will
account for this change in accounting estimate on a prospective basis.

     The Company's operating data throughout the periods discussed have been
affected significantly by the timing and mix of television station acquisitions
throughout such periods and the costs incurred to launch and support PAX TV. The
Company's primary operating costs include commissions on revenues, employee
salaries, administrative expenses, and payments with respect to syndicated
program rights, cable distribution, ratings services and promotional
advertising.

     The Company's business is subject to various risks and uncertainties which
may significantly reduce revenues and increase operating expenses. For example,
a reduction in expenditures by television advertisers in the Company's markets
may result in lower revenues. The Company may be unable to reduce expenses,
including syndicated program rights fees and certain variable expenses, in an
amount sufficient in the short term to offset lost revenues caused by poor
market conditions. The broadcasting industry continues to undergo rapid
technological change, which may increase competition within the Company's
markets as new delivery systems, such as direct broadcast satellite and computer
networks, attract customers. The changing nature of audience tastes and viewing
habits may affect the continued attractiveness of the Company's broadcasting
stations to advertisers upon whom the Company is dependent for its revenue.

     Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount (contingent or otherwise) of assets and liabilities
at the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.

     See "Business -- Forward-Looking Statements and Associated Considerations"
for a discussion of certain factors which could influence the Company's future
performance and prospects.

DISCONTINUED OPERATIONS

     During 1997, the Company sold two business segments, Radio and
Network-Affiliated Television. Losses from operations of these segments in 1997,
net of tax, were $3.6 million. Radio and Network-Affiliated Television net
losses were $2.7 million and $937,000 in 1997, respectively. In connection with
the disposal of the Radio and Network Affiliated Television segments in 1997,
the Company recorded gains of $186.1 million and $68.7 million, respectively,
net of applicable income taxes. Net proceeds from the sale of these segments
were approximately $722.0 million. The Company deferred payment of taxes on
these gains by exchanging the Radio assets for like-kind television station
assets under a 1031 tax deferred exchange. If the Internal Revenue

                                       25
<PAGE>   28

Service ("IRS") were to successfully challenge the Company on this position, the
Company believes its net operating loss carry-forwards are sufficient to offset
any potential current tax liabilities.

     During 1998, the Company recognized an additional gain of $1.2 million on
the sale of its Radio segment, net of applicable income taxes of $2.2 million.
This gain reflects an adjustment of $2.7 million of estimated costs attributable
to the segment disposal and the recovery of a $3 million loan related to the
billboard operations of Radio, which was charged off against the gain in 1997.
An additional $2.3 million of income taxes were recorded within discontinued
operations in 1998, as a result of certain adjustments by the IRS reducing the
Company's net operating loss carry-forwards relating to the historical results
of the Radio segment.

RESULTS OF CONTINUING OPERATIONS

     The following table sets forth, for the periods indicated, selected
financial information as a percentage of revenues.

                            STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                        FOR THE YEAR ENDED
                                                           DECEMBER 31,
                                                     ------------------------
                                                     1999      1998     1997
                                                     -----    ------    -----
<S>                                                  <C>      <C>       <C>
Revenues...........................................  100.0%    100.0%   100.0%
                                                     -----    ------    -----
Expenses:
Operating..........................................   50.3      43.3     15.8
Selling, general and administrative................   68.1     100.9     50.1
Time brokerage and affiliation fees................    5.7      11.7     19.2
Stock-based compensation...........................    6.8       7.8      3.8
Compensation associated with Paxson Radio asset
  sales............................................     --        --     11.0
Adjustment of programming to net realizable
  value............................................   28.4        --       --
Depreciation and amortization......................   31.4      37.3     24.9
                                                     -----    ------    -----
Total operating expenses...........................  190.7     201.0    124.8
                                                     -----    ------    -----
Operating loss.....................................  (90.7)   (101.0)   (24.8)
Other Income (expense):
Interest expense...................................  (20.2)    (31.2)   (42.7)
Interest income....................................    3.5      11.2     10.7
Other expenses, net................................   (3.2)     (2.0)    (6.4)
Gain on sale of Travel Channel and television
  stations.........................................   23.9      38.4       --
Equity in loss of unconsolidated investment........   (0.9)     (9.9)    (2.8)
                                                     -----    ------    -----
Loss from continuing operations before income
  taxes............................................  (87.6)    (94.5)   (66.0)
Income tax benefit.................................   23.0      27.8     24.7
                                                     -----    ------    -----
Loss from continuing operations....................  (64.6)    (66.7)   (41.3)
                                                     =====    ======    =====
</TABLE>

  Years Ended December 31, 1999 and 1998

     Consolidated revenues for 1999 increased 85% (or $114.2 million) to $248.4
million from $134.2 million for 1998. This increase was primarily due to
increased advertising revenues as a result of greater distribution of the
Company's programming and the first full year of PAX TV operations since its
launch on August 31, 1998.

     Expenses for 1999 increased 76% (or $203.9 million) to $473.6 million. The
largest increase in expense relates to the second quarter programming rights
adjustment to net realizable value of $70.5 million, reflecting a decrease in
programming value due to lower anticipated future usage, ratings and related
revenues for these programs. Other significant expense increases included
programming rights amortization of $60.4 million, reflecting twelve months usage
during 1999 versus four months in 1998, selling, general and administrative

                                       26
<PAGE>   29

costs of $33.8 million which have risen due to the launch of PAX TV and
increased sales commissions which rise in proportion to revenues, increased
stock-based compensation of $6.4 million and higher depreciation and
amortization of $27.9 million.

     The Company has issued options to purchase shares of Class A Common Stock
to certain members of management and employees pursuant to its stock
compensation plans. As of December 31, 1999, there were 8,891,061 options
outstanding under these plans and, in addition to these options, the Company has
granted options to purchase 3,100,000 shares of Class A Common Stock to members
of senior management and others as discussed in Note 16 of the Consolidated
Financial Statements. Further, the Company recognized total stock based
compensation expense, including amounts recorded in income (loss) from
discontinued operations, of approximately $16.8 million, $9.8 million and $6.5
million in 1999, 1998 and 1997, respectively, and expects that approximately $20
million of compensation expense will be recognized over the remaining vesting
period of the outstanding options.

     In October 1999, the Company amended the terms of substantially all of its
outstanding employee stock options to provide for certain accelerated vesting of
the options in the event of termination of employment with the Company as a
result of the consolidation of Company operations or functions with those of NBC
or within six months preceding or three years following a change in control of
the Company. Were such events to occur, the Company could be required to
recognize stock-based compensation expense at earlier dates or in greater
amounts than currently expected.

     Interest expense for 1999 increased 20% to $50.3 million, due to a greater
level of senior debt and higher rates throughout the period as well as the
consolidation of DP Media interest expense for the fourth quarter. At December
31, 1999, total debt and senior subordinated notes were $388.4 million, compared
with $374 million in the prior year.

     Interest income for 1999 decreased to $8.6 million or 43% less than the
same period in 1998, primarily due to lower levels of cash and cash equivalents
resulting from the use of the proceeds of the Radio Segment sale in 1997 and the
June 1998 preferred stock sales to fund acquisitions and operating requirements.

     Gain on sale of the Travel Channel and television stations reflects the
Company's sale of its interests in the Travel Channel, the transfer of the
Company's interest in KWOK and the sale of four television stations.

     Included in Other expense, net, is a loss of $4.5 million, the Company's
estimate of advances and costs related to the planned acquisition of a
Pittsburgh television station which were determined to be unrecoverable due to
the termination of the acquisition contract.

     Because the Series B Convertible Preferred Stock issued in conjunction with
the NBC transaction was issued with a conversion price per share that was less
than the closing price of the Class A Common Stock at the date of issuance, the
Company recognized a beneficial conversion feature in connection with the
issuance of the stock equal to the amount of the discount multiplied by the
number of shares into which the Series B Convertible Preferred Stock is
convertible. The full amount of the beneficial conversion feature, approximately
$65.5 million, has been reflected in the accompanying statement of operations as
a dividend during the third quarter and has been allocated to additional paid-in
capital in the accompanying balance sheet.

  Years Ended December 31, 1998 and 1997

     Consolidated revenues for 1998 increased 52% (or $45.8 million) to $134.2
million from $88.4 million for 1997. This increase was primarily due to
television station acquisitions, new time brokerage operations and the launch of
the PAX TV network. The PAX TV network revenues accounted for $22.8 million of
the increase. WPXN in New York, which has been operated by the Company since
June 30, 1997 (acquired in February 1998), accounted for $7.6 million of the
increase.

     Expenses for 1998 increased 144% (or $159.3 million) to $269.7 million. The
increase was due to higher operating expenses, such as programming and technical
costs of $12.7 million and program rights amortization of $31.4 million,
incurred in connection with the launch of PAX TV, increased selling, general and
administrative costs, such as commissions and bad debt provisions which rise in
proportion to revenues of

                                       27
<PAGE>   30

$11.5 million, increased promotion costs of $28.8 million to advertise the
launch of PAX TV, other selling, general and administrative costs of $50.9
million, which were higher primarily due to additional employees hired and
regional sales offices added, the majority of which were incurred in connection
with the launch of PAX TV and costs associated with operating new television
stations, increased stock based compensation of $7.0 million, and higher
depreciation and amortization, primarily related to assets acquired, of $28.0
million. Included in 1997 operating expenses was $9.7 million of compensation
associated with Radio segment asset sales.

     Interest expense for 1998 increased to $41.9 million or 11%, primarily due
to a greater level of senior debt throughout the period. At December 31, 1998,
total debt and senior subordinated notes were $374 million, compared with $350.8
million in the prior year.

     Interest income for 1998 increased to $15.0 million or 58%, primarily due
to higher levels of cash and cash equivalents and cash held by qualified
intermediary resulting from segment asset sales and the June 1998 preferred
stock sales.

     Gain on sale of television stations reflects the Company's sale of its
interests in stations WPXE, WNGM, and WOAC during 1998 for aggregate
consideration of $79.5 million. The Company realized a gain of approximately
$51.6 million on these station sales. Of the proceeds received, approximately
$17.6 million was used to exercise the Company's options to acquire WOAC and
WNGM.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's working capital at December 31, 1999 and December 31, 1998
was $237.9 million and $1.8 million, respectively, and the ratio of current
assets to current liabilities was 2.66:1 and 1.01:1 on such dates, respectively.
The increase in working capital is primarily due to the proceeds from the Series
B Convertible Preferred Stock sale in September 1999.

     Cash used in operating activities was $181.8, $150.6 and $76.0 million for
1999, 1998 and 1997, respectively. The increase in cash used primarily reflects
the increase in operating costs incurred in connection with the operation of PAX
TV and the related cable distribution rights and programming rights payments.
Cash used in investing activities of $160.5, $168.5 and $21.8 million for 1999,
1998 and 1997, respectively, primarily reflects the proceeds from the sale of
the Travel Channel and television stations, the cash investment of Radio segment
sale proceeds held by qualified intermediary in the prior year, the acquisitions
of and investments in broadcast properties and advances to DP Media under the DP
Media purchase agreement and purchases of equipment for acquired and existing
properties. Cash provided by financing activities of $418.1, $285.9 and $118.7
million in 1999, 1998 and 1997, respectively, primarily reflects the proceeds
from preferred stock sales and borrowings under the Credit Facility and the
Equipment Facility, net of repayments and loan origination costs incurred.
Non-cash activity relates to stock based compensation, stock issued for the
Travel Channel, KPXR, and WPXW acquisitions, a note payable incurred with the
WYPX acquisition and accretion of discount on the Notes, as well as dividends on
the Company's redeemable preferred stock, the beneficial conversion feature on
issuance of convertible preferred stock and stock issued for cable distribution
rights.

     Under the Company's amended and restated $122 million Senior Credit
Facility, which matures June 2002, the Company had approximately $8.2 million in
escrow as of December 31, 1999 to fund future interest payments. In March 2000,
the Senior Credit Facility was amended to extend the commencement date of
certain financial covenant compliance obligations to March 31, 2001 with
additional extensions through December 31, 2001 under certain conditions. In
exchange for this extension, the Company agreed to deposit in an escrow account
one year of interest and will deposit in escrow its December 31, 2000 principal
payment on September 30, 2000, and its March 31, 2001 principal payment on
December 31, 2000. Amounts placed in such escrow account will be applied by the
lenders against scheduled interest and principal payments when due under the
Senior Credit Facility.

     In August 1998, the Company entered into the $50 million Equipment
Facility, which matures the first business day of October 2003. In March 2000,
the Equipment Facility was amended to increase the maximum borrowings thereunder
to $65 million and extend the draw down period through December 31, 2000. In

                                       28
<PAGE>   31

addition, the commencement date of certain financial covenant compliance
obligations and initial scheduled principal payments have been extended to
December 31, 2001. In exchange for these amendments, the borrowing rates under
the Equipment Facility have been increased. All borrowings under the Equipment
Facility are secured by the equipment purchased with the proceeds drawn. At
December 31, 1999, the Company had borrowings of approximately $36 million
outstanding under the Equipment Facility. Subsequent to December 31, 1999, the
Company has borrowed an additional $623,200. The Company intends to use the
Equipment Facility to fund the majority of its capital expenditure needs through
December 2000.

     The Company has generated operating losses since the launch of PAX TV. The
Company is beginning to implement new network sales strategies in cooperation
with NBC and intends to enter into JSAs in markets where NBC and PAX TV both
have stations and to enter into JSAs with other broadcasters in additional
markets in order to increase revenue and reduce expenses. The Company is unable
to predict how quickly these JSAs may be implemented or the timing or magnitude
of their effects on the Company's operating results.

     The Company's primary capital requirements are for the funds required to
complete announced acquisitions of broadcasting properties, capital expenditures
on existing and acquired properties, syndicated programming rights payments,
cable carriage and promotion payments, interest and debt service payments on
indebtedness and the Company's working capital requirements. The Notes require
semi-annual interest payments at a fixed rate.

     As of December 31, 1999, the Company's programming contracts require
collective payments by the Company of approximately $295.1 million as follows
(in thousands):

<TABLE>
<CAPTION>
                                               OBLIGATIONS
                                                   FOR         PROGRAM
                                                 PROGRAM       RIGHTS
                                                 RIGHTS      COMMITMENTS    TOTAL
                                               -----------   -----------   --------
<S>                                            <C>           <C>           <C>
2000.........................................     82,907        15,210       98,117
2001.........................................     63,648        16,862       80,510
2002.........................................     43,768        20,142       63,910
2003.........................................      4,737        24,249       28,986
2004.........................................         --        15,627       15,627
2005.........................................         --         7,920        7,920
                                                --------      --------     --------
                                                $195,060      $100,010     $295,070
                                                ========      ========     ========
</TABLE>

     The Company has also committed to purchase at similar terms additional
future series episodes of its licensed programs should they be made available.

     As of December 31, 1999, obligations for cable distribution rights require
collective payments by the Company of approximately $23.8 million over such
periods as follows (in thousands):

<TABLE>
<S>                                                           <C>
2000........................................................  $14,712
2001........................................................    6,403
2002........................................................    2,120
2003........................................................      180
2004........................................................      180
Thereafter..................................................      180
                                                              -------
                                                              $23,775
Less: Amount representing interest..........................   (2,391)
                                                              -------
Present value of cable rights payable.......................  $21,384
                                                              =======
</TABLE>

     During 1999, the Company deferred certain obligations for cable
distribution rights payments by offering cable system operators the option of
taking their payments in common stock of the Company. In October 1999, one cable
system operator elected to acquire approximately 710,000 shares of common stock
in lieu of cash of approximately $5.5 million. In connection with this
transaction, the Company recorded an additional

                                       29
<PAGE>   32

$3 million of cable distribution rights for the excess of the market value of
the common stock at the time of issuance over the option exercise price.

     As of December 31, 1999, the Company had agreements to purchase significant
assets of, or to enter into time brokerage and financing arrangements with
respect to broadcast properties totaling $113.7 million, net of deposits and
advances and excluding proposed transactions with DP Media. The completion of
such acquisitions or investments in broadcast properties is subject to a variety
of factors and the satisfaction of various conditions, including the receipt of
regulatory approvals, and there can be no assurance that any of such investments
will be completed.

     The Company's liquidity is significantly affected by its operating
performance and commitments for programming, cable distribution and acquisitions
as described above, and by its current debt service and working capital
requirements. The Company is also subject to certain minimum liquidity
requirements under the terms of the Equipment Facility.

     In September 1999, the Company issued shares of Series B Convertible
Preferred Stock and common stock purchase warrants to NBC for gross proceeds of
$415 million. The Company believes that its available cash balances will provide
it with sufficient liquidity to fund its capital requirements through the year
2000.

     The FCC has mandated that each licensee of a full power broadcast TV
station, which was allotted a second digital television channel in addition to
the current analog channel, complete the build-out of its digital broadcast
service by May 2002. Despite the current uncertainty that exists in the
broadcasting industry with respect to standards for digital broadcast services,
planned formats and usage, it is the Company's intention to comply with the
FCC's timing requirements for the broadcast of digital television. The Company
has already commenced migration to digital broadcasting in certain of its
markets and will continue to do so throughout its required time period. Due to
such uncertainty with respect to standards, formats and usage, however, the
Company cannot currently predict with reasonable certainty the amount it will
likely have to spend in aggregate to complete the digital conversion of its
stations, but does anticipate spending at least $70 million. It is likely that
the capital necessary to complete the digital conversion will come from cash on
hand as well as the monetization of certain assets and the potential incurrence
of additional indebtedness.

YEAR 2000 CONSIDERATIONS

     The "Year 2000 issue" was the result of computer programs that were written
using two digits rather than four digits to identify the applicable year. As of
December 31, 1999, however, all of the Company's critical systems were Year 2000
compliant and functioned properly. The Company experienced no disruption to
business from either internal or external Year 2000 issues.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA

     The response to this item is submitted in a separate section of this
report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

                                       30
<PAGE>   33

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information required by this item regarding directors and officers is
incorporated by reference from the definitive Proxy Statement being filed by the
Company for the Annual Meeting of Stockholders to be held on May 1, 2000.

ITEM 11. EXECUTIVE COMPENSATION

     Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held on May 1, 2000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held on May 1, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held on May 1, 2000.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) The following documents are filed as part of the report:

          1. The financial statements filed as part of this report are listed
     separately in the Index to Consolidated Financial Statements and Financial
     Statement Schedule on page F-1 of this report.

          2. The Financial Statement Schedule filed as part of this report is
     listed separately in the Index to Consolidated Financial Statements and
     Financial Statement Schedule on page F-1 of this report.

          3. For Exhibits see Item 14(c), below. Each management contract or
     compensatory plan or arrangement required to be filed as an exhibit hereto
     is listed in Exhibits Nos. 10.27, 10.28, 10.157, 10.199, 10.202, 10.205,
     10.207, and 10.208 of Item 14(c) below.

     (b) Reports on Form 8-K.

         None.

     (c) List of Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                           DESCRIPTION OF EXHIBITS
-------                           -----------------------
<C>        <C>  <S>
 3.1.1      --  Certificate of Incorporation of the Company(2)
 3.1.2      --  Certificate of Designations of the Company's Junior
                Cumulative Compounding Redeemable Preferred Stock(2)
 3.1.4      --  Certificate of Designations of the Company's 12 1/2%
                Cumulative Exchangeable Preferred Stock(5)
 3.1.6      --  Certificate of Designation of the Company's 9 3/4% Series A
                Convertible Preferred Stock(14)
 3.1.7      --  Certificate of Designation of the Company's 13 1/4%
                Cumulative Junior Exchangeable Preferred Stock(14)
 3.1.8      --  Certificate of Designation of the Company's 8% Series B
                Convertible Exchangeable Preferred Stock (19)
</TABLE>

                                       31
<PAGE>   34

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                           DESCRIPTION OF EXHIBITS
-------                           -----------------------
<C>        <C>  <S>
 3.2        --  Bylaws of the Company(4)
 4.1        --  Indenture dated as of September 28, 1995, by and between the
                Company, the guarantors named therein and The Bank of New
                York, as Trustee, with respect to the Senior Subordinated
                Notes(3)
 4.2        --  Indenture dated as of October 4, 1996, by and between the
                Company, the Guarantors named therein and the Bank of New
                York, as Trustee, with respect to the Exchange Debentures(5)
 4.3        --  Credit Agreement, dated as of December 19, 1995, among PCC,
                the Lenders named therein, and Union Bank, as Agent(3)
 4.3.1      --  Amended and Restated Credit Agreement, dated November 19,
                1996, among Paxson Communications Corporation, the Lenders
                named therein and Union Bank of California, N.A.,as the
                Agent(8)
 4.3.2      --  Second amendment, dated May 2, 1997, with respect to the
                Amended and Restated Credit Agreement, dated as of November
                19, 1996, among Paxson Communications Corporation, the
                Lenders named therein and Union Bank of California, N.A., as
                Agent(9)
 4.3.3      --  Third amendment, dated May 30, 1997, with respect to the
                Amended and Restated Credit Agreement, dated as of November
                19, 1996, among Paxson Communications Corporation, the
                Lenders named therein and Union Bank of California, N.A., as
                Agent(10)
 4.3.4      --  Fourth amendment, dated September 25, 1997, with respect to
                the Amended and Restated Credit Agreement, dated as of
                November 19, 1996, among Paxson Communications Corporation,
                the Lenders named therein and Union Bank of California,
                N.A., as Agent(11)
 4.3.5      --  Credit agreement, dated July 11, 1997, among Travel Channel
                Acquisition Corporation, the several Lenders from Time to
                Time Parties Hereto and Union Bank of California, N.A., as
                the Agent(11)
 4.3.6      --  Fifth Amendment, dated as of October 31, 1997, to the
                Amended and Restated Credit Agreement, dated as of November
                19, 1996, among Paxson Communications Corporation, the
                lenders from time to time party thereto and Union Bank of
                California, N.A., as Agent(12)
 4.3.7      --  Sixth Amendment, dated March 11, 1998, with respect to the
                Amended and Restated Credit Agreement, dated as of November
                19, 1996, among Paxson Communications Corporation, the
                Lenders from time to time party thereto and Union Bank of
                California, N.A., as Agent(12)
 4.4        --  Investment Agreement, dated as of September 15, 1999, by and
                between Paxson Communications Corporation and National
                Broadcasting Company, Inc.(19)
 4.4.1      --  Stockholder Agreement, dated as of September 15, 1999, among
                Paxson Communications Corporation, National Broadcasting
                Company, Inc., Lowell W. Paxson, Second Crystal Diamond
                Limited Partnership and Paxson Enterprises, Inc.(19) 4.4.2
 4.4.3      --  Class A Common Stock Purchase Warrant, dated September 15,
                1999, with respect to up to 18,966,620 shares of Class A
                Common Stock(19)
 4.4.5      --  Form of Indenture with respect to the Company's 8% Exchange
                Debentures due 2009(19)
 4.4.6      --  Registration Rights Agreement, dated September 15, 1999,
                between Paxson Communications Corporation and National
                Broadcasting Company, Inc.(19)
 4.5        --  Indenture dated as of June 10, 1998, by and between the
                Company, the Guarantors named therein and the Bank of New
                York, as Trustee, with respect to the New Exchange
                Debentures(14)
 9.1        --  Amended and Restated Stockholders Agreement, dated as of
                December 22, 1994, by and among the Company and certain
                stockholders thereof(2)
 9.2        --  Agreement, dated March 26, 1996, amending the Amended and
                Restated Stockholders Agreement, dated as of December 22,
                1994, by and among the Company and certain Stockholders
                thereof and certain related agreements(4)
</TABLE>

                                       32
<PAGE>   35

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                           DESCRIPTION OF EXHIBITS
-------                           -----------------------
<C>        <C>  <S>
10.1        --  Securities Purchase Agreement, dated as of September 22,
                1995, by and among the Company, the Guarantors named therein
                and the Initial Purchasers named therein(3)
10.3        --  Stock Purchase Agreement, dated as of December 22, 1994, by
                and among the Company and certain purchasers of the Company
                securities(2)
10.4        --  Amended and Restated Stockholders Agreement, dated as of
                December 22, 1994, by and among the Company and certain
                stockholders thereof (incorporated by reference to Exhibit
                9.1)(2)
10.4.1      --  Agreement, dated March 26, 1996, amending the Amended and
                Restated Stockholders Agreement, by and among the Company
                and certain stockholders thereof and certain related
                agreements (incorporated by reference to Exhibit 9.2)(4)
10.5        --  Exchange and Consent Agreement, dated as of December 22,
                1994, by and among the Company and certain stockholders
                thereof(2)
10.27       --  Paxson Communications Corp. Profit Sharing Plan(1)
10.28       --  Paxson Communications Corp. Stock Incentive Plan(1)
10.54       --  Indenture, dated as of September 28, 1995, among the
                Company, the Guarantors named therein and The Bank of New
                York, as Trustee with respect to the Senior Subordinated
                Notes (incorporated by reference to Exhibit 4.1)(3)
10.55       --  Original Note No. 1 for $115,000,000 CUSIP No. 704231-AA-7,
                with Guarantee of Guarantors listed therein(3)
10.56       --  Original Note No. 2 for $115,000,000, CUSIP No. 704231-AA-7,
                with Guarantee of Guarantors listed therein(4)
10.57       --  Form of New Note with Form of New Guarantee(3)
10.58       --  Registration Rights Agreement, dated as of September 28,
                1995, by and among the Company, the Guarantors named therein
                and each of the Purchasers referred to therein(3)
10.83       --  Lease Agreement, dated June 14, 1994, between Paxson
                Communications of Tampa-66, Inc. and The Christian Network,
                Inc. for lease of production and distribution facilities at
                WFCT-TV(4)
10.128      --  Purchase Agreement, dated July 31, 1996, by and among
                America 51, L.P., Paxson Communications of Phoenix-51, Inc.,
                and Hector Garcia Salvatierra for Television Station Channel
                51, Tolleson, Arizona(6)
10.134      --  Loan Agreement, dated September 6, 1996, by and between
                Ponce-Nicasio Broadcasting, A Limited Partnership and Paxson
                Communications of Sacramento-29, Inc. for Television Station
                KCMY-TV, Sacramento, California(6)
10.135      --  Option Agreement, dated September 6, 1996, by and between
                Ponce-Nicasio Broadcasting, A Limited Partnership and Paxson
                Communications of Sacramento for Television Station KCMY-
                TV, Sacramento, California(6)
10.148      --  Amended and Restated Promissory Note, dated April 16, 1996,
                by and between Ocean State Television, L. L. C. and Paxson
                Communications of Providence-69, Inc.(8)
10.151      --  Option Purchase Agreement, dated February 14, 1997, by and
                between Paxson Communications of Raleigh-Durham-47, Inc.,
                and D P. Media, Inc.(8)
10.157      --  Paxson Communications Corporation 1996 Stock Incentive
                Plan(7)
10.162      --  Assignment and acceptance agreement, dated April 18, 1997,
                among WQED Pittsburgh and Paxson Communications of
                Pittsburgh-40, Inc.(9)
10.183      --  Stock Purchase Agreement, dated September 9, 1997, by and
                among Channel 46 of Tucson, Inc., Paxson Communications of
                Tucson-46, Inc. and Sungilt Corporation, Inc.(11)
</TABLE>

                                       33
<PAGE>   36

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                           DESCRIPTION OF EXHIBITS
-------                           -----------------------
<C>        <C>  <S>
10.186      --  Option Agreement, dated November 14, 1997, by and between
                Paxson Communications Corporation and Flinn Broadcasting
                Corporation for Television station WCCL-TV, New Orleans,
                Louisiana(12)
10.187      --  Option Agreement, dated November 14, 1997, by and between
                Paxson Communications Corporation and Flinn Broadcasting
                Corporation for Television station WFBI-TV, Memphis,
                Tennessee(12)
10.193      --  Asset Exchange Agreement, dated January 26, 1998, by and
                among Paxson Communications of Chicago-38, Inc., Christian
                Communications of Chicagoland, Inc., and Paxson
                Communications Corporation(12)
10.193.1    --  Programming Agreement by and between Paxson Communications
                of Chicago-38, Inc. and Christian Communications of
                Chicagoland Inc.(12)
10.194      --  Asset Purchase Agreement, dated March 19, 1998, by and
                between Paxson Communications of Atlanta-14, Inc. and SKMD
                Broadcasting Partnership and USA Station Group of Maryland,
                Inc.(13)
10.196      --  Membership Purchase Agreement, dated January 14, 1998, by
                and among Dr. Joseph A. Zavaletta, South Texas Vision,
                L.L.C., Paxson Communications of San Antonio-26, Inc., and
                Paxson Communications Corporation for television station
                Channel 26, Uvalde, Texas(13)
10.199      --  Employment Agreement, dated as of June 11, 1998, by and
                between the Company and Dean M. Goodman(15)
10.202      --  Paxson Communications Corporation 1998 Stock Incentive
                Plan(14)
10.203      --  Interest Transfer Agreement, dated February 4, 1999, between
                Discovery Communications, Inc., Project Discovery, Inc., The
                Travel Channel, LLC, Discovery Ventures, LLC, Paxson
                Communications Corporation and Travel Channel Acquisition
                Corporation(16)
10.204      --  Asset Purchase Agreement by and among Paxson Communications
                of New York-43, Inc. and Paxson New York License, Inc. and
                Shop at Home, Inc. dated as of February 26, 1999(16)
10.205      --  Employment Agreement, dated April 14, 1999, by and between
                the Company and John F. DeLorenzo(17)
10.205.1    --  Employment Separation Agreement, dated November 24, 1999, by
                and between the Company and John F. DeLorenzo
10.206      --  Asset Purchase Agreement, dated April 23, 1999, by and among
                Paxson Communications Corporation, Paxson Communications
                License Company, LLC, Paxson Communications of Green Bay-14,
                Inc., Paxson Communications of Dayton-26, Inc., Paxson
                Dayton License, Inc., Paxson Communications of Decatur-23,
                Inc., and Paxson Decatur License, Inc., and ACME Television
                of Ohio, LLC, ACME Television Licenses of Ohio, LLC, ACME
                Television of Wisconsin, LLC, ACME Television Licenses of
                Wisconsin, LLC, ACME Television of Illinois, LLC, and ACME
                Television Licenses of Illinois, LLC for WDPX (TV),
                Springfield, OF, WPXG(TV), Suring, WI and WPXU(TV), Decatur,
                IL(17)
10.207      --  Employment Agreement, dated September 15, 1999, by and
                between the Company and Jeffrey Sagansky(18)
10.208      --  Employment Agreement, dated October 16,1999, by and between
                the Company and Lowell W. Paxson
10.209      --  Asset Purchase Agreement by and between Paxson
                Communications Corporation and DP Media dated November 22,
                1999.
10.210      --  Asset Purchase Agreement dated April 30, 1999, by and
                between DP Media of Boston, Inc. and Boston University
                Communications, Inc. for television stations WABU (TV),
                Boston, MA WZBU (TV), Vineyard Haven, MA WNBU (TV), Concord,
                NH and Low Power television station W67BA (TV) Dennis, MA
</TABLE>

                                       34
<PAGE>   37

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                           DESCRIPTION OF EXHIBITS
-------                           -----------------------
<C>        <C>  <S>
10.211      --  Employment Termination and Release Agreement, dated March
                11, 1999, by and between the Company and Arthur D. Tek
10.212      --  Employment Separation Agreement, dated September 2, 1999, by
                and between the Company and James B. Bocock
10.213      --  Employment Separation Agreement, dated June 22, 1999, by and
                between the Company and Jon Jay Hoker
10.214      --  Employment Agreement, dated June 1, 1999, by and between the
                Company and Seth A. Grossman
10.215      --  Employment Agreement, dated June 11, 1998, by and between
                the Company and Anthony L. Morrison
21          --  Subsidiaries of the Company
23          --  Consent of PricewaterhouseCoopers LLP
27          --  Financial Data Schedule (for SEC use only)
99.1        --  Tax Exemption Savings Agreement between the Company and The
                Christian Network, Inc., dated May 15, 1994(4)
</TABLE>

---------------

 (1) Filed with the Company's Registration Statement on Form S-4, filed
     September 26, 1994, Registration No. 33-84416 and incorporated herein by
     reference.
 (2) Filed with the Company's Annual Report on Form 10-K, dated March 31, 1995,
     and incorporated herein by reference.
 (3) Filed with the Company's Registration Statement on Form S-4, as amended,
     filed January 23, 1996, Registration No. 33-63765 and incorporated herein
     by reference.
 (4) Filed with the Company's Registration Statement on Form S-1, as amended,
     filed January 26, 1996, Registration No. 333-473 and incorporated herein by
     reference.
 (5) Filed with the Company's Registration Statement on Form S-3, as amended,
     filed August 15, 1996, Registration No. 333-10267 and incorporated herein
     by reference.
 (6) Filed with the Company's Quarterly Report on Form 10-Q, dated September 30,
     1996, and incorporated herein by reference.
 (7) Filed with the Company's Registration Statement on Form S-8, filed January
     22, 1997, Registration No. 333-20163 and incorporated herein by reference.
 (8) Filed with the Company's Annual Report on Form 10-K, dated December 31,
     1996, and incorporated herein by reference.
 (9) Filed with the Company's Quarterly Report on Form 10-Q, dated March 31,
     1997, and incorporated herein by reference.
(10) Filed with the Company's Quarterly Report on Form 10-Q, dated June 30,
     1997, and incorporated herein by reference.
(11) Filed with the Company's Quarterly Report on Form 10-Q, dated September 30,
     1997, and incorporated herein by reference.
(12) Filed with the Company's Annual Report on Form 10-K, dated December 31,
     1997, and incorporated herein by reference.
(13) Filed with the Company's Quarterly Report on Form 10-Q, dated March 31,
     1998 and incorporated herein by reference.
(14) Filed with the Company's Registration Statement on Form S-4, as amended,
     filed July 23, 1998, Registration No. 333-59641 and incorporated herein by
     reference.
(15) Filed with the Company's Quarterly Report on Form 10-Q, dated June 30,
     1998, and incorporated herein by reference.
(16) Filed with the Company's Annual Report on Form 10-K, dated December 31,
     1998, and incorporated herein by reference.

                                       35
<PAGE>   38

(17) Filed with the Company's Quarterly Report on Form 10-Q, dated June 30,
     1999, and incorporated herein by reference.
(18) Filed with the Company's Quarterly Report on Form 10-Q, dated September 30,
     1999, and incorporated herein by reference.
(19) Filed with the Company's Form 8-K dated September 15, 1999 and incorporated
     herein by reference.

      (d) The financial statement schedule filed as part of this report is
          listed separately in the Index to Financial statements beginning on
          page F-1 of this report.

                                       36
<PAGE>   39

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of West Palm
Beach, State of Florida, on March 13, 2000.

                                          PAXSON COMMUNICATIONS
                                          CORPORATION

                                          By:    /s/ LOWELL W. PAXSON
                                          --------------------------------------
                                                     Lowell W. Paxson
                                                  Chairman of the Board

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                     SIGNATURES                                     TITLE                    DATE
                     ----------                                     -----                    ----
<C>                                                    <S>                              <C>

                /s/ LOWELL W. PAXSON                   Chairman of the Board, Director  March 13, 2000
-----------------------------------------------------
                  Lowell W. Paxson

                /s/ JEFFREY SAGANSKY                   Chief Executive Officer,         March 13, 2000
-----------------------------------------------------    President and Director
                  Jeffrey Sagansky                       (Principal Executive Officer)

                /s/ SETH A. GROSSMAN                   Senior Vice President and Chief  March 13, 2000
-----------------------------------------------------    Financial Officer (Principal
                  Seth A. Grossman                       Financial Officer)

               /s/ KENNETH M. GAMACHE                  Senior Vice President and        March 13, 2000
-----------------------------------------------------    Controller (Principal
                 Kenneth M. Gamache                      Accounting Officer)

              /s/ WILLIAM E. SIMON, JR                 Vice Chairman, Director          March 13, 2000
-----------------------------------------------------
                William E. Simon, Jr.

                /s/ BRUCE L. BURNHAM                   Director                         March 13, 2000
-----------------------------------------------------
                  Bruce L. Burnham

               /s/ JAMES L. GREENWALD                  Director                         March 13, 2000
-----------------------------------------------------
                 James L. Greenwald

                 /s/ KEITH G. TURNER                   Director                         March 13, 2000
-----------------------------------------------------
                   Keith G. Turner

                 /s/ BRANDON BURGESS                   Director                         March 13, 2000
-----------------------------------------------------
                   Brandon Burgess

                  /s/ HAROLD BROOK                     Director                         March 13, 2000
-----------------------------------------------------
                    Harold Brook

                /s/ JOHN E. OXENDINE                   Director                         March 13, 2000
-----------------------------------------------------
                  John E. Oxendine
</TABLE>

                                       37
<PAGE>   40

                       PAXSON COMMUNICATIONS CORPORATION

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
                                                                 PAGE
                                                              ----------
<S>                                                           <C>
Report of Independent Certified Public Accountants..........     F-2
Consolidated Balance Sheets.................................     F-3
Consolidated Statements of Operations.......................     F-4
Consolidated Statement of Changes in Common Stockholders'
  Equity....................................................     F-5
Consolidated Statements of Cash Flows.......................  F-6 -- F-7
Notes to Consolidated Financial Statements..................  F-8 -- F-36
Financial Statement Schedule -- Schedule II-Valuation and
  Qualifying Accounts.......................................     F-37
</TABLE>

                                       F-1
<PAGE>   41

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
of Paxson Communications Corporation

     In our opinion, the consolidated financial statements referred to under
Items 14(a)(1) and (2) on page 31 and listed in the accompanying index on page
F-1 present fairly, in all material respects, the financial position of Paxson
Communications Corporation and its subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICEWATERHOUSECOOPERS LLP

Fort Lauderdale, Florida
March 13, 2000

                                       F-2
<PAGE>   42

                       PAXSON COMMUNICATIONS CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1999          1998
                                                              ----------    ----------
<S>                                                           <C>           <C>
                                        ASSETS
Current assets:
  Cash and cash equivalents.................................  $  125,189    $   49,440
  Short-term investments....................................     124,987            --
  Restricted cash and short-term investments................       8,158        18,096
  Accounts receivable, less allowance for doubtful accounts
    of $4,255 and $3,953, respectively......................      40,069        21,391
  Program rights............................................      79,686        81,867
  Prepaid expenses and other current assets.................       2,777         2,947
                                                              ----------    ----------
         Total current assets...............................     380,866       173,741
Property and equipment, net.................................     189,908       178,975
Intangible assets, net......................................     916,145       827,973
Program rights, net.........................................     130,016       214,331
Investments in broadcast properties.........................      40,347        74,683
Investment in cable network.................................          --        42,531
Other assets, net...........................................      32,805        30,552
                                                              ----------    ----------
         Total assets.......................................  $1,690,087    $1,542,786
                                                              ==========    ==========
 LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities..................  $   13,875    $   25,738
  Accrued interest..........................................       7,862         8,391
  Obligations for cable distribution rights.................      14,712        50,914
  Obligations for satellite distribution rights.............       2,947            --
  Obligations for program rights............................      82,907        84,820
  Income taxes payable......................................       2,010         1,542
  Current portion of long-term debt.........................      18,698           529
                                                              ----------    ----------
         Total current liabilities..........................     143,011       171,934
Deferred income taxes.......................................          --        58,109
Obligations for cable distribution rights, net of current
  portion...................................................       6,672        15,400
Obligations for satellite distribution rights, net of
  current portion...........................................      12,000            --
Obligations for program rights, net of current portion......     112,153       154,800
Long-term debt..............................................     141,029       145,164
Senior subordinated notes, net..............................     228,694       228,305
Mandatorily redeemable preferred stock......................     949,807       521,401
Commitments and contingencies (Note 21).....................          --            --
Class A common stock, $0.001 par value; one vote per share;
  150,000,000 shares authorized, 54,577,784 and 52,608,765
  shares issued and outstanding.............................          55            53
Class B common stock, $0.001 par value; ten votes per share;
  35,000,000 shares authorized and 8,311,639 shares issued
  and outstanding...........................................           8             8
Common stock warrants and call option.......................      68,245         1,582
Stock subscription notes receivable.........................      (1,270)       (2,813)
Additional paid-in capital..................................     417,652       318,935
Deferred option plan compensation...........................     (20,026)      (16,728)
Accumulated deficit.........................................    (367,943)      (53,364)
                                                              ----------    ----------
         Total liabilities, mandatorily redeemable preferred
           stock and common stockholders' equity............  $1,690,087    $1,542,786
                                                              ==========    ==========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       F-3
<PAGE>   43

                       PAXSON COMMUNICATIONS CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                             FOR THE YEARS ENDED DECEMBER 31,
                                                          ---------------------------------------
                                                             1999          1998          1997
                                                          -----------   -----------   -----------
<S>                                                       <C>           <C>           <C>
Revenues................................................  $   248,362   $   134,196   $    88,421
                                                          -----------   -----------   -----------
Expenses:
     Operating..........................................      124,938        58,139        13,993
     Selling, general and administrative................      169,245       135,467        44,288
     Time brokerage and affiliation fees................       14,257        15,699        16,961
     Stock-based compensation...........................       16,814        10,413         3,370
     Compensation associated with Paxson Radio asset
       sales............................................           --            --         9,700
     Adjustment of programming to net realizable
       value............................................       70,499            --            --
     Depreciation and amortization......................       77,860        50,009        22,044
                                                          -----------   -----------   -----------
                                                              473,613       269,727       110,356
                                                          -----------   -----------   -----------
Operating loss..........................................     (225,251)     (135,531)      (21,935)
Other income (expense):
     Interest expense...................................      (50,286)      (41,906)      (37,728)
     Interest income....................................        8,570        14,992         9,495
     Other expenses, net................................       (7,855)       (2,744)       (5,722)
     Gain on sale of Travel Channel and television
       stations.........................................       59,453        51,603            --
     Equity in loss of unconsolidated investment........       (2,260)      (13,273)       (2,493)
                                                          -----------   -----------   -----------
Loss from continuing operations before income tax
  benefit...............................................     (217,629)     (126,859)      (58,383)
Income tax benefit......................................       57,257        37,389        21,879
                                                          -----------   -----------   -----------
Loss from continuing operations.........................     (160,372)      (89,470)      (36,504)
                                                          -----------   -----------   -----------
Discontinued operations:
     Loss from discontinued operations, net of
       applicable income taxes..........................           --            --        (3,555)
     Gain on disposal of discontinued operations, net of
       applicable income taxes..........................           --         1,182       254,748
                                                          -----------   -----------   -----------
                                                                   --         1,182       251,193
                                                          -----------   -----------   -----------
Net (loss) income.......................................     (160,372)      (88,288)      214,689
Dividends and accretion on redeemable preferred stock...      (88,740)      (49,667)      (26,277)
Beneficial conversion feature on issuance of convertible
  preferred stock.......................................      (65,467)           --            --
                                                          -----------   -----------   -----------
Net (loss) income attributable to common stock..........  $  (314,579)  $  (137,955)  $   188,412
                                                          ===========   ===========   ===========
Basic and diluted (loss) earnings per share:
Loss from continuing operations.........................  $     (5.10)  $     (2.31)  $     (1.17)
Discontinued operations.................................           --          0.02          4.67
                                                          -----------   -----------   -----------
Net (loss) income.......................................  $     (5.10)  $     (2.29)  $      3.50
                                                          ===========   ===========   ===========
Weighted average shares outstanding.....................   61,737,576    60,360,384    53,808,472
                                                          ===========   ===========   ===========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       F-4
<PAGE>   44

                       PAXSON COMMUNICATIONS CORPORATION

        CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                COMMON
                                                                STOCK        STOCK                      DEFERRED       RETAINED
                                             COMMON STOCK      WARRANTS   SUBSCRIPTION   ADDITIONAL      OPTION        EARNINGS
                                           -----------------   AND CALL      NOTES        PAID-IN         PLAN       (ACCUMULATED
                                           CLASS A   CLASS B    OPTION     RECEIVABLE     CAPITAL     COMPENSATION     DEFICIT)
                                           -------   -------   --------   ------------   ----------   ------------   ------------
<S>                                        <C>       <C>       <C>        <C>            <C>          <C>            <C>
Balance at December 31, 1996.............    $40      $  8     $ 9,198      $(1,873)      $209,622      $ (6,398)     $(103,821)
Stock issued for acquisitions............      6                                            66,119
Exercise of common stock warrants........      4                (6,882)                      6,878
Deferred option plan compensation........                                                    2,263        (2,263)
Stock-based compensation.................                                                                  6,456
Stock options exercised..................      1                                               914
Increase in stock subscription notes
  receivable.............................                                      (940)
Dividends on redeemable preferred
  stock..................................                                                                               (24,943)
Accretion on redeemable preferred
  stock..................................                                                                                (1,334)
Net income...............................                                                                               214,689
                                             ---      ----     -------      -------       --------      --------      ---------
Balance at December 31, 1997.............     51         8       2,316       (2,813)       285,796        (2,205)        84,591
Stock issued for acquisitions............      1                                             5,249
Issuance of common stock warrants........                        1,582
Exercise of common stock warrants........      1                (2,316)                      2,315
Deferred option plan compensation........                                                   24,314       (24,314)
Stock-based compensation.................                                                                  9,791
Stock options exercised..................                                                    1,261
Dividends on redeemable and convertible
  preferred stock........................                                                                               (47,399)
Accretion on redeemable preferred
  stock..................................                                                                                (2,268)
Net loss.................................                                                                               (88,288)
                                             ---      ----     -------      -------       --------      --------      ---------
Balance at December 31, 1998.............     53         8       1,582       (2,813)       318,935       (16,728)       (53,364)
Stock issued for cable distribution
  rights.................................      1                                             8,478
Stock issued for acquisition.............                                                      500
Issuance of common stock warrants and
  Class B common stock call option.......                       66,663
Deferred option plan compensation........                                                   20,112       (20,112)
Repayment of stock subscription
  receivable                                                                  1,543
Stock-based compensation.................                                                                 16,814
Stock options exercised..................      1                                             4,160
Beneficial conversion feature on issuance
  of convertible preferred stock.........                                                   65,467                      (65,467)
Dividends on redeemable and convertible
  preferred stock........................                                                                               (79,005)
Accretion on redeemable preferred
  stock..................................                                                                                (9,735)
Net loss.................................                                                                              (160,372)
                                             ---      ----     -------      -------       --------      --------      ---------
Balance at December 31, 1999.............    $55      $  8     $68,245      $(1,270)      $417,652      $(20,026)     $(367,943)
                                             ===      ====     =======      =======       ========      ========      =========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       F-5
<PAGE>   45

                       PAXSON COMMUNICATIONS CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              FOR THE YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                                1999        1998       1997
                                                              ---------   --------   ---------
<S>                                                           <C>         <C>        <C>
Cash flows from operating activities:
  Net (loss) income.........................................  $(160,372)  $(88,288)  $ 214,689
  Adjustments to reconcile net (loss) income to net cash
    used in operating activities:
    Depreciation and amortization...........................     77,860     50,009      35,511
    Stock-based compensation................................     16,814     10,413       6,456
    Program rights amortization.............................     91,799     31,422         704
    Payments for cable distribution rights..................    (30,713)   (19,905)         --
    Program rights payments and deposits....................   (125,916)   (62,076)    (37,485)
    Provision for doubtful accounts.........................      6,164      4,214       2,011
    Adjustment of programming to net realizable value.......     70,499         --          --
    Deferred income tax benefit.............................    (58,109)   (42,143)    (21,879)
    Loss on sale or disposal of assets......................      4,483      3,852       3,794
    Gain on sale of Travel Channel and television
      stations..............................................    (59,453)   (51,603)         --
    Equity in loss of unconsolidated investment.............      2,260     13,273       2,493
    Gain on disposal of discontinued operations, net........         --     (1,182)   (254,748)
    Changes in assets and liabilities:
      Decrease (increase) in restricted cash and short-term
         investments........................................     17,638     (1,096)    (17,000)
      (Increase) decrease in accounts receivable............    (21,036)   (20,791)      5,173
      Decrease (increase) in prepaid expenses and other
         current assets.....................................        394       (188)     (1,632)
      Decrease (increase) in other assets...................      1,425      2,050      (5,353)
      (Decrease) increase in accounts payable and accrued
         liabilities........................................    (14,305)    20,002     (10,591)
      (Decrease) increase in accrued interest...............     (1,708)       (85)      1,816
      Increase in current income taxes payable..............        468      1,542          --
                                                              ---------   --------   ---------
         Net cash used in operating activities..............   (181,808)  (150,580)    (76,041)
                                                              ---------   --------   ---------
Cash flows from investing activities:
  Increase in short-term investments........................   (124,987)        --          --
  Acquisitions of broadcasting properties...................    (65,589)  (591,368)   (253,805)
  Decrease (increase) in investments in broadcast
    properties..............................................     10,780    (15,659)     (8,026)
  Decrease (increase) in deposits on broadcast properties...      4,214     29,399     (26,917)
  Collection of notes receivable from CAP Communications,
    Inc.....................................................     30,644         --          --
  Cash held by qualified intermediary.......................         --    418,950    (418,950)
  Purchases of property and equipment.......................    (34,609)   (82,922)    (44,474)
  Distribution received from (made to) unconsolidated
    investment..............................................         --      3,170      (5,342)
  Advance to DP Media, Inc..................................   (105,997)        --          --
  DP Media cash balance upon consolidation..................      4,310         --          --
  Proceeds from sales of discontinued operations............      1,600      1,000     721,978
  Proceeds from sales of Travel Channel and television
    stations................................................    119,126     68,944      13,764
                                                              ---------   --------   ---------
         Net cash used in investing activities..............   (160,508)  (168,486)    (21,772)
                                                              ---------   --------   ---------
Cash flows from financing activities:
  Proceeds from issuance of exchangeable and convertible
    preferred stock, net....................................    406,500    261,706          --
  Proceeds from issuance of long-term debt..................     15,812     23,411     120,000
  Repayments of long-term debt..............................     (9,780)      (513)     (1,270)
  Preferred stock dividends paid............................       (171)        --          --
  Proceeds from exercise of common stock options, net.......      4,161      1,261         915
  Repayment of (increase in) stock subscription notes
    receivable..............................................      1,543         --        (940)
                                                              ---------   --------   ---------
         Net cash provided by financing activities..........    418,065    285,865     118,705
                                                              ---------   --------   ---------
Increase (decrease) in cash and cash equivalents............     75,749    (33,201)     20,892
Cash and cash equivalents, beginning of year................     49,440     82,641      61,749
                                                              ---------   --------   ---------
Cash and cash equivalents, end of year......................  $ 125,189   $ 49,440   $  82,641
                                                              =========   ========   =========
</TABLE>

                                       F-6
<PAGE>   46
                       PAXSON COMMUNICATIONS CORPORATION

              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              FOR THE YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                                1999        1998       1997
                                                              ---------   --------   ---------
<S>                                                           <C>         <C>        <C>
Supplemental disclosures of cash flow information:
  Cash paid for interest....................................  $  44,076   $ 38,849   $  33,896
                                                              =========   ========   =========
  Cash paid for income taxes................................  $   1,346   $  2,239   $     975
                                                              =========   ========   =========
Non-cash operating, investing and financing activities:
  Accretion of discount on Senior Subordinated Notes........  $     389   $    346   $     304
                                                              =========   ========   =========
  Issuance of common stock in connection with
    acquisitions............................................  $     500   $  5,250   $  66,125
                                                              =========   ========   =========
  Beneficial conversion feature on issuance of convertible
    preferred stock.........................................  $  65,467   $     --   $      --
                                                              =========   ========   =========
  Dividends accrued on redeemable preferred stock...........  $  79,005   $ 47,399   $  24,943
                                                              =========   ========   =========
  Discount accretion on redeemable securities...............  $   9,735   $  2,268   $   1,334
                                                              =========   ========   =========
  Sale of broadcast property for note receivable............  $      --   $     --   $  15,000
                                                              =========   ========   =========
  Satellite distribution....................................  $  15,000   $     --   $      --
                                                              =========   ========   =========
  Sale of KWOK in exchange for WCPX.........................  $  30,000   $     --   $      --
                                                              =========   ========   =========
  Issuance of common stock in payment of obligations for
    cable distribution rights...............................  $   8,479   $     --   $      --
                                                              =========   ========   =========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       F-7
<PAGE>   47

                       PAXSON COMMUNICATIONS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

     Paxson Communications Corporation (the "Company"), a Delaware corporation,
was organized in December 1993. The Company owns and operates television
stations nationwide, and on August 31, 1998, launched PAX TV. PAX TV is the
brand name for the programming that the Company broadcasts through its owned,
operated and affiliated television stations, as well as certain cable system
affiliates.

     The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries and those of DP Media, Inc., as discussed
below. All intercompany balances and transactions have been eliminated.

     Two former business segments, Paxson Radio and Paxson Network-Affiliated
Television, have been classified as discontinued operations in the accompanying
consolidated statements of operations for all periods presented as a result of
the Company's sale of these operations during 1997 (see Note 4).

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.

SHORT-TERM INVESTMENTS

     Short-term investments consist of marketable government securities with
original maturities of one year or less. All short-term investments are
classified as trading and are recorded at fair value.

RESTRICTED CASH AND SHORT-TERM INVESTMENTS

     Restricted cash and short-term investments consist of cash and other liquid
securities held in an escrow account to be applied to the payment of interest
due in connection with the Company's senior credit facility (see Note 13).

PROPERTY AND EQUIPMENT

     Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated using the straight line method over their estimated useful lives
as follows (see Note 7):

<TABLE>
<S>                                                           <C>
Broadcasting towers and equipment...........................     6-13 years
Office furniture and equipment..............................     5-10 years
Buildings and building improvements.........................    15-40 years
Leasehold improvements......................................  Term of lease
Aircraft, vehicles and other................................        5 years
</TABLE>

     Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.

                                       F-8
<PAGE>   48
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTANGIBLE ASSETS

     Intangible assets are capitalized at cost and amortized using the straight
line method over their estimated useful lives as follows (see Note 8):

<TABLE>
<S>                                                           <C>
FCC licenses and goodwill...................................           25 years
Cable distribution rights...................................  Generally 7 years
Covenants not to compete....................................  Generally 3 years
Favorable lease and other contracts.........................      Contract term
</TABLE>

INVESTMENTS IN BROADCAST PROPERTIES

     Investments in broadcast properties represent the Company's financing of
television station acquisitions by third party licensees, purchase options or
other investments in entities owning television broadcasting stations or
construction permits. In connection with a number of these agreements, the
Company has obtained the right to provide programming for the related stations
pursuant to time brokerage agreements ("TBAs") and has options to purchase
certain of the related station assets and Federal Communications Commission
("FCC") licenses at various amounts and terms (see Notes 10 and 21).

PROGRAM RIGHTS

     Program rights are carried at the lower of unamortized cost or estimated
net realizable value. Program rights and the related liabilities are recorded at
the contractual amounts when the programming is available to air, and are
amortized over the licensing agreement term using the greater of the straight
line per run or straight line over the license term method. The estimated costs
of programming which will be amortized during the next year are included in
current assets; program rights obligations which will be paid within the next
year are included in current liabilities.

     During 1999, the Company wrote down certain of its program rights by a
total of approximately $70.5 million to its expected net realizable value. The
write down was a result of the Company's ongoing evaluation of its anticipated
future usage of its programming, and the anticipated future ratings and related
advertising revenues to be generated in connection with the Company's
programming, all relative to the carrying value of the related program rights.

CABLE DISTRIBUTION RIGHTS

     Cable distribution rights are amortized over seven years using the straight
line method. Obligations for cable distribution rights which will be paid within
the next year are included in current liabilities. The Company has agreements
under which it receives cable carriage of its PAX TV programming on certain
cable systems in markets not currently served by the Company's broadcast
television station group. The Company pays fees based on the number of cable
television subscribers reached and in certain instances provides local
advertising airtime during PAX TV programming. Cable distribution rights are
recorded at the present value of the Company's future obligation when the
Company receives affidavits of subscribers delivered.

SATELLITE DISTRIBUTION RIGHTS

     Satellite distribution rights are amortized over seven years using the
straight line method. An estimate of the advertising credit that will be
utilized within the next year is included in current liabilities. During January
1999, the Company entered into an agreement with a satellite television provider
for carriage on its system in exchange for advertising credits on PAX TV
equaling $15 million. The advertising credit is provided on an available time
basis at the then prevailing rates not to exceed $7.5 million per year.

                                       F-9
<PAGE>   49
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LONG-LIVED ASSETS

     The Company reviews long-lived assets, identifiable intangibles and
goodwill and reserves for impairment whenever events or changes in circumstances
indicate that, based on estimated undiscounted future cash flows, the carrying
amount of the assets may not be fully recoverable. It is possible that the
estimated life of certain long-lived assets will be reduced significantly in the
near term due to the anticipated industry migration from analog to digital
broadcasting.

REVENUE RECOGNITION

     Revenue is recognized as commercial spots are aired and air time is
provided.

TIME BROKERAGE AGREEMENTS

     The Company operates certain stations under TBAs whereby the Company has
agreed to provide the station with programming and sells and retains all
advertising revenue during such programming. The broadcast station licensee
retains responsibility for ultimate control of the station in accordance with
FCC policies. The Company pays a fixed fee to the station owner as well as
certain expenses of the station and performs other functions. The Company
currently operates 5 stations under TBAs which expire from 2000 through 2006.
The financial results of TBA operated stations are included in the Company's
statements of operations from the date of commencement of the TBA.

STOCK-BASED COMPENSATION

     The Company's employee stock option plans are accounted for using the
intrinsic value method. Stock-based compensation to non-employees is accounted
for using the fair market value method. The Company also provides disclosure of
certain pro forma information as if the Company's employee stock option plans
were accounted for using the fair market value method (see Note 16).

INCOME TAXES

     The Company records deferred income taxes using the liability method. Under
the liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement and income tax bases of the Company's assets and liabilities. An
allowance is recorded, based upon currently available information, when it is
more likely than not that any or all of a deferred tax asset will not be
realized. The provision for income taxes includes taxes currently payable, if
any, plus the net change during the year in deferred tax assets and liabilities
recorded by the Company.

PER SHARE DATA

     Basic and diluted loss per share from continuing operations was computed by
dividing the loss from continuing operations less dividends and accretion on
redeemable preferred stock by the weighted average number of common shares
outstanding during the period. Because of losses from continuing operations, the
effect of stock options and warrants is antidilutive. Accordingly, the Company's
presentation of diluted earnings per share is the same as that of basic earnings
per share.

     At December 31, 1999, 1998 and 1997, respectively, there were outstanding
11,991,061, 9,341,662 and 3,605,461 stock options; 32,427,627, 395,500 and
917,749 Class A and B common stock warrants; and at December 31, 1999 and 1998,
37,342,282 and 4,945,625 shares of Class A common stock were reserved for
possible future issuance in connection with the Series A and B Convertible
Preferred Stock issues outstanding. These securities, which could potentially
dilute earnings per share in the future, were not included in the computation of
diluted earnings per share, because to do so would have been antidilutive for
the periods presented.
                                      F-10
<PAGE>   50
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

USE OF ESTIMATES

     The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS

     Certain reclassifications have been made to prior year's financial
statements to conform with the 1999 presentation.

2. NBC TRANSACTION:

     Effective September 15, 1999 (the "Issue Date"), the Company entered into
an Investment Agreement (the "Investment Agreement") with National Broadcasting
Company, Inc. ("NBC"), pursuant to which NBC purchased shares of convertible
exchangeable preferred stock (the "Series B Convertible Preferred Stock"), and
common stock purchase warrants from the Company for an aggregate purchase price
of $415 million. Further, the Company's principal shareholder, Mr. Lowell W.
Paxson ("Mr. Paxson") and certain entities controlled by Mr. Paxson granted NBC
the right (the "Call Right") to purchase all (but not less than all) 8,311,639
shares of Class B Common Stock of the Company beneficially owned by Mr. Paxson.

     The common stock purchase warrants issued to NBC consist of a warrant to
purchase up to 13,065,507 shares of Class A Common Stock at an exercise price of
$12.60 per share ("Warrant A") and a warrant to purchase up to 18,966,620 shares
of Class A Common Stock ("Warrant B") at an exercise price equal to the average
of the closing sale prices of the Class A Common Stock for the 45 consecutive
trading days ending on the trading day immediately preceding the warrant
exercise date (provided that such price shall not be more than 17.5% higher or
17.5% lower than the six month trailing average closing sale price), subject to
a minimum exercise price during the first three years after the Issue Date of
$22.50 per share. The Warrants are exercisable for ten years from the Issue
Date, subject to certain conditions and limitations.

     The Call Right has a per share exercise price equal to the higher of (i)
the average of the closing sale prices of the Class A Common Stock for the 45
consecutive trading days ending on the trading day immediately preceding the
exercise of the call Right (provided that such price shall not be more than
17.5% higher or 17.5% lower than the six month trailing average closing sale
prices), and (ii) $22.50 for any exercise of the Call Right on or prior to the
third anniversary of the Issue Date and $20.00 for any exercise of the Call
Right thereafter. The owners of the shares which are subject to the Call Right
may not transfer such shares prior to the sixth anniversary of the Issue Date,
and may not convert such shares into any other securities of the Company
(including shares of Class A Common Stock). Exercise of the Call Right is
subject to compliance with applicable provisions of the Communications Act of
1934, as amended (the "Communications Act"), and the rules and regulations of
the FCC. The Call Right may not be exercised until Warrant A and Warrant B have
been exercised in full. The Call Right expires on the tenth anniversary of the
Issue Date, or prior thereto under certain circumstances.

     The Company has valued the common stock purchase warrants issued to NBC and
the Call Right at $66.7 million. The Company recorded this value along with
transaction costs as a reduction of the face value of the Series B Convertible
Preferred Stock and will accrete such discount as preferred stock dividends over
three years using the interest method. The Company has recorded approximately
$6.7 million of accretion expense related to the Series B Convertible Preferred
Stock through December 31, 1999 (see Note 17).

     The Series B Convertible Preferred Stock was issued with a conversion price
per share that was less than the closing price of the Class A Common Stock at
the Issue Date. As a result, the Company recognized a beneficial conversion
feature in connection with the issuance of the stock equal to the difference
between the
                                      F-11
<PAGE>   51
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

closing price and the conversion price multiplied by the number of shares
issuable upon conversion of the Series B Convertible Preferred Stock. The full
amount of the beneficial conversion feature, approximately $65.5 million, has
been reflected in the accompanying statement of operations as a preferred stock
dividend during 1999 and has been allocated to additional paid-in capital in the
accompanying balance sheet.

     The Investment Agreement requires the Company to obtain the consent of NBC
or its permitted transferee with respect to certain corporate actions, as set
forth in the Investment Agreement, and grants NBC certain rights with respect to
the network operations of the Company. NBC was also granted certain demand and
piggyback registration rights with respect to the shares of Class A Common Stock
issuable upon conversion of the Series B Convertible Preferred Stock (or
conversion of any exchange debentures issued in exchange therefor), exercise of
the Warrants or conversion of the Class B Common Stock subject to the Call
Right.

     NBC, the Company, Mr. Paxson and certain entities controlled by Mr. Paxson
also entered into a Stockholder Agreement, pursuant to which, if permitted by
the Communications Act and FCC rules and regulations, the Company may nominate
persons named by NBC for election to the Company's board of directors and Mr.
Paxson and his affiliates agreed to vote their shares of common stock in favor
of the election of such persons as directors of the Company. Should no NBC
nominee be serving as a member of the Company's board of directors, then NBC may
appoint two observers to attend all board meetings. Mr. Paxson and his
affiliates have also agreed to vote their shares of common stock in favor of
certain proposals expected to be submitted for a vote of the stockholders of the
Company at its next annual stockholders meeting prior to May 15, 2000. These
proposals will include amendments to the Company's certificate of incorporation
to provide for a classified board of directors serving three year terms and the
authorization of additional shares of non-voting common stock sufficient to
permit the Company to reserve such shares for issuance to NBC and its assignees
should they exercise their rights to convert shares of Series B Convertible
Preferred Stock and exercise the Warrants for such non-voting shares of common
stock in lieu of shares of Class A Common Stock. The Stockholder Agreement
further provides that the Company shall not, without the prior written consent
of NBC, enter into certain agreements or adopt certain plans, as set forth in
the Stockholder Agreement, which would be breached or violated upon the
acquisition of the Company securities by NBC or its affiliates or would
otherwise restrict or impede the ability of NBC or its affiliates to acquire
additional shares of capital stock of the Company.

3. DP MEDIA:

     During the third quarter of 1999, the Company advanced funds to a
subsidiary of DP Media, Inc., which, along with CAP Communications, Inc. ("CAP
Communications"), and RDP Communications, Inc. (collectively referred to herein
as "DP Media") are companies beneficially owned by family members of Mr. Paxson.
The Company has significant operating relationships with DP Media. The funds
advanced to DP Media were utilized to fund operating cash flow needs. As a
result of the Company's significant operating relationships with DP Media and
its funding of DP Media's operating cash flow needs, the assets and liabilities
of DP Media, together with their results of operations from the date of the
advance, have been included in the Company's consolidated financial statements
for the year ended December 31, 1999.

     In consolidating DP Media, at December 31, 1999, the Company recorded
current assets of approximately $4.3 million, property, plant and equipment of
approximately $22.2 million, intangible assets of approximately $72.2 million
and other assets of approximately $2.6 million reflecting negative minority
interest upon consolidation. Further, the Company has recorded current
liabilities of approximately $1.3 million.

     On November 21, 1999 the Company entered into an agreement to purchase the
eight television stations of DP Media, as well as DP Media's contractual right
to acquire a television station in the Boston, Massachusetts market. The Company
will also expend an additional $38 million to consummate DP Media's
                                      F-12
<PAGE>   52
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

acquisition of WBPX (formerly, WABU), and two full power satellite stations
serving the Boston, Massachusetts market, which is currently a PAX TV affiliate
and is being operated by DP Media under a time brokerage agreement with the
seller of the station. The television stations, eight of which have been airing
PAX TV Network programming under affiliation agreements, are in Battle Creek,
Michigan, Raleigh, North Carolina, Hartford, Connecticut, Boston, Massachusetts
(two stations), St. Louis, Missouri, Washington, D.C., Milwaukee, Wisconsin and
Indianapolis, Indiana markets. In conjunction with the asset purchase agreement,
on November 22, 1999, the Company advanced approximately $106 million to DP
Media, pursuant to a secured loan agreement, which loan was used to repay DP
Media's outstanding indebtedness to third party lenders. On March 3, 2000, the
Company and DP Media agreed in principal to convert their asset sale transaction
into a purchase by the Company of all of the capital stock of DP Media for a
purchase price of $7,500,000. Prior to such purchase, DP Media shall transfer
the assets of its station serving the Boston market ("WWDP" formerly WBPX) to a
newly formed company ("Newco"). The Company shall hold a non-voting interest in
Newco and shall have the right to require a sale of WWDP, which is not a PAX TV
Network affiliate, if the station is not sold within a specified period. The
Company shall receive 45% of the net proceeds from the sale of WWDP.

     In August 1999, CAP Communications repaid notes receivable to the Company
of $15.5 million and $15.0 million in connection with its acquisition of WWDP in
Boston and WHPX in Hartford. Both WWDP and WHPX had been recorded by the Company
as investments in broadcast properties and have been reflected in the
accompanying consolidated balance sheet as of December 31, 1999 at the Company's
approximate historical cost. (See Note 5 and Note 10.)

     During August 1998, the Company advanced $1.75 million to DP Media in
connection with its acquisition of WIPX in Bloomington, Indiana and was repaid
these amounts at the closing of the acquisition transaction.

     During 1997 and 1998, the Company sold DP Media five television stations
for aggregate consideration of approximately $30.3 million. The stations, which
serve the Grand Rapids, Raleigh, Washington, D.C., St. Louis and Milwaukee
markets became PAX TV affiliates upon their acquisition by DP Media. No
significant gain or loss was recorded in connection with these transactions.

     Under the affiliation agreements with DP Media, the Company pays DP Media a
fixed monthly affiliation fee and the affiliates retain a portion of the
advertising airtime during the Company's network programming. At December 31,
1998, the Company had advanced DP Media approximately $250,000 under the
affiliation and services agreements.

     The Company has also executed services and commercial representation
agreements with DP Media. Under these agreements, which were terminated as of
March 1, 2000, the Company was entitled to receive 90% of the excess of
advertising revenues over the affiliated station's operating costs and interest.
Further, the Company served as the network, national and regional sales
representative for the affiliated stations and received a commission of 15% for
such sales. During 1999, the Company recorded $404,000 of commissions under its
services and commercial representation agreements with DP Media. Effective as of
March 1, 2000, the affiliation agreements and services agreements between the
Company and DP Media for each market other than second Boston station, WWDP,
were replaced by time brokerage agreements which will remain in effect pending
the completion of the acquisition of DP Media by the Company.

     During 1997, the Company granted 33,000 fully vested non-qualified stock
options with a fair value of approximately $299,000 to the President and Vice
President of DP Media, members of Mr. Paxson's family, as consideration for past
services as former employees of the Company.

     During 1999, 1998 and 1997, the Company recorded time brokerage and
affiliation fees expense related to stations owned by DP Media and RDP of
approximately $13.6 million, $5.7 million and $1.6 million, respectively.
                                      F-13
<PAGE>   53
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Subsequent to the consolidation of DP Media during the third quarter of
1999, all intercompany transactions with DP Media were eliminated.

4. DISCONTINUED OPERATIONS:

     During 1997, the Company sold its Network-Affiliated Television segment as
well as substantially all of its Radio segment assets for aggregate
consideration of approximately $721 million. The Company realized a gain of
approximately $255 million from these sales, net of applicable income taxes,
brokerage and closing costs and other estimated costs. The Network-Affiliated
Television and Radio operations generated revenues of approximately $90.5
million for the year ended December 31, 1997. Included in operating expenses are
approximately $9.7 million of cash bonuses paid to certain members of the
Company's management in connection with their efforts in assimilating, operating
and arranging for the sale of the radio stations and related properties.

     The sale of certain Radio assets was structured as a tax deferred exchange,
permitting the Company to defer a substantial portion of the gain for tax
purposes to the extent the sales proceeds were reinvested in like kind
broadcasting properties before the end of the first quarter of 1998.

     The results of operations for the Radio and Network-Affiliated Television
segments, net of applicable income taxes, have been presented as discontinued
operations in the accompanying Consolidated Statements of Operations for all
periods presented.

     During 1998, the Company recognized an additional gain of $1.2 million on
the sale of its Radio segment, net of applicable income taxes of $2.2 million.
This gain reflects a reduction of $2.7 million of estimated costs attributable
to the segment disposal and the recovery of a $3 million loan by the billboard
operations of Radio, which was charged off against the gain in 1997. An
additional $2.3 million of income taxes were recorded within discontinued
operations in 1998 as a result of certain adjustments by the Internal Revenue
Service reducing the Company's net operating loss carryforwards relating to the
historical results of the Radio segment.

5. CERTAIN TRANSACTIONS WITH RELATED PARTIES:

     The Company has entered into certain operating and financing transactions
with related parties as described below.

THE CHRISTIAN NETWORK, INC.

     The Company has entered into several agreements with The Christian Network,
Inc. and certain of its for profit subsidiaries (individually and collectively
referred to herein as "CNI"). The Christian Network, Inc. is a section 501(c)(3)
not-for-profit corporation to which Mr. Paxson, the majority stockholder of the
Company, has been a substantial contributor and of which he was a member of the
Board of Stewards through 1993.

     On September 10, 1999, the Company and The Christian Network, Inc. ("CNI")
entered into a Master Agreement for overnight programming and use of a portion
of the Company's digital capacity in exchange for CNI's providing public
interest programming. The Master Agreement has a 50 year term 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 the Company's stations. Pursuant to
the Master Agreement, the Company broadcasts CNI overnight programming on each
of its stations seven days a week from 1:00AM to 6:00AM. When digital
programming begins, the Company will 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.

                                      F-14
<PAGE>   54
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Investments in Broadcast Properties.  At December 31, 1998 the Company had
approximately $15.5 million of advances to CNI relating to CNI's acquisition of
WWDP in Boston, a PAX TV affiliate at that time. These amounts were recorded as
investments in broadcast properties in the accompanying consolidated balance
sheets. In April 1998 DP Media contracted to acquire WWDP for $18 million,
including the assumption of CNI's obligations to the Company. In February of
1999 DP Media's acquisition of WWDP from CNI was completed.

     During 1997, the Company acquired television stations from CNI in the
Miami, Orlando and Tampa markets, for total consideration of approximately $14
million.

     CNI Agreement.  The Company and CNI entered into an agreement in May 1994
(the "CNI Agreement") under which the Company agreed that, if the tax exempt
status of CNI were jeopardized by virtue of its relationships with the Company
and its subsidiaries, the Company would take certain actions to ensure that
CNI's tax exempt status would no longer be so jeopardized. Such steps could
include, but not be limited to, rescission of one or more transactions or
payment of additional funds by the Company. If the Company's activities with CNI
are consistent with the terms governing their relationship, the Company believes
that it will not be required to take any actions under the CNI Agreement.
However, there can be no assurance that the Company will not be required to take
any actions under the CNI Agreement at a material cost to the Company.

     Worship Channel Studio.  CNI and the Company have contracted for the
Company to lease CNI's television production and distribution facility, the
Worship Channel Studio, for the purpose of producing television programming for
the Company's television network. During the years ended December 31, 1999, 1998
and 1997, the Company incurred rental charges in connection with this agreement
of $195,000, $252,000 and $231,000, respectively.

AIRCRAFT LEASE

     During 1997, the Company entered into a three year aircraft lease with a
company which is owned by Mr. Paxson. The lease is for a Boeing 727 aircraft
with monthly payments of approximately $64,000. In connection with such lease,
the Company incurred rental costs of approximately $763,000, $763,000 and
$382,000 during the years ended December 31, 1999, 1998 and 1997, respectively.
Additionally, the Company has recorded leasehold improvements of approximately
$310,000, net of accumulated amortization at December 31, 1999 in connection
with the lease.

BOARD OF DIRECTORS

     The Company has entered into transactions with certain members of its Board
of Directors.

     Vice Chairman of the Board of Directors.  In May 1998, the Board of
Directors of the Company elected a Vice Chairman of the Board. In connection
with this appointment, in June 1998, an affiliate of the Vice Chairman received
fully vested warrants to acquire 155,500 shares of Class A common stock at an
exercise price of $16 per share (see Note 17). The warrants were valued at
approximately $622,000, which was recorded as stock-based compensation at the
time the warrants were issued.

     In June 1998, an affiliate of the Vice Chairman also purchased $10 million
of the Company's mandatorily redeemable convertible preferred stock and warrants
to purchase 32,000 shares of Class A common stock at an exercise price of $16
per share. In connection with the Company's offering of such stock, the
affiliate of the Vice Chairman also received a consulting fee of $500,000 and an
underwriting fee of $550,000 for the placement of additional shares of
mandatorily redeemable convertible preferred stock. The Company recorded such
fees as issuance costs in connection with the sale of the preferred stock. In
March 2000 the Company reduced the exercise price of the 187,500 warrants held
by the affiliate of the Vice Chairman from $16.00 per

                                      F-15
<PAGE>   55
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

share to $12.60 per share. The estimated incremental fair value of such warrants
amounting to $139,125 will be recognized in the first quarter of year 2000.

     Stockholders Agreement.  Certain entities controlled by Mr. Paxson and
entities which are affiliates of a former director of the Company are parties to
a stockholders agreement whereby the parties to such agreement were granted
registration rights with respect to certain shares of common stock held by such
parties and the right of first refusal to acquire a pro rata share of any new
securities the Company may issue. Additionally, the stockholders agreement
grants certain cosale rights in the event that Mr. Paxson should sell more than
a predetermined percentage of his ownership interest in the Company.

6. ACQUISITION OF TELEVISION STATIONS AND THE TRAVEL CHANNEL

     The Company also owned a 30% interest in The Travel Channel, L.L.C. ("The
Travel Channel"), a cable television network joint venture with Discovery
Communications, Inc. In February 1999, the Company sold its 30% interest in The
Travel Channel for aggregate consideration of approximately $55 million and
realized a pre-tax gain of approximately $17 million. The results of operations
of The Travel Channel, L.L.C. have been included in the Company's December 31,
1999 and 1998 consolidated statement of operations using the equity method of
accounting through the date of sale.

     During 1999, the Company acquired the assets of five television stations
(including construction permits), for total consideration of approximately $65.6
million. During 1998, the Company acquired the assets of twenty six television
stations (including construction permits), for total consideration of
approximately $591.4 million. As of December 31, 1999, the Company broadcasts
PAX TV via a total of 116 owned, operated or affiliated stations.

     In February 1999, the Company completed its acquisition of WCPX in Chicago
by transferring its interest in KWOK in San Francisco as partial consideration
for WCPX. In connection with the transfer of ownership of KWOK, the Company
recognized a pre-tax gain of approximately $23.8 million.

     During 1999, the Company sold its interests in four stations for aggregate
consideration of approximately $61.0 million and realized pre-tax gain of
approximately $18.7 on these sales.

     During 1998, the Company sold its interests in three stations for aggregate
consideration of $79.5 million and realized a gain of approximately $51.6
million. Of the proceeds received, approximately $17.6 million was used to
exercise the Company's options to acquire WOAC and WNGM.

7. PROPERTY AND EQUIPMENT:

     Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Broadcasting towers and equipment...........................  $212,550   $184,482
Office furniture and equipment..............................    19,552     14,436
Buildings and leasehold improvements........................    20,982     13,395
Land and land improvements..................................     5,986      6,084
Aircraft, vehicles and other................................     3,832      3,674
                                                              --------   --------
                                                               262,902    222,071
Accumulated depreciation....................................   (72,994)   (43,096)
                                                              --------   --------
Property and equipment, net.................................  $189,908   $178,975
                                                              ========   ========
</TABLE>

     Depreciation expense aggregated approximately $28.4 million, $20.7 million
and $19.1 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

                                      F-16
<PAGE>   56
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In connection with its anticipated migration to digital broadcast
facilities, the Company is evaluating the remaining useful lives and residual
values of the equipment which would be affected by such migration. The Company
anticipates that its evaluation of useful lives will result in a decrease in the
estimated remaining useful lives of the affected assets and as a result it will
accelerate the depreciation of such assets. The Company will account for this
change in accounting estimate on a prospective basis.

8. INTANGIBLE ASSETS:

     Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 1999        1998
                                                              ----------   --------
<S>                                                           <C>          <C>
FCC licenses and goodwill...................................  $  892,674   $777,960
Cable distribution rights...................................      93,003     86,218
Satellite distribution rights...............................      15,004         --
Covenants not to compete....................................       5,574      5,924
Favorable lease and other contracts.........................         511        496
                                                              ----------   --------
                                                               1,006,766    870,598
Accumulated amortization....................................     (90,621)   (42,625)
                                                              ----------   --------
Intangible assets, net......................................  $  916,145   $827,973
                                                              ==========   ========
</TABLE>

     Amortization expense related to intangible assets aggregated $49.5 million,
$29.3 million and $15.2 million for the years ended December 31, 1999, 1998 and
1997, respectively.

9. OTHER ASSETS:

     Other assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               1999      1998
                                                              -------   -------
<S>                                                           <C>       <C>
Programming deposits........................................  $16,314   $10,759
Loan origination costs......................................   15,129    14,951
Escrow funds for station acquisitions.......................    2,917     6,775
Other.......................................................    6,454     3,731
                                                              -------   -------
                                                               40,814    36,216
Accumulated amortization....................................   (8,009)   (5,664)
                                                              -------   -------
                                                              $32,805   $30,552
                                                              =======   =======
</TABLE>

     Amortization expense related to other assets aggregated approximately
$5,000, $52,000 and $1.2 million for the years ended December 31, 1999, 1998 and
1997, respectively. Additionally, during the years ended December 31, 1999, 1998
and 1997, the Company recorded amortization of loan origination costs of $2.5
million, $2.1 million and $1.8 million, respectively, and classified such
amortization as interest expense.

                                      F-17
<PAGE>   57
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. INVESTMENTS IN BROADCAST PROPERTIES:

     Investments in broadcast properties consist of (in thousands):

<TABLE>
<CAPTION>
ENTITY                                         STATIONS               MARKETS            1999       1998
------                                         --------               -------           -------    -------
<S>                                         <C>              <C>                        <C>        <C>
Flinn Investments.........................  WPXL, WPXX       New Orleans, LA;           $16,075    $16,075
                                                             Memphis, TN
Ponce-Nicasio Broadcasting................  KSPX             Sacramento, CA               8,879      8,834
America 51, L.P...........................  KPPX             Phoenix, AZ                  5,698      5,510
B&C Communications........................  WOAM             Lexington, KY                4,284         --
CNI/DP Media (Note 5).....................  WBPX             Boston, MA                      --     15,573
South Texas Vision, L.L.C.................  KPXL             San Antonio, TX                 --      5,474
Cocola Broadcasting.......................  KWOK             San Francisco, CA               --      4,526
DP Media..................................  WHPX             Hartford, CT                    --      5,083
Other.....................................                                                5,411     13,608
                                                                                        -------    -------
                                                                                        $40,347    $74,683
                                                                                        =======    =======
</TABLE>

     Included in Other expenses, net is a loss of $4.5 million, reflecting the
Company's estimate of advances and costs related to the planned acquisition of a
Pittsburgh television station which were determined to be unrecoverable due to
the termination of the acquisition contract.

     During February 1997, the Company sold WHPX to Roberts Broadcasting in
exchange for a $15 million note receivable and entered into a five year time
brokerage agreement to operate the station. The Company deferred the gain on the
sale of $12.1 million. In April 1998, DP Media entered into a contract to
acquire WHPX from Roberts Broadcasting for $250,000 plus the assumption of the
note payable to the Company for $15 million. In the fourth quarter of 1998 the
Company reversed its sale accounting and netted the deferred gain with the note
receivable. At December 31, 1998, the Company's interest in WHPX was reflected
at its original cost within investments in broadcast properties. At December 31,
1999, the balance is reflected at its original cost in Property, Plant and
Equipment and Intangible Assets due to the consolidation of DP Media.

     During 1998, the Company paid approximately $10 million to buy out the
affiliation agreements with third parties of WPXL and WPXX, two stations which
the Company has contracted to purchase from Flinn Investments. These amounts, as
well as an escrow deposit and other acquisition costs in connection with the
purchase of WPXL and WPXX, have been included in investments in broadcast
properties as of December 31, 1999 and 1998.

11. PROGRAM RIGHTS:

     Program rights consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                1999        1998
                                                              ---------   --------
<S>                                                           <C>         <C>
Program rights..............................................  $ 400,737   $327,620
Accumulated amortization....................................   (191,035)   (31,422)
                                                              ---------   --------
                                                                209,702    296,198
Less current portion........................................    (79,686)   (81,867)
                                                              ---------   --------
Program rights, net.........................................  $ 130,016   $214,331
                                                              =========   ========
</TABLE>

     Program rights amortization expense aggregated $91.8 million and $31.4
million for the years ended December 31, 1999 and 1998, respectively. During
1999, the Company wrote down to net realizable value certain of its program
rights by a total of approximately $70.5 million.

                                      F-18
<PAGE>   58
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     As of December 31, 1999, the Company's programming contracts require
collective payments by the Company of approximately $295.1 million as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                       PROGRAM
                                                  OBLIGATIONS FOR      RIGHTS
                                                   PROGRAM RIGHTS    COMMITMENTS    TOTAL
                                                  ----------------   -----------   --------
<S>                                               <C>                <C>           <C>
2000............................................      $ 82,907        $ 15,210     $ 98,117
2001............................................        63,648          16,862       80,510
2002............................................        43,768          20,142       63,910
2003............................................         4,737          24,249       28,986
2004............................................            --          15,627       15,627
2005............................................            --           7,920        7,920
                                                      --------        --------     --------
                                                      $195,060        $100,010     $295,070
                                                      ========        ========     ========
</TABLE>

     The Company has also committed to purchase at similar terms additional
future episodes of these programs should they be made available.

12. OBLIGATIONS FOR CABLE DISTRIBUTION RIGHTS:

     As of December 31, 1999, obligations for cable distribution rights require
collective payments by the Company of approximately $23.8 million as follows (in
thousands):

<TABLE>
<S>                                                           <C>
2000........................................................  $14,712
2001........................................................    6,403
2002........................................................    2,120
2003........................................................      180
2004........................................................      180
Thereafter..................................................      180
                                                              -------
                                                               23,775
Less: Amount representing interest..........................   (2,391)
                                                              -------
Present value of obligations for cable distribution
  rights....................................................  $21,384
                                                              =======
</TABLE>

                                      F-19
<PAGE>   59
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. LONG-TERM DEBT:

     Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Senior Credit Facility, maturing June 30, 2002, interest at
  LIBOR plus 2.75% or base rate plus 1.75%, at the Company's
  option (9.2288% at December 31, 1999), quarterly principal
  payments commencing December 2000.........................  $122,000   $122,000
Equipment facility, maturing October 1, 2003, interest at
  the Index Rate, as defined, plus 2.0% per annum, LIBOR
  plus 3.0% per annum or the commercial paper rate plus 3.0%
  per annum, at the Company's option (8.55% at December 31,
  1999), quarterly principal payments commencing July 2000,
  secured by purchased assets...............................    36,003     21,411
Other.......................................................     1,724      2,282
                                                              --------   --------
                                                               159,727    145,693
Less current portion........................................   (18,698)      (529)
                                                              --------   --------
                                                              $141,029   $145,164
                                                              ========   ========
</TABLE>

     In May 1998, the Company and its lenders modified certain terms of its
Senior Credit Facility to reduce the aggregate facility amount to $122 million
and the margin to 1.75% over base rate, or 2.75% over LIBOR. Further, the
Company's obligation to maintain certain financial ratios required under the
Senior Credit Facility was deferred until March 31, 2000.

     In conjunction with the May 1998 amendment of the Company's Senior Credit
Facility, the Company placed approximately $22.4 million in an interest bearing
escrow account to prefund approximately eighteen months of interest under this
facility. These funds are used to make quarterly interest payments due under the
facility. As of December 31, 1999, approximately $8.2 million remains in escrow.

     In March 2000 the Company and its Lenders reached an agreement to amend its
Senior Credit Facility to extend the commencement of its quarterly covenant
ratio test dates to March 31, 2001 with additional extensions through December
31, 2001 under certain conditions. In exchange for this extension, the Company
agreed to increase the borrowing rates to 2.00% over base rate or 3.00% over
LIBOR and maintain one year of interest in escrow. Additionally, the Company
will place its December 31, 2000 principal payment in an escrow account on
September 30, 2000, and place its March 31, 2001 principal payment in an escrow
account on December 31, 2000.

     In August 1998, the Company entered into a $50 million equipment credit
facility (the "Equipment Facility"). Interest on outstanding borrowings is
payable monthly in arrears. Under the Equipment Facility, the Company pays a
commitment fee of 0.5% on the unused portion of the credit line. Subsequent to
December 31, 1999, the Company has borrowed an additional $623,000 under the
Equipment Facility.

     In March 2000, the Company and its lender amended the Equipment Facility to
increase the maximum borrowings available thereunder to $65 million and extend
the drawdown period through December 31, 2000. In addition, initial scheduled
principal payments have been extended to commence on April 1, 2001. In exchange
for these amendments, each of the borrowing rates under the Equipment Facility
has been increased by 0.25%.

     Under the amended Senior Credit Facility and the amended Equipment
Facility, the Company is required to maintain certain financial ratios
commencing March 31, 2001. In addition, these credit facilities contain a number
of covenants that restrict, among other things, the Company's ability to incur
additional

                                      F-20
<PAGE>   60
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

indebtedness, incur liens, make investments, pay dividends or make other
restricted payments, consummate certain asset sales, consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company.

     As discussed in Note 3, the Company advanced approximately $106 million to
DP Media, pursuant to a secured loan agreement, which was used to repay DP
Media's outstanding indebtedness to third party lenders. The Company believes
that such repayment of DP Media's debt, together with the agreement to acquire
DP Media's television station assets, resolves certain potential covenant
compliance matters created by the inclusion of the liabilities of DP Media in
the consolidated financial statements of the Company.

     Aggregate maturities of long-term debt at December 31, 1999 are as follows
(in thousands):

<TABLE>
        <S>                                                           <C>
        2000........................................................  $ 18,698
        2001........................................................    64,160
        2002........................................................    64,186
        2003........................................................    12,180
        2004........................................................        57
        Thereafter..................................................       446
                                                                      --------
                                                                      $159,727
                                                                      ========
</TABLE>

14. SENIOR SUBORDINATED NOTES:

     On September 28, 1995, the Company issued $230 million of senior
subordinated notes (the "Notes") at a discount, netting proceeds of
approximately $227.3 million to the Company. At December 31, 1999, the
unamortized discount was approximately $1.3 million ($1.7 million in 1998).
Interest on the Notes accrues at 11.625% to yield an effective rate per annum of
11.875%. Interest payments are payable semiannually on each April 1 and October
1. The principal balance is due at maturity on October 1, 2002.

     The Notes contain certain covenants which, among other things, restrict
additional indebtedness, payment of dividends, stock issuance of subsidiaries,
certain investments and transfers or sales of assets, and provide for the
repurchase of the Notes in the event of a change in control of the Company. The
Notes are general unsecured obligations of the Company subordinate in right of
payment to all existing and future senior indebtedness of the Company and senior
in right to all future subordinated indebtedness of the Company.

     The Notes are redeemable at the option of the Company on October 1, 2000
and 2001 at a redemption price of 102% and 100%, respectively, of the
outstanding principal amount, plus accrued interest.

15. INCOME TAXES:

     Income tax benefit (expense) included in the consolidated statements of
operations follows (in thousands):

<TABLE>
<CAPTION>
                                                           1999      1998       1997
                                                          -------   -------   ---------
<S>                                                       <C>       <C>       <C>
Continuing operations...................................  $57,257   $37,389   $  21,879
Discontinued operations.................................       --        --       1,337
From disposal of discontinued operations................       --    (4,505)   (118,963)
                                                          -------   -------   ---------
                                                          $57,257   $32,884   $ (95,747)
                                                          =======   =======   =========
</TABLE>

                                      F-21
<PAGE>   61
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The benefit (provision) for federal and state income taxes for the three
years ended December 31, 1999, 1998 and 1997 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                            1999      1998       1997
                                                           -------   -------   --------
<S>                                                        <C>       <C>       <C>
CURRENT
     Federal.............................................  $   975   $    --   $     --
     State...............................................   (1,827)   (4,754)        --
                                                           -------   -------   --------
                                                           $  (852)  $(4,754)  $     --
                                                           =======   =======   ========
DEFERRED
     Federal.............................................  $51,293   $33,676   $(85,669)
     State...............................................    6,816     3,962    (10,078)
                                                           -------   -------   --------
                                                           $58,109   $37,638   $(95,747)
                                                           =======   =======   ========
</TABLE>

     Deferred tax assets and deferred tax liabilities reflect the tax effect of
differences between financial statement carrying amounts and tax bases of assets
and liabilities as follows (in thousands):

<TABLE>
<CAPTION>
                                                                1999        1998
                                                              ---------   ---------
<S>                                                           <C>         <C>
Deferred tax assets:
     Net operating loss carryforwards.......................  $ 125,699   $  56,033
     Programming rights.....................................     18,667
     Deferred compensation..................................     13,199      10,645
     Other..................................................      3,637       4,241
                                                              ---------   ---------
                                                                161,202      70,919
     Deferred tax asset valuation allowance.................    (27,429)     (3,071)
                                                              ---------   ---------
                                                                133,773      67,848
Deferred tax liabilities:
     Basis difference on fixed and intangible assets........   (133,773)   (125,957)
                                                              ---------   ---------
          Net deferred tax liabilities......................  $      --   $ (58,109)
                                                              =========   =========
</TABLE>

     The reconciliation of income tax benefit attributable to continuing
operations, computed at the U.S. federal statutory tax rate, to the provision
for income taxes is as follows (in thousands):

<TABLE>
<CAPTION>
                                                           1999       1998       1997
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
  Tax benefit at U.S. federal statutory tax rate.......  $(76,170)  $(43,132)  $(19,850)
  State income tax benefit, net of federal tax.........    (6,426)      (320)    (2,335)
  Non deductible items.................................     1,198      2,364        306
  Valuation allowance..................................    24,358         --         --
  Other................................................      (217)     3,699         --
                                                         --------   --------   --------
  Benefit for income taxes.............................  $(57,257)  $(37,389)  $(21,879)
                                                         ========   ========   ========
</TABLE>

     During the year ended December 31, 1999, the Company recognized a deferred
tax benefit to the extent that the Company had offsetting deferred tax
liabilities. The Company has recorded a valuation allowance for its net deferred
tax assets at December 31, 1999, as it believes it is more likely than not that
it will be unable to utilize its deferred tax assets.

     The tax deferral of the gain upon the sale of Paxson Radio could be
contested by the Internal Revenue Service ("IRS"). Based on the advise of
counsel, management believes that, in the event of a challenge by the IRS of
these tax positions, it is more likely than not that the Company would prevail.
Should the IRS successfully challenge the Company on these matters, the Company
believes its NOLs are sufficient to offset any potential current tax
liabilities.

                                      F-22
<PAGE>   62
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company has net operating loss carryforwards for income tax purposes
subject to certain carryforward limitations of approximately $330.7 million at
December 31, 1999 expiring through 2019. A portion of the net operating losses,
amounting to approximately $7.9 million, are limited to annual utilization as a
result of a change in ownership occurring when the Company acquired the
subsidiary. The Company has recorded a valuation allowance in connection with
the deferred tax asset relating to the net operating losses subject to
limitation. Additionally, further limitations on the utilization of the
Company's net operating tax loss carryforwards could result in the event of
certain changes in the Company's ownership.

16. EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS:

SAVINGS AND PROFIT SHARING PLAN

     The Company has retirement savings and cafeteria plans pursuant to Sections
401(k) and 125 of the Internal Revenue Code which cover substantially all of the
Company's employees. Employer contributions to the retirement savings plan are
discretionary. For the plan years ended December 31, 1999, 1998 and 1997, the
Company made retirement savings contributions of approximately $0, $100,000 and
$68,000, respectively. Under the cafeteria plan, employees may elect to
participate in health, dental, life and disability insurance benefit plans
funded through employee payroll deductions.

DEFERRED COMPENSATION PLAN

     During 1996, the Company established a supplemental deferred compensation
plan for certain key executives. Under this program, participants may defer
certain amounts of their base compensation and receive a corresponding match by
the Company. Participants vest 100% in the company match after five years of
service. Upon retirement, participants shall be eligible to receive from the
Company certain amounts based on the initial deferral and the Company match.
Certain amounts are also due if a participant terminates employment (other than
by his voluntary action or discharge for cause) before attaining retirement age.
The participants in this plan are general creditors of the Company with respect
to the benefits under the plan. The expense associated with this program was
approximately $171,000, $140,000 and $131,000 for 1999, 1998 and 1997,
respectively. The cash surrender value of the insurance policies and the total
liability under this program at December 31, 1999 is approximately $510,000 and
$668,000, respectively.

LIFE INSURANCE

     The Company maintains a life insurance agreement for the benefit of Mr.
Paxson and his spouse (the "Insureds") whereby the Company contributes to the
payment of premiums on the policy. Upon the death of the survivor of the
Insureds, the Company will be repaid its premium advance. The policy owner will
retain all remaining proceeds. Premiums paid with respect to this policy were
approximately $176,000 in 1999, 1998 and 1997.

STOCK INCENTIVE PLANS

     The Company has established various stock incentive plans to provide
incentives to officers, employees and others who perform services for the
Company through awards of options and shares of restricted stock. Awards granted
under the plans are at the discretion of the Company's Compensation Committee
and may be in the form of either incentive or nonqualified stock options or
awards of restricted stock. Options granted under the plans generally vest over
a five year period and expire ten years after the date of grant. At December 31,
1999, 424,936 shares of Class A common stock were available for additional
awards under the plans.

                                      F-23
<PAGE>   63
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In addition to the options granted under its stock inventive plans, the
Company has granted nonqualified options to purchase 3,100,000 shares of Class A
common stock to members of senior management and others. See Employment
Agreements below.

     When options are granted to employees, a non-cash charge representing the
difference between the exercise price and the fair market value of the common
stock underlying the vested options on the date of grant is recorded as
stock-based compensation expense with the balance deferred and amortized over
the remaining vesting period. For the years ended December 31, 1999, 1998 and
1997, the Company recognized approximately $19.6 million, $9.8 million and $6.5
million, respectively, of stock-based compensation expense and expects to
recognize an additional expense of approximately $20.0 million over the next
five years as such outstanding options vest. These amounts include stock options
granted pursuant to the Company's stock incentive plans and other stock options
the Company has granted. In 1997 and 1996, the Company classified $3.1 million
and $943,000, respectively, of stock-based compensation within discontinued
operations.

     During 1999 the Company modified the terms of certain stock options in
connection with the termination of employment of the holders. Included in
stock-based compensation expense is $2.1 million reflecting the additional
intrinsic value of those awards at the date of modification.

     In October 1999, the Company amended the terms of substantially all of its
outstanding employee stock options to provide for certain accelerated vesting of
the options in the event of termination of employment with the Company as a
result of the consolidation of Company operations or functions with those of NBC
or within six months preceding or three years following a change in control of
the Company. Were such events to occur, the Company could be required to
recognize stock-based compensation expense at earlier dates or in greater
amounts than currently expected.

     A summary of the Company's 1994, 1996 and 1998 stock option plans as of
December 31, 1999 and 1998 and changes during the three years ending December
31, 1999 is presented below:

<TABLE>
<CAPTION>
                                             1999                    1998                   1997
                                     ---------------------   --------------------   --------------------
                                                  WEIGHTED               WEIGHTED               WEIGHTED
                                                  AVERAGE                AVERAGE                AVERAGE
                                     NUMBER OF    EXERCISE   NUMBER OF   EXERCISE   NUMBER OF   EXERCISE
                                      OPTIONS      PRICE      OPTIONS     PRICE      OPTIONS     PRICE
                                     ----------   --------   ---------   --------   ---------   --------
<S>                                  <C>          <C>        <C>         <C>        <C>         <C>
  Outstanding, beginning of year...   9,341,662    $5.86     3,605,461    $3.28     3,590,693    $3.41
  Granted..........................   2,364,000     7.25     6,279,500     7.23       348,018     2.07
  Forfeited........................  (1,612,500)    7.21      (228,000)    6.36       (65,800)    3.42
  Exercised........................  (1,202,101)    3.46      (315,299)    3.22      (267,450)    3.42
                                     ----------    -----     ---------    -----     ---------    -----
  Outstanding, end of year.........   8,891,061    $6.31     9,341,662    $5.86     3,605,461    $3.28
                                     ==========    =====     =========    =====     =========    =====
  Weighted average fair value of
     options granted during the
     year..........................                $6.90                  $9.14                  $8.39
                                                   =====                  =====                  =====
</TABLE>

     The majority of the Company's option grants have been at exercise prices of
$7.25 and $3.42, prices which have historically been below the fair market value
of the underlying common stock at the date of grant.

                                      F-24
<PAGE>   64
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information about employee and director
stock options outstanding and exercisable under the Company's stock incentive
plans at December 31, 1999:

<TABLE>
<CAPTION>
                                                                      WEIGHTED
                                                        NUMBER         AVERAGE         NUMBER
                                                    OUTSTANDING AT    REMAINING    EXERCISABLE AT
                                                     DECEMBER 31,    CONTRACTUAL    DECEMBER 31,
                 EXERCISE PRICES                         1999           LIFE            1999
                 ---------------                    --------------   -----------   --------------
<S>                                                 <C>              <C>           <C>
  $0.01...........................................      840,000           8                 --
  $1.00...........................................      360,000           8            360,000
  $3.42...........................................    2,184,561           5          2,033,461
  $7.25...........................................    5,506,500           9          1,288,925
                                                      ---------                      ---------
                                                      8,891,061                      3,682,386
                                                      =========                      =========
</TABLE>

FAIR VALUE DISCLOSURES

     Had compensation expense for the Company's stock option grants (including
options granted outside of the Company's stock incentive plans) been determined
using the fair value method the Company's net income (loss) and net income
(loss) per share would have been as follows (in thousands except per share
data):

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                       --------------------------------
                                                         1999        1998        1997
                                                       ---------   ---------   --------
<S>                                                    <C>         <C>         <C>
Net (loss) income:
  As reported........................................  $(314,579)  $(137,955)  $188,413
  Pro forma..........................................   (319,919)   (144,743)   187,298
Basic and diluted net (loss) income per share:
  Net (loss) income per share
     As reported.....................................  $   (5.10)  $   (2.29)  $   3.50
     Pro forma.......................................      (5.18)      (2.40)      3.48
</TABLE>

     The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model assuming a dividend yield of 0.0%,
expected volatility range of 50% to 73%, and risk free interest rates of 4.98%
to 6.9% and weighted average expected option terms of .5 to 7.5 years.

EMPLOYMENT AGREEMENTS

     Mr. Paxson entered into a new employment agreement with the Company
effective October 1999 for a three year term. The agreement provides that Mr.
Paxson's base salary will be $600,000 increasing 10% annually. In addition to
his base salary, Mr. Paxson may receive an annual bonus at the discretion of,
and in an amount set by, the Compensation Committee of the Board of Directors.

     Mr. Paxson also received options to purchase 1,000,000 shares of Class A
common stock, which vest at a rate of 333,333 shares per year (333,334 on the
third year) and expire in ten years. The exercise price for options vesting on
the first anniversary is $10. The exercise price for options vesting on
subsequent anniversaries will be the lower of a range between $14 and $18, or
the fair market value of the common stock on the prior anniversary date. The
Company recognized stock-based compensation expense related to this new grant of
approximately $135,000 for the year ended December 31, 1999.

     Mr. Sagansky, the Company's Chief Executive Officer, entered into a new
employment agreement effective September 1999 for a term of four years. The
agreement provides that Mr. Sagansky's base salary will be $600,000 increasing
10% annually. In addition to his base salary, Mr. Sagansky may receive an annual
bonus at the discretion of, and in an amount set by, the Compensation Committee
of the Board of Directors.

                                      F-25
<PAGE>   65
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In conjunction with the new employment agreement, the Compensation
Committee of the Board of Directors reduced the per share exercise price of the
CEO's existing 840,000 unvested stock options to $.01 and 360,000 vested stock
options to $1.00. The Company recognized stock based compensation of
approximately $8.2 million for the year ended December 31, 1999 related to these
options. In conjunction with the option repricing, the CEO's rights under his
prior employment agreement to receive royalties on all original PAX TV
television programming were cancelled.

     The CEO also received options to purchase an additional 2,000,000 shares of
Class A common stock, which vest at the rate of 500,000 shares per year and
expire in ten years. The exercise price for options vesting on the first
anniversary is $10. The exercise price for options vesting on subsequent
anniversaries will be the lower of a range between $14 and $21, or the fair
market value of the common stock on the prior anniversary date. The Company
recognized stock-based compensation expense related to this new grant of
approximately $738,000 for the year ended December 31, 1999.

     The options granted outside of the Company's stock incentive plans have a
weighted average remaining contractual life of 10 years. None of these options
are exercisable at December 31, 1999. The options granted to Mr. Paxson and Mr.
Sagansky which vest subsequent to the first year are being accounted for as
variable plans. Accordingly, although the Company records a periodic estimate of
the stock-based compensation expense under these variable plans, the ultimate
compensation expense for such options will not be determined until their vesting
dates.

NOTES RECEIVABLE FROM THE SALE OF STOCK

     During December 1996, the Company approved a program under which it
extended loans to certain members of management for the purchase of Company
common stock in the open market by those individuals. The loans are full
recourse promissory notes bearing interest at 5.75% per annum and are
collateralized by the shares of stock purchased with the loan proceeds. The
Company extended the maturity of all outstanding loans under this program until
March 31, 2001. During the year ended December 31, 1999, approximately $1.5
million of principal and interest was repaid to the Company under this program.
The outstanding principal balance on such loans was approximately $1.3 million
and $2.8 million at December 31, 1999 and 1998, respectively, and is reflected
as stock subscription notes receivable in the accompanying balance sheets.

                                      F-26
<PAGE>   66
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. REDEEMABLE PREFERRED STOCK:

     The following represents a summary of the changes in the Company's
mandatorily redeemable preferred stock during the three years ended December 31,
1999 (in thousands):

<TABLE>
<CAPTION>
                                                            JUNIOR
                                                         EXCHANGEABLE                  CONVERTIBLE
                              JUNIOR     EXCHANGEABLE     PREFERRED     CONVERTIBLE    EXCHANGEABLE
                             PREFERRED     PREFERRED        STOCK        PREFERRED      PREFERRED
                             STOCK 12%   STOCK 12 1/2%     13 3/4%      STOCK 9 3/4%     STOCK 8%      TOTAL
                             ---------   -------------   ------------   ------------   ------------   --------
<S>                          <C>         <C>             <C>            <C>            <C>            <C>
Balance at December 31,
  1996.....................   $36,781      $147,929                                                   $184,710
Accretion..................       666           668                                                      1,334
Accrual of cumulative
  dividends................     5,165        19,778                                                     24,943
                              -------      --------        --------       -------        --------     --------
Balance at December 31,
  1997.....................    42,612       168,375                                                    210,987
Issuances..................        --            --        $190,000       $70,747                      260,747
Accretion..................       681           670             646           271                        2,268
Accrual of cumulative
  dividends................     5,803        22,472          14,986         4,138                       47,399
                              -------      --------        --------       -------        --------     --------
Balance at December 31,
  1998.....................    49,096       191,517         205,632        75,156                      521,401
Issuances..................        --            --              --            --        $339,837      339,837
Accretion..................       697           673           1,164           486           6,715        9,735
Accrual of cumulative
  dividends................     6,519        25,371          29,430         8,002           9,683       79,005
Cash dividends.............      (171)           --              --            --              --         (171)
                              -------      --------        --------       -------        --------     --------
Balance at December 31,
  1999.....................   $56,141      $217,561        $236,226       $83,644        $356,235     $949,807
                              =======      ========        ========       =======        ========     ========
</TABLE>

CONVERTIBLE EXCHANGEABLE PREFERRED STOCK 8%

     Pursuant to the Investment Agreement, NBC acquired $415 million aggregate
liquidation preference of a new series of the Company's convertible exchangeable
preferred stock which accrues cumulative dividends from the Issue Date at an
annual rate of 8% and is convertible (subject to adjustment under the terms of
the Certificate of Designation relating to the Series B Convertible Preferred
Stock) into 31,896,032 shares of the Company's Class A Common Stock at an
initial conversion price of $13.01 per share, which increases at a rate equal to
the dividend rate.

     The Series B Convertible Preferred Stock is mandatorily redeemable in
September 2002 or annually thereafter through September 2009. The Series B
Convertible Preferred Stock also has redemption rights prior to September 2002
under certain circumstances related to the attribution to NBC of its investment
in the Company under rules established by the FCC. The Company's mandatory
redemption obligations in respect of the Series B Convertible Preferred Stock is
subject to the Company's compliance with the terms under its existing debt and
preferred stock agreements as well as the existence of funds on hand to
consummate such redemption.

     The Series B Convertible Preferred Stock is exchangeable, at the option of
the holder, subject to the Company's debt and preferred stock covenants limiting
additional indebtedness but in any event not later than January 1, 2007, into
convertible debentures of the Company ranking on a parity with the Company's
other subordinated indebtedness. Should NBC determine that the rules and
regulations of the FCC prohibit it from
                                      F-27
<PAGE>   67
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

holding shares of Class A Common Stock, NBC may convert the Series B Convertible
Preferred Stock held by it into an equal number of shares of non-voting common
stock of the Company, which non-voting common stock shall be immediately
convertible into Class A Common Stock upon transfer by NBC.

     Convertible exchangeable preferred stock dividends in arrears aggregated
approximately $9.7 million at December 31, 1999.

JUNIOR PREFERRED STOCK 12%

     At December 31, 1999 and 1998, the Company had 33,000 shares of $0.001 par
value Junior Preferred Stock authorized, issued and outstanding. Holders of the
Junior Preferred Stock are entitled to cumulative dividends at an annual rate of
12% prior to December 22, 2001, 13% from December 23, 2001 to December 22, 2002,
and 14% per annum thereafter. Semi-annual dividend payments commenced December
31, 1999.

     The Junior Preferred Stock is currently redeemable, at the option of the
Company, at par plus unpaid, deferred, and accrued dividends. The shares are
subject to mandatory redemption on December 22, 2003. During 1999, the Company
paid dividends of approximately $171,000.

     Junior Preferred Stock dividends in arrears aggregated approximately $26.1
million and $19.8 million at December 31, 1999 and 1998, respectively.

CUMULATIVE EXCHANGEABLE PREFERRED STOCK 12 1/2%

     At December 31, 1999, the Company has authorized 440,000 shares of $0.001
par value Cumulative Exchangeable Preferred Stock (the "Exchangeable Preferred
Stock") of which 217,649 and 192,797 were issued and outstanding as of December
31, 1999 and 1998, respectively. Holders of Exchangeable Preferred Stock are
entitled to cumulative dividends at an annual rate of 12.5% of the liquidation
preference, payable semi-annually in cash or additional shares beginning April
30, 1997.

     The Company is required to redeem all of the then outstanding Exchangeable
Preferred Stock on October 31, 2006 at a price equal to the aggregate
liquidation preference thereof plus accumulated and unpaid dividends to the date
of redemption. Additionally, the Exchangeable Preferred Stock is redeemable at
the option of the Company on or after October 31, 2001 at the redemption prices
set forth below (expressed as a percentage of liquidation preference):

<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
BEGINNING OCTOBER 31,
---------------------
<S>                                                           <C>
       2001.................................................  106.250%
       2002.................................................  104.167%
       2003.................................................  102.083%
       2004 and thereafter..................................  100.000%
</TABLE>

     Upon a change of control, the Company is required to offer to purchase the
Exchangeable Preferred Stock at a price equal to 101% of the liquidation
preference thereof plus accumulated and unpaid dividends.

     The Company may, provided it is not contractually prohibited from doing so,
exchange the outstanding Exchangeable Preferred Stock for 12.5% Exchange
Debentures due 2006. Additionally, the Company has agreed to exchange all
outstanding Exchangeable Preferred Stock for 12.5% Exchange Debentures within 60
days from the date on which the Company is no longer contractually prohibited
from effecting such exchange. The Exchange Debentures have redemption features
similar to those of the Exchangeable Preferred Stock.

                                      F-28
<PAGE>   68
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During 1999, 1998 and 1997, the Company paid dividends of approximately
$24.9 million, $22.0 million and $20.8 million, respectively, by the issuance of
additional shares of Exchangeable Preferred Stock. Accrued Exchangeable
Preferred Stock dividends since the last dividend payment date aggregated
approximately $4.5 million and $4.0 million at December 31, 1999 and 1998,
respectively.

JUNIOR EXCHANGEABLE PREFERRED STOCK 13 1/4%

     During 1998, the Company issued 20,000 shares of Cumulative Junior
Exchangeable Preferred Stock (the "Junior Preferred Stock") with an aggregate
$200 million liquidation preference for gross proceeds of an equivalent amount.
At December 31, 1999 and 1998, the Company has authorized 72,000 shares of
$0.001 par value Junior Preferred Stock of which 24,043 and 21,170 were issued
and outstanding, respectively. Holders of the Junior Preferred Stock are
entitled to cumulative dividends at an annual rate of 13 1/4%, payable semi-
annually in cash or additional shares beginning November 15, 1998 and
accumulating from the issue date. If dividends for any period ending after May
15, 2003 are paid in additional shares of Junior Preferred Stock, the dividend
rate will increase by 1% per annum for such dividend payment period.

     The Company is required to redeem all of the then outstanding Junior
Preferred Stock on November 15, 2006, at a price equal to the aggregate
liquidation preference thereof plus accumulated and unpaid dividends to the date
of redemption. The Junior Preferred Stock is redeemable at the Company's option
at any time on or after May 15, 2003, at the redemption prices set forth below
(expressed as a percentage of liquidation preference) plus accumulated and
unpaid dividends to the date of redemption:

<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
BEGINNING MAY 15,
-------------------
<S>                                                           <C>
     2003...................................................  106.625%
     2004...................................................  103.313%
     2005 and thereafter....................................  100.000%
</TABLE>

     Prior to May 15, 2001, the Company may use the proceeds of certain public
stock offerings or major asset sales to redeem up to an aggregate of 35% of the
shares of Junior Preferred Stock outstanding at 113.25% of the aggregate
liquidation preference of such shares, plus accumulated and unpaid dividends.
Upon a change of control, the Company is required to offer to purchase the
Junior Preferred Stock at a price equal to 101% of the liquidation preference
thereof plus accumulated and unpaid dividends.

     The Company may, provided it is not contractually prohibited from doing so,
exchange the outstanding Junior Preferred Stock on any dividend payment date for
13 1/4% Exchange Debentures due 2006. The Exchange Debentures have redemption
features similar to those of the Junior Preferred Stock.

     During 1999 and 1998, the Company paid dividends of approximately $28.9
million and $11.5 million, respectively, by the issuance of additional shares of
Junior Preferred Stock. Accrued Junior Preferred Stock dividends since the last
dividend payment date aggregated approximately $4.0 million and $3.5 million at
December 31, 1999 and 1998, respectively.

CONVERTIBLE PREFERRED STOCK 9 3/4%

     During 1998, the Company issued 7,500 shares of Series A Convertible
Preferred Stock ("Convertible Preferred Stock") with an aggregate liquidation
preference of $75 million, and warrants to purchase 240,000 shares of Class A
common stock. At December 31, 1999 and 1998, the Company had authorized 17,500
shares of $0.001 par value Convertible Preferred Stock of which 8,714 and 7,913
were issued and outstanding, respectively. Of the gross proceeds of $75 million,
approximately $960,000 was allocated to the value of the warrants, which are
exercisable at a price of $16 per share through June 2003. Holders of the
Convertible Preferred Stock are entitled to receive cumulative dividends at an
annual rate of 9 3/4%, payable quarterly beginning September 30, 1998 and
accumulating from the issue date. The Company may pay dividends either

                                      F-29
<PAGE>   69
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in cash, in additional shares of Convertible Preferred Stock, or (subject to an
increased dividend rate) by the issuance of shares of Class A common stock equal
in value to the amount of such dividends.

     During 1999 and 1998, the Company paid dividends of approximately $8.0
million and $4.1 million, respectively, by the issuance of additional shares of
Convertible Preferred Stock. At December 31, 1999 and 1998, there were no
accrued and unpaid dividends on the Convertible Preferred Stock.

     The Company is required to redeem the Convertible Preferred Stock on
December 31, 2006, at a price equal to the aggregate liquidation preference
thereof plus accumulated and unpaid dividends to the date of redemption. The
Convertible Preferred Stock is redeemable by the Company at any time on or after
June 30, 2003, at the redemption prices set forth below (expressed as a
percentage of liquidation value) plus accumulated and unpaid dividends to the
date of redemption:

<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
BEGINNING JUNE 30,
-------------------
<S>                                                           <C>
     2003...................................................  104.00%
     2004...................................................  102.00%
     2005 and thereafter....................................  100.00%
</TABLE>

     Upon a change of control, the Company is required to offer to purchase the
Convertible Preferred Stock at a price equal to the liquidation preference
thereof plus accumulated and unpaid dividends. The Convertible Preferred Stock
ranks junior to all other existing classes of preferred stock (including the
Junior Preferred Stock). The Convertible Preferred Stock contains restrictions,
primarily based on the trading price of the common stock, on the issuance of
additional preferred stock ranking senior to the Convertible Preferred Stock.

     Each share of Convertible Preferred Stock is convertible into shares of
Class A common stock at an initial conversion price of $16 per share, at any
time on or after June 30, 1999, or immediately in the event of a change in
control or major asset sale or at any time after the date as of which the
average of the common stock trading price for five consecutive trading days
equals or exceeds $25.00. If the Convertible Preferred Stock is called for
redemption, the conversion right will terminate at the close of business on the
date fixed for redemption.

     Holders of the Convertible Preferred Stock will have voting rights on all
matters submitted for a vote to the Company's common stockholders and will be
entitled to one vote for each share of Class A common stock into which their
Convertible Preferred Stock is convertible.

                                      F-30
<PAGE>   70
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REDEMPTION FEATURES OF PREFERRED STOCK

     The following table presents the redemption value of the five classes of
preferred stock outstanding at December 31, 1999 should the Company elect to
redeem the preferred stock in the indicated year, assuming no dividends are paid
prior to redemption, unless required (in thousands):

<TABLE>
<CAPTION>
                                                                       JUNIOR        CONVERTIBLE   CONVERTIBLE
                                   JUNIOR        EXCHANGEABLE       EXCHANGEABLE      PREFERRED    EXCHANGEABLE
                                 PREFERRED        PREFERRED          PREFERRED          STOCK       PREFERRED
                                STOCK 12%(1)   STOCK 12 1/2%(2)   STOCK 13 1/4%(3)    9 3/4%(4)    STOCK 8%(5)
                                ------------   ----------------   ----------------   -----------   ------------
<S>                             <C>            <C>                <C>                <C>           <C>
2000..........................    $59,102          $     --           $     --        $     --       $     --
2001..........................     59,102           300,495                 --              --             --
2002..........................     59,102           332,708                 --              --             --
2003..........................     59,102           326,182            407,905         133,228             --
2004..........................         --           319,659            395,340         143,880        582,383
</TABLE>

---------------

(1) Mandatorily redeemable on December 22, 2003; redeemable by the Company prior
    to that date.
(2) Mandatorily redeemable on October 31, 2006; redeemable by the Company on or
    after October 31, 2001. See previous discussion for earlier redemption
    features on up to 35% of the shares.
(3) Mandatorily redeemable on November 15, 2006; redeemable by the Company on or
    after May 15, 2003.
(4) Mandatorily redeemable on December 31, 2006; redeemable by the Company on or
    after June 30, 2003.
(5) Mandatorily redeemable in September 2002 and annually thereafter through
    September 2009, and prior to such dates under certain circumstances related
    to the attribution of NBC's investment in the Company under rules
    established by the FCC. The Company has the right to redeem the Series B
    Convertible Preferred Stock in whole or in part commencing in September 2004
    at the redemption value of such shares plus accrued and unpaid dividends.

COVENANTS UNDER PREFERRED STOCK AGREEMENTS

     The preferred stock contains certain covenants which, among other things,
restrict additional indebtedness, payment of dividends, transactions with
related parties, certain investments and transfers or sales of assets.

18. COMMON STOCK WARRANTS:

CLASS A AND B COMMON STOCK WARRANTS

     In connection with the NBC transaction as discussed elsewhere herein, NBC
also acquired a warrant to purchase up to 13,065,507 shares of Class A Common
stock at an exercise price of $12.60 per share ("Warrant A") and a warrant to
purchase up to 18,966,620 shares of Class A Common Stock ("Warrant B") at an
exercise price equal to the average of the closing sale prices of the Class A
Common Stock for the 45 consecutive trading days ending on the trading day
immediately preceding the warrant exercise date (provided that such price shall
not be more than 17.5% higher or 17.5% lower than the six month trailing average
closing sale price) subject to a minimum exercise price during the first three
years after the Issue Date of $22.50 per share. The Warrants are exercisable for
ten years from the Issue Date, subject to certain conditions and limitations.

     In connection with the Series A Convertible Preferred Stock sale in June
1998, the Company issued warrants to purchase 240,000 shares of Class A common
stock at an exercise price of $16. The warrants were valued at $960,000.

     In June 1998, the Company issued to an affiliate of a newly appointed
member of its Board of Directors five year warrants entitling the holder to
purchase 155,500 shares of Class A common stock at an exercise

                                      F-31
<PAGE>   71
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

price of $16.00 per share. The Company recorded $622,000 of stock-based
compensation expense in connection with this issuance. See Note 5.

CLASS C COMMON STOCK WARRANTS

     During 1996 and 1997, subsequent to a modification of their original terms,
4,853,628 Class C common stock purchase warrants were exercised for 4,853,220
shares of Class A common stock.

19. COMMON STOCK:

     The Company has authorized 12,500,000 shares of Class C common stock with a
par value of $0.001 per share. No shares of the Company's Class C common stock
were issued or outstanding at December 31, 1999, 1998 or 1997.

     Class A common stock and Class B common stock will vote as a single class
on all matters submitted to a vote of the stockholders, with each share of Class
A common stock entitled to one vote and each share of Class B common stock
entitled to ten votes; Class C common stock is non-voting. Each share of Class B
common stock is convertible, at the option of its holder, into one share of
Class A common stock at any time. Under certain circumstances, Class C common
stock may be converted, at the option of the holder, into Class A common stock.

20. FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The fair value estimates presented herein
are based on pertinent information available to management as of December 31,
1999. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date and current estimates of fair value may differ significantly from the
amounts presented herein. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it is
practicable to estimate such value:

     Cash and cash equivalents, short-term investments, restricted cash and
short-term investments, accounts receivable, accounts payable and accrued
expenses. The fair values approximate the carrying values due to their short
term nature.

     Investments in broadcast properties.  The fair value of investments in
broadcast properties is estimated based on recent market sale prices for
comparable stations and/or markets. The fair value approximates the carrying
value.

     Long-term debt and senior subordinated notes.  The fair value of the
Company's long-term debt is estimated based on current market rates and
instruments with the same risk and maturities. The fair value of the Company's
long-term debt approximates its carrying value. The fair market value of the
Company's senior subordinated notes is estimated based on year end quoted market
prices for such securities. At December 31, 1999, the estimated fair market
value of the Company's senior subordinated notes was approximately $239.2
million.

                                      F-32
<PAGE>   72
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Mandatorily redeemable securities.  The fair market value of the Company's
mandatorily redeemable preferred stock (excluding accrued dividends) is
estimated based on quoted market prices except for the Junior Preferred Stock
12% and the Convertible Exchangeable Preferred Stock 8% which are estimated at
the Company's carrying value as no quoted market prices are available for these
securities. The estimated fair market value of the Company's mandatorily
redeemable preferred stock is as follows (in thousands):

<TABLE>
<S>                                                           <C>
Junior Preferred 12%........................................  $   56,141
Exchangeable Preferred 12 1/2%..............................     222,003
Junior Exchangeable Preferred 13 1/4%.......................     245,840
Convertible Preferred 9 3/4%................................      93,022
Convertible Exchangeable Preferred 8%.......................     356,235
                                                              ----------
                                                              $  973,241
                                                              ==========
</TABLE>

21. COMMITMENTS AND CONTINGENCIES:

     The Company incurred total operating expenses of approximately $15.2
million, $10.8 million and $4.7 million for the years ended December 31, 1999,
1998 and 1997, respectively, under operating leases for broadcasting facilities
and equipment. Future minimum annual payments under these non-cancelable
operating leases and employment agreements, as of December 31, 1999, are as
follows (in thousands):

<TABLE>
<S>                                                           <C>
2000........................................................  $15,586
2001........................................................   12,235
2002........................................................   11,947
2003........................................................   10,439
2004........................................................    6,416
Thereafter..................................................   28,171
                                                              -------
                                                              $84,794
                                                              =======
</TABLE>

     At December 31, 1999, the Company had entered into certain affiliation and
time brokerage agreements which required certain minimum payments as follows (in
thousands):

<TABLE>
<S>                                                           <C>
2000........................................................  $3,926
2001........................................................   3,128
2002........................................................     240
2003........................................................     240
2004........................................................     240
                                                              ------
                                                              $7,774
                                                              ======
</TABLE>

                                      F-33
<PAGE>   73
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVESTMENT COMMITMENTS

     The Company has agreements to purchase significant assets of, or to enter
into time brokerage and financing arrangements with respect to, the following
properties, which are subject to various conditions, including the receipt of
regulatory approvals. The completion of each of the investments discussed below
is subject to a variety of factors and to the satisfaction of various
conditions, and there can be no assurance that any of such investments will be
completed.

<TABLE>
<CAPTION>
                                                                                 PURCHASE PRICE
STATION                                     MARKET SERVED                        (IN THOUSANDS)
-------                                     -------------                        --------------
<S>                                         <C>                                  <C>
WBPX......................................  Boston, MA(1)                           $ 40,000
WPXX/WPXL.................................  Memphis, TN/New Orleans, LA(2)            40,000
KSPX......................................  Sacramento, CA(3)                         17,000
WCPX......................................  Chicago, IL(4)                            15,000
KPPX......................................  Phoenix, AZ(5)                            12,111
WAOM......................................  Lexington, KY                              8,000
Channel 61................................  Mobile, AL                                 6,750
WBNA......................................  Louisville, KY                             3,000
Channel 22................................  Montgomery, AL                             1,550
WAZW......................................  Wausau, WI                                   888
Less: advances and escrow deposits........                                           (30,603)
                                                                                    --------
Total investment commitments..............                                          $113,696
                                                                                    ========
</TABLE>

     In addition to the above amounts the Company has agreed to purchase
stations from DP Media (see Note 3).
---------------

(1) Formerly WABU, and includes two full power satellite stations.
(2) The Company has a $4 million escrow deposit on these stations.
(3) The Company has loaned an aggregate of $8.5 million to the station owner and
    began operating the station pursuant to a time brokerage agreement on
    October 1, 1996, pending completion of the acquisition of the station. The
    loan will be applied to the purchase price at the date of closing.
(4) The Company has acquired WCPX for $120 million, the Company's interests in
    KWOK and up to $15 million of contingent payments to be determined based
    upon the seller's ability to deliver its programming to the Chicago market
    via cable carriage post closing. As of December 31, 1999, the Company has
    funded approximately $5.3 million of this cable carriage commitment. The
    Company transferred its interest in KWOK during February 1999.
(5) The Company had acquired a 49% interest in this station as of December 31,
    1999.

LEGAL PROCEEDINGS

     The Company is involved in litigation from time to time in the ordinary
course of its business. In the opinion of management, the ultimate resolution of
these matters will not have a material effect on the Company's consolidated
financial position or results of operations and cash flows.

     In October, November and December 1999, complaints were filed in the 15th
Judicial Circuit Court in Palm Beach County, Florida, in the Court of Chancery
of the State of Delaware and in Superior Court of the State of California
against certain of the Company's officers and directors by alleged stockholders
of the Company alleging breach of fiduciary duty by the directors in approving
the transactions with NBC which occurred in September 1999. The complaints
allege that the directors failed to pursue acquisition negotiations with a party
other than NBC, which transaction would have provided the Company's stockholders
with a substantial premium over the then market price of the Company's common
stock and instead completed the

                                      F-34
<PAGE>   74
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NBC Investment Agreement and related transactions. The Company believes the
suits to be wholly without merit and intends to vigorously defend its actions on
these matters.

     In May 1998, a complaint was filed against certain of the Company's
officers by a shareholder of the Company alleging breach of fiduciary duty by
the directors in approving payment of certain bonuses to members of the
Company's management in connection with the 1997 sale of the Company's Radio
Segment and seeking damages on behalf of the Company. This suit was settled in
November 1999 by the payment by the Company of $600,000 for which amount the
Company was indemnified by its insurers.

OTHER

     See also Notes 3, 11, 12 and 15.

22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                           FOR THE 1999 QUARTERS ENDED
                                              ------------------------------------------------------
                                                  (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
                                              ------------------------------------------------------
                                              DECEMBER 31   SEPTEMBER 30     JUNE 30      MARCH 31
                                              -----------   ------------   -----------   -----------
<S>                                           <C>           <C>            <C>           <C>
Total revenue...............................  $    80,677   $    58,051    $    57,855   $    51,779
Expenses, excluding depreciation,
  amortization and stock-based
  compensation..............................       81,058        78,522        148,468        70,891
Depreciation and amortization...............       21,016        19,488         18,730        18,626
Stock-based compensation....................        3,101         9,419          2,147         2,147
                                              -----------   -----------    -----------   -----------
Operating loss..............................  $   (24,498)  $   (49,378)   $  (111,490)  $   (39,885)
                                              ===========   ===========    ===========   ===========
Net loss attributable to common stock.......  $   (76,958)  $  (129,759)   $   (82,732)  $   (25,130)
                                              ===========   ===========    ===========   ===========
Basic and diluted earnings per share:
  Loss from continuing operations...........  $     (1.23)  $     (2.10)   $     (1.35)  $     (0.41)
  Net loss..................................  $     (1.23)  $     (2.10)   $     (1.35)  $     (0.41)
Weighted average common shares
  outstanding...............................   62,668,330    61,887,000     61,420,661    60,954,281
                                              ===========   ===========    ===========   ===========
  Stock price(1)
     High...................................  $  13 13/16   $   17 7/16    $    14 1/4   $   10 1/16
     Low....................................  $     9 5/8   $    10 1/2    $     7 7/8   $     7 5/8
</TABLE>

---------------

(1) The Company's Class A common stock is listed on the American Stock Exchange
    under the symbol PAX.

                                      F-35
<PAGE>   75
                       PAXSON COMMUNICATIONS CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
                                                           FOR THE 1998 QUARTERS ENDED
                                              ------------------------------------------------------
                                                  (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
                                              ------------------------------------------------------
                                              DECEMBER 31   SEPTEMBER 30     JUNE 30      MARCH 31
                                              -----------   ------------   -----------   -----------
<S>                                           <C>           <C>            <C>           <C>
Total revenue...............................  $    42,753   $    29,402    $    30,376   $    31,665
Expenses, excluding depreciation,
  amortization and stock-based
  compensation..............................       84,557        63,182         33,888        27,678
Depreciation and amortization...............       21,553        10,098         10,408         7,950
Stock-based compensation....................        2,424         2,902          4,780           307
                                              -----------   -----------    -----------   -----------
Operating loss..............................  $   (65,781)  $   (46,780)   $   (18,700)  $    (4,270)
                                              ===========   ===========    ===========   ===========
Income (loss) from continuing operations....  $   (60,766)  $   (36,571)   $     5,225   $     2,642
Discontinued operations.....................        1,182            --             --            --
                                              -----------   -----------    -----------   -----------
Net income (loss)...........................  $   (59,584)  $   (36,571)   $     5,225   $     2,642
                                              ===========   ===========    ===========   ===========
Net loss attributable to common stock.......  $   (76,383)  $   (53,011)   $    (4,121)  $    (4,440)
                                              ===========   ===========    ===========   ===========
Basic and diluted earnings per share:
  Loss from continuing operations...........  $     (1.28)  $     (0.87)   $     (0.07)  $     (0.07)
  Discontinued operations...................  $      0.02   $        --    $        --   $        --
  Net loss..................................  $     (1.26)  $     (0.87)   $     (0.07)  $     (0.07)
Weighted average common shares
  outstanding...............................   60,844,515    60,740,230     59,921,236    59,588,768
                                              ===========   ===========    ===========   ===========
  Stock price(1)
     High...................................  $     9 1/4   $    12 3/4    $   13 7/16   $   11 3/16
     Low....................................  $     6 1/8   $    9 3/16    $   9 15/16   $    7 9/16
</TABLE>

---------------

(1) The Company's Class A common stock is listed on the American Stock Exchange
    under the symbol PAX.

                                      F-36
<PAGE>   76

                                                                     SCHEDULE II

                       PAXSON COMMUNICATIONS CORPORATION

                       VALUATION AND QUALIFYING ACCOUNTS
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
              COLUMN A                 COLUMN B          COLUMN C             COLUMN D        COLUMN E
              --------                ----------         --------            ----------      ----------
                                                        ADDITIONS
                                                   --------------------
                                                    CHARGED
                                      BALANCE AT      TO                                     BALANCE AT
                                      BEGINNING    COSTS AND                                   END OF
                                       OF YEAR     EXPENSES     OTHER        DEDUCTIONS         YEAR
                                      ----------   ---------   --------      ----------      ----------
<S>                                   <C>          <C>         <C>           <C>             <C>
For the year ended December 31, 1999
Allowance for doubtful accounts.....   $ 3,953      $6,164     $    --        $ (5,862)(1)    $ 4,255
                                       =======      ======     =======        ========        =======
Deferred tax assets valuation
  allowance.........................   $ 3,071      $   --     $24,358(2)     $     --        $27,429
                                       =======      ======     =======        ========        =======
For the year ended December 31, 1998
Allowance for doubtful accounts.....   $   912      $4,214     $    --        $ (1,173)(1)    $ 3,953
                                       =======      ======     =======        ========        =======
Deferred tax assets valuation
  allowance.........................   $ 3,071      $   --     $    --        $     --        $ 3,071
                                       =======      ======     =======        ========        =======
For the year ended December 31, 1997
Allowance for doubtful accounts.....   $ 1,577      $2,011     $    --        $ (2,676)(3)    $   912
                                       =======      ======     =======        ========        =======
Deferred tax assets valuation
  allowance.........................   $23,615      $   --     $    --        $(20,544)(2)    $ 3,071
                                       =======      ======     =======        ========        =======
</TABLE>

---------------

(1) Write off of uncollectible receivables.
(2) Valuation allowance for net deferred tax assets due to uncertainty
    surrounding the Company's utilization of future tax benefits.
(3) Reflects the impact of the sale of Network-Affiliated Television and Paxson
    Radio receivables in connection with the sales of these segments during 1997
    of approximately $1.5 million as well as the write off of uncollectible
    receivables of $1.2 million.

                                      F-37